Company Notes Digest 8.27.15

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Each week we read dozens of transcripts from earnings calls and presentations as part of our 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:

We’re all watching the market’s gyrations

“we are not immune to a further deterioration in the global economy. So, like all I view, we are anxiously watching the market gyrations over the last two weeks, particularly in the emerging markets.” —Brown Forman (Liquor)

There’s more uncertainty than there was a couple of weeks ago

“I think it’s more the uncertainty around…what might occur going forward as a result of just the skittishness that we have seen over the last, I mean, literally week to ten days we are acting a little bit more I think to just the recency of some of these market sell-off.” —Brown Forman (Liquor)

It’s way too early to tell if there’s been any impact on the real economy

“What’s going on lately, it’s too early to tell. It’s too early to read anything into it over the last couple of weeks. We’re obviously keeping a very close eye on it, but most of our international buyers are Asian-American, been here for generations, not impacted by their home country economy…And that buyer seems quite confident and ready and able to buy. But we’re obviously, as everyone is, keeping a very close eye on it. But right now it’s just too early to tell you much more than that.” —Toll Brothers (Homebuilder)

And it’s impossible to quantify any impact anyways

“With regard to recent news from China in the same way that it’s not possible to quantify the positive wealth effect from a rising stock market on our sales growth there in the past couple of years. It’s similarly difficult to predict any potential negative effect on sales in magnitude or duration from their recent stock market correction or currency devaluation.” —Tiffany’s (Jewelry)

But you can’t help but be a little more conservative about how you run your business

“The challenge is – trying to operate that business is, trying to get beyond a lot of the noise that’s going on from the stock market point of view and where we see the business moving and going. So you can’t help, but look at that business and be a little bit more conservative about how we project that business out both through the balance of this year and then moving into 2016 and beyond. So it just gives us pause.” —PVH (Apparel)

Alternatively, you could just try to tune out the noise

“I would just like to address the fact that there is a lot of noise really out there right now around the apparel sector. And just so you know my perspective, I shut it out because from where I sit across all of our businesses, our job is to deliver regardless of the noise that’s out there today and what I see is, I see a consumer who has confidence, I see dollars being spent and I see an opportunity for us to continue to get more than our fair share, as I look forward and I am very optimistic” —Gap (Apparel)

But people are concerned about deflation

“We’re looking at continued deflationary pressures, as those have mounted as we progress through the year. We’re looking at a more challenging macro environment.” —The Fresh Market (Grocery)

And deflation makes it hard to drive revenue growth

“the challenge, the biggest challenge we’re looking at is, how aggressive to raise prices particularly in a world, as you look out there that is facing extraordinary deflationary pressure in just general terms across a – the ways most economists speak, the biggest concern is deflation, not inflation” —PVH (Apparel)

On top of that, as we enter the final third of the year hedges are rolling off, which will impact earnings

“The six point gap between as-reported and constant currency revenue performance is wider than prior quarters, as the financial hedges are rolling off.” —Hewlett Packard (Technology)


The Bank of Canada has cut interest rates twice this year

“in the recent months, we have seen mixed economic data and weaker than anticipated growth which led The Bank of Canada to cut interest rates for a second time this year.” —Royal Bank of Canada (Bank)

A weak Euro is boosting European tourism

“our Chinese consumer or Asia consumer instead of being in the United States is more so in Europe. And as you – I was in Paris and I was in Amsterdam this last month, you could see the tourism boom that’s going on there and helping their economy.” —PVH (Apparel)

It may be boosting the whole economy

“Europe. It has gone through some macro issues, but we’re actually seeing positive sales trends in Europe. We believe that economy is coming back and that consumer is re-engaging.” —PVH (Apparel)

For what it’s worth, a Chinese Real Estate broker says that the property market is warming up

“As expected the overall Chinese property market started to warm up since the end of March driven in part by the governments loosened credit policies and purchasing restrictions in certain cities. Despite recent Chinese Stock Market volatility the real estate sector has stayed relatively stable so far.” —E House (Chinese Real Estate Broker)


Brokerage firms are probably cleaning up in this environment

“In the equities trading side of the business, it’s really just agency trading. We are not really putting capital to work for to offer liquidity. So the equities trading business has actually been as you might imagine reasonably robust especially over the last several days” —Royal Bank of Canada (Bank)

These markets make it harder for high yield companies to issue debt

“I can start with the trading conditions currently. I think starting with fixed income, we are seeing because of the recent market volatility high yield for instance in the U.S. new issue flows is down, investment grade credit is steady but down a little bit, and in rates trading I would say it hasn’t changed.” —Royal Bank of Canada (Bank)

It sounds like mortgage markets have opened up though

“Our buyers remain to be strong. We have on the margin, a few people that struggle to qualify, but overall, we’re able to get the vast majority of our people into a mortgage if they want one. We’re not seeing any issue at all, really, on a macro sense with qualifying for loans…Actually, today, the jumbo rate is below the conforming rate, which is pretty astounding.” —Toll Brothers (Homebuilder)

Insurance companies are getting into mortgage underwriting

“We believe we’re going to introduce a, for the first time in our history, direct sales to a major insurance company, which will be huge. So – and that also, by the way, is going to open up financing for foreign nationals but to a greater degree than we have today. So, I don’t see any issues at the moment in terms of availability or liquidity in either the conforming or the jumbo market.” —Toll Brothers (Homebuilder)

America’s Car Mart saw an increase in credit losses, but blamed their own execution

“Bottom line results for this quarter were obviously disappointing. Sales were very solid and we’re pleased with that aspect. Credit losses however were not. And we’re not pleased with our results…it is apparent to us that for these stores, this was primarily an execution issue.” —America’s Car Mart (Used Car Dealer)

Royal Bank of Canada has seen a slight uptick in delinquencies in oil exposed provinces

“Delinquencies remain near historical lows and we have not seen an increase in delinquencies for Canada as a whole but have noticed a slight uptick this quarter in oil exposed provinces. This increase is insignificant at this point and it’s too early to say that this is a trend.” —Royal Bank of Canada (Bank)

The Texas economy still seems to be holding up though

“Texas, overall, has consistently been a good performer for us. In the second quarter and year-to-date, it’s performed above the chain average for us. So it continues to be one of our best-performing regions.” —Ross Stores (Off Price Retail)


A late labor day is making it difficult to get a clean read on consumer spending

“the calendar shift has caused a little angst probably out there with the consumer, only from the standpoint that Labor Day has been pushed back a week, as you know. And most states with schools, they sort of key off of that Labor Day date. So in a lot of cases what we’ve seen is that the back-to-school has been pushed back in the calendar a little bit.” —Dollar General (Retail)

Poor results from retailers could lead to a more promotional environment

“we expect the retail landscape to be highly promotional during the fall season, especially given the recent results from other retailers…mixed results and – actually weak results from the department stores forces us to think that the environment which is already fairly promotional will continue to be pretty promotional in the back half…some retailers are going in to fall with high inventory levels. ” —Ross Stores (Off-Price Retail)

Gap is introducing some fast-fashion capabilities to its stores

“For the first time, we will be going to in season open in some of our key product programs and therefore able to get back in after we read the business in season with significant quantities of units. This is obviously an important capability for us. We are building this across the entire company” —Gap (Apparel)

Denim may have hit bottom

“we are pretty confident that the Denim cycle has hit bottom and it has been coming back over the last several months.” —Gap (Apparel)

Williams Sonoma is still working out kinks from the port disruption earlier this year

“while the port disruption was extremely difficult, the good news is that, it caused us to reexamine every single element of our supply chain. And we have identified significant opportunities to improve service levels and over time drive down costs.” —Williams Sonoma (Home Goods)


Best Buy sees continued strong demand for consumer electronics

“Our first observation is that overall consumer demand for technology products and services including appliances and mobile phones is growing. This growth is driven by technology and product innovation and by micro factors such as population growth, the housing recovery and healthy living trends that are driving momentum in our appliance, home theater, connected homes and health and wearables business, which, we believe, will remain positive catalyst in quarters to come.” —Best Buy (Electronics Retailer)

The cadence of the Windows 10 rollout posed challenges for PC OEMs

“We did anticipate a challenging operating system transition to Windows 10 on two dimensions. One was a free upgrade that was of course offered. And the second was the very short transition time, which is normally about three months, which was compressed to under one month. And what that drove was fairly high Windows 8 channel inventory levels, and that will take a little bit of time to flush.” —Hewlett Packard (Technology)

Materials, Industrials, Energy:

Distressed assets still aren’t for sale yet in the energy space

“Well, there will be M&As and there will be distressed assets and what have you. I don’t see it come right now, it will come and, I think, well we will talk again in the quarter, and nothing will happen now in the quarter.” —Seadrill (Offshore Driller)

John Deere is expecting farm receipts to be down again next year

“Looking ahead to next year, based on our expectation of above trend yield – above trend-line yields for 2015 and declining livestock prices, our very early forecast calls for total cash receipts to be down slightly in 2016.” —John Deere (Farm Equipment)

El Nino could cause some swings in growing conditions around the world

“Keep in mind as we go into 2016, we did have some favorable weather conditions, El Nino actually strengthened through the summer. And that certainly bodes well normally for U.S. market or growing areas. But keep in mind that can have some more negative and dry impact on other parts of the world.” —Deere (Farm Equipment)

Miscellaneous Nuggets of Wisdom:

The best marketing is a good product

“I feel pretty strongly about which is the best marketing is good product.” —Gap (Apparel)

It’s easier to train people than to retrain them

“as everyone knows, retraining can sometimes be more challenging than training” —America’s Car Mart (Used Car Dealer)

They call it Mad Money for a reason

“when you’re on that show with Jim Cramer, it does get a little crazy at times.” —PVH (Apparel)

When you say you’re going to do something, follow through

“our best sales tool is to give a potential company that we want to acquire a list of 10 or 15 names of people from whom we have acquired companies and we say just call them up and ask them. And that’s really the best sales tool because they do that and they find out that HEICO does what it says it’s going to do. If they promise you something that’s exactly what will happen. So that’s our formula and it works.” —HEICO (Aerospace Parts)

Full transcripts can be found at