Not all beats are created equal. Some are more equal than others, and we have all sorts on display today.
The best kind? Burlington (BURL) . Here's a discount clothing store that has been beating numbers consistently and then raising them, with the analysts aggressively following along. These kinds of situations are dangerous because the analysts want to get ahead of the upside surprises after a while to show they aren't manufacturing the goodness -- the surprise itself.
But when Burlington reported this morning, it was astonishing. Wall Street was expecting them to earn 33 cents per share, they earned 51. They dramatically raised earnings guidance. They had fantastic same-store sales. As Tom Kingsbury, the chairman and CEO, said on the conference call, "We are excited that we delivered strong third-quarter results, reflecting growth across our key financial and operating metrics, continuing our favorable momentum from the first half of the year." He went on to say, "Our consistent performance continues to demonstrate the ongoing success of our initiatives to elevate our off-price model. Our focus on providing our customers with compelling assortments and highly desirable brands at great values continues to resonate with them, leading to another quarter of increased store traffic. We believe we are well-positioned as we begin the final quarter of the year."
OK, let's parse the brilliance of this. First, they made money every way possible, with the right inventory and the right prices, no doubt because they had inexpensive inventory that they could mark up and people lapped it up anyway. Second, they are getting more customers in the stores than last year and making more off them. Third, they are coming into the holiday season with the perfect amount of inventory. Finally, this level of consistency puts Burlington in the fabled off-price pantheon along with TJX (TJX) and Ross Stores (ROST) , both of which delivered excellent numbers.
It was picture perfect in every metric, including the concept that Wall Street still doubts this company, the old Burlington Coat Factory before it went private and then came public. Consider it like Ulta Salon (ULTA) , the once-rocket-ship-screaming stock that stalled out because the analysts caught on to how great they were doing. That's how Burlington's stock jumped more than $11.
Only Childrens Place (PLCE) , up for a third straight day, from $87 to $104 since it reported its quarter, can exceed this one, especially because the mall-based children's clothing retailer's stock was at $72 at the beginning of this month.
Next kind of upside surprise? Analog Devices (ADI) . For the longest time, Wall Street thought of these guys as an also-ran communications chip company. Oh lordy, there are so many of those. Who in heck wants still one more?
But this isn't the same Analog. Over the course of the last few years, they have transformed themselves much more into an Internet of Things provider, an automobile chip creator, a cybersecurity chip company and a factory and process automation company. Their chips create better fuel efficiency, improve autonomous driving and sensor to cloud security that could stop the bad guys from hijacking your data.
Plus, now that they are buying Linear Tech (LLTC) , they will be a top-two company in all sorts of building blocks for the industrial automotive and communications infrastructure enterprises.
As Analog CEO Vincent Roche said on the call, "Ours is a customer value creation journey, 51 years in the making. We have the intellectual capital and, more importantly, we have a talented and passionate and engaged team at ADI to help server our customers' needs today and well into the future." He predicts that when the Linear deal closes shortly, the company will be a free cash flow engine unmatched in the industry.
Last week we inaugurated Rick Clemmer from NXP Semi (NXPI) in the Mad Money wall of fame because he diversified his company away from just cellphones with the incredibly smart Freescale acquisition. So did the brilliant Hock Tan, CEO of the old Avago, when his company bought Broadcom (AVGO) . Now Analog's on the same course and the analysts have to catch up with all of this organic and external growth. That means it has more room to run. (TJX and NXP Semi are part of TheStreet's Action Alerts PLUS portfolio.)
Next kind of upside surprises? Ones that come from taking estimates down only to beat them when they report again. Both Dollar Tree (DLTR) and Cracker Barrel (CBRL) had disappointed last time out. Back in August when Dollar Tree realized it was in a battle for market share not just with Dollar General (DG) but with Walmart (WMT) , the stock plummeted from $95 to $85 on one bad number. This one-time darling then saw its stock continue to cascade to $73 at the beginning of this month as the depths of the competition really sunk in.
Until this morning when Dollar Tree reported a 1.7% comparable-store gain when the Street was looking for 1.4%. The fact is there was a time when Dollar Tree's stock would have been pulverized by that number and the fact that it actually just missed the revenue forecast. But the fact is that it didn't blow up. That's a different kind of upside surprise, a lowered-expectations beat.
Back in September, Cracker Barrel Old Country Store disappointed the Street with some sluggish numbers when people expected that the highway-based chain would still be benefiting from lower gasoline prices. It had swooned since June, going from $168 all the way down to $131. Analysts had begun to grow a little more bullish about the stock after that clubbing, but not so bullish as to make it too high a bar. Still, the company missed its retail comparable-store sales by a country mile. It didn't do anything earnings-wise to astonish. But it gave great guidance. That can be enough to move a stock, too, and now Cracker Barrel jumps $9 to almost get back to where the swoon began.
Finally there's Signet (SIG) . Here's a jewelry store chain you might know as Kay, Jared or Zales that actually reported negative comparable-store sales. They just weren't as negative as the Street thought and beat estimates by 10 cents a share.
"We expected challenging market conditions to result in a sales decline," CEO Mark Light said in his release. "However, our continuing ability to execute in a difficult environment led to results that were somewhat better than our expectations."
Normally a sales decline would produce a real hammering. But Signet's stock had already been hammered. A year ago it was at $150, it went into today's quarter at $89. It's heavily shorted, and initially the shorts panicked and the stock jacked up to $101, but it's been a steady decline to $90. Still, it's an upside surprise even as it seems down to me.
There's a degree of downside variability, too. You could say what the heck is the stock of the great Palo Alto Networks (PANW) , the class of cybersecurity, doing being blasted down 20 points or $12%. Pretty simple: They talked about how their quarter was lighter than they would have liked. All it took is the following words from CEO Mark McLaughlin on the conference call: "Our Q1 results were not as robust as we expected," because of a delay in purchasing approvals.
The culprit for the near-10% decline in the stock of Medtronic (MDT) , the ultra-reliable medical device company? "Q2 revenue was disappointing and did not meet our expectations," according to a quote from CEO Omar Ishrak. That's a killer.
Still, the important thing to remember is that the magnitude and number of upside surprises vs. downside letdowns can often determine direction of the day. That's exactly what happened today and it's the complexion and the complexity of the wording and the numbers that truly determine how things go in a given session.