Weekend Update #127
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
Earnings season continued this week, with a cautious outlook from a number of retailers including Home Depot, Target, Foot Locker, as consumers begin to run out of savings, and as a result, are searching for cheaper alternatives and cutting spend on discretionary items.
In this week’s newsletter, we cover earnings from Deere (DE), monday.com (MNDY), Take-Two Interactive (TTWO), Target (TGT), Walmart (WMT) as well as additional company updates.
The main focus this week, however, has been on debt ceiling negotiations as the Biden administration and Congress have yet to come to agreement before the June 1 deadline. Discussions are expected to continue into the weekend, after talks over raising the debit limit abruptly came to a halt Friday on Capitol Hill when Republican negotiators walked out of the room and blamed the White House for holding up discussions.
The G7 summit also began on Friday, bringing together officials from Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. The focus of discussion will likely be on Russia’s invasion of Ukraine as the leaders agree to ramp up pressure on Russia with additional sanctions.
Next week, key economic data include S&P U.S. Manufacturing and Services PMI (Tuesday), New Home Sales (Tuesday), Pending Home Sales (Thursday), PCE Index (Friday), and Univ. of Michigan Consumer Sentiment (Friday).
Friday’s Close (Weekly Performance)
S&P 500 4,192 (+1.65%)
Nasdaq 12,658 (+3.04%)
Dow Jones 33,427 (+0.38%)
Thank you Blue Room Analyst NICK PEART
First Quarter Highlights
Target sales grew 0.5 percent, reflecting flat comparable sales combined with the benefit of sales from new locations.
Traffic grew 0.9 percent, on top of 3.9 percent in Q1 2022.
Comparable stores sales grew 0.7 percent, offset by a decline in comparable digital sales.
Among the components of comparable digital sales, same-day services saw mid-single digit growth, led by high-single digit growth in Drive-Up.
Strength in frequency businesses (Beauty, Food & Beverage and Household Essentials) offset continued softness in discretionary categories.
Inventory at the end of Q1 was 16 percent lower than last year, reflecting more than a 25 percent reduction in discretionary categories, partially offset by inventory investments to support rapidly-growing frequency categories, and strategic investments to support long-term market-share opportunities.
First quarter GAAP and Adjusted EPS of $2.05, and operating margin rate of 5.2 percent, were ahead of expectations, reflecting a higher gross margin rate compared with last year.
Target Corporation (NYSE: TGT) today announced its first quarter 2023 financial results, which reflected continued traffic and sales growth in an increasingly challenging environment.
The Company reported first quarter GAAP earnings per share (EPS) of $2.05, down 4.8% from $2.16 in 2022.
First quarter Adjusted EPS1 of $2.05 decreased 6.2 percent compared with $2.19 in 2022.
Laura Martin — Needham
Good afternoon. I'm Laura Martin, the Senior Media and Internet Analyst, and I'm happy to welcome to the virtual stage, Steve Louden. Steve has been with Roku CFO since 2015, and he will be until August of 2023. Prior to Roku, Steve has held various roles at Expedia, including VP of Corporate Finance and Treasurer. Early, he had held senior financial positions at Washington Mutual, McKinsey, and Walt Disney. Steve began his career as a financial analyst with Merrill Lynch. He holds a bachelor's degree in economics and mathematics from Claremont McKenna College and an MBA from the Harvard Business School, which is why he and I like to argue so much apparently.
Also on screen today, we're going to have Conrad Grodd, the VP of IR of Roku. I think, Steve, let's start with a level set, which is, why don't you go, for the people maybe in our audience, because we're going to go in hours. Can you go into sort of a level setting, what does Roku do, and big revenue streams, please?
Steve Louden — Chief Financial Officer
Yes, sure. And thanks, Laura, to you and Needham for hosting us today. Always great to talk to you specifically and appreciate the partnership over the years. As Laura mentioned, I'll be transitioning out. In fact, my replacement, Dan Jetta, just started at Roku recently, and so he's in the process of getting up to speed and he'll be leading the next earnings call with Anthony and our Presidents at the end of July.
So, yes, in terms of the overview for Roku, we are the leading streaming TV platform. And so if you think about our model, we are a growing scale of active accounts, so get people on the platform to stream. We drive engagement of those folks in terms of viewing different parts of the types of content on the platform, and then we then we monetize them.
In terms of revenue, the vast majority of our revenue is in our platform segment, in that the single biggest bucket of that is video advertising. And we also have revenue streams around what we call media and entertainment spend, which is basically promotional spend for the content producers on the platform, the streaming services.
And then we also have revenue streams from rev shares on both the subscription service side, as well as the TVOD side, right? So if we sign up a new subscriber for a streaming service, we get a revenue share per life of that subscriber. So, those are the three big buckets on the monetization side or what we call the platform segment on the P&L.
David Kirn — Chief Executive Officer & Co-Founder
Thank you, everyone, for joining us today. We're pleased to share with you updates on 4DMT's 4D-150 program, including positive interim clinical data from our PRISM clinical trial.
As many of you know, our platform is based on directed evolution technology to design customized vectors with superior therapeutic profiles compared to wild-type vectors.
To date, we've demonstrated human clinical proof-of-concept for our platform with three vectors in three therapeutic areas. We're currently developing five clinical stage products for seven patient populations, and our strategy is to become a fully-integrated large market genetic medicines company.
Our efficient product design and development engine has powered our broad and deep pipeline. Each therapeutic area leverages a proprietary and optimized 4DMT vector plus our product development engine.
Today we'll focus on 4D-150 for wet age-related macular degeneration, or wet AMD. This product is also being developed for diabetic macular edema, or DME, and 4D-175 is our preclinical product for geographic atrophy.
As a reminder, 4D-150 was designed as a single routine low-dose intravitreal injection to deliver a payload for expression within the retina that constitutively expresses two therapeutic products targeting four VEGF family members.
Michael Nathanson — MoffettNathanson
Okay. So Christine, my first question is a big one. It could take a whole hour, but let's start here. What actions and decisions are you taking today to improve the Disney company's financial performance going forward?
Christine McCarthy — Senior Executive VP and Chief Financial Officer
Okay. So settle in everybody. So this is a great question, and I know we just had earnings last week, and I would like to clarify a few things. But there are things that we are doing as a management team that are very responsive to the current environment that we're all working in plus facing some of the challenges we have as a company.
Now, the things that we have firmly in our control are things like our structure, the way we are structured for managing the company as well as the cost structure. And as I said in our call, we are well on our way to meeting or exceeding the $2.5 billion of SG&A savings that we put out to the market previously and feel really, really good about, what we've done to date and what will still be achieved in the balance of this fiscal year that you'll really see the benefits in '24.
So that's something that I just want to lean into a little bit. And then Bob Iger is really addressing the content spend. He's looking at not only what we're spending, but how we're spending and where we're investing those content dollars. So those are things that are firmly in control of the company.
And I think, the benefits of those, the more immediate one will be the SG&A achievements that we deliver. Content spend will be a little bit longer to really see because of the time it takes for projects to go into development, production, post-production and then go on things. But it's all underway.
When we look at our businesses, there's one thing I want to clarify a bit and that is our sub growth. So we are looking at our sub growth and I want to differentiate because Alexia Quadrani, many of you know Alexia, she's our Head of Investor Relations. But last year we talked about, we were always announcing sub growth as one number and we broke out Disney Core plus -- Disney+ Core subscribers versus Disney Hotstar subscribers. And the reason one -- the reason we did that is because there's very, very different dynamics in terms of ARPU and the potential for revenue generation.
Kevin Conroy — Chief Executive Officer, President & Chairman of the Board
Thanks, Derek, and thanks to Bank of America for having us back again. I think is our 12th year of coming to the conference. Yes. It's been a long time coming to have that transformation really in the way colon cancer, the number two cancer killer in the U.S. is screened for.
And it's so meaningful to have the impact that to watch the team have the kind of impact it's having. It was in 2009 that I left a meeting at the Mayo Clinic, where Dr. David pitched this idea of how to reinvent the way that we screen for colon cancer and show data and articulated why stool DNA testing would be a way to transform screening.
And he talked about the incredible need that only half of people were being screened when they should be screened. The impact when you get screened on disease, the ability to prevent cancer. That was 14 years ago. What we have seen now is a total transformation in the U.S. in terms of colon cancer screening, and we have a long way to go. So I think there are three kind of fundamental, I think, big shifts that occurred since we launched Cologuard almost nine years ago.
The first one was just this commitment to go big with marketing — consumer marketing and also to go big with the primary care sales force. So at the time a lot of investors, I think thought we had taken leave of our senses to be a diagnostic company and to go big into primary care that has paid off.
Number two, in terms of going on to the same digital infrastructure and the same platform that our large health systems are on. Making that decision to move on to that architecture called Epic has been transformative in many, many ways.
And thirdly, the acquisition of the Genomic Health business and Oncotype DX has now extended our reach beyond screening into a whole world of cancer diagnostics, where we meaningfully help guide treatment. So our mission is to help eradicate cancer through tests that help prevent it. Detect it earlier and to guide treatment. And Brian is an amazing General Manager of that business. So hopefully, we have a robust discussion.
Benjamin Budish — Barclays
I'd like to start off with some of the surprises that we kind of got in the last earnings call, one of which was kind of the ongoing OpEx management during the quarter itself, you beat pretty handy in terms of your margins. But lately, I'm thinking kind of high level here, you and Brian have been sort of talking more and more about the philosophical switch from profitable across cycles to profitable in all market conditions. Can you maybe talk about that a little bit? And I think investors are always trying to get a better understanding of what the long-term profitability of the company is like? But maybe talk about that shift a little bit. How should we think about it?
Alesia Haas — Chief Financial Officer
So yes, there was a distinct shift. When we went public, we said in our S1 revenues were as good when crypto was strong, we will make money and that we were okay burning when crypto went through winter because we've seen crypto very volatile over the last 11 years in our existence. We've gone through four price cycles. What is important about crypto is what we've seen historically is the peak was higher than the last peak and the trough is always higher than the last trough. So we never wanted to pull and contract back our spend such that we weren't ready for the next full run. But what happened over the last year is, obviously we saw two things happen.
One is the broader macro environment changed? And as you know, and I'm probably speaking to the choir here, is the investment community really shifted from a growth model to a value model. So we saw value accruing to those who were focused on profits, who were focused on the bottom line. But another important thing happened in 2022 in crypto which was we saw two large events. We saw the Terra-luna de-pegging in May of 2022, which then precipitated a few bankruptcies. That really spooked the market and it spooked customers importantly to say will my assets always be safe? Can I recoup my assets in an event this company fails? And we got a lot of questions because we had to add bankruptcy exposure to our financials as a result of SEC guidance. And because crypto is so nascent, there hadn't been any crypto bankruptcies at the time. So we weren't able to say we can rely on decades or even centuries of bankruptcy law and this is how your assets will be treated. We had to say there was some risk.
FY 2023 Guidance:
Net Income: $9.25-9.50 billion (compared to $8.93 billion consensus estimate)
Production & Precision Ag:
Net Sales: +20% (compared to +21% consensus estimate)
Currency Translation: 0%
Price Realization: +15% (increased from prior +14% guidance)
Small Ag & Turf:
Net Sales: +5% (compared to +2% consensus estimate)
Currency Translation: -1% (decreased from prior +0% guidance)
Price Realization: +9% (increased from prior +8% guidance)
Construction & Forestry:
Net Sales: +15% (compared to +13% consensus estimate)
Currency Translation: 0%
Price Realization: +10% (increased from prior +9% guidance)
Financial Services:
Net Income: $630 million (decreased from prior $820 million guidance, compared to $776 million consensus estimate)
Strauss Zelnick — Chairman and Chief Executive Officer
Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that we concluded fiscal 2023 by delivering strong fourth quarter results, including net bookings of $1.4 billion, which were above the high end of our expectations. On behalf of our management team, I'd like to thank all of our colleagues around the world for helping us achieve these results and supporting our vision to become a more scaled, diverse, industry-leading organization, especially as we navigate an oftentimes volatile and uncertain economic landscape.
With fiscal 2024 underway, our initial expectation is to deliver full year net bookings in the range of $5.45 billion to $5.55 billion. We're assuming a continuation of the current challenging consumer backdrop within our forecast. Additionally, the development timelines of some of our titles have lengthened, especially as we strive to redefine the creative standards of excellence of our industry, which affect our release slate for the year.
Looking ahead, fiscal 2025 is a highly anticipated year for our company. For the last several years, we've been preparing our business to release an incredibly robust pipeline of projects that we believe will take our company to even greater levels of success.
In fiscal 2025, we expect to enter this new era by launching several groundbreaking titles that we believe will set new standards in our industry and enable us to achieve over $8 billion in net bookings and over $1 billion in adjusted, unrestricted operating cash flow. We expect to sustain this momentum by delivering even higher levels of operating results in fiscal 2026 and beyond.
WALMART, INC. RELEASES FIRST QUARTER 2024 RESULTS
Walmart revenue grew 7.6%
Operating income grew 17.3%
eCommerce up 26.0% globally
1Q24 GAAP EPS: $0.62
1Q24 Non-GAAP EPS: $1.47
Walmart announced first quarter results which included strong revenue and operating income growth of 7.6% and 17.3%, respectively. Operating expense leverage, along with progress from the Company’s connected value streams, including advertising, helped deliver operating margin expansion.
The Company had strong comparable sales globally, including 7.4% for Walmart U.S., as its omnichannel model continues to resonate with customers and members.
First Quarter Highlights
Consolidated revenue of $152.3 billion was up 7.6% (+7.7% in constant currency “cc”)
Consolidated gross margin rate declines 18 bps on mix of sales
Consolidated operating expenses as a percentage of net sales fell 58 bps
Consolidated operating income up $900 million, ot 17.3%, operating margin increased 34 bps
ROA at 4.5%; ROI at 12.7%, negatively affected by discrete charges totaling 140 bps in 3Q and 4Q of 2023
Global advertising business grew over 30.0%
Walmart U.S. comparable sales grew 7.4%; eCommerce grew 27%, led by pickup & delivery
PhonePe reaches more than $1 trillion in annualized TPV
Company commits to build its own EV fast-charging network at thousands of locations in the U.S.
“We had a strong quarter. Comp[arable] sales were strong globally with eCommerce up 26%. We leveraged expenses, expanded operating margin, and grew profit ahead of sales. And a big thank you to our associates, who continue to step up and deliver for customers and members whenever and however they want to be served.”
First Quarter Fiscal 2023 Financial Highlights:
Revenue was $162.3 million, an increase of 50% year-over-year, or 51% on an FX-adjusted basis.
GAAP operating loss was $22.8 million compared to a loss of $67.5 million in the first quarter of 2022; GAAP operating margin was negative 14% compared to negative 62% in the first quarter of 2022.
Non-GAAP operating loss was $0.3 million compared to a loss of $43.8 million in the first quarter of 2022; non-GAAP operating margin was negative 0% compared to negative 40% in the first quarter of 2022.
GAAP net loss per basic and diluted share was $0.31 compared to GAAP net loss per basic and diluted share of $1.48 in the first quarter of 2022; non-GAAP net income per basic and diluted share was $0.15 and $0.14, respectively, compared to non-GAAP net loss per basic and diluted share of $0.96 in the first quarter of 2022.
Net cash provided by operating activities was $42.7 million, with $38.7 million of free cash flow, compared to net cash used in operating activities of $12.9 million and negative $16.2 million of free cash flow in the first quarter of 2022.
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VIETNAM
Blue Room Vietnam Analysts from L to R:
Huong Dinh, Duc Thanh Hoang, and Ngan Le
Tune in next week for more BR Vietnam from Minyoung Sohn.
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