The following are the M&A deals, rumors and chatter circulating on Wall Street for Friday August 29 through Monday September 1, 2014:
Report Publicis Has Restarted Talks to Buy Criteo
Shares of Criteo (NASDAQ: CRTO) surged higher Friday, on a report from France's Les Echos that Publicis (OTC: PUBGY) has restarted talks to acquire the Paris-based web advertising company. Publicis had attempted a merger with Omnicon Group (NYSE: OMC), but eventually abandoned that effort.
Reuters reported later Friday, that a source close to Publicis said the report was unfounded. Spokespersons for Publicis and Criteo declined comment, according to Bloomberg.
Criteo closed Friday at $37.55, a gain of 22%.
Iliad Reportedly in Talks with PE Firms Regarding Improved Offer for T-Mobile US
France's Iliad (OTC: ILIAY), is in contact with private equity firms about putting together a stronger offer for T-Mobile (NYSE: TMUS), according to report from Bloomberg on Sunday. T-Mobile's parent, Deutsche Telekom (OTC: DTEKY), said Thursday it would consider an offer of $35 per share for the nations's number four mobile carrier. A $33 per share offer from Iliad in late July.
An Iliad spokesperson declined comment on the report.
T-Mobile closed Friday at $30.08, a gain of $0.24.
Norwegian Cruise Line Holdings in Talks to Acquire Prestige Cruises International for ~$3B
Norwegian Cruise Line Holdings (NASDAQ: NCLH) is in advanced talks to buy Prestige Cruises International for around $3 billion, according to Reuters. Sources reported Sunday that a deal could be announced as early as this week.
Norwegian Cruise Line Holdings closed Friday at $33.32, a gain of $0.12.
Exelixis, Inc. (NASDAQ: EXEL) today announced top-line results from the final analysis of COMET-1, the phase 3 pivotal trial of cabozantinib in men with metastatic castration-resistant prostate cancer (mCRPC) whose disease progressed after treatment with docetaxel as well as abiraterone and/or enzalutamide. The trial did not meet its primary endpoint of demonstrating a statistically significant increase in overall survival (OS) for patients treated with cabozantinib as compared to prednisone. The median OS for the cabozantinib arm of the trial was 11.0 months versus 9.8 months for the prednisone arm (hazard ratio 0.90; 95% confidence interval 0.76 – 1.06; p value 0.212).
The COMET-1 results are the subject of ongoing analyses. Exelixis will submit additional data, including secondary and exploratory endpoints, for presentation at a future medical conference. Besides OS, the exploratory endpoint of progression-free survival (PFS) as assessed by the investigators is the only time-to-event-based endpoint for which data are available. Median PFS was 5.5 months for the cabozantinib arm of the trial versus 2.8 months for the prednisone arm (hazard ratio 0.50; 95% confidence interval 0.42 – 0.60; p value <0.0001). Safety data were consistent with those observed in earlier-stage trials of cabozantinib in mCRPC.
As a result of the outcome of COMET-1, Exelixis will initiate a significant workforce reduction to enable the company to focus its financial resources on the late-stage clinical trials of cabozantinib in metastatic renal cell carcinoma (the METEOR trial) and advanced hepatocellular carcinoma (the CELESTIAL trial). The company will reduce its workforce by approximately 70 percent, or approximately 160 employees, resulting in approximately 70 remaining employees.
Exelixis anticipates the one-time restructuring charge associated with the workforce reduction to be approximately $6 million - $8 million, with the majority to be completed by the end of the fourth quarter of 2014. As a result of this and other cost-saving measures contemplated, the company anticipates that it has sufficient cash to support its operations through the release of top-line results of the METEOR trial next year. More financial details will be provided by the company in its third quarter 2014 financial report.
“We are very disappointed that COMET-1 did not meet its primary endpoint of extending overall survival in men with mCRPC,” said Michael M. Morrissey, Ph.D., president and chief executive officer of Exelixis. “We are grateful to the patients, physicians, nurses, caregivers, and other study team members who participated in the trial. We remain focused on the development program for cabozantinib beyond mCRPC, including the ongoing METEOR and CELESTIAL phase 3 pivotal trials, from which we expect top-line data in 2015 and 2017, respectively.”
Dr. Morrissey continued, “We have thoughtfully prepared for this scenario and the resulting very difficult decisions. The workforce reduction we have announced today is necessary to significantly reduce our corporate operating expenses. I would like to personally express my deep appreciation to the talented and dedicated Exelixis employees who will be impacted by these actions, both for their commitment to Exelixis and for their tremendous contributions to patients with cancer.”
Based on the outcome of COMET-1, Exelixis has deprioritized the clinical development of cabozantinib in mCRPC. Enrollment in COMET-2, which is the second pivotal trial in mCRPC and evaluates pain palliation, has been halted. The company expects top-line data before the end of this year. Based on the outcome of COMET-2, Exelixis will discuss with regulatory authorities the potential regulatory path, if any, of cabozantinib in mCRPC. Other company-sponsored studies in mCRPC, including a randomized phase 2 study of cabozantinib in combination with abiraterone, will also be halted.
Investor Conference Call and Webcast
Exelixis management will discuss the COMET-1 top-line results and the resulting corporate initiatives during a conference call beginning at 8:30 a.m. EDT/ 5:30 a.m. PDT tomorrow, Tuesday, September 2, 2014. To join the call, participants may dial 877-546-5020 (domestic) or 857-244-7552 (international) and use passcode 60161764. To listen to a live webcast of the conference call, please visit the Event Calendar page under Investors & Media at www.exelixis.com.
An archived replay of the conference call will be available on the Event Calendar page under Investors & Media at www.exelixis.com and via phone until 11:59 p.m. EDT on October 2, 2014. Access numbers for the phone replay are: 888-286-8010 (domestic) and 617-801-6888 (international); the passcode is 69796111.
Earlier this month a comedian (known as Doldo411) parodied the iPhone frenzy with this first-look video:
There are, however, a plethora of images out there that could be the real deal. Click through the slideshow to see the best of the best.
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this slideshow.
It will be another quiet week on the earnings front in the wake of the Labor Day holiday. Among the most prominent quarterly reports due, Ciena (NYSE: CIEN), Finisar (NASDAQ: FNSR), Hovnanian (NYSE: HOV) and Toll Brothers (NYSE: TOL) are expected to show some earnings growth.
The fiscal third-quarter forecast for this communications and networking equipment maker calls for earnings per share (EPS) to have grown from $0.23 in the year-ago period to $0.29 in Thursday morning's report. Revenues are expected to have risen more than 11 percent to $600.81 million.
Note that the consensus EPS estimate has ticked up by a penny in the past 60 days, but the company topped consensus EPS expectations by more than 30 percent in the previous two quarters. So far, the consensus forecast for the full year has revenue up less than 12 percent and EPS about 43 percent higher.
See also: MKM Partners Reiterates On Ciena
The forecast for this networking and telecommunications products maker calls for earnings of $0.32 per share and for revenue to come to $328.66 million for the most recent quarter. In the year-ago period, Finisar posted earnings of $0.31 per share and sales totaled $266.07 million.
Though analysts underestimated EPS by more than 5 percent in the previous quarter, the consensus estimate for the period that ended in July has not changed in the past 60 days. Look for the company to share its latest results Thursday after the closing bell.
Analysts expect this Kansas City-based tax preparer to say that it had a net loss of $0.40 per share in its fiscal first quarter. That would be the same as in the year-ago period. And revenues are forecast to have risen from $127.20 million a year ago to $130.18 million for the three months that ended in July.
H&R Block topped EPS estimates in the previous period by a penny, but net losses were greater than expected in the three periods before that. Still, the consensus EPS estimate for the most recent quarter has remained steady over the past 60 days. The company is scheduled to report Wednesday after the markets close.
When it shares its results early Thursday, this residential home builder is expected to say its earnings for the most recent quarter increased to $0.09 per share from a year-ago profit of $0.06 per share. Note though that the individual estimates range widely, from $0.02 to $0.15 per share.
The consensus forecast also calls for fiscal third-quarter revenues to total $559.47 million. That would be about 17 percent higher than a year ago. Analysts thus far are looking for about an 8 percent gain in revenue for the current quarter as well as almost 9 percent for the full year.
In its report late Thursday, this maker of casual and outdoor apparel is expected to report that its EPS decreased from $0.10 in the year-ago quarter to $0.03 for the three months that ended in July. At least one analyst predicts of net loss of $0.03 per share, which would be less than the losses in the previous three periods.
Revenues for the fiscal third quarter are predicted to have retreated about 11 percent to $440.64 million, relative to the same period of last year. So far the consensus forecast has revenue down about 5 percent in the current quarter, along with a small per-share net loss.
This builder of luxury homes and golf courses is expected to report a profit of $0.45 per share in Wednesday morning's report. That would be up more than 42 percent from the same period of last year. Note that analysts underestimated its EPS by double-digit percentages in the previous three quarters.
The company also is expected to say that revenues gained more than 43 percent from a year ago to $986.87 million for the fiscal third quarter. In addition, so far, sequential and year-on-year growth on both the top and bottom lines is predicted for the current quarter.
Others expected to report earnings gains this week include apparel maker PVH and electronic payment system maker VeriFone Systems. Analysts are looking for a year-over-year earnings decline from mining equipment maker Joy Global as well as a narrower net loss from truck maker Navistar.
In the following week, keep a look out for results from Barnes & Noble, Campbell Soup, Kroger, Lululemon Athletica and others.
Keep up with all the latest breaking news and trading ideas by following Benzinga on Twitter.
This weekend in Barron's online: the consequences of declining workforce participation, as well as the prospects for Thermo Fisher, USG, Synaptics and more.
"The Decline of Work" by Gene Epstein.
While the job market has made a comeback over the past year, the American labor force has not, says this week's cover story in Barron's. The article asks whether retiring baby boomers are being replaced in sufficient numbers by their younger cohorts.
See how the U.S. Bureau of Labor Statistics' outlook for long-term labor-force participation answers that question, as well as the effect that the Congressional Budget Office projects the Affordable Care Act will have on the labor force over time.
The article says: "During periods of sluggish growth in the economy, politicians and pundits focus on the need to create jobs. But what is needed over the long run is an increase in jobholders to create a sustained pickup in economic growth. Indeed, without them, the chances of supporting aging baby boomers through their long years of retirement will diminish."
The article includes graphics demonstrating the level of workforce participation since World War II and surge in disability claims from Social Security since 1960.
Jack Hough's "Thermo Fisher: Riding the Research Boom" examines why analytical instruments and equipment maker Thermo Fisher Scientific (NYSE: TMO) has not only the fastest growth among its peers, but also the lowest valuation.
"USG: Poised to Rise From a Strong Foundation" by Avi Salzman focuses on building materials company USG (NYSE: USG). See how the sheetrock maker renovated its operations in the wake of the housing crisis.
In "Synaptics Has the Right Touch," Alexander Eule points out that, with its technology for fingerprint identification and touchscreens, chip maker Synaptics (NASDAQ: SYNA) is in the sweet spot for smartphones. See why the stock could rise by 35 percent or more.
Gerson Distenfeld and Paul DeNoon are profiled in "What Are the Odds?" by Sarah Max. See how the two managers teamed up to revamp the AllianceBernstein High Income fund. "The most attractive opportunity right now is diversification," says Distenfeld.
See "Drilling Deep for Value" for Andrew Bary's interview with Richard Pzena, founder of Pzena Investment Management. Pzena discusses the deep-value portfolio strategy his firm has pursued and names some of his current picks.
"Giving Smartly After an Earthquake" by Jonathan M. Katz is a Penta article that takes a closer look at a tuberculosis ward in Haiti to show how targeted donations can have an outsize impact. Many of the donations that poured in after Haiti's 2010 earthquake had little effect.
Steve Garmhausen's "His Own Ladder of Success" offers the best advice of Merrill Lynch financial advisor Bob Waldele, who put his early training as a liaison to the trading desk to work for his clients. See why he now likes munis and dividend-paying stocks.
An individual investor with a taste for risk issues his third financial report from retirement, in Marvin Najberg's "A Retirement Where Risk Rewards." See why he says, "The fun part of retirement for me has been the time I spend managing my retirement account."
"Fast-Food Flight" is an editorial commentary by Thomas G. Donlan in which he makes the case that Burger King's deal with Tim Hortons is a strong argument for tax reform.
Columns in this weekend's Barron's discuss:
Keep up with all the latest breaking news and trading ideas by following Benzinga on Twitter.
Economic data will play a major role next week with several highly anticipated releases due out. The European Central Bank will make its interest rate decision on Thursday amid speculation that President Mario Draghi will follow through on his promise to do everything it takes to combat the region’s falling inflation.
A U.S. non-farm payrolls report is also expected to show that the U.S. labor market improved further in August with the unemployment rate seen dropping. A better than expected report will likely reignite speculation that the Fed could raise its interest rate sooner than expected.
PVH is expected to report second quarter EPS of $1.42 on revenue of $1.99 billion, compared to last year’s EPS of $1.39 on revenue of $1.96 billion.
On July 10, Merrill Lynch gave PVH a Neutral rating with a $125.00 price objective, cautioning that the company could face global headwinds in the coming quarter.
“Risks to the downside are weakening in traffic and comp sales trends, slowdown in global macro trends, FX fluctuations, and increased markdown allowances. Risks to the upside are better than forecast top line growth, upside to expected synergies from WRC acquisition, more favorable FX trends, and improving global macro trends.”
On June 26, Credit Suisse gave PVH an Outperform rating with a $144.00 price objective, noting that Calvin Klein’s brand rehabilitation will likely help drive the company in the coming year.
“We are increasingly impressed by improved merchandising of Calvin Klein product at retail in the United States. As a result, we are compelled by the potential turnaround of revenue growth and margins at Calvin Klein. In our view, brand rehabilitation initiatives are shifting from a phase of investment in merchandising and operations to a phase of improving sell-through and leverage of fixed infrastructure. As a result, we reiterate PVH as one of our top investment ideas and our target price of $144.”
On August 23, S&P Capital IQ gave PVH a Buy rating with a $150.00 price target, citing the company’s growth potential in Asia and Latin America for their optimism.
“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.”
Joy Global is expected to report third quarter EPS of $0.84 on revenue of $934.25 million, compared to last year’s EPS of $1.70 on revenue of $1.32 billion.
On June 27, Merrill Lynch gave Joy Global a Buy rating with a $70.00 price objective, citing flat met coal price settlement as reason for their optimism.
“We reiterate our contrarian Buy on Joy Global on the back of a flat quarterly met coal price settlement at $120/MT. While the price settlement is not big surprise, this resonates with our thesis that Joy’s earnings are bottoming despite very difficult coal fundamentals, supported by the fact that 70% of sales are now coming from the aftermarket business. Mining aftermarket orders have now been up for two quarters in a row. We also think Joy’s strong FCF attributes are often overlooked, and see potential upside to $70 per share, or 22x trough EPS as the company resumes buyback activity in 2H14, and investors slowly gain greater confidence in an earnings bottom. A tighter natural gas market brought on by a hot summer could also promote thermal coal production activity in the PRB, but this remains to be seen.Recently, rail bottlenecks have remained an obstacle for coal producers in the PRB.”
On August 22, Morgan Stanley gave Joy Global an Equal-Weight rating with a $56.00 price target, saying that the company’s earnings release will likely be uneventful.
“Largely, we expect JOY’s 3Q14 earnings to be a non-event, so long as bookings continue to improve and management reiterates full year guidance. However, we continue to project downside to FY15e (MSe 12% below cons), which we believe is driven by our expectation for another 7% Y/Y decline in OE revenue (partially offset by 3% growth in A/M). Maintain EW.”
On August 22, S&P Capital IQ gave Joy Global a Hold rating with a $67.00 price target noting that demand for Joy’s products will likely improve in the coming year.
“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.”
UTi is expected to report second quarter EPS of $0.02 on revenue of $1.14 billion, compared to last year’s EPS of $0.05 on revenue of $1.13 billion.
On August 23, S&P Capital IQ gave UTi a Buy rating with a $13.00 price target, but cautioned that the company could face some headwinds as transportation costs rise.
“Given a recent price drop, we find the shares attractive at recent levels. While UTIW is likely to be hurt by falling air freight volumes, we expect some improvement in demand as we move through calendar 2014. We also believe results will be hurt in FY 15 by rising purchased transportation costs for air and ocean freight volumes, but see additional capacity coming online over time, which should help with this issue. UTIW should get better traction from recent restructuring actions in FY 16. UTIW has had an erratic operating performance, with several recent EPS misses versus consensus expectations, but we see improved financial performance in FY 16.”
Toll Brothers is expected to report third quarter EPS of $0.45 on revenue of $989.29 million, compared to last year’s EPS of $0.26 on revenue of $689.16 million.
On June 24, Merrill Lynch gave Toll Brothers a Buy rating with a $49.00 price objective, noting that the company could be one of the best investment options in the homebuilding sector.
“TOL continues to be our top pick in homebuilding. TOL affords investors accelerating gross margins versus peers, a higher quality product and customer mix, and levers to further drive operating leverage. Meantime, TOL's valuation is attractive, trading at a current 1.8x book versus a normal 2.2-2.3x. Importantly, TOL is also trading at a 0.3x discount to peers whereby it has historically traded at a 0.3-0.4x premium. On a 2016 P/E basis (we expect 2016 to be a normalized housing year), TOL is trading 11.5x P/E below its normalized 12-13x.”
On July 31, Credit Suisse gave Toll Brothers a Neutral Rating with a $39.00 price target, noting that customer confidence could present a challenge in the coming months.
“Risks to TOL achieving our $39 target price are (1) on the positive side, greater than expected margin expansion from increased pricing power in the high end market, more meaningful sales growth and cost leverage, or lower mortgage rates; (2) on the negative side, a slowing at the high end of the market due to weaker buyer confidence, which would impact TOL more than others, higher mortgage rates, or renewed price declines.”
On August 23 S&P Capital IQ gave Toll Brothers a Buy rating with a $42.00 price target, citing the company’s strong balance sheet as reason.
“We have a favorable view of TOL's geographic revenue mix and high concentration of communities in the near-luxury market segment, including urban properties. We see TOL gaining market share from private luxury builders. We think TOL stands to benefit from a business model that is focused on high-end homes, what we view as a strong balance sheet, and capable management. FY second quarter results, for the quarter ended April 30, affirmed our positive outlook, with a 67% increase of revenues, on a 22% increase of average prices, and 36% unit growth, helped by a recent acquisition.”
The European Central Bank will be in the spotlight next week with its September policy meeting set for Thursday. Markets are filled with speculation about whether or not the bank will raise its main interest rate in order to combat the region’s falling inflation and weakening economy. While most don’t expect the bank to act in September, many see further easing within the next four months.
Nordstrom and Target teamed up with Curalate –- a visual marketing and analytics firm -– to form Like2Buy. With Like2Buy, Instagram users can instantly purchase items they like when they appear on their feed.
Previously Instagram shoppers had to enter email addresses and were then contacted about buying the product. That’s far from effective since consumers had plenty of time to change their mind.
Here's the Like2Buy process:
1. Click on retailer’s profile page.
2. Browse gallery of Instagram product photos.
3. Click on the item and reach the retailer’s website.
4. Purchase product.
For shoppers on the fence, Instagram users will also have the option of saving an item to purchase at a later date via “My Likes.”
Related Link: Whole Foods Market Rejects Checks
Making Instagram shopping simple should have a big payoff for retailers.
User engagement on Instagram is 58 times higher than on Facebook (NASDAQ: FB) and 120 times higher than on Twitter. Instagram sports a global traffic ranking of 30 and a U.S. traffic ranking of 17 according to Alexa.com. Over the past three months, pageviews-per-user has increased 5.49 percent to 4.90, and time-on-site has improved 5 percent to 4:35.
Bryan Galipeau, Director of Social Media & Display at Nordstrom, recently said: “We connect with more than 500,000 customers on Instagram by posting items we hope they find inspirational, beautiful, and fun. Like2Buy enhances the experience for customers who want to take the next step and learn more about the great fashion we’re featuring to make a purchase or save items for another time.”
Instagram's potential for Target is different: helping it expand its core market. Target's current core target market is Generation X, but this generation’s population is only half the size of the younger Millennial generation. By increasing its exposure on Instagram, Target is highly likely to expand its Millendial reach.
With retailers becoming more involved on this popular social media platform, Instagram and its pictures might begin to look even prettier to Facebook, which owns the company.
Online shopping is huge, but (for now) it is a relatively small part of the $220 billion home furnishing market--just 10 percent. With Millennials famous for shopping online and the online home furnishing market growing in double digits each year, smart retailers are setting up for future market share gains.
A recent study by Wells Fargo Securities and Fluid, “Home (.com) Is Where the Heart Is,” profiled the online home furnishing shopping experience across several dimensions: inspiration, content, product information, searchability, payment/fulfillment/customer service, post purchase, and mobile experience.
While the results vary depending on the slice focused on, the list below shows which home furnishing retailers provide the best overall user experience and service. Reviewing the list and the reasons given for each ranking reveals one retailer dominates the rest: Williams-Sonoma (NYSE: WSM)
1. West Elm.
Shoppers prefer West Elm for its planning tools and registry app with product scanner.
2 Pottery Barn.
Search-ability, product information, content, originality, interactive room planner, and seamless return policy have this retailer #2.
Inspiration and content rank at #3.
4. World Market – subsidiary of Bed Bath & Beyond (NASDAQ: BBBY).
Shoppers like its ship-to-store, store inventory lookup, in-store pickup, and free shipping on orders of $150 or more.
5. Crate & Barrel.
This ranking is based on the Crate & Barrel's ship-to-store, store inventory lookup, mobile-optimized site and app.
6. Bed Bath & Beyond.
Website functionality, and multichannel features push the store up the rankings, but it is losing share to Amazon.com (NASDAQ: AMZN) due to high overlap in branded categories like kitchen electronics and pricing.
7. Overstock. (NASDAQ: OSTK).
Shoppers appreciate its features, functionality, wide selection of videos, live chat, alternative payment options like Bitcoin and PayPal, free shipping on orders of $50 or more.
8. Room & Board.
The site inspires, but has no free shipping, next-day shipping, live chat, or delivery estimates.
Despite the site's searchability, payment/fulfillment/customer service strengths, it has poor "inspiration" and lacks content in the home category.
Shoppers like the gift messaging, payment options, free shipping for orders $50 or more, and post-purchase email coupon for $10 off future purchases.
Shoppers familiar with Williams-Sonoma realize it dominated this study. Others might dismiss the domination claim, pointing out that the store ranked #3. The answer is simple: Williams-Sonoma owns West Elm (#1) and Pottery Barn (#2), so Williams-Sonoma claimed all top three ranks.
Based on this study, it appears Williams-Sonoma has the best shot at capturing future market share in the largely untapped online home furnishing market.
It’s no secret that Sears (NASDAQ: SHLD) is struggling. Sears, as well as its subsidiary Kmart, finds itself in a precarious situation that is fairly simple to understand: few people want to shop at its stores.
Consider three big segments of consumers: Baby Boomers (76 million people born between 1946 and 1965), Generation X (41 million people born between 1966 and 1976), and Millennials (80 million people born between 1977 and 1995).
A quick look at these three consumer populations reveals that Generation X is much smaller and thus is the least important. Nonetheless, it can't be dismissed because Gen X has held its own in regards to income. The majority of them own homes and live in the suburbs.
Related Link: Will Aeropostale Be Cool Again?
While Gen Xers may have watched their parents shop at Sears, the habit wasn't handed down--Gen Xers are not loyal to childhood brands.
Target (NYSE: TGT), has a median shopper age of 40, reflecting Gen X's attraction to the chain. That's no accident; Target has always been heavily focused on being attractive, with wide aisles, cleanliness, excellent lighting (yes, that matters), superb customer service, discounts and groceries.
Baby Boomers are the wealthiest generation of the three, which when combined with their size highlights their importance. Baby Boomers might have once seen Sears as the ideal shopping location, but many of them now have a better option: warehouse stores like Costco (NASDAQ: COST). Buying a Costco membership gives Boomers access to discounted, high quality goods.
Millennials are very different from their predecessors. The majority of them prefer to shop online, which means they often frequent Amazon (NASDAQ: AMZN). If they’re going to shop at a physical retailer, they like big box stores. But just because they like they big box, it doesn't mean they like Sears.
Taking all this into consideration, it’s difficult to find a consumer segment that’s likely to shop at Sears in the future. Sears doesn’t compete with Costco on quality, Target on customer shopping experience, Amazon on convenience, or Wal-Mart on price. Now let’s quickly take a look at some numbers.
Over the past five years, Sears has suffered top-line and bottom-line declines of 21 percent and 894 percent, respectively. Free cash flow has slid 197 percent. The company has suffered six consecutive quarters of losses, and in the second quarter, it burned through $187 million in cash.
To put that in perspective, it burned through $2 million in the year-ago quarter. The company’s cash position has also dropped to $829 million from $1.03 billion in the fourth quarter of FY2013. What does all this mean?
It means that in order to prolong its life, Sears will likely have to continue to close retail locations, sell businesses (perhaps Sears Canada with a market value of $765 million), reduce headcount, and borrow more money. Is a turnaround possible? Yes. Is it likely? That’s for you to decide.
Two big housing construction companies report earnings next week and investors will be looking for improved growth in orders as well as at least a little wider profit margins, an analyst said Friday.
MKM Partners' Megan McGrath is concerned that discounting reported by D.R. Horton (NYSE: DHI) earlier this month could spread within the industry and hurt margins.
"We'll be listening for any commentary on more aggressive pricing," McGrath said in a note Friday.
Hovnanian offered wide discounts in March and early April. Although management said it wasn't planning to extend the program, "we'll be watching to see if some discounted sales flowed into the third quarter," said McGrath, who predicts flat third-quarter margins for Hovnanian.
McGrath rates Hovnanian Neutral with a $4 target. She's more comfortable with Toll Brothers, maintaining a Buy and $43 target.
Toll should should see "decent margin upside" in the third quarter, "which should allay some fears of aggressive industry pricing," McGrath said.
Homebuilder stock prices generally fell this summer amid investor fears of a stall in the housing recovery. Despite this, McGrath expects easy comparisons with a slower 2013 will result in order growth for Hovnanian of eifght percent and six percent for Toll.
Wall Street expects Hovnanian to post third-quarter earnings of $0.09 a share on revenue of $559.5 million. Toll is expected to report earnings of $0.45 on revenue of $986.9 million.