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What Makes The Chinese Beauty Market A Desirable One For Global Beauty Leaders?
  • By , 6/23/17
  • tags: EL LRLCY REV AVP
  • According to a Morgan Stanley report, currently China is the biggest cosmetics market in the world. Even though 2016 was a slow year for luxury beauty brands many of which saw their rankings fall  according to UK-based consultancy, Brand Finance, their stories have been quite different in China. While the mass cosmetics sales growth surpassed that of  luxury cosmetics in the rest of the world, the scene was the opposite in China, according to Zhang Fei, Brand Finance’s Cosmetics Analyst. Along with the rise of the upper middle class segment of the population in China, the aspiration to lead a luxurious lifestyle has led Chinese beauty users to opt for premium beauty brands more than the mundane mass products even in the backdrop of a weak economy. The economic slowdown in China might lead to a slightly slower growth in luxury beauty sales in the future, according to Zhang, however, the overall market will continue performing well on account of the improved standards of living and increased aspirations towards beauty and personal care. Let us take a look at the Chinese beauty market and see the factors that might lead global beauty leaders to invest in this market. Unique Demands And Growth Through Acquisitions Though China promises good opportunities for luxury beauty, it is also important for international brands to understand the unique needs and trends in China’s beauty market which might differ significantly from the Western beauty markets. For example, protection from sunburn or whitening skincare are in raging demand in China. Additionally, China’s domestic brands with a better knowledge of indigenous demands are better positioned to provide tough competition to the foreign brands such as L’Oreal and Estee Lauder. In 2014, L’Oreal acquired Magic Holdings, one of the prominent skincare brands in China to deeper penetrate the market. Strategic alliances and acquisitions are a great way for foreign brands to capture a bigger share of this market. International Cosmetics Demand Is On The Rise Due To Rise In Overseas Travel And  E-Commerce The purchase of domestic cosmetics in China had been falling since 2014, currently cross border e-commerce and overseas purchases comprise around 30% the total spending on cosmetics. Along with the rise of the Chinese overseas travelers, their cosmetics spending overseas can become a significant part of the international beauty companies’ revenues. One of the greatest factors that encourage overseas spending on cosmetics is lower prices. Sometimes, luxury cosmetics could be available at a lower price internationally because of the import duty levied on them in one’s own country of residence. Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at  content@trefis.com Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    CLF Logo
    Cliffs Maintains Focus On U.S.-Centric Strategy With Plans For New Ohio Plant
  • By , 6/23/17
  • tags: CLF RIO VALE MT
  • Cliffs Natural Resources has announced plans to set up a hot briquetted iron (HBI) production plant in Ohio, which is in line with the company’s strategy to focus on its profitable U.S. operations. Construction on the 1.6 million ton production capacity facility will commence in 2018 and is expected to be completed by mid-2020. The plant, which will cater to the Electric Arc Furnace (EAF) steel market, will boost Cliffs’ existing U.S. production capacity of 27.4 million tons. Focus on the U.S. Market Cliffs Natural Resources decided to focus on its U.S. operations post a top management shake-up in 2014. Participation in the seaborne iron ore market catering to the Asia Pacific region brought Cliffs in direct competition with the iron ore mining giants such as Rio Tinto, BHP Billiton, and Vale. These companies, which enjoy access to low-cost iron ore deposits, have sharply increased their iron ore production over the past few years, betting on growth in iron ore demand from China. However, Chinese demand growth did not keep pace with the increase in iron ore supply, resulting in a sharp decline in iron ore prices over the course of 2014 and 2015. Pricing mechanisms for Cliffs’ Asia Pacific operations are closely linked to spot prices in the seaborne iron ore market, which negatively impacted the profitability of the company’s Asia Pacific operations. In order to decouple itself from the seaborne iron ore market, Cliffs decided to not invest further in its Asia Pacific operations. As a result, the Asia Pacific operations are expected to cease production over the next couple of years, as illustrated by the chart shown below. Pricing mechanisms for Cliffs’ U.S. operations are more closely linked to demand-supply dynamics in the U.S. rather than those in the international market, though some pricing adjustments are based on international iron ore prices. Thus, focusing on its U.S. operations allows the company to partially decouple itself from the demand-supply dynamics of the seaborne iron ore trade. The plans for the new plant in Ohio are a reaffirmation of Cliffs’ U.S.-centric strategy. Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    ACN Logo
    Accenture Earnings: Revenues And Order Book Grow, One Time Cost Impacts Guidance
  • By , 6/23/17
  • tags: ACN
  • Accenture  (NYSE:ACN) reported  its Q3 2017 results  on June 22, posting 5% year-over-year growth (7% in constant currency) in revenues to $8.87 billion. In our  pre-earnings note published  earlier, we stated that we expected both Consulting revenues and Outsourcing revenues to outpace the industry in the third quarter. Both divisions did report growth in earnings, and the company reported record new bookings worth $9.8 billion for the quarter, reflecting a negative 1% foreign-currency impact compared with new bookings in the third quarter last year. Consulting net revenues for the quarter were $4.82 billion, an increase of 4% year-over-year in U.S. dollars and 6% in constant currency. Outsourcing net revenues were $4.05 billion, an increase of 6% in U.S. dollars and 7% in constant currency. Despite the growth in revenues, Accenture’s stock price declined by over 5% as the company lowered its full-year EPS guidance due to one-time pension settlement costs. The details of earnings are below. See our full analysis for Accenture Guidance For FY17 and FYQ4 Accenture expects its net revenue to be in the range of $8.85 billion to $9 billion in fiscal Q4, growth of 5-8% in constant currency. For fiscal 2017, the company has revised its guidance downwards due to a negative impact on revenues from the strengthening dollar. The company  stated in its press release  that it recorded a $510 million non-cash settlement charge in May related to the termination of its pension plan in the U.S. This settlement charge will reduce the company’s fiscal 2017 diluted GAAP EPS by approximately $0.47 and its full-year GAAP. Based on this update, it expects diluted EPS to be in the range of $5.37 to $5.44 for the year. Accenture also revised its operating margin for the full fiscal year to 13.3, a 150 basis-point impact of the pension settlement charge. Excluding the settlement charge, the company expects its operating margin to be 14.8%, an expansion of 20 basis points from fiscal 2016. Order Book Signings Grows To Record High Accenture reported new signings of $9.8 billion during Q3, which brought the total order backlog to $36.3 billion, according to our estimates. Even though the level of new bookings follows the typical pattern of new bookings in the third quarter, new order signings grew by 7.5% compared to those in Q3 2016 reflecting the second-highest level of new bookings in Accenture’s history. Considering the historical book-to-bill ratio, we expect solid revenue growth in the final quarter and the ensuing year. Additionally, the company will likely continue to add to revenue growth through acquisitions. Consulting Revenues Post Growth Yet Again Management and Technology Consulting are important drivers for Accenture’s value and account for around 55% of our price estimate for the company. Consulting revenues for the quarter were $4.82 billion, up 4%. Furthermore, the company’s momentum for new orders grew as it booked orders of $5.2 billion (or 53% of total new bookings) during the quarter, a new record. The book-to-bill ratio, the key metric that ascertains the growth in new contracts, stabilized at 1.08x. While the new signings for consulting have been above expectations, we expect that the Consulting business will deliver mid to low-single-digit growth in Q4 2017 as significant investments in new and high-growth areas across Accenture continue to gain traction in the year. Specific areas of higher growth – which include digital, cloud and security services – now account for more than $4.7 billion or 50% of total revenues. Accenture continues to acquire companies in these verticals to bolster revenue growth and gain a foothold in emerging technologies. This bodes well for the company in the future. Outsourcing Revenues Post Robust Growth According to our estimates, the Outsourcing division contributes approximately 41% of Accenture’s value. During the quarter, this division continued to outpace the broader outsourcing industry, as net revenues grew by 6% to $4.05 billion. Accenture reported strong demand for its outsourcing services, with new bookings at $4.6 billion. The outsourcing book-to-bill ratio grew to 1.18x in the quarter. The company expects mid-single digit growth for its outsourcing services, and we believe that the company can deliver these results as order signings for the company improved by 10% during the third quarter of the fiscal year 2017. Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    A Closer Look At The Amazon-Nike Partnership
  • By , 6/23/17
  • tags: AMZN NKE
  • A recent Bloomberg report suggests that Nike  (NYSE:NKE) has entered into a partnership with Amazon  (NASDAQ:AMZN) to sell its products directly on the latter’s platform. Currently Nike products available on Amazon’s e-commerce site are sold by third party sellers through the Amazon Marketplace. Nike also sells its products to Amazon’s subsidiary Zappos.com.  However,  sales via third party sellers increases the risk of counterfeit products ending up on the e-commerce platform and the reported partnership between the two players is likely to ensure that customers get access to genuine Nike products on Amazon.com. Amazon is increasing its focus on apparel and fashion and the company recently launched “Prime Wardrobe” a service for its Prime members where they can order a “box” of apparel to try before buying. (Read Prime Wardrobe: Amazon’s Next Move To Conquer The Fashion Retail Market ). The Amazon-Nike partnership, if formalized, is likely to create a win-win situation for both companies. Amazon would get a stronger foot holding in the fashion retail segment. According to a recent Goldman survey, male millennials named Amazon as their favorite retailer in all segments except shoes and athletic, where Nike was the leader. Direct access to Amazon’s platform will give Nike a better engagement with millennials who already frequent the former’s platform for their retail needs. This can give Nike’s online business a boost and additional traffic to Amazon. Higher Revenue, Reduction In Counterfeit Products One of the key advantages for Nike to sell directly on Amazon’s platform is to reduce counterfeit products of its brand on the platform. Currently third party sellers bring Nike’s products to Amazon and the risk of these products being fake is high. Also, via Amazon, Nike will get access to millennials and experts estimate that this can result in a $300-$500 million in additional revenues.  Further, Nike will also get better control on how its products are displayed and sold on Amazon’s platform.  Nike has an ambitious goal of reaching $50 billion in revenues by 2020 and its e-commerce channel is likely to be a key factor contributing towards this goal. The company’s online sales are growing and in Q3 2017 the company’s digital commerce and new store expansion drove an 18% growth in its direct to customer channel. Nike expects to achieve about $7 billion in sales from its e-commerce channel by 2020 and its partnership with Amazon is likely to drive these revenues. Footwear is the most significant division for Nike which accounts for nearly 50% of its revenues. By 2020, we expect Nike’s revenues to reach $43 billion with footwear accounting for nearly $26 billion of these revenues. The Amazon-Nike partnership appears to be a win-win for both companies. While Nike’s products are already available on Amazon, the risk of buying a fake product from a third party seller might be turning buyers away. With this risk no longer there, millennials would prefer to buy Nike products from their favorite retailer and this should drive revenues for both companies. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    Here's How Alibaba Can Benefit From Its Stake In Grab
  • By , 6/23/17
  • tags: BABA AMZN
  • Reports suggest that Chinese e-commerce giant Alibaba  (NYSE:BABA) could participate in the next funding round for Grab, a ride hailing start up based out of Singapore. Grab is Uber’s major competitor in Southeast Asia and Alibaba’s Alipay platform is already part of the Grab app. A stake in the latter will cement Alibaba’s relationship with Grab giving it a stronger holding in the ride sharing segment. As the e-commerce market in China matures, Alibaba is looking at various ways to diversify revenues. While the company is working on an “integrated retail” strategy to merge the offline and online channels and monetizing data captured via e-commerce transactions on its platform, investments in emerging opportunities where significant growth is likely can help the company participate in this growth. Ride hailing is at a nascent stage in Southeast Asia, and a Google report suggests that by 2025 this market could grow to as much as  $13 billion, with 29 million monthly riders, up from around 7 million in 2016. A stake in a ride hailing company can give Alibaba exposure to this growing segment and help the company diversify its business.
    WYNN Logo
    What Double Digit Growth Of Macau GGR Means For Wynn?
  • By , 6/23/17
  • tags: WYNN LVS MGM
  • Wynn Resorts (NASDAQ: WYNN) generates nearly 65% of its revenues from Macau, and this figure is likely to increase further this year. Wynn’s new Wynn Palace casino in the region, as well as Macau’s casino industry rebound in Q1’17, helped grow Wynn’s Q1 revenues by nearly 50%. The growth momentum of Macau’s gross gaming revenues (GGR) have picked up in the last couple of months, and Wynn will be an immediate beneficiary. In addition, the upcoming infrastructure projects will also boost Wynn’s footfall in the coming months. However, despite the short-term gains, Wynn faces risks from its competitors in the long term. LVS is seen as the front-runner for a contract in Japan, which might pose a risk to Wynn’s long term growth. Additionally, MGM’s new casino, which is expected to open in the second half of 2017 in Macau, will further increase the competition in the region, which may dampen Wynn’s growth in the long run. Wynn’s Short Term Growth Momentum To Continue as Macau Headed For Rebound In the last four months, Macau’s gross gaming revenues (GGR) have grown in the double digits and the growth rate picked up recently. This, coupled with the new Wynn Palace casino, has led to strong growth in Wynn’s Macau revenues and EBITDA. However, we may also see about a 10% increase in Wynn’s sequential revenues in Q2 due to higher GGR in April, May and summer vacations in June. The primary growth driver of Macau’s GGR growth in the last few months has been the VIP gambling segment. Many VIP players who were not seen for a while after the anti-corruption crackdown are reemerging at VIP tables. Wynn’s profits are likely to increase going forward because VIP gambling usually has higher margins as compared to mass market gambling. The three major infrastructure projects in Macau, namely Pac-On Ferry Terminal, Macau airport expansion and the Hong Kong/Macau Bridge, are expected to be completed soon. This will further boost access to Macau and will likely boost Wynn’s revenues in the short term. Overall, we believe that in the short term, Wynn is headed for a strong year due to its new casino, VIP growth in Macau and upcoming infrastructure projects in Macau. International Expansion of LVS and MGM Poses Risk To Wynn While the short-term growth drivers for Wynn Resorts remain very bright, there may be a number of risks going forward which could dampen its growth in the long term. MGM Resorts will open its new casino in the Cotai strip later this year, which will intensify the competition. Additionally, MGM has a very high dependency on U.S. domestic casinos and is expanding in the U.S. as well. Wynn, on the other hand, has focused mainly on Macau of late, which could pose issues for its growth in the long term. Wynn Palace has so far performed better than Las Vegas Sands’ Parisian Macau, but LVS is seen as the front-runner in winning a casino contract from the Japanese government. Japan’s casino market is unpenetrated as gambling was legalized just recently, but it is expected to eventually be as much as a $25 billion market. Thus, we believe that if LVS wins this contract, Wynn’s long term growth prospects will be dampened. See our complete analysis of  Wynn Resorts View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
    SNAP Logo
    A Look At Snap's Recent Acquisitions
  • By , 6/23/17
  • tags: SNAP snap GOOG FB TWTR
  • Snap  (NYSE:SNAP) has had a relatively rocky few months since its March IPO, with its Q1’17 user growth coming in below expectations and its stock witnessing significant volatility amid Facebook’s moves to quickly copy its best features (related: Can Snap Move Beyond Being Facebook’s Innovation Lab? ). That said, Snap hasn’t been sitting still. The company has been rolling out new features, tweaking its advertising strategy while also making niche, technology-focused acquisitions as it looks to deploy some of the funds it raised from its public offering. Below we take a look at two of the company’s most recent acquisitions – Placed and Zenly. Trefis has a  $17 price estimate for Snap, which is in line with the current market price. See Our Full Model And Analysis For Snap Here Placed Acquisition Could Help Snap Justify Ad Pricing, Improve Transparency  Earlier this month, Snap confirmed that it had acquired Placed, a startup that helps to track the offline success of digital ad campaigns, in a deal that could be valued at upwards of $200 million, including stock grants. Placed’s technology essentially helps marketers figure out whether their digital ads are resulting in more footfall to their stores. The acquisition is likely to complement Snapchat’s “Snap To Store” tool, which tracks whether friends who viewed a sponsored geofilter subsequently visited any of the marketers locations. Tools such as these are becoming important for Snap, as it looks to demonstrate the efficacy of its advertisements, which are reportedly more expensive that its peers. Overall, the deal could help the company improve its average revenue per user at a time when its user growth appears to be slowing down (the company added just ~3 million new users in Q1’17, compared to an average of ~5 million users in the prior three quarters) Zenly Deal Powers Snap Maps, Could Boost  Engagement In late May, Snap acquired Zenly, a startup that creates social maps that allow users to see where their friends are located, for $200 million in cash plus additional stock awards. Snap has already deployed the technology in its Snapchat application under a feature called Snap Maps (available currently on iPhone) that allows users to view Snaps based on real time location. The feature uses Bitmoji – which are animated cartoon avatars that Snap acquired last year – as markers on the map. The tool could potentially boost engagement on Snapchat, continuing the company’s move of crowd sourcing user posts for live events such as sports and concerts. A few months ago, Snap added a new search feature to display more location-based stories. Snap reported a slight improvement in engagement in Q1, with users spending over 30 minutes on its app, compared to the 25 to 30 minutes it highlighted on its Form S-1. View Interactive Institutional Research (Powered by Trefis): Global Large Cap   |  U.S. Mid & Small Cap   |  European Large & Mid Cap More Trefis Research
    BK Logo
    All Bank Holding Companies Breeze Through Quantitative Round Of Fed's Stress Tests
  • By , 6/23/17
  • tags: BAC BK C GS JPM MS
  • The seventh iteration of the Federal Reserve’s annual Comprehensive Capital Analysis and Review (CCAR) for banks did not present any problems to the 34 largest financial institutions in the U.S., as all of them comfortably cleared the quantitative phase of the 2017 stress tests . This was largely expected, though, as no financial institution has faltered in the first phase of the stress tests since 2014. The first phase aims to ensure that each participating bank is sufficiently capitalized to withstand a severely adverse economic scenario, and the U.S. banking sector as a whole has strengthened considerably over recent years thanks to focused efforts by the banks as well as due to an improved operating environment. Notably, the 34 companies involved this time around represent well over 80% of the total banking assets in the U.S. The Fed detailed the scenario to be tested this year early this February, with the testing conditions being largely similar to those adopted last year. There were a few minor changes this time though, beginning with an increase in the number of bank holding companies (BHCs) tested from 33 last year to 34 due to the addition of CIT Group for the first time. Besides this, the Fed slightly modified some economic conditions under its “adverse” as well as “severely adverse” scenarios. Below we simplify the key points to put these tests in perspective and also summarize the results to help understand how the firms fare with respect to each other.
    BBBY Logo
    Key Takeaways From Bed Bath & Beyond's Q1 Earnings
  • By , 6/23/17
  • tags: BBBY BBY
  • Bed Bath & Beyond  (NASDAQ:BBBY) reported weak fiscal first quarter results on Thursday, June 22, as both its revenues and earnings fell short of consensus estimates. The company’s stock tanked in after hours trading. Key takeaways from the Q1 results are below: In the first quarter, the company’s revenue remained flat at $2.74 billion, which fell short of consensus estimates by $50 million, primarily due to an increase of 2.1% in non-comparable sales including PMall, One Kings Lane and new stores, largely offset by a 2% decrease in comparable sales. This decline in comparable sales reflected a decrease in the number of transaction in stores, partially offset by an increase in the average transaction amount. Comparable sales from the company’s customer facing digital channel continued to have strong growth in excess of 20%, while comparable sales from its stores declined in the mid single-digit percentage range. On the cost side, Bed Bath & Beyond’s selling, general and administrative (SG&A) expenses increased 5% year-over-year (y-o-y) to around $853 million due to payroll and payroll-related items, including wage increases, further investments in technology including related depreciation, and advertising expenses. Bed Bath & Beyond’s gross margins continued to face pressure in the quarter. The company’s gross margin declined by approximately 90 basis points (bps) from 37.4% in Q1 2016 to 36.5% in Q1 2017. The company identified an increase in net direct-to-customer shipping expenses as the primary reason behind this decline, which resulted from more promotional shipping activity. This was due to the retailer’s free shipping thresholds of $29 for this quarter, which was at $49 for about half of the first quarter last year. In terms of capital expenditures, the company spent $81 million in this quarter, of which more than 40% was spent on technology projects including investments in digital capabilities and the development and deployment of new systems and equipment in the stores. Bed Bath & Beyond also posted diluted earnings of 53 cents per share, which declined 34% y-o-y, and missed consensus estimates by 13 cents. The company did not publish guidance for the current quarter, but consensus estimates for the company’s fiscal second quarter call for earnings of $1.02 per share and revenues of $3 billion, implying growth of about 2% and (8)%, respectively. Have more questions about Bed Bath And Beyond? Please refer to  our complete analysis for Bed Bath & Beyond   See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    ORCL Logo
    Oracle Ready To Sail The Cloud Wave As Future Revenues And Margins Look Strong After FY'17 Results
  • By , 6/22/17
  • tags: ORCL CRM MSFT
  • Oracle (NYSE:ORCL) released its Q4’17 and annual FY’17 earnings on June 21, and managed to beat its own earnings guidance and analyst estimates by a comfortable margin of over 10 cents per share. The revenues, too, exceeded the analyst estimates by over $300 million, which led its stock to jump by around 10% after this earnings release. The reason behind Oracle’s successful quarter and fiscal year was its deals with some of the large enterprises such as AT&T, Netflix, BNP Paribas, Kraft Heinz, and more. The company was able to return to growth in terms of GAAP revenues after 2 years of soft performance. The annual recurring revenue of the company is at an all time high of over $2 billion which is healthy for its future performance. A 69% constant currency rise in the software-as-a-service revenue on an annual basis has resulted in the 14% margin expansion for the division, which has been instrumental in the 6% rise in the non-GAAP EPS. FY’17 is being termed as the turnaround year for Oracle and the company is likely to experience similar growth in the upcoming year given the fact that transition phase to cloud is in its final stages, and the company is all set to take advantage of its growth phase. Rising margins with the top-line growth will be an added advantage to boost the bottom-line in the future. See our complete analysis for Oracle Cloud ERP, PaaS & IaaS Can Be The Leaders In Oracle’s Growth Oracle is claiming itself to be a leader in the cloud ERP (Enterprise Resource Planning) software market which according to alliedmarketresearch is expected to grow by 7% annually to reach over $40 billion by the end of 2020. Oracle’s SaaS revenues are growing faster than this rate, so it is evident that it is moving in the right direction as far as gaining market share is concerned. Therefore, growth in ERP will play an important factor in Oracle’s future with cloud. Also, Oracle’s combined PaaS (Platform-as-a-service) and IaaS (Infrastructure-as-a-Service) revenue rose by 42% in Q4. Chairman Larry Ellison is signaling that this segment will grow faster than SaaS in the future, which if this materializes, can become a major source of revenue for the company. He plans to compete directly with Amazon in IaaS and has often claimed that Oracle’s second generation data centers are superior to Amazon’s AWS. While it will not be appropriate to compare Oracle with its bigger cloud counterparts such Salesforce and Amazon as of yet, but on an individual basis, Oracle has been successful in implementing a slight turnaround in its position in the industry and the above factors can help it to compete head on with these major players in the next few years. Future Margins Are Looking Strong On the margins front, SaaS business is on the right track to reach 80% gross margin as guided by the company. So both the revenue and margin growth in this business can boost the EPS growth in the upcoming year. On the other hand, IaaS margin is navigating the declining curve right now, but this is normal as it is undergoing higher expenses and investments in the initial phase. Once it passes this phase, it is likely to return to the margins of over 40% by early in the next decade according to our estimate. Therefore all the factors as of now are indicating toward an overall increase in the future margins which are a positive signal for Oracle’s future EPS growth. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology  
    CMG Logo
    Here’s Why Chipotle Mexican Grill’s Revised Guidance Does Not Impact Our Price Estimate
  • By , 6/22/17
  • tags: CMG DNKN. MCD
  • After its Q1 2017 results, Chipotle Mexican Grill  (NYSE: CMG) appeared to be on a recovery path. With rising revenues (probably a result of higher customer confidence) the company was able to gain from operating leverage and costs, as a percentage of revenues, were beginning to decline. It appeared that the company will need to spend less on food safety and promotion measures as it moves forward with customers returning to its stores after a significant impact due to the E. coli food virus. However, recent guidance issued by the company indicates that it will spend more on marketing and promotion and these expenses are likely to increase by nearly 0.3% going forward.  Food costs are likely to remain high although Chipotle expects same store sales to remain in the high single digits. The company’s expansion strategy is intact and it is likely to open 195-200 restaurants in 2017. This revised guidance comes after the company confirmed that a payment card security incident had impacted most of its 2,250 restaurants. (Read Data Breach At Chipotle: A Lesson For Restaurant Companies ? ) While the revised guidance has led to a sharp decline in the company’s stock price it does not impact our price estimate for the company. While we revised the beta to reflect a lower discount rate for the company after the Q1 2017 results, since it is on a long term recovery path, we did not change our cost assumptions.
    EL Logo
    What Might Be The Reasons For Estee Lauder's Decision To Discontinue Its Millennial Focused Estee Edit Brand?
  • By , 6/22/17
  • tags: EL LRLCY REV AVP
  • Estee Lauder has recently decided to discontinue its Estee Edit brand after only one year of launching it. According to the company, the Estee Edit collection for Sephora was created to attract millennial customers. However, the core Estee Lauder brand also continued in the same endeavor along with Estee Edit. Since the latter has already been successful in luring a satisfactory portion of the millennials to the company’s products, the company has decided that a separate brand is no longer required in North America. However, the company’s partnership will continue with Sephora and it will sell other brands through the beauty chain. Though this has been the company’s reasoning there can be other reasons for discontinuing Estee Edit. The first thought that comes to mind is that maybe, the brand has not been doing too well. Beauty experts expected the Estee Edit brand to generate around $60 million in revenues in the first year itself. There might be a possibility that the brand’s performance fell significantly short of the expectation. We should also remember that Estee Lauder has been on a shopping spree for millennial focused brands. Last year, it acquired Too Faced and Becca. This year, it recently invested in skincare brand, Deciem. Maybe the company realized that brands with an existing hold over millennials are a better choice to capture this segment of beauty users than developing a new brand from scratch. Estee Lauder has been viewed so far as a brand that mainly catered to older beauty users. Estee Edit got an image makeover from other Estee Lauder’s products in order to connect with the younger beauty customers. This might have backfired for two reasons: 1. The products do not give a sense of connection to the original Estee Lauder brand and, 2. Millennial customers might have been more comfortable buying brands which were already focused towards them, rather than trying out an ‘experimental and new’ brand from the house of Estee Lauder. Some of the Estee Edit products will be available in stores till the end of this year after which they will be discontinued. The premium beauty company will rather focus on its new acquisitions that are already promising better days for the company with their impressive sales growth that might increase further along with their geographical expansion. Editor’s Note: We care deeply about your inputs, and want to ensure our content is increasingly more useful to you. Please let us know what/why you liked or disliked in this article, and importantly, alternative analyses you want to see. Drop us a line at  content@trefis.com Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    QSR Logo
    Can A New Tim Hortons CEO Resolve RBI's Challenges ?
  • By , 6/22/17
  • tags: QSR MCD CMG
  • Restaurant Brands International  (NYSE: QSR) is facing several challenges from its Tim Hortons’ franchisees. While the franchisees have been discontented for a while (Read Here’s Why Restaurant Brands International Needs To Focus On Tim Hortons Franchise Partners ), they are now seeking a class action law suit against the company for misappropriation of money from a national advertising fund. The suit claims $500 million in damages and franchisees allege that the company failed to respond to questions about use of advertising funds collected from them. While RBI has rejected these allegations, Tim Hortons President Elias Dias Sese stepped down from his position soon after these allegations were made and the company’s international CEO Daniel Schwartz is taking over his responsibilities. Dias will now take charge of RBI’s international expansion strategy. Tim Hortons is an important segment for RBI and discontent among franchisees can impact the growth and profitability of this segment.  A better relationship with franchisees is critical for RBI and a change in leadership can lead to a fresh perspective and help the company resolve these issues amicably.  Daniel Schwartz, who will now be in charge of Tim Hortons, has already been meeting store owners to discuss their concerns and this line of communication should help RBI. The company had a disappointing Q1 2017 and it needs its franchisees to focus on product innovation and the roll out of its digital ordering platform. At this juncture lack of cooperation from franchisees is likely to impact the profitability of the company, especially when the industry is facing headwinds and competition is intensifying. According to our estimates, Tim Hortons accounts for more than 60% of the company’s valuation and its franchisees’ restaurants contribute 30% of the company’s valuation. Restaurant Brands International follows a 100% franchised model for its Burger King segment and is likely to do the same with Tim Hortons. The company’s expansion strategy depends on its relationship with franchisees as it looks to grow Tim Hortons beyond Canada. We believe a change of guard at the leadership level should help the company in strengthening these relationships as the new head of Tim Hortons is an experienced leader who is already working towards resolving the issues.   See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    BlackRock Looks To Europe Robo-Advising Market With Minority Stake In Scalable Capital
  • By , 6/22/17
  • tags: BLK BK STT
  • BlackRock (NYSE:BLK) recently took its first step into Europe’s growing digital investment manager industry – commonly referred to as the robo-advisory industry – by acquiring a minority stake in Scalable Capital . BlackRock led the latest round of funding for the Munich- and London-based company to raise €30 million along with existing investors HV Holtzbrinck Ventures and Tengelmann Ventures. Scalable Capital is expected to use these funds to grow its presence in continental Europe by leveraging its strong presence in Germany and the U.K. Notably, BlackRock’s stake in Scalable Capital comes almost two years after it acquired U.S.-based FutureAdvisor  and is a logical next step for the world’s largest asset manager to tap into the low-cost robo-advisory business. Robo-advisory services have grown substantially over recent years, as the low-cost investment solutions they offer match the requirements of the price-conscious mass-affluent segment. Additionally, the move complements BlackRock’s push into low-cost ETF offerings over recent years and will grant the company access to a strong distribution channel to target retail investors.
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    How Proposed Corporate Tax Cut Would Impact Deere’s Valuation
  • By , 6/22/17
  • tags: DE
  • The Trump administration recently laid out a plan to reduce the federal corporate tax rate to 15% from the current rate of 35%. According to U.S. Treasury data, the average effective tax rate of U.S. companies in 2016 was close to 22%, as net operating losses, international business, tax credits and other items can reduce the effective rate. For Deere (NYSE: DE), the figure has ranged between 28% to 37% in the last five years. The new policy, if implemented, could reduce the company’s effective tax rate to 27%, thus unlocking nearly $100 million in annual cash flows, which could increase its valuation by around 10%. Below we explain further. Deere Stock Has Upside of 10% If Effective Tax Rate Is Reduced To 20% Deere paid nearly $380 million in taxes to U.S. federal and state government in 2016. Deere’s income before taxes from its U.S. operations was $967 million in 2016, taking the effective tax rate for its U.S. operations (federal and state combined) to close to 40%. However, this included some deferred taxes from the prior year, and if we average Deere’s effective tax rate in the U.S. for the past few years, it turns out to be very close to the blended average statutory rate (again, state and federal combined) of 39%. If the corporate rate were to be cut to 15%, it is reasonable to believe that the company’s effective U.S. tax rate could be close to 20-22%. This, in turn, could reduce the company’s overall effective tax rate – including international operations – to around 27%, thus freeing up about $100 million in free cash flow.  This could result in a 10% upside to our price estimate for Deere. Using Trefis technology, you can leverage our interactive platform to visualize how the change in tax rate can impact Deere’s valuation. For more information, please refer to  our complete analysis for Deere See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    The Revival Of Crude Oil Prices Appears To Be A Distant Dream
  • By , 6/22/17
  • tags: APC COP CHK EOG
  • The optimism that had filled the commodity markets due to the OPEC’s resolve to rebalance the oversupplied oil markets has now transfigured into cynicism. After moving past the $55-per-barrel mark for the first in the last 20 months in February of this year, crude oil prices have plunged back to under $45 per barrel of late. This collapse is largely driven the  incessant rise in the US oil production and inventories, as the sudden recovery in oil prices has made it economically viable for US shale producers to expand their output. Additionally, the global rig count, more specifically the North American rig count, has been expanding sharply, indicating that the US oil output is likely to swell even further in the forthcoming months. To top it all, as per the latest data, the OPEC members, particularly Nigeria, Libya, and Iraq, have ramped up their output in the last month, raising questions about the effectiveness of the oil cartel’s production quotas. This could imply that despite the OPEC’s efforts to curb its oil supply, and in turn, stabilize oil prices, the oil prices are likely to remain depressed over the short term. See Our Complete Analysis For Anadarko Petroluem Here Continuous Rise In US Oil Supply Will Hamper Recovery One of the positive outcomes of the ongoing commodity slump has been the reduction in the operating costs of most of the US shale producers. While a dozen of these companies have been pushed out of the market in the last two years, a few of them, such as EOG Resources and ConocoPhillips, who have continued to optimize their cost structures and invest in innovative technologies to enhance their operational and capital efficiency, have managed to bring down their break-even oil price from over $80 per barrel in 2014 to under $40 per barrel at present. This has motivated independent oil and gas producers, such as Chesapeake and Anadarko Petroluem, to build extensive plans to grow their production by 10%-15% annually over the remaining years of this decade. Source: US Energy Information Administration (EIA) That said, the already saturated oil markets have started experiencing the strain of the growing influx of oil output from these US energy companies. To put things in perspective, the US oil production has gone up from 8.7 million barrels of oil per day (Mbpd) at the time of the OPEC deal to 9.33 Mbpd at present, representing a jump of more than 7% within a span of six months. The majority of this rise is driven by the increased drilling activity in the North Dakota, Oklahoma, Permian, and other shale regions. According to Bloomberg, there were 5,946 drilled-but-uncompleted wells in the US at the end of May, which is the highest in the last three years. In addition to the production, the US oil stockpiles have also been accentuating the global oil glut. Currently, the US crude oil inventory stands at 1,196 million barrels, which is similar to what it was at the same time last year. Although the country’s oil stock has been declining over the last couple of months, it continues to be higher than the pre-OPEC deal levels. In fact, it is more than 9% higher compared to the nation’s average oil stock in the last five years, defeating the oil cartel’s attempt to draw down the excess oil supply from the global markets. To make things worse, there is a high probability that the US oil output will continue to multiply. Since the OPEC’s decision to hold back their cumulative oil output in November 2016, the global rig count (oil and gas) has risen by over 15%, and currently stands at 1,935 units. However, the US rig count has grown by almost 30% to 978 units during the same period. Given the compounding demand for rigs backed by aggressive production targets of US oil producers, we forecast the country’s oil production to shoot up further in the coming months, which is likely to pull down oil prices. Default By OPEC Members Could Vandalize The Cartel’s Efforts At a time when the market experts are blaming the expanding US oil supply for the delay in the rebound of oil prices, the latest data from the OPEC’s Monthly Oil Market Report (MOMR) indicates that the cartels’ oil production, which was supposed to decline as per its agreement, has grown by 336 thousand barrels per day (kbpd) for the month of May. While most of the member countries continued to keep their output in check,  Iraq, Libya, and Nigeria have increased their oil production by more than 6% during the month, which is the key reason behind the rise in the OPEC’s output. Source: OPEC Monthly Oil Market Report, 13th June 2017  As of now,  Nigeria and Libya are exempt from any production quotas under the OPEC’s deal. However, since the oil produced by the two countries suffered severely in the last year due to the geo-political unrest in their economies, they are now beginning to regain their lost market share by ramping up their output.  The jump in the OPEC’s oil production has caused the market experts to probe the validity of the cartel’s deal. If the oil supply from these countries continues to rise at this rate, there are chances that the other member countries decide not to adhere with the current production cuts, and/or demand for favorable terms under the deal. This would diminish the impact of the cartel’s production cuts, if not completely nullify it, and in turn, force the oil prices to plunge again, and prolong the worst-ever commodity downturn. Given the strong drilling demand in the US, the oil supply from the country is likely to increase sharply in the coming quarters. This, coupled with rising oil output from the OPEC members that are exempt from the production cuts, could negate the oil cartel’s efforts to normalize oil prices over time, and on the contrary, result in further weakness in oil prices at least in the near term. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    Revisiting Dow-DuPont Merger Motivation As The Companies Win U.S. Anti-Trust Approval
  • By , 6/22/17
  • tags: DOW DD MON
  • Dow (NYSE:DOW) and  DuPont  (NYSE:DD) recently cleared the final major hurdle in their proposed merger by winning U.S. anti-trust approval. This approval is contingent on DuPont selling part of its herbicide/insecticide business, and Dow selling its plastics packaging business. When the merger was first proposed, anti-trust approval was under doubt as it was clear that the combined entity will have a very strong market position. This attracted strong scrutiny from U.S. and EU regulators, resulting in numerous deadline suspensions. However, Dow, DuPont, and major regulators around the world appear to have reached a common understanding. We take this opportunity to offer our take on why the companies decided to merge, the synergy implications, and the rationale behind the expected post-merger split. Here is all you need to know about this deal. Our price estimate of $83 for DuPont is in-line with the market. The Rationale Behind The Merger The merger will allow Dow and DuPont to navigate the challenges they have seen in the last few years in the agricultural and chemical industries, and also unlock shareholder value by eliminating redundant operations. The two companies have been facing pressure from activist investors because of stagnation resulting from intense price competition, subdued commodity prices, currency challenges, and bloated cost structures. Both companies have seen their revenue fall over the last few years because of low crop prices resulting in decreased demand, competitive pressure, strengthening of the U.S. dollar, and falling oil prices. In fact, these challenging market conditions have prompted other players to pursue inorganic growth opportunities, too. Bayer has agreed to buy Monsanto in a deal valued at $66 billion, and BASF and Syngenta have recently submitted bids to buy assets that Bayer plans to sell in order to complete its acquisition of Monsanto. The combined Dow-DuPont entity will have a comprehensive array of products in agriculture, material science, and specialty products segments. It will become a dominant player and gain significant bargaining power over their suppliers and to some extent, customers. Bargaining power becomes important in an industry which is facing growth challenges, and margin improvement can be a critical source of value. Additionally, the size advantage should help the combined companies in terms of access to funds for growth and to ward off competition. $3 Billion In Cost Synergy & $1 Billion In Revenue Synergy Dow and DuPont have a lot of market overlap which gives an opportunity to eliminate costs and grow revenues. The companies  estimate cost synergy of approximately $3 billion which will be driven by a reduction in cost of goods (40%), selling, general and administrative costs (30%), leveraged & corporate costs (20%), and research and development expense (10%). Further, the companies expect revenue synergy of $1 billion. The three key businesses—Agriculture, Material Science, and Specialty Products—are expected to generate about $1.3 billion, $1.5 billion, and $300 million, respectively, in cost synergies. We note that, after taking these synergies into account, the EBITDA margin of the combined entity is likely to be close to the best in the industry. In our opinion this is plausible considering the significant operations overlap and the fact that the combined entity will have a leadership position. The Subsequent Split Once merged, Dow and DuPont plan to split the combined entity into three independent and publicly traded companies, with different areas of  focus. This is expected to happen within a period of 18 to 24 months following the merger. Both Dow and DuPont have been divesting some of their non-strategic businesses to focus on high-margin products. Examples include Dow’s divestiture of the chlorine business to Olin Corp, and AGNUS Chemical Co. to Golden Gate Capital, and DuPont spinning off its performance chemical business, Chemours. The merger and the subsequent split is essentially a continuation of the strategy to create lean and focused businesses, which could help them navigate the current challenging and competitive environment. The split is likely to unlock value for shareholders. Post-merger, the combined entity will operate three broadly unrelated businesses: Agriculture, Material Science, and Specialty Products, and thus will be subject to what is known as “conglomerate discount,” where the conglomerate tends to trade at a discount to their sum of the parts valuation. The split up is likely to lead to efficient capital allocation. The investors will be free to invest only in those businesses which they believe have value — which, in turn, should boost the total valuation of the three businesses. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    How Will Costco Compete With Amazon-Whole Foods?
  • By , 6/22/17
  • Amazon’s acquisition of Whole Foods is likely to disrupt the grocery industry. Investors believe that Amazon will emerge as a strong competitor to players such as Wal-Mart, Target and Costco  (NYSE:COST), eating into their market shares and changing the grocery industry dynamics. While most players have invested significantly in e-commerce initiatives, Costco remains a laggard. The company is focused on initiatives to attract customers to its stores, given its membership-based model which encourages customers to buy in bulk. Costco’s customers buy more when they come to its stores compared to its online channel. The company’s membership renewal rates are high and its focus on organic produce and value shopping is aimed at attracting younger customers. Costco’s model works on thin margins and large volumes, and therefore the company is not keen on selling smaller quantities online. Costco has been able to grow its revenues and comparable sales with this model without a strong focus on e-commerce. In Q3 2017, the company exceeded analysts’ estimates with revenue growth of 8% year on year and a 5% increase in comparable sales. Costco is the most efficient retailer in the U.S. and generates significantly higher revenues per square foot compared to most of its peers. Costco is likely to generate revenue of more than $1500 per square foot in 2017, while the comparative number for Wal-Mart is less than one third of this number. . Thus far, the lack of an effective integrated (online and offline) retail strategy has not impacted Costco, and its loyal customers continue to visit its stores for their bulk purchases. However, after the acquisition of Whole Foods, if Amazon can offer a comparable service to its Prime customers and leverages Whole Foods’ expertise in organic produce, Costco could run into some trouble. Amazon’s experiments with grocery (AmazonGo) appear to be aimed towards providing convenience to customers who prefer to pick up a few items from a store quickly and easily. It is not clear whether the company will also look into the bulk orders segment to drive revenues. However, the company can easily leverage its loyal base of Prime Members to replicate the Costco model. In the past, Amazon tried to lure its Prime customers by launching a Visa credit card which gave additional discounts for purchases on its platform, and allowed customers to earn discounts in restaurants and gas stations. This card was similar to Costco’s new Visa card which provided similar discounts, but at a lower rate. This move indicates that with its deep pockets, Amazon can easily build a competitive edge over Costco. Currently there is a significant overlap between Costco’s memberships and Amazon Prime Members.  A Morgan Stanley survey based on 2,700 people revealed that  45% of Costco members also had a Prime membership . Both companies have loyal user bases, and Costco did have an edge in the grocery segment, but Amazon’s acquisition of Whole Foods changes this equation. With its focus on customer service, its loyal customer base, and competitive prices, Amazon may cause some problems for Costco going forward. View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap |  More Trefis Research
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    How YouTube Can Add $50 Billion To Alphabet’s Revenues By 2020
  • By , 6/22/17
  • tags: GOOG
  • According to Trefis estimates, YouTube makes up nearly 18% of Alphabet ’s (NASDAQ: GOOG) value. While most of YouTube’s revenue stems from online ads, it did generate some revenues from its subscription services as well. We estimate that the company disbursed close to 70% of the revenues to video content producers as part of its content sharing agreements. Despite the popularity of YouTube, Alphabet continues to explore avenues to boost YouTube’s revenues. In the recent quarters, the company has launched new services, which includes a paid YouTube subscription cable service called Unplugged that would offer customers a bundle of cable TV channels streamed over the Internet and live TV streaming. Through the launch of these services, the company is trying to disrupt the global video-on-demand (VoD) industry, which is projected to reach $91 billion by 2020 . Furthermore, the launch of such services is attracting customers away from the Pay-TV space, which is witnessing a decline in subscriber numbers due to cord cutting initiatives. In this note, we explore the revenue that YouTube can add to Alphabet’s top line by the end of the decade. Click here to see our complete analysis of Alphabet Online Ads Will Be The Mainstay For YouTube In The Future TV ad spending currently leads all other ad spending, but this is set to change in 2017, when online ad spending is expected to overtake TV ad spending in the U.S. and worldwide. By 2020, digital ad spending is expected to account for nearly half of total media ad spending. According to IAB, spend on digital/mobile video ads is expected to increase by 67% in the 2015-2017 period, driven by explosive growth in online video consumption. YouTube’s consumption has risen by around 50% annually, in terms of hours watched, over recent years. The site gets over 30 million unique visitors per day and 5 billion videos are watched on YouTube every day. This is allowing the company to attract advertising dollars that were previously allocated to TV. YouTube has been able to target TV ad dollars with the increasing channelization of its services. We expect that the company will eventually be able to charge rates that are comparable to TV rates for ads displayed on premium videos that can be viewed on TV screens. Currently, we estimate that YouTube’s CPM (Cost Per 1000 impressions) for its ads will grow from $6.53 in 2016 to $14.50 by the end of our forecast period. Video On Demand Subscription Services Can Boost Top Line In The Future While Alphabet does not disclose specific financials for YouTube, we estimate that YouTube generated nearly $19 billion in 2016. We currently estimate that YouTube’s revenues will increase to $50 billion by the end of our forecast period. This is based on an assumption of 1.6 billion users worldwide that will view over 5 trillion videos by 2020. In addition to the online ad revenues, subscription services such as YouTube Red (ad-free) and Unplugged will add to the company’s top line. We currently estimate that YouTube will capture 5% (or $5 billion) of the Subscription VoD market. However, if YouTube’s share in SVoD were to increase to 10%, the platform could add $5 billion to YouTube’s topline by 2020, and our price estimate can rise by 5%. Understand How a Company’s Products Impact its Stock Price at Trefis View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    Adobe Stock Hits Record Highs Driven By Creative Cloud, Marketing Cloud
  • By , 6/22/17
  • tags: ADBE
  • Adobe  (NASDAQ:ADBE) posted its fiscal Q2 results on Tuesday after market close, and its revenues increased by 27% to $1.77, above its guidance range. As a result, the stock price rose by close to 5% in after-market hours trading. The company continued to report growth in its cloud revenues with Creative Cloud (CC), registering 35% growth in revenues during the quarter. Furthermore, Adobe’s annualized recurring revenue (ARR) reached nearly $4.56 billion for its digital media business, which includes creative and document cloud products. The net ARR increase in Q2 was $312 million and was driven by continued strength in its Creative Cloud and Document Cloud businesses. Digital Cloud Marketing revenue also grew by 29% year over year. Its waning LiveCycle software revenues declined by 21% to $21.3 million, while the revenues for print and publishing business (relatively small) were flat. In this note, we examine some of Adobe’s key drivers and its outlook for fiscal Q3. Outlook For Q3 2017 Adobe has guided for revenues of $1.815 billion for the third quarter of fiscal 2017. It expects that GAAP EPS to be around $0.72, and non-GAAP EPS to be around $1. The company expects to achieve approximately $300 million of net new Digital Media ARR. It expects digital media and digital marketing cloud revenues to grow by 26% and 25%, respectively. Strong CC Subscriptions Boost Revenues In Q2 According to our estimates, the Creative Cloud division is the biggest of Adobe’s operating segments and contributes approximately 52% of its value. While the company reported that it added a record number of new subscribers for its CC during the quarter, it did not disclose the exact number. The growth in licensing continued to stem from individual, team and enterprise term licensing agreements (ETLA), which usually have a term of three years. Growth was also fueled by strong performance in the SMB segment and international growth. Furthermore, a continued migration of the Creative Suite installed base bolstered subscription numbers. As a result, Adobe achieved record Creative revenue of $1.01 billion in Q2, which represents 34% year-over-year growth. The company also reported that Creative Cloud ARPU grew quarter-over-quarter across all its product offerings in Q2. Continued Adoption of Marketing Platform, Especially Across Mobile Devices Adobe’s Marketing Cloud division is the company’s second-biggest division and makes up 27% of its value. The company has scaled up the functionality and product offering of its marketing platform, through organic and inorganic growth. While the company continues to integrate TubeMogul into its Marketing Cloud offering, it is adding Artificial Intelligence and Machine Learning functionality of its Sensei platform to marketing cloud. In Q2, this division reported a 29% year-over-year increase in revenue to $495 million. The company stated that mobile remains a key driver for its Marketing Cloud business. Mobile data transactions grew to 57% of total Adobe Analytics transactions in the quarter and total data transactions in Q2 grew by 35 trillion. The company said that in the trailing four quarters, data transactions for its Marketing Cloud solutions exceeded 135 trillion. Furthermore, the company is driving larger, multi-year and multi- solution customer contracts. As a result of larger engagements and longer implementation cycles, it is witnessing strong growth in deferred revenue and unbilled backlog for its cloud divisions. Deferred revenue grew to a record $2.07 billion, up 23% year-over-year. As such, this division will likely report incremental growth in revenues going forward. Document Cloud Services Buoys Revenues At Acrobat Family Division Adobe Acrobat family is the third largest division at Adobe and makes up 14% of its value. In the past few quarters, revenues from this division have been on a decline, primarily due to the launch of Document Cloud services that have subscription fees spread over the period of usage. Q2 document cloud services revenue grew marginally to $200 million and the Document Cloud ARR grew to $520 million in the quarter. We expect Document Services’ ARR to drive revenue growth in the Acrobat family division in the future as it continues to add new functionality in Adobe Sign. We are in the process of updating our Adobe Model. At present, we have a  $132 price estimate for Adobe, which is in line with the current market price. View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research  
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    What To Expect From Bed Bath & Beyond's Q1 Earnings
  • By , 6/22/17
  • Bed Bath & Beyond (NASDAQ:BBBY) is scheduled to announce its fiscal first quarter earnings on Thursday, June 22 after market close. In Q4 2016, the retailer’s revenue increase 3% year-over-year (y-o-y) to 3.53 billion, primarily due to a 3% y-o-y increase in non-comparable sales, including PMall, One Kings Lane and new stores, and a 0.4% y-o-y increase in comparable sales. The company also posted diluted earnings $1.84 per share, which declined 4% y-o-y. In fiscal 2016, Bed Bath & Beyond reported more than a 20% increase in its comparable sales growth from customer-facing digital channels over the corresponding period in the prior year. However, this increase was not able to offset the company’s declining foot traffic from its physical stores, and as a result its comparable store sales declined 0.6% in fiscal 2016. We expect this trend to continue into the first quarter as well. Future Outlook Reuters’ compiled analyst estimates forecast revenues of $2.79 billion and earnings of 66 cents per share for Q1 2017, implying growth of about 2% and (17%), respectively. For full year 2017, Bed Bath & Beyond expects a low to mid single-digit percentage increase in consolidated net sales. The company also expects flat to slightly positive comparable sales for the full year, on the back of continued strong growth in the customer-facing digital channels. However, we expect margin pressure to continue in fiscal 2017, due to an increase in net direct-to-customer shipping expense and coupon expense. In addition, the company expects its full year capital expenditures to range between $400 million and $425 million, of which more than half of the spend is planned for technology-related projects in support of its growing omni-channel capabilities. The retailer plans to open 30 new stores and close approximately 15 to 20 stores in 2017. The company also expects its net diluted earnings per share to decline in the range of low single-digit to 10% in fiscal 2017, due to continued margin pressures from ongoing investments and higher anticipated tax rate. Have more questions about Bed Bath And Beyond? Please refer to  our complete analysis for Bed Bath & Beyond   See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    A Closer Look At Dunkin’ Brands' Growth Strategy
  • By , 6/21/17
  • tags: DNKN MCD SBUX
  • As it navigates through a challenging industry environment with increasing competition, Dunkin’ Brands  (NASDAQ:DNKN) has chalked out a six-part plan to grow revenues. The company reported flat comparable sales for Q1 2017, however believes that it has a strategic plan in place for a future which will enable Dunkin’ Brands to meet its guidance for comparable sales. We expect a steady increase in the average revenue per Dunkin’ Donut U.S. outlet (which is the biggest division for the company) over our forecast period. This metric is a key value driver for the company and a faster pace of increase in this number can impact our price estimate significantly. For instance, if the average revenue per outlet increases to $1.2 million by the end of our forecast period there can be a nearly 20% upside to our price estimate. Dunkin’ Brands is working on several measures to drive this growth and the key measures along with their likely impact are summarized below: Streamlined Menu: In February of this year, Dunkin’ Brands began a test for streamlining its menu in 300 stores. The company is confident that this measure will simplify the restaurant operations and allow it to reduce employee turnover in the long term. Lower employee turnover can lead to better customer service through trained and experienced employees. An elevated guest experience can give Dunkin’ Brands a competitive edge. Through a streamlined menu which can simplify restaurant operations the company is more likely to achieve its goal of better customer service. Digital Initiatives : Mobile ordering and payment systems are redefining the restaurant industry as companies look to make customer service faster and more personalized by the use of technology. Dunkin’ Brands already has an On-the-Go mobile ordering platform and in March this year the company partnered with Waze, a real time traffic and navigation app. Waze users can order ahead at a Dunkin’ store in their route and skip the line. The company also has an established DD Perks program which now has 6.5 million members who account for nearly 10% of its U.S. sales. Dunkin’ Brands is testing delivery and catering via DoorDash and entering into strategic partnerships to promote its Perks program. Creating a loyal member base along with technology initiatives to stay ahead of competitors is likely to drive growth for the company in the long term. Product Innovation And Brand Differentiation : Dunkin’ Brands is working on product innovation to differentiate itself from competition. Dunkin’ Punch and frozen coffee are its key product differentiators aimed to attract millennials. The company is also working on removing artificial ingredients from its donuts to meet the “healthier food” preferences of customers. As competition in the fast food industry intensifies, the ability to offer new innovative products which meet customer requirements is likely to be a key growth driver in the long term. Strong Relationships With Franchisees : One key element of Dunkin’ Brands’ growth strategy is its focus on franchisee profitability. The company’s initiative to streamline its menu has gained a positive response from franchisees. As the company looks at expanding into new regions and growing its number of stores, franchisee profitability will play a significant role in this expansion. Dunkin’ Brands’ management is spending a significant amount of time to establish strong relationships with its franchisees and this strategy is likely to fuel growth for the company. Dunkin’ Brands is facing headwinds in a challenging industry environment with increasing competition. However, the company’s growth strategy is strong and this is likely to drive steady growth in the long term. See full analysis for Dunkin’ Brands   View Interactive Institutional Research (Powered by Trefis): Global Large Cap  |  U.S. Mid & Small Cap  |  European Large & Mid Cap More Trefis Research
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    How Important Is American Eagle's Direct Business?
  • By , 6/21/17
  • tags: AEO ANF URBN GPS
  • Increasing rates of internet penetration have facilitated the move from store to web shopping, as well as the proliferation of smartphones and tablets. As a consequence of this movement,  American Eagle Outfitters ‘ (NYSE:AEO) direct-to-consumer (DTC) business has grown rapidly, from $307 million in 2008, to $975 million in 2016, according to Trefis estimates. The US apparel industry is gradually shifting towards omni-channel retailing, which refers to providing a seamless shopping experience across stores and the online channel. This is becoming an inevitable move for apparel retailers, including American Eagle, which has been working hard to develop its omni-channel platform, and has shown significant progress so far. Industry Trends Forcing A Move To The Digital Space Online retail sales in the US have grown at a rapid pace over the past several years, thanks to growing internet usage in the country. Internet penetration in the US has gone up from 44% in 2000 to 88.5% currently. Furthermore, facilitated by the convenience of constant access, 92% of teens today go online daily, including 24% who are online constantly, according to a study conducted by Pew Research Center. Over half of the teens (aged 13 to 17 years) go online several times a day, aided by the presence of smartphones, which are available to nearly three-quarters of teens. The smartphone usage will only increase in the future, and this will likely result in a steady rise in online sales. This is evidenced by research which predicts online apparel sales in the US to increase its revenue from $63 billion in 2015 to $100 billion by 2019. This segment is considered as the most popular e-commerce category in the US, accounting for 17.2% of total e-retail sales in 2015. Recent years have been hard for teen retailers, with some even filing for Chapter 11 bankruptcy, such as Quicksilver in September 2015, Pacific Sunwear in April 2016, and Aeropostale in May 2016. Earlier in the year, news also surfaced regarding the shuttering of The Limited. Others have hobbled along, including Abercrombie & Fitch, and Gap Inc. These once sought-after brands, among high school kids in the US, have been blighted as a result of their over-reliance on the footfall at shopping malls, and the rise of fast-fashion brands, such as H&M and Zara. This has led to a number of companies shuttering their stores. Macy’s announced it was planning to close 100 stores or 15% of its fleet. The number for J.C. Penney is 138, while that for Sears has been revised from 42 to a minimum of 150. Retail analyst Jan Rogers Kniffen told CNBC in May of last year that he predicts 400 of the 1,100 enclosed malls in the US will close in the coming years, and only 250 of the remaining will thrive. The US has 23.5 square feet of retail space per capita, in comparison to 16.4 square feet in Canada and 11.1 square feet in Australia — the next two countries with the highest retail space per capita, according to a Morningstar report from October. Given this statistic, he further noted that the footprint is poised to decline “pretty fast.” Growth In DTC Segment To Continue Impressive performance of the DTC segment has been one of the growth drivers for American Eagle in recent quarters. For the company as a whole, the digital sales now account for 26% of the total revenues, up from 19% last year. Effective digital marketing, as well as growth in mobile continued to accelerate growth. Aerie, in particular, has benefited immensely in the online space, resulting in a 47% online penetration in the first quarter, up from 35% in the corresponding period of last year. Given the substantial progress seen in this segment, the company had also launched an exclusive online-only range, which was well received. The company has taken a number of steps to ensure a seamless online experience, which was also an important factor driving the sales. This growth trend is expected to continue in the future. According to Trefis estimates, the company’s online business will continue to grow at a high rate, reaching $1.63 billion by 2023. In 2017, the company intends to undertake capital expenditure to the tune of $160 to $170 million, roughly half of which is expected to be spent to support the digital business, and omni-channel tools. Given the rise of its DTC business, and the ongoing mall traffic declines, the company also continues to assess its store locations. AEO’s fleet of stores are largely profitable, but it continues to look into cases where the company is over-stored or there is a high likelihood of sales migration. Furthermore, in its entire portfolio of 1,050 stores, 580 come up for lease expiration in the next three years, giving the company the flexibility to implement its aggressive store closure plans. See our complete analysis for American Eagle Outfitters Have more questions about American Eagle Outfitters? See the links below: Is A Wave Of Consolidation About To Hit The Fashion Retail Industry? Excessive Promotional Activities Hurt American Eagle’s Earnings Investors Overlooking American Eagle’s Growth Potential Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
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    Barrick Sticks To Disciplined Capital Allocation As Upside For Gold Prices Remains Limited
  • By , 6/21/17
  • tags: ABX NEM FCX SLW
  • Barrick Gold announced the completion of a 25% stake sale in the Cerro Casale gold mining project to Goldcorp earlier this month, with the two companies (now both holding a 50% stake) looking to jointly develop the Chilean gold mine. The stake sale in the undeveloped gold mine, which would lower Barrick’s capital expenditure commitment towards the development of the project, is in keeping with the company’s strategy of disciplined capital allocation as it seeks to maximize cash flow generation, with the upside for gold prices remaining limited in the near term. Lower Capital Expenditure Commitment  Goldcorp acquired a 25% stake in the Cerro Casale project from Kinross Corporation (Barrick’s erstwhile partner in the project which held a 25% stake) in addition to the 25% stake from Barrick Gold, bringing its total stake in the project at par with that of Barrick. Barrick’s stake sale would enable the company to lower its capital expenditure commitments for Cerro Casale by $260 million. As a result of steady economic and jobs growth in the U.S., the investment demand for gold as a safe-haven asset is likely to remain subdued. President Trump’s legislative agenda, particularly the infrastructure plan and tax reform, should boost U.S. economic and jobs growth if enacted. In order to ensure price stability amid the improving economic conditions, the Federal Reserve is likely to raise the benchmark interest rate by a cumulative 75 basis points in 2017, before raising rates further in 2018. Should the White House be able to push through its legislative agenda, the likelihood of the Fed following through on its expected rate hike trajectory would increase. Thus, the investment demand for gold is likely to remain subdued in the near term, which is expected to translate into weak growth in gold prices, as illustrated by the chart shown below. Besides lowering its capital expenditure commitment, bringing on board a partner with an equal stake in the development of the Cerro Casale project could also help Barrick spread the risk of adverse legal developments scuppering the Chilean gold mining project. Barrick Gold’s Pasuca-Lama project, located on the Chile-Argentina border, has been held up for a number of years amid legal challenges over alleged environmental infractions. Given that the company’s Pasuca-Lama project is currently in limbo, lowering its exposure to Chilean jurisdiction is an additional advantage of the company’s stake sale in the Cerro Casale project. Thus, the recently concluded stake sale, in keeping with Barrick’s strategy of disciplined capital allocation, could also help lower the risk in the company’s mining portfolio. Have more questions about Barrick Gold? See the links below. Why Did Barrick Sell Off A 25% Stake In The Cerro Casale Mining Project? Gold Prices To Average Lower This Year As Fed Maintains Interest Rate Hike Outlook Notes: See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Is Abercrombie Attractive At Its Current Valuation?
  • By , 6/21/17
  • tags: ANF AEO GPS URBN
  • Shares in US retailer  Abercrombie & Fitch  (NYSE:ANF) have been trading at their lowest level since 2000. The stock price has been trending downwards for a number of years, reflecting the poor sales and earnings generated by the company. Once news surfaced on May 10 that the company is fielding interest, and is in “preliminary discussions with several parties regarding a potential transaction with the company,” the stock spiked 12%. Following this, speculation has only risen regarding a potential merger, with American Eagle, together with Cerberus Capital Management, emerging as a frontrunner. However, even this euphoria has died down and the stock price has given back all of its gain, despite reports even suggesting the deal could be through by month-end. Below we’ll highlight some factors that could result in another upswing in the company’s stock price. Focus On DTC Channel Amidst the news that Abercrombie is fielding takeover interest from prospective buyers, including American Eagle, CEO Fran Horowitz is looking to fix the company’s operations. One avenue of long-term growth is the company’s online business. A fundamental shift from brick-and-mortar to the online platform is evident, and retail companies have to embrace this trend in order to be relevant. Keeping this in mind, ANF has integrated its Abercrombie and kids websites, and optimized it for mobile, payment, and tracking. The full omnichannel offering has been rolled out in the US, Canada, and the UK, with plans to roll-out internationally through the remainder of 2017. The focus on its digital presence has been appreciated, with Abercrombie coming in at fourth in a ranking of 100 publicly traded retailers having an omnichannel presence, conducted by Total Retail. Reduced store traffic necessitates the existence of a seamless omnichannel presence. In this regard, ANF has undertaken substantial effort and investment, which seems to be paying off, as DTC (Direct-to-Consumer) revenues increased to constitute 27% of the total revenues in the first quarter of 2017, up from 24% in the corresponding period of last year. Performance of Hollister Hollister performed well for the company in the last reported quarter despite a challenging retail environment. During FY 2016 (year ended January 2017), ANF converted 65 additional Hollister stores into the new prototype format, with positive feedback received regarding the same. The company also successfully rolled out its Hollister Club Cali loyalty program in the US. Based on the positive outcome of these two initiatives, the company has decided to implement them for the Abercrombie brand as well. In 2017, the company expects to close approximately 60 stores in the US through natural lease expirations. Additionally, with about 50% of the US leases expiring by the end of FY 2018, the company has significant flexibility to strike the right store count balance, and drive efficiency by remodeling or resizing the stores, renegotiating leases, or shuttering down. This closure follows the 53 other shops that were shut in FY 2016, and the many others closed in the years prior. In theory, the company’s comparable sales should show an improvement when the unprofitable stores are closed down. Partnerships With Online Retailers Abercrombie & Fitch, on April 10, announced a partnership with online fashion retailer Zalora, which has a presence in 11 countries, including Singapore, Thailand, Indonesia, Hong Kong, and the Philippines. The US retailer will start with selling Hollister products through the online platform, and ANF merchandise following thereafter. Such an agreement would give Abercrombie access to Zalora’s 600 million online customers, located mainly in Southeast Asia, where the company does not have much of a retail presence. A young population, 70% of which is under 40 years of age, a lack of big box retailers, and a growing middle class are expected to make the region’s internet economy surge to a massive $200 billion annually by 2025. This would make the e-commerce in the region grow at an annual rate of 32% per year, reaching $88 billion in the next decade, with all six countries in the region expected to have an e-commerce market of at least $5 billion. Abercrombie & Fitch has also tied up with Zalando, Europe’s largest online platform for fashion. The German-based online retailer carries over 150,000 styles from more than 1,500 brands, and serves 15 European markets. The products of Abercrombie & Fitch, Hollister, and abercrombie kids are available for sale on the platform, and will get the advantage of Zalando’s 18 million active customer base. For Abercrombie to be able to get an access to Zalando’s sizable number of active users, who are regularly engaged through Zalando’s email marketing, will be immense. Furthermore, since every sale through this website will be additional revenue, without any fixed costs associated, it may have a positive impact on the margins. The company is also not that heavily present in the continent, and hence, a presence on the website will not result in cannibalization. In the past as well, wholesale arrangements with online retailers such as Next plc and Asos Plc in the United Kingdom have resulted in increased revenue, with $10 million additional sales in the year 2015. Besides the aforementioned factors, once a more certain deal emerges, the stock price could potentially shoot up. A bid for the company will  possibly be above the current trading price, which would push the stock higher. However, A&F itself has said that there is no guarantee of a deal even materializing. Hence, buying the stock would make more sense if it is done based on its underlying potential. See our complete analysis for Abercrombie & Fitch Have more questions about Abercrombie & Fitch? See the links below: Can 2017 Be A Good Year For Retail Stocks? Part 2: Is There A Way Out Of The Rut For Brick And Mortar Stores Retailing Conundrum, Part 1: Is There A Way Out Of The Rut For Brick And Mortar Stores? Abercrombie & Fitch’s Direct Business Is Its Only Beacon Of Hope Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research