Blackstone exits SeaWorld investment at a 33% premium as Chinese investors step in
SeaWorld Entertainment (SEAS) is up ~5% after Blackstone (BX) sold its 21% equity interest in the company to Zhonghong Zhuoye Group at $23.00 per share, a 33% premium.
SeaWorld has struggled to entice visitors to its theme parks after the Blackfish documentary in 2013 changed at least some people's perception of keeping animals captive for entertainment purposes. What's more, competition from Disney (DIS) and Universal Studios (CMCSA) is stiff in its core markets of Florida and Southern California.
Attendance fell 2% last year after rising 0.3% in 2015 and falling 4.2% in 2014.
Zhonghong Group is a diversified holding company focused on strategic growth opportunities in the leisure, tourism, and culture industries.
SeaWorld and Zhonghong also agreed to advisory services and support agreements under which SeaWorld will advise Zhonghong Holding exclusively on the concept development and design of theme parks, water parks, and family entertainment centers to be developed and operated by Zhonghong Holding, including exclusive rights in China, Taiwan, Hong Kong and Macau. So this deal does open up a new avenue of growth for the company.
SeaWorld punted on fiscal 2017 guidance when it reported fourth quarter results in late February. The company plans to issue EBITDA guidance for the full year when it reports Q1 results, likely in early May. The Street expects EBITDA to rebound to 2015 levels after falling about 8% last year.
SeaWorld has a ~$1.6 billion market cap and roughly the same amount of debt.
KB Home makes three-year highs as earnings, backlog shine
Making fresh three-year highs, shares of homebuilder KB Home (KBH 19.53, +0.21) cozy up to gains of 1.1% today in reaction to last night's Q1 beat and FY17 guidance raise.
For those who may not be familiar with KBH, the Los Angeles-based homebuilder has built about 600,000 homes since being founded in 1957 and as of February 28, 2017 had a total home backlog just shy of 4,800 carrying a value of just under $1.8 million.
Getting back to the Q1 print, KBH reported a strong top and bottom line with GAAP earnings per share (EPS) of $0.15 on revenues which rose about 20.7% to $818.6 million. Housing gross profit margin decreased 140 basis points to 14.6%, which included 50 basis points of inventory-related charges.
KBH also reported strong deliveries for the quarter of 2,224 homes, up 14% on increases across the company's four operating regions .Net orders for the quarter were up 14% to 2,580, and net order value grew 32% to $1.09 billion. Additionally, average selling price was up 6% to $364,600 while the average selling price of homes in the backlog increased 12%.
Additionally, on the conference call, management noted their encouragement on the strong start to the spring selling season. Further, management gave guidance on the call for Q2 housing revenues between $880-940 million with full year homebuilding revenues in the range of $4.0-4.3 billion, up from $3.8-4.2 billion. The company also sees Q2 average selling price in the range of $387,000-392,000 with full year ASP of $385,000-395,000.
In all, the strong backlog and earnings beat seem to be driving the gains today. The pullback post-open may be attributed to the run up into the print, +22.9% YTD, as the stock has handily outperformed the broader market since the start of the year (S&P +5.1% YTD).
Looking Ahead - March 27, 2017 - Oil Production Cut Compliance Meeting
Oil prices surged after OPEC announced a production cut agreement on November 30 and they moved up even further after certain non-OPEC countries did the same in December. Lately, though, oil prices have come under some notable selling pressure on renewed supply concerns, which is why traders are apt to be keeping a close eye on this weekend's production cut compliance meeting.
OPEC/Non-OPEC Production Cut Compliance Meeting in Kuwait (Sunday, March 26)
CORRECTED -- Sportsman's Warehouse trades sharply lower on JanQ earnings/guidance
Sportsman's Warehouse (SPWH), which made its IPO debut in April 2014, is trading lower (-13%) today after it reported Q4 (Jan) results/guidance last night. In case you're not familiar, Sportsman's Warehouse is an outdoor sporting goods retailer (camping, hunting, fishing), primarily in the western US.
The company was founded in 1986 as a single retail store in Utah and has grown to 70 stores across 20 states. Today, SPWH has the largest outdoor specialty store base in the Western US and Alaska. Management notes that its sales associates are extremely well trained and know the local areas (hunting, fishing) very well.
SPWH is still quite small with 75 stores but they have been picking up the pace in terms of openings. From FY11-FY13, SPWH opened an average of four stores per year. However, in FY14, the company stepped up that pace to eight new stores and nine new stores opened in FY15. Another step up happened in FY16 as SPWH opened 11 stores this year. And for FY17, SPWH expects to open 12 stores.
For the next several years, the goal is to open 8-13 stores annually. So as you can see, SPWH is ramping up its footprint. Most of the new stores will be in the western US although they are branching eastward as SPWH has recently opened stores in North Carolina and West Virginia. Management believes its existing infrastructure (distribution, IT etc.) in the western US should allow it to ramp to 100 or more stores without significant additional capital. Longer term, SPWH believes 300+ locations is very doable.
SPWH is one of the few large outdoor sportsman chain in the western US where the market is more fragmented and has more mom-and-pop stores. Big 5 Sporting Goods (BGFV) is based in California and has a good presence on the west coast with a huge presence in California. However, it seems SPWH has more of an emphasis on outdoor activities like camping, fishing etc. So it's a little different. More similar competitors, such as Cabela's (which is being acquired by Bass Pro Shops) and Gander Mountain (which recently declared bankruptcy) do not have a large western US presence. SPWH competes mostly against smaller chains and mom & pop stores so it's in a good position.
Turning to the Q4 (Jan) results, non-GAAP EPS fell 7% YoY to $0.25, which was a good bit below prior guidance of $0.27-0.30. Revenue rose 6.2% year/year to $221.4 mln, which also was a good bit below prior guidance of $230-235 mln. Same store sales in JanQ fell -5.2%, which was below prior guidance of -1% to +1%.
In terms of guidance for Q1 (Apr), SPWH expects a loss of $(0.08)-(0.06) per share and it expects revenue of $150-155 mln. Both numbers are below market expectations. The same store comp guidance for AprQ was pretty rough as management expects a decline of -11% to -9%.
Consistent with what other sporting good retailers have been saying, the retail environment is really tough. Also impacting SPWH's results was the fact that it anniversaried both the San Bernardino tragedy and the executive orders from December and January which created a difficult comparison for its hunting and shooting category.
Looking at fiscal year 2017, SPWH is taking a conservative approach when planning its hunting and shooting business, particularly for the first half of the year until the company anniversaries the unfortunate events that took place in Orlando in June 2016. Despite the choppy current environment, SPWH believes there is significant market share opportunity in the outdoor goods space.
In sum, this was a difficult quarter for the sporting goods space and SPWH clearly has felt the impact. While they did not mention it directly in the press release, it's likely that SPWH is being hurt by online competition like Amazon (AMZN). Management has said in the past that it is fairly well insulated from online competition. Specifically, about 30% of revenue is completely shielded from the internet (firearms, knives, powder cannot be sold on internet). For another 25% of revenue, it just does not make sense to buy online (99 cent fishing flies for example). Also, SPWH sells online and can offer in-store pick ups that an Amazon cannot offer.
With that said, the retail environment generally and the sporting goods retail sector in particular seems like it's getting hurt by online competition. Just look at Gander Mountain, they recently declared bankruptcy. Also, Sports Authority (filed for bankruptcy in 2016 and liquidated its stores) and Sport Chalet (closed all of its stores in 2016) recently closed up shop. It's tough right now in the sporting goods space, we'll see if it improves later this year.
Finish Line Tripped Up by Disappointing Q4 Report and Outlook
Finish Line (FINL 13.09, -2.32, -15.0%) is a premium retailer of athletic shoes, apparel, and accessories. It is also responsible for the athletic footwear assortment, inventory, fulfillment, and pricing at all of Macy's (M 28.09, -0.28, -1.0%) locations and macys.com. That's enough of an introduction most likely to let readers know that the latest earnings report and outlook from Finish Line left a lot to be desired.
Macy's struggles have been well documented at this point and both Nike (NKE 56.10, +2.18, +4.0%) and Under Armour (UA 18.11, +0.60, +3.4%) shared some disappointing guidance of their own when they reported their latest quarterly results. In fiscal 2016 Nike accounted for 73% of Finish Line's merchandise purchases.
It seems only natural then that Finish Line, a mall-based retailer, would have encountered some sales challenges in its fourth quarter. Sure enough, it did.
Fourth quarter consolidated net sales decreased 0.4% year-over-year to $557.5 million, which was above analysts' average expectation, and comparable sales decreased 4.5%. On a brighter note, Finish Line Macy's sales surged 35%.
The sales challenges manifested themselves in a highly promotional cadence that led to a 500 basis points decline in its gross margin rate to 29.1%. In turn, the lack of sales growth, combined with the promotional activity aimed at clearing inventory, led to a 41% decline its non-GAAP profit of $0.50 per diluted share, which was well below analysts' average expectation.
The company said it ended fiscal 2017 with clean inventory levels. Its balance sheet suggested as much, showing consolidated merchandise inventories were down 4.8% year-over-year versus a 2.5% increase in consolidated net sales of $1.84 billion for fiscal 2017. It was further noted that merchandise inventories decreased high-single digits at Finish Line but increased high-single digits at Macy's.
That attention to inventory management as the quarter wound down should help Finish Line cut down on its aggressive promotional activity, but of course the demand needs to be there from customers to make that happen.
At this juncture, it sounds as if Finish Line is taking a conservative approach to its outlook for fiscal 2018, which is a 53-week year.
It is forecasting comparable sales to increase low-single digits and earnings per share to be in the range of $1.12 to $1.23, up 6% to 16% from its non-GAAP diluted earnings per share of $1.06 for fiscal 2017. The additional week in fiscal 2018, it was said, is expected to contribute approximately $0.06 per share to its fourth quarter and fiscal 2018 results.
The high end of the earnings per share guidance range for fiscal 2018 is well below analysts' average expectations, underscoring the point that analysts still have some work to do of their own to get a better handle on Finish Line's business in the face of some severe industry challenges.
Investors have a sense that a turnaround won't be quick, or easy, and that is showing up in the stock price. At Thursday's close, FINL had fallen 15% over the last 52 weeks, yet it has plunged 15% alone today in the wake of the retailer's fourth quarter report and outlook.
Micron Surges After Strong Results
Micron (MU 29.03, +2.56) has spiked 9.7% after beating quarterly expectations and guiding ahead of market estimates.
The chipmaker reported above-consensus second quarter earnings of $0.90 per share on a 58.4% year-over-year surge in revenue to $4.65 billion, which matched expectations.
Average DRAM selling prices jumped 21.0% while trade NAND sales volume grew 18.0%. Gross margin surged to 38.5% from 26.0%.
Micron has continued expanding its footprint in the DRAM arena, acquiring the remaining 67.0% interest in Inotera Memories in early December. This followed the company's acquisition of Elpida in the middle of 2013. The increased control over the DRAM market has expanded Micron's pricing power in recent quarters.
The company noted that it is still in the midst of executing its cost reduction plan, but those efforts have been masked by strong DRAM and NAND sales. Micron CEO noted that the industry supply of DRAM and NAND was limited during the second quarter. Accordingly, Western Digital (WDC 80.31, +4.12), who acquired SanDisk in May 2016, has enjoyed a 5.4% spike due to expectations that the company will also benefit from a tighter supply of NAND. Seagate (STX 46.33, +1.20) also trades in the green, but holds a slimmer gain (+2.7%) since the company does not have nearly as big of a footprint in the NAND market as Micron or Western Digital.
Micron expects the good times to continue, evidenced by guidance that is well ahead of market expectations. The company expects to generate third quarter earnings between $1.43 and $1.57 per share on revenue between $5.20 billion and $5.60 billion.
Data Analytics Software Developer Alteryx Prices IPO at High End of Expected Range
Last night, Alteryx's (AYX) 9.0 million share IPO priced at $14, which is at the high end of the $12-$14 projected range, raising total gross proceeds of $126.0 million. The IPO is set to begin trading on the NYSE shortly after the open. In addition to a reasonable float size, the deal boasted a set of tier one underwriters, including Goldman Sachs, JP Morgan, Barclays, and Citigroup. So, right off the bat, this deal had a couple positives working in its favor.
Alteryx (AYX) is a developer of self-service data analytics software that enables organizations to improve the productivity of their analysts. More specifically, its subscription-based platform allows its customers to easily prepare, blend, and analyze data from a variety of sources, enabling quicker data-driven decisions.
Its platform includes Alteryx Designer, its data preparation, blending, and analytics product deployable in the cloud and on premise. It also offers the Alteryx Server, a secure and scalable product for sharing and running applications in a web-based environment. And, lastly, its Alteryx Analytics Gallery is a cloud-based collaboration offering that is key to its platform. It allows users to share workflows in a centralized repository. In short, AYX's goal is to make its platform as common in the workplace as spreadsheets are today.
The company employs a "land and expand" strategy in which it often offers new customers a fee trial. This is then followed by an initial purchase of its platform. The company says that over time, usage of the platform spreads across departments, divisions, and geographies through collaboration and standardization of business processes.
Overall, AYS'x financials look pretty good, with the exception of the steady stream of operating losses. But, even there, the losses aren't massive and have been very steady -- as opposed to worsening. What stands out, though, is its revenue growth, and its margins, have been on the rise. Oftentimes when a tech company goes public, its revenue growth rates have already topped out. So, this is a notable positive. Another positive is its balance sheet, which is clean with no debt and a healthy amount of cash.
Taking a look at its FY16 results, revenue jumped by 59%to $85.8 million. The increase in revenue was primarily from additional sales to existing customers and, to a lesser extent, the increase in total number of customers. For the years ended December 31, 2015 and 2016, revenue attributed to existing customers was 89% and 92%, respectively, of revenue.
Gross margin increased by 100 basis points year/year as a result of an increase in the proportion of revenue from subscriptions relative to revenue from professional services, partially offset by channel mix. As for expenses, Sales & Marketing is its largest expense and was up 33% to $57.6 million. That is actually a fairly reasonable increase relative to other tech IPOs. Also, as a percentage of revenue, Sales and Marketing declined to 67% from 80%.
Still, the 44% increase in total operating expenses was enough to offset the strong revenue growth and bump in gross margin. Specifically, AYX reported an operating loss of ($23.0) million vs. ($21.1) million in the year ago period.
Cautious Outlook Sends GameStop Lower
GameStop (GME 21.20, -2.76) has plunged 11.5% in pre-market as cautious guidance masks earnings that were ahead of the company's warning from January 13.
The video game retailer reported fourth quarter earnings of $2.38 per share on a 13.6% year-over-year decline in revenue to $3.05 billion, which was just shy of estimates.
GameStop's struggles are not new, considering the stock has faced a steady downtrend since hitting a seven-year high near $57.75 in late 2013. Shares have been on the defensive in recent years, reflecting the company's struggle to adjust to changes in the delivery of digital content. Video game publishers have taken steps to eliminate the middle man, selling a large portion of their content online. In addition to cutting out the retailer, this allows the publisher to avoid costs associated with packaging and producing physical disks with content. Instead, many games are now delivered through the internet and installed on the end user's console and PC.
On February 28, Microsoft announced the launch of a service, which will allow users to play more than 100 Xbox One and Xbox 360 games. The number of offerings is expected to grow over time and the service will be accessed after paying a monthly subscription fee. GameStop shareholders took note of this development, sending the stock lower by 7.8% on the day of Microsoft's announcement.
Returning to fourth quarter results, total global sales were down 13.6% to $3.05 billion. Consolidated comparable store sales fell 16.3% with U.S. sales falling 20.8% and international sales dropping 4.6%. The company said that weak sales of certain top-tier titles and aggressive console promotions conducted by other retailers fueled the decline. New hardware sales fell 29.1% while new software sales dropped 19.3%.
GameStop is still in the business of selling used video games, which gives the company a slight edge over the digital-only approach to sales, considering games that are sold online and downloaded cannot be re-sold. However, sales of pre-owned games were also down, falling 6.7% year-over-year.
Digital receipts declined 7.7% to $373.40 million. Technology Brands sales grew 43.9% year-over-year to $256.00 million while Collectible sales grew 27.8% to $212.40 million.
Looking ahead, the company expects headwinds to persist. GameStop expects full-year earnings between $3.10 and $3.40 per share, which is shy of current market expectations. Revenue is expected between $8.44 billion and $8.78 billion, which encompasses current market estimates. The company will no longer provide guidance for quarterly earnings nor same store sales, hoping to minimize "investor distraction" as the company continues diversification efforts.