Much to my dismay, I fell horribly behind last week. Although an extremely-structured human being, I kept having unforeseen developments appear from out of nowhere (such as sitting across from the former vice president of the United States, as seen here:
The game of information catch-up is never a fun place to be in financial services, most especially amid an intense earnings season. So, this past weekend I polished off 14 earnings call transcripts, hoping to secure a better feel on the likely winning companies (financials + stock price) as we enter 2014. I will offer this bit of wisdom: it is meaningfully trickier to identify winning companies from losing companies than in recent quarters. This is because of a stabilizing Europe across many sectors and a U.S. that didn't yet reflect a weakening macro in the third quarter. Luckily, it could be done.
Shared a bunch of financial sexiness on its earnings call:
- New platforms designed to drive new layers of growth are doing so, notably in footwear and women's apparel.
- Average selling prices +5% in apparel. Won't see that from mall-based specialty apparel retailers when they announce earnings shortly.
- New points of distribution are being won (think department stores). I also expect Under Armour (UA) shop-in-shops to finally arrive in department stores in 2014. These are likely to be scaled down versions of the ones seen in Dick's Sporting Goods (DKS).
- According to management, the brand is getting "de-commoditized", and I agree. That only happens if innovation and marketing are connecting with the consumer, as is the case at Under Armour (company rocking in the Youth category).
I was shocked by the quarter from Columbia Sportswear (COLM), not used to hearing the word "outperform" on anything from this perennial sales and operating margin disappointer.
- Same-store sales at branded retail stores accelerated on a sequential basis.
- The product is actually in a scarcity period due to under penetration in many large accounts.
I ended up reversing course on an outstanding sell call on Chipotle (CMG) two months ago, following a chat with the team. Clearly, that was the correct decision.
- Throughput (basically how quickly people get pushed through the line) is ramping pretty damn fast, helping to build customer loyalty and sales.
- Growth drivers (catering/new product in sofritas) are benefiting same-restaurant sales.
- Same-restaurant sales have accelerated into the fourth quarter due to new marketing investments.
- I estimate a 4% mid-year overall menu price increase by Chipotle in 2014 that will more than cover lingering food inflation and the switch to costlier, non-GMO ingredients.
I have been adamantly against shares of Coach (COH) for an extended duration. Retail brand turnarounds take a long time, and sometimes never fully pan out relative to the hype spewed by their well-dressed executives. The quarter from Coach was so bad it doesn't deserve further black ink from me. Continue to avoid the stock.
Apple (AAPL) will beat on earnings this evening (beat its guidance and consensus). Since the September 10 announcement of the iPhone 5s and 5c, and a bullish pre-release following weekend sales of the new devices, consensus earnings per share estimates on Apple have risen a mere 1%.
Following this beat by a higher-quality quarter, expect the rest of the week to be one where sell-side analysts trip over themselves to ratchet up estimates and price targets.