Earnings calls are free to listen to, and they are amazing. A major company would make a comment on a call, and the competitors would reaffirm it, once they have listened in. After listening to enough calls, you start to develop investment theses ahead of many investors. Here are a few things I am picking up on earnings calls.
Aging Babyboomers Will Drive Services
Yesterday, Home Depot (HD) new CEO Craig Menear said installation services at the home improvement chain were benefiting from an aging population. In many respects, Home Depot and Lowe's (LOW) exist today as a result of people's efforts to avoid the costs of contractors and handymen. Now, this grey-haired group no longer has the time or strength to cut up a carpet and toss it out.
Services for companies are high-margin opportunities. Customers pay for the peace of mind, knowing the job will get done correctly and in a timely fashion. Companies that could benefit from the aging of the boomers include:
- Walgreens (WAG) and CVS Health (CVS) through health clinics
- Walmart (WMT) with health clinics and eye care services
- Home Depot and Lowe's on home improvement projects
- Macy's (M), Starbucks (SBUX), J.C. Penney (JCP), Amazon (AMZN), and eBay (EBAY) for their same-day delivery networks
Keep in mind that this is a super long-term macro trend that must be balanced with fundamentals and valuations.
Increasingly Brutal Winters
Winters are getting increasingly brutal, for whatever planetary reason you subscribe to. Last year, the Polar Vortex ruined the sales of spring goods post-holiday. This year, the brutally cold conditions are spurring November sales for many companies such as Home Depot, J.C. Penney, and Macy's. Winter now comes earlier and stays longer. Companies will have to adjust, from truckers to railroads, to retailers. Here is a perspective on the change in climate:
- Department stores could be hurt because much of their large sales floors are on set schedules
- VF (VFC) wins through its North Face and Timberland cold weather brands.
- Under Armour (UA) and Nike (NKE) need to make more heavier garments. Both have been focused on lightweight sportswear.
- Restaurant companies are hurt, as wintry conditions keep people at home.
Things to Listen for on Target's Earnings Call
- Gross margin has shed 230 basis points year-to-date, prior to its third-quarter report. The long-term gross margin downtrend for Target (TGT) is concerning, and it highlights intense competitive pressures from rivals.
- Traffic to Target's U.S. stores has declined for six straight quarters, and it is disturbing. To become a bull on Target, its new merchandising tactics (notably in apparel with Tom's shoes) and sharper price points have to drive increasing trips to the stores. More trips raises the potential for higher margin sales in footwear and cosmetics. Walmart's U.S. same-store sales rose 0.5% in the third quarter, and Kohl's (KSS) had a disastrous quarter. I wonder where Target fit into that equation. Would it gain share in apparel from Kohl's? Would it lose share in food to Walmart?