- I wish I had put out a long call ahead of this quarter but I think there is still upside in this stock. Take a look at the quadrant chart. Management has certainly put in an impressive 2 year performance, operating the company mostly in the sweet spot. Since Q1 2006, BYI consistently generated sales growth in excess of inventory growth and improved gross margin in all but 2 quarters. Gross margin has increased the last 3 quarters. In Q2, gross margin expanded over 400bps and sales grew slightly faster than inventory. One could argue that inventories are catching up to sales but BYI does have an impressive backlog. I for one am not worried about the inventory picture.
- BYI reported EPS of $0.54, slightly ahead of consensus. I tend to watch the SG&A line pretty closely to make sure companies are still investing but also to monitor how they are managing earnings. Most companies maintain the ability to manipulate SG&A somewhat. Making the quarter because of a big SG&A drawdown is not typically a good sign. BYI actually spent 17% more on SG&A than last year, a good sign in my opinion. This was a solid revenue and gross margin quarter.
- Turning to the 2nd chart, the deferred revenue picture looks solid. Deferred revenue stayed at roughly the $183 million level experienced in Q1 2008. Moreover, deferred revenue growth YoY remained above sales growth with a spread between the two of 18%. The high level of deferred revenue and strong backlog provides visibility on the upcoming revenue picture. Significant profit growth should continue to “Reign O’er” BYI.
That's all good and great for them. For we free market capitalists, the thought of government getting "fired up" to re-regulate financial markets is one of the scariest thoughts in my head.
Find me the 'Cowboy Bar'. This is going to be painful to watch tomorrow.
• Four Seasons: Yes the property opened in August but no, it is not fully open. As far as my guys can see, only 50 rooms are open and the website is still not taking reservations until September 15th.
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- US$ Support is way down at the $74.17 level
This morning the 30 year fixed mortgage rate hit a new short term high of 6.37%. As access to capital continues to tighten, these rates can go a lot higher. Historical context makes this point crystal clear.
Don’t forget that over 70% of new home loans in this country are either bought or guaranteed by US government sponsored issuers.
1) FL: Industry sales trends continue to look good in aggregate. But when peeling back the onion and seeing which channels look good and which look bad, it is clear to me that the strength is in the athletic specialty channel, and weakness is confined to channels that are overweight low-profile (i.e. National Chains).
FL reports EPS after the close tonight. The company has missed each of the past six quarters. Not a great track record, by any means. But expectations look like they’re in check, and I think that inventories are under control. I still like the margin leverage on this name as traffic picks up and the major brands (esp. Nike and Under Armour) get into the ring and duke it out with running and basketball offerings over the next 12 months. There’s enough juice here to sidestep industry margin/sourcing pressure for at least a few margin points.
2) SKX: This Skechers situation is fascinating. After upping the bid and getting shut out twice, Skechers management is still trying to get sucked into this black hole by publicly pursuing HLYS. I won’t elaborate again on my thoughts (check out my 8/13 post “Deal or No Deal, The Damage is Done”) other than to reiterate that this is the last straw for a company that is over-earning in the wrong part of its cycle.
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