Posts tagged wholesale sales
11/9/10 Midevening Report: As QE2 Hangover Wears Off, Will Market Wake Up in A Pool of Its Own Volatility
It was another lackluster day in the market as investors are still trying to regain their bearings from last week’s quadruple news high of elections, QE2, the jobs report, and Kat Dennings nude photos being released. With all of the excitement of those events more than priced in to the market, investors have spent the last couple of days trying to figure out why printing a fuckload more money is good, how 17% (+/- “oh shit”) unemployment is healthy, and who the fuck cares that Conan O’Brien returned to TV (seriously, the last time Money McBags watched a late night TV talk show was before DVRs, the internet, and shaved bush was in style). With news at a plateau as earnings season winds down, the market should struggle to find direction more than one of Randy Quaid’s kids.
That said, macro news today was relatively light and irrelevant like CNBC or the SEC’s findings on the flash crash (or the mini flash crashes that keep happening and will continue to happen until someone finally shuts that bastion of evil and market manipulation down known as Waddell and Reed. Shit, Money McBags has no idea why the Pentagon is wasting so much energy trying to figure out who fired a missile off the coast of California when we all know it was just some douchewad trader at Waddell and Reed trying to beat Joshua in a game of Global Thermonuclear War during his lunch break).
Small business optimism rose from “we’re totally fucked” to “50% off sale.” The National Federation of Independent Business (and it would be too easy to point out the oxymoronic nature of a federation of things that are supposed to be independent) said its small business index for last month rose 2.7 points to 91.7 which was the third consecutive monthly rise as well as the 34th consecutive month below 93. Now Money McBags has no idea what the difference is between 91.7 and 93 (except for 1.3) but when he writes it that way, it makes things seem as ominous as an invitation to participate in a Goldman MBS offering, and almost makes Money McBags feel like the muckraker he has always wanted to be.
Elsewhere wholesale sales were up .4% which was smallest increase since June while wholesale inventories skyrocketed up 1.5%, doubling analyst guesses and signaling companies are ramping up on pre-marked down items. This jump in wholesale inventories will make Q3 GDP look better (though not this good), but realistically, rising wholesale inventories may signal the economy becoming more backed up than a constipated John Edwards (because that guy is completely full of shit) as retailers stocking up for the holiday season may wind up more disappointed than Lisa Marie Presley on her wedding night or any jackass who is selling all of his worldly possessions in anticipation of 12/21/12.
Finally, the (No) Labor Department released data showing that job openings decreased by 163k in September to 2.93MM which means ~6 people are vying for every opening (unless that opening belongs to Brooklyn Decker, and then there are at least 60MM people vying for it). That said, two month old data on job openings is about as useful as a regression model with correlated errors so unless Money McBags finally discovers a hot tub time machine to go back to two months ago when that data may have been 1% useful (and trust that Money McBags has tested many hot tubs to find such a feature), he is going to give this a big fucking yawn. That said, Money McBags hopes the (No) Labor Department can find something more constructive to do with their time like find people some fucking jobs or figure out how this guy got a mouse up his ass (And if Money McBags ever gets caught with anything up his ass other than Kate Bosworth‘s tongue, he will also say he doesn’t know how it got there).
Internationally, the yuan is at its highest level vs. the dollar since 1993 thanks to Benny B. getting his quantitative ease on and testing to see if he can make that which grows on trees worth more than money, thus putting an interesting twist on the old saying. Coming on the heels of this (like a determined podophiliac) is news that Chinese rating firm Dagong Global Credit Rating has downgraded their credit rating of the US debt from AA to A+ claiming the US economy is more virtual than Farmville’s. They also said, and to loosely translate because Money McBags’ Mandarin is still very bad, US GDP will continue to “eat a bag of dick for the foreseeable future.” But it’s not like the US relies on China to continue to sell debt to in order keep the economy going, so no big deal. Oh wait, shit.
In the market, Ambac finally filed for bankruptcy in the least surprising news since finding out that a priest may be in to porn as apparently insuring all of the shit that destroyed the largest global economy is a less profitable business than selling copies of Strunk and White at a Tea Party event (or to Money McBags).
As far as stocks go, Priceline was bid the fuck up after putting up its billionth consecutive huge quarter thanks to strength in international bookings, hotel bookings, and car rentals. Revenue was up 37% and EPS was up 57% to $5.33 which easily beat analyst guesses of $4.97 per share and was enough to win them a room at the Columbus, OH airport Hilton Suites. Also up was YHOO as the internet space rallies like it is 1998 when sites like hotornot.com were considered revolutionary and valued at the same levels as small Indonesian countries. YHOO was up on rumors that it is a take out target because apparently Pointcast and Geocities were asking too much.
Finally Dean Foods was down ~18% as a result of higher dairy costs thus figuratively squeezing the teet on which the company feeds and Sara Lee announced they are selling their North American bakery business to Grupo Bimbo from Mexico which in English roughly translates to “Group of Paris Hilton” (and yes that was a fucking horrible pun, but you get for what you pay, and Money McBags puts no value on your dignity).
In small cap news today, one of Money McBags’ favorite shorts, WGO, dropped ~7% today on no news other than perhaps common sense. Also, EBIX put up their Q today and once again had spanktacular growth with revenues up 43% and earnings up 77% or up only ~35% once you strip out their one time gain recognized in regards to the decrease in the fair value of a put option issued by the company. So they actually had negative operating leverage as costs were up ~300bps but Money McBags would have an easier time deciphering the Rosetta Stone or getting a blumpkin from Queen Elizabeth II than he would of understanding this company’s financials (same goes for their auditors which is perhaps why they keep hiring news ones).
Their income statement and balance sheet remain a riddle wrapped in an enigma and covered in shit which is why months ago Money McBags told you all to either stay the fuck away from them or put on some kind of options straddle (and Money McBags would take the option to straddled this) because EBIX is either worth 2x what it trades for or is a complete and total fraud and worth nothing. Money McBags honestly doesn’t know the answer to that but anytime he runs in to a business with that kind of growth with a business model that requires drawing a 3D matrix and praying to the God of What The Fuck is Going On just to understand what they are doing, all kinds of red flags go up.
Also, DFZ put up their Q today and Money McBags exhaustively broke down their last Q a few months ago in ways that would make the sell side blush. This Q was more of the same in that they continued to have decent growth and continued to execute. Revenue was up 23% y/y to ~$36MM and EPS was up 81% to $.37. That said, before we go out and buy the lobster tails and properly freshen up our junk to celebrate the jizztastic quarter, in the press release, management said sales were pulled forward by ~10% from next Q so if we knock 10% off of revenue and cost of revenue we get a ~11% topline increase and a ~16% bottom line increase. Still very good, and consistent with the message of this company, but nothing to get overly excited about, like the Amanda Seyfried lesbian scene in the movie Chloe (and yes that is the safe for work version).
They have ~$23MM of cash on the balance sheet, up from $18MM y/y but down a fuckload sequentially as this is the Q they have to ramp up on inventory. They also raised their dividend to $.07 quarterly from $.05 and fired a board member to cut costs (and Money McBags can’t figure out if it is good that they cut dead weight or bad that they had to cut a director who had been with the company for 60 years, no joke).
The stock was down ~5% on the day despite the decent Q and dropped precisely 15 minutes in to their call so they must have either said something about a pending acquisition (which they keep saying they are going to make) or given some sort of shitty guidance but Money McBags didn’t have a chance to listen to the call or read a transcript yet. Given that, Money McBags is keeping his valuation and thoughts inline with last Q (he guesses they should be worth ~$12-$14 absent a big acquisition) and hopefully tomorrow he will have time to be able to figure out what the fuck they said on the call to cause the stock to drop. He knows it is sloppy analyst work to go through the Q without listening to the call, but he wanted to get you some information rather than none, so it is what it is.
7/9/2010 Midafternoon Report: Investors get excited and take off their shorts to allow long exposure to grow
The only US macro data released today was slightly positive (unless you actually read the release and not just the headline) as wholesale inventories rose by .5%, though that will likely be revised downward like last month’s number (and every other data point released in the past two years) which was revised down from .4% to .2%. The good news is that the inventory to sales ratio is only 1.14 which is near a record low, the bad news is that people aren’t buying shit because they don’t have jobs and their money is becoming more worthless by the day. While the headlines tout the increase in wholesale inventories (which is mildly positive), they bury the part about wholesale sales decreasing by .3%, and yes Money McBags understands the difference between a leading indicator and a lagging indicator, but this is the first decline in over a year so is likely the reason why inventories to sales remain so low (ie. the people in charge of stocking up see sales slumping in the future and thus are keeping inventories thinner than OJ’s alibi or an Olsen twin) .
Internationally, other than a sumo wrestling gambling scandal throwing Japan in to a tizzy (and Money McBags would hate to be the officer in charge of the cavity searches in that case), news remains light. Jean-Claude Trichet was out talking again about the EU’s financial crisis and he said that it is too early to claim the crisis is over, that bank stress tests should help the recovery process (wink, wink), and that there needs to be stricter penalties for countries who ignore the EU’s deficit limits such as having to move to Latvia, having to hand copy the entire novel Pride and Prejudice while listening to the melodic soul singing of Celine Dion, and having all pictures of Zita Gorog taken away. Most interestingly, Monsieur Trichet maintained that austerity measures and cutting government spending will not hinder economic growth thereby figuratively pissing on John Maynard Keynes’ ashes and Paul Krugman’s soul (though Krugman clearly sold his soul to Mephistopheles years ago as it is the only way to explain his ascent to NYTimes columnist).
In the market, China renewed Google’s license to operate in the country instead of revoking it or simply giving it to Sum Dum Gai. Google could have been forced to shut down their chinese operations but instead they will continue to allow users to opt-in to receive either censored or NSFW uncensored search results. In other news, RIMM is rocketing up today as NTP has filed a lawsuit against AAPL, GOOG, and others claiming their wireless handsets infringe on NTP’s patent of awesomeness. RIMM had settled previously with NTP for $612MM so they are free from this round of lawsuits and thus, for a day at least, can enjoy their declining market share and substandard product in peace.
In small cap news, two ridiculously cheap stocks that Money McBags has written about before have started rallying proving the old value investor theory that what goes down, must go up (unless it’s ZAGG). One of those is NTZ which a month ago and 20% above its open today, Money McBags said:
“buying shares of NTZ is dumber than jumping in to a Hot Tub Time Machine set for the 1980s and then going Lucky Pierre between Magic Johnson and Rock Hudson. You might as well have bought shares of Amercian Home Mortgage right as the subprime mortgage market was melting down, invested in Daguerreotypes in the mid 19th century, or hired Bernie Madoff to manage your assets.”
As Money McBags explained before, NTZ (or more commonly known to longterm holders as NTZero) sells high end furniture, mainly in Europe, and seeing as how Europe is instituting a little something called austerity measures and high end furniture is a more expensive and discretionary purchase than caviar infused lobster tails or a night with Heather Vandeven, that doesn’t bode well for the company. That said, NTZ is trading at <3.5x EV/EBITDA and has 1/3 of their market cap in cash (even though they burned some last Q). The point remains that this company is either going to blow through their cash and go out of business (5% chance), is eventually going to come out of this and be worth a fuckload more than it is today (70% chance), or is a total fraud since Italy’s version of the SEC is likely more hands off than Richard Simmons at a Rick’s Cabaret (25% chance). Money McBags will wager a couple of Vietnamese dongs (as always, his currency of choice) that this is a real company and while he has absolutely no idea when it will turn around, has no faith in the global economy rebounding, and still thinks owning a high end furniture maker in a global recession/depression is as wise as covering yourself in chocolate and shouting “fire” while standing in the doorway of a crowded theatre filled with overweight arsonphobia sufferers, at some point this stock should trade for at least 7x EV/EBITDA which makes it a double from here (unless the EBITDA falls off a cliff, though if it does, there is more of a cusion right now than in Jessica Biel‘s pants) but that may not happen until 2025, so act accordingly.
The other name that is runnning now is TSYS and Money McBags first wrote about them in February and since then they have done nothing but go down like they were auditioning for a role in The Curious Taste of Benjamin’s Button. Their last quarter was decent enough and their guidance has been fine but margins have been compressing, there has been concern about government spending drying up, and it is harder to get one’s arms around their business than it is for a young lass to get her arms around Whitezilla’s “business” (and you can google that at your own risk). They have a number of sort of related yet disparate businesses including a mobile location based software business, a text message enabling license selling business, and a government satellite communications software business. The company announced a new deal with the Army last night that could pay them as much as $9.8MM through 8/2011. TSYS’s EV is ~$325MM and their guidance remains for $80MM-$85MM EBITDA, so it is currently trading at ~4x EV/EBIDTA and oh by the way, they just grew EBITDA by 45% last Q and revenue was up by 30% (though most of it was driven by acquisitions in the commercial segment). Again, this is a bit of a confusing company and portfolio managers just don’t want to spend the time learning the different businesses and the complicated way in which results are reported (honestly, try reading one of their quarterly earnings releases, it makes Thomas Pynchon seem like Dr. fucking Seuss). That said, it is ridiculously cheap and with the new contract, perhaps there is more faith that government spending for their technology will continue. The stock has pretty much spent all of 2010 dropping but it may finally have bottomed out (because how much lower can it really go?) so this might make a nice short term trade.
With the market rallying, if you’re itching to go long it’s best to pick up these already beaten down names than ones that can still fall when the rally ends next week. So if Money McBags were you, the first thing he would do is empty your bank account and take one hella long trip to Vegas, but the second thing he would do is spend some time this weekend trying to get a better handle on TSYS because there is a very good chance of a solid return at these levels.
4/9/10 Midafternoon Report: Greek bail out back on causing market to fly like Icarus (though hopefully not quite as close to the sun)
The markets are higher today as fears of a Greek blow up subside for about the 69th time which is one more time than Ben Bernanke has taken an “accomodative stance” for the market in the past two months (and Money McBags isn’t quite sure what that means). In macro news, Retail sales were out yesterday and they posted their strongest monthly gains since the data started being collected in 2000 and since the introduction of the Snuggie. Sales were up 9.1% over March 2009 as people are feeling safe in their jobs and are now willing to once again run up their credit card debt and buy those Joe’s jeans that fit so snugly (and Money McBags will get to JOEZ later with their 40% revenue growth that avoided falling to the bottom line like Gabrielle Sidibie avoided salads). Easter falling a week earlier this year helped boost sales a bit so retailers aren’t quite ready to pop open the beluga and take the Dom off ice, but the number was much stronger than analyst guesses and bodes well for the recovery. A number of retailers including Target, Macy’s, Ross Stores, and Vivid Video (ok, Money McBags is just speculating on the last one based on his consumer spend) said their results beat expectations which is more positive news on the strength of the consumer. In other macro news, US wholesale inventories rose .6% in February which was apparently well above guesses, while wholesale sales were up .8%. What is interesting is that wholesalers still only have 1.16 months of inventory on hand which means there is still a fuckload of restocking potential (or un-destocking potential for those who want to nit pick). Money McBags has doubted the path of the economy for quite some time because the labor market is still weaker than a sand in the face Charles Atlas (shout out to the over 70 crowd. All the ladies in the house yell “Arthritis.”), but things look like they are legitimately getting better. Sure there could be more issues in Europe, and sure the S&P isn’t hella cheap, and sure with earnings season kicking off next week companies are going to have to put up better results than GE when they used to manage earnings or Tiger Woods in a full of shit contest, but things seem like they have a worst plateaued. Money Mcbags got longer the market today, at least for the short run.
In international news, the Greek bailout plan is on again today which is less surprising than when Ricky Martin came out of the closet, when Colin Powell admitted there were no WMDs in Iraq, or when Jennifer Aniston’s latest movie flopped. Greece still needs to raise around 15B euros by the end of next month which means they have to sell a whole lot of gyros and Julia Alexandratou sex tapes, but the rest of Europe will be buyers. The EU, IMF, and NAMBLA will not let Greece default and will issue them bilateral loans (which have all the benefits of lateral loans, only I am told the interest goes both ways). Look, Greece has been around for roughly 5k years since the Cyclades in the Bronze Age and has been through wars, revolutions, and prodigal son Yanni’s musical career, and none of that was enough to bring them down so a few poorly written CDOs/subprime mortgages/bad loans are not going to be the demise of this once great country. It’s not happening. There is more chance of Michelle Hunziker stopping by the When Genius Prevailed offices and handing out free ice cream sundaes than there is of Greece going bankrupt so buy anytime the market gets freaked out by Greek bond premiums shooting through the roof. In other Greek news, Fitch downgraded Greece’s credit rating today just in time for the latest bail out, so again great timing by credit rating agencies who continue to have less credibility than Amy Winehouse‘s stylist and Greta Van Susteren‘s plastic surgeon.
In stock news, despite yesterday’s strong retail sales report WMT announced a plan to lower prices in furthering their quest for world domination. With slowing same store sales, WMT is hoping lower prices will win back middle class customers, make them more competitive with grocery stores, and allow their shoppers to upgrade their wardrobes. In other stock news, PALM is mimicking their phones and flying through the roof (of course the roof their phones fly through is a sun roof as users forcibly and angrily chuck them out of their cars when the Pre’s operating system crashes on them for like the 42nd time) on rumors of being acquired. A large scale PC maker is said to be interested in buying Palm’s phone and technology because rather than being in just one ultra-competitive commodity business, they’d apparently like to be in two. A PC maker buying Palm makes a bit of strategic sense if there were no iPhone and blackberry, but given that the market is already saturated and with better products, a deal seems a bit implausible unless it is at bargain prices.
In small cap news, Money McBags bought more KITD today and is probably done buying for now unless it gets stupid cheap again. The stock is simply worth a fuckload more than it is trading for today so Money McBags is a bit less price sensitive than Richard Branson at a McDonalds. As discussed earlier, JOEZ announced their quarter last night and is selling off like their quarter created AIDS (and not regular AIDS, but AIDS of the anus). The stock is down 16% despite 40% top line growth because bottom line growth was non-existent (though showing a picture of Alice Eve would have caused Money McBags’ bottom line to grow). JOEZ exhibited less leverage than the immortal He Ping Ping on a see saw with Kirstie Alley (and that’s not just because He Ping Ping was only 29 inches tall, but because he’s dead). JOEZ margins were essentially unchanged with gross margins coming in a bit worse at 49% from 50% and operating margins improving by less than 100bps. What hurt them most was their tax rate jumping from 15% to 47% as a result of NOLs running out and having to accont for an earnout from their acquisition of the Joe’s business. Plus, they said they had an extra $700k in advertising expenses and a $150k expense from moving their headquarters, but even taking out that $850k in “one-time” expenses, that would have barely added back another penny. This business simply needs to figure out how to grow while managing expenses. As a quick exercise, do 25 jumping jacks. As a quicker exercise, assume the company grows sales 40% to $111MM for calendar 2010 (which is very aggressive, but work with me here). Then hit them with 50% gross margins (even though those might actually be getting worse as they are moving downstream in their pricing and products), 39% operating margins (which is what they were this Q absent the $850k “one-time” costs), hold interest and depreciation constant (though depreciation should grow as they open more stores), tax them at 46% (they said over time that should drop to 40%, but the earnout is over 7 years), and keep their diluted share count at 63MM. If you do all that and say Beetlejuice 3 times quickly, you get to earnings for the year of about $.07 per share. You see, that’s the problem with running a low margin no leverage business, you’re kind of fucked unless you can get scale quickly by ramping up sales faster than Lindsay Lohan snorts a dime bag. So if they can’t get any leverage and earn $.07 per share in 2010, they are now trading at 40x that which is way too expensive for anything not involving Hannah Hilton putting her musical skills to use and playing Money McBags’ rusty trombone. And remember, the exercise we just walked through assumes 40% topline growth which is huge. Now look, the company is doing a very good job of growing the top line and despite burning through $2MM of cash from operations, still has a decent balance sheet with $10MM cash and no debt, so it is possible they start figuring out how to manage the bottom line, that said, Money McBags is going to continue to take a pass on this until they fire the the Underpants Gnomes and figure out how to turn revenue into profit. Obviously a business growing top line at 40% has some good qualities, so it is worth monitoring, but unless Money McBags’ math was wrong in the analysis he laid out above (and while Money McBags has an MBA in Finance and a BA in Economics, he is not a maffamatecian so often has to work it out with a pencil), the numbers don’t make sense. If any of you have a better grip on the numbers, let Money McBags know because he wants to like this stock, but with crappy and unimproving margins, it’s not clear he can.
And don’t forget to enjoy your weekend.