Benzinga Weekly Preview: Ukraine Tension Likely To Drive Markets
Several retailers are set to release earnings reports next week against the backdrop of a tense situation between the US and Russia. Markets will be heavily dependent on news from Ukraine as the Crimean peninsula remains in turmoil.
Key Earnings Reports
Next week investors will be waiting for several key earnings reports including Aeropostale Inc. (NYSE: ARO), Caesars Entertainment Corporation (NASDAQ: CZR), Vail Resorts, Inc. (NYSE: MTN), Williams-Sonoma, Inc (NYSE: WSM).
Aeropostale is expected to report a loss of $0.31 per share on revenue of $684.93 million, compared to last year’s EPS of $0.24 on revenue of $797.71.
Topeka Capital Markets gave Aeropostale a hold rating with a price target of $10.00 on December 5. The analyst team at Topeka said the company was likely to continue facing headwinds, but that the possibility of a takeover would underpin prices.
“ARO had a more disappointing 3Q with a bleak outlook on holiday, but with glimmers of traction for its new fashion product and a much lower comp decline over Thanksgiving weekend. The intense promotional cadence at the mall is likely to keep it a tough season for ARO. ARO is managing expenses, inventory, and cash tightly while pushing forward with its fashion initiatives. Takeover talk should keep a bottom in the shares, but we'd like to see more evidence of a turn before we get more positive. ARO remains rated Hold.”
On March 5, Morgan Stanley gave Aeropostale an underweight rating with a $6.50 price target, saying the company’s liquidity problems are likely to interfere in the short term.
“We predict ARO runs out of cash in 2Q14, requiring the company to draw from its $175M cash revolver which does not expire until September 2016. This credit facility could support ARO through a 2014 liquidity pinch, but there would still need to be a significant acceleration in the business to stop the cash burn.”
On March 1S&P Capital IQ gave Aeropostale a hold rating with a $10.00 price target. The analyst team at S&P said the company’s shares are fairly valued and that the company’s product lines have recently improved.
“We view the shares as appropriately valued at recent levels .We are impressed with changes ARO has made to strengthen Aeropostale's apparel offering in recent months. Given a more balanced mix of fashion, basics and activewear now in stores, we see the brand positioned to meet a wider variety of customers' outfitting needs. That said, with the company reporting a slow pace of customer adoption, our near-term outlook remains guarded. We expect top-line performance to improve starting with spring receipts. We also continue to view P.S. from Aeropostale and international expansion (through licensees) as promising growth vehicles for the company. ARO expects its licensees to operate nearly 100 international stores by the end FY 14.”
Caesars Entertainment is expected to report a fourth quarter loss of $1.49 per share on revenue of $2.12 billion, compared to last year’s loss of $3.75 per share on revenue of $2.02 billion.
Merrill Lynch gave Caesars Entertainment an underperform rating with an $11.00 price objective, citing the company’s disappointing rebound following Hurricane Sandy.
“We are lowering our 4Q13 EBITDA estimate from $468.1M to $445M (after corporate expense). Our biggest change comes from Caesars’ Atlantic Coast properties which consist of Atlantic City and Pennsylvania. We are taking EBITDA down from from $43.1M to $23.1M, as we were expecting a much larger rebound than actually happened as we are lapping Hurricane Sandy last year. Revenues in this region only increased an anemic +1% versus our expectation for a +15% increase (note that revenues were down -19% last year in 4Q12).”
Vail Resorts is expected to report second quarter EPS of $1.87 on revenue of $471.16 million, compared to last year’s EPS of $1.65 on revenue of $422.45 million.
Merrill Lynch gave Vail Resorts a buy rating with an $80.00 price objective on February 10. The analysts at Merrill Lynch cited increased snowfall for their optimism.
“After basically no snow from mid-December until late January, Tahoe snowfall is finally normalizing as a recent storm has brought 61 inches of snow to the region in the last 3 days. This comes after another large storm left over 2 feet of snow at Heavenly at the end of January (see our January 31 snow update), and we believe these conditions could drive pent up demand for the upcoming Presidents’ Day holiday weekend.”
On February 18, Credit Suisse gave Vail resorts an outperform rating with an $84.00 price target saying the company has been benefitting from reduced snowfall in other areas and in turn gained market share.
“We recently checked in with Evan Reece, CEO of privately held Liftopia, the leading e-commerce platform for the ski industry which provides B2B/B2C ticket sales/pricing optimization technology for 330-plus resorts. Mr. Reece noted that CO/UT resorts are picking up market share from certain regions where snowfall has been less optimal (BC and Tahoe). In addition, he highlighted that the East Coast is having a strong year given cold weather (good for snowmaking) and overall snowfall.”
S&P Capital IQ gave Vail Resorts a buy rating with an $86.00 price target on March 1st. The analysts at S&P noted the company’s recent efforts to diversify its revenue streams.
“Our recommendation is buy. We think marketing opportunities across properties through its unique EPIC pass will enhance destination travel to core properties while engendering greater loyalty in local markets. The recent addition of Canyons in Utah provides a particularly strong offering that fits well with its premium portfolio, in our view. Summer EPIC discovery programs provide opportunity to drive full-year visitation and better leverage existing facilities.”
Williams-Sonoma is expected to report fourth quarter EPS of $1.36 on revenue of $1.43 billion, compared to last year’s EPS of $1.34 on revenue of $1.41 billion.
Merrill Lynch gave Williams-Sonoma a neutral rating with a $66.00 price objective, citing the improving market conditions.
“We value Williams-Sonoma at $66, representing 19x the midpoint of our 2014-15 EPS estimates. This valuation is above its median P/E multiple over the past few years in order to reflect company initiatives and an improving backdrop, yet also represents limited upside as we believe these factors are largely priced into share. The upside risks to our price objective are: earlier-than-expected success in international, a material improvement in the economic environment or in the housing sector, or further improvements within brand segments, which would also be viewed very positively and thus provide upside to our price objective. Downside risks are further deterioration of the housing market, an intensified promotional environment, or if same-store sales at emerging brands do not make up for the slower growing maturing concepts.”
On January 15, Credit Suisse gave Williams-Sonoma a neutral rating with a $60.00 price target. The analyst team at Credit Suisse noted that the company was facing headwinds in the home furnishings market.
“WSM's high internet presence likely protected against the sales shortfall seen at BBBY and PIR. However, the promotional environment in home furnishings may have weighed on merchandise margins greater than we originally projected, so we are tweaking our estimates here.”
S&P Capital IQ gave Williams-Sonoma a hold rating with a $60.00 price target on March 1, citing falling consumer spending and headwinds in the home furnishings markets.
“We view the shares as fairly valued, recently trading at approximately 18X our FY 15 EPS estimate, a modest premium to peers but about in line with historical averages. We think economic headwinds such as the relatively weak housing market and tight consumer credit will dampen consumer spending over the near term. Although we believe WSM has done an admirable job of managing inventory levels, we think additional margin improvement will be more difficult in future years. While we expect furniture sales to remain relatively weak over the medium term, we think effective marketing will continue to lead to strong e-commerce results and market share gains.”
Economic data next week will be thin, but investors will be watching for further data from the US to confirm whether or not the economy is back on track after a severe winter. Eurozone data will also be on investors’ minds after the region’s central bank elected not to ease further at this week’s policy meeting.
- Earnings Releases Expected: Urban Outfitters, Inc. (NASDAQ: URBN), United Natural Foods, Inc (NASDAQ: UNFI), Hill International, Inc. (NYSE: HIL)
- Economic Releases Expected: Spanish CPI, Italian industrial production, eurozone investor confidence
- Earnings Expected: The Bon-Ton Stores, Inc (NASDAQ: BONT), American Eagle Outfitters, Inc (NYSE: AEO), Codexis, Inc. (NASDAQ: CDXS), Verifone Systems, Inc. (NYSE: PAY), Caesars Entertainment Corporation (NASDAQ: CZR)
- Economic Releases Expected: Indian trade balance, German trade balance, British industrial production, British manufacturing production
- Earnings Expected: Express, Inc (NYSE: EXPR), Vail Resorts, Inc (NYSE: MTN), Williams-Sonoma, Inc. (NYSE: WSM), Krispy Kreme Doughnuts, Inc. (NYSE: KKD)
- Economic Releases Expected: British trade balance, eurozone industrial production, Indian industrial production, Reserve Bank of New Zealand interest rate decision, Australian unemployment rate
- Earnings Expected From: AVEO Pharmaceuticals, Inc. (NASDAQ: AVEO), Kirkland’s, Inc (NASDAQ: KIRK), Dollar General Corporation (NYSE: DG), Stein Mart, Inc. (SMRT: NASDAQ), Mattress Firm Holding Corp. (NASDAQ: MRFM), SeaWorld Entertainment (NYSE: SEAS), Vaalco Energy Inc (NYSE: EGY)
- Economic Releases Expected: Chinese retail sales, French CPI, Brazilian retail sales, US retail sales, Japanese industrial production
- Earnings Expected From: Buckle, Inc. (NYSE: BKE), Brown Shoe Company (NYSE: BWS)
- Economic Releases Expected: German CPI, Swiss PPI
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