Mixed signals on Wall Street today as traditional retailers such as Kmart, J.C. Penney, and Gap reported lagging same-store sales while online retail continued to be strong. Jupiter Media Metrix said that for the week ending Dec. 2 some 51.7 million visitors, 45% more than last year, clicked into nearly 500 shopping sites. Online sales totaled $1.5 billion, the highest of the year. The Motley Fool 50 Index forged ahead slightly early in the day, only to fall back less than a half percent at market close.
In today's Motley Fool Take:
Gap (NYSE: GPS) reported today that same-store sales in November fell 25%. No, that's not a joke -- well, it may be a joke, but it's true. Twenty-five percent. A full quarter. It's a drop of much greater magnitude than the 17 other consecutive months of declining comps, so Gap has reduced its estimates for the fourth quarter. Unfortunately, it can't say exactly how bad it will be. After this month's bloodbath, anything could happen. All that's sure is that the fourth quarter will be "considerably worse" than the $0.06-per-share loss in the third quarter.
Here's the kicker: The stock went up after the announcement. Now, buying great companies with solid brand names that have fallen on temporary hard times is just fine. Really. But this company is not just suffering from economicslowdownitis. It has woefully underperformed for about two years now, during which it spent (as my former boss used to say) ginormous amounts of money on an ill-advised and much-too-long-maintained expansion push. Return on invested capital at Gap is halfway to China right now. All these new stores were packed with inventory in early November, they're still packed with inventory, and they're going to be packed in January.
Investors have been telling themselves that things can't get worse at Gap for a year, and then we get a 25% decline in comps last month. One day they'll be right and things won't get any worse, but I want to see one sign -- just one sign -- that the company's improving before I consider buying it.
On-the-move genomics-based drug company and Rule Breaker Portfolio holding Millennium Pharmaceuticals (Nasdaq: MLNM) continued its march today, announcing an all-stock deal to buy COR Therapeutics (Nasdaq: CORR). Millennium will pay 0.9873 of it shares for each COR share -- about $2 billion, or $35 a COR share at yesterday's close. For COR shareholders, that's a nice 77% premium over its $19.74 Wednesday finish. It's the biggest buyout of one biotech drug maker by another yet.
COR's current claim to fame is Integrilin, an anti-clogging drug for heart patients that it co-markets with Schering-Plough (NYSE: SGP) and Genentech (NYSE: DNA). Integrilin is on track for $225 million to $230 million in revenues in 2001 and, according to Millennium CEO Mark Levin, $400 million to $600 million in a few years. Integrilin's torrid sales growth has slowed slightly in the last quarter, but it's not clear if that's a blip or a trend. With Integrilin, COR's two drugs in Phase 2 trials, and a number of preclinical candidates -- as well as an 109-person sales force -- Millennium gains an established cardiovascular research and development and marketing program. It still lacks a drug in Phase 3 trials.
On the green eyeshade side, Millennium collects COR's $632 million cash and short-term investments, swelling its coffers to about $2 billion. Unmentioned in the press release or conference call was that Millennium will also swallow COR's $600 million in long-term debt (as of Sept. 30). Regardless, COR apparently won't even be a short-term drag on Millennium: COR turned cash flow positive last quarter and has negative free cash flow of only $5.4 million for the nine months to Sept. 30.
Millennium's share price sank on the news today as much as 18%. We see that not as pessimism about the deal, but as a rational response to the 26% dilution current shareholders will experience when Millennium issues 58 million new shares to COR shareholders. COR's stock price vaulted more than 45% to $28.75 at mid-day.
Despite the stock market's decline over the last 18 months, you would think the 1990s were still a far better time for investors, and human beings in general, than the 1980s. After all, the '80s were the decade of George Michael and Boy George, and a ton of otherwise weak music (depending on your perspective). At least the '90s had a dead rock icon in Kurt Cobain, and the decade finished off with the greatest stock market run in history:
S&P 500 Returns 1995-99 (dividends reinvested)
'95 37.6%
'96 23.0%
'97 33.4%
'98 28.6%
'99 21.0%
But even as decade of Ivan Boesky and the savings and loan crisis, the '80s just refuse to go away. In fact, Boy George has penned a musical, Taboo, that looks back on the era. It opens in London in January. Rumor has it that the soundtrack is heavy on Culture Club songs. Who would have guessed?
As for stocks, the S&P 500 did pretty great overall in the '90s, returning 423% with dividends reinvested, or 18% annualized. You would think that trounced the '80s like the band members of Pearl Jam would trounce Flock of Seagulls in a fight. But from Dec. 31, 1979 to Dec. 29, 1989, the S&P 500 returned 389% with dividends reinvested, or about 17% annualized. Only one percentage point a year divided stocks, even if the cultural and musical divide seems rather large. At those returns, $1,000 would have turned into $5,234 through the '90s, $4,807 through the '80s. Both decades scored far higher than the historical average of the stock market -- about 11%.
Perhaps brawn and anger are no way to rate a decade's music over another, but come on, Nirvana vs. Culture Club? It was Boy George who asked "Do you really want to hurt me?" As much as we might like to answer that question, we'll refrain from further comment until we see George's new play.
With Enron (NYSE: ENE) flat on the mat and as good as unconscious, the more interesting story now -- because the company is still standing, even if it is against the ropes in ways itself -- is competitor Dynegy (NYSE: DYN). The energy and broadband trader reassured investors today that it has enough capital to fund operations and to buy the gas storage assets owned by a U.K.-based unit of BG Group Plc (NYSE: BRG).
Dynegy stated that it has liquidity totaling $900 million including existing credit lines and cash on hand. It will purchase gas storage assets in Britain using $400 million in credit and $200 million in commercial paper. The company does not want to issue debt because of the low grade that it would be granted.
Just last week Dynegy canned its proposed buyout of the now-bankrupt Enron, but Enron filed a lawsuit and Dynegy filed a countersuit. Years of legal bickering may follow. Dynegy's stock has fallen approximately 40% in the last month alongside Enron's disintegration.
So is Dynegy a good deal?
Who knows?! The problem with a company that trades in all sorts of assets is that eventually, no matter how good management is, mistakes will be made and losses suffered. Another problem is in understanding all the complex financial statements of the company. A final problem comes in not knowing what management is doing every week. There is no way of knowing until after trades are made.
Investing in this type of company is certainly not for most people. It's an unusual breed of investor who is willing to risk the same money hundreds of times a year: Once to buy stock in a company, and then every week as that company makes trades itself. An even more unusual investor, one in thousands, will be able to make sense of the financials of such a company, and even then, he has to trust management and auditors more than usual.
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Consumer electronics retailer Best Buy (NYSE: BBY) today announced that it expects fiscal Q3 earnings to come in at the high end of analysts' estimates that had ranged between $0.31 and $0.36 per share, according First Call. Despite this news, Best Buy shares dipped as some commentators were disappointed in the company's Q3 same-store sales growth of 1.6%.
The New York Times Co. (NYSE: NYT) warned today that its fourth-quarter earnings would fall below previous estimates due to weak advertising sales. The newspaper publisher and media company expects EPS from $0.49 to $0.52. The consensus estimate had been $0.59 per share. (For more about investing in the newspaper industry, it is one of 16 industries covered in our new Industry Focus 2002, on sale now.)
Medical device maker Medtronic (NYSE: MDT) has agreed to acquire urological products maker VidaMed Inc. (Nasdaq: VIDA) in a deal valued at around $326 million. Medtronic already owns 20% of VidaMed, and will pay VidaMed shareholders $7.91 per share in cash, a nearly 40% premium over Wednesday's closing price.
eBay (Nasdaq: EBAY) saw more visitors than any other e-commerce site for the week ended December 2, according to Jupiter Media Metrix. Amazon.com (Nasdaq: AMZN) was second. eBay and Amazon placed one-two during Thanksgiving week, too, when eBay had 4 million visitors and Amazon about 2.5 million. The week ended December 2, approximately 51.7 million people visited online commerce sites compared to just 35.6 million the same week last year.
Today on Fool.com: Looking for ways to save your sanity and control holiday spending? We have some advice from our Living Below Your Means discussion area, or try this.... The Drip Portfolio report offers up investing lessons our community members have learned.... Selena Maranjian talks about how the story of the Grameen Foundation USA, one of our Foolanthropy 2001 charities, offers insights into the business world as well as helping bring people out of poverty.
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