Thursday, March 20, 2008

Nike How Did You Do It?

Nike (NKE) swooshed out and reported Q3 results. Revenues were up 16%. Cost of goods sold grew by only 14% and therefore margins are up 18%. Hey that’s pretty good. Commendable even when costs grow more slowly than revenues the shareholders win.

But wait a second. In the press release there was scant mention of this triumph. Also no mention if this was sustainable into the near future. One passing sentence was attributable to revenues reading “Changes in currency exchange rates increased revenue growth by 6 percentage points for the quarter” but what about cost of goods sold most of which is surely offshore and should also have a similar foreign exchange impact. Nary a word on that point. Hmmm

The press release went on to discuss how they were growing and leveraging platforms. (Seems all retail and consumer goods companies have platforms but not product lines) The press release was rather fluffy and did not satisfy an investor who likes to look at the why and how within the numbers. As a matter of fact no real commentary about markets or any other numbers.

Nike you are tracking $20 Billion in annual sales. You are a $33 billion market cap enterprise. Just saying your margin is up a little bit no longer satisfies. Does management understand the ramifications of a non financially oriented earnings release?

Wednesday, March 19, 2008

Visa Left Home

Visa (V) made its long awaited debut and the stock immediately increased by, depending on what media outlet you listen to and what time of day you looked at the numbers, around 35%. The IPO had an interested feature for a hot deal: a $3 billion reserve fund for legal costs because Visa had been naughty in the market place and hurt competitors too much. This is supposed to be the big downside risk. Everyone seems to buy into the concept that processing fees for plastic, in this case Visa will only go up and we will all live happily ever after.

There is actually a lot to be said for that argument as long as you are able to increase your costs to continue investing in IT infrastructure. So is this a financial stock or an IT stock or an infrastructure stock?

Credit card fraud is becoming the major white collar crime of our time. When a large syndicate taps into the systems and steals substantial amounts of money, who is liable? The bank that issues my cards says it’s not me if I report it quickly. I believe them. So now that Visa is a separate stand alone for profit entity that is providing the IT backbone who becomes ultimately responsible.

Visa will have to set the standards to keep the digital defences sound. If a bank gets cleaned out of say twenty or thirty million but followed all the rules.... well I would grab some of my files and walk down to legal for a long chat. We all would.
It seems like a safe boat in a bad storm. But there are risks in everything. The plastic charge card processors are unseasoned and will hit some speed bumps along the way.

Tuesday, March 18, 2008

Perry Ellis Accentuates Annual Numbers So Look At Q4

Perry Ellis (PERY) announced year end numbers and is banging the drum wanting you to look at the twelve month picture. Yes they did reduce debt dramatically and successfully deleveraged. But a closer scrutiny of Q4 shows a drop in revenues and every other operating metric especially profits. Investors are most likely confused by management’s insistence on this emphasis. Retailers are struggling and the whole world knows it. By trying to look otherwise investors start to wonder if Perry Ellis is trying to smoke one by them.

Take a look at some hard balance sheet items. Inventories are almost unchanged. Yet sales are down. No management comment provided. Accounts payable are up 20%. The dollar amount of the payable increase is almost equal to the increase in the cash position. No management comment.

Oscar Feldenkreis, President and COO needs to provide additional commentary to shore up the business case.

Monday, March 17, 2008

Suez SA Did It Blow One Past Us?

Suez SA (ADR) (Public OTC:SZEZY) through a branded but wholly owned subsidiary called Suez Environment again through another subsidiary called United Water just bought a private company called Utility Service Company of Perry, GA. Utility Service Company is the nation’s leading water tank maintenance service company with operations throughout the United States. The acquisition is expected to close in the second quarter this year.

Suez SA has a market cap of approximately $88 Billion. The press release headlines the deal as “Acquisition Will Create Growth Opportunities for United Water” No financial terms were announced. The deal is probably good enough for the owners of Utility Service. But what does it do for the shareholders of Suez? The US market is large and a merger of this nature is not done for it's petty cash value.

The latest financial press release from Feb 26, 2008 indicates that there will be something called a dynamic shareholder remuneration policy. So how does this deal which needed to be publicly announced fit into the overall picture.