Yet again names like Ulta Salon, Lululemon and Lumber Liquidators prove that the only thing that matters is when the company itself concedes that what was believed to be, isn't. That theme continues to rage through this Greater Fool's Theory market, as I have called it, leaving all who dare question the king looking like the joker ... until they aren't.That's something to think about as companies like Green Mountain continue to win favor in this super-caffeinated market, with the hype and hope of new products years out. A momentum-driven market like this rewards hype with the valuations of hope. It's perfect for the "buy on the rumor" pump, which can lead to valuations that for all but perfection leads to "sell on the news" dump.
Abercrombie & Fitch's board could learn a thing or two from the board at Lululemon, starting with getting one thing straight: The board controls the CEO, not the other way around -- no matter who the CEO is, how long he or she has been in the job or even if they founded the company. That's the moral of the story at Lululemon, where controversial founder Chip Wilson is stepping down as chairman in conjunction with the arrival of Laurent Potdevin, the president of Tom's Shoes, as CEO.The move comes as Lululemon, fresh from a CEO revolving door, attempts to revive its growth. Compare that with Abercrombie, where longtime CEO Michael Jeffries just received a year-long extension of his contract even though the company's growth and stock have been in freefall.
Every year this time I take nominations for the year's worst corporate CEO. I like to seek names from readers because, quite frankly, it helps spot names a screening process might miss. Not to mention that readers usually remember more than I do!Usually, there is no lack of choices and my email and social media feeds light up with names. But this year -- the various calls have been met mostly with, well, little in the way of new names. Is that because there are fewer bad CEOs? Nah. It's simpler than that: We're in a momentum-driven bull market, silly, and rising stock prices hide all sins.
Long before Ulta Salons' report of disappointing results Thursday, there were plenty of reasons to be wary: A revolving door of CFOs, including one who stayed just five weeks. A promotional CEO who left for something presumably better before his options granted -- and before the annual audit was completed. Ballooning inventory. And such things as concerns over aggressive accounting. Now even the company is conceding that even the sweetest perfume can't hide the bad odor seeping in from under the numbers. And I'm not talking about its revenue miss or surprising slice in guidance.
News that the FDA issued a Class 2 Recall against Intuitive Surgical ISRG may be more bark than bite. Since 2008 the FDA has issued five pages of recalls against the company. The FDA defines Class 2 recall as "a situation in which use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote." The latest recall involves regarding friction with certain instrument arms, comes on the heels of growing controversy about robotic surgery involving the company's da Vinci system. Last year I did the documentary "The Da Vinci Debate" on CNBC.com. Intuitive calls the latest recall a "a product correction." From its statement: "The company is taking this action after becoming aware that excessive friction within certain instrument arms could interrupt smooth instrument motion, which is felt as resistance by the surgeon. If a surgeon pushes through the resistance, the instrument could stall momentarily and then suddenly catch-up to the correct position." Stall momentarily?
Shortly after the J.C. Penney JCP press release hit last night on how its post-Thanksgiving weekend sales were up 10% I tweeted: "JCP big comps for the holiday weekend but... against what? The company didn't issue post-t'giving #s a year ago, which likely were a bust." With the stock's pre-market decline this morning, it appears investors have come to realize the release was little more than a PR ploy that apparently has backfired.is this: While the company didn't give post-Thanksgiving sales last year they were sandwiched between -26% and -31% quarterly comps. Against that kind of performance, it isn't hard to show what appears to be a turnaround, especially with, as JCP put it in the press release, "compelling promotions." More recently, performance overall has improved, so anything in the plus column should not have been a surprise. good news, I guess, is that the patient has a pulse.
Quentin Hardy's NYT piece this morning about Google's aggressive push into cloud computing, with pricing to match, would not appear to be what the doctor ordered for Rackspace RAX.As good as Rackspace's technology, marketing and customer service may be, the reality: The cloud (renting space on servers) is a commodity. Proof is in the pricing, and the big guys like Google, Microsoft, IBM and Amazon are more than willing to use it as a loss-leader. The impact gets buried in their results, but not Rackspace's, whose margins and growth are going the wrong direction. That's why its stock has been halved over the past year making me wonder: When does it reach a point that, for all that it does well -- not to mention its market share -- it gets bought up by one of the big guys? One hurdle may be valuation: It trades at 53-times trailing earnings; 48-times forward. But only 3.5-times sales. Value, of course, is in the eyes of the beholder.
No way to sugar-coat this: Fresh off its impressive turnaround, Krispy Kreme's growth is slowing. Sales last quarter budged ahead 6.7%, down from 8.5% the year before and even higher in the interim quarters.The bigger issue was same-store sales. The company warned a quarter ago that they would be "less dramatic" against "our outstanding comp performance last year." And they were, but with a twist: Same-store sales at company-owned locations (mostly in the U.S.) rose a mere 3.7% -- quite a come down from the prior quarter's 11.4% gain and the prior year's 7%. At the same time, domestic franchise same-store sales growth, which had been running on par with company stores, remained fairly robust at 10.7%. Why the discrepancy between company-owned and franchise stores in the U.S.?
About the only surprise about Clean Harbors, the waste management company, is that almost every analyst who follows it still rates is as a Buy. That's even after the company's most-recently-reported quarter, which included yet another in a series of sliced guidance, missed expectations or a combo of both.Yet this is the same company: That is still hoping for the best from its Safety-Kleen acquisition late last year, which hasn't generated the margin growth the company forecast. That bought into the oilfield waste disposal and services business at the peak of the oil cycle. Whose CFO (on the job when Safety-Kleen was bought) quit in February after less than a year on the job. He was replaced by the company's former CFO, who is also president. (It's often best when those two jobs are split.)What many on Wall Street don't appear to have fully grasped is that thanks to a series of acquisitions...
Much earlier today I tweeted out: "New wave of greenmail?:Take-Two buys back Icahn's shares. This is becoming a trend w/activists. Should same deal be given all investors?"Now, in 140 characters or more: Today it was Take-Two buying back shares from Carl Icahn. Yesterday it was ADT buying back shares from Corvex Capital. Earlier it was Yahoo buying back Third Point's stake.And in each case, the activist investors, who had rattled the cage for change, were on the board -- making them insiders.Is this a new-age form of greenmail? Greenmail, for those of you not around in the fun old junk-bond days of the 1980s, was when companies would pay corporate raiders (like Icahn at the time) to go away. Typically the raiders would take big stakes in companies with the threat of taking them over.This, of course, isn't quite the same, but it clearly rubs some investors the wrong way. Among them, longtime hedge-fund manager John Levin of Levin Capital Strategies, who told me: "While there is nothing wrong apparently with an activist going on board and selling stock back to the company - and apparently nothing wrong with the company buying it - I don't feel it's good public policy and fee the public should have a chance to participate in these transactions." He has a point: