QUOTE OF THE DAY
There’s a lot of people right now…in panic mode.”
That’s the CEO of Dicks Sporting Goods, Edward Stack, discussing the chaotic retail industry. It was a bad day for Dicks, but other retailers picked up the slack. Find out which ones below
Market Snapshot
- The Dow ended flat while the S&P and Nasdaq finished lower.
- The dollar jumped to a three-week high on strong U.S. retail sales data.
- Oil prices fell due to lower demand.
- U.S. import prices rose higher after two months of decline.
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Bargain Hunters
It was a big day on Wall St. for retailers, as Dicks Sporting Goods (-23.03%), Home Depot (-2.65%), Coach (-15.19%), and TJX (+0.78) all reported earnings.
And while the results were varied (Dicks plummeted; Home Depot beat expectations; Coach was a mixed bag), one company, reporting 6% year-over-year sales growth, really caught our attention:
TJX
Ring a bell? It’s the owner of more than 3,800 Marshalls, T.J.Maxx, HomeGoods and other stores across the world. What you may not know is that while most retail companies are buying one-way tickets aboard the E-commerce Express, TJX is betting that you’ll actually want to shop at its physical stores. Millennials—now is a good time to ask your parents what a “physical store” is.
TJX’s whole business model operates under the assumption that you’ll make an in-person visit: rapid merchandise turnaround for a dynamic shopping experience, cheap apparel for those who love hunting for bargains (20%-60% below standard prices), and store locations in strategic neighborhoods.
The numbers tell the story: only 1% of TJX’s revenue comes from online sales. 1%…seriously? Compare that with Macy’s (-0.29%) at 18%. Oh, and if you want to drop some more TJX knowledge on your friends, note that TJX’s market cap ($45 billion) is nearly seven times that of Macy’s.
Okay, enough hyperventilating…what’s the catch?
Don’t be fooled—e-tailers like Amazon (-0.06%) are still running the show. The Commerce Department reported strong retail growth in July (0.6%, the best month since December), but keep in mind that internet sales jumped 1.3% in the same timeframe.
Because if your Alexa hasn’t reminded you yet, we will: July means Prime Day, Amazon’s annual shop-til-your-battery-drops extravaganza.
So in this challenging environment of online retail, TJX is taking an alternative approach: if you don’t join ’em, you can beat ’em.
Buffet Pulls the Plug on GE
Warren Buffett giveth, and Warren Buffett taketh away.
Nearly a decade after helping GE through the financial crisis with a $3 billion investment, Berkshire Hathaway has sold all of its 10.6 million shares in the company.
Buffett’s patting himself on the back as GE stock grew 40% while he owned it—that’s over $1 billion in profit—but at this point it’s probably a good time to look elsewhere for value.
Even though GE is one of America’s oldest companies, it’s not aging particularly well. CEO Jeff Immelt stepped down this summer, and GE’s stock has performed dead last in the Dow Jones in 2017. To right the ship, GE is hoping to shed its legacy businesses like light bulbs in favor of emerging technologies like the Internet of Things.
But it’s too little, too late for Buffett.
A Bezos Always Pays His Debts
Watch out, Amazon just released the new…only kidding.
But, the retail giant is issuing up to $16 billion in investment grade bonds to finance its Whole Foods acquisition—a rare move for a company with only $7.8 billion in debt outstanding.
Nothing gets the blood flowing quite like the debt capital markets. And Amazon is the most recent high-growth tech company raising money this way (Netflix: $1 billion in junk bonds—Tesla: $1.8 billion in junk bonds).
So what differentiates Netflix (-1.46%) and Tesla’s (-0.40%) “junk bonds” from Amazon’s “investment grade” debt? Plain and simple: cash flow.
While Netflix and Tesla continue to post big losses in operating cash flow (OCF)—a measure of cash earned through normal business operations—Amazon generated $16 billion in OCF just last year.
Which means Amazon has the cash on hand to pay back investors. So, if you’d rather have Amazon pay you for a change, now’s a good time to invest.
Oh, and btw—Amazon introduced Instant Pickup Points.
Table For Two
If you were wondering where you can find Tiffany diamond rings next to a Cheetos family pack, try Costco aisle five.
After years of Costco (-0.65%) mislabeling engagement rings under the Tiffany brand name, the wholesale retailer is finally paying up. A judge ordered Costco to fork over $19.3 million to cover trademark infringements.
You might be asking, “How blatant was this infringement?” Well, if you look at the evidence, these rings priced at $3,199 and $6,399 were marketed as true “Tiffany” in the display case—and well below similar models that start at $12,600.
As the situation stands, Tiffany is excited about the win, Costco plans to appeal and a whole lot of significant others have some explaining to do.
Tell Me More…
- Microsoft (+0.03%) acquired Cycle Computing to improve its cloud service offerings.
- Deutsche Bank (-0.93%) named Tom Patrick as CEO of the Americas.
- Bill Gates donated $4.6 billion of Microsoft stock to his family’s charitable foundation. Rock on, Bill.
- The president of the American Alliance for Manufacturing, Scott Paul, resigned from President Trump’s business advisory council—the fourth to do so in three days.
Economic Calendar
- Monday Earnings: No Events Today
- Tuesday Earnings: Coach (+), Home Depot (+), Dicks Sporting Goods (-), Urban Outfitters (+), TJX (+)
- Wednesday Earnings: Cisco, Perry Ellis, Progressive
- Thursday Earnings: Alibaba, Gap, Wal-Mart
- Friday Earnings: Deere & Co, Estee Lauder, Foot Locker
Economic Events: No Events Today
Economic Events: Retail Sales (+), Housing Market Index (+)
Economic Events: MBA Mortgage Applications, FOMC Minutes
Economic Events: Jobless Claims, Industrial Production, E-commerce Retail Sales, Money Supply
Economic Events: Consumer Sentiment, Baker-Hughes Rig Count
Brewified Terms
Stock Split:
What it is:
A stock split happens when a company divides its existing outstanding shares into more shares. A split can occur in any ratio (2-for-1, 4-for-1, etc.). In the case of a 2-for-1 split the number of shares outstanding doubles while the price halves. To truly understand why the price lowers, it’s important to know the equation for a company’s share price (market capitalization/shares outstanding). Aka, a larger denominator means a lower share price value.
Let’s see it in practice
Back in 2014, when Apple’s stock had risen all the way to $645.47 a share, the company split 7-for-1. As a result, investors received 7x the number of shares they previously owned. After the split, the market cap remained the same, but the more shares outstanding gave Apple a new share price of $92.21.
It’s important to remember
This new share price does not change a company’s market capitalization. Think about it this way—if you have a $20 bill and someone exchanges that for two $10 bills, you still have $20.
So what are the conventional, but heavily controversial reasons for splitting?
1) Psychology: By decreasing the price of each share, investors may be more attracted to the cheaper price, therefore driving demand for the stock.
2) Liquidity: More shares in the marketplace means more shares are being traded. Aka the easier it is to sell off or take up a position. And the more liquidity a stock has the more appealing it can be to investors.
Question of the Day
Among 200 people, 56% like strawberry jam, 44% like apple jam, and 40% like raspberry jam. If 30% of the people like both strawberry and apple jam, what is the largest possible number of people who like raspberry jam but do not like either strawberry or apple jam?
A. 20
B. 60
C. 80
D. 86
E. 92
(Give up?)
Who Am I?
I am chairman of the world’s largest cruise ship operator.
I was also its CEO for 34 years, during which I expanded the fleet from 2 to over 100 cruise liners.
This cruise company holds an overwhelming ~47% share of the cruise passenger market (2015).
I am the owner of the Miami Heat and my son is the CEO.
Stat of the Day
90 seconds
The shortest scheduled flight in the world, connecting the two Scottish islands of Westray and Papa Westray. The 1.7 mile flight route, operated by Loganair, is flown by one pilot and only seats eight passengers.
