For Immediate Release
Chicago, IL – October 16, 2019 – Zacks Equity Research Shares of Guess? GES as the Bull of the Day, Ollie’s Bargain Outlet Holdings OLLI as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Twilio TWLO, Wix.com WIX and Shopify SHOP.
Here is a synopsis of all five stocks:
Bull of the Day:
Guess?is an apparel retailer based in Los Angeles that designs, markets, distributes, and licenses causal clothes and accessories for men, women, and children. Customers can find Guess Products at six different store concepts: the flagship Guess full-price retail stores, Guess factory outlet stores, Guess by Marciano stores, G by Guess stores, Guess Accessories Stores, and Guess Kids Stores.
Q2 Earnings Stronger Than Expected
Back in August, shares of Guess? soared over 27% after the retailer reported strong second quarter results.
Adjusted earnings per share came in at 38 cents, well above the Zacks Consensus Estimate of 29 cents per share. Revenues popped 6% to $683.2 million (up 9% if you exclude currency fluctuations), also beating our consensus estimate.
Geographically, its Europe operations jumped 9.1%, boosting Guess?’s overall second quarter performance; the Americans and Asia segments increased 0.9% and 0.6%, respectively.
"I am very pleased with our second-quarter financial performance, which delivered strong operating-profit growth. This performance exceeded our expectations and was driven by a solid top-line increase, strong margin performance, and effective expense management,” said CEO Carlos Alberini in the company’s earnings press release.
GES on the Rebound
Shares of Guess? have actually been on the decline this year, along with many other retailers, as the company tries to navigate ongoing trade tensions, online competition, and other macro headwinds. The stock is down about 15.7% year-to-date compared to the S&P 500’s return of almost 20%.
But, earnings estimates have been rising, and GES is a Zacks Rank #1 (Strong Buy).
For the current fiscal year, two analysts have revised their bottom line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has risen nine cents from $1.35 to $1.26; earnings could see over 37% growth compared to the prior year period. 2020 looks pretty strong too, with earnings and revenue expected to continue positive year-over-year growth.
GES currently trades around 12.5X its forward full-year earnings estimates, a nice discount compared to the broader Consumer Discretionary Market.
Going forward, investors may see further upside to shares if Guess focuses on increasing its international footprint; the retailer believes there is more room to grow and it already gets more than half of its revenue outside of the U.S.
Bear of the Day:
Ollie’s Bargain Outlet Holdings is a value retailer of brand name merchandise at reduced prices. As of this past August, Ollie’s operated over 300 outlets in 23 states under the Ollie’s Bargain Outlet, Good Stuff Cheap, and other names.
Second Quarter Earnings Disappoint
Both adjusted earnings of 35 cents per share and revenue of $334 million missed the Zacks Consensus Estimate. EPS declined 12.5% year-over-year, while revenue did see growth of almost 16% from the prior-year period.
Comparable-store sales, however, fell 1.7%, missing the company’s own long-term guidance of positive 1%-2% growth. Management said that this decline was driven by three things: tough year-over-year comparisons, larger-than-normal number of store openings in the first half of 2019, and a big amount Toys-R-Us store conversions that “cannibalized” existing Ollie’s store sales.
Ollie’s did lower its full-year guidance—after raising its outlook in Q1—and now expects total 2019 sales to fall between $1.419 billion and $1.43 billion, gross margin of 39.5%, and adjusted EPS between $1.95 and $2.00.
Analysts have since turned bearish on Ollie’s, with eight cutting estimates in the last 60 days for fiscal 2019.
While earnings are expected to see positive growth for the year, the Zacks Consensus Estimate has dropped 19 cents during that same time period from $2.16 to $1.97 per share. This sentiment has stretched into 2020. While earnings could continue positive growth, our consensus estimate has dropped 22 cents in the past two months.
OLLI is now a Zacks Rank #5 (Strong Sell).
Shares of the value retail stock have slumped about 7.6% since January compared to the S&P 500’s gain of almost 20%.
Looking ahead, Ollie’s management believes it has overcome the temporary headwinds it experienced in Q2, but investors will want to keep a close eye on same-store sales and gross margin expansion and future growth plans.
Investors who are interested in adding a retail peer to their portfolio should take a look at Zacks Rank #2 (Buy) ranked Burlington Stores (BURL), up almost 60% year-to-date.
Ripening Buys for Your Portfolio of the Future
The recent market volatility and economic concerns surrounding the US-China Trade dispute, as well as Europe’s economic hurdles, have pushed investors out of riskier stocks. Stocks that aren’t currently turning a profit but have a substantial amount of long-term potential. Valuations have fallen and ripened some of these shares up for a buying opportunity.
Twilio is one of my favorite AI stocks. Despite its funny name, its product offering is very sophisticated. Shares have fallen over 22% since its all-time high back in July, and its valuations have fallen to levels that I am comfortable with for a long-term play.
Twilio is a platform-as-a-service (PaaS) company that provides customers with a cloud-based programming platform, aka application programming interface (API), for digitalized communication. This interface gives developers the ability to add voice communication, messaging, video, as well as communication-based security to any mobile application, website, or other digital platform.
Twilio has developed a conversational AI interface called Autopilot that developers can manipulate to serve their needs. Autopilot allows developers to easily build intelligent IVRs, bots, and Alexa Apps that will continuously learn and modify, making them smarter with each use.
Contact centers are an optimal place for this type of AI to be implemented, typically being repetitive, and data-heavy tasks. The goal of Twilio’s Autopilot in contact centers is to seamlessly facilitate a genuine interaction between the customer and their contact, whether it be an AI for simple tasks or an agent for a real human touch.
The cloud-based “platform serves over 180 countries today, making it as simple to communicate from São Paulo as it is from San Francisco”, according to Twilio’s most recent annual report. Active customer accounts have almost tripled in the past year from 57,350 to 161,869, which the company reported in its Q2 earnings.
Twilio’s topline has been accelerating, illustrating consistent quarter-over-quarter growth since the company went public 3 years ago with a CAGR of 47%. TWLO share appreciated almost 400% since the beginning of 2018 as its product offering proves itself in the market place and sales begin to accelerate.
Currently, these shares are trading at a forward P/S of 11.1x, the lowest valuation this stock has seen since 2018. This is still no value play, but it does make for an attractive look considering Twilio is expected to demonstrate 72% topline expansion this year.
Wix is over 17% off its all-time high, which it hit following its second-quarter results in July. Analysts have been increasingly optimistic about this stock, increasing estimates and pushing WIX into a Zacks Rank #2 (Buy).
Wix.com is a subscription service that provides users with a one-stop cloud-based platform for all of their website needs. Wix is based out of Tel Aviv and has been going strong for 13 years. The company provides services to over 150 million users in 190 countries.
The platform enables anyone, no matter their technical or coding background, the tools to develop, create, and contribute. Wix’s product offering gets your business online, whether you are an artist, an entrepreneur, developer, or IT professional.
Wix Editor offers a drag-and-drop website creating software to design and edit any type of website with no coding background needed. Wix Artificial Design Intelligence (ADI) is the first-ever AI-backed program that can design a website for you based on your needs. The firm offers a much broader portfolio of products that could solve almost any website need.
Wix has built out its product offering substantially since it started back in 2006, and its customer base has grown along with it. The total user base has close to doubled, while its premium paying customer base has more than doubled.
Wix’s subscription-based model enables it to demonstrate quarter-over-quarter growth since the company went public back in 2014. The firm hasn’t seen a quarter with year-over-year growth of less than 25%, and analysts are estimating this will continue through 2020.
Despite Wix toeing the line of profitability, the company has been able to grow its free cash flow year-over-year consistently. This creates financial flexibility that most growing firms are unable to achieve.
The company currently employs zero salespeople with the entire growth of the company occurring naturally through word of mouth, and other organic ways. Wix doesn’t need a sales team because the platform sells itself.
Competition includes tech powerhouses like Squarespace and Shopify, both of which enhances companies’ online presence.
Wix is an innovation-driven company, with 50% of its employees being found in the R&D department. The company continues to drive out new products which further propel its product offering to the top of its space.
Sell-side analysts like this stock with the average target price being $152 or 20% above what the stock is trading at today. The recent dip in share price has created an opportunity for a long-term play in WIX.
Risk averse investors have been running from these smaller tech companies and creating a hole in the market. These stocks of the future are beginning to ripen as they fall, and the two I mentioned above could be excellent long-term plays for your portfolio.
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Ollie's Bargain Outlet Holdings, Inc. (OLLI) : Free Stock Analysis Report
Shopify Inc. (SHOP) : Free Stock Analysis Report
Twilio Inc. (TWLO) : Free Stock Analysis Report
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Guess?, Inc. (GES) : Free Stock Analysis Report
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