OBSERVATIONS FROM EARNINGS OVER THE PAST 24 HOURS
1. #growthslowing -- is a theme that continues to steamroll through this earnings tape. We got a scent of it a few weeks back from those reporting March quarters, then a strong whiff last week from the department stores -- all of which slowed sequentially, and now the URBN debacle and WMT miss serves as the icing on the cake.
2. WMT = Uninspiring. There was very little in this WMT print to get excited about. It wasn't bad...but rather extremely below average. If there was any positive it was that traffic was +1% (only the 3rd time in 2-years its' been positive). Gross margins were up 11bps -- bc WMT has to pay for its higher labor costs somehow (i.e. its vendors). But in the end WMT deleveraged flat revenue to an EPS decline of 6.9%.
3. URBN CEO Stock Sale. When the CEO of a company's namesake brand sells $2.2mm worth of stock two weeks before a quarter ends (tax planning or not), it usually makes sense to follow. Tad Marlow sold 50,000 shares of URBN four weeks ago at a price that's nearly 25% above where the rest of us can sell today.
4. URBN, Time To Revisit? No. The juxtaposition of one of the best management teams in the business missing earnings significantly two times in three quarters after carefully setting out on a multi-year merchandising and distribution plan to rejuvinate the company is something that's tough to get over. It's now back to basics here for us. What's the REAL addressable market for each concept, how has the competitive landscape changed, and how much capital is needed to capture that growth? All in, there's no reason to think that those high-teens EBIT margins of old are 'owed' to URBN. This might be the new normal. At least, that's what we're going with until our research changes.
5. Does TJX Ever Mess Up? The company beat on comp AND on merchandising margin despite the impact of foreign exchange. It's one of a small number of companies that beat expectations in the face of FX (Nike and Kate Spade also bucked the trend). The company kept guidance in tact for the year, but it sounds like a sandbag to us.
6. DKS Buying Opportunity? Today's sell-off is interesting to us. We've almost never liked this story -- ever. But at the company's analyst meeting last month it talked down growth and margin expectations to a level that we thing is solidly beatable. Today management talked down the near-term recapture of margin lost last year when its golf and hunting business went into the tank. We don't buy it. If anything, there will be less margin because the company will reinvest in growth. We'll have more detailed comments out later. But this one wins the 'most interesting stock of the day' award for us.
KSS Trying To Sneak One Past The Goalie? There is a lot going on in retail land today, so maybe KSS thought this release would slip through, but we have to scratch our heads and wonder what a KSS off-price concept would look like. To have an 'off price' concept, you need steady access to high quality brands to consistently offer the perception of great deals to your consumer. KSS is capable of none of this. The retailer just simply doesn't have the brands or the content to support an off-price concept. Yes, it's a test, but if M Backstage is indicative of an ugly department store environment, KSS Off Aisle is a nail in the coffin.
KSS - New Concept 'Off Aisle' by KOHL'S in NJ
EVENTS TO WATCH
ICSC Chain Store Sales
This morning’s ICSC sales index (80 general merchandise retailers) sharply decelerated. People will look at the 1-year trend which was +2.3% vs +2.1% last week. But the 2-year put up the sharpest decline that we’ve seen since the first week of January.