DKS

Walmart and Target Both Beat Expectations

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Big box retailers have showcased some resilience during the third quarter, with Home Depot (HD), Lowe’s (LOW) and Dick’s Sporting Goods (DKS) posting relatively strong results. Walmart (WMT) and Target (TGT) also followed through with respectable quarters, and we think this bodes well for most of the group heading into the holiday season. Walmart’s third-quarter results, released November 13, showed consolidated net sales advancing 2.8% with US comparable store sales increasing 0.5% for the 13-week period ended October 31, 2014. Walmart has been under competitive attack from a variety of fronts. Not only is Target its key rival, but dollar stores such as Family Dollar (FDO), Dollar General (DG) and Dollar Tree (DLTR) have been nipping at its heels through … Read more

Home Depot, Dick’s Sporting Goods Report Strong 3Q Results

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Tuesday brought a couple solid reports from the consumer discretionary sector (XLY). Home Depot (HD), which we think is a better operator than peer Lowe’s (LOW), posted an impressive comparable-store sales increase during the third quarter, while Dick’s Sporting Goods (DKS) showcased a strong high-teens pace of top-line expansion in the period. Our reasoning behind Home Depot’s operating superiority relative to Lowe’s is worth repeating. For starters, the most important metric to judge a business is return on invested capital (ROIC), or the amount of earnings (before interest) that a firm generates divided by the amount of capital that it must hold in the business in order to generate that earnings stream. Return on invested capital is not a pure … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Foot Locker’s Revenue Growth Slows; Will Hicks Leave?

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Athletic footwear retailer Foot Locker (click ticker for report: ) posted second quarter results Friday that were largely in-line with expectations. Revenue increased 6.4% year-over-year to $1.5 billion, in-line with consensus estimates. Earnings per share excluding the integration of Runners Point Group increased 21% year-over-year to $0.46, a penny below consensus expectations but not much of a disappointment. Same-store Sales Growth Decelerating… Source: Valuentum, Company Filings Foot Locker’s same-store sales increased only 1.8% year-over-year, down dramatically from the growth in excess of 5% we’ve seen from the retailer since the first quarter of fiscal year 2011. Revenue growth at existing stores becomes more difficult since comp sales growth has been so strong during the past few years. We don’t think Foot … Read more

Mixed Second Quarter Results Across Retail

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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, … Read more

Why Finish Line Is Running After a Weak Fourth Quarter

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Shares of athletic footwear retailer Finish Line (click ticker for report: ) are soaring today after the firm announced lackluster fourth quarter results. Revenue fell slightly on a reported basis, though when adjusted to reflect a comparable selling period, revenue ticked up 4% compared to a year ago—still slightly below expectations. Earnings per share fell 6% year-over-year to $0.76, but were up about 3% when excluding the extra week of fiscal year 2012’s fourth quarter. Same-store sales increased just 0.7% year-over-year, driven by a 21% increase in digital sales. We were disappointed in the huge divergence between Finish Line and rival Footlocker (click ticker for report: ), which posted same-store sales growth of 7.9% in its fourth quarter. Footlocker’s superior … Read more

Nike’s Fundamental Momentum Accelerates

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Athletic apparel giant Nike (click ticker for report: ) announced fantastic third quarter results Thursday afternoon. Revenue from continuing operations grew 9% year-over-year to $6.2 billion, just a touch short of consensus expectations. Earnings from continuing operations jumped 20% year-over-year to $0.73 per share, easily exceeding consensus estimates as the company rid itself of the less-profitable Umbro and Cole Haan units. On the cost side, Nike’s gross margins grew 30 basis points year-over-year to 44.2%, as the firm lapped higher input costs and benefitted from higher pricing. Gross margins would have been even stronger if it weren’t for high discounting in China and continued weakness in Europe. SG&A remained relatively flat year-over-year at 30.1% of sales as increases in operating … Read more

Lance Armstrong Ruins Dick’s Sporting Goods’ Fourth Quarter

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Monday morning, sporting goods retailer Dick’s Sporting Goods (click ticker for report: ) announced results for its fourth quarter. Revenue fell short of consensus expectations, growing 12% year-over-year to $1.8 billion, even though the firm had an extra selling week. Earnings per share fell well short of expectations, growing 17% year-over-year to $1.03 per share, even though the company had $0.03 added by the extra week of retailing. Dick’s Sporting Goods had been on a roll throughout most of 2011 and 2012, but same-store sales growth totaled just 1.2% year-over-year growth during the fourth quarter. Same-store sales at Dick’s Sporting Goods locations actually dipped 2.2%, though Golf Galaxy’s same-store sales increased 1.3%, and e-commerce sales soared 54%. Management identified hunting … Read more

Lululemon “Disappoints”; Under Armour Looks Worse

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Athletic retailer lululemon (click ticker for report: ) raised its fourth quarter guidance yesterday, but not as much as the Street had hoped for, as shares have been tumbling since. The firm announced its revenue is likely to be $475 million to $480 million, the high end of its guidance range, but below the consensus estimate of $489 million. Same-store sales guidance of high-single-digit growth was reiterated (consensus was at 10%), driving earnings per share of $0.74—above the firm’s prior guidance of $0.71-$0.73 and equal with consensus. In our view, the stock’s move to the downside was an overreaction, but understandable. Given the company’s lofty valuation, we think market participants are looking for any weakness to close a long position … Read more