Stocks

Nike Business On Fire; China Accelerates

December 23, 2015
By
Nike Business On Fire; China Accelerates

Nike (NKE) is in the midst of a strong 3-year run; operating trends are at cycle-high growth rates, health & wellness as a category is growing around the world, and Nike’s brand stewardship is incredibly on point across all major sports. The stock price followed results this year, up over 37% ytd, and the 35th best performer in the S&P 500. Nike’s earnings are expected to grow 16%, so part of the strong return has been valuation re-rating. Nike’s forward P/E multiple reached the 30s, uncharted waters for the firm relative to its history. Keys to the successful Nike business model:   The outsourcing of manufacturing to China enables a capital light business model, allowing Nike to focus on the truly value added aspects of design, innovation, and branding. Nike...

Read more »

Black Friday Retail Dud; Online Share Shift Accelerates

November 28, 2015
By
Black Friday Retail Dud; Online Share Shift Accelerates

Bah humbug. Black Friday jumped the shark sometime around the turn of the century. Nonetheless, a disproportionate amount of retail and media focus continue to emphasize Black Friday’s importance as an event. While declining over several years, this year got markedly worse, to the point where media reports were forced to highlight the “normality” of shopping on Black Friday and the notable empty parking lots. This year, the Grinch brought store based retail sales over to online. Sources of information are disjointed but echo the same themes enough to draw some early conclusions: WSJ: “Early Sales Thin Black Friday Rush “Driving up to a nearly empty parking lot at a Wal-Mart in Houston Friday morning, Dora Rodriquez, 39, stopped her silver hatchback in surprise and called out her window...

Read more »

Tiffany (TIF) Tourism Business Slows; Strong Dollar Constraints Evident

November 25, 2015
By
Tiffany (TIF) Tourism Business Slows; Strong Dollar Constraints Evident

Yesterday, Tiffany & Co. (TIF) reported lackluster results for the third quarter, reducing annual earnings guidance for the second time in 3-months. Tiffany is a useful barometer for the global luxury consumer; business spans across all developed geographies, across multiple price points, in a variety of retail formats. Tiffany is iconic for its branded diamonds but over the years, product expansion into accessories broadens assortment to more consumers into different income strata. Expansion into luxury watches is even underway with a multi-year marketing budget to build dual-gender brand over the next several years. While American public companies dominate most global sectors, Europe wins in luxury. Tiffany is the purest true luxury company America has to offer and a success story over several years. Tiffany holds a certain panache from its scarcity...

Read more »

The Chickens Come Home to Roost; More Fraudulent Business Practices Exposed at Iconix Brand Group

November 6, 2015
By
The Chickens Come Home to Roost; More Fraudulent Business Practices Exposed at Iconix Brand Group

Usually, the juicy, salacious stuff comes to the fore during recession or crisis, when past misconduct can no longer be concealed. Recently, between Valeant Pharmaceuticals, and Volkswagen, there are plenty of good fraud stories to go around. Yesterday, sigh, Iconix Brand Group (ICON) revealed that its accounting statements, since 2013, were presented with smoke and mirrors. The revelation comes after the former CEO, and founder, Neil Cole (Kenneth Cole’s brother) left abruptly in August to “pursue other interests”. Perhaps there is a good backlog of dodgy accounting, and insider shenanigans to expose after the 6-year recovery since the financial crisis. The story of Iconix is a fascinating one, and rhymes with other high profile deceptions over the years, such as, Valeant, Enron, and WorldCom; beware of acquisitive growth that...

Read more »

The World Wants More Coffee and Starbucks Owns the Category

October 31, 2015
By
The World Wants More Coffee and Starbucks Owns the Category

During a controversial 3Q earnings period, patterns continue to emerge, with beloved companies accelerating business trends in the midst of a tough global economy. Winners are thriving with differentiated brands, business models, and strategy; the stock market is awarding the victors to an almost unprecedented degree with rich valuations and surging stock prices. On the other hand, companies with secular challenges are in a severe de-rating process and bear market. Starbucks (SBUX) falls into the former category and the stock is now valued at unprecedented levels post-financial crisis.     SBUX stock is up 6x over the past 6-years, pre dividend:                             The path to superior investment returns is often obfuscated with a complex strategy, tactical...

Read more »

Tim Cook & Apple Confirm China Strength

October 28, 2015
By
Tim Cook & Apple Confirm China Strength

Apple posted an excellent Q3 result; 48 million iPhone shipments exceeded expectations, gross margin approached 40% (32 bps above last year), and EPS grew 43%, an impressive growth rate for the largest company in the world by market capitalization. Mac computer units grew 3% despite a 11% contraction in the overall global PC market. Iterations of new products are coming with updated Apple watches and the Apple TV in time for the holidays, and the Apple brand remains hot. Tim Cook emphasized strength within China, more so than past conference calls, in order to remove one particular bear case which transpired this summer; a sharp slowdown in China and inventory glut. With Nike posting its fastest growth rate in China in several years, and Apple sales doubling, two data...

Read more »

Amazon and Wal-Mart; Atypical Market Rally Driven by Disintermediation and Secular Trends

October 24, 2015
By
Amazon and Wal-Mart; Atypical Market Rally Driven by Disintermediation and Secular Trends

Wal-Mart recently hosted an Analyst Day to update Wall Street on current operating trends and strategy. The amount of investment needed to modernize the store base, and improve the overall customer offering is staggering. Wal-Mart will experience a second consecutive year of earnings decline in 2016. The stock took the update poorly, falling over 12% from last week’s price of $67 to $58 on Friday. The decline slashed $27b in market capitalization. Along with Wal-Mart, the retail sector got pounded, despite a rampaging market and stunning moves within large-cap tech. While the market isn’t at new highs (yet), the August sell-off is now undone, and the market trades solidly within the range of the previous 7-months (2,050-2,130). What’s going on? The current rally is atypical because it’s driven by...

Read more »

Utilities Utilities Utilities; sound investment for a slower growth, low rate world

October 6, 2015
By
Utilities Utilities Utilities; sound investment for a slower growth, low rate world

What a rally! In two sessions, the S&P 500 rallied 5%, almost 100 handles from the Friday low. The ex-post “cause” of the rally seems to be the punk September Employment Report, which boxes the Fed into a corner. Yellen’s inertia, and dovishness, during the September press conference, coupled with the subsequent soft employment data, led to an immediate feeling of: “oh my, now they can’t hike“. The surprisingly low payroll data initially got sold, but upon further reflection, the soft report created certainty, that the Fed is out of the equation, and zero interest rates will remain in place for as far as the eye can see. Markets prefer certainty, and thus the 5% explosion higher. It’s really that simple a 5% move. Using 2016 earnings estimates of $125, the...

Read more »

Nike Bone Crusher; China’s Economy isn’t Collapsing

September 25, 2015
By
Nike Bone Crusher; China’s Economy isn’t Collapsing

Maybe the economy in China isn’t collapsing. Nike reported a bone crusher of a quarterly report last night; a stark wake-up call for China bears. Nike management credibility is higher than that of the Chinese government, and this earnings report, at this juncture, is stunningly good. Nike segment reports its future orders by geography, adjusted for currency movement, and the results out of China are the strongest since 2012. Nike is surging in China again. Impressive because China isn’t a new market; Nike is entrenched, and has invested, and developed the brand in China for a solid 15 years. The 27% china orders growth accelerated relative to last quarter’s 22% growth. The acceleration took place despite the China A-shares collapse, the renminbi devaluation, and lots of negative press on...

Read more »

Brazil’s Economic Miracle; Seeing the Monster

September 15, 2015
By
Brazil’s Economic Miracle; Seeing the Monster

The depth of corruption and scandal at Petroleo Brasileiro (Petrobras) isn’t your typical run of the mill emerging market scam. A conflux of events around the world, built up over decades, fostered the conditions for a defrauding of this magnitude. Post financial crisis, global central bank stimulus, created an environment devoid of scrutiny, resulting in robust emerging market capital inflows, largely untied to the merits of structural reform. Investors were encouraged to take risks, and the BRICS were beneficiaries of exceptionally loose, if not misguided, capital flows. Today, we behold the end result of the grand EM experiment, and unfortunately, the results are appalling. The extent of economic mismanagement has been spectacular, with all BRIC governments, to varying degrees, failing the opportunity to modernize. Economic malaise got masked by...

Read more »

Big Orange; Home Depot 1Q results soft on weather – outlook a positive signal for housing

May 20, 2014
By
Big Orange; Home Depot 1Q results soft on weather – outlook a positive signal for housing

Home Depot (HD) 1Q14 results reflect a benefit to earnings, net of tax, of $61m from a sale of a portion of the company’s equity ownership in Home Depot Supply Holdings (HDS). Exclusive of this gain, HD reported EPS of $0.96 relative to consensus estimates of $0.99. A miss in a difficult to predict quarter with spring arriving late. Nonetheless, the stock is bid based on commentary for “robust” May sales, a period less impacted by weather, and likely reflecting some pent-up demand from the spring. The colder than seasonal weather in 1Q also weighed on gross margin indicating that margin trends remain on plan. HD doesn’t see evidence of a slowing housing market; commented on heavily in financial markets. HD’s big ticket items are outperforming small ticket and...

Read more »

Whole Foods proactively lowering prices; an opportunity for the patient

May 7, 2014
By
Whole Foods proactively lowering prices; an opportunity for the patient

For a retailer, cutting prices generates a certain amount of self-inflicted pain through the P&L. The problem is rather intuitive; existing customers continue to purchase the same amount of goods at the new lower prices (hurts sales growth) and it takes time, to an uncertain extent, to attract new customers to the better value offering. Whole Foods faces a dilemma because its tremendous success over three decades has attracted new competition in the form of copy-cat stores and a change to more up-scaled/organic offerings at traditional grocers. On the company’s conference call, founder, John Mackey, pointed out clearly: “Whole Foods is no longer a bunch of hippies selling products to other hippies”. Anyone visiting the stores knows he is exactly right – Whole Foods is now main-stream for the...

Read more »