DailyFinance.comhttp://www.dailyfinance.comDailyFinance.comhttp://o.aolcdn.com/os/df/2013/img/2-dailyfinance_logo_m.pngDailyFinance.comhttp://www.dailyfinance.comen-usCopyright 2013 Weblogs, Inc. The contents of this feed are available for non-commercial use only.Blogsmith http://www.blogsmith.com/Under Armour Investors Sweat the Small Stuffhttp://www.dailyfinance.com/2011/07/27/under-armour-investors-sweat-the-small-stuff/http://www.dailyfinance.com/2011/07/27/under-armour-investors-sweat-the-small-stuff/http://www.dailyfinance.com/2011/07/27/under-armour-investors-sweat-the-small-stuff/#commentsFiled under: , ,

Under ArmourIt looks like consumers really needed Under Armour's (UA) sweat-wicking apparel, judging by the company's recently reported results. But investors who own shares still might feel the need to sweat the results.

Under Armour blew past analysts' sales estimates for the quarter, reporting revenue of $291.3 million versus the consensus of $273.4 million. That translated into a 77% surge in net income to $6.2 million, or $0.12 per share. Analysts had expected $0.08 per share.

Even better, the company upped its annual sales forecast. Management now sees sales coming in at $1.42 billion to $1.44 billion for the year, compared with its previous range of $1.37 billion to $1.39 billion.

The company's direct-to-consumer business had a notable performance, with sales up 81%. That unit includes its online division as well as the Under Armour specialty stores and outlets. The company's apparel unit notched a sales gain of 36.3%.

While those performances looked good, the company actually burned cash in the quarter as it poured money back into its inventory.

Under Armour's Overstuffed Closet

Ballooning inventory has been an ongoing concern for the company, and this quarter looks no different.

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Investors need to keep a sharp eye on this trend. Persistently high inventories could force the company to mark down merchandise in order to move it, resulting in lower gross margin and profitability.

A couple other high-performing peers are having very different issues. Rivals such as lululemon athletica (LULU) have seen sales growing much faster than inventory, leading to shortages. The company responded by reducing its promotional activity, leading to higher margins. And Nike (NKE) has done well maintaining its inventory and provides investors insight into its business with reports on future orders by geography.

If Under Armour can hammer out its own inventory issues, the company should continue to shine. But with shares up nearly 100% over the last year and priced at 42 times this year's earnings, any stumbles will likely punish the stock. If that happens, even Under Armour's performance apparel might not be able to wick the sweat away fast enough from investors' brows.
Motley Fool analyst Jim Royal does not own shares of any company mentioned here. The Motley Fool owns shares of Under Armour.

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]]>Motley FoolMotleyFoolUnder ArmourUnder Armour earningsUnder Armour retailUnder Armour salesUnder Armour stockUnderArmourUnderArmourRetailUnderArmourSalesUnderArmourStockJim RoyalWed, 27 Jul 2011 16:15:00 ESTMcDonald's Goes Bigger -- and Betterhttp://www.dailyfinance.com/2011/07/22/mcdonalds-goes-bigger-and-better/http://www.dailyfinance.com/2011/07/22/mcdonalds-goes-bigger-and-better/http://www.dailyfinance.com/2011/07/22/mcdonalds-goes-bigger-and-better/#commentsFiled under: , , , ,

McDonaldsMcDonald's (MCD) may seem like the fast-food restaurant of yesteryear, but appearances can be deceiving. The company's latest news suggests that the Golden Arches are headed onward and upward into the future.

The company recently revealed plans for its largest store ever at the 2012 London Olympics. The outlet in Olympic Park will seat 1,500 guests, eclipsing the chain's largest existing restaurant. During the games, this mega-Mickey D's brisk business will likely beat the 20-year reign of the company's current best-selling location in Moscow's Pushkin Square.

McDonald's followed that announcement with even better one: its second-quarter earnings. The Golden Arches put up 15% growth in earnings year over year, providing further proof that the company is executing its game plan superbly in a lackluster economy.

Caffeine and Cold Drinks Quench the Bottom Line

In total, the company reported $1.4 billion in earnings (or $1.35 a share) and sales of $6.9 billion, up 16% from last year. Same-store sales - a key measure of restaurants' performance - climbed 5.6% globally. Each of those figures blew away analysts' expectations, and shares climbed sharply higher in early trading.

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Menu additions in recent years have boosted the company's performance, most notably coffee and cold drinks such as smoothies. Thirsty patrons flocking to McDonald's frozen strawberry lemonade helped drive its U.S. sales.

While it has performed admirably, McDonald's still faces many of the same challenges that its rivals do, particularly the rising cost of inputs. The company expects costs in the U.S. to go up as much as 4.5%. Yum! Brands (YUM), the name behind KFC, Taco Bell, and Pizza Hut, expects U.S. expenses to climb 7%. Even the best performers, such as Chipotle (CMG), are seeing rising costs pinch their bottom line. While these top operators can play through these setbacks, struggling peers such as Wendy's (WEN) are getting hurt.

A Bright Horizon for the Golden Arches

Despite pressures such as these, McDonald's has performed well and should continue to do so. And a recession? You'd hardly see it in the company's share price over the last few years. The stock has consistently trended higher.

With massive opportunities in China and India, the company still has plenty of room to expand, meaning that shares - even at 18 times earnings - should still be a solid long-term value. And that tasty dividend? It's only growing bigger and better. Investors should consider buying shares.


Fool.com analyst Jim Royal, Ph.D. own shares of McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill and Yum! Brands.

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]]>Chipolte stock priceChipolteStockPricemcdonaldsMcDonalds earningsMcDonalds stockMcdonaldsEarningsMcdonaldsStockMcdonaldsUkMotley FoolMotleyFoolYumBrandsJim RoyalFri, 22 Jul 2011 14:15:00 ESTSupervalu: A Good Value in Grocery Stockshttp://www.dailyfinance.com/2011/07/18/a-good-value-in-grocery-stocks/http://www.dailyfinance.com/2011/07/18/a-good-value-in-grocery-stocks/http://www.dailyfinance.com/2011/07/18/a-good-value-in-grocery-stocks/#commentsFiled under: , , , , ,

Grocery stocksThe grocery market has been rough in the last decade. Big-box stores such as Wal-Mart (WMT) and Target (TGT) have been crowding into the space as a means of drawing repeat traffic to their locations. And non-traditional players such as CVS Caremark (CVS) and Walgreen (WAG) have expanded their grocery offerings as well.

The increased competition has put a lot of pressure on traditional supermarket chains. Margins are thin -- from about 1% to 1.5% for solid operators -- and competition is fierce.

Before you dismiss a potential investment in the grocery business, consider taking a cue from the lady in line in front of you, the one whose shopping cart is brimming with markdown bargains.

Start Your Engines, Shoppers

Bargain-shopping investors should take a stroll down the aisles of Supervalu (SVU). The company trades at about seven times this year's earnings. It also offers a 3.9% dividend. Even better, it has a clear way to massively increase shareholder value as the company deleverages.

Supervalu operates a variety of grocery chains across the U.S., including Albertsons, Jewel-Osco, Shaw's and Save-A-Lot. (Peers Kroger (KR) and Safeway (SWY) are also publicly traded.)

A few years ago, SUPERVALU took on a huge slug of debt to acquire the Albertsons chain. That debt has been weighing on the company since, eating up more than 50% of operating earnings in the last four quarters. But Supervalu is in turnaround mode now under CEO Craig Herkert, a former Wal-Mart veteran, and is looking to clean up its balance sheet and improve its operations.

Here are four strategies Supervalu's pursuing to improve its operations.

1. Cashing In on Cheap Grub

Supervalu is putting a lot of stock in its strongest chain: hard discounter Save-A-Lot.

Unlike Supervalu's conventional stores, Save-A-Lot sells a limited selection of merchandise at sharply reduced prices -- as much as 40% cheaper than traditional grocery chains, the company says. There are about 1,300 Save-A-Lot stores right now, and the company plans to add 160 more outlets this year.

Another thing the Save-A-Lot franchise has going for it is that some 70% of these stores are licensed rather than owned outright. That allows the parent company to focus on maximizing return on capital, rather than investing its own cash.

2. Catering to the Locals

Local products make stores feel more oriented to the local community. So Supervalu is also focusing on a hyperlocal approach to draw customers into its locations and appeal to local preferences and desires.

3. Looking at Labels

Supervalu is also intensely focused on realigning its cost structure. Instead of its range of disparate store-level private-label brands, the company is creating a national-level brand that spans its stores. The company is also bringing up its sales of private-label goods to the industry average. Such private-label sales are attractive to retailers because they carry higher margins that traditional branded goods.

4. Paying Down its IOUs
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On the balance-sheet side of the investment thesis, the company is committed to paying down its debt. That deleveraging should accrue benefits directly to shareholders. With the company's market cap at just $1.9 billion, the stock is trading at around three times free cash flow. The company reduced its net debt by $885 million last year and has promised to shed $500 million to $550 million more this year. That deleveraging would provide a substantial increase in book value.

While Supervalu's $6.7 billion in debt might look scary, just $1 billion of it matures in the next three years. The company is planning to pay that off with operating cash flow, a move that it should be able to manage. And it still has plenty of time to deal with the remainder of the debt.

So this looks like a classic deleveraging situation in an industry that is lackluster but stable. Management predicts earnings of $1.20 to $1.40 per share for the year. That puts the stock trading at a P/E ratio of just 6 to 7. That's cheap, and this company doesn't need to perform miracles to double in price.

Sacrifices May Have to Be Made

We can paint a rosy picture of the future, but, of course, the stock's performance still hinges to some extent on the turnaround. So we'll need to see that work out favorably. But with a P/E of 7, Supervalu is being priced for negative growth. So we have a margin of safety here.

The company has cut its dividend from years past, but the yield is still sizeable at current stock prices, and the company seems committed to keeping some dividend. While the payout only cost about 13% of Supervalu's free cash flow over the last four quarters, the company could cut the payout if things became really dire. I don't expect it, but if the company became cash-starved, then it could happen.

While this grocery business does have some spots on it, you don't often get to buy a boring but reliable business at such a cheap P/E multiple. And with a clear catalyst to unlock value for shareholders, I think this stock is poised for great returns in the future.
Jim Royal, Ph.D., owns shares of SUPERVALU. The Motley Fool owns shares of SUPERVALU and Wal-Mart. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position on Wal-Mart, as well as buying calls on SUPERVALU.

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]]>grocery shoppinggrocery stocksgrocery storesGroceryShoppingGroceryStocksGroceryStoreskrogermotley foolMotleyFoolsafewaysupervalutargetwalmartJim RoyalMon, 18 Jul 2011 07:00:00 ESTHot Stocks for a Cool Market: Annaly Capitalhttp://www.dailyfinance.com/2011/07/13/hot-stocks-for-a-cool-market-annaly-capital/http://www.dailyfinance.com/2011/07/13/hot-stocks-for-a-cool-market-annaly-capital/http://www.dailyfinance.com/2011/07/13/hot-stocks-for-a-cool-market-annaly-capital/#commentsFiled under: , , , ,

AnnalySummer's heating up, but apparently the stock market didn't get that memo. Still, there are plenty of places for burned investors to find respite. In this series, we highlight companies that have the potential to warm up your portfolio's returns.

I love a stock that does well when the rest of the market does poorly. That's the appeal of Annaly Capital Management (NLY). While other stocks wilt under the heat of unemployment and an uncertain economy, Annaly thrives under these conditions. And then there's the company's dividend yield: a cool 14.2%.

Annaly's Foul-Weather Business Model

The recession has been very good to Annaly and its investors. That's because its business -- borrowing money at short-term rates and buying long-term mortgage-backed securities that are backed by the government -- got a boost when interest rates plummeted, thus lowering Annaly's cost of funding. Since the company is a mortgage real estate investment trust, it pays out almost all of its earnings as dividends.
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Because it does well in a poor environment, Annaly makes a nice hedge to a diversified portfolio. As long as unemployment remains high, interest rates remain low, and the recovery seems spotty, Annaly's a keeper. While consumer stocks might get hurt in a downturn, Annaly should hold up and continue paying its fat yield.

What to Watch

While Annaly thrives during times of gloom and doom, its foul-weather model isn't bulletproof to the whims of the Federal Reserve.

If and when Chairman Ben Bernanke signals that he might raise rates, you'll want to quickly reevaluate your position. That said, I see two reasons to remain bullish on Annaly:

1. The Fed has promised that it won't engage in a third round of quantitative easing, meaning that monetary policy will provide limited benefit to the broader economy.
2. Second, Congress has refused to provide more stimulus money and is engaged in cutting fiscal stimulus by balancing the budget (or at least, rhetoric to that effect), meaning that there will be no boost to the economy from that corner.

Even if the powers-that-be do take the proper economic course and increase stimulus, it'll be years before unemployment gets back on track. And I certainly see little sign that our leaders are taking the right course.

The biggest risk to Annaly is a hike in interest rates, which will come with a clear economic recovery and rising employment. Any decline in its interest rate spread will hurt its profitability, because the company uses a lot of leverage to generate its huge yield. To wit, Annaly has a leverage ratio of about 6.3, or about $6.30 in debt for every dollar of equity. Such high leverage helps the company in boom times but can really hurt when the bust comes.

The Bottom Line on Annaly

That said, Annaly's management is one of the sharpest around, and they keep a very close eye on interest rates and are willing to make the necessary changes to keep the company in good shape. The managers behind Annaly also run Chimera Investment (CIM), a similar company that invests in riskier mortgages but uses less leverage.

With its giant dividend, Annaly makes a great stock for a period of lackluster market action. Just remember: This is a company that can -- and will -- experience significant downside when it's clear that interest rates will rise and the economy gets back on track. But that time looks far-off yet, and I've placed my money where my mouth is and own shares of Annaly myself and for the public-facing portfolio that I run.
Jim Royal, Ph.D., owns shares of Annaly. The Motley Fool owns shares of Annaly and Chimera.

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]]>AnnalyCapitalManagementChimera InvestmentChimeraInvestmentFederal ReserveFederalReservemotley foolMotleyFoolrecession-proof businessesRecession-proofBusinessesstock picksStockPicksStocks to buyStocksToBuyJim RoyalWed, 13 Jul 2011 15:30:00 EST