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Casey's General Stores, Michaels, lululemon athletica, Guess' and Under Armour highlighted as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release

Chicago, IL – July 17, 2019 – Zacks Equity Research Shares of Casey’s General Stores, Inc. CASY as the Bull of the Day, The Michaels Companies Inc. MIK as the Bear of the Day. In addition, Zacks Equity Research provides analysis on lululemon athletica inc. LULU, Guess', Inc. GES and Under Armour, Inc. UAA.

Here is a synopsis of all five stocks:

Bull of the Day:

Casey’s General Stores, Inc. is a convenience store chain that carries a broad selection of food (including freshly prepared foods such as pizza, donuts, and sandwiches), beverages, tobacco products, health and beauty aids, automotive products, and other non-food items. Additionally, Casey’s offers fuel for sale on a self-service basis. The company operates its own distribution centers, delivering approximately 90% of in-store products as well as approximately 75% of the fuel sold at own stores.

Q4 Earnings Impress Wall Street

CASY stock soared over 10% on June 11 after reporting fourth quarter results that beat expectations.

Earnings of 68 cents per share easily surpassed the Zacks Consensus Estimate of 42 cents per share, while revenues of $2.178 billion climbed 4.3% year-over-year. Notably, same-store sales increased 5.7% from the prior-year period.

CEO Terry Handley attributed this recent growth to things like new store openings, gross profit margin expansion, and efficient management of the company’s operating expenses.

"The entire team demonstrated a focused effort to drive the business forward while working diligently to build out new capabilities that will support future earnings growth," Handley said.

Casey’s also launched its new e-commerce site last quarter, as well as implemented a fuel price optimization platform in its stores. And in fiscal 2020, the company has plans to roll out a mobile app and in-store order and price optimization systems.

CASY is On the Move

Since January, shares of CASY have jumped over 26% compared to the S&P 500’s return of roughly 20%.

Earnings estimates have since been rising, and the stock is now a Zacks Rank #1 (Strong Buy).

For the current fiscal year, seven analysts have revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has popped 42 cents during that same time period. 2021 looks pretty strong too, with earnings expected to still remain in positive growth territory.

Looking ahead, Casey’s expects comparable-store fuel sales in the range of a 0.5% decline to a 1% jump, with an improved fuel margin of $0.205 to $0.225 per gallon. Grocery comps growth is expected in the range of 2.5% to 4%, while improved grocery margin should fall between 32% to 33% (up from 31.5% last year).

Thanks to this bullish near-term outlook and soaring sales, the future is looking promising for Casey’s. If you’re an investor searching for a broader retail sector stock to add to your portfolio, make sure to keep CASY on your shortlist.

Bear of the Day:

The Michaels Companies Inc. is a retail chain that specializes in arts and crafts. The company offers a variety of arts and crafts products for scrapbooking, floral, framing, home décor, seasonal offerings, and children's hobbies. Michaels also operates 11 exclusive private brands: Recollections, Studio Decor, Bead Landing, Creatology, Ashland, Celebrate It, Art Minds, Artist's Loft, Craft Smart, Loops & Threads, and Imagin8. 

Q1 Earnings & Guidance Disappoints

Last month, shares of MIK fell over 16% when the company reported first quarter results and forward looking guidance that left investors wanting.

Earnings of 31 cents did meet the Zacks Consensus Estimate, but fell 21% year-over-year. Revenues of $1.09 billion came in just below our consensus estimate and declined 6% from the prior-year period. Comparable store sales fell 2.9% primarily due to a decrease in customer transactions.

Despite Q2 earnings guidance falling in-line with analyst projections, Michaels slashed its full-year bottom line outlook from roughly $2.40 per share to $2.35 per share. The company still expects revenues of $5.21 billion for the year.

“While our first quarter results were within our range of expectations for the quarter, we are not satisfied and are taking steps to improve our performance,” said Mark Cosby, Interim CEO.

On the call with analysts, Cosby commented that fixing Michaels’ current issues will “take time,” saying “The erosion of our value perception didn't happen overnight, and we know it will take time to win back the confidence of our customers. But we are confident that the steps we are taking to stabilize and improve our value perception will contribute to better performance in Q2 and the second half of 2019.”

Estimates Keep Falling

Analysts have since turned bearish on Michaels, with eight cutting estimates in the last 60 days for the current fiscal year. Earnings are expected to remain flat for the year, and the Zacks Consensus Estimate has dropped 14 cents during that same time period from $2.49 to $2.35 per share.

This sentiment has stretched into 2021. Though earnings growth could bounce back into positive territory, our consensus estimate has dropped 15 cents in the past two months.

MIK is now a Zacks Rank #5 (Strong Sell).

Shares of the retailer have fallen over 30% since January compared to the S&P 500’s gain of about 20%.

Bottom Line

Looking ahead, Michaels will need to focus on improving customer support and bringing back the lost value that Cosby talked about on the conference call. Additionally, moving away from heavy promotion and discount marketing will also be key for the retailer.

If Michaels can figure out a way to improve its fundamentals going forward, it could potentially prove to be a real value for those bargain stock hunters. Shares are currently trading at only 3.7X forward earnings estimates.

Additional content:

Here’s Why lululemon’s a Hot Investment Pick Right Now

lululemon athletica inc. appears to be a solid bet driven by continued investments to aid business growth. The company is benefiting from continued product innovation, enhancement of omni-channel experience and sturdy international growth. Additionally, it is progressing well on the Power of Three strategic plan, which aims at doubling sales in the men’s and digital categories, and quadrupling sales in the international unit by 2023.

Backed by these tailwinds, shares of the company have surged approximately 56% year to date, comfortably outperforming the industry’s 26.1% rally. This Zacks Rank #2 (Buy) stock has also outperformed the Consumer Discretionary sector and the S&P 500 Index that advanced 25.2% and 18.7%, respectively. Further, the stock is hovering close to its 52-week high of $191.44. With a long-term earnings growth rate of 18.4%, lululemon is positioned to attain new highs.

Factors Narrating lululemon’s Growth Potential

After witnessing robust growth in fiscal 2018 and accomplishing three of its 2020 goals, lululemon has announced a five-year plan namely Power of Three. This plan focuses on three core objectives— product innovation, omni-guest experiences and expansion efforts. It also comprises of improving contributions from the company’s membership program, which is currently in the testing phase.

In addition to its goals of improving performance of the men’s category under the plan, management will continue to concentrate on women’s and accessories businesses in North America that have been performing well for a while now. The women’s business and stores in North America are likely to deliver sales growth of low double-digits annually in the next five years. Further, the company expects about 20% sales growth for the men’s business every year. It anticipates delivering total sales to increase in the low-teens in the next five years.

Apart from launching new assortments in the core men’s and women’s categories, its product innovation plan focuses on testing new categories. The company has identified several new areas which it can test to bring innovation to guests. One category is selfcare, which includes products such as deodorants, moisturizers and shampoo. It launched the Selfcare line of personal care products for men and women on June 18, 2019.

Designed to meet athletes' requirements, this product line is available at lululemon’s online site, across 50 lululemon stores, at select studio partners in North America, and on Sephora.com. This product launch highlights a partnership between the two companies, which strengthens the customer base of lululemon.

Additionally, the company intends to tap into customers’ growing preference for athleisure by launching new product lines related to activities like yoga, running and training. Expansion of office luggage and travel bags, and continued partnerships are some of the other product-related initiatives.

Another key element of lululemon’s five-year plan is enhancing omni-channel guests’ experiences. The company is looking for new and exciting ways to connect with customers, as clear from the testing of its loyalty program. Further, it has expanded its online only size and color offerings for both men and women, which is a testament to its efforts to attract digital guests.

Notably, lululemon has built a strong customer base in the United States and Canada and expects more growth potential in these regions in the next five years. The company is poised to boost international revenues by executing its plans to expand in China, Asia-Pacific and EMEA, which are the key growth regions.

In fiscal 2019, the company plans to further boost international presence by the opening of nearly 25-30 stores. Of this, opening of about 10-15 stores are planned for China and 5-10 stores for Europe.

We expect all aforementioned factors to continue bolstering the company’s performance, and help it remain in investors’ good books.

Other Top-Ranked Stocks From the Same Industry

Guess', Inc. has an expected long-term earnings growth rate of 17.5%. Moreover, it currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Under Armour, Inc., also a Zacks Rank #1 stock has an expected long-term earnings growth rate of 27.1%.

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