Company Notes Digest 8.29.14

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

Many retailers still sound cautious

“We have a backdrop of a consumer environment that’s a bit fragile” ($BBY)

But back to school has been strong

“we are having a very good back to school right now. Our back to school categories, we’re up 4.5% right now. In fact this week which is the first of two really intense weeks, we are actually up over 7% in the categories that are related to back to school.” ($DG)

“I would say that back-to-school so far is in-line with our expectations. There is potentially I think in retail in general, a more positive environment but we’re not just going to take a couple or three weeks as a source of excitement. ” ($BBY)

The mixed signals may boil down to a class divide

The low and middle income consumer is struggling

“You’ve heard other retailers say this, low and middle end consumers are continuing to struggle. They have changed their buying habits. Data now suggests that out of necessity, many folks have reduced their overall consumption and absolute unit growth across Nielsen measured channel data supports this. While our customer always finds a way to work through difficult time, she is struggling to overcome the sustained nature of the headwind she is facing.” ($DG)

Conditions are favorable for Tiffany’s customers though. The only weakness was in entry level jewelry.

“of course, conditions in the U.S. are favorable for many of our customers…We were pleased to experience healthy unit growth in the statement, fine and solitaire jewelry category as well as in our engagement jewelry and wedding band category…However, continued softness in silver jewelry unit sale in particular entry level sales under $500.” ($TIF)

All eyes are now turning to the second half

Williams Sonoma expects a strong holiday season

“Based on the trends we are seeing, we believe our holiday decorating and gifting season from Halloween to Thanksgiving to Christmas will be successful.” ($WSM)

Best Buy is not as optimistic

“absent any changes in these declining industry trends and with limited visibility to new product launch quantities. We continue to expect comparable sales to decline in the low single digits in both the third and fourth quarter.” ($BBY)

The holidays may be buoyed by the fact that the consumer is focused on events

“the activity in the consumer is more focused around certain specific events. And I think Labor Day and we are prepared for a pretty intense Labor Day but then we think things will probably settle down for a period of time. We are ready to go for Black Friday. We’ve got our Christmas plan in place and I see no deviation from what we have laid out.” ($DG)

Will the environment be so promotional that retailers will still struggle anyways though?

“We are pleased that we were able to deliver these results against a more promotional backdrop…the customer was reacting better to deeper promotions this quarter…The promotional environment I was referring to, I think, is touching every brand in the marketplace, including all of ours.” ($WSM)

Dollar General thinks it’s going to be competitive in the back half, but not irrational

“as we move through the back half of the year, I think the competitive environment will be heightened, but I don’t think it’s going to irrational.” ($DG)

Here’s a curveball to keep an eye on: retailers are trying to manage inventory around the risk of a west coast port strike

“The other thing I’d like to throw out there, I’m sure you guys are aware there’s an import strike scare out there. And we made a conscious decision to bring some of our holiday merchandise in a little sooner.” ($DG)

“we don’t anticipate the same transportation savings in the second half of the year as we shift the deliveries to ensure that product keeps flowing regardless of what happens to the West Coast labor negotiations. While we have diverted shipments to East Coast ports, we have also increased our use of air shipments on a temporary basis.” ($EXPR)

If European data has looked weak recently, just remember that summer may not be the best time to judge the region’s economy

“I would caution you to not necessarily look at August as a indicator of what volumes are in Europe because a lot of August means shut down in Europe where countries are operating on 20% of available staff because of the tail end of the vacation season.” ($TECD)

National Bank of Greece was upbeat about the Greek economy

“in Q2 the economy exited recession…This abundance of positive evidence from the real economy indicating that the real economy is recovering and on track to meet its program target, is also confirmed by the markets. Indeed the Greek 10-year government bond spread over bonds is at four years low and Greek banks have successfully issued episode of corporate bonds.” ($NBG)

The Japanese economy may be recovering from its sales tax increase more slowly than expected

“After experiencing a surge in spending in the first quarter as Japanese consumers purchased in advance of a consumption tax increase on April 1…following a substantial sales decline in April, we saw a decelerating rate of sales decline in each months of the second quarter. However, the return to monthly sales growth is taking longer than we expected.” ($TIF)

Financials

Bank profitability is still depressed thanks to macro uncertainty

“As I look ahead, I am struck by how much uncertainty we still face. Recent political events are creating headwinds for banks all over the world, interest rates are dropped back down, and expectations for our normalization in rates have been pushed further into the future, and along with them the revenue upside we will reap as a result of our deposit-rich balance sheet” ($TD)

There may be some green shoots in the mortgage market

“On mortgages, it’s tough. It feels like fits and starts. The growth has improved a bit but originations are up 15% versus last quarter but they are down 70% versus last year. So that gives you a sense. My sense on mortgages is that there are some positive signs emerging, you’re seeing pending home sales up, applications are up, the percentage of people who say they want to purchase a home is up. And if you look at the estimates from Fannie and Freddie and the Mortgage Bankers Association, they are up quite strongly, sort of 13% to 25% for purchase volumes, but they are quite pessimistic on refis.” ($TD)

Consumer

Stores are billboards for e-commerce

“What we find is [a new store is] a pretty good billboard for the DSW brand and it increases awareness and it typically creates a lift in our dotcom business from customers who live in that vicinity.” ($DSW)

Consumers want comfy shoes

“So as we saw at the last two shoe shows, I think comfort has infiltrated every single category. The vendors, smart-fully so, are putting it into dress, sandals, casual shoes. It is pervasive across the industry and frankly that’s what gets me really excited because customers have been asking for it for a long time” ($DSW)

And flavored whiskey too

“in 2013, in the U.S. the flavored whiskeys accounted for about 45% of the American whiskey volume growth.Looking at what drove that was definitely demographics played a major role in that with increased interest from women and minorities based on their changing taste profiles and preferences, as well as convenience.” ($BF.B)

American Whiskey has had a 40 year secular decline in consumption

“Let’s go back to 1970s and look at how many cases of American whiskey were sold at that time, it’s about 100 million cases. That’s when the consumption of American whiskey actually peaked.We’ll fast forward it to today where there is a 40-year secular decline in the category. It was roughly cut in half, so it’s about 50 million cases.” ($BF.B)

Technology

Smartphone sales are slow at Best Buy

“We’re also seeing ongoing softness in the mobile phone category ahead of highly anticipated new product launches…penetration of smartphones in the country has really reached very high level” ($BBY)

Best Buy is hopeful that Ultra HD TVs will take their place

“What’s very exciting about Ultra-High Definition TV compared to 3D a few years ago is that the customer benefits is immediately tangible and meaningful in the form of improved image quality” ($BBY)

Tablet sales are slow at the enterprise

“The tablet — an interesting data point, tablets were down 2% but ASPs were up and that was primarily driven around a mix change.” ($TECD)

It’s pretty clear that there are some things tablets do well and other things that a PC is better for

“the penetration of tablets has really grown and the performance and capability of the tablet is now very clear. It does some things well. There’s other things that it doesn’t do as well, that the PC is optimized to perform.” ($TECD)

There are drivers of PC demand beyond just the XP refresh

“there are other growth factors in the PC market. Employment clearly grew over the last few quarters and that drives PC purchases, as does just the aging of he fleet that was installed’ ($TECD)

A server refresh cycle may be on its way

“The server cycle is kind of yet to be seen. The Windows Server update really will start to come into fruition in the middle part of next year. Customers and enterprises will start the planning process now…server refreshes that we believe will happen in the latter part of this year and early next year” ($TECD)

A key to getting software into the enterprise is to partner with the big systems integrators

“I would say 24 months we’ve seen big investments from the large SIs, historically we had small boutique system integrators who’ve been terrific partners from really from day one, be the majority of the implementations. But last few years starting with Deloitte, followed by Accenture, then IBM, now Price Waterhouse, now HP, now CSC, we really have most of the key SIs building out fairly large practices in Workday.” ($WDAY)

Over the last few years, the systems integrators have gotten much better at integrating cloud solutions into companies with legacy systems

“the systems integrators have all over the last couple years gotten much, much better not taking the legacy system out and putting in the cloud system and automating the old processes but actually using Workday or salesforce or any of these cloud solutions to transform the business” ($WDAY)

Companies without legacy systems are definitely choosing cloud solutions

“If companies are starting with a Greenfield, they are going to choose cloud versus on premise and for all of the people that are on premise they are increasingly switching to cloud. The functionality is there, the scalability is there, the functionality is now ahead of where the legacy systems sit.’ ($WDAY)

Materials, Industrials, Energy

Have gold prices come down enough to stoke jewelry demand?

“And we’re pleased that fashion jewelry unit sales are benefiting from strength in gold jewelry.” ($TIF)

Miscellaneous Nuggets of Wisdom

You have to be able to balance the near term and the long term at the same time

“Our team’s skill in balancing near-term market realities with the commitment to our strategic vision is a defining characteristic of the organization.” ($WSM)

In a promotional environment, find a way to differentiate your product

“our long-term perspective on it is that is why we’re so aggressive on driving operational improvements and investing in our supply chain…I think at the end of the day, the customer does like a sale, but when you’re buying furniture, you want quality.” ($WSM)

You have to be able to adapt to change

“One of the most enduring lessons of my career has been that good management teams leading sound business models adapt” ($TD)

transcripts via Factset and www.seekingalpha.com

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.