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30-Year Bond 100 15/32 unch 6.09 Yield
Today's Market Movers:
Direct PC marketer Dell Computer (Nasdaq: DELL) ran up $2 to $43 7/16 ahead of its fiscal third-quarter earnings announcement. After the bell, the company posted EPS of $0.18 (excluding charges) compared to $0.14 last year, which was in line with the First Call mean estimate.
RadioShack operator Tandy Corp. (NYSE: TAN) gained $6 1/4 to $71 7/16 after signing a five-year agreement with software giant Microsoft (Nasdaq: MSFT) for a "store within a store" concept to market MSN Internet access in up to 7,000 RadioShack locations. Microsoft also agreed to make a $100 million equity investment in RadioShack.com, an online business that Tandy eventually plans to take public, according to Reuters.
Chipmaker Advanced Micro Devices (NYSE: AMD) rose $5 to $28 after saying it may break even in the fourth quarter on revenues of more than $800 million, thanks in part to strong demand for its Flash memory products. The company added that its goal of shipping 800,000 Athlon processors in the current quarter is "increasingly realistic."
Fiber optic network operator KPNQwest (Nasdaq: KQIP), a joint venture between the Netherlands' Royal KPN and Qwest Communications (Nasdaq: QWST), gained $10 7/16 to $40 1/16 in its second day of trading following an initial public offering. The shares are listed on the Nasdaq and on the Amsterdam exchange.
Digital imaging software developer ScanSoft (Nasdaq: SSFT) soared $4 15/32 to $8 19/32 after Microsoft agreed yesterday to license the company's TextBridge optical character recognition technology. Today, the company said its next-generation Pagis Pro digital imaging suite would include Hewlett-Packard's (NYSE: HWP) JetSend device-to-device communications protocol.
Wireless telecommunications company Vodafone AirTouch (NYSE: VOD) picked up $1 7/32 to $51 25/32 on reports that it may be preparing a takeover offer for Germany's Mannesmann valued at up to $100 billion.
Credit card issuer MBNA Corp. (NYSE: KRB) slid $1 13/16 to $24 1/2 despite trying to reassure investors that its "business fundamentals remain as strong and well controlled as ever" in the face of profitability problems at rival Bank One Corp.'s (NYSE: ONE) First USA unit. Fellow credit card firms also fell in sympathy, with Providian (NYSE: PVN) losing $5 7/16 to $77 5/8 and Metris (NYSE: MXT) shedding $1 13/16 to $26 3/4.
Network software developer Novell (Nasdaq: NOVL) slipped $2 1/8 to $18 7/16 after Banc of America Securities analyst Paul Dravis lowered his opinion on the firm to "market perform" from "buy," citing "a lack of marketing focus" at the company following the layoffs of 59 marketing employees last week.
Steam generating and environmental equipment maker McDermott International (NYSE: MDR) tanked $4 15/16 to $13 9/16 after a revenue slowdown at its J. Ray McDermott marine construction services unit lead to fiscal Q2 EPS of $0.06, down from $0.85 last year and short of the First Call mean estimate of $0.19. The company said it does not expect demand for the unit's services to improve until the first quarter of fiscal 2000.
Foodservice distribution company International Multifoods Corp. (NYSE: IMC) dropped $3 3/4 to $16 1/8 after warning that higher-than-expected delivery and distribution costs will result in earnings for the fiscal third quarter and full year ending Feb. 2000 below analysts' expectations.
Today's Top Stories:
Gangbusters at Gap
Richard McCaffery (TMF Gibson)
Apparel retailer Gap (NYSE: GPS) gunned its way to earnings of $315 million for the third quarter, up 32% from $238 million last year as the wide appeal of its Banana Republic and Old Navy stores kept consumers buying.
The San Francisco company reported earnings of $0.35 per share, up 30% from $0.27 per share last year and ahead of IBES International estimates by a penny.
Sales jumped 27% to $3 billion, up from $2.4 billion a year ago. Comparable store sales, one of the most useful ways for retail investors to judge customer demand for products, increased 5%, which is respectable considering last year's 13% increase.
Nevertheless, at a trailing price/earnings ratio around 30, the mighty Gap is priced as a growth stock and its stock suffers at the hint of weakness. Shares have fallen from more than $50 in July to around $34 today, a quick 32% drop largely on fears that the strength of its core Gap line is ebbing.
Shares fell about $3/8 in morning trading after the company reported that Q3 comparable store sales at Gap outlets declined, and sales at GapKids were flat. Both divisions faced tough comparisons with strong same-store sales growth last year.
That said, negative growth is always disappointing, and the company will have to remedy this weakness before investors are likely to bid up the shares. Meanwhile, Gap's lower priced Old Navy stores and higher priced Banana Republic divisions continue robust growth. Comparable store sales at these divisions slipped from last year's super-high marks, but Old Navy sales still grew in the low teens, and Banana Republic sales grew in the high single digits.
Is there any reason to think this company -- which has grown its stock about 32% annually since going public in 1976 -- has grown tired?
Don't think so. Fashion is a fickle business and it's not unusual for companies to experience weakness in various lines. Anyway, the diversification of its brands has helped Gap storm forward and that's what counts for shareholders -- the bottom line.
In terms of operations, Gap still looks better than an old pair of jeans. Gross margins for the quarter held firm at 43%, and net margins stayed constant at 10%. Some worry margins will erode as sales from lower-priced Old Navy stores become a bigger part of the mix, and it's worth factoring this into your long-term thinking about the stock. Maybe the company will have to work a little harder to earn a buck in the future, but the strength of the Old Navy concept is superb, and Banana Republic should help offset some of the difference.
Long-term liabilities grew to $1.2 billion, up from $811 million last year, largely as a result of the company's expansion plans, but debt as a percentage of shareholder's equity actually decreased to 0.63 from 0.65. Inventory levels increased 33% from a year ago, outpacing sales growth by 6 percentage points. This is worth keeping an eye on.
On the whole, a strong quarter from a company that proven for years you never get tired of jeans, khakis, and T-shirts.
Lands' End Lands Hard
Dave Marino-Nachison (TMF Braden)
Shares of casualwear direct marketer Lands' End (NYSE: LE) gave up approximately 30% of their market value today following news that the company's adoption of an Internet-based business model will take its toll on the company's near-term earnings performance.
Lands' End confirmed today old news that it will trim page circulation by about one-fifth to cut down on unprofitable mailings and help fund its move online. The company now believes fiscal fourth-quarter sales may end up "somewhat down" from year-ago results.
That's a slight step back from the projections Lands' End made in mid-August when reporting fiscal Q2 results: The company said to look for second-half revenues to be about flat with the previous year's. Today, the company announced Q3 numbers, including third-quarter sales that were up just 1% from last year's at $326 million. (Click here for the company's quarterly press release.) Operating margins, however, benefited as a result.
In the first half, the effect was the opposite as Lands' End boosted circulation to help liquidation: Margins were victimized while the company worked to move unwanted merchandise.
Today's news also included more specific information about Lands' End's outlook for next year, the company saying it plans to continue paring back its catalogs in the first half of the upcoming fiscal year -- trimming page circulation in its main monthly catalogs by between 5% and 10%, which will likely hamper revenues -- while boosting capital spending to between $40 million and $50 million with the company's information technology infrastructure in mind. The company's entire planned fiscal 2000 capital budget was less than $30 million.
Lands' End has been gearing up for its online push for some time. It has designed the site, set up an extensive customer service operation, and spent heavily on advertising -- and sales have responded. The company believes, as many direct marketers do, that it can significantly improve profitability by cutting down on production costs associated with its paper catalogs.
Optimism about the company's online potential has had a lot to do with the company's rapid rise over the past year as many believe that Lands' End -- already boasting significant experience in customer service and fulfillment -- would be able to make the transition to the Internet with grace.
The company itself is counting on it. At a recent investors' conference, CEO Dave Dyer said: "In times of change, it's very important to hold fast to basic principles. The way we treat customers, the way we treat our employees, our commitment to quality and value, the fairness in all our dealings -- personal, honest interaction with others -- these are the foundation for Lands' End. They will stay the same."
A transcript of Dyer's comments is available in a company 8-K filing from earlier this month. (Click here for more on that.)
If Lands' End can turn its loyal catalog customer base, which numbers nearly 30 million, into online customers, its Internet operation could make out like gangbusters. And don't count out the effectiveness of its direct mailing expertise either, as the two marketing mediums could very well be used to complement each other.
But although the company's specific financial outlook for upcoming quarters is new information, the Lands' End Internet story is hardly a Wall Street secret. Some analysts, in fact, have been scaling back their recommendations on the company of late based primarily on valuation. Today's move, however, might signal a period of opportunity for investors firmly behind the company's push into e-tailing.
The window may stay open for a while given the company's warning about holiday sales; Q4 is far and away the company's most important period.
Lands' End Web Page
Lands' End Message Board
Lands' End Q3 Earnings Press Release
Lands' End 8-K Filing, 11/1/99
More of Today's Best:
FOOL ON THE HILL An Investment Opinion
Of Course Microsoft is a Monopoly
Bill Barker (TMF Max)
-- The big topic around these parts this week has been the Court's Findings of Fact handed down by Judge Thomas Penfield Jackson last Friday evening in United States of America v. Microsoft Corporation. The decision has received plenty of coverage, analysis, and opinion all around Fooldom, particularly on the message boards and portfolio reports. I thought I'd toss in my perspective, which perhaps runs a little counter to some of the other things published here recently. My perspective on the case is, as is everyone's, largely colored by my own experiences, and carries its own individual biases. Having practiced a little law in my pre-Foolish days, I've simply been looking at the legal side of all this. Having a legal background, fortunately, is a perspective that most message board posters and portfolio report writers are blissfully free from sharing.
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FOOL PLATE SPECIAL An Investment Opinion
Concentric: Acquires Circling?
Dave Marino-Nachison (TMF Braden)
-- The market generally boos companies that adopt shareholder rights plans, which give stockholders the opportunity to boost their holdings in the event that a third party acquires a sizable stake in a company, perhaps threatening a hostile takeover. Investors, visions of fat premiums dancing in their heads, like the idea that their companies might be bought out. Of course, a shareholder rights plan doesn't preclude that -- it just precludes it happening without the go-ahead of a company's management and board. Depending on your assessment of your company's prospects, management and board, that could be either good or bad. Internet protocol and web-hosting services provider Concentric Network Corp. (Nasdaq: CNCX), which targets small- and medium-sized businesses, last night announced a plan of its own and the shares moved slightly downward this morning.
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Immunex Gets a Dose of Competition
Brian Graney (TMF Panic)
-- High-flying biotechnology firm Immunex (Nasdaq: IMNX) was back in the news today as investors ruminated over the eventual effects of a new competitor to the company's leading product, the rheumatoid arthritis (RA) treatment Enbrel. Last night, the FDA approved Johnson & Johnson's (NYSE: JNJ) Remicade drug for reducing the signs and symptoms of RA when used in conduction with the current RA standard of care methotrexate. The approval marks the second treatment indication for Remicade, which J&J picked up through its recent purchase of biotech firm Centocor. Previously, Centocor had garnered the FDA's rubber stamp to use Remicade as a treatment for Crohn's disease.
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BREAKFAST WITH THE FOOL
NASCAR Zooms Onto Fox and NBC in 2001
Richard McCaffery (TMF Gibson)
-- NASCAR -- the National Association for Stock Car Auto Racing -- has signed a lucrative deal with the Fox network, NBC, and cable channels FX and TBS for the rights to broadcast its amazingly popular Winston Cup series, Bloomberg reported.
The deal, which starts in 2001, gives one of the fastest-growing sports in the U.S. access to major distribution outlets and one of the largest television sports contracts ever. News Corp.'s (NYSE: NWS) Fox Network, General Electric's (NYSE: GE) NBC, and Time Warner's (NYSE: TWX) TBS beat out CBS (NYSE: CBS), TNN, and Walt Disney's (NYSE: DIS) ABC and ESPN for the programming rights. The deal will pay privately held NASCAR $2.4 billion over six years for the right to broadcast the 34-race Winston Cup series, which includes big events such as the Daytona 500 and the Brickyard 400.
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