For Immediate Release
Chicago, IL – March 8, 2019 – Zacks Equity Research Funko, Inc. FNKO as the Bull of the Day, The Children's Place PLCE as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Dick's Sporting Goods DKS, Walmart WMT and Foot Locker FL.
Here is a synopsis of all five stocks:
Bull of the Day:
Funko, Inc. has shown it is more than just Fortnite as overall sales surged during the holiday season. This Zacks Rank #1 (Strong Buy) was considered a "fad" when it went IPO in 2017 but earnings are expected to jump more than 34% in 2019.
Funko makes pop culture consumer products, including vinyl figures, action toys, plush, apparel, housewares and accessories for consumers who have favorite pop culture brands and characters.
This includes movie, television and book characters, and sports figures, including popular coaches.
Another Beat in Q4
On Feb 28, the company reported its fourth quarter results and beat the Zacks Consensus estimate by 10 cents. Earnings were $0.39 versus the consensus of $0.29.
It was the company's 5th beat in a row. It hasn't missed on earnings since its 2017 IPO.
Net sales rose 38% to $233.2 million for the quarter while gross profit rose 29%.
Its gross margin, however, decreased 260 basis points to 36.7% due to higher shipping costs in order to meet demand for the products.
For the year, net sales rose 33% to $686.1 million.
What About the Fornite Craze?
Funko rolled out Fortnite toys in the fourth quarter, just in time for the holiday season. And although investors were obsessed with the Fortnite story for the last two quarters, that line remains a small percentage of overall sales.
In the fourth quarter, Fortnite was 12% of sales. For the year, it was 5%.
The company is diverse, with many popular product lines. It's evergreen products also continue to sell well.
Board Games and Books
Funko continues to expand its product base beyond toys.
On Feb 15, Funko announced that it had acquired Forrest-Pruzan Creative LLC, a board game development studio, for an undisclosed amount.
It will operate as Funko Games. The company said it will have no material impact on results for 2019.
On Mar 6, Funko announced it would be releasing a series of books based on its Wetmore family characters exclusively with Barnes & Noble starting on June 15, 2019.
It will be showcasing the books, in partnership with Sterling Publishing, at both the London Book Fair and Bologna Children's Book Fair. The Pop! Monsters include Bugsy Wingnut, Tumblebee, Butterhorn, Snuggletooth and others.
Estimates Revised Higher on Strong Guidance
Funko guided for 2019 net sales in the range of $810 million to $825 million. That's a gain of 18% to 20%.
It also sees earnings in the range of $1.05-$1.15.
Analysts are bullish on the company, with 1 estimate revised higher since the report.
The Zacks Consensus Estimate for 2019 has jumped to $0.91, up from $0.79 before the report. That's a gain of 34.3% from 2018 which saw the company make $0.68.
But that is still under the $1.05-$1.15 guidance range so look for further higher analyst estimate revisions soon.
Bear of the Day:
The Children's Place surprised Wall Street with a horrible fourth quarter thanks to the bankruptcy of its chief rival Gymboree. This Zacks Rank #5 (Strong Sell) also guided below consensus for fiscal 2019.
The Children's Place is a specialty retailer of children's apparel. It operates 972 stores in the United States, Canada and Puerto Rico. It also sells online at www.childrensplace.com.
Huge Miss in the Fourth Quarter
On Mar 4, The Children's Place announced its fourth quarter results and missed on the Zacks Consensus by 48%. It shocked Wall Street by reporting just $1.10 versus the consensus of $2.11.
This was the second miss in a row, however.
Comparable retail sales, a key metric for retailers, fell 0.6% when analysts had expected to see a gain. US comparable retail store sales declined 8.2%.
Retail comparable store traffic also fell 3%, largely due to the industry-wide mysterious pre-Christmas shopping slowdown. For The Children's Place, that period saw traffic decline 11%.
Canada's comparable retail store sales weren't great either, falling 0.2% on flat traffic.
The company continues to see gains in e-commerce, however, which was up 20.1% to 27% of total sales.
Gymboree Liquidation Slams Earnings
Gymboree, The Children's Place key competitor with over 800 Gymboree and Crazy 8 stores, declared bankruptcy last year. This should be good news for The Children's Place because it overlaps with 70% of those stores.
But first, Gymboree had to liquidate all of its merchandise.
Where are you going to shop for children's clothes? At Gymboree which is having massive sales or The Children's Place, which isn't?
Children's Place tried to front-run the liquidation sale by accelerating the liquidation of its own seasonal inventories ahead of Gymboree's total liquidation in Q1.
That strategy allowed it to exit the quarter with total inventories down 6.5%. But this accelerated liquidation impacted the fourth quarter earnings by $0.79.
Guidance for Fiscal 2019
Once Gymboree is finally liquidated, the company said there will be a record supply reduction in the children's apparel space. Suddenly, over 800 stores will just be gone.
That sets them up for better performance in the second half of 2019.
It also agreed to acquire certain of the Gymboree assets, including the worldwide rights to the names “Gymboree” and “Crazy 8” and other intellectual property, including trademarks, domain names, design rights, and customer databases, for $76 million.
For the full fiscal 2019, however, the company sees comparable store retail sales at flat to negative 1%.
The Gymboree liquidation is expected to impact 2019 EPS by $1.50 and the acquisition of the assets by $0.75. It expects earnings to be just $5.25 to $5.75 for the year, down from $6.75 it made in 2018.
Given the big hits from the Gymboree events on the guidance, it's not surprising that the analysts moved to lower their earnings estimates to get in line with the $5.25 to $5.75 range given by the company.
2 estimates have moved lower in the last week, pushing the Zacks Consensus down to $5.47 from $9.28. That's an earnings decline of 19% from 2018.
2020 was also revised lower to $7.07 from $11.46 previously.
Buy DICK'S (DKS) Before Q4 Earnings Are Released?
Shares of Dick's Sporting Goods have climbed over 22% this year to double the S&P 500’s comeback. The question is can this impressive run continue and should investors consider buying DKS stock before it reports its fourth-quarter financial results on Tuesday?
Dick’s saw its sales at existing stores and websites sink 3.9% last quarter. The sporting goods retailer experienced a downturn in its hunting and electronics department, which executives said accounted for roughly half of the overall decline. Some have pinned the department’s weakness on the company’s decision last February to stop selling assault-style guns and guns and ammunition to people under 21 years old. But other companies, including Walmart, also stopped selling to people under 21, without a significant downturn.
Foot Locker is coming off an impressive fourth quarter, which could be a good sign for Dick’s. Foot Locker’s comps surged 9.7% to blow away Wall Street estimates, as customers spent more heavily on sneakers.
Moving on, our current Zacks Consensus Estimate calls for DKS’ Q4 revenues to fall by 6.91% to hit $2.48 billion during the vital holiday shopping period. Meanwhile, the company’s comparable sales are projected to sink by 3.8%, based on our NFM estimate.
At the bottom end of the income statement, Dick’s adjusted quarterly earnings are expected to tumble 12% to $1.07 a share. Investors should also note that the retailer has seen no changes to its Q4 earnings estimate over the last 90 days, which means analyst sentiment has remained the same.
We can also see that DKS stock has dramatically underperformed its industry over the last five years. In fact, Dick’s stock is down nearly 30% during this stretch, compared to the broader industry’s 80% average climb. However, as we mentioned at the top, shares Dick’s have surged to start the year and are now up over 20% in the last 12 months, compared to the Nonfood Retail-Wholesale Market’s sideways movement.
DKS stock has also popped roughly 8% over the last month and hovered at $38.25 a share through mid-morning trading Thursday. This marked around a 6% downturn from its recently-reached 52-week high of $40.87 per share. On top of this solid momentum, Dick’s stock is trading at 11.2X forward 12-month Zacks Consensus EPS estimates, which represents a major discount compared to its industry’s 26X and the S&P’s 16.5X.
Dick’s is a Zack Rank #3 (Hold) at the moment that sports a “B” grade for Value in our Style Scores system. The company is also a dividend payer that just raised its upcoming quarterly payout by 22%.
With all that said, Dick’s could be a stock to consider buying heading into earnings. But its larger industry has changed quickly and DKS stock has already climbed in 2019. This means Dick’s might need to blow away Wall Street estimates in a key retail category—like Foot Locker—in order to continue its recent run of success.
Dick’s is scheduled to release its fourth quarter financial results before the opening bell on Tuesday, March 12. So, make sure to head back to Zacks for a full breakdown of the sporting goods retailer’s actual results following the release.
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Children's Place, Inc. (The) (PLCE) : Free Stock Analysis Report
Foot Locker, Inc. (FL) : Free Stock Analysis Report
Walmart Inc. (WMT) : Free Stock Analysis Report
DICK'S Sporting Goods, Inc. (DKS) : Free Stock Analysis Report
Funko, Inc. (FNKO) : Free Stock Analysis Report
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