Select Comfort has been a rollercoaster of a ride. The stock has had several huge swings, both up and down, that have probably had shareholders ready to throw up. The ups have been driven by a combination of a recovering consumer, a strong "specialty" mattress backdrop (specialty is essentially any non-innerspring mattress - memory foam, adjustable, etc), and Select Comfort's ongoing innovation. The downs have been driven by the competitive environment, execution issues, and volatility within the consumer environment. In the end, you get a stock that is up 25% over the last 5 years but is trying to find some stability in the midst of a major new product launch.Read More
Bed Bath and Beyond reported 1Q earnings that were drastically below what were already low expectations heading into the quarter. The company reported EPS of $0.53, which was well-below consensus of $0.66, and the stock declined 12% on Friday.
There have been some contrarians that have come out in defense of the company, arguing that Bed Bath & Beyond generates significant free cash flow and returns much of that in the form of share buybacks and dividends.
But here's why that argument is misguided. This sort of defense works for a company like Staples, where profitability is stable, and net income is flat. This is not the case for Bed Bath & Beyond, which has deteriorating fundamentals across the board. Free cash flow will eventually follow, meaning that share buybacks and repurchases are not sustainable.
To show this, I'll first walk through the deterioration in fundamentals. I'll then connect this to free cash flow and show how that hurts the free cash flow outlook going forward. Finally I'll address what I see as the bull case is for the stock.Read More
Lululemon was at one point on top of the world. The company's yoga pants became a huge hit - not just with hardcore yoga practitioners, but also with a more casual audience. The stock grew from ~$4 in 2009 to its peak of $82 in June 2013. However, that year, the company ran into a slew of quality-control issues (see-through pants, pilling), increased competition (Nike, Under Armour, and a bunch of copycats), and supply chain problems. And more recently, just as the company was beginning to return to a solid state of revenue growth and margin expansion, the company again ran into execution-related issues in 1Q17. As a result, the company now sits 34% off of its 2013 peak, which it had recently approached in August of last year.Read More
First and foremost, Chipotle's 1Q was better-than-expected on the two main metrics that matter - comps and restaurant-level margins. With national advertising just now turned on and digital performing strongly, the outlook now looks better than it did before the earnings report, and the stock is up ~3% on the day after.
With that said, the report was not enough to persuade bears to flip sides. Most of the discussion was focused on comps, which was distorted by several factors. And with some deeper digging, one could find enough wrinkles in the quarter to remain bearish on Chipotle's outlook. And that's why the stock has only had a modest gain despite such a strong quarter. You need thesis-changing operational results to drive 10%+ moves, and this wasn't it.Read More
As I wrote about ~6 months ago, the key debate on Chipotle was whether the company was going to return to prior restaurant level volumes over time as customers return to the store, or if it was going to see a smaller degree of recovery.
So what are the key debates on CMG today, almost 1 year into its recovery?Read More
Costco has largely traded sideways over the last year after a 92% run between April 2012 and December 2015. The stock's upward trajectory slowed as the company's core comps began to slow amid increasing food deflation, the removal of tobacco products, and an increasingly competitive retail environment. Today, the key question revolves around where same store sales will move from here - will they return to COST's historical mid-single-digit growth, or will they continue to remain pressured as competitors increasingly encroach on their territory?Read More
FactSet is a data provider to financial service firms. If you work at a bank or on the buy-side, you're probably familiar with their products. FactSet's core desktop platform is used widely by analysts to pull data for research purposes or to monitor a portfolio. Sentiment among the Wall Street investors has declined significantly; among the major brokers, there's 1 buy, 10 holds, and 5 sells. The stock has held in relatively well, but has had significant drops around earnings as the company has missed revenue expectations. While the company fundamentals and its stock has performed well on an absolute basis, there is growing evidence supporting the bear-case around the stock.Read More
The auto part retailers have long been the darlings of the retail industry with consistent earnings growth, the highest margins in the sector, and protection from online players. And as a result, the stocks have been rewarded with a high valuation and market outperformance. However, there's a looming technology that could disrupt the industry that I don't think is being accounted for by investors.Read More
A lot has happened to Chipotle since I last wrote on the stock back in October of last year. As is well known, Chipotle faced a number of health-related issues that forced the closure of numerous stores. Many restaurants have faced similar outbreaks in the past, but those restaurants did not have consecutive strings of outbreaks, nor did it happen during a time when social media allowed news to spread quickly. As a result, sales dropped off a cliff and the stock has declined by 45% since the initial reports. For those who hold very strong beliefs on the future of a company, the outbreaks serve as a stark reminder that the future for any company is never certain.Read More
Restoration Hardware is currently undergoing a massive real estate transformation. The company is in the early innings of a shift from small, 7,000 foot stores to large, 35,000 - 60,000 square foot "full line design galleries" (FLDGs). The company eventually hopes to triple or quadruple its square footage over time as it adds 70 of these massive stores throughout the country.Read More
Over the last year, Bed Bath & Beyond has declined 12% vs the S&P 500's 5% gain. I detailed the bear case for Bed Bath and Beyond back in mid February, and the bear case has largely played out since that time. Going forward, a key issue will rest on whether BBBY will be able to re-accelerate its top line growth, and how quickly.Read More
Key Issue 1: Mobile Order & Pay and its impact on sales
Key Issue 2: Next Thursday's 4Q report
Key Issue 3: Valuation is not inexpensiveRead More
Chipotle reported 3Q earnings after market close, and the pre-market is indicating an opening price down 8%. The company reported 3Q EPS of $4.59, which fell slightly short of consensus estimates of $4.62. Results were short largely due to lower-than-expected operating margins. However, the investor focus was primarily on management's commentary on sales trends.Read More
Key Issue 1: Confidence in comp guidance for the back-half of the year
Key Issue 2: Confidence in margin guidance for the back-half of the year
Key Issue 3: Closing the HD/LOW Gap
Key Issue 4: Invest in HD or LOW?Read More
Home Depot is a widely admired company on Wall Street. Overall sentiment among Wall Street analysts is bullish, with the majority of analysts holding largely positive views on the stock. While there aren't many bears, there are analysts that believe the stock has run its course. Below are the key issues that these analysts are talking about.Read More
Last week, I wrote about Bed Bath & Beyond's 1Q15 results and about some concerns surrounding the company's guidance for the year. Specifically, I wrote that Bed Bath & Beyond may miss its top-line guidance due to difficult comparisons. In response, some have noted that online sales should account for that 2-3% growth; if one breaks out comps by online vs. retail, the company would only need brick and mortar to break even, as it did last quarter, and for online to contribute another 2-3% to comps.Read More
While its sexier competitor Home Depot gets all the attention, LOW is an interesting play at current levels. Lowe's currently trades at a similar multiple to Home Depot despite having a stronger outlook on earnings. The key to the story is whether LOW will be able to achieve its guidance (set forth by management) for the year.Read More
Bed Bath and Beyond reported 1Q15 results that were slightly below consensus expectations. Revenue once again grew at the low end of expectations and operating margin declined at a greater rate than expected. As I wrote in the past, Bed Bath & Beyond's bear thesis has largely played out as the company has suffered from increasing competition. Moving forward, it's difficult to see what might provide a boost to their top-line revenue or reverse the profitability declines.Read More
BBBY reports 1Q15 results after market close on Wednesday, June 24th. Recall that I outlined the bear case in February, which has thus far largely played out. Here's what professional investors are expecting.Read More
One of the most common questions that I get is why my models use multiples rather than a DCF for valuation. Personally, I believe a lot of people are too focused on DCFs. There's a common perception that professionals use complex DCFs with big finance terms while amateurs do third-grade math to get to a price target. It's not about which is more difficult or complex; it's about which method weighs the inputs appropriately given our certainty on the future of the company.Read More