The Daily Kill Sheet Picking Off Profits One Stock At A Time!

November 29, 2011

Daily Kill Sheet For November 29th 2011

Filed under: Uncategorized — Administrator @ 9:27 am
Retail is the focus of the week given that many companies will be reporting their monthly same-store sales trends on Thursday. A number of retailers will also be reporting earnings this week and will likely give us an early look at what they are expecting for the Christmas season. Tiffany kicked it off this morning with their third-quarter earnings release. The stock is down in the pre-market due to fourth-quarter guidance coming in lower than the consensus. Note that TIF beat the third-quarter consensus by $0.09. My thoughts on the quarter are below. 

Looking ahead, American Eagle Outfitters, Aeropostale and Cold Water Creek will be reporting tomorrow followed by Charming Shoppes, Zumiez, Barnes & Noble, Talbots and Kroger on Thursday. It’s likely that same-store sales results will take center stage on Thursday, though, so sector psychology will likely weigh on the Thursday reporters. I should have tear sheets out for a number of the companies reporting earnings later this afternoon.


Tiffany & Co (TIF) Hardlines Retail – has reported third-quarter earnings of $0.70 a share, $0.10 better than the consensus estimate.
Earnings quality was fair. Lower-than-expected interest expense added a penny to results versus expectations, while a lower-than-expected share count added $0.01.
Operationally, the gross margin came in 93 basis points below the tear-sheet average. SG&A; expenses as a percent of revenue were 249 basis points better than expectation, however, thus the operating margin beat the tear-sheet average by 157 basis points.
Revenues rose 20.6% year over year to $821.8 million versus the $804.69 million consensus revenue estimate. Same-store sales increased 19%.
The gross margin declined 60 basis points year over year primarily due to a shift in sales mix toward higher-priced jewelry that achieves a lower gross margin. 
Inventories increased 24.8%, slightly more than the 20.6% increase in revenues. Importantly, the combined raw material and work-in-process inventories rose 58%, partly reflecting higher product acquisition costs and expanded internal production, while finished goods inventories rose only 8%. This implies that much of the inventory jump is due to higher acquisition costs and  not due to missed sales opportunities or unpopular product that later needs to be discounted. A large jump in finished goods inventory versus revenue growth is a danger signal that simply isn’t present here. 
Earnings Guidance:
For the fourth quarter, the company is guiding earnings to a range of $1.48 – $1.58. The consensus stands at $1.64.
For the full year, the company is guiding earnings to a range of $3.70 – $3.80, up from their previous guidance of $3.65 – $3.75. The consensus stands at $3.71.
Revenue Guidance:
For the full year, the company reaffirmed its previous guidance that sales will increase at a high teens rate. Regionally, management expects sales in the Americas to increase by a high-teens percentage, while Asia-Pacific sales jump by at least 35%, up from their previous guidance of up at least 30%. Sales in Japan are now expected to increase at least 10%, up from their previous guidance of up high single digits. In Europe, management now expects the top line to grow at least 20%, in line with their previous guidance. Other sales are expected to decline modestly. All said, the company reiterated its call for 100 basis points plus in operating margin improvement.

November 18, 2011

Daily Kill Sheet For November 18th 2011

Filed under: Uncategorized — Administrator @ 4:22 pm

Friday is always a recap day so without further ado here is the news to know for this week. For the most part, it was a week of earnings. Instead of focusing on what was just reported, I try to focus on the guidance. I break the guidance into three camps; In Line with expectations, Above expectation and Below.

Above:


Home Depot (HD) Hardlines Retail – The company is guiding full-year earnings to $2.38 a share. Home Depot’s previous guidance was for earnings of $2.34 and the consensus stands at $2.35.

The company’s full-year revenue guidance of $69.70 billion is unchanged from their previous guidance. Meanwhile, the consensus revenue estimate stands at $69.64 billion.

Stage Stores, Inc. (SSI) Broad-Lines Retail – The company is guiding fourth-quarter earnings to a range of $1.17 – $1.23 on revenue of $464.0 million – $473.0 million. The consensus earnings and revenue estimates stand at $1.12 and $469.1 million, respectively.

Hibbett Sports Inc. (HIBB) Hardlines Retail – The company is guiding full-year earnings to a range of $2.05 – $2.11. Their previous guidance was a range of $1.90 – $2.00 and the consensus estimate stands at $2.01.


In Line:


J. C. Penney (JCP) Broad-Lines Retail – The company is guiding fourth-quarter earnings to a range of $1.05 – $1.15. The consensus stands at $1.14.


Lowe’s Companies (LOW) Hardlines Retail – The company is guiding fourth-quarter earnings to a range of $0.20 – $0.23. The consensus stands at $0.23. Management expects revenues to approximate $11.32 billion. The current consensus revenue estimate is $11.26 billion.

Bob Evans Farms (BOBE) Restaurants The company is guiding full-year earnings to a range of $2.36 – $2.44. The consensus stands at $2.38.

Dick’s Sporting Goods (DKS) Hardlines Retail – The company is guiding fourth-quarter earnings to a range of $0.87 – $0.89. The consensus stands at $0.87.

Wal-Mart Stores (WMT) Discount Retail – The company is guiding fourth-quarter earnings to a range of $1.42 – $1.48. The consensus estimate stands at $1.45.

Management is calling for Wal-Mart same-store sales to be  flat to +2% and Sam’s Club to be +4% – +6% in the fourth quarter.


Limited Brands (LTD) The company is guiding fourth-quarter earnings to a range of $1.28 – $1.43. The consensus stands at $1.42. Note that the midpoint of the range is considerably below the consensus estimate and thus the stock sold off.

PETsMART (PETM) Hardlines Retail – The company guided fourth-quarter earnings to a range of $0.85 – $0.89. The consensus stands at $0.89. Similar to LTD the midpoint of the company’s range is $0.02 below the consensus and the stock sold off after the release.

Target Corp. (TGT) Discount Retail – The company is guiding fourth-quarter earnings to a range of $1.43 – $1.53. The consensus stands at $1.47.

Nu Skin Enterprises (NUS) Consumer Staples – The company is guiding fourth-quarter earnings to a range of $0.68 – $0.72. Their previous guidance was a range of $0.66 – $0.70 and the consensus stands at $0.70. Management is guiding fourth-quarter revenue to a range of $475.0 million – $485.0 million. Their previous revenue guidance was a range of $465.0 million – $475.0 million and the consensus revenue estimate stands at $474.9 million.

The company also said it expects 2012 earnings of $2.82 – $2.92 on revenue of $1.80 billion – $1.83 billion. The company’s previous guidance was for earnings in a range of $2.80 – $2.90 on revenue of $1.79 billion – $1.82 billion. The consensus estimate for earnings and revenue is $2.91 and $1.85 billion, respectively.

Gap, Inc. (GPS) Specialty Retail – The company is guiding full-year earnings to a range of $1.40 – $1.50. The consensus stands at $1.50.Needless to say, with the mid point of the guidance range below the consensus, the stock price dropped on the release.

Wet Seal, Inc. (WTSLA) Specialty Retail – The company is guiding fourth-quarter earnings to a range of $0.03 – $0.05 on revenue of $166.0 million – $168.0 million. The consensus earnings and revenue estimates stand at $0.05 and $173.4 million, respectively.

GameStop Corp. (GME) Hardlines Retail – The company is guiding fourth-quarter earnings to a range of $1.66 – $1.76. The consensus estimate stands at $1.73.

Ross Stores Inc. (ROST) Specialty Retail – The company is guiding fourth-quarter earnings to a range of $1.53 – $1.59. The consensus estimate stands at $1.59.

Dollar Tree Stores (DLTR) Discount Retail – The company is guiding fourth-quarter earnings in a range of $1.50 – $1.57 on revenue of $1.89 billion – $1.94 billion. The consensus earnings and revenue estimates are $1.54 and $1.91 billion, respectively.

Bon-Ton Stores (BONT) Broad-Lines Retail – The company is guiding full-year earnings in the range of a loss of $0.65 a share to earnings of $0.25 a share. The consensus  stands at a loss of $0.20 a share.

Cato Corporation (CATO) Specialty Retail – The company is guiding fourth-quarter earnings to be near the low-end of its previous guidance range of $0.32 – $0.35. The consensus stands at $0.34.

Children’s Place (PLCE) Specialty Retail – The company is guiding fourth-quarter earnings to a range of $1.19 – $1.24. The consensus stands at $1.23.

Williams-Sonoma (WSM) Hardlines Retail – The company is guiding fourth-quarter earnings in a range of $1.15 – $1.20. The consensus stands at $1.17.

AnnTaylor Stores (ANN) Specialty Retail – Although the company gave no earnings guidance, the company did give fourth-quarter revenue guidance of approximately $580.0 million. The current consensus revenue estimate stands at $578.0 million.

Kirklands Inc. (KIRK) Hardlines Retail – The company is guiding fourth-quarter earnings to a range of $0.65 – $0.70 on revenue of $142.0 million – $145.0 million. The consensus earnings and revenue estimates for KIRK are $0.68 and $149.7 million, respectively.

Below:


TJX Companies (TJX) Specialty Retail – The company is guiding fourth-quarter earnings to a range of $1.19 – $1.23. The consensus estimate stands at $1.24.

W.W. Grainger Inc. (GWW) Industrial – The company is guiding fourth-quarter earnings to a range of $1.94 – $2.09. The consensus estimate stands at $2.10.

For 2012 the company is guiding full-year earnings to a range of $9.90 – $10.65. The consensus stands at $10.06.

Shoe Carnival (SCVL) Hardlines Retail – The company is guiding fourth-quarter earnings to a range of $0.33 – $0.36 on revenue of $186.0 million – $190.0 million. The consensus earnings and revenue estimates stand at $0.39 and $191.0 million, respectively.

Perry Ellis International (PERY) Apparel – The company is guiding full-year earnin
gs to be at or above $2.00 and continues to expect revenue of approximately $1.0 billion. The company’s previous guidance was earnings of $2.40 – $2.50 and the consensus stands at $2.52.

Casual Male Retail Group (CMRG) Specialty Retail – The company is guiding full-year earnings in a range of $0.35 – $0.38 on revenue of $397.5 million – $402.5 million. The company’s previous guidance was for a range of $0.40 – $0.45 on revenue of $405.0 million – $410.0 million. The consensus earnings and revenue estimates stands at $0.42 and $408.0 million, respectively.

J.M. Smucker Co. (SJM) Food Processing – The company is guiding full-year 2012 earnings of $4.90 – $5.00. The company’s previous guidance was earnings of $5.00 – $5.15 and the consensus stands at $5.11.

H.J. Heinz Co. (HNZ) Food Processing – The company is guiding full-year earnings to a range of $3.24 – $3.32. The consensus stands at $3.33.

November 16, 2011

Daily Kill Sheet For November 16th 2011

Filed under: Uncategorized — Administrator @ 5:01 pm
For the second straight day, it’s all about the retail on the Kill Sheet. I have added write ups on Target and Abercrombie below. Limited and PetsMart, which I didn’t write up, both guided in line.

Target Corp. has reported third-quarter earnings of $0.87 a share, $0.13 better than the consensus estimate.

Earnings quality was fair. I have removed a number of charges related to the company’s expansion into Canada. The company has not opened for business in that country yet and given the nature of the store purchases there I have treated their costs there as an acquisition cost and I have removed them accordingly. The difference in the results versus GAAP is about $0.05. Aside from those charges (footnoted on the tear sheet), lower-than-expected interest expense added $0.03 to results versus expectation while a lower than expected tax rate added $0.02.

Operationally, the gross margin came in 16 basis points better than the tear-sheet average, while SG&A; expenses were 31 basis points lower than expected.

Revenues rose 7.7% year over year to $16.4 billion versus the $16.32 billion consensus revenue estimate. Comparable-store sales increased 4.3%.

The retail gross margin came in at 30.45%, 18 basis points below last year’s tally. Meanwhile, the operating margin expanded 45 basis points, suggesting solid SG&A; expense control during the quarter.

For the credit card operations, third-quarter average receivables decreased 9.9% to $6.2 billion in 2011 from $6.9 billion in 2010. Average receivables directly funded by Target decreased 14% in the third quarter to $2.4 billion from $2.8 billion in 2010. Third quarter bad debt expense was $40 million in 2011, down from $110 million in 2010, driven by improved trends in key measures of risk. Segment profit for the quarter increased 10%. Annualized segment pre-tax return on invested capital was 23.6% in third quarter 2011, compared with 18.5% in 2010.

Inventories were well controlled, increasing 3.6% year over year on the 7.7% sales gain.

For the fourth quarter, the company is guiding earnings to a range of $1.43 – $1.53. The consensus stands at $1.48.

Overall, this was a solid quarter for the company. The company has gained traction on the sales front and is keeping its SG&A; expenses and inventory in check. Given this quarter’s strong results, it’s likely that the sell side will move their estimates for next year up a notch. Looking ahead, it’s likely that some analysts are not removing the costs of the Canadian operations from their models and that some of this quarter’s large beat is due to that fact. If this is the case, then it is likely that these charges will play a part in future earnings beats as well.

To be clear, this was a strong quarter regardless of how you treated the Canadian expansion costs. The Canadian costs ran about a nickel. Thus the reported $0.82 was still a handy beat over the $0.74 consensus. Shave off the additional nickel in earnings from non-operating factors and you’d still get a $0.03 beat. Hard to complain about that! With that said, the stock looks cheap here ar 12.5x the forward consensus. Putting a 15x multiple on the forward consensus gets you about a $65 share price.

Abercrombie & Fitch has reported third-quarter earnings of $0.57 a share, $0.15 worse than the consensus estimate.

Earnings quality was poor. A higher-than-expected tax rate hurt results by $0.02. Meanwhile, a lower-than-expected share count added a penny. Operationally, the gross margin came in 131 basis points below the tear-sheet average. 

Revenues rose 21.5% year over year. U.S. sales, including direct-to-consumer sales, increased 14% to $820.2 million. International sales, including direct-to-consumer sales, increased 56% to $255.7 million. Total Company direct-to-consumer sales, including shipping and handling, increased 41% to $132.4 million. Total comparable store sales for the quarter increased 7%.  

By brand:

Abercrombie & Fitch: +4.0%
abercrombie kids: +6.0%
Hollister Co.: +8.0%
Total: +7.0%

The gross margin came in at 60.1%, 360 basis points lower than last year’s tally. The decrease in the gross margin was driven by an increase in average unit cost combined with a flat AUR. 

Stores and distribution expense, as a percentage of net sales, decreased 60 basis points to 42.9% from 43.5% for the t
hird quarter last year.  The decrease in the stores and distribution expense rate was driven by lower store occupancy costs as a percentage of net sales. 
Marketing, general and administrative expense was $107.8 million or 10.0% of sales compared to $102.6 million or 11.6% of sales during the same period last year.  On a dollar basis, the 5% increase in marketing, general and administrative expense was due to increases in compensation, including equity compensation, and outside services, partially offset by a decrease in incentive compensation expense.

Inventories surged 32.7% on a year over year basis, even though revenues climbed 21.5%. On the conference call management noted that they believe costs will be heading lower in the upcoming quarter while average unit retail should trend higher.

Management stated that “while their results for the third quarter were impacted by costing challenges combined with greater uncertainty in the macroeconomic environment, they remain very confident in their strategy, the underlying strength of their brands and their ability to create long-term shareholder value.” 

While management gave no earnings guidance in the release, they did state that next quarter’s gross margin was likely to experience similar erosion to that of the third quarter. 


November 15, 2011

Daily Kill Sheet For November 15th 2011

Filed under: Uncategorized — Administrator @ 9:07 am
Retail and consumer is the focus today with nine companies reporting either yesterday or today and another 25 set to report over the next few days. Wal-Mart and Home Depot were the big boys today but SKS, DKS, URBN LOW and TJX also have news out. Below are my thoughts on HD and WMT.

Before I get started, please note that Advance Auto Parts was downgraded from Buy to Hold at Argus this morning. The analyst cited weakening gross margins as part of his reason to downgrade the stock.


Home Depot has reported third-quarter earnings of $0.60 a share, $0.02 better than the consensus estimate of $0.58.

Earnings quality was fair. Higher-than-expected interest expense hurt results by $0.01, however this was offset by a lower-than-expected share count, which added a penny versus expectations.
Operationally, the beat was driven by stronger than expected revenues. Indeed, the top line beat expectations by 119 basis points. Meanwhile, the gross margin came in essentially in line (-2 basis points versus expectations) while SG&A; expenses as a percentage of sales were 5 basis points lower than expected leading to an operating margin 3 basis points better than the tear sheet average.   
Revenues rose 4.4% year over year to $17.33 billion versus the $17.12 billion consensus revenue estimate. Comparable-store sales increased 4.2% on a year over year basis.
Inventories were well controlled, declining 2.5% year over year even as sales jumped 4.4%
For the full year, the company is guiding earnings to $2.38 a share. The consensus stands at $2.35 and their prior guidance was $2.34. This implies fourth-quarter share net of $0.42, $0.03 above the consensus estimate.
In other news, the board has increased the quarterly dividend 16% to $0.29 a share.
Overall, this was a solid quarter for Home Depot. Trading the stock may be tricky here, however. The stock is trading just under a point of strong resistance that has held the share price in check since 2004. In their earnings release, the company pointed out that their results were helped by storm related sales. To be sure, snow throwers are likely not a huge seller in October I would imagine. Moreover, HD faces a tougher same-store sales comparison in the fourth quarter than they did in the third. With that said, traders may want to be nimble here. The stock has bounced off the resistance line I have drawn on the graph five times since 2004. This resistance line is not along their all-time high, either. The all-time high in the share price was set way back in 2000, just above $58 a share. If I were looking to turn bullish on HD here, I would wait for a couple of strong closes above the resistance line before wading in. Otherwise I would remain on the sidelines if I wasn’t already positioned in the stock ahead of this earnings report.




Wal-Mart has reported third-quarter earnings of $0.97 a share, excluding non-recurring items, $0.01 worse than the consensus estimate.


Revenues rose 8.2% year over year to $109.52 billion versus the $107.8 billion consensus revenue estimate. Same-store sales were up 1.3% for Wal-Mart and +5.7% for Sam’s Club. Walmart’s U.S. comp sales were driven by an increase in average ticket, partially offset by a decline in traffic versus last year. Still, traffic improved 160 basis points over the second quarter’s trend. Grocery, Health and Wellness and Hardlines, which represent about 75% of Walmart U.S. annual revenues, all had positive comps. 


Segment operating results were mixed. While revenues were up year over year for each segment, Wal-Mart U.S. was the only segment to see operating margin expansion year over year.


Wal-Mart U.S. sales were up 2.7% year over year and its operating margin increased 17 basis points to 7.25%. Meanwhile, sales jumped 20.3% for the international segment while operating margins declined 23 basis points. Finally, Sam’s Club saw its operating margin decline 9 basis points year over year on a 9.5% sales jump. Management noted that International sales benefited by $1.3 billion due to currency translation. Acquisitions added $2.3 billion to sales.


Inventories were up 7.5% on a year over year basis, slightly below the 8.2% increase in quarterly sales.


For the fourth quarter, the company is guiding earnings to a range of $1.42 – $1.48. The consensus stands at $1.45. Management is calling for Wal-Mart same-store sales to be  flat to +2% and Sam’s Club to be +4% – +6% in the fourth quarter.


The company repurchased $1.4 billion worth of shares, representing about 27 million shares.


Looking ahead, management stated that each month saw increased momentum from July, and that while overall comps traffic for the quarter improved, October traffic was relatively flat. The company noted that cost increases in numerous categories were not passed on to customers in an attempt to draw traffic and thus gross profit grew slower than sales. Wal-Mart will continue this strategy in the fourth quarter and thus they expect the gross profit rate to be down.

On a technical basis, there’s not much to do here. The stock garners some weak support near the $55.50 area that will likely hold on this report unless we see a sell-side downgrade. Comps were up above the company’s guidance and inventories were held in check, thus I am not expecting a large impact on EPS from the current strategy. Given the mid point of management’s guidance range matches the consensus estimate, I don’t expect a lot of estimate revisions due to today’s release.



November 14, 2011

Daily Kill Sheet For November 14th 2011

Filed under: Uncategorized — Administrator @ 11:23 am

Take a look at Advance Auto Parts (AAP $69.33) as a near-term short. The stock closed Friday with a bearish doji star formation; a pattern that typically signals a near-term top. The shares popped on Thursday on strong volume after the company reported third-quarter earnings $0.22 better than consensus. The strong results were driven by a steep drop in SG&A; expenses coupled with a lower-than-expected share count ($0.03). While results were strong enough to force a short squeeze and shoot the stock up to just shy of its 52-week high, the underlying fundamentals aren’t strong enough, in my opinion, to keep the stock near its current quote.

The most glaring hint that all isn’t as it seems with the company’s results is that its gross margin declined 87 basis points on a year over year basis during the quarter. Indeed, all of the beat came through SG&A; cuts. Typically, large cuts to SG&A; are not sustainable longer term without impacting sales growth, thus I wouldn’t factor in 250 bps SG&A; cuts into my model for next year. A large jump in inventory year over year (+14.3%) versus the weaker top-line growth of 4.2% also signals the potential for margin pressure going forward. Indeed, the large jump in inventory, coupled with the slashing that SG&A; took points toward upcoming margin pressure as SG&A; expenses jump to help clear inventory and spark sales. The jump in inventory, declining gross margin and large cut in SG&A; expenses all compare poorly to the results of its two main competitors, Autozone and O’Reilly Automotive (See the table below).

Aside from the obvious bearish doji star formation, a number of other technical indicators are also pointing towards a pullback here. Indeed, volume slowed after the initial surge, suggesting an end to the short-covering rally, and the TRIX turned bearish. Meanwhile, the Williams %R indicator is signaling that the stock is now overbought and the Elder Rae index is signaling that it is safe to initiate a short position here. With that said, my near-term price target is $65, implying about 6.3% downside to my target. A retest to the October low of $55 a share is not out of the question if investor focus shifts to holiday sales and away from more defensive plays such as AAP. At this point, I’ll look for $65 before getting too aggressive with my prognostications though.

November 12, 2011

Daily Kill Sheet For November 11th 2011

Filed under: Uncategorized — Administrator @ 9:24 am

Taking profits on Footlocker (FL, $22.73) here with a 8.8% gain. We have held the stock for a little over a week and the stock is nearing my $23.00 near-term price target. While I believe FL is well on its way in turning around its operations, I have concerns regarding their exposure to Europe. ANF recently reported struggling comps in Europe and the stock got hammered. While FL isn’t being valued off of its growth opportunity in Europe as ANF obviously was, negative comments on its conference call next week could still lead to stock price volatility next week. With that said, I’ll take my 8.8% gain now and wait and see what the company has to say on its call next week before deciding whether or not to reestablish a position for a trade. 

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