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Next week is scheduled to be quiet and calm; at least, compared to this week’s action-packed economic calendar.

Geopolitical tension will remain the focus as two conflicted nations, Egypt and Ukraine, swear in new leaders. Most are expecting to see the situation in Ukraine de-escalate ,as the newly-elected president Petro Poroshenko has vowed to do what it takes to reunite the nation and end the ongoing violence.

Key Earnings Reports

Investors will be waiting for several key earnings reports next week, including H&R Block, Inc. (NYSE: HRB), United Natural Foods, Inc. (NASDAQ: UNFI), Lululemon Athletica (NASDAQ: LULU), Men’s Wearhouse, Inc (NYSE: MW) and Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ: ULTA).

H&R Block, Inc

The company is expected to report fourth quarter EPS of $3.23 on revenue of $2.49 billion, compared to last year’s EPS of $2.54 on revenue of $2.20 billion.

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On April 16, Credit Suisse gave H&R Block an Outperform rating, with a $37.00 price target, noting the company may be able to free up enough capital to repurchase shares in the future.

“After doing several channel checks with industry experts, and analysts at ratings agencies, we believe that HRB will likely be able to take on leverage of 1.5x-2x net debt/EBITDA and maintain its investment grade rating," it said.

"We believe prior conditions such as HRB having to potentially carry gross debt/EBITDA of less than 2x and generate FCF/debt of over 20 percent, may be relaxed after the bank sale, and as a greater focus on improving profitability of the core business has emerged. We show a sensitivity table in Exhibit 1 that details the amount of capital that would be freed up for each quarter turn of leverage. We also highlight several other consumer oriented companies in Exhibit 2 that are investment grade, their net debt/EBITDA levels, general growth levels and nature of cyclicality."

"Based on these analyses," it added, "we expect that HRB should still be able to free up ~$2bn+ of capital, the bulk of which will likely go to share repurchases. Depending on how aggressive management wants to be, it would imply ~ 20 percent + float takeout.”

S&P Capital IQ gave H&R Block a Buy rating, with a $33.00 price target on May 31, citing the company’s ability to acquire new customers and the possibility of future benefits for shareholders for the firm’s optimism.

“While some tax filers will choose to do their own filings due to economic necessity, we think HRB has been effective in attracting new customers with its advertising," it noted.

"We see financial covenant flexibility leading to potential shareholder-friendly actions, once the banking operations are sold. Risks to our recommendation and target price include a slowdown in the U.S. economy that leads to fewer people having their tax filings done by professionals, and greater competition. In addition, when the company sold Sand Canyon, HRB guaranteed certain of the unit's obligations, which may require more cash than is currently reserved.”

United Natural Foods, Inc.

United Natural Foods is expected to report third quarter EPS of $0.73, on revenue of $1.78 billion, compared to last year’s EPS of $0.64 on revenue of $1.57 billion.

On March 10, Merrill Lynch gave United Natural Foods a Buy rating, with an $83.00 price objective, noting the company has the potential for impressive long-term growth.

“UNFI’s long-term growth outlook remains robust, in our view," it said, "as growing mainstream demand for natural, organic & specialty foods should support UNFI’s strategic decision to solidify itself as the national distributor for these products."

"While DC investments (roughly two to three locations per year) could limit the magnitude of near-term op margin improvements, we believe UNFI’s sales growth outlook should be supported by: 1) stable store growth from both WFM (+9-10 percent in F14E) and independents; 2) an abundant list of new conventional supermarket customer opportunities (sales growth +15.3 percent in F2Q); and 3) continued signs of growing demand for natural, organic, and specialty foods (we expect 8-12 percent growth in 2014).”

On May 31, S&P Capital IQ took the opposite position and gave United Natural Foods a Sell rating, with a $74.00 price target, agreeing that the company is poised for long-term growth but recommending caution due to valuations.

“We expect margins to widen in FY 14, reflecting increased sales leverage and improved distribution efficiencies, despite an unfavorable shift in customer mix," it said.

"Although we look for demand from all customer channels to expand through FY 14, we expect gross margin expansion to be constrained due to a negative sales mix shift toward the faster-growing large customers within the conventional channel and toward supernatural and conventional channels, and away from slower-growing, but wider-margin, independent customers. We see EPS of $2.53 in FY 14, up 14 percent from operating EPS of $2.22 in FY 13, excluding one-time items. In FY 15, we see EPS of $2.88.”

Lululemon Athletica inc.

Lululemon is expected to report first quarter EPS of $0.32 on revenue of $381.16 million, compared to last year’s EPS of $0.32 on revenue of $345.78 million.

Morgan Stanley gave Lululemon an Equal-Weight rating on June 5, recommending caution as there is a high level of uncertainty in the near-term.

“LULU could deliver upside to MS/cons $0.32 1Q EPS: The company provided flat comp guidance on 3/27 following 1Q's toughest months (Feb/Mar) based upon QTD trends," it noted.

"April weather improvement plus the Easter shift drove April mall traffic +2 percent vs. flat March and -2 percent February. On average Softlines companies beat 1Q by 3c (ex-ARO) due to low expectations and LULU has beat each quarter by an average of 3c since 2010. But if 2QTD sale trends don't show acceleration, the market likely punishes LULU."

"Our Softlines coverage embeds a sales-weighted average 130 bps 2Q SSS sequential acceleration," it continued. "We estimate +3.2 percent 2Q combined comp, which would require LULU to exceed the Softlines average acceleration by 190 bps. In order to hit top end of LULU's low to mid single digit FY combined comp guidance, comp trends need to meaningfully accelerate in 2Q- 4Q. As LULU anniversaries easier FY13 compares due to the luon recall (especially in 1Q/2Q) and PR snafus (3Q/4Q), hitting these guideposts should be less challenging."

"However," it concluded, "we have yet to see signs of a traffic inflection and the competition continues to build. Both DKS and GPS (Athleta) called out strong 1Q women's athletic apparel trends. In addition, our ComScore data found total unique visitors to Lululemon.com deteriorated in 1Q, suggesting that eComm wasn't enough to make up for likely weak store traffic.”

Merrill Lynch gave Lululemon an Underperform rating, with a $50.00 price objective on April 17, noting the company’s new CEO’s focus on improving the vertical supply chain will likely help the company save money and produce a better product.

“Supply chain initiatives will improve efficiency, reduce waste," it said. "Management outlined some of its new supply chain initiatives that will result in better quality assurance, improved efficiency and speed to market. Fast Turn is a new design team within lulu that operates outside the normal design calendar."

"The group looks to get a quick read on styles that are selling well or absent from the current assortment," it continued, "and utilizes leftover material to bring product to market in 45 days versus the typical six to nine month lead time. We think this will help the company chase into best-selling trends and reduce material waste. lulu also changed the structure of its raw materials team from being segmented by product (yoga pants, tops) to being segmented by fabric (synthetics, naturals, wovens). This should provide for a more efficient supply chain and drive further cost savings.”

Men’s Wearhouse, Inc

Men’s Wearhouse is expected to report first quarter EPS of $0.67 on revenue of $629.66 million, compared to last year’s EPS of $0.65 on revenue of $616.54 million.

On May 31, S&P Capital IQ gave Men’s Wearhouse a Hold rating with a $55.00 price target, saying the company is facing difficult headwinds but that growth in its rental tuxedo business and tall apparel business could help drive sales.

“After a 0.6% dip in FY 14 (Jan.), we see FY 15 net sales up 19.1 percent," it said. "Despite challenging retail conditions in the U.S. and Canada, we see an ongoing replenishment cycle in men's tailored clothing driven by slimmer fits.We see MW gaining new customers through its growing tuxedo rental and big and tall apparel businesses, an expanded assortment of casual apparel (including denim), entry into the outlet channel, and the newly acquired Joseph Abboud brand, potentially resonating with higher-income shoppers."

"We note MW is exploring strategic options for its K&G brand, amid some notable challenges. In FY 16, we see net sales up 6.7%.”

Ulta Salon, Cosmetics & Fragrance, Inc.

Ulta is expected to report first quarter EPS of $0.74 on revenue of $699.51 million, compared to last year’s EPS of $0.65 on revenue of $582.71 million.

Credit Suisse gave Ulta an Outperform rating, with a $115.00 price target on June 5, citing external sources like competitor and supplier performance for its rating.

“ULTA results have historically shown a high correlation with its supplier data and in that regard we received a positive data point late last week," it said.

"As well, a block trade Thursday night may have relieved some of the selling pressure that seemed to be holding down this stock. There have been two positive external data points regarding Q1. First, LVMH management stated Sephora saw 10% U.S. comparable sales growth in Q1, which was consistent with Sephora's strong U.S. comps in 2013."

"Second, EL on Friday reported solid North America sales growth of 6 percent y/y  despite an adverse impact from extreme winter weather. Importantly, management noted the strongest sales growth in North America was in the  specialty multi-brand store channel where ULTA competes.  We note EL is one of ULTA's top ten vendors (who collectively accounted for  51 percent of total sales in 2013), whose top-line results hold a strong statistical  relationship with ULTA's comps (see Exhibit 1 below). These results point to  comps at least inside ULTA's Q1 comp guidance of  percent% to 7 percent, a rarity in this  retail environment.”

Economic Releases

The highlight of next week’s economic calendar will likely be Japanese GDP, due out on Monday. The nation’s initial reading showed 5.9 percent annualized growth, but the economy is forecast to shrink in the second quarter.

Markets are keeping a close eye on the Japanese economy after the nation introduced a six percent sales tax hike which many are worried could hurt economic growth.

Daily Schedule

Monday

  • Earnings Releases Expected:  Hertz Global Holdings, Inc. (NYSE: HTZ), Ferrellgas Partners, L.P. (NYSE: FGP), Limoneira Co (NASDAQ: LMNR)
  • Economic Releases Expected:  Chinese CPI, Chinese PPI, Japanese GDP

Tuesday

  • Earnings Expected: Christopher & Banks Corporation (NYSE: CBK), Pep Boys (NYSE: PBY), Francesca’s Holdings Corporation (NASDAQ: FRAN), Oxford Industries, Inc. (NYSE: OXM), United Natural Foods, Inc. (NASDAQ: UNFI), Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ: ULTA)
  • Economic Releases Expected: U.S. redbook, Greek industrial production, Italian GDP, Greek CPI, British manufacturing production, British industrial production, Italian industrial production

Wednesday

  • Earnings Expected: British unemployment rate, U.S. crude oil inventory data, Reserve Bank of New Zealand interest rate decision, Australian unemployment rate.
  • Economic Releases Expected:  CHC Group (NYSE: HELI), Dominion Diamond Corporation (NYSE: DDC), Men’s Wearhouse, Inc. (NYSE: MW), H&R Block, Inc. (NYSE: HRB)

Thursday

  • Earnings Expected: Lululemon Athletica (NASDAQL LULU), Lakeland Industries, Inc. (NASDAQ: LAKE), Finisar Corporation (NASDAQ: FNSR)
  • Economic Releases Expected:  U.S. retail sales, Irish CPI, eurozone industrial production, French current account, French CPI

Friday

  • Earnings Expected From: Culp, Inc. (NYSE: CFI)
  • Economic Releases Expected: U.S. PPI, Italian CPI, Spanish CPI, German CPI, Chinese retail sales, Japanese industrial production.

Latest Ratings for HRB

DateFirmActionFromTo
Aug 2014Credit SuisseMaintainsOutperform
Apr 2014Morgan StanleyMaintainsOverweight
Feb 2014Credit SuisseInitiates Coverage onOutperform

View More Analyst Ratings for HRB
View the Latest Analyst Ratings

Posted-In: Earnings News Guidance Dividends Previews Global Pre-Market Outlook Markets Best of Benzinga

 

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