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XOM Logo
Is This The Beginning Of A Turnaround For Oil Prices?
  • By , 11/17/17
  • LB Logo
    Though L Brands' Performance Remained Dampened, Victoria's Secret's Revival Efforts Might Lead To Better Days
  • By , 11/17/17
  • In line with the rest of its fiscal year, the third quarter fiscal 2017 results were disappointing for L Brands, (NYSE: LB), the parent company for Victoria’s Secret (VS) and Bath & Body Works (BBW). Even though the company’s net sales grew by 1% to $2.6 billion, its net income declined by 29% to $86 million while its EPS stood at $0.30 reflecting a 29% decline. L Brands’ comparable store sales fell by around 1%. The main driver for this poor performance was the weakness in sales in the VS segment whose comparable sales declined by 4%. The brand’s exit from swimwear and apparel last year to focus solely on bras is still hurting its sales. Bath & Body Works on the other hand witnessed a 4% increase of comparable sales. However, VS Stores is the most important segment for the company as it derives close to 50% of its revenues from this segment. The VS Stores and VS Direct together make up for almost 80% of our valuation of L Brands. We have a $41 price estimate for L Brands which is around 16% lower than the current market price. Victoria’s Secret Continued With Its Revival Efforts Which Showed Some Positive Signs For Victoria’s Secret, the decline in traffic in the North American brick-and-mortar stores has been a major cause for its weakness. However, the management discussed ways in which it is strengthening the division with the hope of bringing about a revival. Victoria’s Secret is trying to build a better connect with its customers through its store associates and also through the digital medium. The brand is focusing on providing the most innovative and fashionable bras, in all the segments, namely, unlined, lightly-lined, or push-up bras. In the third quarter, the brand launched Illusion, a constructed bra that comes in three choices. The demand for this bra has been higher than previously launched constructed bras, and that is a hopeful sign for the future. Its Dream Angel and Sleep brands also saw double digit growth in sales of constructed bras and sleepwear, respectively. The Sports bra category, which is a major growth driver for VS, also grew by double digits. Along with an aggressive online presence, the company also reactivated its loyalty program through the Angel Cards. Overall, it does seem like Victoria’s Secret is gearing up for better performances in the upcoming holiday season and also in the next fiscal year. L Brands’ International Sales Seemed Hopeful L Brands’ international segment witnessed an 11% growth in revenues in the third quarter driven by both VS and BBW, with the latter having an especially strong quarter with growth in all regions. VS continued with its weak performance in the U.K. where it is still struggling to revive performance. However, the company is currently focusing on China for its international growth and its investment on people, infrastructure, and real estate in the region continued. VS is looking forward to a major boost through the upcoming fashion show in Shanghai. 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:
    URBN Logo
    Margins To Remain Pressured For Urban Outfitters In The Third Quarter
  • By , 11/17/17
  • tags: URBN GPS AEO ANF
  • The apparel retail industry has been plagued with the rise of Amazon and fast-fashion brands such as H&M and Zara. As a result expectations from companies in the sector have remained pretty poor come this earnings season. Hence, it should not come as a surprise if  Urban Outfitters  (NASDAQ:URBN) is able to surpass consensus estimates this time around as the bar has been set low. The company has also been seeing favorable earnings estimate revisions recently, which is a sign of positive news surrounding Urban right before their earnings disclosure. This time around a significant decline in earnings on flat sales growth is expected. If the company is able to outperform the poor results expected, it should provide a boost to its stock price, similar to what happened post the second quarter earnings announcement. Below we’ll highlight a few factors we feel will be impacted in the third quarter. Comparable Sales Recovery Expected Outside factors aren’t alone in causing the declining sales of the Urban brands. One-dimensional focus on certain products at the expense of a well-balanced, wider assortment has resulted in a downfall of the Urban Outfitters brand. Furthermore, a higher lead time inhibited the company’s ability to quickly rectify its mistakes. For this reason, the North American business spent the second quarter trying to re-architect itself. Instead of buying a bulk of its assortment earlier, it started buying a smaller quantity upfront and then bought the remainder, with a faster turnaround, based on the sales. Although the full implementation of this strategy may take some time to even out the flaws, it is expected to show some results in the third quarter. For the Anthropologie brand, the potential reduction in markdowns may hamper the sales growth in the quarter but may help out the margins. The 3% growth seen in Free People in Q2 was impressive given the current retail situation and the fact that the prior year’s quarter included higher sales as a result of increased markdowns. This implies that the potential of the brand can be considered to be strong. While the apparel market in the US continues to be challenging, if the initiatives undertaken by the company do result in an improvement in the assortment, the back half of the year may not be as bad as the first half. Furthermore, URBN has an enormous potential in the international market, where the company has been witnessing positive comps. Keeping that in mind, the Anthropologie brand signed a wholesale distribution agreement to sell its home products in John Lewis stores in the UK. The Urban brand opened three new stores in Europe during the second quarter. Additionally, the company intends to sign several international franchises and joint venture agreements over the next one or two years. These actions may help the company tide over the weaknesses in the domestic market. Margin Pressure Will Remain Urban’s gross profit margins declined by 440 basis points in Q2, to 34.1%, as compared to the corresponding quarter in FY 2016. The main reason for this had been cited to be the underperforming women’s apparel and accessories merchandise at Anthropologie and Urban Outfitters, which forced the company to undertake higher markdowns. Another factor held responsible for the decline was the higher delivery and logistics expense related to the focus on the direct-to-consumer (DTC) channel. These factors together with the higher digital marketing spend resulted in the fall of the operating margin by 470 basis points, to under 9%. In its prepared statement, the company did state that the gross margin is expected to decline at a lesser rate than that seen in the first half and that August was faring better than the second quarter, with a slight improvement in traffic and a better reaction to the women’s line. This would imply better comps, and consequently a reduced need for markdowns. However, whether this trend continues through the quarter remains to be seen. Moreover, the highly competitive nature of the apparel retail business makes the achievement of higher margins pretty unlikely. Since the merchandise is very similar across most retailers, they resort to reducing prices in order to gain market share, which has been wreaking havoc on the bottom-line for many such companies. Hence, while reduced markdowns may give some respite, the margins of retail companies can be expected to remain pressured for the foreseeable future. Moreover, a focus on the better performing segments of the company – DTC and Free People Wholesale – will no doubt have a positive impact on the top-line, but it won’t do the bottom-line any favors. See our complete analysis for Urban Outfitters Have more questions about Urban Outfitters? See the links below: Urban Outfitters Is Winning Online, But Losing At Brick-And-Mortar Apparel Retail Companies: Surviving The Holidays 101 Does Urban Outfitters’ Strategy Of Opening New Stores Make Sense? Notes: Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap | More Trefis Research
    COF Logo
    Capital One's Decision To Exit Mortgage Origination Business Will Add Value On Multiple Fronts
  • By , 11/17/17
  • In what comes as the latest indicator of the secular shift in the country’s mortgage industry over recent years,  Capital One (NYSE:COF) recently announced that it is shuttering its mortgage origination unit . With the Fed’s ongoing rate hike driving mortgage rates higher, Capital One concluded that it will no longer be able to keep up with the competition in a profitable manner – prompting the abrupt exit. We believe that the decision is a good one for Capital One in the long run. As we have pointed out on many occasions in the past, Capital One’s sizable mortgage business is essentially a by-product of its overall strategy of growing through big-ticket acquisitions – with the current mortgage unit becoming a part of the bank’s card-focused business model after its acquisition of ING Direct’s U.S. operations. Capital One never aimed to grow the unit, as is evidenced by the steady decline in its mortgage portfolio over the years.
    JNJ Logo
    What Factors Will Drive Growth For J&J's Cardiovascular Pharma Portfolio?
  • By , 11/17/17
  • Johnson & Johnson’s  (NYSE:JNJ) cardiovascular and metabolism portfolio, which primarily consists of Xarelto and Invokana, accounts for around 15% of the company’s value, according to our estimates. Within pharmaceuticals, the company derives most of its value from oncology drugs, which we believe will also be the key growth drivers in the coming years. Looking at the cardiovascular and metabolism segment, we expect Xarelto and Invokana to perform well over the next few years and their sales to peak at $2.5 billion in 2018-2019 and $1.8 billion in 2022, respectively. The chart below shows the historical and projected revenue trajectory for Johnson & Johnson’s cardiovascular and metabolism segment. Xarelto is an anti-coagulant (blood thinner). The drug was launched in 2011 in the U.S. and its revenues stood at nearly $2.29 billion in 2016 and $1.8 billion for the nine month period ending September 2017. Johnson & Johnson has marketing rights for the drug in the U.S. However, Xarelto nears its patent expiry in 2020, and the sales are likely to decline thereafter. While Xarelto’s performance is encouraging, considering that the drug has broken into a crowded and competitive therapeutic area of cardiovascular diseases, the competition from other innovative drugs could weigh on its sales. It should be noted that Johnson & Johnson’s phase 3 pipeline currently does not have any other critical cardiovascular and metabolism compounds. Looking at Invokana, it is an oral medication for type 2 diabetes that helps to lower blood glucose levels. The drug was approved by the FDA in 2013 and its sales stood at $1.4 billion in 2016. While Xarelto is gaining market share, Invokana is facing a decline in market share this year due to competitive pressure, and the revenue growth is also impacted by drop in prices. However, we believe the drug will grow in mid-single digit in the coming years. This will be driven by uptake in the U.S. and potential expansion in international markets. It should also be noted that about 30 million people in the U.S. were living with diabetes in 2015, which is over 9% of the total population. Apart from this, about 100 million people living in the country have diabetic or pre-diabetes conditions. These data points suggest that despite competitive pressure, Invokana may still be able to expand in the U.S. market, albeit at a slow pace. We have a $125 price estimate for Johnson & Johnson, which is around 10% below the current market price. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Hurricanes To Boost Lowe's Sales In The Third Quarter
  • By , 11/17/17
  • tags: LOW HD
  • Given the impressive performance of Home Depot in the third quarter, reported earlier this month, the same can also be expected from  Lowe’s (NYSE:LOW), as both retailers benefited from the string of natural disasters that hit the country. Comparable sales for Home Depot grew at 7.9% in the quarter, 2 percentage points higher than anticipated. Such a bump can be expected for Lowe’s as well. Revenue growth for Lowe’s is also set to be driven by the acquisitions of Maintenance Supply Headquarters in June, and Central Wholesalers back in November of 2016, which are expected to increase the reach of the company among professional customers. Comparable sales growth together with stock repurchases undertaken by the company are expected to uplift the earnings in the third quarter. We have an  $83 price estimate for Lowe’s, which is slightly higher than the current market price. Focus On Integrated Channels Lowe’s is investing in an omnichannel retail strategy to enhance the customer experience. The company is advancing its omnichannel experience to make it easier for customers to engage with its interior and exterior home project specialists. On its website, the company has added online scheduling capabilities which have led to a large number of customers seeking online appointments for these specialists. Lowe’s is also looking to add online tools to its website to improve the customer experience. An integrated retail channel is likely to remain a key growth driver for Lowe’s as customers look for convenience to shop for products and visualization tools to virtually “try” products to understand how they would look in their homes. The company’s bet on the smart home market, by expanding its connected-home shopping experience to 70 stores in the US, also makes sense. The primary purpose of its store within a store feature, in partnership with b8ta, is to educate shoppers on smart home products, enabling them to “easily discover, learn and try the latest smart home technology all in one place.” Given the impressive growth rates expected in this sector, it is not a surprise that Lowe’s also wants to jump on this bandwagon. Furthermore, Lowe’s has the scale necessary for making the significant investments needed to make it big in this space. Margins To Remain Pressured There are a number of factors that are likely to have a negative impact on the margins of the company in the third quarter. The RONA acquisition is likely to add a 15 to 20 basis points pressure on the operating margins in 2017. Second, the steps taken by the company to improve its store traffic trends, to amplify its marketing reach with customers, and to improve its competitiveness are going to strain the margins. Moreover, as was the case with Home Depot, hurricanes would not only have resulted in increased costs but would have also caused higher sales of low-margin items. These factors will also have an adverse impact on the margins. To overcome these, the company has undertaken optimization efforts by working closely with vendors to improve their cost and pricing tactics. The acquisition of Maintenance Supply Headquarters also provides an opportunity to improve the margins through higher sales with pro customers. See our complete analysis for Lowe’s. Have more questions about Lowe’s? See the links below. Lowe’s Bets On The Smart Home Market Improving Housing Trends Bode Well For Home Improvement Companies Lowe’s Posts A Top and Bottom Line Miss, But Growth Continues Can Hurricanes Provide A Boost To Home Improvement Companies? Notes: Get Trefis Technology
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    What Is The Risk To Nvidia If Intel-AMD Partnership Captures Notebook GPU Market Share?
  • By , 11/17/17
  • tags: NVDA AMD INTC
  • There is little doubt that the partnership that  Intel  (NASDAQ:INTC) and  AMD  (NYSE:AMD) announced recently is aimed at combating rival  Nvidia  (NASDAQ:NVDA), which is becoming increasingly competitive. Under this partnership, the two companies will create a new chip which will combine Intel’s CPU with AMD’s Radeon GPU technology. This chip will be geared towards high-end gaming notebooks, and will allow OEMs to develop lighter and thinner notebooks without losing the massive processing power that high-end gaming requires. So what’s the magnitude of risk that this strategy poses for Nvidia? We estimate that if Nvidia loses 10-15% of its share in the notebook GPU market, its valuation can take nearly a 10% hit. Take a look at  our interactive breakdown of key drivers and metrics for Nvidia  to see how this can happen. Our price estimate for Nvidia stands at $134, implying a significant discount to the market. Nvidia Could Lose 10% Value If Its Market Share In Notebook GPUs Falls From 70% to 55% Intel and AMD have partnered to embed Radeon’s discrete graphics technology within Intel’s CPUs to create lighter gaming notebooks.  However, the risk to Nvidia’s valuation will be meaningful only if it loses its market share significantly. We estimate that if Nvidia’s share of discrete notebook GPUs declines from an estimated 70% to 55%, the company could lose 10% of its value. In this scenario, both the number of units and pricing can fall meaningfully below what we expect. Decline In Market Share And Pricing Would Cut Into Nvidia’s Notebook GPU Revenue The charts below show how our downside case forecasts diverge from our base case: If the company’s market share declines, Nvidia will be forced to reduce prices to compete. A decline of 15% in market share and a 25-30% reduction in pricing would lead Nvidia’s notebook GPU revenues to fall nearly 50% below what we forecast in the long run. This, in turn, would imply a 10% decline in the company’s valuation. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Tesla's Semi-Truck Looks Impressive, But Many Questions Remain
  • By , 11/17/17
  • tags: TSLA GM F
  • Tesla  (NYSE:TSLA) unveiled its new Semi truck on Thursday, marking the company’s first step into the commercial vehicle space. The truck, which features autonomous driving capabilities, will offer a range of about 500 miles on a single charge. Unlike Tesla’s luxury vehicles, which sell based on their brand cachet and performance, the company will have to provide a compelling economic argument for fleet operators to adopt its semi-truck, given the low margins in the trucking business. We believe there are three broad factors that will determine how Tesla competes against diesel engine based trucks, namely load carrying capacity, range and cost. We have a $206 per share price estimate for Tesla, which is well below the current market price. See our full analysis for Tesla Range Appears Impressive, But Payload Details Remain Unclear Tesla says that the semi-truck is capable of hauling a gross weight (including vehicle weight) of about 40 tons. While this is in line with other trucks and the U.S. federal limit, the Tesla truck’s battery weight could be significant, potentially hindering the vehicle’s payload (carrying capacity). For instance, researchers at  Carnegie Mellon University estimated  that an electric truck with a range of 600 miles would require a 14-ton battery. Tesla says that the truck will have a range of 500 miles on a single charge, which is a figure that exceeds 80% of commercial trips. In comparison, some diesel trucks can go as much as 900 miles on a single tank. The company also says that the truck can charge up to 400 miles of range in 30 minutes, via its specialized mega chargers. Although the charging time is impressive, it is still higher than the refueling time for diesel trucks, and Tesla will still need to invest in building out an expansive network of charging stations. Operating Costs Will Be Low, But Upfront Costs Remain A Key Factor To Watch Although Tesla hasn’t outlined the price of the new vehicle, Elon Musk notes that the per mile operational costs for the semi could come in at $1.26 per mile, compared to $1.51 for diesel trucks. Maintenance costs and downtime could also be much lower compared to diesel trucks, and they should have a longer life overall, with Tesla providing a 1 million mile no-breakdown guarantee. That said, we believe that upfront costs will be significantly higher compared to diesel trucks, on account of high battery costs. For instance, the Carnegie Mellon University  study noted that a truck with a 600-mile range (about 20% higher than the semi) could have battery cost of about $290k, which is roughly double the price of a Class 8 diesel truck. However, governments could subsidize electric heavy vehicles, given their role in curbing air pollution. For instance, in California, heavy-duty vehicles account for 7% of all vehicles but about 20% of transport-related greenhouse gas emissions and roughly a third of nitrogen oxide emissions. As the Tesla Semi will not have tailpipe emissions, it may be viewed favorably by governments who could provide incentives, bringing down costs for customers. 2019 Timeline Will Give Tesla Time To Sort Out Model 3 Issues  Tesla investors might question the rationale of working on a brand new vehicle that caters to an entirely new type of market at a time when the company is grappling with production issues and a significantly slower than expected manufacturing ramp up for its first mass-market sedan, the Model 3. However, as Tesla intends to begin mass producing and shipping the truck only in 2019,  it could have largely ironed out issues for the Model 3, which has a highly automated manufacturing process. The 2019 launch timeline could also ensure that Tesla achieves greater economies of scale for battery production with its Model 3 vehicles, translating into lower costs for the semi. The semi-truck is also expected to share many components with the Model 3 sedan, including the same electric motors, which could bring down costs. 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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    Key Takeaways From Best Buy's Q3
  • By , 11/17/17
  • tags: BBY WMT AMZN
  • Best Buy ‘s (NYSE:BBY) announced mixed third quarter results, as its revenue missed market expectations and its earnings per share came in line. The company’s stock declined 4% after the earnings announcement. In Q3, Best Buy’s revenue grew 4% year-over-year (y-o-y) to around $ 9.3 billion, primarily due to an enterprise comparable sales increase of 4.5%, which fell short of the 5.3% street estimates. The company benefited from stronger consumer demand across most categories, particularly computing, wearables, gaming, and tablets. However, revenues in the mobile category were lower than expected, due to the fact that major new phones did not start selling until November. Also, the company felt the impact of the natural disasters in South Texas, Florida, Puerto Rico and Mexico in this quarter. In Q3, the retailer’s online sales grew 22% y-o-y to $1.1 billion, which is now 13% of its domestic revenue. The retailer reported non-GAAP EPS of $0.78, up 30% y-o-y, primarily driven by a lower than expected non-GAAP effective income tax rate and a higher domestic revenue. The company’s SG&A costs grew 2% y-o-y, due to increases in growth investments, higher incentive compensation expenses, and higher variable costs due to increased revenue. Best Buy U.S. Continues To Grow Best Buy’s domestic segment’s revenue increased 4% y-o-y to $8.5 billion, as domestic comparable sales grew 4.5%, partially offset by the loss of revenue from 10 large-format and 44 Best Buy Mobile stores closed during the past year. From a merchandising perspective, the company saw positive comps across almost all its product categories, with the largest drivers being appliances, computing, and smart home. In the international segment, the company’s revenue increased 10% y-o-y to $829 million, driven by comparable sales growth of 3.8%. This positive comparable growth was driven by growth in both Canada and Mexico. Future Outlook For the fourth quarter, Best Buy expects its sales to benefit from the positive category momentum from the first nine months of the year. As a result, the company expects its total revenue to be in the range of $14.2-$14.5 billion in the fourth quarter. It also expects domestic comparable sales growth in the range of 1% to 3%, and adjusted earnings per diluted share of $1.89 to $1.99 for the company. For the full year fiscal 2018, the company raised its guidance, and now expects revenue growth to range between 4% to 4.8% compared to the prior outlook of approximately 4%. It also expects full year non-GAAP operating income growth of 7% to 9.5% versus its original outlook of 4% to 9% growth. Our $56 price estimate for Best Buy’s stock is about in-line with the current market price. Have more questions about Best Buy? Please refer to  our complete analysis for Best Buy  See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
    GPS Logo
    Gap Inc. Builds Momentum As It Nears The Final Stretch
  • By , 11/17/17
  • tags: GPS URBN ANF AEO
  • Gap Inc. (NYSE:GPS) easily beat consensus expectations in its third quarter, posting a fourth consecutive quarter of comparable sales growth and a fifth consecutive quarter of gross margin expansion. This has been made possible through the impressive performance of Old Navy, which goes to show that despite a slowdown in the brick and mortar store sales, companies can still attract customers to their low-priced brands. The highlight of the quarter, however, goes to the company’s eponymous brand, which was able to deliver positive comps for the first time in 15 quarters. The momentum being witnessed through the company prompted GPS to raise its full-year guidance to a range of $2.08 to $2.12, from an earlier expectation of $2.02 to $2.10. It has been estimated that roughly 30% of the annual sales of the largest US retail chains and almost 20% of the US retail industry’s annual sales come from the Christmas holiday shopping season . Hence, the fourth quarter is a crucial one for the company, and it seems to be entering it with strengthened brands and operational discipline in place. Given the spate of bankruptcies and store closures in the apparel retail industry in the United States, significant market share has been made available as a result. This gives companies like Gap a tremendous opportunity to drive growth, particularly since traffic to its Gap and Old Navy brands has been beating the industry average, with Banana Republic narrowing its spread. Below we’ll highlight some key areas of the business Gap should focus on given the highly important holiday quarter, using our new interactive platform . We have a $25 price estimate for Gap Inc., which is lower than the current market price. 1. Denim Stretch denim is the latest trend in men’s and women’s fashion. Sometimes the problem with this fabric is that while it stretches well, it does not stretch back. Hence, the company worked with vendors to develop several fabrics, across different price points, that offer the stretch together with excellent compression and recovery. This has met an ailing need in the market, which has ensured good sales and has consequently driven scale for the company. In Gap women’s denim, the company saw 13% comparable sales growth and a 22% gross margin comp. Meanwhile, Old Navy closed out the quarter as the number four denim retailer, which is up two spots from last year. 2. Activewear The US activewear market is a $40 billion behemoth, with an 8% average annual growth rate, representing one of the highest growth areas in the apparel market. Gap’s Athleta brand is solely focused on this space, and the company provides athletic wear in its other segments as well. For the company as a whole, this segment contributes over $1 billion in revenues, while Athleta’s growth continues to outpace the market. The company has taken a number of initiatives to make the supply chain responsive, and as a result, 50% of the assortment in the business is on a pipeline of 6 to 11 weeks. Given the popularity of the brand, 7 new stores were opened in the quarter, taking the total up to 15 for the year. The company expects the size of the fleet to be about 150 at the end of 2017, with continued growth expected next year. 3. Baby and Kids-Wear This segment of the company has been a growing segment for a while now, and Gap has been rewarded with an almost 10% market share. This market in the US has been valued at $30 billion, and the company sees tremendous value and opportunity to drive loyalty with parents. The most significant progress in this field has been made by Old Navy, which has managed to capture 6% of the market on its own. While progress has also been made by its namesake brand, there is significant room to grow. 4. E-Commerce The online and mobile business is the place to be these days, and Gap has ensured its presence is felt in the space. The company has one platform for all of its brands, ensuring customers can purchase items for any of them in one place. This has also ensured its new brands get the recognition that would not have been possible if they had had a separate web presence. An upshot of this is that the company expects double-digit growth from its online channel this financial year, and feels it is on a path to it being a $3 billion business. Gap has rolled out features like Reserve in Store, Find in Store, Ship from Store, and Order in Store in the past, and added Buy Online, Pick Up in Store in two markets in the quarter. See our complete analysis for Gap Inc. Have more questions about Gap Inc? See the links below: Apparel Retail Companies: Surviving The Holidays 101 How Is Gap Inc Going To Ensure Long Term Success? Retailing Conundrum, Part 1: Is There A Way Out Of The Rut For Brick And Mortar Stores? Notes: Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap | More Trefis Research
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    How Texas Instruments Can Expand Its Gross Margins
  • By , 11/17/17
  • tags: TXN
  • Over the past few years, Texas Instruments  (NYSE:TXN) has been focusing on the industrial and automotive markets, which are seeing increasing semiconductor demand. The company is also extensively focusing on the 300-millimeter analog fabrication vertical as 300 mm wafers cost about 40% less than an unpackaged chip built on 200-millimeter wafers, the size used by many of TI’s competitors. This strategy has helped Texas Instruments to improve its gross margins from under 50% in 2012 to 61.6% in 2017. The trend has continued in 2017, with margins expanding further to 64.3% in Q2 and 64.5% in Q3. See our complete analysis for Texas Instruments Margins Set To Grow Further We believe that Texas Instruments’ margins will continue to improve in the next couple of years due to the following reasons: Increasing revenues from Analog vertical : The revenue contribution from the Analog vertical, which employs 300 mm fabs, has gone up from 55% in 2012 to over 64% in 2016. In the past nine months, Analog’s contribution has increased to around 66%. We expect TI to increase its Analog product revenues further due to its focus on the industrial and automotive markets. This can help the company to improve its gross margins from the low 60% range currently to 68% by the end of our forecast period, as 300mm production can help drive down the company’s production costs. Increasing investment in 300mm Fabs : The company is increasing its manufacturing footprint for 300mm wafers, so the company will be able to support about $8 billion of annual Analog revenue on 300-millimeter wafers. TI pointed out in its  presentation about its capital management strategy that it can achieve 68% gross margins for analog chips manufactured on a 300mm wafer. As Analog sales increase, the company should post higher margins in the future. Utilization set to grow in the coming years : The proportion of TI’s revenues from 300mm production is likely to increase in the coming years, driving the company’s margins higher. To increase its 300mm production, the company is likely to ramp up its production from RFAB and DMOS6 facilities, which cater to 300mm production, and were largely under-utilized until 2016. TI’s RFAB and DMOS6 production facilities were operating at  45% and 25% of their full production capacity, respectively. In addition to a favorable revenue mix and improved manufacturing efficiency, the company’s gross margin will also benefit from lower depreciation in the future. At present, depreciation is ahead of TI’s capital expenditures. The company expects its capital expenditures to remain at relatively  low levels (4% of revenue) for the next few years. As depreciation starts to come down over the next couple of years, it will boost gross margins. We currently have an $80 price estimate for Texas Instrument’s stock, which is nearly 20% below the current market price. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Key Takeaways From Applied Materials' Q4 Earnings
  • By , 11/17/17
  • tags: AMAT
  • Building on its strong growth momentum since the last few quarters, Applied Materials  (NYSE:AMAT) reported record revenue and earnings for Q4 to end fiscal 2017 on a high note. Emerging technologies, such as the Internet-of-Things (IoT), big data, and artificial intelligence, are driving strong growth in the industry. Innovation and solid execution has enabled Applied to grow faster than the market by expanding its presence and gaining share. As its customers continue to make large investments to advance semiconductor and display technology, Applied’s growth momentum is likely to continue in the near future. For Q1, Applied expects revenue between $4.0-4.2 billion (+24% y-o-y). During the quarter, the company saw strong growth in both its Semiconductor and Display segments. Further, Applied’s operating margins improved by 4.1 percentage points during the quarter, because of a surge in its revenues and controlled expenses. Driven by multi-year inflections and new demand drivers, the company’s orders and earnings in Q4 were at an all-time high. Inflections In Mobile & Screen Technology Will Continue To Strengthen The Display Market Applied is on track to book more than $2 billion of orders in the Display segment. As the technology and manufacturing become more complex, the company is confident that it is in a unique position to drive growth. Key factors that will drive growth in the display market are: Demand for large format TVs: The average screen size, be it for TV or mobile, has increased over the years and demand continues to grow. As Applied’s customers optimize factories for these bigger screen sizes, they are investing in new Gen 10.5 capacity, which on average require significantly more investment compared to a Gen 8.5 factory. Increasing investment in mobile OLED: Estimates indicate that two-thirds of new smartphones could have OLED displays by 2021, and screen manufacturers are accelerating their investment plans to support this growth. The company has established the leading position in thin-film encapsulation, which enables OLED smartphones. We have a  $37 price estimate for Applied Materials’ stock, which is below the market price. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Solid Q3 Results Drive Wal-Mart's Stock to An All-Time High
  • By , 11/17/17
  • Wal-Mart  (NYSE:WMT) reported stronger-than-expected fiscal third quarter results on Thursday, November 16, as both its bottom line and revenue came in ahead of market expectations. The company’s stock surged to an all-time high of $95.94 after the announcement. The company also posted a full-year adjusted earnings per share guidance of $4.38 to $4.46, which is ahead of the $4.38 per share consensus estimate. Below we discuss some key takeaways from Wal-Mart’s earnings report and Q4 outlook  using our interactive platform : On a reported basis, the company’s revenue increased 4% year over year (y-o-y) to $123 billion, driven by growth in the domestic market due to its marketplace offerings. The retailer’s consolidated net income declined 42% y-o-y to $1.7 billion in the third quarter. Wal-Mart also posted diluted earnings per share of $0.58, down 41% y-o-y, and adjusted EPS of $1.00, which was at the upper end of its guidance range. In terms of the company’s segments, Wal-Mart U.S. delivered a strong top line performance with comparable sales of 2.7%, which was well above the consensus estimates of 1.9%. In addition, the retailer’s international sales grew 4% y-o-y to $29.5 billion during the quarter, due to positive comparable sales in ten out of eleven markets, in addition to a benefit of approximately $450 million from currency. Also, Sam’s Club comparable sales grew 2.8% y-o-y (ex. fuel) in the quarter, led by traffic and hurricanes impact. On the cost side, Wal-Mart’s total operating expenses increased in the quarter, primarily due to ongoing investments in e-commerce and technology. For the nine months ended in October, Wal-Mart generated $17 billion in operating cash flow and $10 billion of free cash flow, which declined 18% y-o-y. This decline was primarily due to an increase in incentive payments, as well as a comparison against significant working capital changes since last year. Overall, the Q3 result suggests investments continue to favorably impact the comparable sales growth, helping the company thrive in a tough retail environment. Wal-Mart U.S. Continues To Grow In Wal-Mart U.S., strong comparable sales growth of 2.7% was driven by a 1.5% increase in customer traffic and a 1.2% increase in average ticket size. Overall, all store formats had positive comparable sales, and e-commerce and hurricane related impact contributed approximately 80 basis points (bps) and 30 to 50 bps to the segment in the third quarter. Additionally, the grocery business continued to improve, as food categories continued to deliver strong quarterly comparable sales performance, led by strong customer traffic. Also, the segment’s operating income grew 1% y-o-y during the quarter. E-Commerce: Strong Growth Driver Wal-Mart’s e-commerce division includes all web-initiated transactions, including those through Walmart.com such as ship-to-home, ship-to-store, pick up today, and online grocery, as well as transactions through Jet.com. Globally, on a constant currency basis, the company’s e-commerce sales and GMV increased 50% and 54% (including acquisitions), respectively, in this quarter. The majority of this growth was organic through Walmart.com, including online grocery, which is growing quickly. This growth was also likely boosted by the company’s recent acquisitions such as Jet.com, Moosejaw, Shoebuy and Bonobos, which have provided expertise in some high-margin categories like shoes and apparel. From a marketplace perspective, the company covers more than 70 million SKUs to date, up more than 35% from the first quarter. However, it should be noted that the e-commerce growth in Q3 has decelerated a bit from the 60%-plus levels of the past two quarters. Future Outlook For the upcoming quarter, Wal-Mart expects comparable sales growth for both Wal-Mart U.S. and Sam’s Club (ex. fuel) to range between 1.5% to 2.0%. For the full year fiscal 2018, the company now expects its adjusted EPS to range between $4.38 to $4.46, compared to previous guidance of $4.30 to $4.40. Our $80 price estimate for Wal-Mart’s stock is around 15% below the current market price following the rally. Please refer to  our complete analysis for Wal-Mart    See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    How Did JetBlue Perform Operationally In October?
  • By , 11/16/17
  • tags: JBLU
  • JetBlue Corporation  (NASDAQ:JBLU), like its competitors, suffered operationally on the back of adverse weather conditions that hit the U.S. East Coast and the Caribbean in Q3. The company expects these factors to hurt financials through the remainder of the year. Despite this, October operations saw steady increases across most key metrics. In the month, the carrier managed to grow its capacity at a rate of 6.8% y-o-y, bringing the year-to-date capacity growth to 4.5%, which is much higher in comparison to its peers. In terms of traffic, revenue passenger miles were up a modest 3.7% y-o-y, and up 3.7% in the year so far. Further, revenue passengers were up by about 4.4% y-o-y, and 5.2% in the year-to-date. The load factor was down a significant 240 bps to 82.4%. Additionally, the company managed to report a preliminary completion factor of 97.8%, while its on-time performance came in at 79.5%. Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis for JetBlue Corporation 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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    Why We Remain Bullish On GE Despite Dividend Cut
  • By , 11/16/17
  • tags: GE
  • General Electric ’s (NYSE: GE) stock plunged by nearly 10% after it announced a dividend cut for the first time since 2009, and only the second time since the Great Depression. The move comes as a part of a broader restructuring which also included job cuts and a renewed focus on the Healthcare and Aviation businesses. While a dividend cut is certainly not good news for investors, it was a necessary step given that the company’s dividends were exceeding its free cash flows, which is not a sustainable position to be in. The cut is likely to boost cash flows, while the restructuring should improve profitability and improve the sustainability of GE’s business model. GE promised to be a more focused industrial company at its recently concluded investor presentation, and announced that it will renew its focus on Healthcare and Aviation. The two businesses have done well in the last several years, and still have a lot of growth potential, which could offset the headwinds in GE’s Oil and Power segments. We have a price estimate of $23 for GE’s stock, which is around 25% ahead of the current market price. This note discusses why are still bullish on the company’s fortunes despite the aforementioned issues. A Move Towards Sustainability At the investor update presentation on Monday, November 13, the industrial giant announced a nearly 50% dividend cut for the fourth quarter along with its restructuring plans. GE’s stock plunged by more than 7% on the day of this announcement, the largest percentage decline in a day since 2009. However, as mentioned above, this was the right move. The company is facing severe headwinds from its Power and Oil business due to operational issues and the pricing pressure in the oil industry. Thus, maintaining high dividend payouts would have been an issue at this juncture. The company needs to improve its cash flows significantly in the coming years to regain investor confidence. The restructuring and leadership changes made by GE in the meeting included a reduction in the number of board members from 18 to 12 and a nearly 25% workforce reduction in GE’s home office. GE is also considering the sale of nearly $20 billion of assets to realign its business towards the more profitable and robust businesses such as Aviation and Healthcare. Overall, we believe that these plans are bitter but necessary pills for GE at the moment. Renewed Focus On Aviation, Healthcare In Light Of Oil & Gas Headwinds GE’s Healthcare and Aviation segments have been consistent performers in the last five years generating nearly 50% of GE’s segment EBITDA. GE Aviation has shown robust growth in the last few years driven by strong industry dynamics and the successful launch of GE’s LEAP engine. At the Paris Air Show, GE bagged more than 1700 orders totaling about $31 billion. GE may also win more contracts for military engines by leveraging its analytics expertise. GE Healthcare is another robust segment which has consistently grown over the last few years. The segment’s cash flow generation is strong, and likely to grow further due to increased demand from emerging markets. GE is committed to investing more in the areas of precision health, smart scanners, and other bio-pharma tools in the coming quarters. GE is also working to build a profitable digital analytics model for this segment. Overall, we expect that these two segment’s will driven the company’s future growth as it looks to offset near-term oil & gas headwinds. For our model and valuation, please refer to  our complete analysis of General Electric 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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    State Street Challenging BNY Mellon As Largest Custody Bank With A 10% Jump In Assets
  • By , 11/16/17
  • tags: STT BK BLK C JPM
  • State Street’s assets under custody and administration (AUC/A) grew by 10% in the last year to settle at $32.1 trillion at the end of Q3 2017 – nearly closing the gap with industry leader BNY Mellon, which reported growth of 5.6% over the same period. Notably, the gap in custody assets for these banking giants was $1.3 trillion a year ago, and we believe that State Street’s exceptionally strong growth can be attributed to the growing popularity of exchange-traded funds (ETFs) globally. As State Street is one of the three largest ETF providers in the world, and as the bank’s asset management arm relies on its own asset servicing arm for custody banking services, rapid growth in ETFs has translated to higher AUC/A figures for it. In fact, we expect State Street to become the largest custody bank in the world by the end of this year. State Street’s asset servicing segment contributes almost 70% of our $100 price estimate for State Street’s stock, with asset management, securities trading, and securities finance making up the remaining 30%. AUC/A figures for individual banks are taken from their quarterly earnings releases. While BNY Mellon reports only total AUC/A figures as a part of its quarterly earnings, JPMorgan and Citigroup exclude assets under administration (AUA) from their reporting – providing only AUC numbers. State Street details its AUC/A as well as AUC figures at the end of each quarter. The table above assumes that JPMorgan had $4.1 trillion in assets under administration in both quarters. The AUA figure for Citigroup is estimated to be $1.6 trillion. Removing BNY Mellon’s approximately $3.5 trillion in AUA from the figures above, and using the reported AUC figures for the other banks, we estimate the market shares of these custodians below: As the custody banking business is characterized by slim operating margins, the industry is extremely concentrated, with incumbents looking to improve profitability through acquisitions in order to achieve greater economies of scale. Notably, the four largest custody banks are all based in the U.S., and are responsible for nearly half the industry. While BNY Mellon and State Street are primarily focused on custody banking services to make money (with these services contributing 45-50% of their values, according to our estimates), JPMorgan and Citigroup have extremely diversified business models, with custody banking services being responsible for less than 5% of their valuation. You can see how changes to State Street’s custody asset base affects our price estimate for the bank my making changes to the chart below. See full Trefis analysis for  BNY Mellon  |  State Street  |  JPMorgan |  Citigroup View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research
    UA Logo
    What Under Armour Will Focus On Going Forward: Direct-To-Consumer Channel (Part 3)
  • By , 11/16/17
  • tags: UA
  • In the last part to this series, we examined how international markets are set to play a major role in  Under Armour ‘s (NYSE:UA) resurgence. In the following analysis, we will discuss how the company is pushing its direct-to-consumer channel, and more specifically e-commerce, in an effort to reduce its reliance on the wholesale channel, which in the recent past has suffered heavily. Since the beginning, Under Armour’s business model had relied heavily on its wholesale channels to help propagate and market themselves. However, over the last few quarters, this model has come to hurt the company significantly. With a rise in online shopping, big retailers are finding it hard to maintain traffic in their brick-and-mortar stores. Consequently, many big major retailers like Dick’s Sporting Goods filed for bankruptcy, while cutting the number of stores it operates by more than half. Online retail sales in the U.S. have grown at a rapid pace over the past several years, thanks to growing internet usage in the country. Internet penetration in the U.S. has gone up from 44% in 2000 to about 88.5% currently. The ease and convenience of buying goods from the comfort of your home, and having them delivered to your doorstep, is a luxury that many can now afford. Hence, it comes as no surprise that online apparel sales in the U.S. are expected to cross over $100 billion by as early as 2019. Like its competitors, Under Armour has come to realize the importance of opening and maintaining an easy-to-use and accessible online marketplace. Additionally, the company is working heavily on improving its mobile shopping experience. In this respect, last year, it introduced a new UA Shop App which allows the customers to navigate through its full range of products from their mobile phones. Apart from being a marketplace, the app will collect data on the customer’s activity on the app to effectively refine results and recommend products. The company hopes to see better results from its online sales going forward. Furthermore, the company hopes to gather more traction on its website and app through targeted digital advertising. Only recently, the company launched a full scale digital ad campaign to promote their women’s line of clothing. We can expect more such campaigns to flood the digital space in the near future. All in all, Under Armour has a long way to go to win back investor’s confidence. However, the aforementioned strategies mentioned in this series could help the company see better results going forward. Only time will tell if these are enough, but for now, any positive change, is a welcome change. The next earnings call will give us better understanding of what is to come. 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 Did Delta Perform Operationally In October?
  • By , 11/16/17
  • tags: DAL
  • Delta Air Lines  (NYSE:DAL), like most of its competitors, faced the wrath of adverse weather conditions in the past few months. A lethal combination of increased pricing pressures and flight cancellations due to the hurricanes led to the company falling short of operational targets in Q3. That said, management was quick to react to the problem, steering the company back on track to return to strong earnings growth in early 2018. For the month of October, available seat miles (capacity) grew overall by about 3.1% y-o-y, buoyed by better-than-expected domestic growth. In terms of traffic, the company saw the key metric increase by a sizeable 4.1%. The carrier’s occupancy rate increased by about 90 basis points to 86% in the month. The company still expects the unit revenues in the fourth-quarter to increase in the 2-4% y-o-y range, while CASM ex-fuel comes in 2-3% above the current guidance for the year on the back of adverse weather conditions, and the accelerated depreciation from incremental fleet decisions, including moving up narrow body retirements. Notes: 1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com 2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to  our complete analysis for Delta Airlines 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 J&J Can Be A $150 Stock
  • By , 11/16/17
  • tags: JNJ PFE MRK
  • J&J  (NYSE:JNJ), despite its already massive scale, has impressed investors with gains over the last two years, adding roughly 40% to its market value. The company’s stock has increased from around $103 at the end of 2015 to nearly $140 now. Can this growth continue? With our interactive technology, you can see the fundamental conditions necessary for J&J’s stock to reach $150 stock – a level which it has never reached. Take a look at  our interactive breakdown of key drivers for J&J  to see how this can happen. Our price estimate for J&J stands at $125, implying a slight discount to the market. J&J Will Need To Beat Expectations In Pharma & Medical Device Businesses In order for J&J’s stock to be worth $150 – from a fundamental standpoint – the company will need to earn roughly $6 billion in annual revenue above our current forecast in the next 5 years, and will need to increase its operating margin by 400 bps during the same timeframe, assuming a constant P/E ratio.  These expectations would imply a nearly 20% higher EPS forecast in 5 years’ time, and would peg J&J’s fundamental value at around $150. We believe that J&J will need to show improvement across its pharma and medical devices business for these expectations to make sense. Below we take a look at two scenarios that could make J&J a $150 stock. Better Than Expected Pharma Performance In The Next 5 Years In this scenario, the expected decline in J&J’s Immunology drug portfolio is stemmed, and the company manages to tackle the competition from Remicade’s biosimilar. In addition, Inbruvica and Darzalex would have to show an accelerated ramp up. These conditions could potentially add $4 billion in annual revenue by 2022 and could help J&J improve its operating margin to 40%, implying 400 bps expansion. Price Competition Tackled In Medical Device Market In The Next 5 Years In this scenario, J&J leverages its strong market positioning and innovates to tackle competition, resulting in $2 billion in additional revenue and 400 bps expansion in medical device operating margin in the next 5 years. While there are, of course, other ways in which the company’s stock could reach $150, we believe that these are the most likely scenarios through which its fundamental value could reach that level. See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    How Are Comcast's Film Revenues Trending?
  • By , 11/16/17
  • tags: CMCSA
  • Comcast ‘s (NYSE:CMCSA) subsidiary NBC Universal Studios is one of the largest film producers in the U.S. The company’s film revenues have fluctuated from $5.45 billion in 2013, driven by the extraordinary contribution from hits such as  Despicable Me 2, to $6.36 billion in 2016. Film revenues can be fairly volatile, and generally depend on the company’s blockbuster film lineups. So far, 2017 has been a good year for the studio due to high-profile hits such as Fate of the Furious and Despicable Me 3 . The revenues from the filmed entertainment division are unpredictable, as the company’s revenue per film has been equally volatile. Given the strong performance so far this year, we expect ths segment revenues to grow to around $8 billion this year. *Projected Going forward, we expect revenues to rise steadily and remain strong over the next several years, driven both by the studio’s increased focus on franchises popular in the international market, as well as an increase in the number of animated movie titles.   Focus on Franchises Over the past few years, NBCUniversal has built a slate of movies that have done exceedingly well in the international markets. These series have given the studio a blueprint to replicate in the coming years. Universal continues to focus on international markets and is creating movies with popular international franchises, such as Fast and Furious and Minions . The first movie in the Pacific Rim  franchise did well internationally, and the company plans to release the sequel in 2018. Universal successfully revived the fan-favorite Jurassic Park  franchise with the massive hit Jurassic World, and a sequel is scheduled to be released in 2018. The studio also has other relatively lower-grossing franchise properties such as Pitch Perfect and Insidious, which have been well received at the box office. Universal Pictures is one of the biggest movie studios in the world and is likely to maintain its market share. While the movie business remains extremely volatile, the studio’s franchise focus should allow for more predictable revenues. Focus on Animated Movies There has been a growing demand for 3D and animated movies, and Universal Pictures can greatly benefit from this. 3D movies usually command higher ticket prices, which translates into higher revenues for the studios. Meanwhile, Universal has had success on the animated front, with its Despicable Me series grossing over $2.6 billion at the box office globally. Since the production costs for animated movies are generally lower than live-action blockbusters, it makes sense for Universal to enhance its focus on the genre. For example, the production budget for  Sing was just $75 million, while it generated over $630 million at the box office. With this level of return on investment in mind, Universal is releasing a host of films such as Minions 2, Sing 2, and  The Croods 2  in the coming years. This focus on profitable films and established franchises should provide some predictability for the company’s studio revenues going forward. See our complete analysis for Comcast 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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    Apparel Retail Companies: Surviving The Holidays 101
  • By , 11/16/17
  • tags: ANF AEO GPS URBN
  • Brick-and-mortar stores have played a tremendous role during the holiday season, a fact that is reflected not only in higher fourth-quarter sales when compared with the other quarters, but also by giving people a chance to window shop through the months of November and December. However, with a change in the retail landscape, through a shift towards the online channel, there is a possibility of a new avenue for growth for these companies, and a new sort of window shopping – through features such as Facebook Carousel. Hence, it is imperative that apparel companies embrace this trend and focus on this segment this holiday quarter. Omnichannel: A Need Of The Hour Omnichannel retail is the ability to seamlessly integrate different channels, whether it is in-store or online, in order to offer consumers a coherent and consistent experience no matter what platform they’re using to shop. In today’s day, relying on just the traditional brick-and-mortar storefront would be a gigantic misstep. Businesses would be unable to survive for very long if they don’t move along with the shift in technology. The increasing rates of internet penetration and a proliferation of smartphones have propagated the rise of online shopping. Furthermore, the added convenience which enables consumers to shop where they want and when they want are other factors that will ensure the growth of this segment. The increased desire on the part of shoppers to make purchases through a variety of different channels is reflected in the results of the Holiday Shopping Intentions Survey conducted by the International Council of Shopping Centers (ICSC). It was revealed that 96% of consumers plan to make a purchase through a retailer that has both a physical store, as well as an online presence. Moreover, 40% of the shoppers intend on buying online and picking up in-store. A benefit of such a feature being offered by stores, through their omnichannel strategy, is that the buyers can look at the other products available in stores when they come to collect their purchase. Consequently, they end up shopping more than for just the original item bought online. As per the survey, of the consumers that plan on picking up their items in the store, 81% expect to make additional purchases. Importance Of The In-Store Experience While retail store visits have fallen considerably in recent years, it is imperative for such companies to leverage their store presence as a driver for customer acquisition in the digital space. It has been estimated that digital interactions influence 56 cents of every dollar spent in the retail store. Of the 56, 37 points are contributed to by the shopper’s use of mobile devices. While shopping online provides customers with product insight and options for customization, in-store experiences need to leverage the technology to help buyers make more informed decisions. Hence, features such as picking up online orders in-store, creating mobile apps to scan barcodes to gain access to product information and reviews, and accepting mobile payments through the point of sale system are vital to driving customer engagement. The chart above has been made  using our interactive platform . It has been estimated that omnichannel customers tend to shop more frequently and end up spending 3.5 times more than other shoppers. Hence, it is imperative for apparel retail companies to find new and better ways to combine their online and offline channels and enable customers to have a convenient and personalized experience in order to emerge stronger. Have more questions about the retail industry? See the links below: Another One Bites The Dust In The Apparel Retail Industry Is Automation The Need Of The Hour In The Apparel Manufacturing Industry? 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?
    NTAP Logo
    NetApp's Strategic Product Line Continues To Drive Growth
  • By , 11/16/17
  • NetApp (NASDAQ:NTAP) announced its fiscal Q2 earnings on November 15, reporting  a 6% increase in net revenues to just over $1.4 billion. Reported net revenue, gross margin, operating margin and EPS were higher than the mid point of the guidance provided by the company at the end of the previous quarter. This strong performance was driven largely by strength in product sales combined with a higher mix of flash products (which have typically higher margins) sold during the quarter. Additionally, improved operational efficiency during the quarter led to a healthy operating profit margin of over 19%, as shown above. In recent quarters, NetApp has reported an improvement in its adjusted operating profit margin, attributable to cost reduction measures primarily by reducing headcount . This trend has resulted in NetApp’s operating margin improving by 3-4 percentage points through the year. Resulting earnings per share stood at 81 cents per share, which was 35% higher on a y-o-y basis. Key Segment Trends Higher revenues and healthier margins were largely due to strength in the company’s strategic solutions, which make up roughly 70% of product sales. Over the last three quarters, revenue growth has come from product sales rather than the software maintenance or services business. Storage product sales were up by 14% year-over-year to $807 million for the quarter. Within the product division, strategic product sales (including sales for products such as the all-flash array ) were up 23% y-o-y to $557 million, while mature product sales were down 3% to $250 million. With product revenues rising significantly, both hardware and software maintenance revenues suffered – a trend likely to accompany the increase in product sales in future quarters as well. Correspondingly, revenues from hardware maintenance were down 3% to $375 million. Software maintenance revenues were roughly flat over the comparable prior year period – a trend consistent in recent quarters. An increasing mix of strategic products, which include certain high-margin flash storage products, led to an improvement in product gross margins. NetApp’s non-GAAP gross margin for the quarter stood at 64.3%, which was 160 basis points higher than the year-ago period. The reported gross margin was well above the mid-point of the guided range of around 63.3%. In addition to the product division, both maintenance divisions reported an improvement in gross margins, as shown below. The company attributed the increase in product gross margin to “improved leverage from ongoing transformation” towards a refreshed product line during the quarter. Strong Guidance For Q3’18 Netapp’s management has given positive guidance for the current quarter. Net revenues are forecast to increase by around 7% over the prior year quarter to $1.5 billion, while the gross margin is forecast to improve by 150 basis points over the comparable previous year quarter. The operating margin is expected to remain at the 20% range in the coming quarters, leading to robust growth in diluted earnings per share, as shown below. We are in the process of revising our $39 price estimate for NetApp, which is over 15% lower than the current market price. NetApp’s stock price has risen by over 25% this year, following a strong set of recent quarterly results in each of the three quarters. See our complete analysis for NetApp 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 Big Can UnitedHealth's Optum Business Become?
  • By , 11/16/17
  • tags: UNH
  • UnitedHealth Group  (NYSE:UNH), the largest health insurer in the U.S., operates two primary businesses – UnitedHealthcare and Optum. UnitedHealthcare includes the company’s private health insurance, Medicaid, and Medicare segments, while the Optum division covers services such as pharmacy benefits management (PBM) and health care services. In this note, we take a look at the high-growth Optum business and its growth trajectory going forward. How Did Optum Perform In 2017 Optum has been the primary growth driver for UnitedHealth in the last few years, and it has continued to drive results in 2017 as well. In the first nine months of 2017, Optum earnings grew about 17% year-over-year (y-o-y) to $3.4 billion, driven by growth across all three sub-segments- OptumHealth, OptumInsight, and OptumRx. OptumRx, the company’s pharmacy benefits management (PBM) business, is the largest Optum subdivision, accounting for nearly 70% of total Optum revenues. On the other hand, OptumHealth was the primary growth driver this year, as its revenues and earnings grew by 22% and 26%, respectively, in the first nine months of this year. Optum Revenues Will Continue To Grow Strongly UnitedHealth’s Optum revenue growth has been driven by an expanding customer base, and complemented by acquisitions. The customer base growth was driven by the integration of Optum businesses with UnitedHealth’s other business lines. The implementation of the PPACA led to a rapid rise in the number of people with health insurance. UnitedHealth’s leading market presence allowed it to benefit from this surge in market size, though the company has since dropped out of many PPACA marketplaces. Additionally, this growth in coverage is also driving growth in the number of prescriptions filled in the United States, while UNH’s market leadership in the Medicare market is likely to offset competition. Accordingly, we expect UnitedHealth’s Optum businesses to continue their strong growth in the coming years. Revenue Contribution From Optum Businesses To Grow Moderately The revenue contribution of Optum to UnitedHealth’s overall revenues was just 23% in 2012, before increasing to 36% in 2016. This increase was primarily driven by OptumRx. We expect these segments to continue growing in the next few years. We forecast the Optum business to contribute nearly 40% to UnitedHealth’s overall revenues in 2020. 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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    A Closer Look At Target's Disappointing Q4 Outlook
  • By , 11/16/17
  • tags: TGT WMT AMZN
  • Target  (NYSE: TGT) announced solid third quarter results on November 15, as both its revenue and earnings per share (EPS) came in ahead of market expectations. However, the company’s stock fell by almost 10% in trading due to a disappointing outlook for the holiday season. Below we discuss some key takeaways from Target’s earnings report and Q4 outlook  using our interactive platform: Target continued to beat market expectations for the third straight quarter. In Q3, the company’s revenue increased 1% year-over-year (y-o-y) to $16.7 billion, primarily due to a 0.9% growth in comparable sales, which was ahead of consensus estimates. Target also posted adjusted earnings of 91 cents per share, which was down 13% y-o-y, but was in the upper range of its own guidance. Target’s gross margin was 29.7%, down 10 basis points in this quarter. This slip was due to increased fulfillment costs resulting from the growth in the company’s digital sales. On the cost side, selling and general administrative (SG&A) expenses grew 5% y-o-y, due to an increase in compensation expense, reflecting investments in store hours, wage rates and team member incentives. Factors such as higher employee wages, free delivery, and promotional activity continue to be a drag on Target’s bottom line. We expect the same factors to impact the company’s next quarter earnings as well. Additionally, Target’s stock declined about 9% despite the stronger-than-expected Q3 results, due to disappointing profit guidance for the critical holiday quarter. In fact, the company’s stock is down more than 35% this year, as it is looking to overhaul its business model. The retailer plans to invest close to $2 billion this year during this phase, which includes the expansion of small-format stores, revamping existing stores, supply chain improvements, increased promotions (estimated investment of $7 billion over the next 3 years), and lower everyday pricing. Given that the company is able to grow its comparable sales, suggests that the before-mentioned initiatives are resonating well with the customers. Digital Sales, Traffic Boost Comparable Sales  Among the components of the reported 0.9% comparable sales in Q3, the traffic grew 1.4 % y-o-y while the average transaction amount declined 0.5% y-o-y. The company’s store comparable sales were flat in this quarter, and almost all of the company’s growth came from its digital sales. Notably, Target’s digital sales grew 24% y-o-y in the third quarter, which accounted for 4.3% of its total sales. Future Outlook In the fourth quarter, the company expects to generate both GAAP EPS from continuing operations and adjusted EPS in the range of $1.05 to $1.25, compared to a consensus estimate of $1.24. The company also expects to see continued pressure on its EBIT due to ongoing investments in both digital and physical stores. For the full year 2017, Target expects its adjusted EPS to range between $4.40 to $4.60. Our $59 price estimate for Target’s stock is around 8% ahead of the current market price. See our complete analysis for Target   See More at Trefis | View Interactive Institutional Research (Powered by Trefis) Get Trefis Technology
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    Cisco's Product Sales Remain Subdued
  • By , 11/16/17
  • Cisco (NASDAQ:CSCO) announced its Q1 fiscal year 2018 earnings on November 15, reporting a 2% decline in revenues to $12.1 billion. The decline in revenues was attributable to weakness across product segments, particularly the core switching and routing revenue streams. On the other hand, Cisco’s collaboration segment (renamed to Applications) and security segment continued to perform well. Cisco’s gross margin (non-GAAP) for the quarter stood at 63.7%, which was around 10 basis points lower than the prior year quarter. Pricing pressure for hardware as well as services primarily drove product margins lower. The company also reported a 5% decline in operating income (non-GAAP) leading to a 120 basis point fall in operating margin, as shown above. Resulting net income was down 2% on a y-o-y basis, with diluted earnings per share remaining flat over the prior year period at $0.61 per share for the quarter. We have a $33 price estimate for Cisco’s stock, which is in line with the current market price. See our full analysis of Cisco Performance By Segment Cisco has reported little or no growth in core product revenues in recent years, driven by pricing pressure on hardware and a shift of consumer preferences from standalone hardware products. This trend has been evident this year, with low single digit revenue declines across most product streams. As shown below, Infrastructure Platforms (comprising of routers, switches and wireless equipment) revenues fell 4% y-o-y to just under $7 billion for the quarter. Comparatively, applications (collaboration and unified communications) and network security solutions sold by Cisco have performed well in recent years. These segments reported mid to high single digit revenue growth, as shown below. Moreover, service-based revenues have also grown at a steady pace to offset the stagnating revenues from hardware sales. As shown below, network security revenues as well as services revenues were also up during the quarter. In recent quarters, market leader Cisco has demonstrated strength in the network security domain. The company added around 6,000 new customers in this space in the previous quarter quarter, which was over three times its nearest competitor. Cisco now has over 80,000 customers for its network security solutions. Cisco’s management expects this trend to continue through 2018 as well. In terms of profits, Cisco reported a 260 basis point decline in gross profit margin (GAAP), which was largely due to weakness in the product division . Product gross margin (GAAP) was down by over 3 percentage points, which the company attributed to higher memory pricing in recent quarters. This is expected to continue in the near term. Improved Guidance For Second Quarter Cisco’s management gave improved guidance for the fiscal second quarter, with revenues expected to rise by around 2% to $11.8 billion. Cisco expects its non-GAAP gross margin to be around 63% for the quarter, which is over a percentage point lower than the second quarter of FY 2017. However, disciplined expense management could help improve the operating profit margin. Cisco expects  its operating profit margin to be flat over the year-ago period at 30%. Resulting non-GAAP diluted earnings per share are expected to increase by around 4% on a y-o-y basis to 59 cents a share.   View Interactive Institutional Research (Powered by Trefis): Global Large Cap |  U.S. Mid & Small Cap |  European Large & Mid Cap More Trefis Research