Clothier Perry Ellis (NASDAQ:PERY) reports Q1 2007 earnings results tomorrow (see related article on competitor Phillips-Van Heusen's (NYSE:PVH) earnings). Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
- Buy, sell, or waffle? Wall Street's mind hasn't changed in two months here. Six analysts still follow the stock, and the ratings remain: two buys, three holds, and a sell.
- Revenues. Analysts are looking for a 1% sales drop to $222.6 million tomorrow.
- Earnings. And a 16% decline in profits to $0.75 per share.
What management says:
CEO George Feldenkreis declared he was "very pleased to report record revenue, EBITDA and earnings per share results for fiscal 2006."
Feldenkreis also highlighted the firm's "strong cash flow and debt repayment... [d]uring fiscal 2006," and praised his firm for maintaining good "inventory control and other working capital management." He concluded by expressing his confidence "that more efficient planning will continue to improve profit margins in the current year."
What management does:
So let's put management's assertions through their paces, shall we? Working in reverse order, operating margins in Q4 ticked up 20 basis points sequentially but were down 180 basis points year over year. That's just the results for one quarter. Taking a longer, trailing-12-month view of things as reflected in the chart below, though, we see much the same story. Rolling gross margins are down 150 basis points over the last 18 months. Rolling operating margins are down 90 basis points, and net are down 70.
|
Margins % |
10/04 |
1/05 |
4/05 |
7/05 |
10/05 |
1/06 |
|---|---|---|---|---|---|---|
|
Gross |
32.4 |
31.8 |
31.9 |
31.3 |
31.2 |
30.9 |
|
Op. |
7.7 |
7.5 |
7.5 |
7.1 |
7 |
6.8 |
|
Net |
3.4 |
3.2 |
3.2 |
2.9 |
2.8 |
2.7 |
One Fool says:
"Continue to improve profit margins?" I think Perry Ellis investors would be satisfied if the firm just got the ball rolling. Also debatable is management's assertion that debt is being repaid. Although it's true that the firm has been paying down its debt over the last several quarters, it's also true that long-term debt is up 11% year over year.
On inventories, management's story holds up better. On average, sales have increased 30% year over year in the past six months, while inventories grew only 24%. Good show. Likewise with cash flow, we can see that during the last six months, free cash flow generation has exceeded reported GAAP profits by a considerable margin. Even if you consider last quarter's purchase of intangible assets a "capital expense," the firm still clocked $19.7 million in free cash flow during the period, against "accounting profits" of just $16.2 million. So give management some credit for that, and let's hope for more of the same tomorrow.
Competitors:
- Phillips-Van Heusen
- Polo Ralph Lauren (NYSE:RL)
- Tommy Hilfiger (NYSE:TOM)
Customers:
- J.C. Penney (NYSE:JCP)
- Dillard's (NYSE:DDS)
- Wal-Mart (NYSE:WMT)
Wal-Mart is a Motley Fool Inside Value recommendation. Take the newsletter dedicated to top-shelf stocks at bargain-basement prices for a 30-day free spin.
Fool contributor Rich Smith does not own shares of any company named above.
