E-commerce Exposure Still Makes Sense
November 25, 2013
The Census Bureau of the Department of Commerce reported Friday that it estimates US retail e-commerce sales for the third quarter, adjusted for seasonal variation, came in at 17.5% (+/- 5.8%) versus the same period a year ago. On an adjusted basis, US retail e-commerce sales, as a percent of total quarterly retail sales, have advanced to nearly 6%, up from just 2% at the beginning of 2004 (shown in image below). Both the rapid pace of US retail e-commerce sales expansion and the trend toward more transactions being completed online show no signs of slowing. Image Source: US Department of Commerce The positive data follows comScore’s (SCOR) report, released earlier this month, of a 13% increase in US desktop-based
Merger Rumors Helping Best Ideas Portfolio Holdings
November 22, 2013
On Friday, rumors of Dish Network (DISH) and DirecTV (DTV) tying the knot sent shares of both firms higher during the trading session. The potential tie-up is nothing new; we had profiled the potential deal in March this year, but the re-hashing of the idea has some market participants excited. The anti-trust hurdles will be significant for this deal to happen, but it looks like the Department of Justice is warming up to allowing consolidation if recent progress of the merger between AMR Corp (AAMRQ) and US Airways (LCC) is any indication. We love the increased leverage over content creators, the significant cost savings, and the additional financial flexibility that a Dish Network/DirecTV merger would bring. We would expect the
Surveying 3Q Performance Across the Retail Spectrum
November 22, 2013
Sears There’s not much to say about Sears’ (SHLD) operational performance during its third quarter (results issued Thursday), except that it was atrocious. The firm lost more money in the most recently-reported quarter ($534 million) than it did through the first nine months of last fiscal year ($441 million). CEO Eddie Lampert has his hands full with the company’s multi-year transformation, but we think investors are hanging on to shares largely on hopes the firm will be able to monetize its real-estate portfolio in the future. Image Source: Sears But it seems that (lately) too many investors have been buying into this line of thinking, and the ‘real estate’ thesis continues to proliferate among investor psyches, particularly (now) with J.C.
Portion Packs Still in Strong Demand at Green Mountain; Free Cash Flow Surges in Fiscal 2013
November 21, 2013
On Thursday, Green Mountain (GMCR) reported excellent fiscal fourth-quarter results. Fourth-quarter revenue advanced 22% from the same period a year ago (52-to-52 weeks) thanks to robust brewer sales and portion pack revenue growth (up 11% and 21%, respectively, as adjusted). The 21% increase in portion packs revenue was driven by a 26% increase in unit volume offset by pricing and mix. Portion packs revenue accounted for 74.2% of total net sales in the fiscal fourth quarter. The company’s gross margin expanded 240 basis points during the quarter, to 36%, thanks primarily to favorable green coffee costs and lower labor and overhead manufacturing costs. Non-GAAP operating income advanced to 18.2% of sales in the period from 16.4% in last year’s quarter.
GameStop Tumbles on Lower Than Expected Holiday Outlook
November 21, 2013
One of the ‘Top 25 Overvalued Stocks on the Market’ reported third-quarter results Thursday. GameStop (GME) represents the latest firm that we highlighted as significantly overvalued to engage in a large pricing correction toward our fair value estimate. Third-quarter results at the world’s largest video game retailer weren’t the problem. Total global sales advanced 18.8%, while comparable store sales rose 20.5%. Sales of new software increased 43.1% thanks to strong performance from Grand Theft Auto V. Hardware sales also performed well, jumping 15.3% thanks to a strong sell-thru of Nintendo 2DS and 3DS. Pre-owned sales, however, declined 2%. The strong overall performance led to 675 basis points of market share gains. GameStop’s net earnings jumped 45.3%, to $68.6 million, while the
Deere Doing Much Better Than Caterpillar
November 20, 2013
After Caterpillar’s (CAT) dismal third-quarter performance, it was quite refreshing to read about Deere’s (DE) record earnings performance in its fiscal fourth quarter results, released Wednesday. Though Deere’s worldwide net sales fell 3% in the quarter, the firm’s net income of $806.8 million, or $2.11 per share, set a record for the period (up 17% and 21%, respectively). Lower shipment volumes were more than offset by a much favorable pricing environment, which worked wonders on the company’s bottom line, particularly in its ‘Agricultural & Turf’ segment (where operating profit jumped 7%). Deere’s ‘Financial Services’ operations also experienced a nice 26% jump in operating profit during the quarter thanks to improving credit performance and crop-insurance margins. We continue to like the
Home Depot’s Third-Quarter Performance Better Than Lowe’s
November 20, 2013
On Tuesday, Home Depot (HD) reported excellent third-quarter results. Total sales advanced 7.4% from the third quarter of last year as comparable store sales jumped by a similar amount – comparable sales for the US were 8.2%. Operating income jumped an impressive 32.3% from the same period a year ago, while net earnings for the period increased 28.4% on an adjusted basis, to $0.95 per share. The top-line strength and significant operating leverage was on display during the quarter, and Home Depot was quite positive for the remainder of fiscal 2013, too: Based on year-to-date performance and outlook for the remainder of the year, the company raised its fiscal 2013 sales guidance and now expects sales to be up approximately
TJX Companies and Urban Outfitters Post Strong Growth in 3Q
November 19, 2013
TJX Companies (TJX) and Urban Outfitters (URBN) both showed impressive sales growth during their respective fiscal third quarters (results released this week). TJX Companies Has Years of Store Growth and Earnings Expansion Ahead of It TJX Companies, one of the largest off-price retailers of apparel and home furnishings in the US, released solid third-quarter results Tuesday. Net sales advanced 9%, while consolidated same-store sales increased 5% on top of 7% growth in the prior-year period. The company’s consolidated pre-tax profit margin advanced 0.9 percentage points thanks in part to buying and occupancy leverage and easier year-over-year overhead comparisons. Adjusted diluted earnings-per-share was solid during the quarter, advancing to $0.75 from $0.62 in the prior-year period (a 21% increase). Fiscal-year-to-date, cash
Best Buy Tumbles Back to Our Fair Value Estimate
November 19, 2013
On Tuesday, Best Buy (BBY) reported decent third-quarter results considering the intense competition from both brick-and-mortar locations and online powerhouses. Revenue was essentially flat from the same period a year ago, as comparable store sales of 0.3% improved substantially from the year-ago period’s 5.1% decline (see image below). Leading the charge in the quarter was Best Buy’s online presence, where same-store sales advanced 15.1% in the quarter, accelerating from the 10.3% pace set in the third quarter of last fiscal year. Increased traffic, a higher average order value, and a higher number of online orders being placed in retail stores benefited domestic online revenue. The rate of the company’s international comparable same-store sales decline slowed to 6.4% from more than
Medtronic Posts Better Than Expected Fiscal 2Q Results
November 19, 2013
Cardiac and vascular medical giant Medtronic (MDT) reported solid fiscal second quarter results Tuesday. Revenue advanced 3.3% on a constant-currency basis, while non-GAAP diluted earnings per share jumped to $0.91, up about 3% from last year’s period. Both measures were slightly better than expected, though we note margins could have been a bit stronger. International revenue jumped 5% on a constant currency basis, while emerging market revenue leapt 13% excluding currency. Revenue in the firm’s ‘Cardiac and Vascular’ group performed well (up 4%, excluding currency), as Implantable Cardioverter Defibrillators (ICDs)* grew 4% and drug-eluting stents advanced 8%, the latter bolstered by share gains from the firm’s Resolute Integrity drug-eluting stent. Sales in the company’s ‘Restorative Therapies’ segment jumped 2% (excluding
