5/30/14 4:50 PM ET (Benzinga)
Next week there will be no lack of events with the potential to move markets.
The main focus will be on the European Central Bank as most expect the bank to make a policy change at its Thursday meeting. Also notable will be a meeting of the Group of Seven leaders, who are set to meet in Brussels to discuss the crisis in Ukraine as well as how to move forward with negotiations about Iran's nuclear program.
The summit, which will exclude Russia as a consequence of the annexation of Crimea, will serve to highlight the growing tension between Moscow and the West as the situation in Ukraine becomes more violent.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports including
Dollar General Corporation (NYSE: DG),
Joy Global Inc. (NYSE: JOY),
PVH Corp. (NYSE: PVH) and
Quicksilver, Inc. (NYSE: ZQK).
Dollar General Corporation
Dollar General is expected to report first quarter EPS of $0.73 on revenue of $4.56 billion, compared to last year's EPS of $0.71 on revenue of $4.23 billion.
Credit Suisse maintained Dollar General with a Neutral rating with a $59.00 target price on March 13, noting that the company likely struggled with weather and competition in the first quarter.
DG is the latest company to join the list of retailers that have had difficulty navigating the fourth quarter, as inclement weather, the difficult macro, competitive pressures, and calendar all weighed on results. EPS of $1.01 was in-line with consensus and just missed our $1.02 estimate, but top-line weakness dominated the print. The Q4 comp gain of 1.3% was well below consensus of 4% and likely slipped modestly excluding tobacco. A somewhat better than expected gross margin (helped by a $0.01 LIFO credit) and strong SG&A control (aided by $0.03-0.04 in lower incentive comp) saved the company from a more dramatic miss. Management also provided disappointing initial 2014 guidance of $3.45-3.55, 5% below consensus at the midpoint. While comp guidance of +3-4% was in-line with consensus, EBIT growth of 2-5% was below expectations owing to an incentive comp catch-up, ACA expense, and sale-leaseback costs. Even after adjusting for these items, the earnings flow through still seems a bit pedestrian and back half weighted. Overall, the result confirms that DG continues to be impacted by a difficult macro and competitive environment. We continue to rate the stock Neutral. While trends should improve in 2014, there is optionality in M&A, and the long-term fundamental outlook is still good, near-term earnings upside looks limited given industry pressures.
On May 24, S&P Capital IQ maintained Dollar General with a Sell rating with a $59.00 target price. The analysts at S&P see Dollar General struggling in the future with its customer base facing weak job growth.
We believe DG will face more intense competition in FY 15 after its closest peer Family Dollar (FDO 64, Hold) reported negative comparable store sales growth during the holiday season. Additionally, we believe the company's core low-income customer remains under intense economic pressure due to a weak job growth market and following cuts to Supplemental Nutrition Assistance Program benefits.
Joy Global Inc.
Joy Global is expected to report second quarter EPS of $0.71 on revenue of $933.02 million, compared to last year's EPS of $1.73 on revenue of $1.36 billion.
On May 29, Morgan Stanley maintained Joy Global with an Equal-weight rating with a $58.00 price target, noting that that the there are low expectations for the company's FY15.
After last quarter's unexpected guidance raise, we expect no major changes to FY14 guidance. Last quarter, JOY surprised us by narrowing its guidance range to $3.10-3.50 (vs. $3-3.50 previously). However, we reside towards the lower end of this range at $3.24, and thus expect no material revisions to the full year range. Note that this is predicated on A/M revenue returning to positive territory, and so it is critical that A/M orders are up Y/Y again this quarter. With respect to OE orders, management previously provided guidance for $750-1,000m per quarter, and given that the company has not suggested that any major longwall orders came through during 2Q, we would expect a result at the lower end of this range. While expectations for JOY's quarter seem fairly low, we continue to see 10% downside to FY15 cons. As such, with negative EPS momentum from here, we cannot call for near-term outperformance for JOY. Given no upside to our $58 price target, we reiterate our EW rating.
On May 23, Longbow research maintained Joy with a Neutral rating, saying that weak commodity pricing has worsened an already slow market.
We are maintaining our NEUTRAL rating on JOY. Joy's end markets are virtually all mining suggesting that there is no catalyst on the horizon that justifies owning this stock near-term. We think JOY is a value trap that threatens to get cheaper on fundamentals and will likely underperform an up stock market. All estimate risks are on the downside. The consensus EPS estimate for F2015 appears overstated at $3.78; it is comprised of 24 estimates of which 25% are in excess of $4.00 per share despite the continuing data flow suggesting any recovery is further out in the future. We believe the adjusted F2015 consensus (excluding the aggressive estimates) is $3.61.
S&P Capital IQ maintained Joy with a Hold rating with a $58.00 price target on May 24, saying that the current outlook has already been priced in.
Though we continue to see a weak business outlook for JOY, we think markets are bottoming and the current outlook is discounted into the company's stock price.We think overall demand for the company's products will start to improve in FY 15, as stimulus programs in various geographic markets should eventually assist JOY's business.We also think commodity surpluses should continue to be worked down to the point where expanded production is necessary. This should help drive increased demand for JOY's products.
PVH Corp.
PVH is expected to report first quarter EPS of $1.49 on revenue of $1.98 billion, compared to last year™s EPS of $1.91 on revenue of $1.94 billion.
Merrill Lynch gave PVH a Neutral rating with a $120.00 price objective on May 25, citing a difficult environment in North America.
PVH reported adjusted F4Q14 EPS of $1.43 (slightly below our $1.45 estimate) and provided a non-GAAP F2015 EPS guidance range of $7.40-$7.50. We are lowering our estimates to be in-line with F15 guidance, reflecting a continued difficult environment and ongoing investments in the Warnaco integration. Our F1Q15E EPS is cut to $1.50 from $1.81 (vs. guidance of $1.45-$1.50) and our full year F15 estimate is cut to $7.45 (was $8.00). Our PO is lowered to $120 (was $135); 14x our F16E EPS of $8.50 (was $9.25).
Credit Suisse gave PVH an Outperform rating and raised its target price to $147.00 on March 26, noting that both Calvin Klein and Tommy Hilfiger rebounded in 2014.
PVH reported results largely as expected, which we view favorably in light of a challenging demand environment in the U.S. and some distribution challenges for Tommy in Europe. The outlook is significantly more encouraging, given a rebound in Calvin Klein and Tommy Hilfiger order books combined with significant gross margin expansion in 2014 which suggests Tommy remains healthy and we are approaching the turn in demand and earnings power for the acquired Calvin Klein businesses. Near-term SG&A spending will likely partially offset this positive demand and gross margin momentum given accelerated investments in in-store merchandising and marketing, particularly in 1H. We view these as appropriate long-term investments which position the firm for margin capture exiting 2014 and into 2015. We reiterate our Outperform rating and raise our TP modestly to $147 from $146. We are adjusting our FY 2014/2015 EPS estimates to $7.48 and $8.54.
S&P Capital IQ was more optimistic on May 24 with a Buy rating and a $150.00 price target. The analysts at S&P cited the acquisition of Carnerco as a reason for their positivity.
We remain mostly constructive on the ongoing integration of the acquisition of Warnerco --which previously licensed its Calvin Klein jeanswear and underwear businesses. The deal should enable PVH to accelerate growth by leveraging Warnerco's presence in Asia and Latin America, and to improve profitability of the Calvin Klein business in Europe, with jeanswear a near-term focus. To this end, PHS has started its reduce distribution to the off-price channel and planned to close 25 to 55 Calvin Klein Jeans stores over the ensuing months. Given a successful track record with acquisitions, we look for a turnaround in jeanswear starting in FY 15, and see supportive momentum in the global Tommy Hilfiger business.
Quicksilver, Inc.
Quicksliver is expected to report a second quarter loss of $0.02 on revenue of $448.60 million, compared to last year™s loss of $0.12 on revenue of $458.75 million.
On March 7, Credit Suisse gave Quicksilver an Outperform rating with a $10.00 price target, saying the company has been successful in transitioning from its regionalized business model.
Quiksilver continues to manage its business effectively as it transitions away from an over-regionalized model, increases the level of differentiation between channels, and takes costs out of the infrastructure. We have increasing conviction in the turnaround following this quarter's results, as revenue declines were more moderate than anticipated, gross margin is stabilizing, and SG&A expenditures were well controlled. We reiterate our Outperform rating. Revenue More Stable Than Anticipated. Total revenue was down 2% constant currency to $393M, better than our prior model for $382M. Revenue results were better than anticipated in the DC brand, which was down 4% Y/Y, versus our model for double-digit declines. Americas revenue was down 5% Y/Y to $173M, versus our prior model for $160M. EMEA revenue was down 4% Y/Y to $149M versus our model for $156M. APAC revenue was down 4% Y/Y to $70M, versus our prior model for $65M. Constant currency APAC revenue was up 11% Y/Y.
D.A. Davidson & Co. gave Quicksliver a Buy rating on May 29, noting that the company will have more funding available for marketing now that its sponsorship of Kelly Slater has ended.
Easy comparisons in Europe and continued DTC growth should fuel solid EBITDA growth. Similar to 1Q, we expect the best performing brand to be Roxy, followed by Quiksilver, and lastly DC Shoe. Actionwatch point-of-sale data for the U.S. independent surf/skate channel continues to show Roxy y/y growth and double-digit declines for both Quiksilver and DC. By channel, U.S. wholesale is likely to remain weak, while Europe should benefit from easy comparisons. In 2Q13, disruptions from a SAP systems conversion negatively impacted Europe sales by $21 million. From a margin perspective, easy comparisons in Europe, continued mix shift towards DTC, and expense reductions should fuel healthy y/y improvement. Discontinuation of Kelly Slater sponsorship to provide additional capital for marketing. On March 31st, ZQK announced they ended their long-running partnership with surfing legend Kelly Slater. As ZQK's highest profile athlete, he was likely the highest paid athlete in ZQK's $24.5 million estimated minimum endorsement payments for 2014 (per 10-K). Future long-term estimated minimum payments for athlete endorsements totaled $64.9 million exiting FY13. We expect this capital to be redeployed in higher return marketing initiatives such as point-of-sale displays, print advertising, and social media.
Economic Releases
Next week will be a busy week for economic data with several important releases due out. Investors will be closely watching PMI data from around the globe as well as unemployment figures from the eurozone and non-farm payrolls data from the US. However, the main event will be the European Central Bank's policy meeting on Thursday at which the bank is expected to make a bold policy move in order to keep the bloc's inflation under control.
Daily Schedule
Monday
- Earnings Releases Expected: Conn's, Inc (NASDAQ: CONN), Guidewire Software, Inc. (NYSE: GWRE), Quicksliver, Inc. (NYSE: ZQK), Krispy Kreme Doughnuts, Inc. (NYSE: KKD)
- Economic Releases Expected: Chinese manufacturing PMI, Australian retail sales, US manufacturing PMI, German CPI, British consumer credit, eurozone manufacturing PMI
Tuesday
- Earnings Expected: Dollar General Corporation (NYSE: DG), Ambarella (NASDAQ: AMBA), Ascena Retail Group, Inc. (NASDAQ: ASNA)
- Economic Releases Expected: Australian GDP, US factory orders, eurozone unemployment rate, British construction PMI, Reserve Bank of Australia interest rate decision
Wednesday
- Earnings Expected: PVH Corp (NYSE: PVH), Five Below, Inc. (NASDAQ: FIVE) RealD Inc. (NYSE: RLD), Nordion Inc. (NYSE: NDZ)
- Economic Releases Expected: Australian trade balance, Chinese services PMI, South Korean GDP, US ISM non-manufacturing PMI, US services PMI, US trade balance, eurozone GDP, British services PMI, eurozone services PMI
Thursday
- Earnings Expected From: Vera Bradley, Inc. (NASDAQ: VRA), Ciena Corporation (NASDAQ: CIEN), Joy Global Inc. (NYSE: JOY), UTi Worldwide Inc. (NASDAQ: UTIW), Verifone Systems, Inc. (NYSE: PAY), Diamond Foods, Inc. (NASDAQ: DMND), Thor Industries, Inc. (NYSE: THO)
- Economic Releases Expected: European Central Bank interest rate decision, Bank of England interest rate decision, eurozone retail sales, German factory orders, French unemployment rate
Friday
- Earnings Expected From: KMG Chemicals, Inc. (NYSE: KMG)
- Economic Releases Expected: US consumer credit, US nonfarm payrolls, US unemployment rate, British trade balance, Spanish industrial production, German trade balance, German industrial production, French trade balance
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