Tag Archives: WMT

Walmart and Sears Get Lowest Customer Satisfaction Ratings

The recently published 2017 American Customer Satisfaction Index (ACSI) for retail stores and websites shows that customer satisfaction is down slightly overall from a record high posted in 2016. The retail sector slipped 0.3% overall from an index score of 78.4 to 78.1.

Department stores and specialty retailers lost the most ground, likely due to continuing satisfaction from shopping online. Walmart Inc. (NYSE: WMT) dropped one point to 71, the lowest among the department/discount stores included in the survey. Sears Holdings Corp. (NASDAQ: SHLD) tied with Dollar General Inc. (NYSE: DG) at a next-lowest 73.

One bit of good news for Walmart is that its Sam’s Club warehouse stores scored an 80 to tie for third behind Costco Wholesale Corp. (NASDAQ: COST) at 83 and Nordstrom Inc. (NYSE: JWN) at 81.

Amazon.com Inc. (NASDAQ: AMZN) once again led online retailers with an index score of 85. The average score among all online retailers was 82 and no online store scored below 81. Even so, the average score dipped 1.2% year over year. ACSI noted:

[Online] remains by far the most satisfying place to shop. The industry’s decline is the result of weaker scores for companies at either end of the size scale. Amazon (accounting for 43& of the total online sales), recedes 1% to 85. The bulk of the category, however, is made up of smaller online retailers and the websites of brick-and-mortar stores.

Walmart was included in the ACSI’s “all others” category for online retailers.

Among supermarkets, Walmart again finished dead last with an index score of 73 versus an average of 79 and a high for Publix of 86. Costco scored 83 while Kroger Co. (NYSE: KR) and Amazon’s Whole Foods both scored 81.

Walmart also was the lowest scoring retailer for health and personal care stores, with an index score of 75 against an average of 79. Sears’ Kmart stores tied with Kroger for the top score of 80.

Home Depot Inc. (NYSE: HD) was the lowest scoring specialty store with an index score of 76 versus a category average of 79. The best score went to L Brands Inc. (NYSE: LB) with a score of 85 at its Victoria’s Secret and Bath & Body Works stores. Sporting goods retailer Cabela’s, now part of Bass Pro Shops, ranked second with a score of 82.

ALSO READ: Wall Street Very Positive on Retail: 5 Top Stocks to Buy Now

HanesBrands: Undervalued And Sell-Off Overdone

HanesBrands (NYSE: HBI) stock price has come under pressure, reaching 52-week lows in the past week, which has sparked my interest to evaluate the company. HanesBrands reported revenue and earnings in-line with analyst consensus estimates for the third quarter; however, the company provided slightly lower than expected guidance for the fourth quarter which was one of the perceived reasons for the sell-off. In this article, I dive further into the financial statements to evaluate the company’s financial health and growth, address investor concerns, and provide my perspective on the company moving forward. In my opinion, and from my findings described in the article below, HanesBrands appears to be undervalued and the stock price is fairly attractive at these levels. I have started adding to a new position in the company at $19 a share, seeing the recent sell-off as a reasonable buying opportunity.

Snapshot of HanesBrands Stock Price Year-to-Date

With the release of third quarter financial results and fourth quarter guidance, the company’s stock price has further declined by 15%. In the past week, the stock has traded around 52-week lows of $19 per share.

(Source: StockCharts.com)

In addition, the stock’s current price-to-earnings (P/E) ratio is 12; which from a historical perspective, is the lowest in a five-year time span. Prior to the recent decline, the stock traded with a trailing P/E ratio ranging between 13 – 17 for the current year 2017, reaching a previous P/E low of 13.4 in February 2017. The decline in stock price in February 2017 was attributed to the company missing 2016 Q4 consensus estimates for revenues by $120 million and earnings per share by $0.05, as well as weaker than expected guidance for 2017.

Company’s Financial Health, Performance and Growth

The company operates as a manufacturer, but has come under pressure due to growth concerns, and headwinds surrounding retailers as more consumers move towards e-commerce. In the previous and current year, the company has made several acquisitions as well as pursued its Project Booster initiative geared towards organic sales growth, cost savings, and cash flows. I focused more closely on financial health and performance year-to-date to evaluate the company’s progress and outlook.

Revenue and Growth

HanesBrands has shown impressive revenue growth in the recent year. Significant growth occurred in Q1 and Q2, for 13.2% and 11.8%, respectively. However, revenue growth in Q3 was only 2.2%; which “on the surface” marks a significant drop from the previous two quarters. For investors, it is important to note that the higher revenue growth in Q1 and Q2 can be heavily attributed to the company’s acquisitions of Champion Europe and Pacific Brands in 2016 which increased revenues for the later part of 2016 and has continued to add to the company’s top line revenue in 2017. Thus, year over year comparisons for the first two quarters of 2017 are skewed, and one would expect revenue growth to be lower in Q3 and Q4 of 2017 as numbers become more comparable.

Additionally, management has provided guidance for Q4 revenue of $1.625B to $1.650B, which at the low end would represent 3.2% to 4.8% revenue growth year over year. The low end of that range is represented in light blue in the chart below.

(Source: Chart created by Author derived from Company’s 10-Q Filings and Company Guidance for Q4)

Segment Revenue

In addition to reviewing total revenue, revenue by business segment provides a clearer picture of operations.

(Source: Company’s 10-Q Filings for 2017 and 2016 with further calculations by Author)

As highlighted above, we see that the company has experienced significant growth in its International segment, but continued decline in its Innerwear segment and weaker growth in its Activewear segment – which indicates a concern for the company’s U.S. domestic market. In particular, I have placed greater emphasis on third quarter numbers as these numbers are more comparable year over year following the company’s acquisitions. Innerwear accounts for about 39% of net sales year-to-date in 2017, thus the -5.2% decline in Q3 as well as the -4.4% decline year-to-date are significant and is a concern that should be revisited.

In the company’s earnings call, the company cited retail pressures for brick and mortar stores, and weaker traffic overall.

Looking at our domestic segments, as Gerald highlighted, we experienced weaker than expected market trends within the U.S. And this was apparent in our Innerwear and Activewear segment results. Innerwear sales declined from last year as online sales growth of over 20% was more than offset by pressure within brick and mortar. Back-to-school trends broadly across retail channels were softer than expected, driven by weak traffic and continued declines in the overall apparel category.”

According to the company’s previous 10-K filing, its top ten customers accounted for about 52% of the company’s net sales with its largest customers being Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) accounting for 20% and 15% of sales, respectively. Thus, HanesBrands does rely on retailers to sell its apparel goods and is indirectly susceptible to risks related to the retail sector. Direct to consumer sales in 2016 accounted for 5% of total net sales, thus online sales growth of over 20% in the 2017 shows a valued effort by the company to address consumers preferences moving towards e-commerce.

Gross Margins, Operating Margins, and Project Booster Initiative

In evaluating profitability for the company, we can look at the company’s gross margins and operating margins in comparison to prior year. In particular, I look to evaluate how the recent acquisitions have impacted the business and whether there are any seen benefits from the Project Booster initiative. Management indicated in a previous earnings call that it expects the Project Booster Initiative to generate $150 million in annualized cost savings and expects to reinvest annually $50 million of these savings towards organic growth of 1% to 2%. The Project Booster initiative was launched towards the end of Q1 of 2017 and is expected to deliver full benefits by end of 2019.

Per below, the company continues to benefit from high gross margins and has shown improvement year over year. On the other hand, operating margins are lower for Q1 and Q2, but were higher in the recent Q3.

(Source: Company’s 10-Q Filings with further calculations by the Author)

The increase in gross margins indicate that the company has benefited from its recent acquisitions and shows progress with the company’s cost cutting from the Project Booster initiative; however, the company may have additional operating expenses due to its acquisitions which have affected operating margins. More significant and promising, the third quarter results show an increase in both gross margin and operating margin. In reviewing selling, general and administrative expenses, we see that these expenses were elevated in Q1 and Q2, but have leveled off in Q3, which may indicate greater acquisition synergies.

(Source: Chart created by Author derived from information in Company’s 10-Q Filings)

Furthermore, I reviewed operating margins by business segment. Although, year-to-date operating margins are lower (red), the operating margins for Q3 were higher (green) across all business segments, which is promising and indicates a move in the right direction.

(Source: Company’s 10-Q Filings with further calculations by Author)

Debt Concerns

Besides growth concerns, investors have cited the company’s current debt as an item of discussion. In reviewing the company’s balance sheet, the company has steadily increased its long-term debt, and it remains elevated at around $3.3 billion as of September 30, 2017.

(Source: Company’s 10-Q and 10-K Filings with further calculations by Author)

In regards to maturity dates, the company only has 12.1% of total principal due within the next two years of 2018-2019. More substantial principal payments are due several years out in 2020, 2024, and 2026.

(Source: Company’s 10-Q Filing with further calculations by Author)

In servicing its debt, interest expense for the current third quarter was $43.9 million, which represented a 17.3% reduction in operating income. This is a substantial expense, but manageable. The interest rates on the outstanding debt are relatively low to moderate ranging between 1.50% to 4.88%. I calculated the weighted interest rate on the company’s debt to be about 3.8%. Although some may consider the debt load as substantial, the company continues to generate positive operating income and cash flow, and the payout ratio for its dividend has hovered around 33% to 34% which can provide investors with some comfort.

Concluding Thoughts

In conclusion, the company may have a few areas of concern for investors, but in my opinion, the recent sell-off seems to be overdone. One concern that I will continue to watch closely is the company’s domestic revenue growth for its Innerwear and Activewear segments to see whether declines in revenue growth persists. International sales have grown substantially, but domestic sales have come under pressure. This should be no surprise. Although the company is a manufacturer of apparel goods, it relies heavily on retailers and is indirectly experiencing some of the headwinds surrounding the retail sector. The company’s gross margins remain high, and its operating margin has shown improvement in the recent third quarter. In addition, I am not overly concerned with the debt burden. Although the company has increased its debt from prior years, it is still manageable when considering the debt maturity dates, interest rates, and current interest expense as a percentage of operating income.

As previously mentioned, the company’s stock is trading at a price-to-earnings ratio of 12 and around its 52-week low. In my opinion, the current concerns and lower Q4 guidance does not justify the magnitude of the recent sell-off. While some analysts have recently downgraded their outlooks and price targets for the company, many analysts remain neutral to bullish on the stock. According to the Wall Street Journal, price targets range between $20 to $34 with $26.44 being the average consensus. The stock also carries a 3% dividend yield with a low payout ratio of 34%. Taking into consideration these factors, along with evaluating the investor concerns, I believe the company to be undervalued. At current levels, I find the stock to be a reasonable buy and have added a new position in my portfolio. In deciding for yourself, you should perform your own due diligence, consider the asset allocation of your portfolio, and evaluate your risks of being invested at the current time.

Thank you for taking the time to read my article. I hope that you found the information interesting and/or useful. If you liked it, click the follow button at the top of the page, and please feel free to leave a comment and share your thoughts. Thanks!

Disclosure: I am/we are long HBI.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

About this article:ExpandAuthor payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.Tagged: Investing Ideas, Long Ideas, Consumer Goods, Textile – Apparel ClothingWant to share your opinion on this article? Add a comment.Disagree with this article? Submit your own.To report a factual error in this article, click here

4 Darling Dividend Stocks Amazon.com, Inc. (AMZN) Will Crush Next

Let’s face it: brands are dead—and that’s terrible news for the 4 household names (and their landlords) we need to talk about today.

Research from Scott Galloway, founder of digital-research firm L2, tells the tale.

Galloway looked at the 13 S&P 500 stocks that have beaten the market for five straight years and found something shocking: just one, Under Armour Inc (NYSE:UAA), is a consumer brand.

And as Galloway points out, there’s no way UA will keep that run going.

UA: The Last Brand Standing—for Now

The other 12 names on the list are mostly innovators that have sliced into old-school businesses and flipped them on their heads—think Facebook Inc (NASDAQ:FB), salesforce.com, inc. (NYSE:CRM) and, of course, Amazon.com, Inc. (NASDAQ:AMZN).

But don’t take that to mean I’m recommending any of these tech juggernauts today. (Because I can’t very well preach the gospel on dividends and then recommend 3 stocks with no payout at all!)

What I am saying is that you’ll save yourself a lot of agony if you dump the 4 companies below, all of which are either leaning hard on over-the-hill banners or are sitting ducks for Jeff Bezos and company.

P&G: Sell on Management’s Panic

Procter & Gamble Co (NYSE:PG) owns dozens of brands, including Gillette: at 115 years, the razor name is one of the oldest brands there is. That, plus millions of dollars of print and TV advertising, has prompted generations of men to grab their Gillette razors every morning without a second thought.

But in today’s world, where folks make decisions on a tweet or an online review, those millions of dollars suddenly mean zero.

Because the moment upstarts like Harry’s and Dollar Shave Club showed up, Gillette started bleeding market share (for six years and counting!). Cornered, it slashed its prices by up to 20% last April.

That’s a problem ricocheting throughout P&G, which has only reported revenue growth in four of the last 20 quarters! But you wouldn’t know by looking at earnings per share (EPS), which jumped 19% in its fiscal fourth quarter (ended June 30), even though revenue was flat.

So what’s the story behind P&G’s levitating earnings? Cost cuts, of course. You can already see the effect in P&G’s dividend:

Dividend Growth Goes Flat

And make no mistake, this payout will remain under pressure: P&G forked out 77% of free cash flow as dividends in the last 12 months, the highest level in 17 years!

Big Food Is in Big Trouble

Kraft Heinz Co (NASDAQ:KHC): Last week I gave you three big-food stocks that are on the wrong side of consumer tastes. You can add Kraft-Heinz to that list.

To see how the game has changed, look no further than the closest supermarket: people are clearly craving more natural and organic food and less processed fare. Kraft-Heinz’s brands are way behind the curve:

Source: kraftheinzcompany.com

No wonder the consumer-staples giant is showing the same pattern we see again and again in the industry: rising earnings supported entirely by cost cuts—while nimble local food producers lure away customers. In the second quarter, Kraft-Heinz’s sales dipped 1.7% while adjusted EPS soared 15%.

The most worrying sign? A number few folks care to look at: dividends as a percentage of free cash flow (or operating cash flow minus capital expenditures). In the last 12 months, Kraft-Heinz paid out 142% of FCF as dividends, much more than it brought in!

Amazon’s purchase of Whole Foods—and its price slashing at the chain—is also a headache for KHC, because it means more cheaper, healthier products out there to tempt folks away from its preservative-stuffed packaged lineup.

Sure, Berkshire Hathaway Inc. (NYSE:BRK.B) is a major shareholder, with a 27% stake, but that’s not enough to offset Kraft-Heinz’s weak growth prospects, ho-hum 3% dividend yield, middling dividend growth and nosebleed P/E ratio of 26.3.

Wal-Mart: No Match for Amazon

The media was all over the 60% growth in online sales in the Wal-Mart Stores Inc (NYSE:WMT) second-quarter earnings report on August 17. Overall, the chain’s sales gained 2.1%, while adjusted EPS nudged up a little less than 1%.

Here’s the problem: Amazon still has a stranglehold on online retail, with a 76% share, according to Wired.

Meantime, the latest earnings report brought another concern: lower margins as Wal-Mart pours cash into e-commerce and slashes prices in a futile bid to close the gap.

What galls me most about Wal-Mart is its stingy dividend, which has been rising by just a penny a year since 2013. Management could easily do more, with the payout eating up just 48% of earnings and 35% of FCF.

Management Cheaps Out

Those piddling payouts put a brake on the stock’s upside, which is already strained by its P/E ratio of 19.2, way above its five-year average of 15.4. There are far better deals elsewhere, like in the 8.5% dividend payer I’ll tell you about at the very end of this article.

Next Page

Retail REITs: Collateral Damage

When it comes to retail REITs, one fact stands out: America is awash in malls. In fact, we’re sitting on more gross leasable shopping area per person than any other developed country!

This comes as more sales shift online, brick-and-mortar retailers like Sears Holdings Corp (NASDAQ:SHLD) race to shutter stores and consumers spend more on experiences and less on stuff.

That doesn’t mean the death of the mall is upon us, but it does mean I’m staying away from retail REITs, particularly marginal players like DDR Corp (NYSE:DDR), owner of 298 shopping centers across the country.

The stock pays a sky-high 7.4% dividend, but that’s a sign of risk, not fatter payouts: the stock has cratered 25% this year!

The dividend is well covered, at 66% of trailing-twelve-month funds from operations (FFO, the REIT equivalent of EPS), but there are plenty of warning signs that should make you very hesitant about investing in DDR right now.

The first is stalled dividend growth: after reliable yearly hikes since 2010, management has called a halt, freezing the payout at $0.19 per quarter.

DDR’s Dividend Goes Cold

Why? Because growth packed its bags and moved out! DDR’s FFO has been stuck at $0.30 for three of the last four quarters, and FFO actually fell 10%, from $0.33 year-over-year in the latest quarter.

Meantime, occupancy has been sliding, coming in at 93.7% in Q2, down from 96.1% a year ago, and the company expects it to nudge lower still, to between 93.0% and 93.5% for the full year.

Finally, at $4.7 billion, DDR’s long-term debt is 30% higher than its $3.6-billion market cap! That’s a huge weight to carry as interest rates head higher—and Amazon continues to circle.

Alert: This Cheap 8.5% Dividend Won’t Last!

My top REIT buy now recently hiked its dividend again—by 4% over last quarter’s payout. That marks this income wonder’s 20th consecutive quarterly dividend hike!

Dividend Hikes Every Quarter

It pays an 8.1% yield today—but that leaps to an 8.5% forward yield when you consider we’ll see 4 MORE dividend increases in the next year.

And the stock is trading for less than 10-times funds from operations. Cheap!

However I expect its valuation and stock price to spike 20% over the next 12 months as more money stampedes into its REIT sector (and no, I’m NOT talking about a retail REIT here).

That makes NOW the time to buy and lock in that 8.5% payout!

Now I’m ready to share all the profitable details on this off-the radar (for now) REIT with you. I’ll also take the wraps off my No. 2 pick—a 7.6% payer backed by an unstoppable trend that will deliver growing dividends for the next 30 years!

This stock deserves a place in your portfolio for 3 simple reasons:

It’s recession proof It yields a fat (and secure) 7.6% and Its dividend increases are actually accelerating.

Don’t miss your chance to grab these 2 income wonders before their share prices run away from us, driving their fat dividend yields lower in the process. All you have to do is CLICK HERE and I’ll give you their names, tickers, buy prices and my complete REIT investing strategy now.


Boeing, Apple Lift DJIA on Tuesday

August 29, 2017: Markets opened lower Tuesday on concerns about another North Korean missile test and the impact of Harvey on oil & gas supplies. On the positive side, consumer confidence improved. Among the sectors, industrials and tech performed best while materials and financials lagged. WTI crude oil for October delivery settled at $46.44 a barrel, down 0.3%. December gold added 0.3% on the day to settle at $1,318.90. Equities were headed for a higher close shortly before the bell as the DJIA traded up 0.29% for the day, the S&P 500 traded up 0.13%, and the Nasdaq Composite traded up 0.38%.

The DJIA stock posting the largest daily percentage gain ahead of the close Tuesday was United Technologies Corp. (NYSE: UTX) which traded up 2.23% at $117.90. The stock’s 52-week range is $97.62 to $124.79. Volume was about 50% above the daily average of around 2.7million shares. The company had no specific news.

The Boeing Co. (NYSE: BA) traded up 1.59% at $240.95. The stock’s 52-week range is $126.31 to $246.49. Volume was about 20% below the daily average of around 3.4 million. The company had no specific news Monday, but the North Korean missile launch gave defense stocks, including UTC a boost in today’s trading.

Wal-Mart Stores Inc. (NYSE: WMT) traded up 1.11% at $78.90. The stock’s 52-week range is $65.28 to $81.99. Volume was about 35% below the daily average of around 9.2 million shares. The company had no specific news.

Apple Inc. (NASDAQ: AAPL) traded up 0.98% at $163.05. The stock’s 52-week range is $102.53 to $163.12, and the high was posted this afternoon. Volume was about equal to the daily average of around 27 million shares. The company had no specific news, but some analysts are projecting big growth in iPhone sales following next month’s launch.

Of the Dow stocks, 18 are on track to close higher Tuesday and 12 are set to close lower.
ALSO READ: Top Analyst Has 10 Incredible Internet Predictions for 2017 and Beyond

Dollar General Corp Q2 Earnings: Beating Expectations

Large cap dollar store stock Dollar General Corp (NYSE: DG), abarometer for the spending behavior of low-income consumers, reported Q2 2017 earnings before the market opened Thursday with a better-than-expected increase in quarterly comparable sales as more shoppers visited its stores and spent more on average. Net sales increased 8.1% to $5.83 billionas same-store sales increased 2.6% attributable to increases in average transaction amount and customer traffic. Same-store sales increases were driven by positive results in the consumables and seasonal categories, partially offset by negative results in the home products and apparel categories. In total, same-store sales results in non-consumables categories were positive. The net sales increase was also positively affected by sales from new stores, modestly offset by sales from closed stores. Net income was $295 million versus net income of $307 million. The CEO commented:

“I am pleased with our results at this point in the year. For the quarter, same-store sales grew 2.6%, driven by an increase in our average transaction amount and, importantly, positive customer traffic. In a dynamic retail and consumer landscape, we continue to make targeted investments in our business to execute on our focused strategic and operating initiatives which we believe will contribute to sustainable improvement over time.”

A technical chart for Dollar General Corporation shows a double bottom with shares just below a key resistance level:

A long term performance chart shows Dollar General Corp and Dollar Tree, Inc (NASDAQ: DLTR) both outperforming(but below mid 2016 highs)and largely giving investors roughly the same return while the performance of Wal-Mart Stores, Inc (NYSE: WMT) began to suffer in early 2015 before picking up again:

Finally, here is a quick recap of large cap Dollar General Corps recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page:

Earnings History7/30/201610/30/20161/30/20174/29/2017
EPS Est. 1.09 0.93 1.41 1
EPS Actual 1.08 0.89 1.49 1.03
Difference -0.01 -0.04 0.08 0.03
Surprise % -0.90% -4.30% 5.70% 3.00%
EPS TrendCurrent Qtr. (Jul 2017)Next Qtr. (Oct 2017)Current Year (2018)Next Year (2019)
Current Estimate 1.09 0.93 4.5 4.98
7 Days Ago 1.09 0.93 4.49 4.98
30 Days Ago 1.09 0.93 4.5 4.99
60 Days Ago 1.09 0.93 4.5 4.99
90 Days Ago 1.09 0.93 4.46 4.93