In the last three years, back-to-school has been a clear indicator of what's going to happen during the holidays. Gas prices are one factor dampening shopping enthusiasm and the other is lack of must-have merchandise. Holiday sales could grow between 3 percent and 3.5 percent this year. That's still a decent number but not as robust as last year. Discounters like Target (TGT) and Wal-Mart (WMT) should fare well over back-to-school and the holidays in certain categories but maybe not in overall sales. Luxury sellers such as Nordstrom (JWN) and Coach (COH) should hold strong through the holidays because their high-income shoppers are unaffected by the vagaries of gas prices. Luxury merchants' fortunes are tied more to the stock market's performance.
Bear Stearns upgraded Ebay (EBAY) to Outperform.
Netflix (NFLX) reported solid earnings that were overshadowed by mixed operating metrics and a perceived increase in competition. Sub growth(300k net adds) was inline with guidance but below lofty street expectations. Churn (4.3%) and SAC ($43.95) were both higher than expected. Management maintains the transition to digital is not a near-term threat to its business model, but some analysts are less positive. Analysts are lowering 2006 estimates for higher churn and increased marketing, somewhat offset by 2nd quarter upside. Multiple contraction is a very real risk in light of increasing competitive threats.
Amazon.com (AMZN) is busy trying to cut deals with Hollywood to sell movies and television shows over the Internet. The retail powerhouse is one of several Internet players hoping to compete with Apple's (AAPL) iTunes by jumping into the digital-download fray. Apple paved the way by inking a landmark deal with ABC to sell commercial-free episodes of "Lost" and other popular TV shows through its iTunes download service. For months, there has been speculation that Amazon and Apple were both looking to offer movie downloads. Amazon is also eyeing pay TV downloads and has been quietly negotiating with broadcast and cable networks. The company is reportedly aiming for a mid-August launch, but sources said there are some "sticking points" with the movie studios, which are still trying to figure pricing and terms for online distribution. Analysts said Amazon's move into the movie-downloading business makes sense considering it is a huge seller of DVDs. They are already a major distributor and thus film studios have an ongoing relationship with them.
Luxury goods company Moet Hennessy Louis Vuitton (OTCPK:LVMUY) said revenue rose 13 percent in the first half of 2006, driven by growth across all of its divisions. LVMH predicted "very significant growth" in overall 2006 results. Champagne brands Moet & Chandon and Dom Perignon grew 18%, Japan was strong, the Louis Vuitton brand posted double digit growth, perfumes and cosmetics brand Parfums Christian Dior continued to gain market share. The group's watches and jewelry division recorded sales growth of 23 percent.
Kraft (KFT) reported pro forma 2nd quarter 2006 EPS of $0.51 -- three cents better than consensus. The top line grew 3.4%, a full 2.1% higher than anticipated, built on better-than-expected results in the Grocery and European Union segments. Mix was up 3.6%, a strong (and unsustainable?) number. Despite price increases on numerous lines, the firm's overall pricing grew only 0.4%. Guidance excluding one-time items remained unchanged. Margins were strong. The pro forma gross margin of 37.0% was 70 basis points above forecast, while the operating margin came in 110 points higher. Leading the charge were the segments of Convenient Meals (Oscar Mayer and Lunchables had excellent quarters) and Snacks & Cereals (which was helped by a one-time lower spend on marketing).
ThinkEquity initiates Archer Daniels Midland (ADM) with a Buy and $50 target. The firm thinks the shift to more above ground energy sources from below ground will pressure the agricultural system, benefiting ADM due to its procurement, logistics and processing strengths.