What’s Happening With Children’s Place, L Brands & Williams-Sonoma?

Everyone’s excited about the retail sector and with companies like Williams Sonoma (WSM) and Children’s Place (PLCE) posting earnings beats with upbeat guidance, you would expect the surge in retail to continue. But for some companies, all of this may not be enough.

L Brands (LB) has echoed this sentiment as profit forecasts have been slashed after a tough second quarter. In July, Victoria’s Secret sent its stocks tumbling when it announced that weak sales during semi-annual sale forced it to extend the event by two weeks and offer steeper discounts. The lingerie player has struggled under the pressure of new competition from millennial-focused brands like American Eagle’s Aerie division, Adore Me and ThirdLove among others.


Earnings per share was 36 cents, adjusted, vs. 34 cents expected and revenue was $2.98 billion vs. $2.93 billion expected. In addition, fiscal second-quarter net income of $99 million, or 36 cents per share, down from $138.9 million, or 48 cents per share a year earlier.

“We believe this all means the brand is broken,” wrote Jefferies analyst Randal Konik.

But for others, this quarter’s earnings came in strong. Williams Sonoma for example posted Q2 2018 revenue of $1.275 Billion up 6.1% from $1.202 Billion at the same time last year. GAAP net income came in short by 2.3% and was down to $51.7 million compared to last year’s $52.9 million & GAAP earnings per diluted share increased by 1.6% from $0.61 in Q2 2017 to $0.62 this quarter.

Today, we are announcing another quarter of strong results with topline growth at the high-end of guidance, gross margin significantly above last year and a substantial EPS outperformance. Our powerful multi-channel, multi-brand platform, together with our strong execution of our strategic initiatives in digital leadership, product innovation, retail transformation and operational excellence are having a positive impact on all parts of our business. Given the results in the first half and the momentum our initiatives are creating, we are raising our full-year guidance for net revenues, comp revenue growth, operating margin and EPS.

-Williams-Sonoma CEO Laura Alber

Williams-Sonoma is targeting revenue in the range of $1.355 billion to $1.38 billion, comparable-brand revenue growth of 3% to 5%, and adjusted earnings per share of $0.90 to $0.95.

For Children’s Place, the pre market has not been kind. Share plummeted from $148.5 to as low as $135.5 during this time. On Thursday the company reported fiscal second-quarter profit of $7.5 million. The results exceeded Wall Street expectations with the average estimate of four analysts surveyed by Zacks Investment Research was for earnings of 57 cents per share. The Children’s Place expects its per-share earnings to range from $2.97 to $3.07. Analysts surveyed by Zacks had forecast adjusted earnings per share of $2.98.

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JP Morgan: The Stock Market Is Doing Something Different

J.P. Morgan (JPM) is telling having conversations with its clients.  The word on the street: There is a strange miscorrelation to the performance, overall between the US and global stocks and how it won’t last.

As a result, the firm predicts international stocks will outperform the domestic market the rest of the year.

“The recent divergence in the performance of US Equities vs. the rest of the world is unprecedented in history. For instance, if one looks at price momentum – it is positive for US stocks and negative for Europe and Emerging markets across all relevant lookback windows [one month, three months, six months and 12 months]. This has never happened before,”

-Marko Kolanovic said in a note clients Tuesday.

The U.S. stock market has greatly outperformed emerging market stocks this year. The S&P 500 is up 7% year to date through Tuesday as compared to the iShares MSCI Emerging Markets ETF’s (EEM) 9% decline in the same time period.

Kolanovic a quantitative and derivative strategist,  also noted that because the relative moves between global markets are so unprecedented it will not likely continue.

“In other words, something will give – either the US will fall or EM and Europe equities will catch up and move higher,” he said, “We believe an escalation will likely be averted and that a trade resolution and weaker [U.S. dollar] will lead to a ‘risk on’ convergence,” the strategist said.

In a separate note Tuesday, J.P. Morgan’s Bram Kaplan explained the research team’s “risk on convergence” call, predicting emerging markets will outperform the U.S. stock market. He added that in this scenario the domestic stock market will still go higher, but not as much as international equities.

To take advantage of the prediction, the firm recommended Dec. 2018 call options on the iShares MSCI Emerging Markets ETF and buying derivatives that rise if the EEM outperforms the S&P 500 into year-end.

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