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Nordstrom, Inc. 08-22 19:25 GMT
(Comment)
Nordstrom stock took off today (up 16%) despite the fact that when the company reported...
Earnings by Carol Levenson, CFA
Nordstrom stock took off today (up 16%) despite the fact that when the company reported fiscal second quarter results yesterday it reduced its full year guidance for sales and profits. From our perspective, the news was not encouraging. Second quarter sales were weak and sequentially weaker, down 5.1% for the whole company and even worse for the Full Price division, where sales sank by 6.5%. This makes Nordstrom's second quarter sales the worst of any retailer reporting thus far (with the exception of Penney), with the asterisk noting that it no longer reports comparable store sales but net sales. The lack of sales leverage of overhead expenses contributed to the gross margin contraction of 50 basis points, while cost reductions (ahead of plan) helped mitigate this deleveraging on the SG&A line. This led to a contraction in the operating margin of 50 basis points to 5.7%. On the one hand, inventory being down 6.5% places the company in a flexible position to respond to demand, but on the other hand it ran out of key items during its Anniversary Sale in the quarter. Capital spending remains elevated as the company completes its New York flagship store (set to open in late October), limiting free cash flow. We endorse management's decision not to repurchase shares in the quarter in light of the low free cash flow. But declines in EBITDA have sent leverage higher even without adding any debt, and lease-adjusted debt/EBITDAR remains elevated at nearly 3x. Furthermore, in order to meet its newly lowered sales guidance of flat sales for the year, the company needs to come back from negative 4.3% at the half year point. This seems ambitious, even with a boost from the NY store, tweaking the assortment, and more aggressive marketing.
Home Depot 08-21 23:42 GMT
(Comment)
Home Depot reported good fiscal second quarter results, with comparable store sales up 3.0% on...
Earnings by Carol Levenson, CFA
Home Depot reported good fiscal second quarter results, with comparable store sales up 3.0% on growth in both traffic and ticket (in fact, big ticket items saw 3.7% growth). As with other retailers with weather sensitive categories, HD's sales were hurt by wet weather at the start of the quarter, but improved with each successive month. The biggest impact on sales was lumber price deflation, which accounted for negative 100 basis points of comparable sales. In fact, lumber was the only product category that did not show sales growth in the quarter, as lumber sales were down in the high single digits. However, because lumber is a low margin category, its lower penetration aided gross margin. This was more than offset, however, by higher growth of lower margin categories such as appliances and higher shrink. Thus gross margin contracted by about 20 basis points. With a flat operating expense rate, the operating margin contracted by the same 20 basis points to a still healthy 15.9%. The company lowered its sales outlook for the year somewhat, primarily due to lumber deflation but also because of the anticipated negative impact on the US consumer of further tariffs. HD continues to generate strong free cash flow, although its share repurchases tend to exceed free cash flow somewhat over the course of a year. EBITDA growth typically offsets this, however, leaving lease-adjusted debt/EBITDAR stable at just under 2x, where it has remained for years. We continue to view HD as a stable credit (although we note the advent of a new CFO) and expect the bonds to outperform.
Kohl's 08-21 17:21 GMT
(Comment)
Kohl's posted a weak fiscal second quarter, trailing every other retailer that has reported so far...
Earnings by Carol Levenson, CFA
Kohl's posted a weak fiscal second quarter, trailing every other retailer that has reported so far (except for Penney) with a comparable store sales decline of 2.9%. The company saw a definite sales improvement as the quarter progressed and weather turned more normal, and reaffirmed its full year sales and earnings guidance. This may prove to be overly optimistic given the margin deterioration in the first half of 40 basis points and the adjusted earnings decline of nearly 15%, as well as a comparable store sales decline of 3.2%. Management is hoping for brand launches and the rollout of Amazon returns (expected to add to operating profit this fiscal year) to bolster second half traffic and sales. Also worrisome is a 2% increase in inventory year-over-year, after previous quarters had featured inventory declines. The balance sheet remains strong with lease-adjusted leverage of only 2.3x despite lower EBITDA, and free cash flow is also robust, providing financial flexibility. A weak first half, however, and poor visibility prompts us to dial back our enthusiasm.
Target Corporation 08-21 16:47 GMT
(Comment)
Target stock is up nearly 20% today after reporting excellent fiscal second quarter...
Earnings by Carol Levenson, CFA
Target stock is up nearly 20% today after reporting excellent fiscal second quarter results that exceeded the high end of its E.P.S. guidance. Fighting the trend set by other retailers complaining about the spring weather dampening sales, Target boasted comparable-store sales growth of 3.4%, the best we've seen thus far (even including the home improvement retailers), driven primarily by a traffic increase of 2.4%. Digital sales contributed 180 basis points and grew 34%. Apparel and essentials were cited as posting "comps" above 5%, and Target is seeing a strong start to the important back to school season. Gross margin expansion of 30 basis points was the first such improvement in years, aided by the merchandise mix, particularly the strength in apparel. Along with a lower SG&A expense rate, this led to operating margin expansion of 80 basis points to 7.3%. Earnings soared by 19%. Encouraged by its strong first half performance, the company increased its full year E.P.S. guidance by 15 cents/share at the midpoint. Growing market share, new product launches, special events, and increased use of same day delivery options support a strong second half. We estimate lease-adjusted leverage held steady below 2x, as higher capital investment to support strategic initiatives has been balanced by lower share repurchases, leaving net debt essentially unchanged despite this heavy investment period. We continue to view the bonds favorably.
YPF S.A. 08-16 01:51 GMT  
(Report with Analyst's Data Sheet) 
The results of the primary elections in Argentina, which just brought a convincing victory for Mr. Alberto Fernandez, mean that he now stands a much higher chance...
Elections Scare  by Cedric Rimaud, CFA
Whiting Petroleum Corp. 08-16 01:42 GMT  
(Report with Analyst's Data Sheet) 
Whiting Petroleum (WLL) continues to face challenges from the constrained gathering and processing infrastructure in North Dakota.
Mid-Stream Bottlenecks  by Evan Mann, CFA
Walmart 08-16 00:59 GMT  
(Report with Analyst's Data Sheet) 
Even President Trump approved of Walmart's second quarter results, tweeting that they were "outstanding." The company continued its string of postive comparable...
Presidential Approval by Carol Levenson, CFA
Emerging Markets Top Ten  08-15 03:15 GMT  (Report)
Emerging Market bonds have rallied in 1H2019 in the context of a general compression of global interest rates and increasing risks of a...
Emerging Markets Top Ten  by Gimme Credit
Macy's Inc. 08-15 03:08 GMT  
(Report with Analyst's Data Sheet) 
Macy's referred to "another quarter of comparable sales growth," in the second quarter, but with a 20 basis point sales increase it was just a rounding error...
Rounding Error by Carol Levenson, CFA
Graphic Packaging Holding Co. 08-15 03:01 GMT  
(Report with Analyst's Data Sheet) 
Graphic Packaging recently announced it would spend $600 million on a new CRB (coated recycled board) machine in the Midwest with...
Lack Of Discipline  by Kim Noland
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