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11:08 am Gap Struggles Persist in First Quarter

Apparel retailer Gap, Inc. (GPS 38.03, -0.53) is finding it difficult to find favor with investors these days.  The release of its first quarter results, which came after Thursday's close, was just a formality considering Gap issued a first quarter warning on May 12 while highlighting the disappointing sales performance at its core Gap brand and Banana Republic unit.  In other words, investors already knew what they'd be hearing and yet shares of GPS have still traded lower after the report.

Briefly, Gap reported diluted earnings per share (EPS) of $0.56, which included a non-recurring benefit of about $0.02 related to a reversal of a tax-related interest expense.  That was actually a penny ahead of analysts' average expectation.

Net sales were down 3%, as previously reported, to $3.66 billion, and comparable store sales declined 4%, led by a 10% decline at Gap Global and an 8% decline at Banana Republic Global.  Old Navy's comparable store sales were up 3%.

Gap's CEO Art Peck said turning around the Gap brand remains a top priority.  The issue it seems for investors is that the fix isn't expected to occur soon enough.  

It was noted in a CNBC report after the earnings release that Peck is hoping Gap's product will be better by the holiday season, but that he seems more certain Gap's product will improve by spring 2016.

Gap reaffirmed its fiscal 2015 view that diluted EPS should be in the range of $2.75 to $2.80 with its operating margin down about one percentage point versus fiscal 2014.

The stock isn't exorbitantly priced at 13.7x estimated FY15 earnings, but without signs of turnaround progress at the Gap brand in particular, concerns that the stock is more of a value trap than a value are apt to create some resistance for the stock, which has been stuck in a range between $35 and $45 for the better part of the last two years. 

At present, GPS is down 9.6% year-to-date and trading closer to the bottom end of the aforementioned trading range.

10:54 am Campbell Soup trades higher following mixed Q3

Campbell Soup (CPB 47.97, +1.04) is trading about 2.2% higher this afternoon following the company's mixed third quarter results. CPB reported better than expected earnings per share (EPS) of $0.62 on revenues which came in worse than expected at $1.9 billion. The company also issued guidance for fiscal year 2015.

In Q3, revenues fell 3.6% on a year-over-year basis to $1.9 billion, primarily due to the negative impact of currency translation and the impact of retailer inventory movements on CPB's U.S. soup business.

In the period, organic sales decreased 1% with lower volume, which was partly offset by lower promotional spending and higher selling prices.

US Simple Meals sales were down 6% to $630 million as U.S. soup sales were down 10%, driven by volume declines. Sales declined 4% in Campbell's condensed coups, 18% in ready-to-serve soups, and 13% in broths.

Global Baking and Snacking sales were down 2% to $555 million, including 7 points of pressure from currency translation. Sales of Pepperidge Farm products increased as sales gains in fresh bakery products, crackers and cookies were partly offset by weakness in frozen products.

International Simple Meals sales were down 6% to $175 million as strength in Asia Pacific and Canada was partly offset by Latin American weakness. U.S. Beverages sales were also down 2% to $187 million as declines in V8 V-Fusion beverages were partly offset by gains in V8 Splash. Bolthouse and Foodservice sales were also down 1% in the period to $353 million.

In terms of guidance, CPB sees FY15 EPS closer to the high end of $2.32-2.38 with revenues for the period closer to the low end of $8.19-8.35 billion. 

In sum, despite charges related to severance and weakness across segment and sales brands, CPB shares are trading up versus the broader market today (S&P 500 2130.33, -0.49). Movements in the soups business and the stronger dollar impacted results, but shares are not taking to the set-backs.

9:29 am Dollar Index Rallies Post-CPI Data, Commodities Sell Off

Following this morning's CPI numbers, the dollar index rallied sharply to above 96, which caused a sell off in commodities. The index is now +0.8% at 96.03

Commodities such as oil, natural gas, gold, silver and copper futures are all sitting near today's lows in currently trade.

July crude oil is now -2% at $59.50/barrel, while June natural gas is -1% at $2.92/MMBtu. Energy giant Exxon Mobil (XOM) is trading lower this morning, while other big names such as Chevron (CVX) and EOG Resources (EOG) are also trading lower this morning.

June gold is now in the red, currently -0.1% at $1202.90/oz, while July silver is -0.6% at $17.04/oz.

July copper is currently -1.6% at $2.80/lb.

9:21 am Marvell Technologies (MRVL)

Shares of Marvell Technologies (MRVL 14.00, -0.37, -2.6%) are trading slightly lower ahead of the open on a weak Q2 guidance. Although the company beat Q1 EPS estimates, it lowered Q2 EPS guidance to $0.10-0.12, versus the $0.15 consensus. Additionally, while Q1 revenues were in-line with expectations, MRVL guided Q2 revenues in the range of $710-740 million, which is notably below the $726.7 million consensus.

Taking a closer look at the results, the company reported revenues of $724 million for the first quarter, which was a decline of 16%, driven by softer demand trends across most end markets. MRVL believes that the soft demand they saw in the first quarter is only temporary, and noted during its conference call that it expects to return to growth in the second half of this year.

Breaking revenues down by segment, storage revenue in the first quarter declined 20% sequentially and represented 48% of total revenue. HDD sales were also lower due to the well-documented weakness in the PC value chain while SSDs declined in line with seasonality. Furthermore, mobile and wireless revenue declined 13% from Q4 and represented 25% of total revenue due to weaker LTE smartphone demand in China, but that was partially offset by initial shipments into a Korean OEM's global smartphone platform. Finally, networking declined 7% sequentially and made up 21% of total revenue. This was mainly due to muted demand from enterprise customers.

Following the announcement of results, MRVL also announced that after sixteen years, Mike Rashkin will be retiring from his role as chief financial officer, effective May 22, 2015.

9:20 am Deere Shares Rally Higher Following Earnings/Guidance

Deere (DE 89.46) shares popped higher this morning following its quarterly earnings results and forward guidance.

The company reported fiscal second quarter earnings of $2.03 per share (or $690.5 million), which easily beat expectations. On the top line, net sales fell 20.0% year/year (vs. -19% guidance) to $7.4 billion, which fell short of expectations.

A slowdown in global farm economy leads to lower sales and earnings. Sales included price realization of 2% for both periods and an unfavorable currency-translation effect of 5% for the quarter and 4% for six months.

Equipment net sales in the United States and Canada decreased 14% for the quarter and year to date. Outside the U.S. and Canada, net sales decreased 28% for the quarter and six months, with unfavorable currency-translation effects of 10% and 8% for the periods.

Deere's construction and forestry and financial-services divisions had higher results for the quarter, and our agriculture and turf operations remained solidly profitable despite lower demand for large models of farm machinery. Deere's equipment operations reported operating profit of $828 million for the quarter and $1.242 billion for six months, compared with $1.361 billion and $2.252 billion last year.

  • The declines for both periods were due primarily to lower shipment volumes, the impact of a less favorable product mix and the unfavorable effects of foreign-currency exchange, partially offset by price realization and lower selling, administrative and general expenses.
Looking ahead into the third quarter, the company issued upside revenue guidance. Overall, the company expects to see revenue decline 17% from the prior year's quarter, but this is currently expected to be better than expectations.

For the full fiscal year 2015, the company lowered its revenue outlook . Deere now expects revenue to fall 19% from last year, down from a decline of 17%, which equates to about $26.7 billion, which ultimately falls short of current expectations.

However, on the bottom line, Deere raised its net income guidance forecast to $1.9 billion up from $1.8 billion.

Ahead of the open, the stock is trading around $92/share (vs. the $89.46 closing price from yesterday) and is currently above its major moving averages.

8:10 am Community Healthcare Trust's (CHCT)

Community Healthcare Trust (CHCT 19.75) rose 4% in its opening trading session yesterday. The REIT was formed to acquire and own properties leased to hospitals, doctors, and healthcare systems and providers raised $119.7 million gross proceeds through the offering.

The company will own 35 properties (The Initial portfolio) across 18 states, totaling 623k square feet. As of March 31, these properties were ~94% occupied, with a weighted average lease term of ~4.3 years and consisted of 69 separate tenants. The company notes that a number of tenants included in its initial portfolio are large, nationally recognized healthcare providers. Community Healthcare plans to focus solely on acquiring non-urban healthcare facilities with purchase prices of $10 million or less. They note that with less competition, the opportunity presents a more attractive risk-adjusted return than alternative locations.

As the company currently has no properties at this time, they have no revenues to report. Having said that, adjusting for the assumption they would have owned the portfolio they plan to acquire, the company notes it would have reported rental income of $3.55 million ($14 million at year end) and funds from operations of $2.83 million for the three month period ending March 31, 2015. After using the proceeds to acquire its initial portfolio, the company will have working capital of ~$1.3 million. The company's pro forms net tangible book value after the offering is expected to be $16.23 per share.

Upon completion of their IPO, being a REIT, the company plans to initiate an annual dividend of $1.50/share, which if its stock is trading at $20.00 per share, will offer a dividend yield of 7.5%. After the close of their IPO, the company will not have any outstanding debt, and has plans to launch a $75 mln credit facility through Suntrust Robinson Humphrey. The company anticipates quarterly dividend increases and that its payout ratio to decline over time as its revolving credit facility is drawn down.

8:06 am Hibbett Sports Disappoints with Q1 Results and Guidance

Hibbett Sports (HIBB 45.78) is a sporting goods retailer that operates in small to mid-sized markets, predominately in the South, Southwest, Mid-Atlantic and Midwest regions.  The company reported its first quarter results this morning.  They were disappointing and they were also laced with a number of excuses.

Net sales for the 13-week period ended May 3 increased 3.0% to $269.8 million while its comparable store sales declined 0.9%.  Hibbett's gross profit margin decreased 50 basis points to 37.0% on markdown activity.  Its operating margin, meanwhile, contracted by 120 basis points to 16.2%.  The downturn there was driven in part by expenses being higher as a percentage of net sales due to the lower-than-anticipated comparable store sales.

The company's net income slipped 3.5% to $27.4 million.  Diluted earnings per share (EPS), though, were flat at $1.09, which was below analysts' average expectation.

Hibbett was able to hold the EPS line flat due to share buyback activity.  On that score, there were 4.1% fewer weighted average shares outstanding this year versus the same period a year ago.

The company said its problems started early in the quarter with impacts from weather-related closures, port delays, and a shift in the timing of tax refunds.  Things reportedly got better in March and April and the company said it has seen that trend improve in May.

The latter view notwithstanding, Hibbett lowered its expectations for fiscal 2016 diluted EPS to $2.95-$3.04 from $2.95-$3.09.  That guidance is predicated on comparable store sales in the low single-digit range, and a flat to slightly negative product gross margin rate compared to fiscal 2015.  Previously, Hibbett said it expected comparable store sales in the low-to-mid single digit range, and a slightly positive product gross margin rate.

Shares of HIBB are down 5.5% year-to-date and have declined 19.8% over the last 52 weeks.

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