Archive for April, 2014

• BBBY’s Planning Assumptions
  Eddy Elfenbein, April 10th, 2014 at 8:48 am

  Bed Bath & Beyond ($BBBY) said they see first first-quarter earnings ranging between 92 and 96 cents per share. Furthermore, they project earnings for the entire year to rise by “mid single digits.” That’s based on several planning assumptions which they laid out in their conference call. Here’s a summary (this is edited down from the transcript via Seeking Alpha):

  1. Q1 comparable stores sales growth of 1% to 2.5%. For the full year growth of approximately 3%.

  2. Consolidated net sales growth of 2% to 3.5% for the first quarter and approximately 4% for the full year.

  3. Depreciation for fiscal 2014 is expected to be approximately $240 million.

  4. Assuming these sales levels, we are modeling deleverage for both gross profit and SG&A for the fiscal first quarter and full year. Contributing to the modeled gross profit deleverage on an assumed continuation and the shift of the mix of merchandise sold to lower margin categories and an increase in coupon expense. The modeled SG&A deleverage includes increases in technology expense and depreciation related to our ongoing investments.

  5. Our annual interest line will include approximately $9.2 million in interest expense, substantially resulting from the inclusion of sale lease backed obligations related to certain distribution centers.

  6. The first quarter and full year tax provisions are estimated to be in the mid to high 30s percentage range with expected variability as distinct tax events occur.

  7. We expect to generate positive operating cash flow and to continue to fund operations entirely from internally generated sources.

  8. We plan to continue to repurchase shares under our $2.5 billion repurchase program, which we estimate to be completed during fiscal 2015. However, this repurchase program may be influenced by several factors including business and market conditions.

  9. We anticipate opening approximately 30 new stores companywide.

  10. We expect to continue our program of renovating or repositioning stores within markets when appropriate.

  11. Capital expenditures are planned to be approximately $350 million, which remain subject to the timing and composition of projects. Projected capital expenditures include the significant level of investment we will be making in our initiatives and primarily include the addition of new functionality to our selling websites, mobile sites and apps; development work necessary for a new and more robust point-of-sale system; deploying systems and equipment to our stores; equipping our new IT data center; opening an additional distribution facility for direct-to-customer and store fulfillment as well as new stores and existing store refurbishments.

  The company is financially strong. BBBY has a cash balance of $943 million and shareholder equity is $3.9 billion.

• Morning News: April 10, 2014
  Eddy Elfenbein, April 10th, 2014 at 7:00 am

  Greek Bond Sale Said to Top $4 Billion in Return to Market

  What History Tells Us About the Carry Trade

  The Contest of the Century

  Hong Kong, Chinese Stocks Rally on Cross-Border Investment Plan

  Environment for Emerging Economies Turns More Challenging: IMF

  Federal Reserve Officials Feared Sending the Wrong Message on Rates

  Banks Pushing Court Foreclosures Means More Inventory

  Tough Swap Standards Drive Up Trade Costs 92-Fold

  $772 Million Penalty for Bank of America Credit Card Practices

  PC Sales See Modest Drop Amid Windows XP Replacements

  Fast Retailing Cuts Profit Forecast Amid Waning Japan Demand

  Walmart Plans to Offer Organic Foods For Less

  IGate’s Quarterly Results Beat Estimates

  Jeff Carter: Electronic Systems Do Fail

  Cullen Roche: The Rise of the Secular Stagnationist

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• Bed Bath & Beyond Earns $1.60 for Q4
  Eddy Elfenbein, April 9th, 2014 at 4:19 pm

  Bed Bath & Beyond ($BBBY) just reported Q4 earnings of $1.60 per share. That’s inline with consensus. The home furnishings store estimated that lousy weather cost them six to seven cents per share last quarter. Quarterly sales dropped 5.8% to $3.203 billion while comparable store sales increased 1.7%.

  For the year, BBBY made $4.79 per share which is up from $4.56 in the year before. For Q1, BBBY expects 92 to 96 cents per share. They expect earnings to rise by “mid single digits” for this year. If we take that to mean 4% to 6%, then it works out to a range of $4.98 to $5.08 per share. Wall Street had been expecting $5.27 per share.

  The shares are down 4% in the after-hours market. One bright spot is that last quarter, they bought 7.5 million shares for $532 million.

• Fed Minutes Lift the Market
  Eddy Elfenbein, April 9th, 2014 at 3:52 pm

  The market was rattled three weeks ago after the last Federal Reserve meeting. Today, the Fed released the minutes of their March 18-19 meeting (the full transcripts won’t be released for another five years).

  I should back up and explain that we’re in an unusual moment in the economy. The Fed has made it clear that it intends to continue its tapering policy this year, and nothing’s going to shake them off that path. As a result, the actual Fed meetings aren’t as important as they used to be. In their place, I think investors are placing greater weight on the more detailed Fed minutes, which come out three weeks after each meeting.

  What spooked investors in March was the Fed’s SEP, their Summary of Economic Projections. When that came out, it was widely interpreted as being a chance to a more hawkish stance, meaning that the Fed was leaning towards raising rates sooner than expected. But in the Fed minutes we learned that some Fed members were concerned that the SEP would be incorrectly interpreted as hawkish.

  Here’s the relevant part, and I apologize for the econo-speak:

  A number of participants noted the overall upward shift since December in participants’ projections of the federal funds rate included in the March SEP, with some expressing concern that this component of the SEP could be misconstrued as indicating a move by the Committee to a less accommodative reaction function. However, several participants noted that the increase in the median projection overstated the shift in the projections. In addition, a number of participants observed that an upward shift was arguably warranted by the improvement in participants’ outlooks for the labor market since December and therefore need not be viewed as signifying a less accommodative reaction function.

  In other words, there was no change at all in the Fed’s thinking. As a result of today’s minutes, the stock market has gapped higher and the S&P 500 is still holding on to those gains. The index is back over 1,871. Small-caps and Cyclicals are leading the charge, and Growth is crushing Value today (although both are up). But remember that Value been owning Growth for the last month.

  Stay tuned: BBBY reports after the close.

• Morning News: April 9, 2014
  Eddy Elfenbein, April 9th, 2014 at 6:37 am

  German Exports Drop More Than Forecast in February

  Greece to Announce Details of Long-Term Bond

  In New Tack, I.M.F. Aims at Income Inequality

  Fed Could Cut Rates to Combat Joblessness: Kocherlakota

  Banks Ordered to Add Capital to Limit Risks

  Investors’ Appetite for I.P.O.s Seems to Ebb

  Banana Supplies Seen by UN’s FAO at Risk After Disease Spreads

  Gold Near Two-Week High as Investors Await Fed Minutes

  Alcoa Sees Almost Decade-Long Aluminum Surplus Ending

  In Smartphone Mass-market, Samsung, Apple Have Margins on Their Minds

  GM Fined by U.S. Safety Agency for Incomplete Answers

  BMW, Daimler Upbeat About Luxury Car Outlook

  NY Times is Dead Wrong About Warren Buffett

  Roger Nusbaum: What Wildland Firefighting Teaches About Investing

  Joshua Brown: Anxiety of the HENRYs

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• The Rebound in Greece
  Eddy Elfenbein, April 8th, 2014 at 4:17 pm

  Remember how Greece was going under? Two years later, Hugo Dixon describes the rebound as astonishing. Once the 10-year bond was at 30%. Now, it’s at 6.2%:

  Two of the country’s big four banks – Piraeus and Alpha – have raised 3 billion euros of equity between them in recent weeks to reinforce their balance sheets after a stress test orchestrated by the central bank. Eurobank, another big lender, is planning to follow suit with a 3 billion euro issue later this month.

  The changed mood in the markets is mainly down to external factors: the European Central Bank’s promise to “do whatever it takes” to save the euro two years ago; and the more recent end of investors’ love affair with emerging markets, meaning the liquidity sloshing around the global economy has been hunting for bargains in other places such as Greece.

  That said, the centre-right government of Antonis Samaras has surprised observers at home and abroad by its ability to continue with the fiscal and structural reforms started by his predecessors. The most important successes have been reform of the labour market, which has restored Greece’s competiveness, and the achievement last year of a “primary” budgetary surplus before interest payments.

• Results on My World’s Simplest Stock Valuation Measure
  Eddy Elfenbein, April 8th, 2014 at 10:47 am

  Two years ago, I unveiled my “World’s Simplest Stock Valuation Measure,” which is:

  Growth Rate/2 + 8 = PE Ratio

  Reader Brett Michael did some-backtesting and found that the equation works very well. It beat the market by 61-fold.

  

• Nasdaq Drops 4.6% in Three Days
  Eddy Elfenbein, April 8th, 2014 at 10:01 am

  The stock market is flattish so far this morning. Friday and Monday were pretty ugly days, especially for momentum stocks. In the last three days, the Nasdaq has dropped 4.6%. That’s its worst three-day loss since 2011.

  The key aspect of the recent market action is that it’s a valuation-based rotation. By that, I mean that stocks with high valuations have been clobbered, and that pretty much includes the entire biotech sector.

  But here’s the interesting part—the rotation is not a cyclical one. Many of the economically sensitive stocks have barely budged. The Morgan Stanley Cyclical Index ($CYC) continues to move up to relative strength highs.

  I’ll give you a perfect example. While the Nasdaq has moved down, IBM ($IBM) has been just fine. The rotation isn’t affecting tech, it’s affecting highly valued tech. Check this out from Bloomberg:

  The Nasdaq Composite Index trades at 32 times reported earnings of the companies in the index, compared with 17 times for the S&P 500. The 100 biggest companies in the Nasdaq gauge trade 64 percent above the S&P 500 relative to sales and 149 percent higher relative to estimated revenue, data compiled by Bloomberg show.

  I should point out that many traders are clearly nervous. On Friday, the Nasdaq 100 fell the most in two years. The volume of puts on the Nasdaq 100 ETF ($QQQ) topped 1 million. That’s the most since the Flash Crash four years ago.

• Morning News: April 7, 2014
  Eddy Elfenbein, April 7th, 2014 at 6:31 am

  Draghi’s $1.4 Trillion Question Lingers as ECB Mulls QE

  New French Finance Minister Promises ‘Tough, Brave’ Decisions on Deficit

  Jobs Rich Irish Mystery Confounds Shrinking Economy

  Japan, Australia Clinch Trade Deal as U.S.-Tokyo Talks Heat Up

  World Bank Trims China, East Asia 2014 Growth Forecasts

  Libya Oil Sales to Rise as Rebels Surrender Two Ports

  Oil, Gas Play Second Fiddle to Nigeria’s Services Sector

  SEC Forms Squad to Examine Private Funds

  Gravity Hits Highflying Tech Stocks

  Holcim to Merge With Lafarge to Create Biggest Cement Maker

  Roche to Pay $450 Million for IQuum

  Ranbaxy Shareholders Cheer $3.2-Billion Deal With Sun Pharma; Stock Can Rally Another 20%

  Credit Suisse Is Said to Be Facing Double-Barreled Inquiries

  Credit Writedowns: Ten Lessons From Charles Keating on Corporatism and Control Fraud

  Jeff Miller: Weighing the Week Ahead: Fluff or Fundamentals?

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• The Growth/Value Divide Continues
  Eddy Elfenbein, April 4th, 2014 at 1:20 pm

  Check out the divergence between Value (black) and Growth (gold).