Q1 2011 Earnings Call

April 11, 2011 4:30 pm ET

Executives

Hamish Sandhu - Chief Financial Officer and Principal Accounting Officer

Lori Nembirkow -

Marc Crossman - Chief Executive Officer, President, Executive Director and Head of Operations - Innovo Inc

Analysts

Steven Chang - MBF Capital Management

Charu Sharma - KeyBanc Capital Markets Inc.

Richard Molinsky

David Griffith - Roth Capital Partners, LLC

Presentation

Operator

Welcome to Joe's Jeans Fiscal 2011 First Quarter Earnings Call. I will be your conference coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's conference, Lori Nembirkow, General Counsel for the company. Please proceed.

Lori Nembirkow

Thanks, operator, and thanks to everyone for joining the call. Present on our call today to discuss our results are Marc Crossman, our President and CEO; and Hamish Sandhu, our CFO.

Before we start let me

We currently maintain our Underperform rating on Malibu, California-based JAKKS Pacific Inc. (JAKK) due to the absence of any significant driving factor in the stock. The negative bias was based on a host of factors including lower seasonal demand, which would lead to losses in the first quarter, increasing input cost and macroeconomic issues.

JAKKS Pacific reported fourth quarter 2010 earnings of 30 cents per share, a nickel ahead of the Zacks Consensus Estimate and above the adjusted earnings of 22 cents in the prior-year quarter. On a GAAP basis, the company reported earnings of 30 cents compared with a loss of 7 cents in the fourth quarter of 2009.

On the downside, during the quarter, the company reported a 0.4% year-over-year decrease in revenues, which amounted to $198.0 million. However, the reported revenues were ahead of the Zacks Consensus Estimate of $171.0 million.

JAKKS Pacific’s business is highly seasonal

Based in Edina, Regis Corporation (RGS) recently reported its third quarter 2011 revenues of $581 million, down 1.1% year over year in a pre-earnings announcement and also below the Zacks Consensus Sales Estimate of $586 million.

The same-store sales for the third quarter plummeted 2.3% year over year. Moreover, this rate of decline was higher than the year-ago quarter drop of 1.8% as well as first and second quarter drop of 1.5% and 1.3%, respectively, implying a significant plunge in the quarter’s same-store sales. The decline was due to inclement weather condition in the month of January and calendar shift of Easter holiday from March to April this year, resulting in a slowdown in customer visits.

Domestic same-store sales plunged 2.6% year over year while International same-store sales decreased 2.0%. However, Hair restoration same-store sales upped 1.3% in the quarter.

Results remained weak in the company’s relatively higher-priced, mall-based Regis

For the past few years, the world has become increasingly obsessed with gadgets and electronics. Technological breakthroughs happen seemingly daily, with exciting, new product releases clustered shortly afterwards. Indeed, nearly a third of respondents to the Compete Shopper Intelligence Survey replied that they plan to purchase electronics in the next 6 months.

With all this gadget obsession, Best Buy (BBY) should be rising to the top of the pack as one of the only large-scale retailers dedicated to electronics, but site visitation is telling a different story:

As you can see from these top retailers, Best Buy is far behind the pack – the number of people shopping its website has even been consistently below the numbers of people shopping the Apple (AAPL) site Apple.com ever since March of this year, only gaining a slight lead during Black Friday sales. With Amazon (AMZN), Target (TGT), and

Let’s keep things in perspective. Take a look at the 4-year comp sales run rates in March 2011 for the following

Competition in the snack food market keeps getting more interesting as mergers and acquisitions continue to increase. Flowers Foods (FLO) just announced their intention to purchase Tasty Baking Company (TSTY) for $ 4 per share a +148% premium over its prior closing price. Flowers is a leading bread and sweet baked goods company with core operations focused in the Southeastern U.S. Tasty Baking is a regional snack cake producer with strength in the Northeastern U.S. Tasty competes with other leading snack cake producers including Hostess brands and McKee Foods (Little Debbie).

This purchase follows on the heals of Diamond Foods (DMND) purchasing the Pringles brand from Procter and Gamble (PG) and a merger of equals between Lance Foods (LNCE) and Snyder’s of Hanover. Diamond has been aggressively adding to its snack nut portfolio through a string of deals including buying Pop Secret from General Mills (GIS) and adding Kettle brand

Arcos Dorados Holdings (ARCO) is scheduling an $874 million IPO with a market capitalization of $2.975 billion at the price range mid-point of $14 for Thursday, April 14, 2011. ARCO is based in Buenos Aires, Argentina. The full IPO calendar lists 7 other IPOs for this week.

SUMMARY & CONCLUSION - The fast food segment in Latin America grew at a 14.5% compound growth rate from 2004 to 2009, according to Euromonitor (page 1, March 25 S-1 filing), which also estimated the fast food segment in Latin America totaled $35 billion in 2010.

In addition, Euromonitor estimates that the growth of QSRs in Latin America and the Caribbean will outpace the growth of the fast food segment generally in the near future. Page 112, March 25 S-1 filing.

ARCO is unique because it is McDonald’s (MCD) largest franchisee, the Master franchiser for Latin America and it is the market brand

In our previous Seeking Alpha article, where we defined a new value screen using the Screener.co stock screener, I mentioned that it makes sense to dive deeper into the retail sector given the number of retail companies returned by the screen. In fact, there are enough interesting companies in the apparel segment alone to justify a follow-up focusing on that segment, specifically. We can use the Screener.co tool again to limit our scope to the Apparel segment and run a value screen designed to uncover potential bargains in that limited universe. We can limit our scope to US-traded companies and create the following screener conditions:

We are looking for companies that have reported growth coming out of the recession but

Less than two months ago on Seeking Alpha I published a copy of a letter I sent to Sardar Biglari, the CEO of Biglari Holdings (BH), voicing discontent at his plan to force small shareholders (those holding fewer than 15 shares) to sell their stock back to the company. You can read that letter here.

Biglari planned to do a 1-for-15 reverse split of the company's stock (which was already trading for about $450 per share) and pay out cash for any partial shares of the post-split stock. This would have forced any small shareholder (with less than ~$7,000 invested) to sell their stock, as they would have less than one full share after the split, and done so without the need for a shareholder vote.

As the founder of a small registered investment advisory (RIA) firm who manages investment portfolios for about three dozen individual investors (many of whom

Another Dow Industrial member to be evaluated using our quantitative models is Home Depot (HD). As we illustrate below, the overall economic growth is expected to gain traction in the second half of the year. This has positive implications for the stock market in general and Home Depot in particular. Historical simulation results suggest that Home Depot may yield about 30% by the year’s end.

As usual, we start with a short introduction about our approach. Stated briefly, we analyze stocks in the context of the business cycle or, in other words, in the context of fluctuations in output growth. In practice, this means that the starting point to the analysis is always an outlook for the general direction of economic growth. After the outlook is constructed, performance of a particular asset is mapped against economic projections using historical data.

Construction of the economic outlook is accomplished by means of

Same-store sales at Nordstrom Inc. (JWN) grew by 5.1% for the five-week period ended April 2. Total retail sales in March 2011 improved 10.1% to $897 million from $815 million in March 2010. As of April 7, Nordstrom had 115 stores, 91 Nordstrom Racks, two Jeffrey boutiques and one clearance store. Same-store sales at Nordstrom stores (includes Nordstrom full-line stores and Direct) increased 5.5% in March while Nordstrom Rack reported a minimal decline of 0.1%.

Quarter to Date

Quarter to date, same-store sales edged up 6.0% while total sales increased 11% to $1,503.0 million.

Store Update

In March, Nordstrom opened five Nordstrom Rack stores. In April, Nordstrom plans to open a Nordstrom full-line store at Christiana Mall in Newark, Del. and a Nordstrom Rack store at Belmar in Lakewood, Colo. Also, it plans to relocate its Nordstrom Rack store at Flatiron Marketplace in Broomfield, Colo. to the Twenty-Ninth Street shopping

Whenever you see a successful business, someone once made a courageous decision.

-Peter F. Drucker

Starbucks (SBUX) recently celebrated its 40th birthday with some historic relevance. First off, the 16th century Norse siren in the coffee chain’s logo has become a queen. She now appears without text making the global brand more appealing abroad. According to Vikas Mittal, a Rice University professor who studies logo redesigns and branding, the logo has reached a "tipping point" where it is recognizable without text, something to which most big companies aspire [i.e. Nike’s (NKE) swoosh]. In a paper published by Mittal (and co-authors Michael Walsh and Karen Winterich), the Journal of Consumer Marketing found that when angular logos were changed to rounded ones, they were more appealing in countries like India and China. Secondly, a new motivational book, "Onward: How Starbucks Fought for Its Life Without Losing Its Soul," was recently released. In

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Heineken (HINKY.PK) won the battle for the Mexican brewer FEMSA last year. This acquisition was seen by analysts as a must-do deal for Heineken, because with it, it secured its position on the American continent, both in the North and South. Moreover, the company's emerging markets exposure increased from about 32% to about 40%.

A report has suggested that SABMiller (SBMRY.PK) and Heineken are both considering bidding for Brazil's second-biggest brewer by volume, Primo Schincariol. The report suggests the privately-owned business has been put up for sale for about $2 billion, although both companies have chosen not to comment on the report.

Heineken is already active in Brazil with Cervejarias Kaiser and has a market share between 8 and 9%. An acquisition of Schincariol would be a tremendous opportunity and would cement it as Brazil's second-largest operator (right now, Heineken is no. 4). It could immeditely

I often like to peruse stock screens for the individual stock names that are hitting 52-week, multi-year and all-time highs. Often you can gain insights into where the money is flowing.

Looking at the new all-time highs list today, the list is populated by many well-known names in the Retail sector. (Coincidentally and to disclose, our premium clients are holding SPDR S&P Retail ETF (XRT) Calls currently.)

The strength in Retail is surprising to many and seems to be based on strong same-store sales results amid low expectations. The rising price of gasoline has also been a negative consideration for this group, which thus far has seen many companies shaking this off and in fact thriving recently.

Among the varied names in this group (or closely related to it) that are outperforming and hit all-time highs today despite Japan quake news are:

Williams-Sonoma (WSM)
Costco (COST)
Bed Bath & Beyond

There are more than 300 takeover rumors every year. The stocks that were the subject of takeover rumors initially jump by an average 2.9% but lose 1.2% in the following month. The reason is simple: Only about 15% of takeover rumors are real and the remaining 85% are just speculation. We previously discussed a strategy that will return 22% annually by shorting takeover rumors.

Shorting takeover candidates is indeed a good strategy. It is also possible to improve this strategy by excluding stocks that are more likely to be takeover candidates. One way of doing this is excluding takeover candidates that are favored by top hedge funds. Hedge fund managers may know something about a potential takeover, or they just think it is great stock to own. In either case, it is probably better not to short these names.

The Street recently published a list of 21 retail stocks that

Wow. Comp store sales for March 2011 were impressive. What’s even more impressive is that the sector was lapping a great weather month. Let’s go one step further… the sector now bumps up against an easy weather comparison in April 2011 versus LY.

It’s becoming clear that simply looking this year’s macroeconomic tailwinds versus LY may not be the best way to forecast a company’s (or the broader retail sector’s) comp store sales growth this year. Essentially, the materially depressed consumer spending of FY 2008 & FY 2009 suggests that investors/analysts need to evaluate sales trends over a much longer timeframe (than 1 year) to more effectively forecast forward top-line trends.

Then again, let’s all remember that 1-year ago today the sector was experiencing a similar top-line sales trend (i.e. greatly outperforming expectations) that began to come to a halt in April/May 2010.

The home category was strong at BONT,

By Devin Coldewey