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Jos A. Bank Warns on Earnings; We’re Not Touching This Stock

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Troubled suit seller Jos A. Bank (click ticker for report: ) warned earlier this morning that its first-quarter earnings per share were going to fall in the $0.27-$0.30 range, which is well below the consensus estimate of $0.46 per share. This range is also well below the company’s first quarter earnings of $0.53 per share in fiscal year 2012. Management readily blamed lower average selling prices and higher input costs as weighing on margins, but we also think the company is having a hard time competing in the suit retail business. In our view, customers simply do not want the firm’s suits unless the value element is incredibly compelling. We also think the company missed a huge opportunity as the … 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

The Good, The Bad, and The Ugly: Macy’s, Kohl’s and JC Penney

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The fourth quarter is easily the most important quarter for retailers, and we saw winners and losers surface. The fortunes couldn’t have been more different, so let’s take a look at the results of the department stores. The Good: Macy’s Macy’s (click ticker for report: ) fourth quarter was among the best of the department stores, if we exclude performance from higher-end Nordstrom (click ticker for report: ). Macy’s took advantage of JC Penney’s (click ticker for report: ) movement away from discounting to run several promotional sales, which drove revenue growth of 7% year-over-year to $9.4 billion during the quarter (with one extra week of sales). Earnings, net of one-time expenses, increased 21% year-over-year to $2.05 per share, easily … Read more

Michael Kors’ Third Quarter Reveals Strength

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On February 12, fast-growing retailer Michael Kors (KORS) announced spectacular fiscal year 2013 third quarter results. Revenue surged 70% year-over-year to $637 million, exceeding consensus expectations. Earnings were also fantastic, jumping 220% year-over-year to $0.64 per share, considerably above consensus estimates. Strength at the aspirational luxury brand hasn’t slowed yet, with same-store sales jumping 41% year-over-year, even as the company added 66 net new stores—a stark departure from competitor Coach (click ticker for report: ), which has struggled to compete with Michael Kors. Gross margins, while still well below those at Coach, jumped 80 basis points to 60.4%, reflecting the firm’s increase in its store base (as well as fewer discounts and a favorable shift in product mix). Though we … Read more

Jos. A. Bank’s Friday Night Update Reveals Huge Profit Shortfall

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Late Friday night, suit retailer Jos. A. Bank (click ticker for report: ) used a common tactic to report bad news, revealing in an 8-K that net income for 2012 will be approximately 20% lower than it was in 2011. Some simple mathematical calculations reveal that the figure will lead to lower EPS in not only 2011, but also below what the firm reported in 2010. Although we’re sure SG&A has increased as a percentage of sales, we think the terrible results are the product of compressing gross margins. The firm is famous for its “Buy 1, Get 2 Free” marketing, though it sometimes extends to buying one suit for a free shirt, tie, socks, and other accessories. While Jos. … Read more

Finish Line: A Turnaround?

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Athletic footwear and apparel retailer Finish Line (click ticker for report: ) reported highly disappointing third-quarter results Friday morning. Revenue grew 5.2% year-over-year to $296 million, in-line with consensus estimates. Earnings were incredibly weak, as the company was roughly break-even for the quarter, well below the consensus estimate of $0.10 per share and down from earnings of $0.11 per share in the same period a year ago. We were not expecting such weak quarter, particularly given the company’s increased focus on basketball shoes, as well as the blockbuster lineup of basketball shoe releases from the likes of Nike (click ticker for report: ) and adidas in the third quarter. Basketball wasn’t the problem, as management noted that basketball shoe sales … Read more

November Retail Sales Disappoint

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Without question, November retail sales numbers have been lackluster. Although the number of retailers that report monthly sales figures continues to decline, let’s take a look at some of the interesting insights we saw from those that still report numbers. Kohl’s Even though we’re fairly bearish on Kohl’s (click ticker for report: ) over the long term, we did not expect the fourth quarter to start off so poorly. Same-store sales fell 5.6% year-over-year, lapping a 6.2% decline during the same period in 2011. Total sales fell 4.9%, and the company continues to lose momentum. The firm blamed Hurricane Sandy and recognizing e-commerce sales in December as the major drivers of weakness, but we think the results highlight how poorly … Read more

JoS A. Bank Struggles to Maintain Margins

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Wednesday morning, men’s suit retailer JoS A. Bank (click ticker for report: ) reported weaker than expected earnings for its third quarter. Sales increased 11% year-over-year to $233 million, roughly in-line with consensus expectations. Earnings per share fell 13% year-over-year to $0.47, which was worse than expected. In a highly promotional low-end suit environment, the firm had to run several special sales to compete with the likes of Macy’s (click ticker for report: ), which was also quite promotional (and has the advantage of a stable of brand names). Same-store sales increased 4.8%, with online/direct marketing sales up 26% year-over-year, though the company acknowledged November sales trended downward (thanks in part to Sandy). Gross margins tumbled from 62.6% to 57%, … Read more

Solid Cyber Monday

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According to IBM Digital Analytics, Cyber Monday sales surged 26.6% year-over-year and are expected to total $1.5 billion. These results were consistent with our previous belief that the online channel would continue to become a more important retail destination, though we’re a bit surprised that growth was so strong on one day (since we’ve seen retailers run a variety of sales all week long). Two of the big winners yesterday appear to be Amazon (click ticker for report: ) and eBay (click ticker for report: ), where sales volumes increased 52% and 57%, respectively. Sources cite the percentage of retailers participating in Cyber Monday sales at 97%, or almost every company that sells products on the Internet. It’s not easy to … Read more

Who Wins in the Move to Online Retail?

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Over the weekend, turkey took a backseat to consumer spending with respect to the financial markets. According to ShopperTrak, total Black Friday sales dipped 1.8% year-over-year to $11.2 billion; however, online sales jumped 26% year-over-year to over $1 billion (ComScore). Due to the hyper-competiveness of the retail cohort during the holiday season, Black Friday (and Cyber Monday) has become more of an all-week promotional event. We expect online sales to continue be a driver of revenue expansion going forward, and we’ve identified a few names that we think will particularly benefit. Visa/Mastercard Although we prefer Visa (click ticker for report: ) from a valuation and brand strength perspective, it and Mastercard (click ticker for report: ) will be major beneficiaries of the … Read more