Updated: 05-22-2018

Quotes at time of story, top stories today: 12:29PM | 11:04AM | 10:06AM | 10:00AM | 09:39AM | 09:38AM | 08:49AM

12:29PM ET
Looking Ahead - May 23, 2018 - New Home Sales

Demand for new homes is up, and homebuilder confidence in that demand translating to higher sales is also up.  On Wednesday, market participants will see just what kind of demand there was in April when the New Home Sales Report is released.

New Home Sales Report for April (Wednesday, May 23, at 10:00 a.m. ET)

  • Why it's important
    • While new home sales account for a relatively small portion of total home sales, there is some economic value in this report as new home sales (reported when a contract is signed) are seen as a leading indicator for the economy
      • Note: Existing home sales are counted when the sale of the property actually closes
    • New home sales activity contributes to investors' expectations for homebuilding companies
    • New home construction creates jobs and spending on building materials, so the report offers some insight on the potential multiplier effect of new home construction
    • Market participants are anxious to see if new home demand is accelerating given the lack of available inventory of existing homes for sale, improved labor market conditions, and high homebuilder confidence readings

  • A closer look
    • New home sales increased 4.0% in March to a seasonally adjusted annual rate of 694,000, led by a 28.3% increase in the West region
    • The median sales price of a new home increased 4.8% year-over-year in March to $337,200 while the average sales price decreased 3.8% to $369,900

       

      • What's in play?

        • Homebuilding Stocks
          • Toll Brothers (TOL)
          • Pulte Homes (PHM)
          • Lennar Corp (LEN)
          • NVR Corp (NVR)
          • DR Horton (DHI)
          • Hovnanian (HOV)
          • KB Home (KBH)
          • Beazer Homes (BZH)
          • CalAtlantic Group (CAA)
          • TRI Pointe Group (TPH)

        • Homebuilding ETFs
          • iShares U.S. Home Construction (ITB)
          • SPDR S&P Homebuilders ETF (XHB)

        • Home improvement retailers
          • Home Depot (HD)
          • Lowe's (LOW)

        • Consumer Discretionary Select Sector SPDR (XLY)

11:04AM ET
Cracker Barrel reports earnings beat, but lowers FY earnings guidance

Stepping slightly higher following its third quarter (April) results, Cracker Barrel (CBRL 161.23, +2.40, +1.5%) investors seem to be shrugging off the lowered fiscal year 2018 guidance and roughly in-line comparable store sales.

Q3 report

Checking out the Q3 print first Cracker Barrel reported better than expected earnings of $2.03 per share on revenue growth of 3% to $721.4 million.

Comparable store restaurant sales were up 1.5% including a 2.8% increase in average check, but partially offset by a 1.3% decrease in comparable store restaurant traffic. The average menu price increase for the quarter was about 2.5%. Comparable store retail sales increased 0.9% from the prior year quarter.

Shareholder return program

Management also announced that its Board of Directors increased the quarterly dividend by 4.2% to $1.25 per share on the company's common stock from the previous quarterly dividend of $1.20.

The Board of Directors also declared a special dividend of $3.75 per share on the company's common stock. The special dividend is payable on August 3, 2018 to shareholders of record on July 13, 2018.

Guidance

In terms of guidance, Cracker Barrel now expects to report FY18 EPS between $9.30-9.40 compared to prior guidance of $9.30-9.50. The company continues to anticipate total revenue of about $3.1 billion, reflecting the expected opening of eight new Cracker Barrel stores and three new Holler & Dash Biscuit House restaurants.

Further, Cracker Barrel continues to anticipate comparable store restaurant sales growth of between 1.0-2.0% and approximately flat comparable store retail sales growth. Management now expects food commodity inflation of about 3.25% for the year versus prior expectations between 2.5-3.0%.

The company now projects an operating income margin of about 9.5% of total revenue for fiscal 2018 vs 9.5-10.0% prior. It expects depreciation expense of about $95 million, at the low end of previous guidance; net interest expense in the range of $15-16 million; and capital expenditures of around $150 million, at the low end of previous guidance. The company now estimates a blended effective tax rate for fiscal 2018 of about 11%, at the low end of the previous 11-14% outlook.

Management also noted that the company's 2018 fiscal year is a 53-week year. As such, the company estimates the impact of the 53rd week to contribute earnings per diluted share of about $0.35.

10:06AM ET
Autozone and Advanced Auto report good quarters; cold winter helped

A couple of auto parts retailers are trading higher today after reporting strong earnings results: Advanced Auto Parts (AAP) and AutoZone (AZO).

For AAP, non-GAAP EPS rose 31% YoY to $2.10, which was a good bit better than expected. Revenue fell 0.6% year/year to $2.87 bln, which was a bit light of market expectations. Same store comps declined -0.8%. For AutoZone, EPS rose 17% YoY to $13.42, which was well ahead of market expectations. Revenue rose 1.6% YoY to $2.66 bln.

AZO says it was optimistic as it entered the quarter as the US was coming off the first reasonably severe winter in the last three years. Cold winters are good for auto parts retailers. Unfortunately, there was also a very cold, wet spring through March and much of April and AZO's sales did not respond until spring-like weather arrived in late April. When the conditions improved, AZO's performance improved significantly which reinforces its optimism about the balance of the selling season.

These results are pretty consistent with the Q1 report from O'Reilly Auto (ORLY), which was released in late April. That stock has been making a strong move since then. Despite the strong ORLY report, both of these stocks (AAP, AZO) have been fairly weak over the past few months. Perhaps these earnings reports will act as a spark plug to get them going again.

From an overall perspective, these stocks have been pretty much up and down in recent years. Part of it is the challenge coming from online auto parts retailers which is impacting the brick-and-mortar retailers. This has resulted in some lackluster comp numbers in recent quarters.

Also, in our view, there seems to be almost too many store locations. It seems that every few blocks there is another auto parts retailer. The market seems a bit oversaturated to us. With that said, AAP and AZO reported good results this morning.

10:00AM ET
Shares of Dycom slide 15% lower following earnings/revenue miss, lowered guidance
Dycom (DY 99.24 -16.96) reported first quarter earnings this morning of $0.65 per share, excluding non-recurring items, which fell short of expectations.

On the top line, revenues fell 7.0% year/year to $731.4 million, which also came in below expectations.

To make things worse, the company issued second quarter guidance below current expectations and lowered its fiscal year 2019 earnings and revenue guidance.

The company expects to see earnings of $1.13-1.28/share and revenue of $830-860 million, both of which easily come in below current expectations, especially the earnings guidance. Then for the full year, the company lowered its earnings guidance of $4.26-5.15, which is down from prior guidance of $5.22-6.14, and revenue guidance of $3.23-3.43 billion, which is down from prior guidance of $3.30-3.50 billion. The company's full year guidance is easily below expectations.

As a result, shares of Dycom are trading about 15% lower.

The company said it's seeing strengthening market opportunities despite near-term revenue declines. Excluding revenue from storm restoration services and acquired business, revenue declined 10% organically.

Separately, the company reports that it has solid operating cash flows and liquidity. Operating cash flow at the end of the first quarter was $24.6 million.

Meanwhile, liquidity is sitting at $459.3 million at the end of the quarter, which consists of $57.9 million in cash and $401.4 million of availability under its credit facility. As of the end of its first quarter, there were no outstanding revolver borrowings.

Ultimately, the company sees firm and strengthening end market opportunities. Also, the company says that industry participants are committed to multi-year capital spending initiatives and these initiatives are increasing in numbers across multiple customers.

In current trade, shares of DY are sitting near today lows.

09:39AM ET
Off-Price Retailer TJX Companies on the Money With its Q1 Report
Earlier this morning, discount apparel and home fashion retailer TJX Companies (TJX) issued a strong Q1 report, coupled with an aggressive capital allocation program, which has shares approaching new all-time highs. In fact, it can be argued that this was TJX's strongest quarterly report in several years as it easily exceeded top and bottom line estimates and showed a meaningful improvement in comparable store sales growth. And, to top it off, the company noted in its earnings press release that it expects to repurchase approximately $2.5-$3.0 billion of stock during the fiscal year ending February 2, 2019, and that it plans to increase its dividend payout.

Taking a closer look at its Q1 results, TJX generated GAAP EPS of $1.13, comfortably surpassing the $1.02 consensus, and also ahead of its own guidance (provided in its Q4 report) of $1.00-$1.02. The $0.11 beat was its widest beat in at least five years. The impressive bottom line performance was driven by a combination of factors, including a pick-up in comparable store sales growth, a modest improvement in gross margin, and better management in SG&A costs.

Specifically, comparable store sales growth came in at +3.0%, beating its own expectation of 1-2% growth for the quarter. The upside performance here was mainly attributable to a sharp improvement in its Marmaxx stores -- its largest segment -- which posted a +4% compared to flat in the year ago period. Comp growth, overall, improved to +3% versus +1% in 1Q18 with strong customer traffic being the main catalyst.

The acceleration in comparable store sales growth helped push total revenue higher by 11% year/year to $8.7 billion, also ahead of the $8.47 billion consensus.

As for margins, gross margin increased slightly to 11.0% from 10.7%. While only a modest improvement, the fact that gross margin moved higher at all is encouraging, considering that many retailers have experienced some pricing pressures related to higher commodity costs. Further, TJX executed well in terms of cost containment as SG&A expense, as a percentage of revenue, decreased by 0.3% percent to 17.8%, primarily due to expense savings and a gain related to a lease buy-out.

One blemish on the report is that TJX issued downside guidance for Q2, seeing EPS of $1.02-$1.04 versus the $1.10 consensus, with a slight down-tick in comparable store sales growth to 1-2%. However, the company did slightly raise its outlook for the full year, forecasting EPS of $4.75-$4.83 versus its prior guidance of $4.73-$4.83, although that is still a penny below consensus at $4.84.

And finally, what also really stands out about its Q1 report is the company's capital allocation plans. Namely, that it intends to buyback as much as $3.0 billion in stock this year, and that it is increasing its quarterly dividend by 25% to $0.39/share. So, in addition to the solid Q1 results, TJX is aggressively returning capital to shareholders, driving its shareholder yield higher. All in all, while guidance came in a bit disappointing, the report overall looks positive in terms of the health of its business, and, from a shareholder standpoint.

09:38AM ET
Toll Brothers falls following mixed report, gross margin miss

Luxury homebuilder Toll Brothers (TOL) is trading lower following mixed second quarter results this morning.

Revenues grew 17% to $1.60 billion, the highest second quarter ever with growth in every region. Home building deliveries were up 15% to 1,886 units versus 1,825-1,925 guidance. The average selling price came in at $848K vs. $825-850K guidance.

Net signed contracts growth slowed quarter-over-quarter; orders grew 18% to $2.38 billion, the highest quarter ever; contract units grew 6% to 2,666.

Adjusted gross margin fell 180 basis points year-over-year to 22.5% vs. 22.8% guidance. Record lumber prices are the likely culprit.

Toll Brother reported GAAP EPS of $0.72 but excluding inventory impairments, EPS of $0.80 was $0.04 better than expected.

The company raised/narrowed fiscal 2018 delivery guidance to 8.0-8.5K from 7.8-8.6K and ASP guidance to $830-860K from 820-860K. The company reaffirmed gross margin and SG&A expense guidance.

Backlog value at second-quarter end rose 27% to $6.36 billion, the highest second quarter ever; units totaled 7,030 - up 17%.

Chief Executive Douglas Yearley: "Our double-digit dollar growth in revenues, contracts and backlog reflects the health of the luxury new home market. We had another solid spring selling season. The value of signed contracts, the highest quarter in our history, rose 18% in dollars on a 6% increase in units. On a same-store-basis, signed contracts of 9.04 per community were up 16% from last year and the highest for a second quarter since FY 2005. This was our eighth consecutive quarter of year-over-year same-store contract growth... Based on this projected increase in community count, our record second-quarter backlog, the quality of our brand and land portfolio, the financial strength of the affluent home buyer and the breadth of demographic segments we serve, we believe FY 2019 will be another year of growth as well."

Toll Brothers continues to buy back its stock as the stock trades at 10x EPS estimates and 1.5x book value.

Management will host a call at 11:00. Analysts will be focused on order growth and the cost outlook.

08:49AM ET
Kohl's trades up on AprQ results/comps; a good start to the fiscal year

Kohl's (KSS) is trading nicely higher today after reporting impressive Q1 (Apr) earnings results this morning. This comes on the heels of Macy's (M) reporting strong results last week. Perhaps big box retailers are seeing an improving consumer spending environment.

You're probably familiar with Kohl's, but maybe not all the details. It operates 1,100+ department stores, a website (www.Kohls.com), 12 FILA outlets, and four Off-Aisle clearance centers. Its Kohl's stores and website sell moderately-priced proprietary and national brand apparel, footwear, accessories, beauty and home products. Its stores generally carry a consistent merchandise assortment with some differences attributable to local preferences.

Its proprietary well-known brands include Apt. 9, Croft & Barrow, Jumping Beans, SO and Sonoma Goods for Life and exclusive brands that are marketed through agreements with nationally-recognized brands such as Food Network, Jennifer Lopez, Marc Anthony, Rock & Republic and Simply Vera Vera Wang. National brands generally have higher selling prices, but lower gross margins, than proprietary brands.

Turning to the AprQ results, non-GAAP EPS rose 65% YoY to $0.64, which was much better than market expectations. This excludes a loss on the extinguishment of debt. Revenue rose 3.6% year/year to $3.95 bln, which was in-line with expectations. KSS also raised EPS guidance for the full year. It now expects non-GAAP EPS of $5.05-5.50, up from prior guidance of $4.95-5.45.

Same store comps are always an important metric for retailers and on that front, KSS reported AprQ comps of +3.6%. While down a bit from the robust +6.3% comps in JanQ, these results were still above market expectations. Overall, KSS says it's very pleased with its strong start to fiscal 2018 as it continued to focus on priorities of driving traffic and operations.

KSS notes that it has now reported three consecutive quarters of positive comps, which increased on both a fiscal and a shifted basis. Further, KSS exceeded the high end of its margin expectations through continued focus on inventory management, while expenses were in-line with expectations. Gross margin edged up to 36.9% from 36.4% in the prior year period.

In sum, this was a very good start to the fiscal year for Kohl's. The stock is now flirting with a new 3-year high (was $69.48 in mid-January). It was good to see Kohl's come through with a strong result and comp after JC Penney (JCP) reported a mixed/disappointing result. It seems KSS was more on the Macy's side of the retail spectrum this quarter.

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