Monthly Archives: February 2015

Company Notes Digest 2.26.15

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The Macro Outlook:

Most retailers seemed pretty happy with their holiday results

“Let me begin by saying that we had a terrific fourth quarter.” ($TJX)

“We were very pleased with the level of transaction growth that we had in the quarter. Matter of fact, it was above what we had anticipated.” ($HD)

“comparable sales growth turned out to be nearly double our original expectation” ($TGT)

“All lines of business were positive and all regions were positive.” ($KSS)

Something that is particularly positive: strength was driven by traffic

“traffic, yes, we’ve been very happy with how traffic has picked up over the last couple of quarters.” ($ROST)

“We’re extremely pleased to see the comp almost entirely driven by customer traffic.” ($TJX)

“We are also pleased that traffic was the primary driver of our fourth quarter growth” ($TGT)

CEOs are once again looking to the future with optimism

“we are focused on accelerating growth.” ($M)

“we’re excited about our business.” ($DLTR)

“we’re raising our estimates for its long-term growth” ($TJX)

Every analyst wanted to know whether this optimism would translate to higher wages in the retail industry

Most companies agreed that you have to pay a competitive wage to retain good people

“we obviously don’t operate in a vacuum, but we never have. We have a pretty robust and very successful system in place to assess the competitive market across the whole country. And fundamentally we pay what’s necessary in each market to attract and retain the talent we need.” ($KSS)

“We’re very focused on ensuring we have competitive wages and that we’re developing our team members. We’re all the time assessing the marketplace to determine competitive wages and making adjustments and we feel very confident that we’ll be paying the teams appropriately.” ($TGT)

Some felt like that didn’t mean any changes were needed though

“outside of complying with the continued changes in the regulations we’ve made no plans for a sweeping change to our minimum wage rates” ($DLTR)

“Overall as we look at some of the announcements that have been in the marketplace and the minimum wage legislation act really hasn’t changed our view of the quarter or the year really at all and won’t be material changes to us.” ($TGT)

TJ Maxx was one of the few to take decisive action. They are raising wages to stay ahead of the curve

“we want to be ahead of it. We want to keep the best of the best and we want to be able to bring the best of the best in. So whether it’s our stores, whether it’s our merchants, whether it’s home office, that’s our goal. So we’re doing what we think is best for our associates and our customers.” ($TJX)

Perhaps it’s naive to think that these announcements wont have an effect

“Obviously, those announcements are fairly recent. But we would expect that they will have an impact on wage — on industry wage rates. Of course, they will. In fact, we’d expect the labor market will tighten up in general as the economy improves.” ($ROST)

There’s certainly a risk of more labor pressure ahead

“there could well be, for all the reasons people have — for all the reasons you read in the papers, there could be more wage pressure ahead. That’s certainly a risk and as I said, we’ll look for ways to mitigate any of those increases.” ($ROST)

Retailers will look to mitigate the cost impact in other parts of the business

“if we do make changes, we’ll look to mitigate the impact of any cost increases through reductions or productivity improvements elsewhere in the business.” ($ROST)

Raising wages costs money though

“investments in our associates as well as other incremental investments and pension costs would have a combined negative impact of about 4% to fiscal ’16 EPS growth.” ($TJX)

Pension expense (another labor component) represents an additional headwind to earnings as interest rates stay low

“the strong dollar and higher pension cost will provide significant headwinds for us in 2015.’ ($ECL)

On the bright side, higher wages are a sign that the economy is doing better

“Just one final thought though, I think it’s worth noting that rising wage rate is actually — it’s a good thing in the sense that it shows that the economy is picking up and suggest the consumer will have more money in their pockets. So it could have a beneficial impact to retail sales.” ($ROST)

Which is great, but very few are on the lookout for inefficiencies that get built up in strong times

“we’re a company now that’s been through several years of very strong earnings results, and I always get nervous during these periods because I know there is inefficiencies being built up in the business as a consequence of having strong earnings.’ ($ECL)

No bubbles here

“When a Fed Governor was asked recently if he saw any evidence of an obvious bubble, he replied and I quote “I don’t think there is anything on the scale of the housing or internet bubble right now. The only candidate is bonds, government debt, and other kinds of debt. But I am not counting that, I guess because that’s us” ($NLY)

Nobody really seems to think that the Fed will tighten any time soon

“expectations for the pace of tightening are not as aggressive as they were before but nonetheless we do think that the tightening that is priced into the market is we would say not overly aggressive. If anything we think it will be slightly less aggressive than that which is priced in.’ ($NLY)

Financials:

Annaly’s CEO had quite a rant against the Fed

“As is often the case with humanity, we fancy our present selves as the most intellectually sophisticated and tend to look back upon our predecessors as somewhat naïve in light of our current knowledge base. There are certainly good reasons for that attitude, here are a few examples. Up until the late 1800s bloodletting was a popular prescription for many ills, in fact George Washington was reportedly a huge proponent and after awakening with a bad sore throat he asked to be blood let. During the next 16 hours five to seven types of blood was drained from his body, four days later he was dead.” ($NLY)

This is a standout quote

“History is littered with long standing theories and beliefs that ultimately prove incorrect. My hope is that as policy makers of the world continue to prescribe their remedies for the ailing economic patients that they do not render it worse off. As with their predecessors, I suspect that there is no doubt in the minds of our central bankers that they are the smartest they have ever been. Yet I fear that they are not the smartest they will ever be.” ($NLY)

Toll Brothers is seeing momentum build as housing enters the spring selling season

“Momentum continues to build as we begin the spring selling season…we’re now three to four weeks into a spring selling season and there are more buyers in the market…we certainly feel better and have more pricing power than we had in November and December.” ($TOL)

People are confident that they can sell their homes

“as this recovery strengthens, we’re hearing better news that they’re more confident they can sell their home…they’re out in the market anticipating the ability to sell their home later in the spring.’ ($TOL)

The housing market could still benefit from loosened underwriting standards

“As we think about the recovery and the steepness of the recovery, it could be accelerated if mortgage underwriting standards were to be loosened up…it’s still very tight.” ($HD)

Small homebuilders are capital constrained

“They’re still constrained. The small guys have not come back into the business. They’re unable so far, at least in our markets, to find the capital to compete on the land deals that we go after.’ ($TOL)

Consumer:

Home Depot can’t find any clear correlation between gas prices and sales growth

“as it relates to the gasoline, we’ve looked hard over the years to try to look at the correlation gas prices to sales, and we have not been able to draw that correlation. Clearly it is a positive thing when a customer has more disposable income in their pocket, so even though we can’t draw that correlation, that is a good news thing for us.” ($HD)

The port issues have been a headwind, but not a significant one in the grand scheme of things

“If I was looking at the ports slowdown in a list of things that can either be a headwind or tailwind, it’s definitely been a headwind, for sure…But if I put it in a priority of other things..like our ability to deliver amazing product, our ability to have more effective marketing through more utilization of personalization or loyalty, weather as a factor at any point in time, those things all outweigh this.” ($KSS)

Chaos at the ports is good for off-price retailers

“in terms of the port, I can tell you as you know, chaos does tend to be our friend. I hate to say it. But we are seeing some things. Our pack-aways are already up.” ($TJX)

It will take some time to work out the backlog at the ports

“We were very pleased with last weekend’s news that a tentative agreement had been reached, but what we know it will be sometime before the backlog at these ports will be fully eliminated.” ($TGT)

The tenor of the holiday season has changed over the last decade

“Across the U.S. retail landscape, this year’s holiday shopping season began earlier and ended later than ever before. This lengthening of the season reinforced a pattern we’ve seen for well over a decade, where we saw the strongest sales in the early and late portions of the season and experienced a period of softness in the middle.” ($TGT)

Media companies can’t expect to keep getting price increases with falling viewership

“The network itself they have an only playbook which you are paying us x and we want x plus 10%, next year even though our viewership might have gone down by 10%. Well, that math doesn’t add up. And the industry can’t survive in a situation where content providers want double digit increases but they got double digit decreases in viewership.” ($DISH)

Content creators shouldn’t expect to have their cake and eat it too. When you distribute over the top, you diminish value for an existing customer

“content providers also have diluted their programming to some extent by selling the same content to other providers particularly some other OTT providers with their contents now available then that dilutes the value to product” ($DISH)

Cable network ratings are under more pressure than they have been in recent years

“In terms of the cable network business I think what we’re finding is throughout the entire industry is that the ratings pressure is greater than it was a year or two ago” ($CMCSA)

Technology:

PC sales are no longer benefitting from the XP refresh cycle, but consumers are showing some strength

“We have seen an expected slowdown in the commercial segment following the XP refresh that fueled high growth last year. However, we’ve seen to counter balance that momentum in the consumer side of the business as consumers refresh their older PCs.’ ($HPQ)

Servers are hitting a refresh cycle

“The combination of Gen9 and the refresh cycle makes us fairly bullish on industry standard servers kind of throughout the rest of 2015” ($HPQ)

In telecom, when you come at the king, you best not miss

“So what happens in this industry is as soon as you become a competitor the big guys take you on and try to stop you. They try to stop you in Congress, they try to pass laws, they try to file against you an auction…they try to go handset manufacturers and they cause all kinds of mischief.” ($DISH)

The best telecom networks are comprised of low and high band spectrum

“to be successful in wireless you have to have a combination of low band and mid to high band spectrum. Mid to high band is obviously for capacity and the low band is for coverage. And probably the strongest asset that AT&T and Verizon have is they have virtually all of the low band spectrum so that their networks, when they brag about their networks in part it is because their coverage is better because of the low band spectrum.’ ($DISH)

Comcast says lets not regulate the internet with 1930’s era regulations

“[there are] unnecessary risks associated with applying 1930 style regulations to something as dynamic as the Internet…We are absolutely for a free and open Internet…The disagreement boils down to what legal authority the FCC should use to put in place these rules. We think the Title II regulation is antiquated and has real downsides” ($CMCSA)

Materials, Industrials, Energy:

Ensco says that oil companies have cut spending at an unprecedented rate

“The severe fall-off in customer demand is unprecedented compared to what we’ve seen in prior cycles…this has been a much more rapid and aggressive fall-off…[it] has not only taken us by surprise; it’s taken a large part of the sector and the industry by surprise.’ ($ESV)

Early signs of distress starting to pop up?

Some oil companies continue to pump because they have bills they have to pay

“we’re seeing some markets where production is up quite dramatically because they’re trying to offset the negative impact of lower price, because they’ve got I would say some bills to pay. ‘ ($ECL)

Ensco has customers that are overcommitted and are trying to renegotiate contracts

“we do have some customers who are overcommitted on their drilling contracts. So there are various customers who are looking for renegotiation of some terms, usually in exchange for an extension of contract or something to mutual gain.We do have a few customers who are looking at whether they’re going to early terminate or not.’ ($ESV)

Banks aren’t seeing an impact to credit yet though

“From a credit perspective we believe our direct exposure to oil and gas producers is manageable. We are not seeing any signs of deterioration though it is early days” ($TD)

Toll Brothers has not seen any impact on home sales in Houston either

“Houston has remained solid with backlog cancellation rates well below the company average and contracts per community up compared to last year.” ($TOL)

The distress could take a couple of years to play out

“it’s much more likely we’re going to see distressed assets in the jackup category, where you have a lot of speculative buyers there who are not completely financed. So I think we’re going to see a lot there and you’re going to see some interesting transactions probably over the next couple of years.” ($ESV)

The agriculture industry is in for a rough year

“crop receipts for 2015 are forecast to be down about 23%, lower than the levels in 2012, which was the record.” ($DE)

Still, global grain inventories are tight enough that unfavorable weather could lead prices higher

“global grain stocks-to-use ratios remain at somewhat sensitive levels…unfavorable growing conditions in any key region of the world could…result in prices quickly moving higher.” ($DE)

Livestock is better positioned than grain. Smaller farmers tend to be heavier in livestock

“livestock profitability generally is expected to continue through 2015…so overall we’re still looking at small ag, which tends to be a little more closely tied to livestock to be relatively strong versus certainly large ag” ($DE)

It’s too early to tell whether the ag sector will rebound after 2015

“it’s very premature really to talk about market conditions beyond 2015. As we all know, that will largely be impacted by the upcoming growing season and it’s just very, very early.’ ($DE)

Normal weather patterns should lead to some improvement though

“If you look at normal weather patterns…If that would transpire, we would certainly expect to see some improvement next year.” ($DE)

Miscellaneous Nuggets of Wisdom:

In case you were wondering, wages are set on a market-by-market basis

“We continually look at the market on a market-by-market basis” ($HD)

“we will continue to pay competitive wages market-by-market” ($DLTR)

“we set rates on a market-by-market basis” ($ROST)

“Frankly, cost of living are not the same everywhere and neither are wages.” ($KSS)

“by the way, its market-by-market” ($M)

Charlie Ergen is receptive to some alternative methods of financing

“we are receptive to [raising money through] debt, equity, converts, whatever else, I don’t know what else you can do, you can sell your kids” ($DISH)

Selling to large enterprises can make for long sales cycles

“this is a long sales cycle business. I think we first engaged with Deutsche Bank over 18 months ago maybe even closer to two years.’ ($HPQ)

No one knows the future, so the best thing you can do is to stay flexible

“bottom line is we don’t really know what’s going to happen in the economy, but if we manage our business flexibly, we should do just fine.” ($ROST)

Full transcripts can be found at www.seekingalpha.com

Toronto Dominion FY 1Q15 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Good start to 2015, but some headwinds

“Good organic growth in loans and deposits, strong credit quality, good expense management and improved margins versus the fourth quarter contributed to an impressive start to 2015.

However, we continue to expect modest growth in the U.S. for the full year. We expect credit to normalize, our NIM for the full year will be down compared to 2014 and we anticipate lower securities gains. Our wholesale bank had a solid quarter with good trading results in a volatile market offset by lower fee based revenues.”

We will grow but it wont be easy

“This quarter demonstrated the strength of our growth engines, but major external forces like technology innovation, regulatory changes and the sustained low rate environment impact our business and industry. We are evolving our strategies to add that to these changes”

Oil will hurt the Canadian economy

” I will talk about two that are top of mind with just about everybody, oil prices and interest rates. The Bank of Canada has said the decline in oil prices in unambiguously negative for the Canadian economy. We agree, however the impact will be uneven. Oil producing provinces will bear the brunt of the drop while others including Ontario will likely benefit from a weaker dollar and stronger export demand.”

Not seeing a deterioration

“From a credit perspective we believe our direct exposure to oil and gas producers is manageable. We are not seeing any signs of deterioration though it is early days.’

Low oil prices don’t pose a material risk to the bank

“ith respect to the oil and gas sector, a series of stress tests were completed during the quarter to determine the potential impact of sustained low oil prices on the Canadian and wholesale business segments. The test indicated the sustained low oil prices are not expected to have a significant impact on the bank for the following reasons.

First, lending within the oil and gas industry is governed by disciplined underwriting standards based on strong collateral positions.

Second, unsecured consumer credit exposure to the regions most impacted is less than 2% of the bank’s total Canadian consumer credit exposure.

Third, the bank’s higher concentration in Ontario.

And lastly deposit impact of low oil prices on our Ontario and U.S. businesses. As result, I don’t believe the sustained low oil prices represent a material risk to the bank.”

Target is back on track and we think it’s sustainable

“Yes it is getting back on track and yes I think it is sustainable the — and I think with the extension of the program it gives both parties more confidence to invest in that and I think that you’ll see those investments are made that where the program should expand nicely.”

Very happy with our positioning with Ameritrade

“We’re very happy with our stake in Ameritrade, this has been central to our world strategy in many, many years it continues to perform well. So, I can’t comment on what others are doing, but we are very happy and this is a key investment for us and is more than just an investment it plays a very important role in our wealth strategy going forward in the U.S. as well, so very happy with our positioning.’

Target 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Comps were double our expectations

“we look back at our point of view going into the fourth quarter, comparable sales growth turned out to be nearly double our original expectation. As our combination of products, promotions, holiday marketing, fulfillment capabilities and in-store execution drove profitable growth in an intensely promotional environment.”

Traffic was the primary driver

“We are also pleased that traffic was the primary driver of our fourth quarter growth as well as the fact that the digital channel growth contributed nearly a full percentage point to our fourth quarter comparable sales increase.”

Come a long way from last year

“we’ve ended the year with the data breached fully behind us and that we’ve made tough decision to execute the Canadian business. Our team is focused and aligned on five priorities, I outlined in our third quarter call.”

Holiday season is starting earlier and ending later

“Across the U.S. retail landscape, this year’s holiday shopping season began earlier and ended later than ever before. This lengthening of the season reinforced a pattern we’ve seen for well over a decade, where we saw the strongest sales in the early and late portions of the season and experienced a period of softness in the middle.”

Lull in December for a decade

“In December, following the characteristic lull that we have seen for more than a decade we saw a very strong surge in traffic and sales in the days leading up to and after Christmas.”

Free shipping at $25

“Because our guest responded so well to this holiday promotion. We were excited earlier this week to announce that going forward we are reducing the order threshold for free shipping from $50 to $25 with virtually no exclusions.”

Will take a while to sort out the ports

“We were very pleased with last weekend’s news that a tentative agreement had been reached, but what we know it will be sometime before the backlog at these ports will be fully eliminated. In the mean time, we have contingency plans to continue to work around potential issues. But at times, we may encounter periods of light inventory in some assortments.”

Growing wellness

‘wellness is one of the signature categories in which we’re investing to differentiate our brand and our assortment from competition. We have a huge opportunity in this space, because our guests have told us it’s particularly important to them.”

Modeling 30% e-commerce sales growth

“We expect our comparable sales to increase about 2%, driven by an increase in digital channel sales of 30% or more, combined with the modest growth in store channel sales. ”

We feel pretty comfortable with what we’re paying people

“You know, we don’t disclose the average wage for our team members. What I’d tell you is the store’s team has always been a point of differentiation for Target and we’ve always prided ourselves and believe we have the best team in retail. So very focused on ensuring we have competitive wages and that we’re developing our team members. We’re all the time assessing the marketplace to determine competitive wages and making adjustments and we feel very confident that we’ll be paying the teams appropriately.”

“Overall as we look at some of the announcements that have been in the marketplace and the minimum wage legislation act really hasn’t changed our view of the quarter or the year really at all and won’t be material changes to us.”

Consumer confidence is definitely up, but we did a good job too

” I think as we sit here today, we’ve recognize that the consumer confidence is certainly improved. Lower gas prices certainly helping the industry overall. We did have some favorable overlaps certainly as we overlap the breach. But I also think we made significant strides from a merchandising standpoint, from a marketing standpoint, and we continue to deliver great execution and service inside the stores.’

Ensco 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Fall off in demand is unprecedented

“The severe fall-off in customer demand is unprecedented compared to what we’ve seen in prior cycles.”

Placing rigs into discontinued operations

“as part of our continuous fleet high-grading, we placed four additional rigs into discontinued operations. Cold stacking rigs no longer in our go-forward fleet will reduce costs associated with these rigs. Similarly, several of our rigs in our go-forward fleet are currently being cold stacked to rapidly reduce expenses, such as three jackups in the U.S. Gulf of Mexico, noted in our last Fleet Status Report.”

Rigs need to come off the market

“For market conditions to bottom and start to recover, we need to see some key actions. We cannot simply rely on an oil price recovery. Costs need to be driven out of the whole system and rig supply needs to be reduced. We are encouraged to see that the rate of rig retirements has increased significantly and there is some moderation in the marketed rig supply as additional assets are being stacked and newbuilds are being deferred. More needs to happen and we will continue to be proactive.”

Still winning contracts even though the environment is tough

“While market conditions have become more challenging, these contract awards show that we have earned more than our fair share of new business recently. Contracting has certainly become more difficult. But I believe Ensco’s strengths give us a competitive edge as new contracting opportunities arise, even though they may be few and far between in the current environment.”

People are going to try to push out new rig deliveries

“Many offshore drillers with uncontracted newbuild rigs likely will continue to postpone deliveries in an effort to delay final milestone CapEx payments, thereby pushing out new supply. We have already seen deferrals and delays of new floaters and jackups originally scheduled to be delivered during 2015. ‘

35 rigs taken out of the market by offshore drillers since September

“We expect that offshore drillers will continue to retire uncontracted rigs to reduce expenses and preserve capital during the downturn. Since September, offshore drillers have announced the retirement of 23 floaters. Over the same time period, an additional 12 floaters have been cold stacked and we believe that the majority will end up being retired from the global supply, due to the costly nature to reactivate these older rigs. These 35 rigs represent approximately 12% of competitive global supply.”

Stacking/scrapping should continue into 2016

“In 2015, 40 floaters that are 30 years of age or older will see their current contracts expire. All will be likely candidates for stacking and/or scrapping. And as a group, they are greater in number than the new supply of roughly 30 floaters scheduled to enter the market by year-end. We anticipate the stacking and/or scrapping trend will continue into 2016, with these reductions to global supply, helping to better balance floater supply and demand.’

75% contracted in floaters, 65% in jackups

“Approximately 75% of our floater rig days and 65% of our jackup rig days are contracted for 2015. This translates into contracted revenue backlog of $3.9 billion for 2015, excluding bonuses.’

Customers fall into two buckets right now, reducing costs and overcommitted

“We do see customers in two modes at the moment. One is to generally try and reduce costs, bring down the costs. And the other is we do have some customers who are overcommitted on their drilling contracts. So there are various customers who are looking for renegotiation of some terms, usually in exchange for an extension of contract or something to mutual gain.

We do have a few customers who are looking at whether they’re going to early terminate or not. And so there are, to some greater or lesser degrees, various conversations happening like that. Now, specifically, we have only received two formal notifications of termination”

Probably going to see some interesting transactions in jackups the next couple of years

” it’s much more likely we’re going to see distressed assets in the jackup category, where you have a lot of speculative buyers there who are not completely financed. So I think we’re going to see a lot there and you’re going to see some interesting transactions probably over the next couple of years.”

The retrenchment has been sharp

“I think the main comment as we’ve already made, is just the speed and, in some cases, the aggression with which our customer base has reacted to the oil price fall-off in their spending plans. And I think a large part of that is because the people – our customers don’t or didn’t have a very clear view on where oil price was going and how some of the fundamentals were driving it. And it’s caused a very rapid pullback.”

It’s taken everyone by surprise

“I think the rest of the management team here, but certainly my experience before, this has been a much more rapid and aggressive fall-off than the recessions that happened, the down-cycles in the 2000s, which actually didn’t fall off as fast and came back relatively quicker. So that’s one. And that really, I think, has not only taken us by surprise; it’s taken a large part of the sector and the industry by surprise.”

Ross Stores 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

14% EPS growth, 3% comp growth

“For the 2014 fiscal year, earnings per share grew 14% to $4.42, up from $3.88 in 2013. Net earnings in fiscal 2014 grew to $925 million on sales of $11,042,000,000 with comparable store sales up 3% for the year.”

Forecasting 4-9% eps growth

“we believe it’s prudent to remain somewhat cautious in our outlook due to a combination of ongoing volatility in the macroeconomic and retail climates as well as our own tough multi-year comparisons. In addition, our 2015 guidance incorporates pressure on earnings from recent infrastructure investments we’ve been making to support our long-term growth. As a result, for fiscal 2015, we are forecasting earnings per share to be in the range of $4.60 to $4.80, up 4% to 9% from $4.42 in fiscal 2014.”

Lean inventories

we will continue to operate our business with lean selling store inventory levels. Over the past several years, we have reduced in-store inventories by more than 40%, which has contributed to improved sales and gross margins. Again, in 2015, we are planning selling store inventories to be down slightly on top of this multiyear decline.”

We’ve been happy with how traffic has picked up

“So on your first question, David, traffic, yes, we’ve been very happy with how traffic has picked up over the last couple of quarters. In terms of plans to drive traffic, it’s always the same with us. It’s all about having the best merchandise in the stores. We found over time that that’s really the one thing that really stimulates traffic. ”

In terms of wage increases…

“in the last part of your question, alluding to some of the recent announcements about wage rate increases. Obviously, those announcements are fairly recent. But we would expect that they will have an impact on wage — on industry wage rates. Of course, they will. In fact, we’d expect the labor market will tighten up in general as the economy improves. We evaluate labor market trends over time and that will include looking at these recent announcements. And typically, we set rates on a market-by-market basis, and we’ll certainly make adjustments to keep our wage rates competitive. It’s very important that we continue to attract and retain great people. I should say that as we always do, if we do make changes, we’ll look to mitigate the impact of any cost increases through reductions or productivity improvements elsewhere in the business. Just one final thought though, I think it’s worth noting that rising wage rate is actually — it’s a good thing in the sense that it shows that the economy is picking up and suggest the consumer will have more money in their pockets. So it could have a beneficial impact to retail sales.’

We don’t know what’s going to happen so be flexible

“We’re not economists. We’re not trained experts in terms of what’s likely to happen in the economy. But clearly, there are some positive signs. I think lower unemployment, lower gas prices, those are good things. But we have no way of knowing whether those trends will be sustained over time. So for us, given sort of what continues to be an uncertain environment, the best thing for us to do is to manage our off-price business to be as nimble and flexible as possible, which means planning and operating our business relatively cautiously especially at the start of the year, and then that gives us a chance to chase business if the sales trend ends up being stronger. So bottom line is we don’t really know what’s going to happen in the economy, but if we manage our business flexibly, we should do just fine.”

Seeing plenty of real estate availability

“We continue to be pretty happy with the real estate availability that we’re seeing. Obviously, we plan these things several years in advance, 2 to 3 years out. And we have a very strong real estate team, and we are very happy with the pipeline of locations that we’re seeing.”

There could be more wage pressures ahead

“there could well be, for all the reasons people have — for all the reasons you read in the papers, there could be more wage pressure ahead. That’s certainly a risk and as I said, we’ll look for ways to mitigate any of those increases.”

expect the promotional environment to remain aggressive

” think what we’re going to see in the promotional environment in 2015 is more of what we saw in the fourth quarter. I mean, it was a very aggressive retail environment, and we think that that’s going to continue into Q1.”

Kohls 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Comps up 3.7%

“Comp sales increased 3.7% for the quarter, our highest quarterly comp since the fourth quarter of 2010. All lines of business were positive and all regions were positive. Net income grew 10% and our earnings per share were $1.83, a 17% increase over last year. ”

Not breaking out e-commerce anymore

“As our omni-channel strategy continues to mature, it becomes increasingly difficult to distinguish between the store sale and an e-commerce sale. Because we no longer have a clear distinction between store sales and e-commerce sales, we are no longer separately reporting e-commerce sales.’

4.40-4.60 guidance

“We expect earnings per diluted share of $4.40 to $4.60 for fiscal 2015. This guidance is based on total sales increases of 1.8% to 2.8% and comparable sales increases of 1.5% to 2.5%. We expect gross margin as a percent of sales to be flat to up 20 basis points for the year. ”

Thoughts on the wage stuff

“First of all, we obviously don’t operate in a vacuum, but we never have. We have a pretty robust and very successful system in place to assess the competitive market across the whole country. And fundamentally we pay what’s necessary in each market to attract and retain the talent we need. Frankly, cost of living are not the same everywhere and neither are wages. As an aside and I realize wages are getting some focus. While wages are really important, there are a lot of other factors driving peoples’ decisions about where to work. The work environment, the way associates are treated, future opportunities for growth and advancement are just a few of many. And as we shared with you back in October at the investor conference, our store associates engagement is in the top percent of retailers. So we definitely intend to keep it there.”

Some businesses are better than others

“On a market share basis, in the fourth quarter to be honest with you there were – there always are better businesses and businesses that are slower. In general, all of the businesses performed pretty well, they were all positive first of all as Wes indicated.”

Continued to gain strength where not affected by weather

“obviously we don’t comment on individual months’ performance. But I think we have continued to get strength, particularly in the areas of the country that haven’t been so affected by weather. I mean there have been some areas as you know that have been really impacted by weather.”

Hoping to have 35-37m people signed up for their rewards program

“I would expect us to get another 10 or 12 million people signed up this year. So, it would be at 35 to 37 at the end of the year. I know the marketing guys have a more stretched goal than that, but that seems like a reasonable assumption for us.”

Trying to do a better job of inventory management

“hopefully we will continue to do better on inventory management. Kevin alluded to buy online, pick-up-in-store and ship-from-store. We are just trying to do a better job of inventory management overall.’

The port affected us, but it’s relatively not such a huge impact in the scheme of things

“We are definitely affected like everybody is affected, no question about it. The way those things work, of course is we try to mitigate it through logistics strategies to push product to other access points, of course but certain categories or businesses typically get affected more. If I was looking at the ports slowdown in a list of things that can either be a headwind or tailwind, it’s definitely been a headwind, for sure. It was a headwind in the fourth quarter. And it will be a headwind for a little while still, I would say. But if I put it in a priority of other things that actually create business change, some of the things that we have talked about like our ability to deliver amazing product, our ability to have more effective marketing through more utilization of personalization or loyalty, weather as a factor at any point in time, those things all outweigh this. Unfortunately, in certain categories they can be important and one I always allude to with Wes is sleepwear for instance in the fourth quarter is basically all imported and it was all relatively late. And as a result it impacted sales in sleepwear pretty dramatically.”

The good thing about being in the middle

“It’s a great thing about being in the middle. When things are good people trade up, when things are bad people trade down. ”

Investing in national brands, marketing and presentation

“we definitely are investing more in national brands both in marketing, I would say, Wes, for sure, but also in-store presentation. So, you can probably see that when you go into the store. There is several brands that have enhanced presentations.”

TJ Maxx 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Happy with 4q

Let me begin by saying that we had a terrific fourth quarter. Earnings per share increased 15%, well exceeding our expectations. Consolidated comp sales grew 4% over last year’s 3% increase, also above our plan. We’re extremely pleased to see the comp almost entirely driven by customer traffic. We also like the sequential improvement in comps and traffic we saw at all divisions from the third quarter.

Home goods doing great

HomeGoods delivered another outstanding quarter. Comps were up 11% and segment profit margin increased 120 basis points. We are thrilled of HomeGoods’ consistently strong results and could not be more excited about this division’s prospect for the future.

Raising home goods location target

At HomeGoods, we’re raising our estimates for its long-term growth store to approximately 1,000 stores. This is double the current base and 175 more stores than our prior estimate.

Increasing wages

irst, we were pleased to announce an important initiative on wages this morning detailed on our press release. These actions are part of our strategy to continue attracting and retaining top talent in order to deliver a great shopping experience for our customers and will allow us to remain competitive on wages.

More conservative on eps Will be affected by fx

we feel great about the business and there is no change to how we are planning our underlying business. Again, our assumptions for comp sales and merchandise margin increases remain consistent with prior years. However, we are planning earnings per share more conservatively this year to reflect the impact of the following factors.

First, the most significant factor is currency exchange rates, which we expect to negatively impact fiscal ’16 EPS growth by approximately 5% overall. Let me break this down.

Investing in associates another 4% impact

In addition to currency, we are assuming that our investments in our associates as well as other incremental investments and pension costs would have a combined negative impact of about 4% to fiscal ’16 EPS growth. We are planning fiscal ’16 prudently to reflect all of these factors. At the same time, we remain very focused on controlling cost and we’ll work very hard to exceed our plans.

Port chaos is our friend

First of all, in terms of the port, I can tell you as you know, chaos does tend to be our friend. I hate to say it. But we are seeing some things. Our pack-always are already up and we’re not planning the business any different, but we are assuming that there’ll probably be an increase in pack-aways and there’ll probably be some pretty incredible deal. Ernie, do you —

Greater market opportunities because of the ports

I think in the near-term some probably greater market opportunities for the current season than we normally would have had because of the ports.

But like Carol said, there is always some dynamic going on out there. This time, it’s the ports. So next time, it will be something else. So yes, this does create additional opportunities to your question and availability.

Staying liquid in anticipation

Okay. I was just going to say, I can tell you we’re staying extremely liquid in the anticipation.

Surgical about adding buyers to gain leverage

So we’re always leveraging. We don’t add at the rate of our top line growth. We are flexible based on opportunities and trends. If we look at categories that are trending, we tend to look to buyers to cover that. But again, we’re very surgical.

Buyers are the lifeblood of the organization

But it is the lifeblood organization for this company. So we are very proactive as we’ve talked before in our training of that organization. And it’s not just about the numbers, it’s about the quality of the merchants that we put in place. So I guess that’s one reason we feel like we’re pretty efficient with that group.

Pension expense up because of low interest rates lower mortality rates

Yes. So on the pension cost, similar to we’re in that low interest rate environment and the pension get at one point in the year you have the interest rate gets set. It was at in the historically low rate from a pension cost. It moves, so it’s already moved up, but you have to set it up, you have to set it that one time.

Also, mortality tables as you’ve probably read with other retailers and asset [ph], have been reset. So it’s probably more — the majority is due to the interest rates. And there is this portion due to the mortality tables.

Not assuming forex will impact further

bviously, we have never had that kind of impact in the history of our business. So we do not think that that will be a negative factor going forward. At least, we’re not assuming.

Everyone is a competitor.

international, we are the first out there. There’s no other off prices out there. And we have built a very strong foundation and we’re going to continue doing that and expanding. And we spent a lot of time going to a new country. And we spent two to three years really analyzing it to understand what the right mix is. We learned that a long time ago.

So we look at everybody as a competitor. And as far as we’re concerned, we just want to give great value every day and do what we do best and keep doing it better. And that’s how we’ll get a bigger piece of the pie.

Raising wages to stay ahead of the curve

Again, I keep coming back to we’re on this mission to really improve and be the best brand out there. And the customer experience, every year that our customer surveys come back that they love the in-store experience which is really our associates who are driving that, we think it’s absolutely imperative that we keep pace and that we have the best talent.

We have very low turnover. We definitely employ a choice. But as everything else, we want to be ahead of it. We want to keep the best of the best and we want to be able to bring the best of the best in. So whether it’s our stores, whether it’s our merchants, whether it’s home office, that’s our goal. So we’re doing what we think is best for our associates and our customers.

Dollar Tree 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Sale accelerated during quarter

Same-store sales were solid and accelerated throughout the quarter. Performance in the home, seasonal and basics divisions were tightly grouped and our sales increase resulted from strength in both basic consumables and discretionary products.

Inventories flat despite strong store growth

m extremely pleased with improvements in our inventory management. In 2014, we had 391 new stores and 3.2 million selling square feet. Yet our overall inventory dollars remained essentially flat to the prior year and our inventory turns improved approximately 30 basis points.

7.2% increase in sqft for 2015

Square footage is planned to increase 7.2% over fiscal 2014.

Freight expensive because of truck driver shortage

Freight cost as a percentage of sales increased as domestic trucking rates were higher reflecting the effects of industry-wide driver shortages. The increase was partially offset by lower diesel cost

3.30-3.50 eps forecast for 2015

For the full fiscal year of 2015, we’re forecasting sales in the range of $9.21 billion to $9.45 billion based on a low-to-mid single digit increase in same-store sales and 7.2% square footage growth.

Diluted earnings per share excluding acquisition related costs are expected to range from $3.30 to $3.50. This represents an increase of 6% to 12% over 2014 earnings per diluted share, excluding acquisition related costs of $3.12.

Benefits of combing with family dollar

The Dollar Tree target customer is largely a suburban customer, while the Family Dollar customer is largely urban and rural. We’re combining complementary merchandise expertise adding the Family Dollar’s strength and name brand consumable products to the Dollar Tree variety, seasonal and discretionary product and global sourcing power.

No plans to raise wages

Well Chuck, we watch the industry trends carefully and of course we’re compliant with all the State and Federal regulations, but I’ll tell you, outside of complying with the continued changes in the regulations we’ve made no plans for a sweeping change to our minimum wage rates, but we will continue to pay competitive wages market-by-market just as we always have done based on the prevailing rates.

And as always, we’ll work very hard to offset any wage increases and cost increases and general through increased sales and productivity enhancing initiatives that we’ve always been able to find.

We’re excited about 2015

So I would tell you that if I could guess, you could read that as we’re excited about our business. I can tell you that first quarter initiatives are more excited than they’ve ever been, you’ve have heard me say that before.

Right in the sweet spot

And we’re more relevant than ever. I can’t tell you that I can have empirical data, but the win fields are a little bit to our back in the value sector right now with lower gasoline prices and lower prices and lower diesel fuel prices and there is just a lot of lowers there that tend to help us as we accelerate our momentum going into the year.

Range Resources 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Gas demand expected to increase, production response help bring market into balance

“Gas demand is projected to increase in 2015 from coal plant retirements, gas exports to Mexico and later this year LNG exports. Given the large capital cuts from a large number of companies in our industry which is resulting in a rapidly declining rig count and deferred completions we may see a production response in oil, natural gas and natural gas liquids later this year. The combination of slowing supply growth coupled with increasing demand should help bring the market closer in balanced this year.”

The rock rules

“Number two most importantly and one of my favorite sayings, the rock rules, and this has proven to be the case throughout history across many plays and through multiple commodity price cycles. It simply means that where you find the best reservoir quality, meaning the best rock the economics are substantially better than non-core acreage. And when a company can maintain a low cost structure in the core play that company can sustain its growth at attractive economics across the up and down cycles of commodity prices.”

Range’s core positions

“Range has what we believe is a core position in the Marcellus, Upper Devonian and Utica allowing us to focus capital in those areas with the best economics, whether they are dry, wet or super-rich and continue to achieve production growth in 2015 and beyond.”

A good year for range

“2014 was a record year for Range. Cash flow was over $1 billion for the first time in the company’s history, reserves reached a new record level of 10.3 Tcfe with the Conger-Nora swap we now have operational control over essentially all of our property. We ended the year with lower debt and improved bank facility with plenty of liquidity and no bond maturities until 2020.”

Annaly 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Fed Governor says: no sign of bubbles

“When a Fed Governor was asked recently if he saw any evidence of an obvious bubble, he replied and I quote “I don’t think there is anything on the scale of the housing or internet bubble right now. The only candidate is bonds, government debt, and other kinds of debt. But I am not counting that, I guess because that’s us”.”

We always think we’re sophisticated and our predecessors naive

“As if often the case with humanity, we fancy our present selves as the most intellectually sophisticated and tend to look back upon our predecessors as somewhat naïve in light of our current knowledge base. There are certainly good reasons for that attitude, here are a few examples. Up until the late 1800s bloodletting was a popular prescription for many ills, in fact George Washington was reportedly a huge proponent and after awakening with a bad sore throat he asked to be blood let. During the next 16 hours five to seven types of blood was drained from his body, four days later he was dead.

Before microscopes and cell theories, many scientists believed in spontaneous generation as the explanation for how life arose. Right up until the 19th century scientists still believed in it and some even wrote recipes for making animals. One such recipe called for basil placed between two bricks and left in sunlight to produce a scorpion. It wasn’t until 1859 that Louis Pasteur finally put the popular belief to rest. I mention these extreme examples of our lack of intellectual sophistication to emphasize how wrong humanity can prove to be with the benefit of time, discovery, and hindsight.”

History is littered with long standing theories…

“History is littered with long standing theories and beliefs that ultimately prove incorrect. My hope is that as policy makers of the world continue to prescribe their remedies for the ailing economic patients that they do not render it worse off. As with their predecessors, I suspect that there is no doubt in the minds of our central bankers that they are the smartest they have ever been. Yet I fear that they are not the smartest they will ever be.”

We expect more consistent volatility

“Our current view on the next four leading up to June and the potential Fed lift off and for many months to follow quite frankly is that more consistent volatility will return to the markets we operate in.”

We’re positioned for volatility

“I will put it simply, volatility equals opportunity for Annaly. Given our size and liquidity we are prepared to be opportunistic during windows of cheaper pricing for our targeted assets. Our current leverage ratio now is 40% below the industry average. A level we expect to increase when clear relative value opportunities present themselves. One term leverage at today’s spreads can produce approximately 15% of incremental annual earnings for our shareholders.”

We don’t care when the Fed does it

“The timing of the Feds lift off does not preoccupy us. We have maintained our conservative posture as a competitive advantage. We believe this conservatism which has been ignored during the relative calm over the last few years will be rewarded as volatility means something once again in the market.”

The expectations for the pace of tightening are not as aggressive as they were

“rates certainly are lower and the expectations for the pace of tightening is not as aggressive as it was before but nonetheless we do think that the tightening that is priced into the market is we would say not overly aggressive. If anything we think it will be slightly less aggressive than that which is priced in.”

Mortgage spreads usually do widen in flat yield curve

” typically mortgage spreads do widen in a flatter curve environment and we expect that that will be the case as well.”