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11:56 am Dollar Tree Stock Blooms after Impressive Q3 Earnings Report

Discount retailer Dollar Tree Stores (DLTR 65.94, +3.31) has gotten a premium boost today after the company reported better than expected third quarter results and issued reassuring guidance.

For the third quarter ended November 1, Dollar Tree posted an 11.2% increase in consolidated net sales to $2.10 billion and a 5.9% jump in comparable store sales.  The latter was the retailer's strongest showing since 2011 and marked its 27th consecutive quarter of positive same-store sales.

Gross margins contracted by 40 basis points to 34.6% due largely to higher freight costs, yet the company still managed to grow its net income, including costs related to its proposed acquisition of Family Dollar (FDO 78.29, -0.16), by $7.6 million to $133.0 million.  Excluding those costs, net income increased by approximately $17 million to $142.4 million and diluted earnings per share increased 19% to $0.69.

In August Dollar Tree said it was expecting third quarter revenue to be between $2.02 billion and $2.07 billion and diluted EPS, excluding non-recurring items, to range from $0.61 to $0.66.

Looking at the fourth quarter, consolidated net sales are projected to be between $2.39 billion and $2.46 billion while adjusted diluted EPS are anticipated to range from $1.07 to $1.14.  That is pretty much in-line with analysts' average estimates.  

For the full-year 2014, Dollar Tree raised its guidance, saying it sees consolidated net sales between $8.52 billion and $8.58 billion versus its prior guidance of $8.44 billion to $8.55 billion.  Earnings, including $0.07 per share in acquisition-related costs, are expected to range from $2.97 to $3.04 per share compared to its prior expectation of $2.94 to $3.06, including $0.02 per share of acquisition-related costs.

With today's gain, DLTR trades at 22x trailing twelve month earnings.

Investors have been willing to pay a higher price for Dollar Tree given the company's solid execution in a tough environment and its prospect of becoming the industry leader with a Family Dollar acquisition.  Further multiple expansion will be harder to come by, yet the stock stands a good chance of rising in-line with earnings growth if Dollar Tree continues to perform as it did in the third quarter.

11:20 am Mobileye (MBLY)

Mobileye (MBLY), a recent IPO, initially traded higher after reporting Q3 earnings this morning but the stock is now down about 3%. In case you're not familiar with the company, be sure to read our October 1 story stock for a more in-depth description. However, the quick version is that MBLY is an Israel-based provider of software for camera-based Advanced Driver Assistance Systems (:ADAS). In simple terms, its technology is built into vehicles in order to keep passengers safer on the roads. It reduces the risks of traffic accidents and has the potential to revolutionize the driving experience by enabling autonomous driving.

MBLY's proprietary software algorithms and EyeQ chips perform detailed interpretations of the visual field in order to anticipate possible collisions with other vehicles, pedestrians, cyclists, animals, debris and other obstacles. Mobileye's products are also able to detect roadway markings such as lanes, road boundaries, barriers and they can identify and read traffic signs and traffic lights. Its products are or will be integrated into car models from 21 automakers including BMW, Ford, GM, Nissan and Volvo. Its products are also available in the aftermarket.

Turning to the Q3 results, Mobileye reported that non-GAAP EPS came in at $0.04, which was flat with last year. Revenue rose 70% YoY to $34.7 mln. There was no guidance as is usually the case. The EPS was about in-line with expectations while the revenue was better than expected. Breaking it down by segment, OEM revenue was $28.8 mln (83% of total revenue), up 60% YoY while after market (AM) revenue contributed the remaining $5.9 mln and was up 146% YoY. In addition to its top line growth, another impressive metric for MBLY is its margins. They do not provide a non-GAAP operating margin but non-GAAP net margin was a robust 32.2% vs 32.7% in the year ago period.

Overall, MBLY says it's pleased with its strong Q3 results, driven by the ongoing demand for its complex technology. During the quarter, the company successfully won programs for its EyeQ System-on-Chip in several new models with new and existing OEM customers. The company believes it offers best-of-breed mono-camera technology, which bundles multiple applications into a single package. Looking ahead, Mobileye says it remains in a position to benefit from the ongoing move toward increased regulation of ADAS. As regulators and safety organizations continue to increase the types and functions of ADAS applications required to maintain high safety ratings, ADAS will become standard on more vehicle models and the market will continue to expand significantly.

In sum, this was another good quarter for MBLY. The company made its IPO debut on August 1 (priced at $25). So this is its second quarter as a public company and both quarters were pretty similar in terms of performance relative to expectations. With that said, it's not clear why the stock is down this morning. It could be that margins came in a bit lower relative to the year ago period. Also, the +70% YoY revenue growth was not as robust as the +90% achieved in Q2. Also, OEM revenue growth was good at +60% but it was not nearly as high as the +115% seen in Q2.

9:42 am Salesforce.com Reports Slightly Better Than Expected Q3 Results, Dollar Strength Weighs on Guidance

Salesforce.com (CRM 58.76, -2.26) is trading about 3.7% lower in early trading following the company's Q3 (Oct) results last night. They actually reported slightly better-than-expected results for OctQ but the Q4 (Jan) and FY16 guidance was below expectations. That seems to be what's weighing on the stock.

In case you're not familiar with CRM, the company offers cloud-based software that manages employee collaboration as well as customer information for sales (Salesforce Sales Cloud), marketing (Salesforce Marketing Cloud), and customer support (Salesforce Service Cloud). The advantage of a cloud-based offering is that it's easier and cheaper for clients to manage as the software is maintained at updated at CRM and not on the clients' servers.

Turning to the Q3 results, non-GAAP EPS rose 56% YoY to $0.14 while revenue rose 29% YoY to $1.38 million. These results were pretty good. However, in terms of the Q4 (Jan) guidance, CRM expects non-GAAP EPS of $0.13-0.14 and revenue of $1.436-1.441 bln. For FY16, CRM provided only revenue guidance which is expected to be in the $6.45-6.50 bln range.

CRM reported Sales Cloud revenues of $625.0 million, Service Cloud revenues of $339.6 million, and Marketing Cloud revenues of $131.5 million. The company's regional segments all saw growth. In the Americas (roughly 72% of revenue), the company reported a 29.4% YoY increase to $995 mln. In the European segment (18% of revenue), the company saw a 29.8% increase to $253 mln and in Asia Pacific (10% of revs), CRM saw revenue increase 21.2% YoY to $135 mln.

So why the disappointing guidance for Q4 (Jan) and FY16? It seems a big reason is tied to unfavorable currency fluctuations. As you can see above, about 30% of revenue comes from outside the US, which is a pretty sizeable amount. With the dollar being so strong, that's hurting the top line guidance when you convert it back into dollars. 

This seems to be the major reason for a shortfall in billings. The FX situation is probably not going to change in the near term, so this could be a headwind in the intermediate term. The stock has recovered off its lows from last night as it's our sense that investors are realizing that currency issues seem to be mostly to blame and not operational/demand issues.

9:25 am Best Buy Soars Over 11% Following Earnings Results, Now +7%

Best Buy (BBY 35.54), the world's largest multi-channel consumer electronics retailer, soared in early morning trade after reporting its third quarter earnings results. The stock rose as much as 11.2% to $39.51/share and is now at $37.93/share. Ahead of this morning's gains, the stock was already above its major moving averages and is now at an 11-month high.

The company reported third quarter earnings of $0.32 per share, excluding non-recurring items, which came in better than expectations. On the top line, revenues rose 0.6% year/year to $9.38 billion, which also topped expectations

Comparable sales rose 2.2% from the prior year's quarter, which beat expectations, as well as guidance for low single digit decline in the first half of the year. Separately, the company is looking at $65 million in additional annualized Renew Blue cost reductions, bringing the cumulative total to $965 million.

On the top line, while sales in the NPD-reported Consumer Electronics categories declined 0.2%, the company's strength in televisions, computing, and tablets versus the industry, in addition to its growth in gaming and appliances, drove a Domestic comparable sales increase of 2.4%, excluding the 80-basis point estimated benefit associated with the classification of revenue for the new mobile carrier installment billing plans. Domestic online comparable sales increased 22%."

Looking ahead, the company expects to see fourth quarter revenue flat year-over-year from $14.47 billion, which would just slightly above expectations.

The company expects near flat year-over-year revenue and comparable sales growth (previously said comps down low single digits for second half 2015) -- assuming revenue declines in the NPD-reported Consumer Electronics categories are in line with third quarter fiscal year 2015; (2) an improvement in the year-over-year gross profit rate (consensus +20 bps to 20.4%).

The net result of these outcomes, similar to last quarter's outlook, is expected to equate to a year-over-year expansion in the fourth quarter non-GAAP operating income rate of approximately 50 basis points (similar to last quarter's guidance for the second half of 2015).

8:11 am General Motors Sued by State of Arizona

General Motors' (GM 32.15) recall issues seem likely to dog it for some time and might only just be getting started in some respects following the news today that Arizona has sued the auto maker for putting the public at risk "by concealing safety defects to avoid the cost of recalls."  Arizona is seeking an estimated $3 billion from General Motors, according to a Reuters report citing the New York Times.

The "new GM", i.e. the one that emerged from bankruptcy, has claimed that it should not be subject to lawsuits pertaining to safety issues in cars that were made prior to the company entering bankruptcy in 2009.  Those issues, the "new GM" says, fall on the "old GM."

The "new GM's" lawyers made that case in a Manhattan bankruptcy court earlier this month, but obviously, their argument didn't change Arizona Attorney General Tom Horne's thinking on the matter.  He claims Arizona consumers saw the value of their GM cars drop due to the recall issues and that their safety was put at risk as GM delayed its disclosure of defects with ignition switches, and other parts, that eventually led to the recall of 2.6 million vehicles.

The weight of the recall issue has been on display in GM's stock price, which is down 21% year-to-date.  Shares of GM are currently down 1.0% in pre-market action.

The weakness in the stock price isn't related fully to the recall issues.  Difficulties in foreign economies and increased competition from foreign car manufacturers have curbed some of the enthusiasm for owning the domestic auto makers.  Ford (F 15.44) for its part is unchanged for the year versus a 10.8% increase for the S&P 500.

In the case of GM, though, it has the same albatross around its neck that many of the mega banks did (and still do) in their dealings with mortgage fraud claims.

Certainly, if Arizona's suit is found to have merit, other state attorneys general seem likely to follow suit (no pun intended) on the plaintiff's side of things.

GM is still very much in the business of making cars, yet its attorneys promise to be every bit as busy as the workers in GM's auto plants.  The legal overhang on GM's stock isn't likely to go away soon.

7:08 am Williams-Sonoma Breezes by Third Quarter Estimates

Home goods retailer Williams-Sonoma (WSM 69.42) reported its third quarter results after yesterday's close and they were met with a general refrain of "that's more like it!"  Following a disappointing second quarter earnings report in August, Williams-Sonoma delivered the goods in the third quarter by posting better than expected results.

In August, Williams-Sonoma said it expected third quarter revenues in the range of $1.10 to $1.13 billion, diluted EPS to be between $0.58 and $0.63, and comparable brand revenue growth of 4% to 6%.  The retailer exceeded those guidance ranges on all fronts.

For its third quarter, Williams-Sonoma reported net revenues grew 8.7% to $1.143 billion, diluted EPS jumped 17.2% to $0.68, and comparable brand revenue increased 8.7% on top of an 8.2% gain in the same period a year ago.

The strong results were aided by impressive comparable brand revenue increases for all of its units, including the core Pottery Barn and Williams-Sonoma brands, which logged increases of 7.0% and 4.3%, respectively, versus gains of 8.4% and 1.4% in the third quarter a year ago.

Williams-Sonoma saw gross margins contract 90 basis points to 37.7%, yet its operating margin expanded 40 basis points to 9.2% due in large part to strength of its higher-margin e-commerce business, which enjoyed a 14.7% increase in net revenue to $587 billion or 51% of total revenue.

The company's fourth quarter guidance calls for revenues in the range of $1.525 billion to $1.575 billion, diluted EPS between $1.42 and $1.50, and comparable brand revenue growth of 4% to 6%. Analysts, on average, were expecting more on the top and bottom lines.

We suspect Williams-Sonoma is taking a prudently cautious stance with its fourth quarter guidance knowing that the holiday selling season is likely to be a highly promotional period.  Investors might think that, too, seeing how the retailer outperformed its own third quarter estimates.

Notably, the company raised its FY14 revenue and EPS guidance ranges.  After the second quarter, it was expecting revenues of $4.645 billion to $4.725 billion and diluted EPS to fall between $3.07 and $3.17.  Now it expects revenues to be in the range of $4.68 billion to $4.73 billion and diluted EPS of $3.11 to $3.19.

Shares of WSM jumped nearly 8% in after-hours trading, presumably laying a good foundation for trading in the stocks of competitors like Restoration Hardware (RH 81.88),  (PIR 13.53), and Bed Bath & Beyond (BBBY 71.39).

At Wednesday's closing price, WSM was up 19% year-to-date and trading at approximately 19x estimated FY15 earnings.

6:43 am Green Mountain Coffee shares lower by 1% following downside Q1 EPS guidance and CFO departure

Keurig Green Mtn (GMCR $152.80 -1.15) shares are trading lower by 1% after the company reported fourth quarter earnings of $0.90 which was higher than expected while revenues rose 14.2% YOY to $1.2 billion which is also higher than expected. The disappointing aspect of the quarter was the company's guidance. The company sees first quarter EPS of $0.83-0.88 which was below expectations. The company also sees revenues in the high single digits. For FY15 GMCR sees Non-GAAP earnings per diluted share growth of mid-single digits to high-single digits & net sales growth in the high-single to low-double digits.

The 22% increase in portion pack-related net sales over the prior year period was due to a 28% increase in sales volume partially offset by an approximately 3 percentage point decrease due to net price realization and a roughly 3 percentage point decrease due to product mix. For the quarter, 2.4 million Keurig system brewers were sold including 2.3 million sold by Keurig with 0.1 million reported sold by Keurig's licensed brewer partners.

This brewer shipment number does not account for consumer returns. For the quarter, gross margin grew 160 basis points to 37.6% of net sales from 36.0% in the prior year period. The following table quantifies the changes in gross margin period to period: Reflecting its commitment to return capital to shareholders and its expectation for continued strong cash flow generation, the Company announced a 15 percent increase in its indicated annualized dividend to $1.15 per share from $1.00. During the fourth quarter, the Company repurchased a total of 440 thousand shares at a cost of $55 million.

The company also announced that Frances Rathke will be leaving the Company in 2015 after 11 years of service. As part of the succession plan, the Company has engaged an executive search firm. To facilitate a successful transition, Ms. Rathke will continue to serve as Chief Financial Officer and Treasurer until a replacement is appointed, at which time, Ms. Rathke will serve in the new role of Strategic Advisor to the CEO reporting to Brian Kelley. She will stay in this latter role no later than Sept 26, 2015.

GMCR shares are trading higher by 103% YTD. Look for support near the $150-11 area and resistance near all time highs near the $158-159 vicinity.

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