Friday, March 14, 2008

Ann Taylor Glosses Over Details

Anne Taylor (ANN) announced poor results. This is not surprising. They are a retailer and consumers are not spending money. The question becomes how do you stay compelling and relevant. They are announcing store closings and some openings. They have announced a strategic three year plan designed to produce all sorts of nice numbers. The three year plan allows them to skate around more important quarterly and annual numbers. Investors, particularly investors who invest in retail stocks with an inherent seasonality risk are not impressed with a three year plan.

Management comments are almost entirely focused on sales, stores and per square foot metrics. The cash position is off dramatically. Year end working capital ratio is down from 2.31 year end last year to 1.64 currently. Yet Ann Taylor President & Chief Executive Officer Kay Krill stated “we managed our inventory levels and in-store metrics very well all year, and we are entering fiscal 2008 in excellent shape. Management needs a dose of reality and should start to focus on real house keeping issues.

Thursday, March 13, 2008

Sara Lee Off Loads Mexico

Sara Lee (SLE) announced today that it is selling its 49.9% stake in the Qualtia Alimentos business in Mexico to its joint venture partner, Xignux. Terms of the agreement were not disclosed. The completion of the transaction is subject to customary conditions and is expected to occur within a month.

OK so most investors get selling a business that maybe does not fit anymore. But the press release goes on to say that the business being sold is grossing $300 million. That’s approximately 10% of last quarters total gross. So when you sell something like that and do not provide any financial information the investor has a hard time understanding if wealth was created or destroyed.

By the way in the last earnings release which was publicly disclosed Feb 06, 2008 management went so far as to publicly comment that Mexico was doing much better.
The line of reasoning here does not seem straight forward and could use a great deal more clarity.

Wednesday, March 12, 2008

Talbots Promise Promise and Promise Some More

Talbots (TLB) announced their losses of approximately $171 million for Q4. This compares poorly to last year Q4 which was break even. The year is a wash out. In part the losses are explained by non cash write down of $149.9 million which seems to be attributable to J Jill. OK a loss is a loss but check out this quote from the press release

“This preliminary charge is greater than the initial estimate provided on February 6,2008, due to more conservative growth and earnings projections for the J. Jill brand, combined with a larger discount rate assigned to forward projections.”
What a difference four weeks can make. Then Management lays this one on you
“The Company anticipates that impairment testing will be completed in the coming weeks.” Excuse me this means that there may be more write offs because this announcement is unaudited you know.

If you look at the balance sheet goodwill still clocks in at approximately $114 million. Trademarks are still valued at $139 million. So there is lots of room for further write offs.

Tuesday, March 11, 2008

Foot Locker Missteps

Foot Locker (FL) announced Q4 results and let everyone know they officially had a bad year. The Company reported net income of $87 million, or $0.56 per share, this year as compared with net income of $113 million, or $0.72 per share, last year. Income from continuing operations was $86 million, or $0.55 per share, this year as compared with $110 million, or $0.70 per share, last year.

Q4 sales reflected a very challenging external environment, as overall consumer confidence weakened and retail sales, in general, softened, According to Matthew D. Serra, Foot Locker, Inc.'s Chairman and CEO. He then proceeded to explain that they discounted heavily and blew out a lot of inventory.

You can tell that the boss and his staff are conflicted as to how to manage the financial future. Not only are they light on information about future marketing intentions of any description the press release lays out this comment attributable to Matthew Serra: "Given our solid financial position at the end of 2007 and confidence in the ability of our businesses to sustain positive cash flow generation, as we have previously announced, our Board of Directors voted last month to increase our common stock dividend for 2008 by 20 percent. We will continue to evaluate all opportunities to enhance shareholder value, balanced prudently against maintaining a strong financial structure."

Freudian slip of the tongue. Somehow he is disconnecting shareholder value from strong financial structure. The two are intertwined and management is in an either or conundrum. It makes the recent dividend increase look like a bribe. The stock has drifted down for the past month and the dividend yield is well over 5%. The red light is flashing. Something needs servicing and repair.

Monday, March 10, 2008

West Marine Credibility Issues

West Marine (WMAR)issued a press release on Friday Mar 7 at approximately 19:00 five hours after market close when much of the eastern part of North America was caught up in severe weather problems. The relevant quote is

"delayed the distribution of its fourth quarter and fiscal year 2007 earnings release and 2008 earnings guidance, as well as the related conference call and webcast previously scheduled to take place on March 11, 2008. The delay principally is due to management’s continuing analysis of certain current and historical expense accruals. West Marine will issue a subsequent press release announcing the timing for release of its 2007 financial results and 2008 guidance and setting a new conference call date and time as soon as practicable after the completion of management’s analysis."

Gentleman this is the Q4 announcement and therefore the fiscal year stamp of approval. To have to pull the plug on the announcement at this late stage invalidates much of your financial communication for the past year.

Given my understanding of the auditing process and the time frames involved the auditors must already be on site and well into their work. Management has not said so in so many words but my suspicions lead to a possible conflict with the auditors. You just do not postpone the final Q4 announcement indefinitely unless you have a major issue.