Kroger: The Model for Competing with Wal-Mart and Target?
September 14, 2013
Thursday morning, grocery giant Kroger (click ticker for report: ) reported strong second quarter results, proving it is possible for a traditional retailer to do battle with Wal-Mart (click ticker for report: ) and Target (click ticker for report: ). Revenue increased 4.6% year-over-year to $22.7 billion, modestly exceeding consensus estimates. Earnings per share jumped 18% year-over-year to $0.60, a penny above consensus expectations. Free cash flow year-to-date was solid at $1.5 billion, equal to 2.9% of revenue. Source: Company Filings As one can see from the chart shown above, Kroger has dramatically outperformed Safeway (click ticker for report: ) during the past two years as competition from the likes of Wal-Mart, Target, and Meijer has intensified. Kroger’s same-store sales
Air Quality Standards Take Aim at Coal
September 13, 2013
After competing with an abundance of lower-priced, cleaner natural gas, coal miners (KOL) may now have to deal with more demand headwinds as governments aim to reduce coal burning. The US Expectations are already for as much as 27 gigawatts’ worth of coal generation (about 8.5% of the US coal fleet) to retire by 2016. This percentage could rise to nearly 17% (one-sixth) by 2020, according to the Energy Information Administration. In addition to the expected retirements, the Environmental Protection Agency (EPA) plans to block all new coal-fired plants unless the construction of these plants coincides with expensive technology that captures greenhouse gas emissions. Image Source: Energy Information Administration Though the EPA forecasts that no traditional coal-fired power plants (1)
Lululemon’s Growth Slows in the Second Quarter
September 13, 2013
Thursday morning, athletic apparel maker Lululemon (click ticker for report: ) posted strong second quarter results, though the pace of both revenue and earnings growth have slowed. Revenue jumped 22% year-over-year to $345 million, slightly above consensus estimates. Earnings-per-share wasn’t quite as strong, flat year-over-year at $0.39, but it still came in line with consensus expectations. Year-to-date, free cash flow stands at $26.9 million, equal to 4% of total revenue. Image Source: Company Filings, Valuentum The market is displeased with Lululemon’s slowing comp sales growth of 8%, which is the firm’s second consecutive quarter below a double-digit growth rate. Still, the 2-year stacked comp remains strong at 23%. Nearly any other company would be pleased with such a strong two-year
Pay TV Is Getting Friendly with Netflix
September 12, 2013
Since it successfully transitioned from a DVD rental service to a content streaming powerhouse, Netflix (click ticker for report: ) is now viewed as a major threat to pay TV. The story goes that consumers will eventually “cut the cord” and abandon pay TV while relying exclusively on Netflix and online video service Hulu for content. Though there are many reasons why we think this trend is overblown, Liberty Global’s (LBTYA) Virgin Media has taken another step toward eliminating this competitive threat: Virgin subscribers will be able to access a Netflix app via TiVo set-top boxes. Liberty Global is controlled by none other than media mogul John Malone. Malone is best known for his bold M&A deals throughout the years
The Mortgage Refinancing Boom Could Be Ending
September 12, 2013
Early Wednesday morning, the Mortgage Banker’s Association (MBA) announced that refinancing activity declined 20% from one week earlier. Adjusted for the Labor Day weekend, total mortgage applications dropped 13.5% from the previous week. Consistent with the dramatic upward movement in interest rates, refinancing activity is down 71% since it peaked during the week of May 3, 2013. Why Do We Monitoring Refinancing Activity? When homeowners refinance, a couple outcomes can occur that pump more dollars into the economy. First, with a refinanced mortgage, owners may choose to take equity out of the home, allowing for large purchases like vehicles or even home remodeling. CoreLogic recently reported that 2.5 million more residential properties have returned to positive equity in the second quarter
Margins Will Drive Apple’s iPhone 5S and 5C Outcome
September 11, 2013
Apple (click ticker for report: ) announced the release of its iPhone 5S and its even longer-awaited “cheap” iPhone 5C Tuesday, both of which we believe will be a big hit with consumers. The firm is also reportedly close to announcing a deal with China’s largest mobile carrier, China Mobile, which will help Apple sell even more units. The 5C Image Source: Apple The iPhone 5C is one of the most anticipated products in Apple’s history, and not because people thought it would be the best product ever, but rather because it is believed to be Apple’s emerging-market solution. The phone will retail (unlocked) for $549, $100 below the price of the 5S. The phone contains an internal steel construction
Market Overreacts to Urban Outfitters’ 10-Q
September 11, 2013
Clothing retailer Urban Outfitters (click ticker for report: ) filed its 10-Q report for its relatively strong second quarter. Shares proceeded to drop heavily on Tuesday after a line from the quarterly regulatory filing revealed that third-quarter comparable store sales growth was decent, but not running at a near double-digit pace. Taken directly from the 10-Q: “Thus far during the third quarter of fiscal 2014, comparable Retail segment net sales are mid-single-digit positive.” This “mid-single-digit” rate compares to the 8.5% growth rate the firm posted during its second quarter, driven largely by Free People and a recovery at Anthropologie, a name tied more directly to housing. Source: Company Filings Assuming the mid-single-digit growth rate is somewhere between 4-7%, Urban will
Is Innovation Back at McDonald’s?
September 10, 2013
Tuesday morning, the world’s largest fast food company, McDonald’s (click ticker for report: ), posted weak August comparable sales results overshadowed by the potential for menu innovation. Aggregate same-store sales grew 1.9% year-over-year on top of a 3.7% gain during the same period during 2012. August Sales August sales at McDonald’s were volatile across geographies. US same-store sales grew just 0.2% year-over-year during August, which CEO Don Thompson blamed on a “challenging environment.” Interestingly, Thompson addressed the challenging environment, which we agree with, rather than blaming a bad economy, which has so often been the case. In fact, we think an improving economy may leave McDonald’s at a disadvantage as consumers trade-up and no longer demand as much value. The
Molex Shareholders Should Be Pleased with Koch’s Bid
September 10, 2013
Monday morning, electronic components maker Molex (click ticker for report: ) announced that it had agreed to be acquired by Koch Industries for $7.2 billion or $38.50 per share in cash. The deal represents a 31% premium to Molex’s Friday closing price. We think Molex shareholders received a fantastic deal. Though the firm sports a solid yield, strong dividend growth potential, and a long history of dividend payments, shares were fairly valued, by our measure. In fact, the price Koch will pay for Molex exceeds the top end of our fair value range—a rare event. Since Koch is a privately-held company with no allegiance to public shareholders, the notion of whether or not Koch made a strong investment matters very
A Walk-Through of Our DataScreener500
September 10, 2013
Can’t view the video walk-through of our DataScreener500 on your mobile device? Download the Puffin Web Browser App from Apple free. Click here. << Order the next edition of our DataScreener500, to be delivered on the first of each calendar quarter Unable to display content. Adobe Flash is required.
