Friday, August 15, 2008

Abercrombie & Fitch Disappoints

Abercrombie & Fitch (ANF) released Q2 results which for a retailer were predictably disappointing. Same store sales are down dramatically and continue to be forecasted as going down. The earnings release mentioned new store openings in other brands and several foreign initiatives such as a new store in Milan. At the same time they are refreshing their existing look and hoping to reverse the sales declines.

The foreign expansion comes late. Almost every industry category has recognized that growth outside of the US is better than growth in the US. Abercrombie & Fitch should have been moving years ago on that kind of insight. They are still testing stores in different markets. No one is saying they have any one foreign market figured out.

The domestic failures coupled with uncertain foreign expansion makes this all a very difficult stock to believe in.

Thursday, August 14, 2008

Estee Lauder Guidance Needs Constant Currency

Estee Lauder (EL) reported year end numbers and investors should be happy. Diluted net earnings per common share for the year rose 11% to $2.40 compared with $2.16 reported in the prior year.

But check out the full 2009 guidance. In Q1 they expect the following: (1) Net sales are expected to grow between 9% and 11% in constant currency and (2) Foreign currency translation benefit is expected to be approximately 1% versus the prior-year period.

But for the year: (1) Net sales are forecasted to grow between 6% and 8% in constant currency. (2) Foreign currency translation is expected to have a minimal negative impact versus the prior-year period.

The whole concept of constant currency is financially absurd. Here is a company that trumpets growing international sales that more than offset sluggish domestic US markets. Yet when its time to translate currencies they want to rely on the constant currency concept. The US dollar exchange rate vs other major currencies is constantly making front page news. You cannot rely on guidance that fundamentally relies on constant currency.

Wednesday, August 13, 2008

H&R Block Offloads Problem Child. Who Got the Better of the Deal?

H&R Block (HRB) off loaded their financial advisors business to Ameriprise Financial (AMP). H&R needed to make the deal so as to generate much needed cash and monetize substantial amounts of goodwill. Everyone is looking at the deal from H&R point of view with particular emphasis on balance sheet implications. What concerns me is the lack of any comment on the following points.

1. What impact on earning can H&R shareholders expect once the unit has been disposed. We know it sounds like a good deal but how good is it?

2. What valuation was used and therefore how good or bad is it for Ameriprise. Just read this quote from Reuters “H&R Block Financial Advisors employs more than 900 financial advisers, has 376,000 client accounts, and has about $30 billion of assets under management. The transaction is expected to close in four to six months, and Ameriprise expects it to add to earnings per share in early 2010. Ameriprise expects to have 13,000 advisers after the transaction." You may be sure that, that kind of fuzzy thinking did not work when the deal was being worked on.

So why should investors be asked to just accept with comment?

Tuesday, August 12, 2008

Conseco “Read the fine print”

Conseco reported Q2 results. Reading the press release just makes the hair on the back of your neck stand up. Clearly the business model is not executing according to plan. So this is what they have to say and this is maybe why investors should worry.

1. "Upon approval of our plans announced yesterday to transfer Conseco Senior Health Insurance Company to an independent trust, Conseco will have completed the most significant element of its program to pursue strategic alternatives," CEO Jim Prieur said. That’s sufficiently ambiguous to satisfy the lawyers. But if you are struggling with a buy/sell or hold decision the comment is not helpful.

2. “Our investment portfolio continues to perform, with earned yields meeting expectations and impairment losses significantly lower than for most life insurers on a percentage of assets basis," CFO Ed Bonach said. Given the tough news through out the financial community if someone has done something to enhance their yield above what their peers are attaining that certainly needs more explanation about just what is going on back at the shop.

Monday, August 11, 2008

Scripps Reports Itself

Scripps (SSP) reported an obtuse Q2 financial referring one and all to SEC 10-Q if you like to read financials. (sounds like they were hoping you do not). When you actually read the financial it sounds like they have styled it so that it can be cut and pasted into what ever is writing the news story about the news company.
So essentially we have a large but non cash write downs, which means yesterdays decisions are terrible and we are writing them off today. Not withstanding yesterdays poor decisions they insist on maintaining that all is well.

Here is the quote they want you to buy into and continue holding the stock

“The requirement to align the assets on our balance sheet with our market capitalization resulted in the company taking this action," said Rich Boehne, president and chief executive officer, "but the non-cash charges have no impact on the future prospects of the company. Our strategic focus remains unchanged. Scripps is healthy, with low debt and well able to make the necessary decisions and investments to solidify our local media businesses as the premier information and advertising resources in their markets."