Earnings Preview for January 3-4, 2013
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I’d like to open this piece by wishing readers a healthy and prosperous New Year.
Despite a holiday-shortened week, with the markets closed on January 1, there are multiple earnings reports on Thursday, January 3, and Friday, January 4. Here are the companies I’ll be following in coming days and my expectations for each.
Family Dollar Stores (NYSE: FDO) This discount retailer of household goods will report first quarter 2013 earnings results before the open on Thursday. Consensus estimates stand at $0.75 earnings per share on revenue of $2.38 billion. Discount retailers have sold off in recent weeks, after Dollar General issued cautious guidance during its Q3 earnings call on December 11. Investors seem to be concerned about higher markdowns and fewer price increases across the discount retail space as a whole.
Although Dollar General and Family Dollar Stores have a similar business model, Dollar General enjoys a higher sales per sq. ft and greater profit margin. Despite the difference in productivity, investors in Family Dollar could benefit as management plays catch-up over coming quarters with new merchandising and operational initiatives. Sell-side research analysts at both Goldman Sachs and Wedbush have expressed bullish remarks heading into the upcoming Q1 release. Family Dollar’s fiscal year ends on the last Saturday in August (i.e., August 31, 2013).
Sonic Corporation (NASDAQ: SONC) The Oklahoma City, Oklahoma, based drive-in restaurant chain will report first quarter 2013 earnings on Thursday at 5:00 p.m. ET. Consensus estimates stand at $0.11 earnings per share on revenue of $126 million. In recent months, Sonic has been using the free cash flow generated from its franchise business model to reduce debt and repurchase common shares. Management completed a $30 million share repurchase plan in June, and a new $40 million authorization was issued through August 2013.
Investors will also be looking for Sonic to maintain a higher operating margin going forward, as the company reported a 20.5% operating income margin during Q4 2012 compared to 18.0% during the prior year. Management attributes the margin expansion at its 3,500 drive-ins to new technology initiatives and improved supply chain management. Same-store sales also increased by 2.3% overall during the most recent quarter. Sonic Corporation’s fiscal year ends on August 31 each year.
Finish Line (NASDAQ: FINL) The mall-based specialty retailer of athletic shoes, apparel, and accessories will announce third quarter fiscal 2013 earnings before the market open on Friday. Consensus estimates stand at $0.11 on revenue of $298 million. Shares of Finish Line fell more than 3.5% on December 14 when its e-commerce provider Demandware disclosed in an SEC filing that its customer decided to revert back to its previous website. The company had launched the new website in the week leading up to Black Friday.
In September, Finish Line announced it would become the exclusive provider of athletic shoes for Macy’s, with the initiative beginning in Spring 2013. Management stated the Macy’s deal should result in $250 - $350 million of additional sales and does not require significant capital investment. To put the sales potential in perspective, Finish Line sold approximately $1.2 billion of footwear during the most recent fiscal year. Notable value investor Karen Finerman initiated a new position in Finish Line during fall 2012. Finish Line’s fiscal year ends on the first Saturday in March (i.e., March 2, 2013).
Mosaic Company (NYSE: MOS) The Plymouth, Minnesota, based company serves the global agriculture industry through the production of phosphate and potash crop nutrients. Mosaic will report second quarter 2013 earnings before the opening bell on Friday. Consensus estimates stand at $0.94 earnings per share on revenue of $2.54 billion. Investors should recognize that near-term results at Mosaic will be hampered, as fertilizer prices have dropped based on lower demand and volume from emerging markets.
The longer-term picture appears more bright, however. Mosaic is an attractive investment based on inevitable population growth in China and India, as fertilizer is required to maximize crop yields. Goldman Sachs resumed coverage of Mosaic with a Buy rating and $68 price target on December 12, recommending that investors accumulate shares on any potential weakness following this Friday’s earnings report. On December 17, Mosaic announced a change in its fiscal year from May 31 to December 31. Management will complete the current fiscal year on May 31, 2013 and the first full calendar reporting year will take place in 2014.
Looking ahead to next week, the formal earnings season kicks off with Alcoa reporting on Tuesday, January 8. Wells Fargo will also release earnings before the bell on Friday, January 11.
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johnmacris has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!