3Q17 EPS beat with $0.58 vs. Cons of $0.54. The beat came from higher sales with comps of +3% (Cons. of 1.3%). The company notes that foreign currency fluctuations negatively impacted EPS by ~$0.02. GM missed Consensus by 10 bps. The company noted that merchandise margin was approximately flat to LY (we note the inclusion of an insurance recovery payout of ~$0.03, which offset lost productivity from damage to the Fishkill distribution center) and rent & occupancy leveraged 60 bps. SG&A was 29.9% vs. Cons. of 30.2%. The company repurchased 3.8 million shares for about $100 million and ended the third quarter of fiscal year 2017 with 389 million shares outstanding. This quarter continues the YTD momentum, with Gap brand now comping positive, which we expect to continue into the holiday season. Management increased FY17 EPS guidance from $2.02 to $2.10 to $2.18 to $2.22 (Street at $2.06).
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AMC on 11/16/17, ROST posted a beat to both top-and- bottom line, reporting 3Q17 EPS of $0.72 vs. Cons. at $0.67 on a +4.0% comp (vs. Cons of +1.8%). This is the second consecutive REQ score of 10 out of 10. ROST continues to prove the resilience of the off-price model, as well as the ability to drive sales with in-season chase to drive upside. On the 3Q17 EPS beat, management raised FY17 EPS guidance to be $3.24 to $3.28 (up from $3.16 to $3.23) vs. Consensus of $3.23. In reaction, shares were up ~8% in the after-market trading session.
We remain on the sidelines as we have seen consumer demand volatility from quarter-to-quarter. Price competition in the sector remains. Additionally, the negative sales-to-inventory spread (although due to in-transit and investments to drive West Elm and Rejuvenation) keeps us cautious. We appreciate management’s execution and operational focus during a tough retail backdrop, especially offsetting the investment in shipping through ongoing supply chain-driven cost reduction. However, in the longer-term, we believe Wayfair’s (W - OP) focus on aggressive top-line growth could pose a threat to WSM’s strong customer base over time. WSM reported in-line 3Q17 EPS of $0.84. The company’s 3Q17 comp beat was on +3.3% compared to Cons. comp expectations of +3.0%. WSM guided 4Q17 EPS to a range of $1.49 to $1.64 vs Cons. of $1.65 on comp growth of +2% to +6%.
EPS in-line with Consensus. LB reported adj. EPS of $0.30 vs. Cons. of $0.30, with sales previously reported and above expectations. LB missed on lower gross margin versus Consensus (down 190 bps YoY) and SG&A deleveraged (up 200 bps YoY). The company raised the lower end of GAAP FY17 EPS guidance to $3.05 to $3.20 (Consensus at $3.12) based on comps down LSD to MSD (or about flat for go-forward categories). For 4Q17, the company guided to $1.95 to $2.10 (Cons at $2.02) based on comps flat to up LSD. The 53rd week is expected to add $170 million in sales. For both FY17 and 4Q17, the company expects gross margin and SG&A to decrease and increase, respectively. Shares are trading at historically low valuation multiples and may attract value investors with a multi-year horizon. However, we note that inventory productivity remains near peak levels, BBW is operating at peak metrics, and mid-teen consolidated operating margin may have room to contract further.
Positive 3Q17 Sales/EPS pre-announcement. After-market close (11/15/2017), RH pre-announced preliminary results for 3Q17 above expectations. The company expects adjusted 3Q17 EPS to beat with a range of $1.02 to $1.04 vs. Cons of $0.79, inclusive of an $0.11 per share positive impact due to a lower effective tax rate, offset by a $0.05 per share negative impact from the hurricanes. For 3Q17, sales are expected to be ~$592.5 million vs. Cons. of $588 million. In reaction, shares were up ~16% in after-market trading.
Robust 3Q17 on all fronts; pursuing aggressive growth in e-commerce and Amazon. The company reported an EPS beat of $0.11 with EPS of $2.58 vs Cons $2.47. The $0.11 beat was on comps of 5.1% vs. Cons 2.6%. Total sales of $490 million beat Cons. of $480 million. GM leveraged 30 bps YoY to 41.3% (but we note missed the Cons. of 41.6%) due to increases in Average Unit Retail (“AUR”) and merch margin. Recall, for PLCE, increased penetration of e-commerce has a lower GM, but is more than offset by higher operating margin and drives higher comp through higher basket size. OM improved 80 bps to 14%. PLCE increased full year guidance to $7.46 to $7.51 (Cons at $7.37), inclusive of $0.91 benefit from new accounting rules for the income tax impact on share-based compensation. The company forecasts 4Q17 EPS of $2.07 to $2.12 vs. Cons of $2.12 on +LSD comp. We recently wrote about PLCE’s proactive strategy to stay ahead of the transition to omni-channel, “A Case Study in Avoiding The Retail “Death Curve,” on how management is maneuvering the business to avoid omni-channel deleverage. Stock traded up ~6% during the day.
Our upgrade is based on: 1) our belief that comp performance at core UO and Anthropologie will progress towards sustainable positive comps by mid-2018, 2) proprietary promo checks that are showing discipline, particularly at the UO brand and improving at Anthro, 3) high off-mall presence, especially at UO with ~90% off-mall stores, and 4) opportunity for upwards EPS revisions. There are many (obvious) reasons to still be negative on the entire retail apparel space, not the least of which is our long-term thematic of the Retail “Death (or Deleverage) Curve,” as retailers shift to omni-channel. However, even in the worst of backdrops, there can be a handful of outliers that can buck the negative trends through brand strength, product superiority, and disciplined management. We believe URBN stands to benefit from a historically disciplined real estate and inventory strategy, the early and aggressive pursuit of e-commerce growth (one of the highest online penetrations at just under 40%), and current fashion trends in apparel that we deem to be in URBN’s sweet spot (retro brands like adidas, Puma, Fila, Champion, Calvin Klein, Tommy Hilfiger, and 70s- and 80s-inspired fashion trends). Note that URBN does not have the benefit from the 53rd week as they are not on the retail 4-5-4 calendar.
The $0.11 beat was on comps of 5.1% vs. Cons 2.6%. Total sales of $490 million beat Consensus of $480 million. GM leveraged 30 bps YoY to 41.3% (but we note missed the Cons. of 41.6%) due to increases in Average Unit Retail (“AUR”) and merch margin Recall, for PLCE, increased penetration of e-commerce weighs on GM, but is more than offset by higher operating margin. The company also noted that all of their key retail metrics increased: AUR, Average Dollar Sale (“ADS”), Units per Transaction (“UPT”), transactions and conversion. Adjusted SG&A leveraged 50 bps YoY as a result of positive comparable retail sales, in addition to decreased store expenses and lower incentive compensation expenses, partially offset by increased investment in transformation initiatives. OM improved 80 bps to 14%. PLCE also repurchased ~260,000 shares for ~$28 million during the quarter. Stock trading up ~4% pre-market.
3Q17 sales/comp miss due to weather, GM beat, results in EPS in-line. Comp came in lower than expected at 0% vs. Consensus of +2.4%. By division, comps were -1% at Marmaxx, +4% at TJX Canada, +1% at TJX International, and +3% at HomeGoods. The company noted that the hurricanes and warm weather negatively affected sales and that trends turned as weather cooled with 4Q off “to a strong start.” The company beat on Gross Margin by 40 bps. vs. Cons. of 29.4%, offset by SGA that missed by 30 bps. vs. Cons. of 17.8% as a percentage of sales. The company bought back 4.9M shares during the quarter for a total cost of $350M. We note that the weather incidents during the quarter are transitory in nature and the short-lead time inventory cycle of the off-price model allowed them to actually expand merchandise margins and not panic through promotions to drive sales. Although we continue to expect dilutive-margin growth in Europe and Australia, pressuring operating margins, we recognize the strength of the global growth strategy in gaining market share and driving higher EPS. We continue to reiterate our thesis that TJX is positioned to be the largest global off-price player. In reaction, shares were down ~4% during the day.
Driving market share at margin expense; REQ Score of 5 Out of 10. DKS promoted to deliver comp and EPS beat at the expense of the 3Q17 GM miss. DKS reported adj. EPS of $0.30 (including ~$0.02 from share repurchase and lower tax rate) vs Cons of $0.26 and comps of -0.9% vs Cons. -2.7% (Guidance was LSD decrease). E-commerce for 3Q17 as a percentage of sales was 10.3% vs. 9.6% last year. Gross margin missed by 80 bps compared to Cons. of 28.3% but was down 310 bps YoY. The GM miss was offset entirely by SGA. During the quarter, the company bought back ~2.9M shares for a total cost of $76M. While DKS raised its FY17 EPS guidance, the bigger news was the announcement that FY18 is expected to be down as much as 20% YoY due to an accelerated investment phase and expected GM pressure. With a 15%+ short position heading into earnings, shares were down only ~3% on the trading day as management removed the specter of a downbeat FY18 with its update today. We remain concerned about the heavy-up investment phase during a world moving online, but concede DKS is successfully taking market share, albeit at the expense of margins.
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