My Own Analyst

CHS Downgrade

I usually don't care about upgrades and downgrades - just another guy's opinion.  Wells Fargo's downgrade of CHS to Hold, though, bothers me.  Not only did they reduce their target from 18-20 to 16-18, but they chopped their earnings estimate for 2014 (FY15) from 1.24 to 1.14.  This is a bold statement and intentional, as the lowest previous estimate was 1.15 - he wanted to be an "outlier".  The 20-analyst consensus was 1.25.

CHS - 13D Filed

First, holy crap did I miss FIO trade - dang...

CHS has an activist investor that just filed today:

This Statement on Schedule 13D is being filed by and on behalf of Blue Harbour Group, LP, a Delaware limited partnership (“Manager”), Blue Harbour Holdings, LLC, a Delaware limited liability company (“Manager GP”), and Clifton S. Robbins, a citizen of the United States of America (“Mr. Robbins”).  Manager, Manager GP and Mr. Robbins are herein sometimes referred to each as a “Reporting Person” and collectively as the “Reporting Persons.”

 

The address of the principal office of Manager and Manager GP is 646 Steamboat Road, Greenwich, Connecticut 06830, and Mr. Robbins’ business address is c/o Manager at the foregoing address.  Mr. Robbins is the Chief Executive Officer of Manager.

 

Manager is principally involved in the business of providing investment advisory and investment management services.  Manager GP is principally involved in the business of serving as the general partner of Manager.

 

                       During the last five years, none of the Reporting Persons nor, to the best of their knowledge, any of their officers and directors, has (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

 

ITEM 3.  SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

 

The 9,005,561 shares of Common Stock reported herein by the Reporting Persons were acquired by the Manager, for an aggregate purchase price of approximately $125,447,465 (excluding brokerage commissions).  The shares of Common Stock that are reported on this Statement on Schedule 13D were acquired with working capital of the Manager, which at any given time may include funds borrowed on margin in the ordinary course and on customary terms.

 

They recently added to their position to push them over the 5% threshold:

 

Reporting Person	Date	Transaction	Number of Shares of Common Stock*	Price Per Share*
Manager	8/28/2013	Purchase	500,000	$ 16.31 - $ 16.34
Manager	9/3/2013	Purchase	150,000	$ 15.60
Manager	9/4/2013	Purchase	215,000	$ 15.42 - $ 15.48
Manager	9/6/2013	Purchase	63,900	$ 15.50

 

CHS Call

As I said, this wasn't a huge surprise.  The idea of CEO Dyer always bouncing back fast now is suspect after a second straight bad quarter.  Q1 was mainly weather, this time they had some errors, especially at WHBM, where  they had their first decline in comparable sales in over four years.  Boston Proper remains pretty disappointing but the recently opened stores  are doing well according to the company.  One positive is that August is off to a good start. Traffic remains challenging, but conversion to sales is "at an all-time high".  

 

Beneath 15, the support is 13.50 - this would be extremely cheap in my view.

Chico's Q2 Weak

I had too much confidence in CEO Dyer,who has always bounced back quickly from tough quartes at CHS.  Not this time, though, as the company reported a really bad Q2.  Sales were 4% below consensus, leading to an 18% EPS short-fall (.27 instead of .33).  The press release didn't have a lot of info. Inventory was up a lot, but they explained this and it turns out that in-store inventory fell on a per-store basis.  The call will shed more insight.  The huge miss on EPS suggests that they ended up being pretty promotional (sacrificing margin to get sales). 

Is this a big surprise really? The stock was at a 52-week low.  Next support appears to be 13.50.  More after the call...

FL Guides Above Consensus

FL was basiscally in line, but the guidance of "a double digit percentage profit increase for fiscal 2013" is better than the analyst consensus of +9%.  There was a lot of pessimism going into this report, especially considering the disasters in mall-based teen retailers (ANF, AEO, ARO).  If we weren't long this in CG/B and a short-term trade at Marketfy, I would be looking to get in quickly.  If I hear anything on the call that tempers my enthusiasm, I will post here (9am EST)

AEO: Trash or Treasure

This is mainly a technical and gut-feel observation - I haven't even read the press release (just news service headlines).  Buy AEO at 13.50-14.  This space is notoriously volatile, and the second shoe just fell.  The stock was hammered on a pre-announcement, and today it is getting whacked on crappy guidance.  

Lots of cash, this is a takeover target...

Fade Trade

LOW had a strong report, beating sales estimates for the quarter by 5% and EPS by 12%.  Their guidance for the full year, though, rose only 2%.  The stock is at an all-time high and now commands a premium to HD.  Might make sense to sell into strength for a trade back down to 43.   With that said, there are probably better things to do!

MW Goes Vertical

No, not the stock (it has gone vertical too), but the organization itself has become more vertically-integrated following the announced purchase of JA Holding for $98mm.  JA stands for Joseph Abboud, who is the famous designer who is actually now an employee of MW (I think his title is Creative Director).  They get a U.S. factory as part of the deal and say that this is accretive next year.  MW already makes its own clothes for its Moore's operation in Canada, but this is the first "brand".  Not sure I like this deal and may sell from CG/B given how close it is to my target.

OUTR Wall Street Journal Mention

OUTR got a little plug in the WSJ:

 

 http://online.wsj.com/article/SB10001424127887324260204578583992708791224.html

 

 

OUTR to Ring Bell and Buys EcoATM

OUTR will be ringing the bell today as its name changes to Outerwall from Coinstar.  To start the day, they announced that they are paying cash to buy EcoATM, which they have been developing and own 23% already.  The entire company is being valued at $350mm, so the purchase price will be about $270mm.  This kiosk recycles used electronics, primarily mobile phones.

"We expect ecoATM to be accretive to Outerwall's EPS in 2014 and to yield a positive return on invested capital in the coming years," said Galen C. Smith, chief financial officer of Outerwall. "In addition, we remain committed to our previously announced target of at least $100 million in annual share repurchase, and will continue to return value to our shareholders in a holistic way."

"Outerwall is a great home for ecoATM, and we are excited to build upon our successful relationship to take the business to the next level," said Tom Tullie, chief executive officer of ecoATM. "We look forward to benefitting from Outerwall's resources and expertise to accelerate ecoATM's rollout and bring our innovative solutions to consumers nationwide once the transaction closes."