Each week, we highlight five articles of interest focusing on the retail/consumer space. Enjoy.

Wal-Mart Stock Near All-Time High Click to Open PDF

Josh Goldstein at Invesco says that the +2.6% comp in Q1 2012 and the expense management progress “got people excited.” So, an improved comp in a quarter when essentially EVERYONE reported an improved comp and a continuation of expense control/GPM% declines gets folks excited?

What’s really driving WMT high is the fact that the company can continue to under perform and still exceed consensus EPS expectations over the course of the next 6-9 months. Click to see our latest research note on WMT
Date Published: Thursday, June 28, 2012
Source: WSJ

Citi Downgrades Saks, Nordstrom and Macy’s Click to Open PDF

Deborah Weinswig at Citigroup comes up with the standard “slowdown is being led by high-income consumers” boilerplate language. This is why savvy buy-siders largely ignore the analysis of the traditional sell-side community (and instead use folks like Ms. Weinswig for her “access to management”).

Conversely, Craig Johnson espouses a more plausible scenario…warm weather in the winter/spring skewed results earlier in the year and we’re now seeing some separation between the winners and losers. That, my friends, is a more intellectual and thought provoking perspective on the retail sector today.
Date Published: Wednesday, June 27, 2012
Source: WWD (more…)

Take a look at the following note disclosure in Deckers Outdoor’s (DECK – $44.28) most recent 10-Q filing. The note disclosure appears to highlight a “transfer pricing” disagreement with the IRS (i.e.NOPA).

While the company does not believe that the disagreement will result in a material adjustment to the company’s consolidated financial statements, it’s worth noting that a third meeting with the IRS Appeals department was scheduled for June 2012.

Will the company lose their $27 million “transfer pricing” appeal with the IRS (potential tax liability under review)? If so, would this negatively impact the expectations for the company’s future tax rate?

While the outcome of the company’s June 2012 meeting with the IRS re: this issue remains unclear, what we believe is clear is that the company’s materiality threshold argues for a more extensive disclosure when the company reported its Q1 2012 earnings in April 2012 (press release and/or prepared comments).
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When someone leaves a company, especially a large, publicly traded company, one would expect that their e-mail account would be deactivated to prevent the dissemination of confidential, non-public information. Well, apparently this is not the case at Urban Outfitters (URBN – $26.77).

On the company’s Q4 2011 conference call (March 12,2012), Urban Outfitters Group CEO, Ted Marlow, made the following statement:

Mr. Marlow came back to the company on February 6, 2012 following his retirement in 2010. So, in his brief retirement (almost 2 years), did Mr. Marlow have access to material non-public information? Based on his statement during the Q4 2011 conference call (see above), that appears to be the case.

Naturally, this raises questions and red flags…

Did Mr. Marlow receive any material non-public information re: URBN that was not available to all investors? If so, did Mr. Marlow trade on any of this information? Did Mr. Marlow pass along any material non-public information re: URBN to others?
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In late-February 2012, Darden (DRI – $50.04) management provided +1.5% to +3.0% comp sales guidance for Q4 (March – May). Last week, the company reported a dismal -1.9% comp sales result for its core brands in fiscal Q4 (OG, RL, L).

So, are you inclined to believe DRI management when they suggest that comp sales are expected to rise +1% to +2% this year and that the company’s EBIT margin is expected to rise +20 Bps to +40 Bps in the current fiscal year? Neither are we.

A look back to the financial guidance the company provided a year ago tells all. A year ago, the company guided to +20 Bps to +40 Bps EBIT margin expansion in the just completed fiscal year. Food inflation ended up being only modestly worse than the company’s original guidance range (+6.1% versus +5.0% to +5.5% original range). Yet, DRI’s EBIT margin plummeted -70 Bps versus LY.

If DRI management could not see the Q4 top-line debacle coming, why would anyone give their full year expectations any credence today?

Therefore, we suspect that the current fiscal year will end up looking much like the last fiscal year… a lowering of full year earnings expectations each quarter by DRI management.

We don’t follow DRI any longer, but we do check in from time to time. Click here to see our updated earnings model.

Each week, we highlight five articles of interest focusing on the retail/consumer space. Enjoy.

Abercrombie & Fitch Identifies Another 180 Stores to Close Click to Open PDF

Of course, the first 135 stores to close were expected to boost the company’s profitability. How did that work out for the bulls last year?
Date Published: Thursday, June 21, 2012
Source: WSJ

China Aims to Calm Slowdown Fears Click to Open PDF

JP Morgan analyst Melanie Flouquet suggests that organic sales growth for luxury brands is slowing in China. In addition, she believes that the market might be “more mature and price sensitive than previously thought.” Uh, oh!
Date Published: Thursday, June 21, 2012
Source: WWD (more…)