The Daily Dose: #Rewind

 | Nov 08, 2013 | 10:00 AM EST  | Comments
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wmt

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tgt

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cost

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FB

I don't say this all too often, but this fella has very little left in the tank this week. Between #TwitterIPOFever and researching my next corporate disaster story, patience is thin and physical health is on a short-term downtrend. That being said, it's at the point of absolute despair in which one finds that last shot of adrenaline to survive. In that regard this is what I have for you all...

Whole  Foods: New Dog?  New Buy?

On the surface, Whole Foods (WFM) has a rock solid quarter.  Every single line item will, when the likes of Wal-Mart (WMT), Target (TGT) and traditional supermarkets report earnings shortly, be far superior. However, the market expects that level of relative greatness from Whole Foods, as well as accelerating year over year sales growth each quarter (similar expectation is embedded into Costco (COST), except on a monthly basis).  With the quarter just announced, digging beneath the surface, there were some unhealthy items worth pointing to ...

  • Same-store sales growth in the fourth quarter moderated compared to the prior quarters. The market reads this as competition has finally invaded the company's turf, yes for real. Check out your supermarket's organic section this coming weekend, the selection has definitely been widened and is offered in a more Zen-like setting (look at the floors).
  • Gross margin was only driven by lower costs, hinting that Whole Foods is being a bit more competitive on price nowadays to drive traffic. You also want to be wondering about the lease rates on the company's newer openings, prime real estate has really been gobbled up in 2013 (hearing it from the retailers and restaurants I cover). Also, general observation is that Fairway is aggressively moving into territory previously dominated by Whole Foods.
  • The company dropped its fiscal year 2014 same-store sales outlook, while maintaining its operating profit guidance. Basically, the market's harsh reaction is its way of saying lower sales guidance, plus a robust new store opening plan and maybe modest weakening in gross margin, are factors that deserve more of a consideration in the stock.

Deep thought to ponder: A premium, naturally food grocer issued an earnings warning with stocks at all-time highs.

Course of Action: Low $50s would be a first place to consider buying on weakness, depending, of course, on the macro situation and price action of Whole Foods.

#TwitterFever

I did a TON of preparation for the Twitter (TWTR) IPO, actually the amount was abnormal.  The question I am receiving from everyone: "Do I buy the stock now?"  Although I dug the stock up until $30 or so, in good faith I cannot recommend Twitter at its present valuation.  The market has embedded some hardcore set assumptions around mobile growth globally and Twitter's ability to monetize every quarter from here on out. Remember, Twitter will toss a loss per share report up on the board shortly, and to sustain the stock's momentum the executives will have to keep on selling the hope, and pray that investors continue to buy it.  

Here are 5 fun stats to know on a stock you didn't get in on, shouldn't get in on currently, but use its product religiously:

  1. No. 1 retail brand on Twitter: aforementioned Whole Foods with 3.5 million followers.
  2. Revenue per user: (1) Twitter 44 cents; (2) Pinterest 55 cents; (3) Facebook (FB) 93 cents.
  3. Tweets with image links receive 2 times more interaction than those without.
  4. Tweets that contain less than 100 characters receive 17% higher engagement rate.
  5. Tweets with hashtags receive 2 times more interaction than those without.

JC Penney

Please understand my position: sell rating on JC Penney (JCP) stock since January 2012. Clients have won mightily, so I have no qualms in having them ride out what seems like an absurd bull case on the stock following "good" news. The company's liquidity remains a concern, as does its new level of gross margin amid intense discounting to reignite traffic. 

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