Gap’s New CEO Revealed Her Game Plan to Turn Around the Struggling Company After Transforming Old Navy into the Second Largest Apparel Retailer In the Country
- After deciding not to spin out Old Navy into a stand alone company earlier this year, Old Navy CEO Sonia Syngal has been promoted to CEO of The Gap (announced March 5). At Old Navy, Syngal had great success improving execution and driving $1 billion of incremental revenues from 2016 to 2019.
- At The Gap her focus will be better execution, improved monetization of the brands, cutting costs, and and leveraging the company's large marketing base of 60 million active customers.
- The past week, the company reported a strong 4Q with improved margins although there are macro related concerns for the balance of 2020. The stock was up 7.4% on Friday.
- Our Take: Syngal clearly has her hands full turning around The Gap. On the one hand, there does appear to be material room for improved execution, although ultimately she needs to find a way to better drive sales trends through better merchandise which will be a challenge (although improved marketing should help). Should be interesting to track.
- Subscription SaaS software business models seem to proving that they can insulate these companies from demand side market disruptions (like coronavirus).
- Adobe and Docusign have traded up 8% and 4% respectively since reporting earnings the past month after beating 4Q estimates. Adobe guided down slightly and Docusign raised guidance. Both management teams citing little to no impact from coronavirus.
- In the case of Docusign, they think the virus may accelerate adoption to digital signatures. For Adobe, management does expect enterprise customers to delay new bookings and postpone some services.
- While Slack stock has not held up trading down 8% since reporting a 4Q beat, but guided down slightly due to the macro. This guidance surprised the market which had expected the company to be insulated from the impact of the coronavirus. Management also commented that its difficult to predict the conversion of "freemium" users to paying customers.
- Our Take ... We are finding out why SaaS software companies get higher stock multiples. They seem like good options with business models that are more insulated from the current environment, and likely to be leaders as the economic environment normalizes.
- Good update article that cites comments from Leerink analyst on progress of drugs at Gilead and Regeneron. The article's title doesn't make much sense as the writer cites positive analyst comments on drugs in the pipeline and both stocks are way up from January/February lows, although off recently. According to the analyst:
- Early indications on Gilead’s antiviral drug Remdesivir, originally developed to treat Ebola virus, is the most promising treatment with what the analyst thinks are positive early studies in China and Korea.
- The analyst also had positive comments on Regeneron noting it has three or four treatment strategies in the works, including an antibody cocktail that could work against different viral proteins using mouse technology.
- Closed since early February, Apple reopened its 42 stores in China as the government there begins to ease restrictions on businesses and the movement of people.
- Separately, Wells Fargo upgraded the stock to OVERWEIGHT (see below).
- While not surprising and understandable, it is still shocking to see a major company essentially shut down for 60 days. Princess Cruises will be back in operation May 11.
- Carnival corporation is down 11.9% and off more than 30% from its January high.
- Viking suspended its operations until May 1.
- While bank stock prices get crushed (down 30% this year) along with falling interest rates, yields can look attractive if you can take a longer view and likely take the short-term pain.
- Importantly, analysts point out that bank dividends are generally safer than during the financial crisis. Lending standards have tightened up, banks are better capitalized, and years of stress testing have forced banks to prove their durability in scenarios such as the one we’re seeing now.
- Payout ratios are generally 35% to 42%, according to Keefe Bruyette & Woods. The firm says these bank stocks have sustainable dividends with payout ratios below 75%.
- Wells Fargo (6.3% yield), Citi (4.0%), Comerica (7.6%), Citizens (6.9%), Huntington (6.3%), Key Corp (6.1%), Cadence Bankcorp (8.4%), Umpqua (7.5%.
- The tech supply chain has begun to recover in China as illustrated by Foxconn's announcement that its factories will be at 100% capacity by the end of March, if the epidemic doesn't worsen. Views are that while much of the lost business will flow over to a back-end loaded 2Q, it seems most believe that supply chain disruptions will flow into April.
- From Bernstein: “We see further risk to numbers and sentiment, with both news flow and revisions likely to get worse before they get better in the near to medium term”.
- Down market, obviously the demand side of the equation needs as sales of PCs and smartphones, has slowed down. It was noted by Wedbush that in China in February Apple sold 500,000 phones versus 1.27 million last year.
- Netflix stock has held up through the coronavirus vs. other large cap stocks (and the S&P) the past month as the company is perceived to benefit from people sheltering at home.
- Needham analyst Laura Martin has a different take. She believes the economic impact from coronavirus domestically and internationally will impact Netflix's subscriber churn. Her view is that the Netflix service is a luxury which could be impacted by lower household income.
- She also cites the company's high debt level which could be an issue if credit markets are impacted.
- We are probably not on board with this call as seems to us a subscription model is preferable assuming the coronavirus doesn't impact long-term, but obviously we will see the coming months.
- Here's a good run down of the Fed actions over the weekend:
- Jones Trading: “They blew it. The Fed panicked and the market is spooked. The S&P 500 registered all time highs less than a month ago and the Fed has expended all its conventional and unconventional tools."
- Natwest: “The fact is global equities are still getting slammed. It shows markets worried more about infection rates and growth and need to see a large fiscal response."
- Creative Planning: “It’s largely inconsequential. The bottom line is this is a health issue.
- UBS: " ... we expect the market to end the year at much higher levels than today, with China’s economy leading the way to recovery and the U.S. and European economies rebounding in the third quarter.”
- Pimco: “All said, policy makers including the Fed are in the process of pulling all the stops to mitigate the severe economic and financial disruptions...More will be needed and will likely be forthcoming over the next few weeks and months.”
- Our Take: Too much too soon? The 3,000 point turnaround in the Dow Futures after the Fed actions on Sunday was astounding. Looking ahead, we see a shift/extension in the head line risk to stocks from the real financial impact on employees in industries and businesses being closed. A question we have, is when does the administration of the government begin to start to shutdown, where workers are generally not set-up to work from home. Obviously precarious times, but again just need to get to the other side. Growing Street consensus is "deep but short" ... hopefully.
‘One of the Buying Opportunities of a Lifetime’: Here’s why Wharton professor Jeremy Siegel Thinks the Coronavirus-Driven Stock Rout is Laying the Foundation For a Massive Bounce Back
Bullets from the article:
- Jeremy Siegel, professor of finance at the Wharton School, says the coronavirus-induced stock selloff could present a buying opportunity of a lifetime.
- He notes the strength of the US economy prior to the market plunge, and thinks that if our market follow China's (who he says have completely recovered) a sharp reversal may be in order.
- Siegel says "fear will continue to drive this" in the short-term.
- He lays out what's becoming the consensus "recovery" opinion ... we agree.
- A day after Saudi Aramco confirmed it will up oil production by 2.5 million barrels per day on April 1, it also announced that the company will expand sustainable output by another 1 million barrels to 13.0 million. They are digging for a war of attrition.
- Other OPEC members are piling on with UAE also increasing production by 1 million barrels per day.
- Based on comments from the Russian oil minister, they are not backing off either and continue to pay "Russian roulette".
- The energy meltdown threatens to repeat the 2014-2016 crash that bankrupted dozens of oil and gas companies and caused hundreds of thousands of layoffs.
- Comment from the International Energy Agency, "The only thing I would hope, that in the oil markets, common sense will prevail and all the actors behave responsibly as the world is facing major challenges today,".
Is Coronavirus Airborne? Will It Live In My Bathroom? Is it OK to Fly or Eat Out? Are Men More Susceptible? Busting Myths and Confirming Facts of COVID-19
- Article does a good run down of facts related to how coronavirus is transmitted.
- Is coronavirus airborne like measles?: No, it is transmitted in droplets.
- How long can it live in your bathroom?: Coronavirus can live on surfaces for a few hours to a few days. High temperatures are likely to degrade it.
- Will recirculated air on a plane make me sick?: In-flight oxygen is probably higher quality than the air in your home. But the exposure area around a person who has the virus is about six feet. Ventilation systems change over air 20 to 30 times an hour running the air through HEPA filters to tap viruses, funghi, and dust.
- Are men more affected than women?: Yes, men are more likely to be infected with more severe symptoms. Woman have oestrogeon which apparently has a protective effect.
- Do face masks help?: Face masks help prevent patients from spreading the virus, but they don’t protect the healthy. Most face masks do not effectively filter small particles or prevent leakage around the edge of the mask.
- Human spacing is key.
- Obviously lots of commentary on the lack of substance and leadership from Trump's speech last night after which futures plummeted.
- From the article, traders continue to believe the coronavirus impact on the economy will be transitory, and expect a quick rebound when there is visibility of the virus turning.
- While others say that the reversal of negative sentiment associated with major market down drafts typically does not lead to brief bear markets.
- From us. Unfortunately the title of this article is misleading as no one knows the extent and timing of the on-going market volatility. But, we do know that there is a defined tail as the virus will run its course. For stocks, its a question of companies having balance sheets to weather a paralyzed economy, and importantly, continued liquidity and operation of the banking system and credit markets.
- Great article that seems to support what we've been saying ... look at where the coronavirus has been, not where its going (cause its going everywhere). In this case China where stocks are essentially back to 52 week highs, even after oil shock Monday.
- Chinese stocks began to turn around as the number of new cases began to go sideways (in early February).
- On Tuesday, China’s leader, Xi Jinping, visited Wuhan, and people are going back to work in re-opened factories, as Bejing lowers restrictions.
- While it isn't clear how the virus will unfold in the US and Europe, where health care infrastructure is much more robust, and there is the benefit of lead times.
- Industrial companies that will benefit from the economic stimulus have done well, as have e-commerce stocks as people have been forced to go on line more.
- The ultimate economic recovery in the US will be determined by a combination of the public health care actions and monetary, fiscal and other federal support (from us, all of which Trump seems primed to roll out during this election year).
- Interesting article that goes through the chain of events and reasons that led to Putin pushing back from agreeing to cut oil production and the resulting fallout the past week.
- Putin made a decision that propping up prices through the corornavirus impact on energy demand was a gift to the U.S. shale industry. To quote the article, "Now it was time to squeeze the Americans".
- After aligning with OPEC+ for more than three years and benefiting Russia's largest export and revenue source, Putin was apparently increasingly angry that Trump had weaponized energy as a political and economic tool. He was also irked that the US had put in-place sanctions that effectively blocked the construction of the pipeline from Siberia to Germany last year.
- In the face of declining oil demand this year, the Saudi's pushed on Russia to cut production to protect pricing. Putin was open, but wanted the US shale operators to also cut.
- The past weekend, the Saudi's made one last effort. The core OPEC members agreed to cut production by 1.5 billion barrels, but ultimately Putin didn't budge and the agreement blew up.
- But, the article suggests that Putin's strategy may back fire that while many smaller shale producers are over leverage and susceptible to low oil prices, US shale production has been in large part taken over by the large oil companies like Exxon and Chevron with deep pockets.
Markets are Betting the Dow Crash Will Lead the White House to Reverse Its Fiscal Response To the Coronavirus
- On Monday, Trump said discussions will take place with Senate Republicans on a possible payroll tax cut, relief to hourly workers, loans to small businesses and help for the travel industry.
- The market is in part reacting to the potential of the Feds to support individuals and and industries hard hit by coronavirus.
- After broad criticism of the Trump/Federal reaction managing the coronavirus health threat, the article cites experts who are critical of Trumps economic/financial response. Also, CNBC cited unamed officials saying the plan "is not there yet".
- Rightfully, the article cites the positive impact on the economy from lower mortgage rates and lower gas prices (thank you).
- Our view, in an election year in which Trump places so much evidence on the stock market, we would expect him to ultimately hit the accelerator hard to put in place support/stimulus to keep the economy and stock market moving.
- Separately and important, Russia also signaled that talks with OPEC remained possible and Russian oil minister Alexander Novak said he did not rule out joint measures with OPEC to stabilize the market, adding that the next OPEC+ meeting was planned for May-June.
Through the mountain of Wall Street stock research published each day, we find the most differentiated, impactful and contrarian ideas.
- Analyst cites that recent out performance has made for higher valuations of these stocks vs the S&P 500.
- He continues to like the sector fundamentals, but sees waste volumes impacted by lower oil prices and the slowing economy.
- Today WCN is down .5% and WM is up 1.1%.
- In addition to valuation, the Wells analyst cites an earnings recovery looking out 12 to 24 months, the company's strong cash position and cash flow generation, supply chain improvements and the coming 5G upgrade cycle.
- The stock is up 3.6% today.
- Analyst believes that leasing growth in 2021 will improve significantly from domestic and international contributions following a trough year in 2020.
- He thinks the cell tower stocks are the most defensible subsector in his sector as they have non-cyclical demand characteristics.
- The stock is down 4.2% and down "only" 13% from its February high.
- Analyst calls the stock one of the most defensible/oversold stocks he covers with the stock down more than 50% since February.
- He notes that the majority of Six Flag's parks are predominantly open during summer.
- Hes says that the risk of the company violating debt covenants is low.
- Analyst calls the stock his top name in the midcap advertising space.
- With the stock down 40%+, he cites the company's rebound of daily user growth and accelerating revenue growth and consensus concerns over 1Q active user growth are "overblown".
- The stock is down 3.2% today.
- Some of today's downgrades with analysts largely citing negative macro factors.
- BP, Occidental, Hilton Hotels, MGM, Host Hotels, Hexcel, Spirit AeroSystems,
- After two years of restricted supply of memory chips, the analyst believes that the memory chip market is well positioned to limit downside risk from the impact of coronavirus.
- Analyst says near-term demand has been strong and believes Micron represents a "compelling" way to invest in the positive long-term memory tailwinds.
- Analyst made the following ratings changes: Burlington Stores to OUTPERFORM (-.6% today), American Eagle to OUTPERFORM (-5.6%), Zumiez (ZUMZ) to NEUTRAL (-.9%).
- We tend not to highlight valuation calls, and given the still very murky retail environment and underlying fundamentals of these stocks, these calls seem early.
- Only news we see is that the company reported that new assets in February were up 9% year over year.
- The company beat 3Q EPS, but lowered 4Q guidance reflecting coronavirus uncertainty.
- Oracle management is confident in a FY 2021 re-acceleration with record margins.
- With the stock up so much today, clearly analysts clearly were expecting a much worse report.
- After the stock price hit a high of $143 in the midst of the cannabis stock craze in September 2018, the company closed an offering for $90.4 million at $4.76 per share.
- Company just reported 46 cancelled orders for February and will draw down its $13.8 billion loan as a precaution.
- Stock weak despite reporting a strong 4Q, sales comps and forward guidance.
- Seems analysts are concerned with margins and inventory levels.
- Likely take out by Infineon.
- Although the company beat 2Q estimates, it guided materially down the 2nd half of 2020 citing a weak macro environment, the impact of Brexit on its UK business and investment in human resources.
In Market Sell Off, Most Notable the S&P Energy Sector is down about 10% and the Financials down 3.3%
- Not sure where to start with energy stocks, long list of stocks down 40%+. Acute concerns with companies in this sector that carry high leverage.
- Occidental Petroleum: -28.5%, Exon: -8.9%, Halliburton -33.8%
- Financials also getting hit today.
- JP Morgan -11.9%, Bank of America -12.8%, regional bank index (KRE) -11.5%
- Mnuchin delivering one of the more clear messages from the administration on actions to support the economy and the capital markets.
- He says negotiation with democrats is progressing on a bill that would cut the payroll tax, delaying IRS payments and other measures to support small and mid size businesses. He also confirmed support of hardest hit industries, e.g. airlines.
- He confirmed that the Fed stands ready to provide market liquidity, and he highly discounted views that the markets as markets have been operating in an orderly manner.
- He views the current crisis as a "short-term issue that will take a couple months to resolve.
- Very negative comments from Kostin with expectations of the market trading down 15%, then almost recovering by year end.
- He sees an earnings recession and analyst consensus estimates remain too high with major revisions the coming months. Goldman lowered their S&P 2Q earnings estimate to a YOY 15% decline and down 5% for 2020. From us, clearly the fact that analysts' estimates need to come down is not new and is mostly in stock valuations, although the magnitude of coming adjustments may not be fully reflected.
- Nothing that incremental beyond the view on earnings, but worth a watch for updated consensus view.
- Click through for the video.
- One of the best market commentaries we saw this morning came from Kyle Bass commenting "that this too will pass".
- He said he is not buying or selling, but there will be big opportunities on the other side of this, which he thinks will take another month to sort out as the virus begins to fade from warm summer weather and prevention actions, which need to be intensified.
- He also said company's balance sheets really matter to ensure they can get to the other side.
- He said this is not 2008 as the US banks are not going broke as they are stressed tested and in good shape. This is not the same in Europe and parts of Asia where bank capital has not been modified enough since 2008. He expects ECB action will be necessary for Italy.
- The company lowered 1Q rev forecast saying that traffic was actually very strong through most of February, then last week CEO Kelly said there was a significant drop due to coronavirus showing up in the US. He said that the hit could be "several hundred million dollars".
- The company is not cutting capacity at this point, but obviously evaluating.
- He says it is "encouraging" to look to China where the number of new cases is declining.
- Stock is down 3.9% today and down about 25% since mid February.
- Culp talks about dealing with the coronovirus. Sees some free cash flow impact in the $3 billion to $5 billion impact.
- Is this an inflection year for your power business? Expects over time to drive better margins and cash flow which will be seen in years to come.
- On the aviation jet engine business and the impact of 737-Max. Same view as Boeing being a mid-year return to service.
- Gross margins are sector low. Says the refresh of product portfolio in aviation and power and better cost controls in factories and at corporate levels will push margins and free cash to peer levels. He also talked about continued deleverage of the balance sheet. Said a lot of the progress has not yet shown up in financials and in 2nd inning of turnaround.
- As GE is a big complex company, as such we found Culp's comments very big picture.
- Stock got killed last Thursday when reported missing EPS slightly, but guided margins down as they invest in the business. Stock was down 15%.
- CEO Ethan Brown tells a compelling story viewing his company as an innovation engine with their platform being beef, pork and poultry.
- They are in "hyper growth phase" seeking market share across plant based products, restaurant partners and geographically (he mentioned China and the UK).
- Brown also defended the health benefits of his plant products, citing lower sodium, fat and obviously animal fat.
- Key pursuits of the company which are resonating with younger consumers in addition to health are core ecological, climate and sustainability objectives.
- We are big fans of the company and its leadership.
- Company reported a strong 4Q and guided 2020 up.
- Company seems to be also benefiting as a "stay at home" stock in the coronavirus environment.
- CEO says not concerned with supply side disruptions.
- Television advertising is working as it taps peoples creative sides.
- Stock was up 14% on Thursday.
- Company is a digital ad management company.
- After stock was hit especially hard by the market in February, the company reported a strong 4Q although they guided conservatively in 2020 as it continues to invest in connected TV. The company is benefiting from cored cutting.
- Trade Desk is also benefiting from campaign spending from candidates in both parties.
- Management not seeing any global effect on its advertising business from coronavirus.
- Stock was up 14.9% on Friday.
- Is there a toilet paper shortage?
- Short answer is yes, at least over the near-term, but manufacturers are ramping up production to meet the panic demand, although production is limited.
- New to us, with the decline in recent years of newspapers and printed documents, manufacturers have converted production to making tissue products. Although because it is so bulky to store, tissue paper tends to be made to order.
- Retailers are being tested to keep toilet paper in stock.
- Our Take: Rest assured, it seems like days, maybe a week, but not months, before stores shelves can be replenished.
- If you think US markets are volatile, take a look at Europe, and specifically Italy's market being up 17% today, after declining 17% yesterday.
- Spain is up 11% today after being down 14% yesterday.
- As in the US, the ECB stands ready to provide liquidity, and central banks across Europe continue to cut rates (where they can).
- Something to consider as the article looks at the performance of the Invesco Low Volatility ETF (SPLV).
- The low volatility ETF, which includes S&P 500 stocks that have demonstrated the lowest volatility over the prior 12 months, has outperformed the broader market the past two weeks and the past year.
- The ETF holds largely high dividend utility and real estate stocks, stocks that tend to outperform in a low interest rate environment.
- For those of us in Southern California (who play tennis), this was disappointing with cancellation of the BNP Open in Indian Wells this week.
- This is the largest U.S. sporting event to be called off over concerns about the spread of the disease. The cancellation was after a case of coronavirus was confirmed in the Coachella Valley.
- Many of the players had already arrived for the tournament: “We’re here and still deciding what’s next,” tweeted Rafael Nadal, the world’s second-ranked player.
- Really too bad.
- Something we've been thinking about during our workouts.
- From a professor at Johns Hopkins, sweat cannot transmit the coronavirus but high-contact surfaces, such as barbells, can pose a problem.
- Not to freak you out, but studies have found that the virus can last on glass, metal and plastic surfaces for two hours to nine days. Handles and doorknobs are more likely to harbor the virus.
- Gyms, yoga studios etc. are stepping up the frequency of cleaning and seeing out reminders to members to stay home if they are sick. Gym owners in the northwest are reporting declines in attendance by members.
- The article suggest gym users actively wipe down the equipment they use with solutions that are at least 70% alcohol (from us, such as Purrel).
- Gold prices and stocks continue to move up as a safe haven in a historic low interest rate environment.
- Good quote from the article: “Gold looks like one of the most attractive assets in this global environment, With US rates likely heading towards the zero lower bound.,” wrote Stephen Innes, chief market strategist at AxiCorp, in a Thursday research note.
- Article also rightfully mentions institutional and individual investor allocations to gold will continue to increase.
- After Super Tuesday, we think this is interesting as we think voter turnout will be crucial to the results of the upcoming Presidential election. Something that candidate Hillary Clinton was unable to do in 2016. Here are some 2000 vs 2016 voter turnout stats from yesterday.
- Virginia: +70%, Texas: +45%, North Carolina: +17%
- Turnout also skyrocketed in contests in Colorado, Maine, Minnesota and Utah, though those states switched from caucuses to primaries this year, making it difficult to compare.
- California ballots are still be counted, but there will likely be an increase.
- Oklahoma was the only state that saw (modestly) lower turnout.
- The article quotes a democratic strategist: “If I was in the White House or I was in Trump’s campaign looking at poll numbers right now, I would be absolutely terrified,”
- That view may be a bit extreme, but we would think these high turnouts will help the democrats come November ... if they can keep the momentum.
- A bunch of retailers reported earnings today. Here is a brief summary.
- Urban Outfitters/URBN (-7.9%): Missed 4Q EPS and gross margins and warned that issues will continue into 2020. although had a strong 4% sales comp. Corona virus is impacting business.
- Ross Stores/ROST (-.8%): "Ok" 4Q earnings report, but company guided down FY 2021, which some analysts think is conservative. Cited impact of coronavirus and election year distractions (?) on traffic.
- Dollar Tree/DLTR (-1.0%): Modestly missed 4Q sales, but modestly beat on EPS. Raised FY 2020 guidance.
- AutoZone/AZO (-.9%): Reported mixed 2Q results impacted by warm winter weather, a calendar shift and a slow start to tax refunds. Some analyst say 3Q off to good start and underlying business trends remain solid.
Entertaining, humorous and interesting items we run across through our daily screening.
- Since it's come up in conversations a few times the past week .. "who owns Purrel?", here's the answer.
- Its owned by an Akron based private company named GOJO Industries founded in 1946.
- While Purell claims to "kill 99.99% of most common germs that can make you sick.” Does that include COVID-19? No one really knows.
- In fact the FDA sent the company in January warning of its unproven claims that Purell has been making on its website (which the company has addressed).
- But, the active ingredient in Purell is ethyl alcohol (70%). Experts generally agree that a solution in excess of 60% can be effective killing germs.
- A biology professor quoted in the article says that soap and water are the most effective, but since COVID-19 is a virus with a capsid protein or what’s called a coat, it may be easier to kill with a hand sanitizer. Not sure if this actually and endorsement.
- Although seemingly not an overwhelmingly convincing case, better safe than sorry... use Purell.
- Silly but entertaining reports have popped up in recent days about Americans being unwilling to drink Corona beer because of the coronavirus.
- One of those reports: 38% of Americans wouldn't buy Corona beer "under any circumstances" because of the coronavirus, according to a recent survey.
- Incredible eulogy at an incredible event.
- Highly recommend watching.
A Silicon Valley Stylist Reveals the Biggest Fashion Issues She Sees Among the Tech Workers She Styles — And Her Advice for Anyone Looking to Dress Better
- Funny article, here's the most recent fashion trends from the Silicon Valley/San Francisco.
- Find jeans that fit well.
- Pay attention to the color and quality of the garments you wear.
- Get fresh shoes, "meaning they're clean and in good shape.
- Do that, and fund an IPO.