THE MARKET MIDDAY
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Tommy Tops Estimates
Cool clothes designer Tommy Hilfiger (NYSE: TOM) is trading down $1 1/4 to $37 3/8 at midday after reporting strong Q1 2000 earnings of $0.40 per diluted share, three cents ahead of First Call estimates. Continued popularity of the company's brand-emblazoned clothing, especially among the hip-hop urban crowd, is driving sales, earnings, and the share price higher. Year-to-date, the stock is up more than 20%.
Revenue grew 25% to $419 million driven by good results in women's and children's apparel, including the successful launch of girls sizes 4 to 16. All three of the company's business segments -- wholesale, retail, and licensing -- grew 20% or more. While that level of growth is nothing to sneeze at, the market may have been hoping for even stronger results after fiscal 1999 revenue growth of better than 32%. Even so, profitability expanded during the quarter thanks to a greater proportion of sales from the higher-margin retail segment, which includes 80 company-owned stores. Gross margins improved slightly to 47.1% and net margins saw an uptick to 9.2%.
Balance sheet quality improved on a sequential and year-over-year basis. Strong cash from operations helped to pay down debt and boost cash levels. In addition, the company improved its working capital efficiency. Compared to a year ago, days of sales outstanding (DSO) declined by a day to 35.5, while inventory levels dropped dramatically from 121.9 days in inventory to 99.6 days. Less cash sitting idly in accounts receivable and inventory means more cash is available for worthwhile investments in building the Tommy brand and other initiatives. These balance sheet dynamics are quite revealing because they confirm the quality of the income statement.
Looking ahead, Tommy is laying the groundwork for new junior sportswear and women's dress up lines, both of which are scheduled for retail debut later this year. As the Tommy brand gains strength, the company continues to reap high-margin revenue from licensing deals for products such as sunglasses, men's and women's fragrances, and home furnishings. The apparel industry is notoriously fickle, but Tommy has proven itself over the past five years with revenue, earnings, and the stock price all compounding at greater than 30% annually. In addition, the company became free cash flow positive for the first time this past year, achieving free cash flow slightly ahead of reported net income. Tommy looks poised to repeat that feat again this year, including earnings growth of 20% or more. For an interesting small-cap investment with a world-class brand name, Tommy Hilfiger looks cheap at only 13.5x fiscal 2000 estimates.
Wafer fabrication equipment supplier Lam Research Corp. (Nasdaq: LRCX) marched ahead $7 9/16 to $53 15/16 after reporting fiscal Q4 EPS of $0.28 versus $0.05 (excluding charges) a year ago, more than doubling the First Call mean estimate of $0.12. The company said its book-to-bill ratio was above 1.2 to 1 during the quarter, and gross margin improved to 38.8% from 35.5%. Warburg Dillon Read raised its rating on the firm to "strong buy" from "buy."
Muncie, Indiana-based bank holding company ANB Corp. (Nasdaq: ANBC) jumped $6 1/4 to $35 after agreeing to be acquired by Evansville, Indiana-based Old National Bancorp (Nasdaq: OLDB) in a $212.4 million stock swap. Old National said the deal will add to its earnings in 2000, based on the expectation that ANB's operating expenses can be cut by 20% through the combination of the two companies.
Real estate services firm Chicago Title Corp. (NYSE: CTZ) gained $2 5/16 to $39 after the Los Angeles Times reported that the company is in talks to merge with California rival Fidelity National Financial (NYSE: FNF) in a deal that could be valued at up to $1.4 billion. Fidelity National picked up $7/16 to $17 15/16 this morning.
Internet telephony services provider Net2Phone Inc. (Nasdaq: NTOP) added another $3 1/4 to $29 13/16 after jumping 77% yesterday in its first day of trading following its initial public offering of 5.4 million shares at a price of $15 per share.
Digital telecommunications network deployment and access products provider Adtran Inc. (Nasdaq: ADTN) advanced $1 7/8 to $37 7/8 on news it will replace General Nutrition Centers (Nasdaq: GNCI) on the Standard & Poor's MidCap 400 Index.
Dense wavelength division multiplexers (DWDM) maker Ciena Corp. (Nasdaq: CIEN) picked up $1 7/16 to $34 13/16 on news that it will be added to the Nasdaq 100 index in place of Quantum Corp. (Nasdaq: QNTM) on Aug. 4.
Online advertising agency Modem Media.Poppe Tyson (Nasdaq: MMPT) tacked on $5 3/16 to $26 7/16 after reporting Q2 EPS of $0.05 compared to a loss of $0.11 last year, whomping the First Call mean estimate of a $0.06 loss. Revenues increased 53% year-over-year and 30% sequentially to $16 million. BancBoston Robertson Stephens raised its rating on the firm to "strong buy" from "buy."
Infectious disease and cancer treatments developer Gilead Sciences (Nasdaq: GILD) rose $4 1/16 to $72 3/8 after posting a Q2 loss of $0.48 per share versus a loss of $0.49 per share a year ago. Total revenues increased 24% from a year ago to $8.7 million.
Real-time digital signal and image processing systems developer Mercury Computer Systems (Nasdaq: MRCY) was launched $4 1/2 to $28 1/2 after reporting fiscal Q4 EPS of $0.41, up from $0.25 a year ago and ahead of the Zacks mean estimate of $0.33. The company said revenues should continue to grow in the 25% to 30% range in fiscal 2000, although Q1 revenue growth will be "substantially higher" than the yearly rate.
Cable-based information services provider Source Media (Nasdaq: SRCM) rose $1 7/8 to $14 1/8 after forming a 50-50 joint venture with cable TV operator Insight Communications Co. (Nasdaq: ICCI) to develop an interactive TV portal. Additionally, Insight has agreed to provide $13 million in equity financing for the venture, which will include buying a 6% stake in Source Media.
Ford Motor Co. (NYSE: F) slowed $1 7/8 to $50 1/8 following reports that the company will suspend production at its Wixom, Mich., plant next week because it couldn't get enough parts for its new Lincoln LS entry-level luxury sedan.
Retirement savings and investment products company Arm Financial Group (NYSE: ARM), which turned in operating EPS of $0.67 for Q2, was dumped for a loss of $4 7/16 to $5 5/16. Wall Street expected a $0.55 per share profit. Net loss per share was $7.30. Arm is restructuring its institutional business and positioning its retail business and technology operations for the sale of the company through a series of transactions.
Educational toy retailer Noodle Kidoodle (Nasdaq: NKID), a recent Foolish Trouble, lost $1 25/32 to $4 17/32 after the company said it expects to report a Q2 loss of $0.28 to $0.30 per share. First Call's four-analyst consensus estimate was a loss $0.15 per share. The losses include costs associated with the company's plans for a new Internet division, as well as difficulty getting Beanie Babies, which held back sales. Noodle Kidoodle expects same-store sales will be off 9% to 10% for the quarter.
Charlotte-based bank First Union (NYSE: FTU) withdrew $1 1/2 to $46 1/2 this morning. The company announced that President John Georgius will retire from that post at the end of the year after 24 years at First Union and 36 years in the banking business. He will be replaced by G. Kennedy Thompson, vice chairman responsible for global capital markets.
Bedroom slippers and thermal retention products maker R.G. Barry Corp. (NYSE: RGB), which reported a Q2 loss of $0.55 per share, down again from last year's $0.16 loss, lost $2 3/8 to $5 3/8. "We now anticipate 1999 sales will be approximately flat with last year," said Chairman and CEO Gordon Zacks, "and that our diluted per share earnings will be in the $0.25 to $0.45 range." Zacks said the company was hurt by retailers' increased reliance on private label products over brand names, retailers going out of business, and caution in ordering based on last year's warm winter.
Micropositioning and precision optical products supplier Axsys Technologies (Nasdaq: AXYS) faded $15/16 to $10 9/16 this morning. The company last night said it extended its share buyback plan by 500,000 shares to 700,000 shares.
AboveNet Communications (Nasdaq: ABOV) down $2 1/32 to $35 5/8; fiscal Q4 EPS: loss of $0.38 vs. loss of $3.90 last year; estimate: loss of $0.29
Allmerica Financial (NYSE: AFC) down $3/16 to $61; Q2 EPS: $1.32 (continuing operations) vs. $0.91 last year; estimate: $1.15
BMC Software (Nasdaq: BMCS) down $3/16 to $51 13/16; fiscal Q1 EPS: $0.42 (before charges) vs. $0.32 last year; estimate: $0.40
Coulter Pharmaceutical (Nasdaq: CLTR) down $1 1/2 to $25 1/16; Q2 EPS: loss of $0.80 vs. loss of $0.60 last year; estimate: loss of $0.56
GPU Inc. (NYSE: GPU) up $1 13/16 to $38 1/4; Q2 EPS: $0.84 vs. $0.62 (both before charges) last year; estimate: $0.66
Snyder Communications (NYSE: SNC) down $6 9/16 to $20 1/2; Q2 EPS: $0.31 vs. $0.25 last year; estimate: $0.31
Steris Corp. (NYSE: STE) down $2 11/16 to $13 7/16; fiscal Q1 EPS: $0.14 vs. $0.20 last year; estimate: $0.23
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