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Ciena, Carrols, Children's Place, Stitch Fix and Foot Locker as Zacks Bull and Bear of the Day

Zacks Equity Research

For Immediate Release       

Chicago, IL – June 18, 2019 – Zacks Equity Research highlights Ciena Corporation CIEN as the Bull of the Day and Carrols Restaurant Group TAST as the Bear of the Day. In addition, Zacks Equity Research provides analysis on The Children's Place, Inc. PLCE, Stitch Fix, Inc. SFIX andFoot Locker, Inc. FL.

Here is a synopsis of all five stocks:

Bull of the Day:                                              

Headquartered in Hanover, MD, Ciena Corporation is a network specialist that focuses on expanding the possibilities for its customers' networks while reducing their cost of ownership. The company's systems, software, and services target specific network points so that telcos, cable operators, governments, and enterprises can best utilize the new applications that are driving their businesses forward.

Shares Soar on Strong Q2 Earnings

By noon on the day Ciena reported second quarter earnings not too long ago, shares of the company were up over 25% thanks to its strong top and bottom line performance.

Revenue of $865 million popped 18.5% year-over-year and easily beat the Zacks Consensus Estimate of $816 million. Ciena's segment revenues also showed strong growth. Networking platforms revenue was up 17.8% year-over-year to $697 million, software and software-related revenue increased 23.3% to $47.7 million, and global services revenue hit $120.3 million, up 20.8% year-over-year.

Non-GAAP EPS of 48 cents per share also beat our consensus estimate, while gross margin increased 3.1 percentage points to 43.3%. And, operating margin more than doubled in Q2 to 9.3% (thanks to that gross margin jump) compared to 4.4% in the year-ago quarter.

CIEN is On the Rise

Since January, shares of CIEN have jumped roughly 30% compared to the S&P 500's return of roughly 15.4%.

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

For the current fiscal year, 12 analysts have revised their estimate upwards in the past 60 days, and the Zacks Consensus Estimate has jumped 18 cents during that same time period. 2020 looks pretty strong too, with earnings expected to still remain in double-digit growth territory.

"We are entering the second half with strong visibility and increased confidence for the full fiscal year supported by favorable industry dynamics and growing competitive advantage," said Gary Smith, President and CEO.

Thanks to this bullish near-term outlook and soaring sales, the future is looking promising for Ciena. If you're an investor searching for a computer sector stock to add to your portfolio, make sure to keep CIEN on your shortlist.

Bear of the Day:

Carrols Restaurant Group owns and operates over 1,000 restaurants under the Burger King and Popeyes brands, though it was back in 1975 when it first entered into a franchise agreement with Burger King (now owned by Restaurant Brands International). Before then, Carrols was one of the largest regional fast food chains throughout the northeastern U.S.

Q1 Results Left Investors Wanting

Back in May, Carrols reported disappointing first quarter results after a challenging quarter.

The company posted a loss of 29 cents per share, missing the Zacks Consensus Estimate and coming in well below the eight cent per share loss Carrols notched in the year-ago quarter.

Revenues of $291 million also missed our consensus estimate but managed to grow 7.1% year-over-year. Additionally, comparable restaurant sales climbed 2.4%, beating the Street estimate of 1.6% growth.

Carrols' restaurant-level EBITDA margin was 9.8% of total restaurant sales, which was down 244 basis points year-over-year due to a combination of higher wages and promotional deals.

The company also closed on a previously announced merger with Cambridge Franchise Holdings in Q1; the deal adds 165 Burger King and 55 Popeyes restaurants to Carrols total restaurant count.

Underwhelming Guidance

Looking ahead, Carrols reiterated its full-year 2019 guidance and expects total restaurant sales of $1.25 billion to $1.28 billion (which assumes comparable restaurant growth of 2% to 3.5%). If you include the Cambridge acquisition, sales will increase to a range of $1.45 billion to $1.48 billion.

Excluding the Cambridge deal, Carrols reduced its 2019 adjusted EBITDA outlook for its main business to an approximate range of $99 million to $106 million.

Estimates Keep Falling

Analysts have since turned bearish on Carrols, with four cutting estimates in the last 60 days for the current fiscal year. Earnings are expected to decline 26.7% for the year, and the Zacks Consensus Estimate has dropped seven cents during that same time period from $0.29 to $0.22 per share.

This sentiment has stretched into 2020. Though earnings growth could bounce back into positive territory, our consensus estimate has dropped 21 cents in the past two months.

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

Shares of the restaurant group have fallen about 9% since January compared to the S&P 500's gain of 15.4%.

Bottom Line

One thing Carrols will have to strategize for going forward are the adverse effects from the recent breakouts of African swine fever in China; it does expect to see increases in beef and pork prices.

But, Accordino did comment that the company is "well along" on integrating Cambridge into its portfolio, and the deal should ultimately help increase total sales.

Additional content:

Foot Locker Down 28% in 3 Months: Is a Turnaround Likely?

Foot Locker, Inc.have been performing unimpressively on the bourses for a while now. In the past three months, the company’s stock tumbled 28%, wider than the industry’s decline of 21.5%. Also, the stock underperformed the Zacks Retail-Wholesale sector’s decline of 1.2% and S&P 500’s fall of 0.7%. In fact, in the past month, shares of this New York-based company have plunged 22%. Let’s find out the reason behind the downward spiral.

The stock came under pressure following the company’s lower-than-expected first-quarter results and trimmed fiscal 2019 earnings view. Management now anticipates high-single digit increase in earnings per share for the fiscal year, down from the earlier projection of double-digit growth. (Read: Foot Locker Misses Q1 Earnings Estimates, Trims View)

Consequently, the Zacks Consensus Estimate has been witnessing a downtrend lately. We note that estimates for the current and next year have moved south by 17 cents and 22 cents to $5.02 and $5.44, respectively, over the past 30 days. Also, estimates for the current quarter have decreased by 15 cents to 66 cents.

A challenging retail landscape and changing consumer spending patterns are also making operating environment tough. Moreover, SG&A costs have been rising for a while due to sustained investments in augmenting digital capabilities. These investments are necessary to attain long-term goals but are weighing on margins in the short run.

During the first quarter, SG&A expense rate increased 100 basis points to 20% on account of sustained investments in augmenting digitization and infrastructure, wage pressure as well as higher incentive compensation expense. Further, management expects SG&A expenses to increase as a percentage of sales by 40-60 basis points during fiscal 2019. For the second quarter, Foot Locker expects SG&A expenses rate to increase 80-100 basis points.

In spite of the aforementioned hurdles, Foot Locker is trying to improve performance through operational and financial initiatives.

Can Efforts Aid Recovery?

Foot Locker is effectively managing inventory, investing in digital platforms and improving supply chain efficiencies. Management expects to benefit by consistently capitalizing on opportunities like kids’ and women’s business, shop-in-shop expansion in collaboration with vendors, store banner.com business, store refurbishment and enhancement of assortments.

Also, the company is focusing on augmenting e-commerce platform, expanding direct-to-consumer operations, tapping underpenetrated markets and opening Power Stores. Furthermore, it boasts a strong portfolio of leading brands under a variety of store banners that helps it to target specific markets and efficiently meet consumer demand.

Foot Locker’s comparable-store sales continue to increase. In the first quarter, the company’s comparable-store sales rose 4.6%. Management continues to expect mid-single digit comparable sales growth for fiscal 2019. The company registered comparable sales increase of 2.9% at its stores, while direct to customer channel sales surged 14.8%. Direct to customer business increased to 15.4% of total sales during the quarter, up from 13.9% in the year-ago period. For the second quarter, Foot Locker expects a low to mid-single-digit gain in comparable sales.

We believe the aforementioned factors to provide cushion to this Zacks Rank #3 (Hold) stock and help it win back investors’ confidence.

Key Picks

The Children's Place, Inc. has a long-term earnings growth rate of 8% and carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Stitch Fix, Inc. has a long-term earnings growth rate of 22.5% and a Zacks Rank #2.

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Ciena Corporation (CIEN) : Free Stock Analysis Report
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