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12:12 pm Abercrobie & Fitch (ANF)

Abercrombie & Fitch (ANF) is selling off 13% today after reporting Q4 (Jan) results. As you can see by its stock chart, the company has been struggling for a while and management expects it to continue over the next six months.

You're probably familiar with Abercrombie & Fitch, but just in case, they are a retailer of casual apparel/accessories for young men, women and children. Its brands include Abercrombie & Fitch, abercrombie kids and Hollister Co. ANF currently operates about 800 stores in the US and 170 stores across Canada, Europe, Asia, Australia and the Middle East.

Turning to the JanQ results, non-GAAP EPS came in at $1.15, down 14% from the $1.34 earned in the year ago period. Revenue fell 14% YoY to $1.12 bln, driven by a 10% same store sales decline (-6% in the US, -17% in international markets), the adverse effects of changes in foreign currency exchange rates and net store closures. On a sequential basis, same store sales were similar to Q3 (Oct), however, direct-to-consumer (online) same store sales decelerated significantly in JanQ, driven primarily by Europe, where site traffic was down and shipping and other promotions drove less of a conversion benefit than in prior quarters.

Looking ahead to the first half of calendar 2015, ANF expects its business will remain challenging. A big part of the problem is that young people's tastes are changing. If you have ever been to an Abercrombie store, you'll notice the A&F logo everywhere. It's often in huge print on their shirts and sweatshirts. However, young people are moving away from logos, it's not as cool anymore as they would rather embrace individuality. Also, young people are moving to trendier/cheaper alternatives (Forever 21 and H&M) so they can change fashion choices more quickly. ANF says that the declines in its logo business in 2014 are persisting in the early part of 2015, albeit at reduced rates. The strong dollar is also hurting results.

On the positive side, management has taken steps to improve its product offering. However, on the earnings call, management concedes that it will probably take until back-to-school and Labor Day before you'd notice a meaningful change in the product assortment when you walk into an A&F store. In terms of the Abercrombie brand, the company is focusing much more around design/content and is making sure that that content reflects trends. For example, ANF is focusing more on the colorful prints.

The company is also looking at sweater dresses and the '70s trend. Also, A&F has never offered zippers in its jeans before. It's only been button fly, but zipper jeans are being rolled out. A&F is specifically making sure that products in Abercrombie are original, iconic, new, and aspirational. As a result, the company is introducing hand-painted prints. The company expects hits-and-misses with its new product assortments but either way, A&F will react more quickly to rectify mistakes. Overall, the company thinks that it will report improved performance in 2H15 when the new products hit the market. Also, the negative impact from reduced logo sales should modestly abate in 1H15 and neutralize in 2H15.

And if the problems with its logo-heavy product assortment were not enough, the company is also in the process of hiring a new CEO. A search process is ongoing for candidates both internally and externally. However, the company says these things take time, and it's more important to get the right person than to move quickly.

11:11 am American Eagle Trades Up Following a Strong Q4, Better Than Expected Q1 EPS Guidance

American Eagle (AEO 16.07, +1.25) is trading higher by about 8.4% this morning following the company's better than expected Q4 results. AEO reported earnings per share (EPS) of $0.36 on revenues which were up 2.9% on a year-over-year basis to $1.07 billion. The company also provided Q1 EPS guidance.

American Eagle is a clothing and accessory retailer who specializes in low-rise jeans, polo shirts and outerwear. The company operates under the three main segments, American Eagle Brand retail stores, aerie retail stores, and AEO Direct.

In terms of the numbers, AEO reported EPS of $0.36, a 33% increase over the same period last year. Management noted after a tough start to fiscal 2014, certain initiatives began to deliver results. Sales trends improved and the reduction of promotions also aided results after the slow start to the year. 

AEO reported revenues of $1.07 billion, an approximate 3% increase over last year's period. Management noted that consolidated comparable sales were flat, which was better than expected. 

The comparable store sales breakdown stands with the AE Total Brand comparable sales in the quarter down roughly 1%, while aerie Total Brand comparable sales increased 13%.

Selling, general and administrative expenses were up 5% and deleveraged 50 basis points to 21.2% as a rate of revenues. Certain planned investments in marketing and incentive compensation led to the increase and was partially offset by reductions in overhead.

The company also issued upside Q1 EPS guidance of $0.09-0.12, which includes a $0.02 headwind from West Coast port slowdowns, and expects positive mid-single digit comps.

In sum, the company is trading higher partially due to the better than expected Q4 results, in addition to the optimistic guidance. AEO management noted that fiscal 2014 began worse than expected, but heading into a new fiscal year, notes it is well positioned to deliver growth and returns to shareholders.

10:02 am Drybulk Shipping Play Diana Shipping Down 3% Following Quarterly Results

Diana Shipping (DSX 6.76 -0.17) is trading 3% lower this morning after reporting fourth quarter results this morning.

The company reported a quarterly loss of $0.10 per share, which came in a little worse than expectations. On the top line, revenues rose 16.7% year/year to $46.1 million, which topped expectations.

Time charter revenues were $46.1 million for the fourth quarter of 2014, compared to $39.5 million for the same quarter of 2013.

  • This increase was mainly due to the increase in ownership days resulting from the enlargement of its fleet and was partly offset by decreased time charter rates.
Daily TCE rates rose 3.4% YoY to $12,090/day, while daily vessel operating expenses rose 1.1% to $6,225/day. Fleet utilization fell to 99.2% from 99.5% year/year. The Baltic Dry Index (BDI.TO) has climbed for seven consecutive sessions now, rising a total of 9.2% to 559, which is forming a little trend so far for industry pricing.

A little background on the BDI:
  • The Baltic Dry Index was introduced in 1985
  • The current all-time low is at 509, which was hit on February 18, 2015.
  • The index tracks the demand of moving raw materials such as coal, iron, steel and copper across the oceans.
  • The index measures shipping costs for dry bulk commodities
  • It hit a record high of 11,793, which was hit on May 20, 2008

10:01 am Ambarella (AMBA)

Ambarella (AMBA 65.22, +2.16, +3.5% ), a producer of high-definition chips for wearable cameras, IP security cameras and automotive cameras, reported better than expected Q4 earnings results after the close on Tuesday. EPS for the quarter came in at $0.68 per share, $0.19 better than expectations. Revenues also came in ahead of consensus, rising 61.8% year/year to $64.7 million.

In case you're not familiar, AMBA develops semiconductor processing solutions for video that enable HD video capture, sharing, and display. AMBA is often linked to wearable sports camera leader GoPro (GPRO), as it is the exclusive supplier of chips and with roughly 30% of revenue coming from GPRO.

Diving deeper into the Q4 results, Gross margin on a non-GAAP basis for the fourth quarter of fiscal 2015 was 64.3%, a slight improvement from the 64.1% reported for the same period in fiscal 2014. The company attributes part of the strong revenue growth in the quarter to increased sales in the wearable camera market. More specifically, GoPro's HERO4 Silver and UltraHD HERO4 BLACK models, along with Chinese manufacturer Xiaomi's sports camers were the primary growth drivers in the quarter.

Looking ahead, the company believes that there are tremendous opportunities available to expand in the home IP security camera, police/security forces, and automotive markets. Additionally, demand for drone cameras is picking up, and the company expects to see this trend continue moving forward. To confirm its positive outlook, AMBA issued upside EPS guidance of $0.53-$0.59 vs. $0.44 consensus and noted it sees Net Income of $18-$20 million during the quarter.

Analyst actions released this morning following the report include: Canaccord Genuity raising its price target to $74 from $66; Buy... Stifel raising its price target to $73 from $64; Buy... Topeka Capital raising its price target to $75 from $62; Buy... and Ascendiant Capital raising its price target to $72 from $65.

9:26 am Smith & Wesson Over 9% Higher Pre-Market Following Earnings/Guidance

Smith & Wesson (SWHC 13.05) is trading 9.2% higher this morning at $14.25/share following quarterly earnings results/guidance.

For the fiscal third quarter, the company reported earnings of $0.20 per share, excluding non-recurring items (GAAP EPS $0.15), which came in better than expected. On the top line, revenues fell 10.5% year/year to $130.6 million which also came in above expectations.

Revenue exceeded the high end of the company's stated guidance range as a result of order strength from distributors and key retailers in January 2015.

Looking ahead, the company issued upside guidance for the fourth quarter. SWHC expects to see earnings of $0.24-0.26, excluding non-recurring items, which is in-line with expectations. However, the mid-point is just above expectations. Revenue is expected to be $162-166 million, which come in above current expectations.

The company said, "Our third quarter results reflect the successful navigation of a normalizing firearm market following an earlier consumer surge in firearm purchases, combined with the ongoing focused execution of our long-term strategy. Sales in our firearm division exceeded our updated expectations, reflecting solid orders from distributors and key retailers at the start of our annual industry show season in January... We are excited about the opportunities for additional growth and profitability that our newly established accessories division will provide us."

The stock price is trading above all of its major moving averages and it sitting an an eight month high.

9:20 am Wayfair (W)

Shares of Wayfair (W 25.25) rallied 7% on Tuesday in anticipation of its Q4 earnings results. The results, which were released prior to the open on Wednesday, highlighted a strong quarter where Direct Retail, its primary source of revenue, rose 55% year/year to $346.7 million. In total, revenues reached $408.6 million, comfortably ahead of the $368.79 million consensus. Wayfair also beat on bottom line results, reporting EPS of ($0.10) versus the ($0.28) expected loss. Additionally, W issued upside guidance for Q1, noting it sees Q1 revenues of $375-390 million vs. $352.50 million consensus.

Simply put, Wayfair is a massive online catalog company offering home goods and furnishings. It was founded in 2002 and, with no outside investors, the company operated over 240 niche home-related websites such as bedroomfurniture.com and allbarstools.com. It profitably operated under this business model for about 8 years, but, its founders noticed that it had a problem with repeat buyers. A buyer would come to one of their sites, purchase an item, but then when the time came for that customer to purchase their next home furnishing item, they would not know to come back to one of its owned sites.

In order to resolve this issue, the company then underwent a brand consolidation process in 2011-2012 and now Wayfair consists of five primary brands: Wayfair.com, Joss & Main, All Modern, Dwell Studios, and Birch Lane. Over the past couple of years, W has been in investment-mode, seeking to build brand awareness, which is very evident in its financial results. While these investments have had a profound impact on its profitability, its growth in active customers, and hence, revenue, has been dramatic. In 2013, W's active customer base surged by 62% to 2.1 billion from 1.3 billion in 2012. Further, its strategy to consolidate its brands seems to be paying off as repeat customers accounted for 50.3% in Q4 2014, compared to 46.8% for the same period in 2013.

The company's product selection is impressive with about 7 million home products. but importantly, W carries very little inventory as its ships directly from suppliers to customers. It has a vast supplier network of 7,000 companies and W has built an extensive delivery and transportation infrastructure system utilizing FedEx, UPS, and the U.S. Postal Service. The company leverages its size and scale to reduce its shipping costs.  The average time to ship within North America  is a very reasonable 2.4 days.

The typical customer is a woman 35-65 with an annual household income of $60-$175K. The average oder value was $204 in Q4, up from $191 year/year. The company focuses on women because it believes women control an out-sized portion of spending -- especially spending on furniture and home furnishings and decor.

At best, W's financial performance is a mixed bag. On the positive side, revenue growth has been strong and on the move higher as its active customer count grows. However, gross margin is pretty thin due to high shipping, handling, and fulfillment costs, coming in at 24.1% in Q4, a slight improvement from 23.9% for the same quarter last year. To be more specific, fulfillment costs include expenses attributed to receiving, inspecting, picking, packaging, and preparing customer orders. These significant costs, combined with its surging investments in marketing, are taking a massive toll on its bottom line. It is also burning a ton of cash. The good news is, it does have a healthy cash balance and no debt, lessening the concern that it may need to tap into the capital markets again in the near term.

In closing, operations are improving at Wayfair, but it still has a bit of work to do before showing bottom line profitability. Growth in customer base, avg order amount, and orders per customer, are all being offset by ballooning marketing, selling and other operating expenses. To add context, operating expense growth dwarfed revenue growth, reaching 128% year/year versus a 38% increase in revenue. While this is to be expected from a company looking for aggressive expansion, it is certainly something to keep an eye on moving forward if revenue growth starts to falter.

8:14 am Bob Evans Farms Sent Reeling after Earnings Results and Corporate Update

The expression that "the hits keep coming" is playing out today for shareholders of restaurant and food services company Bob Evans Farms (BOBE 59.64).  After Tuesday's close, the company came up well short of third quarter earnings per share expectations, said it has decided not to spin off its BEF Foods business, and slashed its FY15 guidance.

Shares of BOBE are down 21% in pre-market action.

For the third quarter, net sales rose 5.0% to $357.2 million and the company reported a non-GAAP profit of $0.60 per diluted share versus $0.31 per diluted share in the same period a year ago. Analysts' average EPS expectation was closer to $0.70 per diluted share.  

The year-over-year improvement was driven by the BEF Foods segment, which accounted for approximately 30% of the company's total net sales.  It enjoyed a 7.2% increase in net sales and saw its non-GAAP operating income jump to $11.6 million from $2.2 million, helped in large part by a favorable cost of goods sold. 

The core restaurant business, on the other hand, ran into some operating difficulties.  Although its net sales increased 4.1% to $250.4 million and its same-store sales rose 3.8%, non-GAAP operating income declined 30% to $6.1 million.  

Higher food costs, higher labor and benefit costs, increased marketing and utility expenses, and increased SG&A costs were the principal drivers of the operating income decline.   On a related note, the company said it is looking at options for its real estate assets, including a potential REIT spin-off.

The only thing spinning right now, though, is the stock.  To be sure, the company's guidance has helped get things moving in that regard.

Previously, Bob Evans said it expected its FY15 non-GAAP diluted earnings to be in the range of $1.90 to $2.10 per share.  That estimate range has now been reduced to $1.40 to $1.60 per share, the midpoint of which is 25% below the midpoint of the prior guidance range.

The reduction was necessary, the company said, because of the underperformance of the restaurant business in the third quarter and the delayed impact of turnaround initiatives being implemented in the fourth quarter.  Bob Evans expects same-store sales in the fourth quarter to be in the low-single digits and it is anticipating BEF Foods' sales to be flat to down mid-single digits due to the loss of several food service customers.

It is among the company's goals to improve the guest experience and to restore acceptable profit margins.  That is admirable, and if it can do it the investor experience will be improved, too.  As it stands now, a lot of investors are no longer feeling at home on Bob Evans Farms.
 

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