WMT - We're More Bearish on the Company than the Stock
These results in the US were ho hum from where we sit. The comp and revenue miss was written in the cards given the results we've seen posted across the board at M, KSS, COST, [insert other US levered retail name here]. Guidance for the year for 0.5% implies a sequential deceleration in the US biz coming off an investment year in employees, stores, and e-commerce which would imply a less than bullish picture on US consumption, or just flat-out conservatism. We think it's the former. Current investments are all about driving the top line despite the drag to margins, earnings, and returns. If that doesn't work then WMT is in even more trouble.
But, WMT, unlike most of the names in retail, has already lowered the bar to a point where it won't hit 2015 earnings levels until at least 2019. With that much bad news priced in even at the mid-60's it's hard to be more bearish on the stock when there are so many in the space with more earnings downside.
1) E-commerce sales totaled $13.7bn for the year or about 2.9% of sales up from $12.2bn or 2.5% last year. Considering that the company invested about $900mm in that channel alone in FY16, that's not a great ROI. We get that WMT is investing to put the building blocks in place for the future, but when we read comments by the CFO that he '...would have liked to have seen higher e-commerce sales growth this quarter', we have to wonder if the $1.1bn the company plans to invest in FY17 is enough to catch WMT up to the rest of the industry. We're inclined to think its not and that has negative implications for the rest of the players who are trying to play catch up, i.e. Target.
2) Fx - WMT guided to a $12bn hit to the top line from Fx in FY17. That's down from the $17bn the company felt in the fiscal year just reported, but its certainly still a sizable headwind. As the bellweather for global retail we think that's extremely bearish for the rest of the space. Looking quickly at the revenue ramp expected for PVH, VFC, and TIF, consensus is expecting a nice sequential ramp in sales from 4Q into 2H16 due in large part to lapping a strong dollar. But, based on WMT's commentary today...that's not going away.
3) How is this not bad for TGT? We know the composition of investments (wages, e-comm, stores, etc.) and the earnings drag being felt as a result at WMT. Add on a tepid consumer environment and it doesn't add up well for TGT. The low hanging fruit has already been picked by Cornell in the form of Canada, lapping the data breach, sale of the pharmacy unit, and now the company will need to invest if it wants to realize its goal of 3% sales growth. That doesn't appear to be in the current street numbers.
FL - Many ‘Un’happy Returns
Foot Locker’s big capital spending plan announced last night is anything but good for the financial return profile, and the stock. The company’s capex number for the upcoming year is expected to clock in at $297mm. That’s the most FL has spent since 1999, and it represents a 26% increase from the already-elevated levels we saw in 2015.
For Link to the Full Note: CLICK HERE
JWN - Time vs. Price
This is a multi-duration call. Bearish over the near-term as macro headwinds put earnings at risk. But, levers are there once the consumer stabilizes/recovers. The reality is that this is the only department store that really needs to exist.
For Link to the Full Note: CLICK HERE
NKE - Nike has terminates commercial deal with Manny Pacquiao following controversial statements
M - Macy's to offer Shaun White men's line after he ended 8-year relationship with TGT
AdiBok - Adidas hired ex LULU CEO Christine Day as Strategic Advisor, showing it’s getting serious about women’s athletic business
AMZN - Amazon is quietly inviting drivers for new "on demand" service to deliver its standard packages -- service will improve speed and margins
OLLI - Ollie’s Bargain Outlet majority owner looking to reduce stake, Ollie's plans secondary stock offering for 11% of company
BBW - Build A Bear Workshop holder nominates 2 candidates to board
HBC - Saks Fifth Avenue making entry into Canadian market today
SHLD - Kmart sourcing 'extreme-value' deals by purchasing the inventory of liquidated companies
Hhgregg announces that CFO Robert Riesbeck will act as interim CEO