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Manhattan Associates Cuts Guidance on Retail-Market Headwinds

By Dan Caplinger - Apr 20, 2017 at 6:05PM

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The supply-chain management specialist managed to grow earnings, but investors weren't impressed.

The toughest thing in many businesses is getting goods to the right place at the right time. Supply-chain specialist Manhattan Associates (MANH -2.08%) works hard to provide tools that allow its customers to handle logistics more efficiently, and the company's long-term growth has stemmed from its success in working with clients in many different industries. Yet weakness in the key retail sector has taken a toll on Manhattan, and coming into Thursday's first-quarter financial report, Manhattan investors weren't certain how well the company would be able to navigate tough conditions.

Manhattan Associates' results were mixed, and some were particularly disappointed about adverse sales trends. Moreover, falling guidance led shareholders to be even more skeptical about future growth prospects. Let's look more closely at Manhattan Associates to see how it did and what's ahead for the supply-chain specialist going forward.

Marketing material from Manhattan Associates, showing a city view from a high vantage point.

Image source: Manhattan Associates.

Manhattan Associates deals with a setback

Manhattan Associates' first-quarter results weren't everything that investors had hoped for. Revenue was down 4% to $143.5 million, which was worse than the 2% decline that most of those following the stock had expected. On the bottom line, Manhattan fared better, posting net income that rose 3% to $28.2 million. After accounting for some one-time items, adjusted earnings of $0.42 per share was fully 10% better than the consensus forecast among investors.

Manhattan's key businesses moved in different directions during the quarter. On one hand, the software licensing business grew slightly, with revenue gains of roughly 10% from year-ago levels. But the key services segment, which makes up the vast majority of Manhattan's overall revenue, saw sales decline by 6%. Hardware sales and revenue from other products also fell high single-digit percentages.

What really crushed Manhattan Associates was poor performance in its home Americas segment. Sales in the region were down 12%, and operating income dropped by about a quarter from year-ago levels. By contrast, sales in the Europe, Middle East, and Africa segment jumped by more than half, and the region's profits more than doubled. The small Asia segment saw similarly solid performance, with gains of nearly a third on the top line and a near-double for segment operating profits as well.

Manhattan Associates' pace of new business also slowed. Just four new contracts with licensing revenue of $1 million or more came in, down from seven during the fourth quarter of 2016. Among new clients were Restaurant Brands International, and existing relationships with dozens of companies such as Ulta Salon expanded from where they began the quarter.

What's coming for Manhattan Associates in the future?

CEO Eddie Capel noted the tension that Manhattan faces. "Our first quarter results reflect the balance between strong license fee performance and retail macro challenges," Capel said, noting that the quarter was "another record license quarter with solid pipeline activity in all three regions." Yet the CEO said that professional services remains a tough business right now, hurting key metrics throughout the business. Moreover, he believes that "retail market headwinds will persist throughout 2017 as many retailers address strategic challenges with enterprise transformation."

As a result, Manhattan made the decision to cut its guidance for 2017, which was problematic for many investors. Now, the company expects sales to come in flat to up 3%, down from the 3% to 5% growth range it previously predicted. Revenue of $606 million to $620 million would be less than investors want to see. Manhattan left its earnings guidance unchanged net of equity-based compensation, reiterating its call for between $1.89 and $1.93 per share. Still, the corresponding 1% to 3% growth rate is hardly in line with investors' hopes.

Shareholders in Manhattan Associates weren't happy with the results, and the stock fell 8% in after-hours trading following the announcement. Until Manhattan's retail customer base sees better times for its business, the supply-chain management specialist is likely to keep seeing pressure on its growth prospects for the near future. 

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