Specialty Retail
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HD $383
28 Mar 2024 |
Already a contractor favorite, Home Depot doubling down on bet
Our Home Depot (HD $383) position within the Penn Global Leaders Club is up roughly 250% since purchase, and we have no intention of taking our profits anytime soon. For several years we have favored this home improvement retailer over you-know-who, and its latest acquisition is a great example as to why. The $400 billion Atlanta-based firm, which Ken Langone forged from a sleepy hardware store into an industry leader, has agreed to purchase specialty trade distributor SRS Distribution Inc for $18.25 billion, including debt. Home Depot is already the hands-down favorite retailer of construction professionals, with the pro business accounting for half of its revenue. That is double the percentage of competitor Lowe's. SRS, which has a fleet of 4,000 delivery vehicles and a 750-branch network spread across the United States, should bump that needle even higher. The company serves roofers, landscapers, pool contractors, and other professionals. Home Depot will use a combination of cash on hand and new financing to fund the deal, which is expected to close later this year. The anti-business FTC always poses a legal threat, but this would be a hard acquisition to shoot down over monopoly concerns—nonetheless, we wouldn't be surprised to see them try. The specialty retailer earned $15 billion on $152 billion in sales last year and has turned an annual profit as far back as the eye can see. We absolutely love this deal. Not only will it give Home Depot the ability to better serve their pros by making on-site delivery with a fleet of 4k vehicles, the company is also gaining the vast knowledge base of what its community of craftsmen and installers want from their supplier. |
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BBY $78
29 Aug 2023 |
Best Buy beats, sees consumer demand for electronics troughing this year
We probably have more old investor notes on Best Buy (BBY $78) than just about any other company. That may seem strange, given its relatively small size and the industry it’s in, but we have always had an affinity for the consumer retailer. While we don’t currently own the $16 billion firm in any strategy right now, it does look compelling at $78 per share. Best Buy released a good-looking Q2 earnings report early in the week, beating the Street’s expectations for both revenue and net income. Revenue came in at $9.58 billion versus the $9.52 billion expected, and the company posted earnings of $1.22 per share versus the $1.06 projected. CEO Corie Barry, at the helm for four years now, said that the industry still faces headwinds due to the “pull-forward in demand” in recent years (due to the pandemic), but that this year should reflect the low point. For the year, the company expects to earn around $6 to $6.40 from roughly $44 billion in sales. Despite being the one remaining big-box electronics retailer left standing (remember Silo and Circuit City?), Best Buy has not been standing still. We like the company’s paid membership programs as a source of recurring revenue and a way to build stronger bonds with customers, and the ongoing redesign of stores to reflect the increase in digital sales. Roughly one-third of sales are now made online, and the physical stores are morphing into a mix of showroom, fulfillment center, and service area (Best Buy bought Geek Squad back in 2002). Finally, Best Buy Health looks intriguing, but it is way too early to know if the program will be a success. The company has been forming alliances with health care providers to supply hardware and installation services to meet the medical needs of patients. Healthcare devices for remote monitoring are a key piece of the puzzle. If this unit can become profitable, it will be yet another reason to own the shares. Best Buy has long attracted the attention of short sellers, but the firm continues to defy the haters. With its solid balance sheet, low multiple, and strong leader at the helm, we believe the shares are worth between $90 and $100. |
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BBBY $10
05 Jan 2023 |
Bed Bath & Beyond expresses “substantial doubt” about future, shares plunge
Nine years ago, Bed Bath & Beyond (BBBY $2) was a $17 billion company with shares trading in the $80 range. Five short months ago, shares had rallied back into the $23 range as investors grew more optimistic that the company could pull out of its funk. Those hopes were dashed this week after the company said it was unable to file its Q3 report on time, expressing “substantial doubt about the company’s ability to continue.” That vote of no confidence from management sent shares tumbling 23% at the open, hitting an all-time low of $1.82. What’s next for the specialty retailer, which now has a market cap of under $150 million? Bankruptcy protection, more than likely, will be the ultimate answer. The company could also attempt to restructure its debt, which might be difficult considering its 300% debt/equity ratio (it has some $1.7 billion in liabilities). Unaudited Q3 results point to sales of around $1.3 billion, down 33% from the same quarter last year, which the company attributes to slower traffic and reduced inventory levels. The latter is a real issue, as suppliers are reluctant to provide hard goods to a company which may not be able to pay them. Analysts had been expecting a net loss in the third quarter of $158 million; we can expect real losses to come in at more than double that figure. The more we look at the financials, the harder it becomes to see any exit strategy outside of bankruptcy protection. It would be nice to see Bed Bath & Beyond purchased by a private equity firm and taken private, with a continued bricks-and-mortar footprint, but that may be wishful thinking. There is another aspect to this story for investors to be aware of: A dozen REITs report the company as a tenant, with Kimco Realty (KIM $21) holding a plurality of the leases. We have been warning investors about the challenges facing office and retail REITs going forward, and we believe the market is still underestimating the risk. Now is the time to review your real estate holdings. |
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BBBY $10
25 Aug 2022 |
“Diamond hands” traders just got screwed over by mentor on Bed Bath & Beyond
By now, we all know who and what “diamond hand” traders are: people who follow social media sites like r/wallstreetbets, buy the flailing companies touted in an effort to crush short sellers, and then hang onto the shares no matter what. One of their recent champions has been Ryan Cohen, the activist investor who took a major stake in Bed Bath & Beyond (BBBY $10) back in March through his RC Ventures hedge fund. Shares of the home retailer rocketed from $15 to $30 as diamond hands piled in. Subsequently, however, as it became clear just how bad the financials were for the company, negative headlines and downgrades pushed the shares down to the $4 range. Cohen was sitting on a huge loss (he owned about 10% of the shares at that point). His firm then purchased call options on nearly 1.7 million shares of BBBY, driving the price back up to the $30 range. Then, Cohen did what no self-respecting diamond hands trader would do: he sold his entire position. This caused the shares to tumble 52% over the course of two days, leaving the hedge fund manager with a $68 million profit and his followers with enormous unrealized losses. Cohen’s investment firm had no comment. Will Cohen’s actions at BBBY make many meme stock traders reconsider their “strategy"? Probably not. For investors who are serious about their portfolios, however, this story buttresses an important tenet: Understand the companies you are buying, what their unique value proposition is, and whether or not they will have the financial wherewithal to navigate any economic environment. And never have diamond hands—never hesitate to take profits and minimize losses. |
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GPS
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Despite their 20% drop in a matter of days, we suspect Gap shares are not done falling
(27 Nov 2020) Shares of specialty retailer Gap (GPS $22) dropped 20% following the release of a less-than-stellar third quarter earning report. On sales of $3.99 billion—the exact same as Q3 of 2019—the company earned $0.25 per share. That EPS figure missed analysts' expectations by about 22%. Gap markets its retail apparel primarily under four names: its eponymous stores, Old Navy, Banana Republic, and Athleta, with the Old Navy brand accounting for nearly one-half of the firm's revenues. The Athleta unit, as could be expected, had the biggest jump in sales for the quarter—up 37% from the previous year. Old Navy came in second, with a 17% increase. The Gap and Banana Republic brands, however, served as the anchor, with revenues declining 5% and 30%, respectively. While online sales for the combined units rose 61% from last year, management doesn't seem to have a concrete plan in place for the post-pandemic world. Gap stores have clearly lost the "cool factor" they once had, and Athleta will be competing with the likes of Lululemon (LULU) and Nike (NKE). The San Francisco-based retailer has an enormous footprint in malls across America, with roughly 3,500 company-operated stores and 600 franchise stores. As one could imagine, the aggregate overhead on these stores is enormous, and the company made news this past April when it stopped making lease payments on its shuttered stores. Management did not provide a full-year forecast in the earnings release. It is difficult for us to imagine what is going to drive shoppers, en masse, back to Gap's branded stores next year. Of course, as the pandemic restrictions are lifted and the malls become hubs of activity once again, sales will improve. But shoppers will have a lot of great stores to choose from, and we don't see Gap eliciting the excitement it used to be able to generate. The mall landlords, meanwhile, will have no problem playing the role of Scrooge in litigating their demands for back rent. And Gap is not exactly sitting on a mountain of cash. |
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BBBY
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Bed Bath & Beyond shares fall 25% as sales are cut in half
(09 Jul 2020) In the company's fiscal first quarter of last year, retailer Bed Bath & Beyond (BBBY $8) reported sales of $2.57 billion but still managed to lose $371 million. And that's the good news. The company's most recent fiscal Q1 ended in May, and sales came in about half of what they were a year earlier, at $1.3 billion. Somewhat impressively, the company was able to cut their loss to $302 million for the quarter. Unfortunately, that represents the sixth-straight earning report showing a net loss. It looks like the company is not through trimming costs, either, as management announced it would be closing around 200 of its 1,500 stores (about 15%) over the next two years. New CEO (Nov 2019) Mark Tritton, formerly an executive vice president at both Nordstrom (JWN) and Target (TGT), said the company should save around $300 million annually due to the closures. That would almost equal this past quarter's losses. Shares of BBBY, off 25% on the day and 75% over three years, sure look tempting at $7.75—the price as we write this. We would put a fair value of $10 on the shares, or about 30% higher than where they are. The stock has certainly proven that it can move that distance in a very short period of time. What we like: The CEO has proven experience with top companies (he was also at Nike for a spell), and the company's e-commerce business has been getting stronger (up 80% Y/Y last quarter). What we don't like: The company sold about half of its real estate to pay down debt—before the pandemic. They got $250 million in the deal, which is less than they lost last quarter. Tough call, but we believe the shares will climb back into double-digits relatively soon. |
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TSCO
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Penn member Tractor Supply gives strong second-quarter outlook
(27 May 2020) Shares of home improvement retailer Tractor Supply Co (TSCO $64-$115-$114) punched through their 52-week-high on Wednesday following management's rosy forecast for Q2. The $13 billion farm-focused retailer, which is up 122% since we added it to the Penn Global Leaders Club, expects to earn between $2.45 and $2.65 per share over the course of the quarter—well above the $1.78 analysts were forecasting. Additionally, the company now expects sales of $3 billion in the three-month period, versus the $2.53 billion analyst estimate. Those are remarkable numbers for a retailer operating in the midst of a pandemic, but management took the bull by the horns early on, preparing their stores for a new "low-contact" environment, adding curbside pickup, and hiring 5,000 new workers for the 1,900 locations and eight distribution centers. The company also greatly enhanced their eCommerce business; something one might not expect from a farm supply company. In early April, we said that we expected to see shares climb from their current $88 price to above $100 in 2020. That prediction took all of one month to come true. It is amazing what strong management can accomplish, even in the most staid of industries. Shares of TSCO are up over 24% year-to-date. |
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TSCO
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Penn member Tractor Supply to hire 5,000 new workers, extend bonus pay to front-line workers. (06 Apr 2020) Tractor Supply Co (TSCO $64-$88-$114) is simply one of those stalwart companies we have never had to worry about. When we first added the retail farm and ranch supply store to the Global Leaders Club back in August of 2017 at $52.11, it had recently dropped from around $80 per share and we knew it was highly undervalued. Now, in the midst of a horrendous wave of retail layoffs, Tractor Supply is bucking the trend: the company announced that it was looking to hire 5,000 new team members for its 1,900 stores and eight distribution centers around the US. It will also be adding greeters at each store to drive awareness of social distancing among customers, monitor occupancy, and help clean key pieces of highly-touched items such as carts and registers. New members will also help with curbside delivery for customers who order online and wish to pick up. In addition to the new hires, the firm has announced it would extend its $2 per hour bonus for front-line workers until the 9th of May. Finally, the $10 billion Tennessee-based firm will waive the co-pay requirement for employees wishing to use the telemedicine service from the company's health plan. Although shares of Tractor Supply certainly fell along with virtually every other company during the Covid downturn, they have rebounded nicely, and we expect them to climb back above $100 in the near future. Like, this year.
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BBBY
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Bed Bath & Beyond is selling nearly half of its real estate holdings; is that a good thing or a tactical mistake? (06 Jan 2020) Financial engineers call it unlocking capital. We call it giving up control. Following in what has become a common practice for retailers, especially ones under siege by activists with dollar signs in their eyes, home furnishings retailer Bed Bath & Beyond (BBBY $7-$16-$20) is selling over $250 million worth of its $587 million in real estate assets. The company will sell the 2.1 million square feet of property to Oak Street Real Estate Capital LLC, and then continue to occupy the buildings under long-term lease agreements. Why would a struggling retailer give up control of its best assets? The same reason a family in deep credit card debt would take out a second mortgage on their real estate—the home—to pay down that debt. Now, instead of being at the mercy of creditors, the company will be at the mercy of a landlord which has the right to raise their rent. And that, let's face it, is all but guaranteed. Target (TGT), our favorite retailer, rebuffed activist (and all-around punk in our opinion) Bill Ackman's Pershing Square when it insisted the chain begin selling properties. Barneys New York took the Bed Bath & Beyond route, selling its real estate and leasing the properties back. That company was forced into bankruptcy after their landlord nearly doubled the rent on its Madison Avenue store. Under new management, Bed Bath & Beyond is trying to pry itself away from its coupon-offering culture. There is one major problem with that: the last ten times we went into a BBBY store it was as a direct result of receiving one of those coupons. This reminds us of what the hapless Ron Johnson tried to do at JC Penney (JCP $1), and we know how that turned out.
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MIK
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The Michaels Companies Inc gains 30% in one day as a Walmart exec takes the helm. (27 Dec 2019) Granted, shares of crafts specialty chain Michaels (MIK $5-$8-$16) were off around 56% YTD going into the day, but investors sure liked what they heard with respect to a management overhaul at the Irving, Texas-based firm. Ashley Buchanan will bring her twelve years of executive experience at Walmart (WMT) with her when she takes over at the struggling yet iconic brand on the 6th of January. Michaels has appeared—at least in our opinion—to be stuck in the pre-digital age, with plenty of ongoing in-store sales offered to customers, but a less-than-stellar online presence. The board hopes to turn that image around via Buchanan, who was the chief merchandising officer and chief operating officer for Walmart's domestic eCommerce business. For all its challenges (and the disastrous 2019 stock performance), Michaels' income statement seems to be on solid footing, with revenues increasing almost every year for the past decade (FY 2019 was flat), and net income remaining in the black. That being said, the company's market cap has dropped from $6.5 billion in 2016 to just $1.1 billion as Buchanan prepares to come aboard. Nonetheless, with a relatively fervent and dedicated customer base, we wouldn't write this company off just yet. It also helps that one of the company's chief competitors, A.C. Moore, announced that it would be closing all of its stores. We are rooting for Buchanan, and would love to write about her success in a year, but we sure couldn't justify buying the company—even at $8 per share.
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GME
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Living up (or is it down?) to our expectations, GameStop plummets to around $5 per share. (11 Dec 2019) When shares of video game company GameStop (GME $3-$5-$17) were trading at $21 per share, we urged investors to get out and don't look back. When GME shares dropped to $16, we said that the company "has about as much business being publicly-traded as Radio Shack did in its waning days." For GME investors who didn't listen, more bad news hit this week. Shares were trading down 17%, to $5.41, in early trading on Wednesday after the company issued bleak guidance amid plunging sales. Q3 saw a revenue decline of 26%, while net losses came in at $83.4 million. GameStop, which sells new and second-hand video game hardware and both physical and digital video game software in the US, Canada, Europe, and Australia, also warned in its Q3 report that a lack of new consoles until the fourth-quarter of 2020 means dwindling hardware sales before that period. One analyst house, Benchmark Research, lowered its price target on GME shares from $6.51 to $3 after the earnings conference call. So, at $5, are the shares a deep value play? After all, Morningstar lists a fair value on the company's shares at $14.44. No, we would have to side with the Benchmark analyst.
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BBBY
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Bed Bath & Beyond spikes 21% on announcement of the company's new CEO. (09 Oct 2019) Granted, it doesn't take much to spike 21% when your shares are trading in the single digits, but investors clearly loved the choice of Target's (TGT) former executive VP and chief marketing officer to take the helm at struggling specialty retailer Bed Bath & Beyond (BBBY $7-$12-$20). When the post-close announcement was made that Mark Tritton would become the company's new president and CEO next month, shares of BBBY went from $9.95 to $12.05 in a matter of minutes. Indeed, Tritton led a number of successful initiatives at Target, which holds position #12 in the Penn Global Leaders Club, but does that automatically equate to success at Bed Bath & Beyond? We have long memories, like that of Apple (AAPL) wunderkind Ron Johnson coming to JC Penney (JCP) with great fanfare, only to run that company into the ground. (Sorry, Ron, a JCP store is not an Apple Genius Bar.) Or how about an arrogant John Sculley coming to Apple's rescue, firing Steve Jobs in the process. There is a lot of structural work to do at the former large-cap (now small-cap) retailer, which carried an $80 share price just four years ago. Tritton may be taking the yoke of a Cessna in a nosedive, just above sea level. There is no doubt, however, that new blood was needed at the top. We have traded BBBY a number of times in the past, but we don't see a clear path back to profitability for the firm. Which is exactly why activist investors forced out 16-year CEO Steven Temares earlier in the year. We wouldn't touch the company until we get a sense that Tritton has a dynamic strategy in the works.
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LOW
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The layoffs at Lowe's have a lot to do with management and little to do with the US economy. (05 Aug 2019) We have all known people who just can't seem to get things right. They make mistake after mistake, never growing from the lessons of the past. Companies are a lot like people—they have personalities, and they have their own unique style—be it good or bad. Take Lowe's (LOW $85-$96-$118), for instance. As opposed to archrival Home Depot (HD), the company has done little right over the past decade. Poor service, long checkout lines, and a lack of self-checkouts (do they think their customers are prone to stealing?) have been chronic foibles of the company. This past week, Lowe's announced it would be laying off thousands of maintenance and assembly workers (those people you see putting products together in the store) to save money. According to the company, this will allow employees more time to spend serving the customers. That sounds great—in theory. However, as the recipient of dagger-laden stares when asking employees for help finding an item, paint us skeptical. The store has a personality problem: customers don't like theirs. And layoffs are only going to exacerbate that problem. Mistake after mistake. The company needed a serious renovation, so who did it tap as a new CEO? The man who furthered JC Penney's decline (after Ron Johnson mucked it up), Marvin Ellison.
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BBY
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Best Buy is about to jump into the fitness industry. (18 Jun 2019) Let's face it, between millennials and baby boomers, wearable electronics and personal fitness are two of the hottest trends going. Best Buy (BBY $48-$69-$84), a company we added to the Intrepid last month at $63.63 per share, already owns a nice market share of the first trend, and now it is moving boldly into the latter. The company will create dedicated space for workout equipment in over 100 of its locations by the end of 2019. The goal is to embrace health/tech synergies made possible with the advent of connected devices. The space will showcase equipment ranging from smart spin bikes (think NordicTrack, and maybe Peloton in the near future) to intelligent treadmills which allow riders/runners to travel through various trails around the world. Another smart move and another thumb in the eye of everyone who wrote off this "old-fashioned box store." We never wrote them off. Yes, technology and online retail go together, but Americans want to see and touch and experience big tech purchases before they buy. Furthermore, we have always been a fan of the Geek Squad move, as well as the newer In-Home Advisor program.
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BID
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Famed auction house Sothebys to be acquired, taken private. (17 Jun 19) We never really saw a good reason to own renowned art dealer and auction house Sothebys (BID $32-$56-$60). After all, revenues haven't grown much per year over the past decade, profits have been flat, and the price of the company's stock has fallen 15% over the past five years. That last statistic changed dramatically on Monday when Bidfair USA, a private venture firm owned by art collector Patrick Drahi, announced it would buy the Sothebys for $3.7 billion, or $57 per share. At the open, BID quickly rallied nearly 60%, close to that bid price. The acquisition will end the company's three decade run as a publicly-traded entity. Another fascinating lesson for investors. There really weren't any foreseeable catalysts for price appreciation in BID—except the possibility of a takeover (which few saw coming). Trading a stock and then hoping for a takeover can be a risky premise, but it can pay off handsomely with the right call. Understanding an industry intimately helps the odds (of picking a winner) tremendously. Biotechnology, for example, is an industry rife with takeover possibilities.
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BBY
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Best Buy announces blowout quarter—and the company's shares drop 7%. (24 May 2019) It really could not have been much better of an earnings report. With all of the renewed talk of a brick-and-mortar retail train wreck, Hubert Joly's Best Buy (BBY $48-$65-$84) delivered on all fronts in the first quarter. Revenues came in at $9.14 billion (a slight increase from last year), net income rose to $265 million (a 27% Y/Y increase), and online sales spiked 14.5%, to $1.3 billion. Investors rewarded the stellar quarter by dragging the stock down 7% in under a day. It probably didn't help that CEO Joly speculated on the impact of lingering tariffs in his final conference call and kept the full-year forecast muted, but we can think of a lot of great American companies that would be affected to a much larger degree than Best Buy. Furthermore, the company is known for keeping expectations low and then outperforming. Still, the comments spooked many into punting their shares. BBY has been one of our favorite trading stocks for two decades, and the last time we sold shares (Feb of this year) they were going for $70. We took a 24%, ten-week gain. Efficient-market hypothesis? Please. Did we take any action in our trading account—the Penn Intrepid—this time around? Members can keep up-to-date on all of our trades by logging into the Trading Desk.
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BBY
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After crafting an amazing turnaround, Hubert Joly is handing over the reins at Best Buy. (15 Apr 2019) Back in 2012, it would have been easy to imagine specialty electronics retailer Best Buy (BBY $48-$73-$84) going the way of Circuit City, Radio Shack, or Toys "R" Us. At the time, BBY shares were going for around $12, and the company didn't seem to have a viable turnaround plan in place. Then, the company turned to outsider Hubert Joly to develop and execute a sound strategic plan of action. Now, after just over six years on the job, shares are trading at $73, the company has turned a profit every year since 2014, and the P/E ratio is a respectable 18. Happy with the company's progress, Joly announced that he will be handing the reins over to CFO Corie Barry, who, at 44, will become one of the youngest chief executives in the S&P 500. Ms. Barry, who also sits on the board of Domino's Pizza (DPZ), has been with Best Buy since 1999, serving in a variety of high-level roles. Joly will remain with the company, serving as executive chairman. Had BBY fallen on the news, we might have taken the opportunity to pick up shares—once again—in this well-run company. As it was, investors showed confidence in this major move and the shares remained steady. We expect Best Buy to continue to wage a successful campaign against online competitors such as Amazon (AMZN) and retain (or even grow) its market share in the space.
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DKS
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Dick's to remove more guns from its stores, shares plummet 11%. (13 Mar 2019) Dick's Sporting Goods' (DKS $30-$35-$41) CEO Ed Stack's war on guns continues, even as the store's sales slump. Most recently, the $3.4 billion chain reported a 3.1% drop in same-store sales and offered gloomy guidance going forward. Management now expects comparable sales to be in the "flat to up 2% range" for the entire year. After Tuesday's double-digit drop, Dick's has now lost 45% of its value over the course of two years. When management steps into the political arena, they turn off half of their customer base. Actually, in the case of Stack and his war on guns, it is fair to say that over half of the store's demographics were against this move. Getting into politics is well and good—until you drag your shareholders into the political arena with you.
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BKS
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Barnes & Noble misses (again); shares drop double-digits at open (again). (07 Mar 2019) Precisely 13 years ago, in March of 2006, bookseller Barnes & Noble (BKS $4-$5-$8) was a $2 billion small-cap stock. On Thursday, after the company reported another quarter of flat revenues, shares dropped double digits and the market cap dropped to a paltry $372 million. The $1.2 billion in revenue recorded for fiscal Q3 matched the previous year's $1.2 billion, and the company reported net earnings of $67 million—quite a bit better than the $64 million loss it took in the previous year's quarter. Something must change, however. Just six years ago, BKS was ringing up over $7 billion in sales; that number has been cut in half, and we don't see the catalyst for change. The best outcome would be a white knight riding in and taking the company private. If that happens, it just might survive. BKS is selling at $5 per share. It would be a total roll of the dice, but if a buyer does appear (or even the rumor of a buyer appearing), odds are pretty good that the shares would spike big-time. If we had a group of investors willing to pony-up $500 million or so, we would buy the company and take it private. A pipe dream, of course, but for someone with strategic vision, and a love of books and technology, this company could absolutely be turned around. Incredibly, this type of leadership will probably not surface.
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GPS
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Gap to split into two publicly-traded companies, spinning off Old Navy. (01 Mar 2019) When we hear talk of the "retail wreck," iconic mall retailer Gap (GPS $24-$31-$35) almost always enters the conversation. The San Francisco-based clothier could be a case study in the decline of specialty retail. At the turn of the century, in February of 2000, Gap was a $45 billion enterprise. Today, its market cap sits just north of $10 billion. Nonetheless, investors pushed shares up 21% pre-market Friday after the company announced some financial engineering (a pejorative in our investment lexicon): it would be splitting into two publicly-traded companies, with Old Navy becoming a standalone enterprise. It amazes us that investors would reward this act, which does nothing to improve the overall health of the company, by pumping up shares this much. This reminds us of the investor who wouldn't touch a company at $100 per share, but when it had a 4-1 split, he couldn't get enough at $25 per share. As for the Gap decision, it is an implicit admission that the company's namesake brand, along with its Banana Republic, Athleta, and Intermix names, have been struggling—and will probably continue to struggle. We don't find that to be a good rationale for jettisoning their strongest brand, the chronic-discounter Old Navy. Analysts are still bullish on Gap; even more so, in fact, after this announcement. We just don't buy it, and we don't see any magical retail elixir that will allow either of the two new parts to excel going forward. They are ho-hum retailers in a hyper-competitive space.
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TUP
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Why did Tupperware lose one-third of its value over the course of a few days? (06 Feb 2019) It is an iconic American brand, the center of attention in millions of households since the 1950s during what became known as "Tupperware parties." The company even patented the seal process which caused the distinguishing "burp" of the lid. Tupperware Brands (TUP $26-$28-$53) hit a decent, mid-cap valuation of $5 billion in 2014, and shares of the company were up nearly 21% year-to-date through January 29th. And then the 30th hit. Within a few trading sessions, one-third of the company's value had been lopped off by investors deeply troubled by the latest earnings report. Revenue fell 14% Y/Y, to $505.9 million, and net income came in at a frail $17.3 million (for a 3.42% profit margin). And the specialty retailer's ridiculously-high 10% dividend yield? It was reduced by a reasonable 60%—to a yield of 3.85%. Around the globe, the decline in sales is troubling: 7% off in North America, 12% in Europe, and 16% in Asia (which includes a 45% drop in the Indian market). While the Orlando-based company said it plans on spending $100 million over the next three years on innovation and marketing, it is in such an easily-replicated business that it is hard to see how it can continue to provide a unique value proposition to customers. Then again, the same could have been said about Starbucks and the coffee shop business a generation ago. Whether TUP can pull off a stunning turnaround in a market with no moat will be dependent upon the skill emanating from the C-suite. Tupperware has such a thin margin and seemingly nebulous strategy going forward that we wouldn't touch the company's shares right now, even after hitting their lowest level in a decade. We consider it an extremely speculative play.
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CHS
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In the midst of a bull session, Chico's has its worst day ever. Specialty women's retailer Chico's Fashion (CHS $4-$5-$11) closed the trading day on Tuesday at $7.32 per share. By the time the market opened on Wednesday, CHS had fallen to $5.01/share and one-third of its market cap was gone. (This is a great lesson for anyone using stop-losses, by the way.) What caused the massive drop? An earnings report that didn't live up to expectations and a downgrade of the company's full-year outlook. Third-quarter revenues fell 6% YOY, from $532M in Q3 of 2017 to $500M this past quarter. Earnings were equally as disappointing, falling from $0.13 per share to $0.05 per share, a 62% drop. Our take? Don't get sucked in by the 7 PE ratio or the 7% dividend yield. We don't see what could possibly turn this tiny ($665M) boat around, especially in the shark-infested waters of the retail world.
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RH
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KeyBanc analyst upgrades Restoration Hardware after big sell-off. Earlier this month, shares of luxury home goods retailer Restoration Hardware (RH $68-$126-$164) plummeted from $162 to $122 after the company lowered its 2018 revenue guidance. KeyBanc Capital Markets analyst Bradley Thomas believes investors overreacted to the (actually pretty decent) report, and upgraded the company from Sector Weight to Overweight, with a price target of $166 per share—a 32% gain from here. Without doubt, the upper-end American consumer is spending robustly, and this should help a company like RH. What worries us, however, is the rich 90 multiple on the shares—and that is after the drop. We would steer clear.
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GME
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GameStop jumps on rumors it will go public, investors should take the opportunity to cut their losses. Let's be frank: video game retailer GameStop (GME $12-$16-$21) had about as much business going public as Radio Shack had being public in its waning days. It is a digital world, especially in the video game industry, and GameStop's tiny moat shows its vulnerabilities. For anyone who still owns the stock, rumors that the company was looking to go private provided the best opportunity to trim losses—GME popped about 13% on the news. For anyone thinking that the company is a bargain at $15.75 per share, consider this: the stock has a p/e ratio of 407.
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HD
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Penn member Home Depot has a blowout quarter, jumps in pre-trading. (14 Aug 2018) Penn Global Leaders Club member Home Depot (HD $147-$198-$208), one of our favorite places to frequent, just announced spectacular Q2 results. The company blew away expectations from top to bottom, and management raised their guidance for the full calendar year. Revenue for the quarter hit $30.46 billion—a new record for the company—and earnings spiked from $2.25 per share a year ago to $3.05 per share this past quarter. The sales number represents an 8.4% spike year-on-year, with both the number of transactions and the size of transactions going up. Home-owning Americans see the values of their properties rising consistently, and they want to maintain the nest egg in which they live. So, why has Home Depot become a $224 billion home improvement juggernaut while Lowes (LOW) sits at a $79 billion market cap? One company has a stellar management team and the other, stubbornly, does not. We see the manifestation of the two management styles clearly visible each time we walk into the brands' respective stores.
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Casper
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Bucking the modern trend, Casper goes from online retailer to brick & mortar shop. (13 Aug 2018) With Amazon (AMZN) in every retailer's rear window, shops have been scrambling—and paying high dollar—to build their brand's online shopping presence into a viable force. Now, online mattress seller Casper is taking a page out of Amazon's strategy (think Whole Foods and the company's physical bookstore expansion) with plans to open 200 brick & mortar stores around the country. A lot of copycats have entered the space since Casper's "mattress-in-a-box" concept took off, but they remain the benchmark online mattress seller, with revenues growing by 50% from the first six months of 2017 to the first half of 2018. It's a costly gamble, fraught with huge overhead and greedy landlords, but this should allow Casper to capture an enormous swath of consumers who want to try a bed out before handing over the big bucks—despite the firm's 100-day trial period. What is really amazing here is the mature nature of this specialty retail space. With big players like Serta, Simmons, and Tempur Sealy dominating for over a generation, conventional wisdom would dissuade startups in the field. Instead, a company comes along and turns conventional wisdom on its head. A great lesson for entrepreneurs facing pushback on their own brilliant ideas. As for Casper, it is only a matter of time before they go public.
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PRTY
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Under the Radar: Party City will try to take advantage of void left by demise of Toys-R-Us. (25 Jun 2018) Here's a $1.5 billion small-cap blend you don't hear much about: Party City Holdco, Inc. (PRTY $10-$16-$17), parent company of Party City, Halloween City, Costumes USA, and a number of other small retail operators. The company announced plans, in the wake of Toys-R-Us's liquidation, to open around 50 "pop-up" toy stores this holiday season in high-traffic areas. The plan is to take advantage of the current glut in large strip mall spaces immediately near the company's Halloween City stores which will be opening this September. PRTY also operates a wholesale segment which should allow them to keep the pop-up toy stores stocked throughout the fourth quarter. Party City generates roughly $2.25 billion in revenue each year, and has maintained a positive net income cash flow year-in and year-out. At its current price of $15.85 per share, PRTY has been flying under the radar with a very slim 8.76% p/e ratio.
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HIBB
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Bank of America double-downgrades Hibbett Sports. (18 Jun 2018) Hibbett Sports (HIBB $10-$20-$30) is an athletic specialty retailer founded in Alabama in 1945. In addition to the company’s eCommerce site, Hibbett operates roughly 1,000 brick-and-mortar stores primarily in small- and mid-sized towns. With just a $392 million market cap, HIBB generates about $1 billion in annual revenue. Shares of the stock were off about 4% after a Bank of America analyst downgraded the company from “buy” to “underperform” due to declining sales. Hibbett reported a sales drop of 3.55% last quarter from the same quarter in 2017. With a p/e of just 13, investors should keep an eye on HIBB shares as they cross below the midway point between the 52-week high/low price. Despite a decline last fiscal year, net income has remained positive year after year—a boast a lot of small retailers cannot make.
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JCP
LOW |
Mediocre retail CEO goes to mediocre home improvement center
(22 May 2018) Yawn. That is the sound of Marvin Ellison, JC Penney's (JCP $2-$2-$6) lackluster CEO, abruptly leaving the retailer and bolting for lackluster home improvement retailer Lowe's (LOW $71-$86-$109). Let's see, for Ellison this makes: Target, Home Depot, JC Penney, and now Lowe's. We wonder why he can't find a steady job and settle down. We fully understand why a company that has made so many bumbling decisions in the past would hire him, however. What kind of investor just stood up and yelled, "YES, now is the time to buy Lowe's!"? When Ellison took over at JCP in November of 2014 (he became permanent CEO in August of the next year), JCP shares were sitting at around $7.50 per share. Today, they are sitting at $2.37 per share. That equates to nearly a 70% drop. Maybe JCP can re-hire bumbling executive Ron Johnson for a second go at it. For the record, Lowe's was down about 1.5% on the news of Ellison's pending arrival. Follow-Up: The day after stepping down, Ellison did release a pretty classy video in which he apologized to stakeholders for not delivering. He also said that he "prayed about his future and where God wants him to be at this point in his life...." That was a courageous comment to make, especially in these days of hypersensitivity and cowering chief executives. |
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LOW
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Lowe's CEO announces retirement, shares spike
(26 Mar 2018) If you are the CEO of a publicly-traded company and you want to know what stakeholders really think of you (not what they are telling you, Jeffrey Immelt), announce your retirement. For home improvement chain Lowe's (LOW $71-$88-$109), we got the answer on Monday: Robert Niblock, the firm's CEO, president, and chairman, said he was hitting the bricks, and the stock immediately rallied 6%. Over the past year, not including the "Niblock's leaving" rally, Penn Global Leaders Club member Home Depot (HD) is up nearly 20% while, while Lowe's was up 2%. Leadership matters. Adios, Bob. |
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APO
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Another mall rat bites the dust
(20 Mar 2018) We can't say how many young girls made the trek to Claire's at their local mall to get their ears pierced, but it is safe to say that the teen jewelry company has owned that space for a generation. Now, fighting flagging sales and a huge debt load, the company is calling it quits; or, at least, calling in the bankruptcy lawyers. The company filed for Chapter 11 protection on Monday, saying it had reached an agreement with creditors to restructure its nearly $2 billion in debt. With an 8% decline in traffic from last year, the company simply could not make its debt payments, which included $183 million per year worth of interest alone. Private equity firm Apollo Global Management (APO $23-$31-$37) took the company private back in 2007. Unlike Toys-R-Us, however, we expect Claire's to at least buy some time with this move, avoiding a full liquidation. |
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BKS
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Barnes & Noble cuts staff, providing further evidence of its market share decay
(12 Feb 2018) First, let it be said that we love books and bookstores. The smell. The excitement of walking around and stumbling across new and exciting titles from various sections of the store. Flipping through the pages. Alas, melancholy can be an expensive state of mind for an investor. Take Barnes & Noble (BKS $4-$5-$11), the company that put Borders, B-Dalton, and Waldenbooks out of business (which, in turn, had put the mom-and-pop bookstore I used to visit as a kid out of business). After reporting dismal sales over the quite robust holiday season, the company's shares dropped another 3%. On Monday morning, an undisclosed number of employees went to work only to be told they had no job. Sadly, the company should have sold out last year or gone private when it had more suitors. At $0.30 above its 52-week low, someone may well swoop in and bail investors out, perhaps making shares spike 100% almost immediately. Odds are, however, that any investor willing to play that game of chicken already jumped in—at a 50% higher share price. |
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LOW
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Lowe's handily beats, but stock stuck due to more impressive Home Depot
(21 Nov 2017) On the back of rebuilding efforts following two major hurricanes, home improvement store Lowe's (LOW $68-$80-$86) handily beat estimates for the quarter, increasing sales 5.7% from last year and raking in $872 million in net profit. So why is Wall Street yawning? Because of Home Depot's (HD) blowout numbers last week. Talk about insulated management. All it would take is a due-diligence trip to their competitor to see why Penn Global Leaders Club member Home Depot is cleaning their clock. From self-checkout kiosks to friendlier customer service, Lowe's will continue to be the also-ran. Despite the earnings beat, LOW was down about 2% pre-market. |
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TSCO
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Tractor Supply Company pops after earnings beat, improved guidance
(30 Oct 2017) Penn member Tractor Supply Company (TSCO $50-$60-$78) jumped nearly 4% on Monday after the company reported better-than-expected earnings and a raised outlook for FY17. Sales increased to $1.72 billion for the quarter (up from $1.54 billion same-quarter last year), and earnings per share came in at $0.72—a nickel better than expected. The company also raised its guidance for the fiscal year, expecting sales in the range of $7.17 billion to $7.22 billion. The farm supply retailer had sales of $6.78 billion in 2016, and is up 15.3% since we added it to the Penn Global Leaders Club two months ago. |
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JILL
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Fashion retailer J.Jill loses half of its market value at the open
(12 Oct 2017) Women's fashion retailer J.Jill (JILL $10-$5-$14) plummeted 50% at the open following a cut in the company's Q3 outlook due to weak sales. The company also warned of a 3% to 5% drop in same-store sales in the next quarter as it struggles to gain traction in either the retail or direct channels. On revenues of $639 million last year, the company had profits of just $24 million. There are undervalued stocks, and then there is the walking dead. We wouldn't touch the company. |
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BBBY
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Bed Bath & Beyond gets hammered yet again
(19 Sep 2017) It looks so juicy, sitting there with its price-to-earnings ratio of six. It is so tempting, but we just can’t do it. Specialty retailer Bed Bath & Beyond (BBBY $27-$27-$49) hit yet another low today, falling a percentage point. But the worst is yet to come: it is sitting down at $23.85 in after-market trading, off another 13%, following the news of a disappointing second quarter. Comparable-store sales were off 2.6% from last year, and earnings-per-share came in at $0.67—versus the $0.95 expected. The company placed a lot of blame on the devastating hurricanes, but that is only a piece of the puzzle. This is not Sears. There is hope for the company. We would love to take a gamble on BBBY at $24 tomorrow, but we simply don’t have enough confidence in management to effectively undertake the “transformational initiatives” it now says it has in the works. |
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MIK
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Michaels Companies gaps up 14% on 0.6% sales increase
(24 Aug 2017) Talk about a stock flying under the radar. We must admit to having forgotten that craft and framing company Michaels (MIK $17-$22-$26) was even a publicly-traded entity. Other investors didn’t forget, however, and the stock popped 14% early in Thursday’s trading session as the company reported good sales and profit numbers for Q2. On $1.07 billion in revenue, the company made a net profit of $35.6 million. Those numbers are about in line with Q2 of 2016, when the company was trading just a few dollars below its $26 high. Even after today’s jump, the company’s P/E ratio is just 10. |
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LOW
HD |
Lowe’s, as usual, is going in a different direction than Home Depot
(23 Aug 2017) We avoid home improvement retailer Lowe’s ($65-$72-$86) like the plague. If we have to drive twice as far to get to a Home Depot (HD $119-$150-$161), we will do it. Long checkout lines and poor customer service—so easily fixable—are the primary reasons we steer clear of the former. It appears that a good number of Americans agree with us, as Lowe’s once again missed its earnings estimates after a Home Depot beat. The company posted sales of $19.5 billion for the quarter, a slight miss, and net income of $1.42 billion, also a miss. Confirming management’s ineptness, the company blamed its lowered guidance on increased costs related to longer employee shifts in an effort to “increase the customer experience.” Hey knuckleheads, why don’t you do what Home Depot did to alleviate long lines: install self-checkout kiosks! So simple. Lowe’s was down 6% at the open on the lousy report. |
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TCS
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The Container Store drops again, this time for lowered guidance
(21 Aug 2017) A four-year chart of retail container and organization chain The Container Store (TCS $4-$4-$8) looks like the side-view of a black ski slope, moguls and all. The ski lift dropped you off at $45 per share, and you skidded, flipped, and flopped (at least that would be me on the slopes) all the way down to $4 per share. TCS came within 27 cents of its all-time low today after it lowered guidance for the full year. The company now expects to earn between 27 cents and 40 cents per share—down from earlier guidance—because it is paying off some interest and debt costs. The company has remained in the black, and its P/E ratio of 23 is decent. Having said that, with the brutal retail environment out there who on earth would plop money down on the stock—it’s a container store, for Pete’s sake! The next big uptick we see is when a private equity firm says it will take the company private, which it should have been all along. |
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GPS
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Holy cow! A small specialty retailer just beat expectations
(18 Aug 2017) Clothing retailer Gap (GPS $21-$23-$31) followed up its strong first quarter earnings report (which we wrote about in our Specialty Retail section) with another solid hit to the outfield, bucking the trend of its peers. In Q2, once again on the back of strong demand for Old Navy goods, the company grew its comparable-store sales by 1%, to $3.8 billion (Old Navy revenues jumped 5% from last year). Check out this metric: net income, the company’s profit after cost of goods sold, expenses, and taxes, grew from $125 million in Q2 of 2016 to $271 million this past quarter. Granted, that equals an operating margin of just 7%, which highlights the struggles of the retail industry (JC Penney’s operating margins are 1.96%, by comparison). |
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URBN
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Urban Outfitters sees its same-store sales fall 5%, stock spikes 14%
(14 Aug 2017) Makes perfect sense, right? Home Depot (HD) beats, and the stock falls. Teen retailer Urban Outfitters (URBN $16-$17-$41) reports a 5% drop in comp-store sales, and it rallies 14% in after-hour trading. Total net sales at the firm also dropped, down 2% from last year. So, what gives? In the case of Urban, analysts had such dire predictions for the earnings report that even these figures ended up looking good. There is a fascinating trend playing out in the retail sector, and if investors can stomach some losses before probable gains, they can make a lot of money. Urban was off 51% since November of 2016, and has a current P/E of 10. A 14% spike after a pretty lousy earnings report is not so far-fetched with ratios like that. |
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TSCO
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Stock of the Day: Tractor Supply Company
(15 Aug 2017) Like clockwork, every single year for the past decade, the Tractor Supply Company (TSCO $50-$52-$86) has steadily increased its sales. With the exception of one little blip in 2008, the company has also increased its profits each year for the past decade. With nearly $7 billion in annual sales, TSCO is the largest farm retailer in the US, and the company now has 1,600 locations scattered throughout the country. But it’s not done growing. We expect the $6.6 billion company to grow to 2,800 locations within the next decade. When an industry gets hammered like retail is right now, we like to dive in and look for the best undervalued gems to add to our portfolio. Sitting at $2 above its one-year low, down 37% in the past year, and with a 16 P/E, Tractor Supply fills the bill nicely. We are adding it to the Penn Global Leaders Club at $52.19 per share. |
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ODP
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(08 Aug 2017) Office Depot, the K-Mart of the office supply world, misses its numbers.
The last time we walked into an Office Depot (ODP $3-$5-$6), it looked like the K-Mart of the office supply world. The place was a dump. When we went to check out, the debit card reader wasn't working properly, and it was getting uncomfortable standing at the front of the one open checkout line with other customers—each carrying their one to two items—impatiently waiting behind us. What happened to this wonderful merger between Office Depot and OfficeMax designed to "reinvent" the business supply shopping experience? What a joke. We weren't the least bit surprised when ODP reported a sharp decline in Q2 profits. CEO Gerry Smith said, "...the company remains on track to achieve our full-year target." Good luck. Why don't you get out of your insulated C-suite and visit one of your dumps. The stock was off 23% at Wednesday's open. |
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HIBB
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(24 Jul 2017) Hibbett Sports plummets 27%; we take advantage of industry weakness to pick up a competitor
US athletic specialty chain Hibbett Sports (HIBB $14-$14-$46) fell off a cliff on Monday, with its shares trading down in excess of 27% following sour warnings from management. The company, which has over 1,000 stores across the US, warned of a 10% decline in sales for Q2 and "very challenging sales trends" ahead. The company is trying to quickly get up-to-speed with its online presence, but we don't see a viable, long-term growth trajectory for this industry player. Competitors in the space fell in sympathy, and we took advantage of the industry drop to pick up what we believe is a very solid player which has been unfairly punished by investors. Members can see what stock we added to the Intrepid Trading Platform, with a stop-loss in place, by visiting the Trading Desk. |
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DKS
UA |
(21 Jul 2017) Look out Under Armour, Dick's is launching its own private-label athletic wear line.
Dick's Sporting Goods (DKS $36-$37-$63) could just be the undervalued gem of the specialty retail space right now. Hanging out in the dumpster price-wise, but boasting a small 14 P/E, the company's new line of high-intensity athletic wear could be the catalyst it needs to get back in the game. Second Skin was designed to provide athletes with the compression gear they need, in the styles (the company hopes) they want. The gear goes for between $40 and $70 per piece and is currently available at www.secondskin.com and www.dicks.com. An expanded assortment will be available in Dick's locations later this year. |
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PETQ
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UPDATE: PETQ spiked a whopping 44% in its first day of trading.
(21 Jul 2017) Pet meds maker and distributor PetIQ goes public on Nasdaq. PetIQ ("Pet IQ") joined the list of Nasdaq companies on Friday as it offered 6.25 million shares to the public at $16 per share. While sales at the company topped $200 million in 2016, it reported a net loss of $3.4 million—not out-of-the-ordinary for a start-up. The company sells its products—which include pet meds, treats, and supplies—through an impressive list of distributors, from Amazon to PetSmart to Wal-Mart. PetIQ will trade under the symbol PETQ and has an initial valuation of around $100 million. A micro-cap to be sure, but Americans spend in excess of $60 billion per year on their furry friends. Let's just hope the company is better-managed than the ill-fated pets.com, circa 1998-2000. (Remember the sock puppet dog?) |
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SPLS
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Specialty Retail. Shares of Staples surge on report of $6 billion takeover by Sycamore. Well, it appears that investors will no longer have office supply retailer Staples (SPLS $7-$9-$10) to kick around any longer. The firm, famously brought public by Mitt Romney's Bain Capital private equity fund, will be purchased—and taken private—by another private equity firm. Sycamore Partners is in final talks to buy the company for $6 billion after it beat out competitor Cerberus Capital Management's bid at auction. Talk about a company with virtually no moat around its business model thanks to Amazon. The final nail in the coffin came last year when the government shot down plans for SPLS to merge with Office Depot (ODP $3-$6-$6) on antitrust grounds. Office Depot had already merged with Office Max at the time. SPLS shares surged 7% on the takeover news, to right about where the deal values the company. (Photo: Mitt Romney campaigning in a store he helped bring public)
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BBY
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(25 May 2017) Best Buy spikes 15% at open on "surprise" earnings report. Electronics retailer Best Buy (BBY $29-$58-$53) blew past its 52-week high share price Thursday morning on the back of a stellar earnings report. The company crushed both revenue and profit estimates, and increased their same-store sales by 1.4% over last year. We never bought into the argument that Best Buy is a "showroom" for Amazon, and it has been one of our favorite trading stocks over the past several years. More proof that an adroit management team can generate profit no matter what a particular industry (retail, in this case) is going through. Don't buy the company now, however; wait for the next dip and pick up some shares while the naysayers are wringing their hands once again.
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LOW
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(24 May 2017) Lowe's just doesn't get it—and it's not that complicated. I walk into a Lowe's (LOW $65-$79-$86), and what do I find? Zero customer service and long checkout lines. I walk into a Home Depot (HD $119-$154-$161), and what do I find? Decent service (some workers actually greet you and ask if you need help) and a fast-moving checkout line, thanks to several self-checkout kiosks. A five-year-old could tell Lowe's how to fix their problems, so why doesn't a CEO clown making $19 million a year (Robert Niblock) get it? Lowe's reported another revenue and earnings miss, driving the stock down 4% at the open. Meanwhile, Penn Global Leaders Club member Home Depot continues to shine. For the record, HD also has a much bigger chunk of the critical contractors' market.
(Photo: Really, dude? Take off the stupid red vest and earn some of your $19 million) |
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GPS
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(19 May 2017) Gap Inc proves it's a leadership problem, not an industry problem. Yesterday we slammed the CEO of Ann Taylor's parent company when he said that his company was getting pounded due to an "unprecedented secular change." Right on cue, along comes Gap, Inc (GPS $17-$23-$31) with a nice earnings beat. The specialty retailer saw comp store sales at its Old Navy brand jump a robust 8% in Q1 from the same period last year. The brand also posted its fifth consecutive year of sales growth, from 2012 through 2016. Gap also owns athleisure brand Athleta and the more upscale clothing retailer Banana Republic. Shares of Gap were up 5% at Friday's open.
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ASNA
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(18 May 2017) Ann Taylor parent company drops 40%. Ascena Retail Group (ASNA $3-$2-$9) was sitting at $22/share just a few short years ago. Today, the parent of clothing chain Ann Taylor was in the midst of dropping 40%, hitting a new all-time low of $1.72/share. The massive drop came after the company made comments on what it sees as an "unprecedented secular change" in the specialty retail sector. Actually, adroit leaders can see these changes and will take strategic steps to remain vibrant; overpaid CEOs who are managers will be caught blindsided and make a statement like this one.
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LULU
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(29 Mar 2017) Shares of Lululemon plunge 17% after hours. What a difference a quarter makes in the wonderful world of brick-and-mortar retail. After athleisure company Lululemon (LULU $54-$66-$82) brought in pretty decent Q3 numbers last December, shares gapped up 17%. Now, after reporting weaker-than-expected Q4 results, the company is plunging 17% after hours. Actually, the numbers don't look dire to us. The company brought in $790 million last quarter, a 12% increase from Q4 of 2015. While management dampened enthusiasm for 2017, they still project revenues of $510 million in Q1. If shares remain down 17% at open, which would place them at a 52-week low, we may take action in the Intrepid Trading Portfolio. If we do make a trade, members will see the action on The Trading Desk.
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GME
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(24 Mar 2017) GameStop plunges to 52-week low. Shares of specialty retailer GameStop (GME $20-$21-$34) plunged 14% on Friday after the company released a disappointing earnings report. Quarterly revenue fell 14%, to $3 billion, in Q4, and US same-store sales fell 21%. It's a digital world; what would coerce an investor to buy GME is beyond us.
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LOW
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(01 Mar 2017) Lowe's beats earnings, gives rosy outlook for 2017. Home improvement retailer Lowe's (LOW $65-$74-$84) topped expectations across the board with their latest earnings report, with same-store sales growing 5.1% over the same quarter in the previous year. Revenues for Q4 came in at $15.78 billion, nearly a 20% jump from Q4 of 2015. Shares were up about 6% in pre-market trading. We much prefer competitor Home Depot (HD $119-$145-$146)—a member of the Penn Global Leaders Club.
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Lumber Liquidators Pounded after 60 Minutes Piece(03 Mar 15) The day after a 60 Minutes segment on the cancer causing agent formaldehyde being found in Lumber Liquidators’LL laminate flooring, shares of the home improvement company fell by as much as 25%.
The story, which aired on Sunday the 1st of March, claims that CBS tested 31 boxes of the firm’s laminate flooring which had been produced in Chinese mills, and that only one was compliant with California safety standards. Some of the samples had 13 times the legal limit of the carcinogen present.
In an argument that probably did not help LL’s case, a company spokesman said they reached out to their Chinese suppliers and were told that the product was compliant with health and safety standards. We can’t think of a country with a more abysmal record of health violations or corporate corruption, so LL would have been better served to claim they tested the materials themselves, providing evidence.
If unhealthy levels of the chemical are present in the laminate and pose a threat to consumers (mainstream media testing must be followed up by professional testing), then Lumber Liquidators can expect years of costly litigation.
It goes without saying that public safety is paramount—the truth must be learned. The reason for our skepticism revolves around the dubiousness of the accusers—60 Minutes and an environmental legal firm; both of whom having a profit motive. We have been conditioned to believe what we see on the news, without question. Too often, these news organizations have found the truth elusive. For the tens of thousands of California households with the laminates in question installed in their homes, it would make sense to get an immediate formaldehyde test kit (about $80 through Amazon) before calling for “legal help.” Of course, the personal injury lawyers would rather you let them handle such minor details.
What about the investment angle? At $38 per share, down from $110.52 and sitting at a 52-week low, we are seriously considering putting some money to work in LL within the Intrepid Strategy. Of course, this would have a strict stop loss on it, and we are looking for a short-term pop rather than a long-term hold.
(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 10. Not a member? Click Here.)
Urban Outfitters looks Sloppy after Earnings Miss
(18 Nov 14) Philadelphia-based retailer Urban OutfittersURBN saw its stock price dive 8% at the open on Tuesday following the release of a pretty bad third-quarter earnings report. The company’s flagship chain, Urban Outfitters, continues to lose market share, forcing the company to rely more heavily on growth in its Anthropologie and Free People brands. Urban has been under fire recently for clothing items that some find distasteful, such as a faux blood-soaked “Kent State” sweatshirt...Read More in the Journal of Wealth & Success, Vol 2, Issue 25.
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Radio Shack Has Itself to Blame for Death Spiral
(05 Mar 14) It was the late '70s...disco was king, Happy Days ruled the airways, and our local Radio Shack (RSH) was allowing us a glimpse into a bright new future. I recall taking breaks from my job as concession manager at the Antioch Theater (no doubt the youngest one they ever had) and strolling next door to the Radio Shack to play with the latest in modern technology—the Tandy TRS-80 "Microcomputer." Using the keys on the clunky keyboard, you could actually move a crudely pixelated little spaceship through the lunar "atmosphere" and attempt to land it on the surface before hitting the sides of a crater. A mesmerizing glimpse into a world which would consist of jet packs, flying cars, and—of course—lunar bases. Well, here we are 35 years later. The president nixed the lunar base plan back in 2009, and Radio Shack is about to become a distant memory.
In fatter economic times, an American company could lumber along, make a plethora of tactical and even strategic wrong turns, and still somehow manage to survive. In the modern global economy, however, the young technology once touted at the old Radio Shack has transformed the business world into a hyper-competitive marketplace where only the best survive. Great news for consumers; lousy news for stodgy old companies.
There are two anchors a company must have to thrive today: great products and/or services, and exemplary customer service. It is possible to survive without the latter for awhile, but as soon as the competitive advantage is lost on the products side, customers will flee like rats from a sinking ship. I am speaking anecdotally, but the last four experiences I had with a Radio Shack employee (all different people) were abysmal. OK, there's one missing anchor, so they must have unique products and services, right? Take about two generations off of an Apple Genius Bar, throw in a cell phone kiosk from the middle of the mall, a couple of shelves of cords and cables, and you have the Radio Shack experience.
This is why it came as no surprise when it was announced that Radio Shack was shuttering another 1,100 locations around the country. That equates to a drop from over 7,000 locations a decade ago to about 4,000 after the closures. As for market cap, the company has gone from a $5 billion mid-cap to a $250 million micro-cap in under a decade. On Tuesday the company announced that it bled another $191 million in the fourth quarter of 2013 due to weak sales.
In an effort to become relevant again, CEO Joe Magnacca plans to transform RSH from a tired has-been to a vibrant new technology joint. Joe, the Superbowl ad featuring Cliff Claven and his '80s entourage was funny, but we are not sure your employees got the memo. They still seem pretty tired to me. Investors take my side, as your stock price has plummeted down to $2.16 per share as of this writing.
The moral of this story is not to avoid Radio Shack as an investment, that is a given. The lesson is for us to remain relevant as times change. Whether we are running a company, or a household, or an organization, we must have uncompromising principles (like treating others with the respect they deserve--especially if they are helping keep the lights on) but a flexible and proactive strategy to deal with changing times. And that begins with a healthy mindset which embraces, even fosters, change. Unfortunately, the ego in the C-suite is often too large and unyielding to welcome new and exciting ideas. I would imagine Joe also believes that Radio Shack's customer service is outstanding. Here's some 70's lingo from Fred Sanford he can quote on the next earnings call: "This is the big one, Elizabeth...I'm comin' to join you!"
(Reprinted from this coming Sunday’s Journal of Wealth & Success. Not a member? Click Here.)
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"Exclusive" Teen Retailer Abercrombie Reports Loss on Weak Sales
(22 Nov 13) This is a fun story to follow, if for no other reason than the CEO's idiotic comments about "cool people." Teen specialty store Abercrombie & Fitch (ANF) swung to a third-quarter loss as it tries to restructure its intimate apparel brand. The store has been flailing recently, as its fashions are not resonating with teens--their core market--as they once did.
CEO Michael Jeffries has not helped matters. In past interviews Jeffries, pictured above, has made it clear that he only wants the "cool, good-looking kids" shopping in his stores: "In every school there are the cool and popular kids, and then there are the not-so-cool kids. Candidly, we go after the cool kids...A lot of people don't belong in our clothes, and the can't belong. Are we exclusionary? Absolutely."
Of course, Jeffries claims that his comments were taken out of context, but that did not assuage an angry backlash from consumers. Some voiced outrage, while others began campaigns to give their Abercrombie clothes to the homeless. The company is in hot water for other reasons as well. Ultra-provocative catalog photos and selling thong underwear to pre-teens may seem "cool" to Jeffries, but consumers are showing their distaste for the tactics by staying out of the stores.
Jeffries is a sad personification of his store's homage to vanity. In his late 60s, he tries desperately to be seen as someone he would want shopping in Abercrombie. Botox, dyed hair, a fake tan, perfectly white teeth, and puffy lips have transformed him into a cartoon figure. Like Abercrombie, he is not growing old gracefully. Too bad for employees and shareholders, who are paying the real price.
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Any opinions expressed are those of Penn Wealth Publishing, LLC and are current only through the date posted. These views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is no guarantee of future results. Always consult your investment professional before investing any money.
The story, which aired on Sunday the 1st of March, claims that CBS tested 31 boxes of the firm’s laminate flooring which had been produced in Chinese mills, and that only one was compliant with California safety standards. Some of the samples had 13 times the legal limit of the carcinogen present.
In an argument that probably did not help LL’s case, a company spokesman said they reached out to their Chinese suppliers and were told that the product was compliant with health and safety standards. We can’t think of a country with a more abysmal record of health violations or corporate corruption, so LL would have been better served to claim they tested the materials themselves, providing evidence.
If unhealthy levels of the chemical are present in the laminate and pose a threat to consumers (mainstream media testing must be followed up by professional testing), then Lumber Liquidators can expect years of costly litigation.
It goes without saying that public safety is paramount—the truth must be learned. The reason for our skepticism revolves around the dubiousness of the accusers—60 Minutes and an environmental legal firm; both of whom having a profit motive. We have been conditioned to believe what we see on the news, without question. Too often, these news organizations have found the truth elusive. For the tens of thousands of California households with the laminates in question installed in their homes, it would make sense to get an immediate formaldehyde test kit (about $80 through Amazon) before calling for “legal help.” Of course, the personal injury lawyers would rather you let them handle such minor details.
What about the investment angle? At $38 per share, down from $110.52 and sitting at a 52-week low, we are seriously considering putting some money to work in LL within the Intrepid Strategy. Of course, this would have a strict stop loss on it, and we are looking for a short-term pop rather than a long-term hold.
(Reprinted from the Journal of Wealth & Success, Vol. 3, Issue 10. Not a member? Click Here.)
Urban Outfitters looks Sloppy after Earnings Miss
(18 Nov 14) Philadelphia-based retailer Urban OutfittersURBN saw its stock price dive 8% at the open on Tuesday following the release of a pretty bad third-quarter earnings report. The company’s flagship chain, Urban Outfitters, continues to lose market share, forcing the company to rely more heavily on growth in its Anthropologie and Free People brands. Urban has been under fire recently for clothing items that some find distasteful, such as a faux blood-soaked “Kent State” sweatshirt...Read More in the Journal of Wealth & Success, Vol 2, Issue 25.
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Radio Shack Has Itself to Blame for Death Spiral
(05 Mar 14) It was the late '70s...disco was king, Happy Days ruled the airways, and our local Radio Shack (RSH) was allowing us a glimpse into a bright new future. I recall taking breaks from my job as concession manager at the Antioch Theater (no doubt the youngest one they ever had) and strolling next door to the Radio Shack to play with the latest in modern technology—the Tandy TRS-80 "Microcomputer." Using the keys on the clunky keyboard, you could actually move a crudely pixelated little spaceship through the lunar "atmosphere" and attempt to land it on the surface before hitting the sides of a crater. A mesmerizing glimpse into a world which would consist of jet packs, flying cars, and—of course—lunar bases. Well, here we are 35 years later. The president nixed the lunar base plan back in 2009, and Radio Shack is about to become a distant memory.
In fatter economic times, an American company could lumber along, make a plethora of tactical and even strategic wrong turns, and still somehow manage to survive. In the modern global economy, however, the young technology once touted at the old Radio Shack has transformed the business world into a hyper-competitive marketplace where only the best survive. Great news for consumers; lousy news for stodgy old companies.
There are two anchors a company must have to thrive today: great products and/or services, and exemplary customer service. It is possible to survive without the latter for awhile, but as soon as the competitive advantage is lost on the products side, customers will flee like rats from a sinking ship. I am speaking anecdotally, but the last four experiences I had with a Radio Shack employee (all different people) were abysmal. OK, there's one missing anchor, so they must have unique products and services, right? Take about two generations off of an Apple Genius Bar, throw in a cell phone kiosk from the middle of the mall, a couple of shelves of cords and cables, and you have the Radio Shack experience.
This is why it came as no surprise when it was announced that Radio Shack was shuttering another 1,100 locations around the country. That equates to a drop from over 7,000 locations a decade ago to about 4,000 after the closures. As for market cap, the company has gone from a $5 billion mid-cap to a $250 million micro-cap in under a decade. On Tuesday the company announced that it bled another $191 million in the fourth quarter of 2013 due to weak sales.
In an effort to become relevant again, CEO Joe Magnacca plans to transform RSH from a tired has-been to a vibrant new technology joint. Joe, the Superbowl ad featuring Cliff Claven and his '80s entourage was funny, but we are not sure your employees got the memo. They still seem pretty tired to me. Investors take my side, as your stock price has plummeted down to $2.16 per share as of this writing.
The moral of this story is not to avoid Radio Shack as an investment, that is a given. The lesson is for us to remain relevant as times change. Whether we are running a company, or a household, or an organization, we must have uncompromising principles (like treating others with the respect they deserve--especially if they are helping keep the lights on) but a flexible and proactive strategy to deal with changing times. And that begins with a healthy mindset which embraces, even fosters, change. Unfortunately, the ego in the C-suite is often too large and unyielding to welcome new and exciting ideas. I would imagine Joe also believes that Radio Shack's customer service is outstanding. Here's some 70's lingo from Fred Sanford he can quote on the next earnings call: "This is the big one, Elizabeth...I'm comin' to join you!"
(Reprinted from this coming Sunday’s Journal of Wealth & Success. Not a member? Click Here.)
_______________________________________________________________________________________________
"Exclusive" Teen Retailer Abercrombie Reports Loss on Weak Sales
(22 Nov 13) This is a fun story to follow, if for no other reason than the CEO's idiotic comments about "cool people." Teen specialty store Abercrombie & Fitch (ANF) swung to a third-quarter loss as it tries to restructure its intimate apparel brand. The store has been flailing recently, as its fashions are not resonating with teens--their core market--as they once did.
CEO Michael Jeffries has not helped matters. In past interviews Jeffries, pictured above, has made it clear that he only wants the "cool, good-looking kids" shopping in his stores: "In every school there are the cool and popular kids, and then there are the not-so-cool kids. Candidly, we go after the cool kids...A lot of people don't belong in our clothes, and the can't belong. Are we exclusionary? Absolutely."
Of course, Jeffries claims that his comments were taken out of context, but that did not assuage an angry backlash from consumers. Some voiced outrage, while others began campaigns to give their Abercrombie clothes to the homeless. The company is in hot water for other reasons as well. Ultra-provocative catalog photos and selling thong underwear to pre-teens may seem "cool" to Jeffries, but consumers are showing their distaste for the tactics by staying out of the stores.
Jeffries is a sad personification of his store's homage to vanity. In his late 60s, he tries desperately to be seen as someone he would want shopping in Abercrombie. Botox, dyed hair, a fake tan, perfectly white teeth, and puffy lips have transformed him into a cartoon figure. Like Abercrombie, he is not growing old gracefully. Too bad for employees and shareholders, who are paying the real price.
__________________________________________________________________________________________
Any opinions expressed are those of Penn Wealth Publishing, LLC and are current only through the date posted. These views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. Past performance is no guarantee of future results. Always consult your investment professional before investing any money.