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​APPLE

​Papa John’s founder and defrocked CEO John Schnatter continues to pummel the company’s current management for what he claims is a inferior product and weak operational skills. However, Papa John’s recent financials and its stock price show that Schnatter’s comments are based on the fact he believes he should still run a company he nearly ruined. The Papa’s John’s turnaround under new management is among the most impressive in decades.

Schnatter could have been pushed out by Papa John’s board over his own poor management. However, he owned too much of the stock to make that possible. A racial slur he made in July 2018 allowed the board to sack him. He has been bitter about the action ever since. His most recent attack was that members of the board and management “used the black community and race as a way to steal the company,”. He added that if he returned that a “day of reckoning will come”.  Based on what has happened Papa John’s, there is nothing to reckon about.

So far this year, Papa’s John’s stock price is up 53%. Shares of Domino’s Pizza are up only 19%. The stock of the largest fast food chain in the country–McDonald’s–are up only 10% over the same period.

After several quarters of falling revenue and dipping same store sales, in the most recent quarter revenue rose 4% from $404 million. North America comparable store sales were up 1%. Rob Lynch, President & CEO said “We are very pleased to have positive comparable sales in North America for the first time in two years. I have spent a large part of my first two months meeting with our franchisees, team members, and other key stakeholders. We are all focused on the right things – reinforcing the quality of our food, improving our unit economics, and promoting a company culture that sets us up to win for years to come. While there is much work to do, we have put in place a clear strategic roadmap to align the interests of our customers, employees, franchisees, and shareholders. Our strategic priorities will guide our path to a brighter future.”

He was right.

​Q 3.

​NEWSLETTER 3

Apple’s shares have risen by 68.48% to $265.76 in 2019. This outpaces any stock in the Dow (DJIA) by far. The Dow hit record territory Friday, up 20.05% to 28,004.89. Without such a huge rally in Apple’s shares, the Dow could not have breached 28,000.

The company’s latest earnings statement blew skeptics away. Apple recently posted earnings of $3.05 per share, up from $2.94 last year. Forecasts for the upcoming holiday quarter were strong. The iPhone 11 was only available for part of last quarter, so its sales results should improve in the current one.

Apple’s stock increase rode the back of two developments for most of the year. The new iPhone 11 has done better than expected, although the numbers are speculation by experts and not data provided by Apple. The other is that Apple’s bet on “services” as an alternative to rising hardware sales has gotten a boost from the belief of some investors in particular that its Apple TV+ streaming product will do well. Apple’s services business results crushed expectations for the latest quarter. Its revenue set a record at $12.5 billion, against total company revenue of $63 billion. Services as a percentage of total revenue is expected to continue to rise.

The release of the iPhone 11 in September was indeed the tonic the stock needed. It had sold down sharply in mid-summer after Apple announced its earnings for a quarter ago. The mainstay of revenue had continued to weaken as the iPhone X series did poorly, particularly in the world’s largest wireless market, China. The trade war between China and the United States also dragged on the stock, as anxiety about Apple supply chain interruptions grew. Apple sources many parts of the iPhone from companies in China. iPhone 11 sales were enough to alleviate any worry along these lines.

Apple’s management continues to make the case that its services business would replace the iPhone as the company’s growth engine. It was not an easy argument to make, up until the new figures came out.

The launch of Apple TV+ is critical to the new strategy. Apple already has a huge music store. Its app store is by far the largest in the industry. By some estimates, apps downloaded since the store began total more than 130 billion. Many experts believe that app sales cannot continue to grow at rates they have over the past decade. So video streaming becomes an essential part of the growth in this multimedia business.



























































All this means that Apple’s bet on TV is absolutely critical. At $4.99 for the first month, after a seven-day free trial, the service is aggressively priced compared to industry leaders Amazon and Netflix, which have price points of $12.99 a month. Apple’s management has gambled that, although its library of content is limited compared to the leaders, the low price, the Apple brand and the hundreds of millions of iPhones, iPads and Macs in the world are a huge base to which it can market its streaming service. A JP Morgan analyst recently said Apple TV+ and Apple’s ad business would add $25 billion in revenue in 2025.

Confidence has grown that Apple’s new iPhone 11 and services strategy is the right formula. Its market cap is back above a trillion to nearly $1.2 trillion. And it was recently named the most valuable brand in the world again.

STRONG TURNAROUND

​J. C. Penney released earnings, and its stock rose by a small amount. Some analysts said the retailer did not do as poorly as expected. The observation did not mean very much. Penney said same-store sales for the year would be down 7% to 8% for its fiscal year, which is nothing short of a catastrophe for a company that has posted plunging sales for years.

J.C. Penney shares are down 84% over the last five years and have traded below $1 recently. Once among the nation’s largest retailers, it has no compacity to compete with powerful retail leaders like Walmart, Target, and even troubled Macy’s. Penney’s store count is only 850 now, after shuttering locations for over half a decade. By contrast, Walmart has over 5,000 in the U.S.

Penney’s revenue is also crashing. It fell 8.5% last quarter to $2.5 billion for the quarter. Its net loss did improve to $93 million from $151 million. But, a loss is a loss nevertheless. For comparison’s sake, Walmart’s revenue last quarter was $83.2 billion, up 3.2%.

The fictional view about Penney’s possible success is that its results are not getting worse faster. Jill Soltau, chief executive officer of JCPenney, said, when earnings were released, “Going forward, I am confident that delivering our strategy, coupled with our ongoing discipline and commitment to improving the foundational elements of our business, will return JCPenney to its rightful place in the retail industry.” The “rightful place” was usurped by more powerful retailers long ago. In a retail world where store count counts along with e-commerce muscle, Penney has no path back. Commenting on the numbers, Neil Saunders, managing director at GlobalData, said “However, the question is whether it has the resource and energy to complete its journey. There is a slim chance it can make it if it manages to improve underlying trading by enough to stabilize losses and undertakes a gradual brand reinvention, using online to bolster sales. However, sadly, in our view, the odds are firmly stacked against it.”

Penney is about to enter a holiday season which may be its last before what will be a financial reorganization that will chop store count more and push many of its 95,000 employees out of jobs. Holidays mean discounts, to pull people through the door of retailers. Granted, those people often buy items that are profitable while on the same visit, either to a store or an e-commerce site. Penney has very little resources to be in the loss leader business. Its balance sheet is too badly damaged. However, it is already offering 50% or more off of some items.

Despite a tiny bit of optimism when Penney announced its earnings, the industry has seen this kind of show again. It almost always ends badly.

​HURTING

​Walmart Inc. (NYSE: WMT) released its fiscal third-quarter financial results before the markets opened on Thursday. The company said that it had $1.16 in earnings per share (EPS) and $128.0 billion in revenue, which compares with consensus estimates of $1.09 in EPS and revenue of $128.65 billion. The same period of last year reportedly had EPS of $1.08 on $124.89 billion in revenue.

During the latest quarter, Walmart U.S. comparable sales increased by 6.6% on a two-year stacked basis. Market share gains in the business were led by food and consumables, including fresh. Sam’s Club comparable sales increased 0.6%.

Walmart U.S. eCommerce sales grew 41%, reflecting strong growth in online grocery. Sam’s Club eCommerce sales grew about 32%.ADVERTISEMENT
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In terms of guidance, Walmart expects that fiscal 2020 EPS will increase slightly compared to 2019. However, the consensus estimates call for $4.93 in EPS and $526.25 billion in revenue for the year.

Doug McMillon, president and CEO of Walmart, commented:

We’re pleased with our performance for the quarter. Our associates are responding to change in an inspiring way, and we’re proud of them. The Walmart U.S. business saw strong comp sales and expense leverage, and operating income grew for the sixth consecutive quarter. We also celebrated the first anniversary of Flipkart and PhonePe as part of the Walmart family. It was great to see record sales in India during The Big Billion Days event. Looking ahead, we’re prepared for a good holiday season. Our integrated offering with stores and eCommerce delivers value and convenience for our customers. Our associates are working hard to ensure we succeed – one customer, one interaction at a time.

Shares of Walmart closed Wednesday at $120.98, in a 52-week range of $85.78 to $121.36. The consensus price target is $123.75. Following the announcement, the stock was up nearly 2% at $123.00 in Thursday’s early trading indications.