Guidance Drives Slump at HP
August 22, 2013
After mostly pleasing the Street throughout much of CEO Meg Whitman’s tenure, tech hardware giant HP (click ticker for report: ) missed top-line estimates and provided a bleak outlook for fiscal year 2014. During its third quarter of fiscal 2013, revenue declined 8.2% year-over-year to $27.2 billion, while adjusted earnings per share fell 14% year-over-year to $0.86, right in-line with consensus estimates. Free cash flow for the quarter equaled $1.8 billion, or 6.6% of total revenue. Printing Revenue declines in the ‘Printing’ division weren’t too drastic during the third quarter, falling only 4% year-over-year to $5.8 billion, and the company was able to maintain segment margins at 15.6%. This drove operating profit of $908 million. Though the printing business’ top-line continues to
Huge Improvement in Home Improvement; Lowe’s Losing Market Share
August 22, 2013
Earlier this week, the US’ two home improvement giants, Home Depot (click ticker for report: ) and Lowe’s (click ticker for report: ) posted robust second-quarter results, riding the housing recovery to success. Let’s dive into recent performance. Home Depot Home Depot’s second-quarter sales were 9.5% higher than a year ago at $22.5 billion, handily exceeding consensus estimates. Earnings per share jumped 23% year-over-year to $1.24, also higher than consensus expectations. Free cash flow stands at $4.1 billion year-to-date, equal to 9.9% of total revenue. Source: Valuentum, Company Filings Same-store sales expansion at Home Depot during the second quarter was fantastic, as total same-store sales jumped 10.7% year-over-year driven by an 11.4% growth rate in the US. Some sales of
The Fed Fights Back for Visa and MasterCard
August 22, 2013
Wednesday afternoon, shares of Best Ideas Newsletter portfolio holding Visa (click ticker for report: ) recovered modestly on news that the Federal Reserve will appeal US District Court Judge Richard Leon’s ruling that the current cap on debit card transactions of $0.21 was inconsistent with the intent of the Durbin Amendment. Between now and the appeal, it seems likely that debit card caps will remain at $0.21 per transaction. Bad Idea from the Start? Because Visa and rival MasterCard (click ticker for report: ) have often been the target of regulatory scrutiny, it seems unlikely that any government-affiliated organization would show support. However, we think the Fed is well-aware of the unintended consequences of the debit card transaction fee cap.
Best Buy’s Comparable Sales Decline Moderates
August 21, 2013
Electronics retailer Best Buy (click ticker for report: ) posted better-than-anticipated second quarter results Tuesday morning. Revenue was basically flat year-over-year at $9.3 billion, exceeding consensus estimates. Adjusted earnings-per-share was 23% higher year-over-year at $0.32, well above consensus expectations. Year-to-date, free cash flow was negative at $282 million, but we’re not worried considering this figure is much improved compared to the prior-year period. Source: Valuentum, Company Filings In our view, the most encouraging news in the quarter was the firm’s domestic same-store sales, which were down just 0.4% year-over-year. In fact, we can see from the above chart that the two-year trend at the important domestic store base is improving, while online sales continue to grow at a solid rate.
Mixed Second Quarter Results Across Retail
August 21, 2013
Tuesday morning, a variety of retailers reported calendar second quarter results that were decidedly mixed. Let’s take a deeper look. TJX Companies TJX Companies (click ticker for report: ) posted second quarter results marked by top and bottom line expansion. Revenue increased 8% year-over-year to $6.4 billion with same-store sales growth of 4% while earnings per share improved 18% year-over-year to $0.66 per share. Both metrics exceeded consensus expectations. Year-to-date, the firm has generated free cash flow of $314 million, equal to 2% of total revenue. Though the company has 3,119 locations worldwide, the company continues to experience stable comparable same-store sales (“comp”) growth. TJX’s 2-year stacked comp has consistently hovered around 10-11% during the past four quarters. Source: Valuentum,
Urban Outfitters’ Margin Story Continues
August 21, 2013
Monday afternoon, retailer Urban Outfitters (click ticker for report: ) posted solid second quarter results as sales gains helped lift gross margins. Revenue jumped 12% year-over-year to $759 million, a touch below expectations, but solid in what has turned into a lackluster second quarter for retailers. Earnings per share increased 21% year-over-year to $0.51 per share, easily exceeding consensus estimates. Performance at Urban Outfitters was strong across all stores, with same-store sales growth of 38% at Free People, 9% at Anthropologie, and 5% at Urban Outfitters. As we can see from the above chart, the two-year trend at Free People continues to outpace the rest of the company. Sales accelerated at the women’s clothing store, even as the company faced
Icahn Reignites Apple
August 20, 2013
Shares of Best Ideas portfolio and Dividend Growth portfolio holding Apple (click ticker for report: ) showed considerable relative strength following solid third quarter results July 24. Pricing momentum was augmented when legendary money manager Carl Icahn (or iCahn) sent out a series of tweets about the tech giant on August 13. iCahn Moves the Market Icahn needs no introduction, as he boasts a rumored net worth in excess of $20 billion, has engaged in numerous high-profile corporate battles (US Steel, Dell, TWA), and without question is considered one of the greatest money managers of his era. When Icahn speaks (or tweets), markets listen. While Icahn’s presence as an Apple shareholder has little, if any, fundamental change on the company, his
Why Valuation (Still) Matters: The Homebuilders
August 20, 2013
At Valuentum, our stock-selection methodology blends two long-time investing foes—value and momentum (click for why this combination is so powerful). For an idea to fit the profile of a ‘Valuentum stock’, it simply cannot just be undervalued, nor can it exclusively possess fantastic momentum and technical measures. The firm must have both characteristics and pass the qualitative muster of our analyst team to make the cut for addition to our actively-managed portfolios. We credit the Valuentum discipline as the major driver behind the significant outperformance in our portfolios. In addition to highlighting one of the biggest industry collapses during the year (the mREITs—click here) and perhaps the biggest alpha trade (stock up, market down) of the year (Apple recently), the Valuentum process
The Big Burger Trade-up
August 19, 2013
Casual dining chain Red Robin (click ticker for report: ) reported strong second quarter results last week. Revenue jumped 6.5% year-over-year to $238 million, just a touch shy of consensus estimates. Conversely, earnings per share surged 48% year-over-year to $0.77, easily exceeding consensus expectations. Image Source: RRGB 2Q FY2013 Slides The most positive news from Red Robin, in our view, was the robust same-store sales growth rate of 4.3%. While the firm was lapping just a 0.8% increase in the year prior period, the increase was a nice jump sequentially, underscoring the effectiveness of the company’s brand transformation. Traffic declined 0.7% year-over-year, but that was far better than the 3.1% decline experienced by the average industry competitor. The combination of
Which Department Store Looks Attractive?
August 19, 2013
Our fundamental view on the department store industry hasn’t changed much after the second quarter. Kohl’s sales gains were surprising, but if we look at the two-year trend of stacked comps (last year’s quarter plus this year’s quarter), Nordstrom continues to easily outperform its peers. Source: Valuentum Ultimately, we believe improving margins in the department store industry will be difficult. Even if a firm is able to gain some additional gross margin, investments in technology will likely increase capital spending. Overall, we view the cohort as fairly valued. Fundamentally, we think Macy’s will continue to outperform Kohl’s due to its superior online shopping experience, but Nordstrom appears to have the most growth opportunities as it looks to expand on the
