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Clumsy Rick, CFA

 
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  • Best Buy: Muddled Message on Conference Call, But Path to Upside Is Clear [View article]
    I agree with most of Bill's response to your questions. BBY has been successful with exclusives, especially for an introductory period in categories like handsets. Also, adding exclusive content for DVDs and other packaged media. I think they are looking to grow this (i.e., special content for games like GME does) but its easier in some areas than others. This one way BBY can continue to compete, but not the only answer.

    On the private label, again, they are always looking to expand where they can. This is an old strategy, but one that continues to gain momentum as it takes time to build brands.

    On the major increase of online SKUs BBY is making, I think it will be largely third party branded products, especially the ones selling well on Amazon and other places it currently doesn't carry. BBY already sells most private label SKUs online. The idea is to go head to head, SKU-by-SKU, on pricing with Amazon and others. If a consumer does a price search online for a TV, BBY wants to come up competitively for virtually all important TV models. Also, its SKUs they won't be carrying in BBY stores. That way BBY can price very aggressively, without the store overhead factored in, and not worrying about cannibalizing in-store sales. Finally, the expansion of online SKUs is going to be, to a large extent, working capital free, with most new SKUs shipping directly from manufacturers or third parties.

    I think many analysts have ignored or overlooked how big a deal this online expansion will be. BBY will be capturing sales from a very different, tech savvy but hyper price conscientious consumer that they are missing today. It should be a decent margin as the overhead is low. Companies in other retail channels have done this quite successfully the last two years. I think Internet could grow to 10% of sales from its current 5% over the next two years, adding $2.7 BN in revenue and $0.40-$0.50 to earnings.
    Mar 26 09:18 AM | 4 Likes Like |Link to Comment
  • Ambercrombie, American Eagle Out; PacSun, Wet Seal In [View article]
    The "new" trends you are referring to have been going on for about two years now. This would have been good insight back then. Retailers are responding in different ways. American Eagle has begun to change its mix- dresses and prints have been doing very well- and will continue to adjust into back-to-school. And the "miss" you refer to in May for AEO was a rounding error- less than 1%. Abercrombie, I agree, has work to do.

    As for WTSLA and PSUN being "in", I disagree. PSUN doesn't know who their customer is anymore and it shows, in both their merchandising and sales. Sales reports show PSUN is bleeding customers and, I believe, only holding on to its remaining ones because of aggressive pricing. WTSLA is not much better with similar sales trends at its namesake, although its Arden B chain at least is doing better.

    I agree BKE is doing well, but, again, pointing this out after their sales have been growing at a double-digit rate for two years now is not only useless, its dangerous. Sales have been so strong for so long, I worry that it is inevitable they slow at some point. With men's sales down last month, I would be particularly wary right now.
    Jun 7 12:00 PM | 4 Likes Like |Link to Comment
  • Zumiez: Fishy Accounting, Dangerous Valuation [View article]
    Earnings growth was indeed less robust when you consider the accounting change, but there is no news here and no need for "digging" in footnotes. The company highlighted the change on their conference call a year ago and had it clearly in all their 10Q SEC filings since then. Not sure how the company could have been more transparent about the change.

    The issue was also already pointed out on seeking alpha previously (seekingalpha.com/artic...) almost a year ago, although the author acted as if he/she had "uncovered" something. If you don't follow the company, I guess its news, but every analyst out there and anyone else who owns or follows the stock closely knew about this. It was built into all forecasts.

    Curious about the $310 mm off-balance sheet though. I see no number to correspond to it. There are nearly $350 mm in operating leases commitments, which is maybe what the author is referring to. That would certainly not be a red flag as its the normal course of business for all retailers.

    Valuation is rich, true. As for 20 years at 10% growth, not sure about the calculation but I'm bet it would look a lot different if you started with 20%-25% growth the next several years before falling back to a steady, longer term growth rate.
    Mar 30 08:46 AM | 3 Likes Like |Link to Comment
  • Best Buy: Recent Pullback Provides Outstanding Opportunity [View article]
    Valuation points good. The market seems to swing back and forth between overly optimistic to overly pessimistic on BBY's prospects and the current valuation seems the latter. Add to that the fact that the estimates for 4Q and next year look too conservative and the stock looks even more compelling.
    Feb 5 07:39 AM | 3 Likes Like |Link to Comment
  • Behind the Best Buy (BBY) numbers: The earnings beat knocked out by the retailer was boosted by a favorable tax rate, 30.6% compared to 34.6% previous. In addition, a seemingly strong free cash flow number is blunted by factoring in the large jump in account payable to $1.2B from a $561M a year ago. Shares +0.7% premarket. [View news story]
    Payables were 5.7 BN, down from 6.1 BN a year ago. The 1.2 BN decline in the cash flow statement is from Q4. And its already factored into the cash flow. What see is what you get.

    Tax rate took off a nickel. EPS still well ahead of expectations.
    May 22 08:58 AM | 2 Likes Like |Link to Comment
  • Zumiez: Fishy Accounting, Dangerous Valuation [View article]
    Thanks for the clarification. The second link doesn't seem to work though. Maybe its just my browser. Was curious b/c the DCF valuation method mentions revenue growth. I assume you are increasing the margin assumptions as well? That's a big part of the ZUMZ bull case. EBIT margin was 8.7% last year, is forecasted to go to 9.5%-9.7% this year and, per the company, could reach low double digits. Based on other teen retailers, I dont see any reason the EBIT margin couldn't hit mid-teens over long term.
    I personally prefer value stocks, but I can appreciate why a growth or momentum investor would be interested
    Mar 30 10:16 AM | 2 Likes Like |Link to Comment
  • Genuine Parts: Earnings Will Again Top Expectations [View article]
    Autoparts division running at 7.5% OM for 2010. It was doing 10.5%-11% in the late 90's but realistically the company is hoping to get it back to 8.0%-8.5%. That's not a new target, but never quite sure why they couldn't take it higher given competitors all operate in the teens. They don't provide sq ft (or even an exact store count), but assuming the average corporate store size is about 6,000-7,000 sq ft, the corporate stores are doing about $220-$255 sq/ft, or about in line with AAP at $235 and AZO at $250. The independents, however, sell significantly less- I'd say more like $125-$150 sq/ft. The industrial and electrical divisions are their growth divisions. The industry is very unconsolidated and so they can grow revenues an additional 5% or so through rolling up smaller stores at cheap prices. Not sure what the ROI hurdle is on these deals (+20% seems the industry standard), but they have been very selective, even through the recession. The office supplies business is a cash cow, with 8% OM and the potential to approach 10% again with very little capex. I don't think they have any desire to sell divisions, but if they did this would be the one I would guess they would part with. They are content to maximize their opportunities in what they know and focus on growing the dividend, which they raised 10% this year and, based on my forecast, should grow another 10% at the end of 2011
    Mar 18 08:41 AM | 2 Likes Like |Link to Comment
  • Why Abercrombie & Fitch's High PE Should Be History [View article]
    I agree with Geordy- its accounting. If you take the fixed portion of store expenses (rent, D&A, etc) out of sga and add it gm, ANF's gross margins were about 45% and sga about 37% last year. This is not a perfect equalizer by any means as retailers place expenses in different buckets on the P&L but it shows ANF is not that far off its peers.
    Aug 20 10:23 AM | 1 Like Like |Link to Comment
  • Zhongpin: Where Are the Pigs? [View article]
    The company SEEMS to have decent clarity (for a Chinese company) in that they have frequent contact with the investment community, including analyst days, conference calls (including one that refuted this article with their own data) and, importantly, tours of their facilities to show they are not some shell. The clearly painted an unsavory picture of CER on their call. However, I agree with you the reverse merger taints HOGS. This is one case where I would welcome SEC investigation in a stock I held. If they are as clean as they say they are with their reporting, perhaps an investigation that ends without action by the SEC would be enough to satisfy investors? Such a shame when you can't even rely on the auditors!
    Jul 20 08:26 AM | 1 Like Like |Link to Comment
  • Best Buy: Multi-Channel Growth Set to Accelerate [View article]
    Interesting thoughts. I would point out, though, that the issues for Gateway and Sears were related to expanding their physical footprints, something BBY does not need to do nor is a part of their strategy (outside of BB mobile stores for wireless, offset by closures and stores shrinking elsewhere). As for CC's problems with execution, BBY does not seem to have the same issue as evidenced by the increasing number of customers that buy on line and pick up in store. In fact, they have expanded the program to make it easier for customers (buy on line, have someone else pick it up) and other retailers are now trying to respond in kind with their own programs.

    In my opinion, where BBY has failed is in pure online selling. Why are only 5% of sales done on line? Other retailers do double that rate and are growing rapidly. Why, when customer think of your brand for CE over anyone else's by a wide margin, should you settle for lower market share on line?

    I think the answer is that BBY has never focused on it like they should have. I think part of this has been the pricing issue- how do you effectively price one way on line and another in stores? The answer is you can't- perhaps you could have before, but not with today's pricing transparency. But that is the beauty of the expanded SKU selection on line. BBY can be hyper-aggressive in pricing with on line only items and stop giving away business. The other initiatives should certainly help as well. But in the end, if BBY is willing to make the investments, I see no reason they can't significantly increase their web sales and web market share.
    Apr 16 11:48 AM | 1 Like Like |Link to Comment
  • Best Buy: Muddled Message on Conference Call, But Path to Upside Is Clear [View article]
    I sort of agree, but I still like RSH too. The AT&T/T-Mobile merger is going to result in hundreds of corporate store closures and the third party, mom and pop kiosks/stores will be hurt even more. There's plenty of room for both BBY and RSH in mobile right now. Its a hot category getting hotter. I also like the new displays and expanded mobile devices RSH is testing in a few stores. As long as the product cycle favors small, mobile products, RSH has a chance to compete if it can get its act together.

    BBY the better buy though, I agree.
    Mar 26 10:04 PM | 1 Like Like |Link to Comment
  • Best Buy: Muddled Message on Conference Call, But Path to Upside Is Clear [View article]
    BKS, Blockbuster, Borders, Hollywood Video- they all sold media. Media is largely going digital and therefore the majority will be sold on line.

    CE devices are not media- you can sell them online cheaply (less so if they are taxed properly or expensive to ship), but its not like downloading a book or music. As Chris says below, some people will always want to have their hand held through a purchase (a lot more when there are newer technologies), have a place to return merchandise, want to take it home with them (immediate gratification), want to browse for impulse purchases (or see what's new). The size of the store, level of services, the percentage of its total sales a brick and mortar retailer does online and lots of other things can and will change over time, but buying CE products at stores is not going away and BBY, as a strong operator and the industry leader, isn't either.

    Funny you should mention BKS. If one is worried about retail store sales going to online retailers, clearly books and media are further along and BKS a much higher risk than BBY. And yet, BKS trades at 5x EBITDA, well above BBY at 4x EBITDA. Just more evidence that irrational fear and negative momentum have created an incredible opportunity for investors in BBY.
    Mar 26 05:45 PM | 1 Like Like |Link to Comment
  • Genuine Parts: Earnings Will Again Top Expectations [View article]
    Thanks for your comment. A generally look at multiple valuation techniques, including DDM where applicable, DCF and forward P/Es. On these metrics, GPC looks attractive, especially if you are using earnings that are above the consensus forecast in your valuation as I am. Looking at the TTM P/E seems to me like looking in the rear view mirror only. Useful, but i doesn't tell you where you are going.
    Mar 17 11:03 AM | 1 Like Like |Link to Comment
  • Short Opportunity: Same-Store Sales Surge on Market's Oversight of Anomaly [View article]
    While Super Saturday shifted, what do you think about shoppers being off on Christmas Eve this year because of Christmas falls on a Friday? Won't we see significantly stronger sales Friday (or, for comparison purposes, the day before Christmas this year versus last year)? I ask as it seems that a significant number of shoppers may have decided to use Friday to do a large part of the their final shopping instead of Super Saturday this year (I certainly am), since they will be off anyway and because, we all know, shoppers are waiting until the last minute to shop in hopes of getting better deals. If this is true, Super Saturday this year is actually less of a seasonal impact this year versus last. This doesn't quantify it or refute your claim which is still valid, but it could mean that this week won't be so bad after all.
    Dec 23 09:57 AM | 1 Like Like |Link to Comment
  • Rex Stores: Reaching an Inflection Point in Earnings [View article]
    Good question. I'd say the biggest landmine is management and what actions they take or don't take to increase shareholder value. Even if they just sit on their cash, at least you still have a floor under the stock while you wait to see if ethanol is ultimately a sustainable, profitable business.

    My biggest fear is that management uses the cash in a risky way. Rather than accelerate a stock buy back program to a sustainably higher level, offer to take the company private or some other actions to increase shareholder value, I fear management decides to invest a large portion of its cash (shareholder's cash, I should say) in one or two big projects over the next year that ultimately fail.

    It could be more ethanol plants, which is what it sounds like they are looking at. At this stage, I believe the outlook for ethanol is improving, but I'm sure I don't need to tell you how uncertain the long term outlook for the industry still is. So investing a lot more money in ethanol would essentially raise Rex's risk and potential payoff, but would at least temporarily cut the base out from under the stock, in my opinion, as the cash per share value drops.


    On Sep 10 11:14 AM microcaptrader wrote:

    > So what are we missing here Rick? Given the obvious fundamental value
    > of rsc and the woefully misrepresentative stock price combined with
    > Mr. Rose's opinion of the company's future over at least the next
    > few quarters, i'm tempted to take every available penny I have and
    > plow it into RSC shares. It seems like such an obvious intermediate
    > term trade. Where are the hidden landmines? Email me at jaylelbe
    > @ hotmail . com if you care to discuss offline. I've been a RSC
    > shareholder for what seems like ages now.
    Sep 13 06:37 PM | 1 Like Like |Link to Comment
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