While we don’t cover AAPL as closely as many of the retailers that we follow, we have put together a robust set of earnings analytics based upon company disclosures in SEC filings and quarterly conference calls. See our updated company Data Packet following the research note. Click to Open PDF

AAPL should again easily exceed the consensus sell-side EPS expectation in Q1 2011 (December 2011). In our view, GPM% upside versus consensus expectations appears to be the largest driver of material EPS outperformance versus today’s consensus sell-side estimates.

Why? GPM% pressures began to ease in Q3 2010 (June 2011) as the company fully lapped its iPad launch (i.e. today, iPad sales mix has become much less of an issue).

Also, keep an eye on Product Warranty Accruals. Per SEC filings, AAPL’s Product Warranty Accruals (see table below) have greatly out-stripped the actual Product Warranty Costs for the past 5 fiscal quarters. AAPL may receive a GPM% boost if Product Warranty accruals are scaled-back versus the prior year (relative to sales growth).

The major concern is whether GPM% will materially decline from the impact of recently reduced price points on iPhones and iPods and the stronger U.S. Dollar. Therefore, our GPM% expectations beyond Q2 are for AAPL’s reported GPM% to decline versus the prior year.

In Q1 2011 (Dec 2011), we’re forecasting EPS of $10.83 versus the current consensus sell-side estimate of $10.05. Our estimate implies revenue growth of +49.1%, a +350 Bps GPM% versus LY, and a +421 Bps EBIT margin improvement versus LY.

Welcome to the Weekly Spin Cycle. Each week, we’ll deliver some news and commentary about the retail industry. Whether you’re an industry insider, investor, or outside observer, the articles/commentary you read here are designed to enhance your understanding of the retail sector and the issues facing it.

In addition, we’ll pay close attention to the “managerial spin” and will on occasion offer a contrarian view. You are encouraged to provide any feedback to info@RetailGeeks.com. Click to Open PDF

Pricing Changes at JCP/TGT = Recipe for Disaster

This week, we noticed that J.C. Penney (JCP – $35.09) stores began to implement the new EDLP pricing strategy that many have been expecting. Interestingly, Target (TGT – $50.17) is rumored to be thinking about a new pricing strategy as well (see Associated Press article on Friday January 20th).

Have you seen the changes that are taking place in JCP stores today? Many store associates believe that the “elimination of promotional signage” may be a recipe for disaster. Not a good sign for the beginning of Mr. Johnson’s tenure.

If anyone needed further evidence that TGT’s RedCard and PFresh remodels were an abysmal failure versus the company’s original expectations… the company’s move towards a new “pricing strategy” may put a nail in that coffin and has an air of desperation about it.

Big picture, JCP and TGT have “disaster” written all over them.

Mickey Drexler Criticizes Mall Owners and Says Holiday 2011 “Most Discounted Ever”

Check out this week’s article in WWD where Mickey Drexler criticized mall owners/operators.

In that article, Mr. Drexler suggests that the holiday 2011 season was “one of the most discounted ever” and that last season was marked by “enormous apparel deflation.” In addition, he wondered “what the optimism is about” after sitting through a Financo-organized panel that gave no hint of the travails of retailers.

Mall owners that were criticized by Mr. Drexler for “lacking innovation” suggested that the spread between high-performance malls and low-performance malls is widening.

It’s a very interesting article. Click to Open PDF