Andrew Sohn Notes: RL, HOS, DIS

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Andrew Sohn, a junior at Columbia University, is a contributor to Avondale’s company notes database. Below are quotes from some of the calls that Andrew has read this week.

 

With inventory problems at the beginning of the year, long term brand preservation as opposed to short term inventory management proved to be a good bet to make

“These conditions created an excessive inventory and, therefore, more promotional environment in North America. We made the decision to be less promotional than the landscape, because we believe it’s critical to protect our brand. Looking at comp growth across some of our largest customers, we are in line or better than their stores’ average performance.” –Ralph Lauren (RL)

 

Inventory levels are starting to normalize

 

“We saw our inventory was up about 8% at the end of the quarter, and we feel very comfortable with the inventory levels in the content of that inventory. If you look at the inventory at the end of the quarter and what drove the increase, it really was impacted by the timing of receipt plans as well as getting ready for the launch of Polo Sport, the expansion of Polo Women’s and the opening of new stores. So when we look at the underlying factors that we’re getting ready for going forward, we feel very confident and comfortable with the inventory content and level.” –Ralph Lauren (RL)

 

There’s still more room downwards

 

“We actually share the view that we are in a secular downturn, driven by fundamentals that are largely out of our control and which only time will sort out. So, there are plenty of reasons to be somber. However, we are what we call pessimistic optimist. While things are bad, we believe they’re going to get worse before they eventually get better.” –Hornbeck Offshore Services (HOS)

 

Cash is king, even more so given the unpredictability of the future

 

“Now that cash truly is king, we intend to be very stingy with it. While we continue to grow cash from operations and do not expect that to stop, our ability to do so is not a guarantee. Without a prudent margin of safety, we would not afford to be optimists and instead, could find ourselves in the same position as some of our public and private competitors.” –Hornbeck Offshore Services (HOS)

 

Cash is even more important with the lack of visibility for the future

 

“To our way of thinking, it only seems wise to strategically horde cash to preserve our position in an unsettled environment such as this one, where the depth and duration of this downturn cannot reasonably be predicted.” –Hornbeck Offshore Services (HOS)

 

 

Still a lot of rigs out there in the Gulf of Mexico

“The sustained level of deepwater drilling units active in the Gulf of Mexico is indicative we think of the long-term promise that this market holds. After all, we’ve seen a 50% drop in the commodity price of oil and yet there are still as of today 40 or so deepwater units actively drilling in the Gulf of Mexico. We see that level remaining flat for the time being, but is still at historically high levels. Plus, we expect five additional high-spec floating rigs mobilized to the Gulf of Mexico over the next 12 months.” –Hornbeck Offshore Services (HOS)

 

 

 

Good management is so important during tough times

 

“The silver lining here is that poor markets tend to reward better managers and call out weaker players. Our focus will be in delivering great service to our customers, the customers we have and in finding ways to build efficiencies into everything we do without sacrificing quality or safety.” –Hornbeck Offshore Services (HOS)

 

Feels like a V bottom

 

“However, given the current operating environment and uncertainty as to the depth and duration of the current downturn, we know that cash will be king as we navigate further through this cycle, especially if this market recovery turns into a long U bottom or worse, as some people fear, the dreaded L bottom. At this point, it certainly does not feel like a V bottom.” –Hornbeck Offshore Services (HOS)

 

 

Decrease in multichannel households hurting ESPN subs

 

“ESPN’s experienced some modest sub losses although those have been less than reported by one of the prominent research firms and the vast majority of them, 80%, were due to decreases in multichannel households with only a small percentage due to skinny packages.” –Walt Disney Co. (DIS)

 

Confident ESPN can transition into new media

 

“ESPN’s embraced technology better than anyone in traditional media reaching its fans and engaging with them in more meaningful ways online and on mobile devices with its linear channels as well as with an array of additional programming, sports information, commentary conversation and very rich social media features. All of this adds up to a very strong hand and gives us enormous confidence in ESPN’s future no matter how technology disrupts the media business.” –Walt Disney Co. (DIS)

 

 

Tourism doing well

“At Parks and Resorts growth in operating income was driven by higher results at our domestic operations which saw gains in both attendance and guest spending, partially offset by lower results at our international operations.” –Walt Disney Co. (DIS)

 

 

 

Netflix doesn’t spell the end for traditional media giants like Disney

 

“In addition to that you have the growth of platforms like Netflix or SVOD, that’s interesting as well because, while one could argue that for all the right reasons that’s starting to incentivize or maybe incentivizing people including millennials to cord cut, it’s also providing us opportunities because the Netflix has become a really important partner to us in buying our off-network product, buying original programming for us, the Marvel deal is a good example. And then our film library kicks in the output deal for the ’16 slate kicks in. So we look at Netflix actually right now as more friend than foe because they have become an aggressive customer of ours.” –Walt Disney Co. (DIS)

 

 

Embracing disruption, greater market size and good positioning

“the average American is watching about 5.5 hours of TV a day and we see that going up to about 6 hours. The reason they’re watching 5.5 hours of TV a day is because of just what I just described as huge value in the multichannel product for customers and its popular and the reason we believe it’s going to increase from 5.5 hours to 6 hours is because of the advent of new technology driven platforms, whether they are over-the-top, whether it’s SVOD, whether it’s new smaller services. So it’s a long over that way around my saying that we actually believe that with Disney, ABC, ESPN, our products we are really well-positioned. We’ve been among the first if not the first to offer our products on new platforms even if it’s somewhat disruptive, we still believe in the expanded basic service for years to come but we are going to take advantage of opportunities.” –Walt Disney Co. (DIS)

 

China proving to be a difficult market

 

“The home-video market in China is obviously challenged by the fact that it’s a market that’s been you know rife with piracy and so a legitimate home-video market never quite developed there.” –Walt Disney Co. (DIS)