Company Notes Digest 2.28.14

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

The Macro Outlook

The question on everyone’s mind is whether this is all about the weather:

“is the U.S. in a pause right now, or did it just have bad weather? I think we come down that it’s not in a pause. It just had bad weather, and that fundamentally, the U.S. recovery is going there, but there is a question on that…my view is I think the United States has got, now got take-off momentum” ($TD)

Macy’s says January weakness was more than just the weather, but things seem to have picked up after Valentine’s day:

“There was some weaker business in the non-weather impacted areas, that’s why I said during the call that I don’t think its all weather in January but the good news is starting in Valentines Day our boats are rising and so we’re feeling very good about the trend.” ($M)

The big test for the economy will be housing’s spring selling season:

“[mortgage] originations were down 58% year-over-year, and the refi boom has clearly ended. So it’ll be interesting to see what happens in the spring selling season and after the winter weather” ($TD)

For what it’s worth, Toll Brothers is optimistic:

“While it is still too early to draw conclusions about the spring selling season, we remain optimistic…during this time traffic has actually been up of 8% per community which is encouraging especially given the weather in many of our markets” ($TOL)

And the poor weather may have created some pent up demand at Home Depot:

“I will also note that the extreme winter weather in February hasn’t been our friend, but our February comps are positive and we know firsthand that many homeowners have some major repairs ahead of them, which suggest we should have a great spring selling season.” ($HD)

But even if the weather thaws, businesses may find it difficult to keep growing the top-line.

Comps are becoming tougher:

“I think the premise is we are projecting the 1% to 2% comp. Obviously, we did the 3% last year, but we’re up against 5% comp over the last 5 years on a compound basis. So that presents a challenge…over 5 years, we’ve averaged to 5% comp. I don’t think it’s realistic to expect that we can sustain that kind of comp level.” ($ROST)

Still no signs of #inflationaccelerating:

“I don’t think we’re expecting inflation in terms of apparel. We haven’t seen that lately. So that won’t be our expectation for the first quarter.” ($ROST)

“In 2013, we enjoyed commodity inflation, not thinking that’s going to happen this year. In fact, we are going to have some pressure from commodity price deflation.” ($HD)

Questions about China are a little more significant than the weather:

“Can China manage this transition? Because it is often the case in economies like China and emerging markets where you can get to one level of GDP and you find it hard to get to the next level because it requires fairly significant institutional shifts in your economy and in your political structure.” ($TD)

Hilton says real estate development in China still feels good though:

“China is clearly been trying to make sure that they don’t end up with a real estate bubble. It’s clearly still generally pretty positive. There was a period of time I would say sort of in the first half of last year where China development really slowed down. It picked up pretty materially, it didn’t get back to the peak levels but it picked up pretty materially in the second half of last year, and what we see so far in China in the beginning of this year…It feels — it still feels pretty good.” ($HLT)

Financials

Commercial banking clients up-beat but mortgage origination has slowed:

“I’ve seen a lot of clients in the last quarter right through our footprint, Maine to Florida, and there is improving sentiment when I talk to commercial and business clients. The one area where I would say there’s obviously a slowdown is mortgages.” ($TD)

Mortgage standards are loosening up in an effort to generate growth:

“We thought all along that credit availability was the big driver of the housing recovery and the shape of the recovery curve. We are very encouraged by what we have seen at Wells Fargo. Wells Fargo has announced that they are taking the FICO scores for FHA loans, down from what was 640 to now 600” ($HD)

Weak mortgage growth means that even with the taper, the Fed will still soak up net mortgage supply:

“think when we look at what actual net supply or growth of the agency MBS market will be this year, most estimates have it ranging from about $100 billion to $150 billion in net supply. The Fed even with the taper will absorb that much supply in the first four to five months of this year” ($NLY)

Auto loan market still hyper-competitive:

“As far as the auto loan market in the U.S., it is still hypercompetitive. We’ve actually scaled back a little bit on both our numbers of dealers as well as our originations in the last quarter.” ($TD)

Not a lot of money for hotel development:

“So at least over the next sort of two to three years we think it’s very muted. We think really in terms of what we see going on, there is quite a bit of discipline in the market. There is money to develop but there’s not a lot and it’s only with the best developers that it’s really getting done and the best brands.” ($HLT)

Bank branches going from service locations to sales locations:

“There is no question that the average square footage of a branch will be declining over time, and they will also changed in the nature of the transactions that happen. They’ll move much more to sales transactions versus service transactions.” ($TD)

Consumer

Retail will finally get some positive seasonality in Spring with a late Easter:

“I do think the later Easter is good for retail, so that could be helpful. And I had said earlier, we do expect the second quarter comp to be higher than the first quarter. Beyond that I think that really is all I can say.” ($M)

Still a promotional environment:

“I would say, based on how business conditions have been, I would expect it to be fairly promotional.” ($ROST)

Very hard for an off-price retailer to make money in e-commerce:

“Our assessment is that it’s very hard for an off-price business to make money in e-commerce at the price points that we operate at.” ($ROST)

JC Penney claims that it is past the first two phases of its turnaround:

“We also realized this turnaround would come in three phases, the immediate stabilization phase, followed by a phase rebuilding and then the go forward phase positioned JCPenney for long-term growth. Over the last 10 months, we completed the first two phases of our turnaround in a very tough and highly competitive environment” ($JCP)

Technology

AT&T and Verizon are responding to T-Mobile’s aggressive tactics:

“you’re right, it is a highly competitive environment, players are responding. I would say we haven’t seen much impact to us on the Q4 price changes that AT&T made nor based on their program targeting our users. And then in Q1, we’ve seen both Verizon and AT&T respond.” ($TMUS)

T-Mobile doesn’t think it’s started a price war though:

“I think all of the players are trying to protect their base, find their way amongst some of the new — remember the changes in the industry have been as much about structure of how we’re serving customers as it has been about price and flexibility. So no, I don’t feel it is a price war, I don’t believe it will become a price war. I think it’s good, healthy competition and choice for customers, and I think it will continue.” ($TMUS)

Materials, Industrials, Energy

Growth of US oil production likely to slow in 2014:

“it looks like the rate of growth in 2013 slowed compared to 2012 and we expect this trend to continue in subsequent years…We are still bullish regarding U.S. oil process because of slowing domestic oil growth and we are not particularly concerned about a surplus of U.S. light sweet oil.” ($EOG)

Natural gas prices $4.50 in 2014 and 2015:

“Regarding North American natural gas prices, our long-term view hasn’t changed. We have obviously seen some relief this year due to the multiple shifts in the polar vortex this winter. We think natural gas prices will stay around the $4.50 level in 2014 and ’15” ($EOG)

Miscellaneous Nuggets of Wisdom

Give your customers what they want:

“2013 was a transformational year for us as we turned a declining business into a growth one. How did we do it? By listening to customers and then offering them what they told us they really want: A great service on a nationwide, lightning-fast 4G LTE network; devices when and how they want them; and plans that are simple, affordable and without the restrictions the other guys placed on. We changed the way this industry operates and customers responded.” ($TMUS)

Annaly Capital 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Not a good year for the mortgage REIT

“2013 was not a good year for the mREIT. A cloud of uncertainty surrounding the timing and magnitude of the Fed pullbacks from the market and the potential impact that would have on book value plagued the sector for most of the year.”

Focus shifting to Fed policy

“With tapering underway, monetary policy will now center on the forward guidance of the Fed fund’s target rate. The focus will remain on the timing and magnitude of the potential change in the cost of carry.”

mREITs are kind of like inverse floaters

“I think of the mREIT sector broadly as a type of inverse floater. When short rates rise generally earnings go down. With an inverse floater when LIBOR rises the coupon goes down.”

Never seen this type of stimulus before

“this economy has never gone through a period where you’ve had this level of stimulus injected and then slowly removed. So I do think that there is no precedent for what aspect of the economy has been supported by this tremendous amount of liquidity that has gone in. I mean we see it directly in the mortgage market but it has trickled through to a lot of other sectors of the economy and helped out.”

supply of new mortgages will be low

“over the near-term when we look at the supply projections both gross and net supply, we obviously are going to be in year where supply is relatively low.”

Fed wil still be soaking up a lot of agency supply this year

” think when we look at what actual net supply or growth of the agency MBS market will be this year, most estimates have it ranging from about $100 billion to $150 billion in net supply. The Fed even with the taper will absorb that much supply in the first four to five months of this year”

Fed’s purchase of MBS has removed negative convexity from the market

“They’ve removed a lot of negative convexity for the market — from the market and when we look beyond even 2014, the cost associated with hedging MBS for MBS holders will be relatively lower even beyond the exit of the Federal Reserves.”

Lots of beneficiaries of stimulus that will have to deal with the reduction

“here has been a tremendous amount of beneficiaries from this policy that whether you look at stock market or you look at the housing market, or you look at the economy in general, that we will have to deal with a reduction in that stimulus. And none of us have ever dealt with that. Our economy has never dealt with the type of stimulus withdrawal that we’ve just been through”

Fed rate guidance more important to us

“Now with that said, the forward guidance in the low rate policy out of the Fed is much more meaningful to a position that carries assets via short-term interest rate. So as much as they — I think they will continue to taper come hell or high water but with respect to the Fed fund’s target I think that’s another story altogether. ”

We’re being opportunistic as the 2/10 spread widens, there will be volatility but rates not going to 4 in a straight shot

“I just want to let people know that we are going to be opportunistic when we are evaluating the market that 2/10s this time last year was around 160 versus 240 today, yeah do I think the long end is going to bear some volatility as the reality of this tapering sets in? Absolutely. But do I think we are going to have a straight shot at 4% on 10, no looking back and this economy is going to be just fine with it? Absolutely not.”

T-Mobile 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Fastest growing wireless company

“T-Mobile is now the fastest-growing wireless company. Just look at the numbers. We added more than 4.4 million customers in total in 2013, now that’s versus losing 256,000 customers in 2012.”

2-3 million net adds guidance in 2014

“We expect adjusted EBITDA to be between $5.7 billion and $6 billion in 2014. That’s up 7% to 13%. We are also guiding branded postpaid net adds to be 2 million to 3 million in 2014.”

Growing because we gave the customers what they wanted

“2013 was a transformational year for us as we turned a declining business into a growth one. How did we do it? By listening to customers and then offering them what they told us they really want: A great service on a nationwide, lightning-fast 4G LTE network; devices when and how they want them; and plans that are simple, affordable and without the restrictions the other guys placed on. We changed the way this industry operates and customers responded.”

It’s highly competitive. We’ve seen At&T and Verizon respond

“you’re right, it is a highly competitive environment, players are responding. I would say we haven’t seen much impact to us on the Q4 price changes that AT&T made nor based on their program targeting our users. And then in Q1, we’ve seen both Verizon and AT&T respond.”

“we do — we have a great deal of respect for the competitive environment. We expect it to continue in a healthy way and I think that’s baked into our assessment of the growth throughout the year. ”

I don’t think this is a price war

“I think all of the players are trying to protect their base, find their way amongst some of the new — remember the changes in the industry have been as much about structure of how we’re serving customers as it has been about price and flexibility. So no, I don’t feel it is a price war, I don’t believe it will become a price war. I think it’s good, healthy competition and choice for customers, and I think it will continue.”

The industry is ripe for further consolidation

“with the success that T-Mobile’s had and the impact on the industry and the size of the gap between the #1 and 2 and 3 and 4 players, it isn’t that hard to figure out that with significant capital, what a player like us could do to close that gap or almost somewhat of an unlimited capital. And it also isn’t hard to understand why we have a position that we’ve espoused consistently that, over time, this industry is ripe for the impact of further consolidation, which is one of the ways to have significant capital exploited to try to close that gap.”

EOG 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Growth of oil production likely slowed in 2013

“we are still waiting for the final 2013 EIA U.S. oil production data, but it looks like the rate of growth in 2013 slowed compared to 2012 and we expect this trend to continue in subsequent years. The October and November EIA monthly data indicates the rate of annualized production growth was approximately 760,000 barrels per day compared to 1.04 million barrels per day for the same period in 2012. We are still bullish regarding U.S. oil process because of slowing domestic oil growth and we are not particularly concerned about a surplus of U.S. light sweet oil.”

Natural gas 4.50 in 2014 and 2015

“Regarding North American natural gas prices, our long-term view hasn’t changed. We have obviously seen some relief this year due to the multiple shifts in the polar vortex this winter. We think natural gas prices will stay around the $4.50 level in 2014 and ’15. On the plus side, we have taken advantage of some the recent prospects to layer in hedges.”

Well spacing in the Eagleford

“Some places, you know, we can drill wells as close to maybe 30 acres to 35 acres per well and in some places it’s more like 50 to 60 and 65 acres per well, so it is quite highly variable.”

450 MBOE per 7200 wells in Eagleford

“the frac technology has definitely enhanced the productivity of the wells and it has enhanced the EUR per well. So we have quite a bit of confidence that the average EUR for the 7,200 wells we have is 450 MBOE per well.”

Crude by rail system gives flexibility to get to highest priced markets

“our crude by rail system gives us a lot of flexibility to get our oil to the highest priced markets.”

Eagleford wells are consistent, not front-loading good wells

“whether we drill in the West or we drill in the East, our well results we believe will be very consistent going forward and that is certainly not front-end loaded with the best wells in the East and then later on we won’t drill wells down the road. So I think you can look at the 12 year inventory we have is very strong and very consistent and we will have good results every year because of that.”

If your wells are too close together, you can start destroying value

“As you push them too close together, you could start destroying the value, so these pilot programs that we put in and tested have given us a pretty solid understanding of the interference between wells and the spacing between wells in terms distance between wells, so we feel pretty solid at this point that on an average 40 acres is probably the optimal spacing pattern.”

Justification for increasing EUR estimate in the Eagleford

“The EUR per well increase was certainly up a lot of strong historical data. We have over 1,200 producing wells in the play right now. And then, we have done extensive pilot testing on each one of these downspacing patterns and through our completion technology, we have seen dramatic increases in initial rates per well and then the shape of the decline curve really has not changed. It’s relatively the same shape. It’s just that the well’s initial rates have improved over time with better their completions.”

Never going to stop trying new things

“we are hopeful that we will be able to continue to improve the well productivity but we certainly have not proven that yet, but we are going to obviously continue to work the technology. We are never going to give up and we are never going quit trying new ideas or new things. So we are in that process right now. ”

A play has to have minimum 50% rate of return to make it into the portfolio

“our portfolio is such a high return for portfolio that for a new play that work itself into our system, we are targeting only plays that we think that could generate after-tax rates of return greater than 50%”

Toll Brothers 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Optimistic about the spring selling season

“While it is still too early to draw conclusions about the spring selling season, we remain optimistic based on solid affordability, attractive interest rates, growing pent-up demand and an industry still under-producing compared to both historical norms and current demographics. ”

Traffic up despite bad weather

“During this time traffic has actually been up of 8% per community which is encouraging especially given the weather in many of our markets”

Confidence still a little fragile. Sloppiness in a flat market

“I think confidence is still a bit fragile. And I think we are all feeling that. Usually, we can give you pretty good guidance on which markets are great, good, average or poor and this quarter we have all looked at it and talked about it and it’s much more difficult to do that because week to week, market to market it’s become very unpredictable and the one big thing is weather, but beyond that I think there is a confidence issue out there and so we are happy, we are optimistic, but right now we continue to be experiencing some sloppiness and relatively flat market.”

Huge traffic to a new development in California

“we had 10,000 people visit Baker Ranch in the first three weeks that’s obviously an extraordinary number. But in many existing communities that are not having any sort of grand opening or special event, we will get 50 to 100 visitors per community out in the west coast.”

“Normal seasonality is to sell whole bunch of houses in February, March and April and as Bob went through before in great detail we study every community individually every Monday to decide whether it is deserving of a price increase or an incentive, and thankfully for the last couple of years, the decision to hit it with a price increase has far outweighed the need to hit it with an incentive.”

Toronto Dominion 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

US set to grow faster than Canada

“it now seems clear that U.S. GDP growth is likely to outstrip Canadian GDP growth”

Same problems in Canada as the US

“low interest rates, slow personal loan growth in Canada and a demanding regulatory environment continue to affect the fundamentals of our business.”

Going to take hard work to hit earnings targets

“It will take energy and hard work to navigate these headwinds and achieve our goals for earnings growth and expense management while continuing to invest in the future, but I’m confident that with our proven strategy, strong brand and experienced team, we have everything we need to succeed.”

Slower earnings growth in US this year

“While the fundamentals of the business remain strong, earnings growth in the U.S. is expected to be modest this year, as security gains in 2014 will be materially lower than in 2013.”

We don’t think there’s an economic pause in the US

” think there is uncertainty about, is the U.S. in a pause right now, or did it just have bad weather? I think we come down that it’s in a — that it’s not in a pause. It just had bad weather, and that fundamentally, the U.S. recovery is going there, but there is a question on that. ”

A pause in the marketplace as people try to figure out the US and China

“But we may be in for the — this part of 2014, a pause in the marketplace as the market tries to figure out United States and China, where this is going.”

Can China manage this transition?

“I mean, I worry that can China manage this transition? Because it is often the case in economies like China and emerging markets where you can get to one level of GDP and you find it hard to get to the next level because it requires fairly significant institutional shifts in your economy and in your political structure.”

US has take-off momentum

“s I come down, my view is I think the United States has got, now got take-off momentum here. I think it’s reported, repaired its balance sheet. I think what’s going on in the housing market, I think, again, you could see some pullback given how fast this recovery is. It’s actually recovered faster than I think, but I’m very positive on the United States.”

Customers seem more up-beat, but slowdown in mortgages

“I’ve seen a lot of clients in the last quarter right through our footprint, Maine to Florida, and there is improving sentiment when I talk to commercial and business clients. The one area where I would say there’s obviously a slowdown is mortgages.”

All eyes on the spring selling season

“industry originations were down 58% year-over-year, and the refi boom has clearly ended. So it’ll be interesting to see what happens in the spring selling season and after the winter weather, but our goal is to continue to outgrow.”

Canadian consumer lending picking up a little

“whereas we were seeing a year-over-year slide, sort of inexorable over the last 7 or 8 quarters in personal lending growth, that actually has started to rebound a little bit. So that’s good going into the spring market. So generally, on balance, a little bit of slowing perhaps on the business side but still good market share gains and a slight acceleration perhaps on the consumer side.”

Not changing underwriting standards because of anything aggressive in the US

“We’re not changing our underwriting approaches, either for any reason or in response to anything that’s going on in the industry, and are still seeing nice growth. But it will slow down, the housing-related credit, but no changes in underwriting, and we still think we’ll outperform in terms of growth.”

Auto lending still hyper competitive though

“As far as the auto loan market in the U.S., it is still hypercompetitive. We’ve actually scaled back a little bit on both our numbers of dealers as well as our originations in the last quarter.”

Branches going from service locations to sales locations

“There is no question that the average square footage of a branch will be declining over time, and they will also changed in the nature of the transactions that happen. They’ll move much more to sales transactions versus service transactions. And we’ve seen obviously a remarkable increase in online, mobile and alternate forms of distribution growth. I would say that to date we still continue to see the vast majority of sales happening in the branches.”

Average number of households per branch

“we also have 3,200 households per store versus the industry average of 1,400.”

Ross Stores 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

4-9% earnings growth on 1-2% comp growth

“Our fiscal 2014 earnings per share forecast of $4.05 to $4.21 represents growth of 4% to 9% over 2013 on a comparable store sales gain of 1% to 2%.”

Conservative projections, an uncertain environment

“As we enter 2014, in addition to our own challenging multiyear sales and earnings comparisons, we continue to face an uncertain macroeconomic and retail climate. While we are well-positioned as an off-price retailer, these likely headwinds have prompted us to stay somewhat cautious in our outlook.”

Think they can get to 2500 stores eventually

“Looking ahead, we still see significant growth opportunities for our company. As we’ve mentioned before, we believe that Ross can ultimately operate 2,000 locations across the United States and that dd’s DISCOUNTS can eventually become a chain of 500 stores.”

Synergies to keeping merchants together in garment district

“we entered into an agreement last year to acquire a New York buying office building. This is a unique onetime opportunity that will enable us to continue to house all of our New York merchants together, which maximizes their cohesiveness and effectiveness of this critical organization. We continue to believe that keeping our primary buying office in the heart of the Manhattan garment district is a competitive advantage as this location makes it easier for our buying group to strengthen relationships with our large network of suppliers.”

Areas for improvement

“we must also stay focused on strictly controlling both inventories and expenses, fine-tuning and upgrading our planning and allocation systems and developing and implementing further productivity enhancements and efficiencies throughout the business.”

Experimenting with social marketing

“as we mentioned before, we are experimenting with social marketing, with mobile marketing. We actually think that those are — those avenues are actually very interesting for us. We — historically, word-of-mouth has always been an important form of marketing, unpaid marketing for us. And we think that sort of social networking, social marketing and the link to mobile actually has some promise for us going forward. So we’re experimenting in those areas, and I think you should expect that we’ll continue to grow those aspects on our marketing mix.”

Comp headwinds just based on strong comps over the last five years

“I think the premise is we are projecting the 1% to 2% comp. Obviously, we did the 3% last year, but we’re up against 5% comp over the last 5 years on a compound basis. So that presents a challenge.”

A few big lumpy investments

“The 2 major investments that are worth calling out are the new distribution centers, 2 of them, and one this year and one in 2015. And then the purchase of the New York buying office. The nature of those types of investments is that number one, they’re lumpy. So you don’t make those kinds of investments very often. And so there are some start-up costs associated with those investments, particularly ramping up the DCs. And that’s really what’s causing — why we call out, and there’s a little bit of a headwind in earnings from those investments.”

Food stamp cut much smaller in magnitude than payroll tax increase

“Kimberly, we really didn’t. My understanding is that the food stamp program was worth about $5 billion a year. And you just put that in order of magnitude. I think the payroll tax increase was like $100 billion last year. So although as the food stamp has always been very important to the people who receive them, as a whole, they really don’t make a significant difference.”

5% comp not sustainable

“over 5 years, we’ve averaged to 5% comp. I don’t think it’s realistic to expect that we can sustain that kind of comp level.”

Tough performance, tough environment

“I would say the factor guiding 1% to 2% for the first quarter and for the year is a combination of — we’re up against pretty tough performance. We’re in a tough environment.”

No inflation

“I don’t think we’re expecting inflation in terms of apparel. We haven’t seen that lately. So that won’t be our expectation for the first quarter.”

Still a promotional environment

“I would say, based on how business conditions have been, I would expect it to be fairly promotional.”

CEO retiring

“we announced in — I think it was May of ’12 that I’d be stepping down, moving into Executive Chairman position as of June 1, ’14”

Very hard to make money in e-commerce in off-price

“So Patrick, it’s certainly an area that we’ve looked at very closely. Our assessment is that it’s very hard for an off-price business to make money in e-commerce at the price points that we operate at.”

Hilton 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

China feels pretty good

“China is clearly been trying to make sure that they don’t end up with a real estate bubble. It’s clearly still generally pretty positive. There was a period of time I would say sort of in the first half of last year where China development really slowed down. It picked up pretty materially, it didn’t get back to the peak levels but it picked up pretty materially in the second half of last year, and what we see so far in China in the beginning of this year and we said in our Investment Committee Meeting in the last couple of weeks where we review all the deals we’re doing. It feels — it still feels pretty good.”

Mid cycle

“if you look at it sort of by individual segments particularly looking at the big group hotels, big commercial hotels they still have occupancy to go, because we are mid cycle in my opinion in terms of where we are broadly that is generally when you see the group business come back that’s when you see these big hotels really start to perform as a result of building that, that that be.”

Big global brands getting stronger

“when I talked about innovation and I talked about honors and what we’re doing in distribution and then what we’re doing on online and mobile and e-checking and all these things, I think they suggest that the bigger, more powerful global brand are getting stronger.”

Focused on shareholder value creation

“Over time as I said if we believe that there’s an opportunity to create incremental shareholder value by doing something with some or all the real estate, we will not be shy about that. The likely way that we would do it would be really more in a sort of structured format, wouldn’t have to be all of it, but it might be in very large chunks of it to make sure that we create tax efficiency. So it’s not, as I said we’re not in any way emotionally attached to the real estate. Our predecessors may be were, we’re not. We’re emotionally attached to driving shareholder value rate now.”

Not a lot of full service hotel deals getting done

“There is very little full service getting done other than few municipal deals that are getting done around the country and almost zero luxury. So it really is all pretty much limited service. Some of that is urban and a few markets like the New York, DC, and other places, most of that is in suburban, secondary, and territory location.”

Disciplined investment market

” So at least over the next sort of two to three years we think it’s very muted. We think really in terms of what we see going on, there is quite a bit of discipline in the market. There is money to develop but there’s not a lot and it’s only with the best developers that it’s really getting done and the best brands.”

Kohls 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Comparable Comps down 0.4%

“Comp sales for the quarter decreased 2%. As a reminder, our actual comps and our guidance excluded the 53rd week in fiscal 2012. Some of our competitors, especially in specialty retail, report on the shifted calender, which excludes the first week of the 2012 fiscal quarter. On this shifted basis, our sales — our comp sales decreased 0.4% for the quarter.”

Weather, short holiday and our own problems contributed to challenges

“A shortened holiday shopping season and climate weather and our own operational challenges and our fulfillment centers all contributed to higher shipping costs as we use faster, more expensive shipping methods to fulfill our customers orders.”

November, December strong, January weak

“Sales for the combined November and December period were well above plan. This momentum did not carry into January as lower levels of clearance inventory resulted in sales which were significantly lower than our expectations.”

Non-weather affected regions did fine

“On a regional basis, the Southeast, West and South Central regions reported the strongest counts for the quarter, while the more weather-sensitive regions, the Northeast, the Mid-Atlantic and Midwest, underperformed the company average.”

Business pick up recently

“our business hasn’t been any different than everybody else, that’s reported already. It was pretty slow in the beginning of February and it’s picked up recently.”

This Michelle lady must be someone they think is pretty good

“there’s a whole series of initiatives that Michelle is focused on, from the way we deliver our marketing, literally in our print and in our broadcast to the loyalty initiatives and other initiatives that she’s working on, and it’s highly targeted towards expanding our reach. So as I said, our #1 priority is to identify ways for us to broaden the reach, to improve transactions. Loyalty is probably, right now, the #1 way we’re going to get there, but there are a whole series of other ideas that she’s working on. And we’ve had some success, she had some great success in a few instances in the fourth quarter, particularly around the Thanksgiving Day period and we benefited greatly from it.”

Making a push in loyalty

“as I said, I think Michelle’s excitement is focused around the delivery of loyalty, what does loyalty look like, how does it get engaged online, what are the benefits that are outside of just the transactional benefit of maybe getting on an additional $1 back on a purchase. And I think she’s pretty excited about some of the ideas that are being generated. There is a new level of loyalty marketing that is going to be launched this year and completing a new campaign. It looks totally different. The communication is totally different from what we’ve done, but it’s built fundamentally on the learnings that we had during the course of the test. So as you can hear, I’m very optimistic about loyalty.”

Seeing some green shoots

“we definitely have had some successes. Michelle likes to talk about those as green shoots, so things that she’s been able to focus on in a very short period of time with her team and create change, and we’ve seen some really exciting results around that. Probably the one that’s the easiest to understand that I’m sure you saw was our effort prior to the Thanksgiving event around the MAs and an effort with Jennifer Lopez, and that had tremendous amount of impressions and a tremendous amount of excitement generated and it translated into traffic and it translated into sales. Obviously, she knows full well that those small steps have to now translate into bigger steps. We have an initiative underway right now. One of the color trends of the season is, for sure, pink. And there’s an initiative that launched just at Presidents’ Day and has been ongoing around that. I think those kinds of things you’re going to see a lot more of, an awful lot about loyalty.”

Flat Through February

We’re almost 1/6 of the way through 2014 and stocks are still pretty much exactly where they started the year.  The S&P 500 is +/- 0.20% depending on where you count the last tick, the Dow is down 2% and the Nasdaq is up about 3%.

Going back to 1957, there have been seven other years that the S&P 500 finished February in roughly the same place that it began January.  Six out of those seven times the index rose between February and year end.  Three of those times it managed to climb by double digits.

1994 was the only year that the index fell after it flat-lined in the first two months.  The weakness that year was mostly driven by rising interest rates.  Stocks traded in a narrow range that year though.  At its lowest point the index was 6.6% lower than where it started the year  (we’ve already nearly matched that in 2014).

1959 is a candidate for the closest analogue to 2014 because that year followed a year that the index gained more than 30%.  The first two months of 1959 may have been flat mostly due to fatigue.  The first two months of 2014 may have been flat for the same reason.

Flat Through February