Alibaba's Bigger Than Amazon (Again)

For the first time since June 2015, Alibaba is now bigger (in market cap) than Amazon.com...

As Bloomberg notes, after 831 days, Alibaba Group Holding Ltd. has regained the title of the world’s biggest e-commerce company. The Chinese retailer surpassed Amazon.com Inc. Tuesday as the U.S. retail giant’s stock continued to stall after second-quarter earnings missed estimates and the merchant forecast a possible operating lossfor the third quarter. Alibaba -- whose stock is up over 109 percent this year -- held the top spot for the first 9 and a half months after its initial public offering in 2014.

In fact, since June 7th"s spike after management raised its full-year revenue guidance at the company’s annual investor day, AMZn has lost almost $8bn in market cap as BABA has added a stunning $155 billion.

Why is AMZN falling? Simple - global central bank balance sheets are shrinking...

Finish Line Craters After Cutting Forecast In Half

Ten days after Foot Locker stock cratered on terrible guidance and dreadful commentary on the state of the retail industry, today its peer Finish Line cratered after hours, plunging more than 20% after it pre-released Q2 results while slashing full year EPS guidance by 50%.

For Q2, FINL reported net sales of $469.4 million, down 3.3% Y/Y driven by a 4.6% drop in Finish Line comparable sales. Based on the decline in sales and pressure on gross margin from increased markdowns, the company now expects to report second quarter earnings per share in the range of $0.08 to $0.12.

“The marketplace for athletic footwear became much more promotional as our second quarter progressed resulting in challenging sales and gross margin trends,” said Sam Sato, Chief Executive Officer of Finish Line.

But far more troubling than its Q2 results, which will be reported in their entirety on September 22, was the company"s abysmal guidance.

The company now expects Finish Line comparable sales to decrease 3% to 5% versus its previous guidance for an increase in the low-single digit range, an unprecedented collapse in the sector in just one quarter. Adjusted EPS guidance was slashed by over 50%, and the company now expect EPS between $0.50 to $0.60 for the 53-week fiscal year ending March 3, 2018, versus the previous guidance range of $1.12 to $1.23, and compared with adjusted earnings per share of $1.06 for the fiscal year ended February 25, 2017, which was a 52-week year.

For Q3 the company expects Finish Line comparable sales to decrease 3% to 5% and adjusted loss per share to be in the range of ($0.32) to ($0.40), compared with an adjusted loss per share of ($0.24) for the same period last year.

For Q4 ending March 3, 2018, the company expects Finish Line comparable sales to decrease 3% to 5% and adjusted EPS to be in the range of $0.50 to $0.58.

Needless to say, the commentary was grave in every sense of the word, despite being full of meaningless buzzwords: “We believe it is prudent to adjust our outlook as we expect the environment to remain highly competitive and promotional throughout the remainder of the year. In light of our disappointing second quarter results and revised projections for fiscal 2018, we will remain very disciplined in managing our expenses and inventories throughout the remainder of the year. Looking ahead, we are optimistic that the work we are doing with our vendor partners to enhance our merchandise assortments will start benefiting our top-line results early next year. At the same time, we continue to focus on building our omnichannel capabilities to strengthen our customer connections, improve our service levels and further capitalize on the shift toward digital commerce. We are also making good progress rightsizing the business to better compete in the current environment. In the past 12-months, we’ve made a number of changes that have created a more nimble organization and generated approximately $6 million in annualized savings, and over the past 2 years we’ve closed approximately 80 underperforming stores. We remain steadfastly focused on executing our strategic plan to drive increased shareholder value over the longer term.”

Unfortunately for Sato, the market ignore all his attempts to spin the dreadful quarter and abysmal guidance and sent his stock crashing 23%  after hours, and has now caught up, or rather down, to Foot Locker.

Cardinal Health, Peers Tumble As Lower Generic Drug Prices Hurt Industry Outlook

Cardinal Health tumbled the most in almost six months after the healthcare product distributor warned its outlook would be toward the lower end of its forecast range for this year and gave initial fiscal 2018 guidance that missed analyst estimates.

The company is grappling with lower prices for generic medicines, a trend that several sellside analysts warned is likely to also hit competitors McKesson and AmerisourceBergen. After the poor guidance, CAH fell as much as 12%, most since Oct. 28; Comps ABC and MCK were down as much as 6.2% and 5.7%, respectively. Prior to today, CAH was up 14% YTD vs S&P 500 Health Care Index up 7.6%; ABC had gained 11%, MCK was up 2.7%.

Additional CAH announced today it would acquire the patient care, deep vein thrombosis and nutritional insufficiency businesses of Medtronic for $6.1 billion in cash. The deal would give Cardinal Health access to 23 product categories that “are used in nearly every U.S. hospital,” the company said. The divisions have more than 10,000 employees and generated $2.3 billion in revenue in the 12 months ended in October, with more than 70 percent of sales in the United States.

Here is a brief summary of Wall Street"s responses courtesy of Bloomberg:

Mizuho (Ann Hynes)

• Weaker forecast raises concerns for drug distributors; expects generic deflation also will be headwind for MCK and ABC heading into their earnings


• CAH sees FY18 EPS growth flat to down mid-single digits, implies range of $5.03-$5.35; at the midpoint, that’s 12% below average analyst ests. and includes 21c of gains from purchase of MDT businesses


• Says CAH-MDT deal was largely expected


• Rates CAH neutral, PT $79

Baird (Eric Coldwell)

• CAH trimmed FY17 forecast for third consecutive quarter as generic deflation now seen down low-double digits vs previously down high-single digits


• Initial FY18 outlook is ~18% below Street on apples-to- apples basis excluding gains from purchase of Medtronic businesses


• Neutral, PT $80

Evercore ISI (Ross Muken)

• Initial FY18 outlook is major surprise, says shame that solid MDT deal is being completely overshadowed by guidance


• Modestly more confident about CAH conf. call; appears that majority of revisions in generic deflation expectations is due to handful of highly profitable products


• While slope of decline doesn’t seem to have gotten worse, recovery will probably take much longer than projected when CAH was upgraded to outperform on April 6


• Outperform, cuts PT to $77.50 from $91.50

Cowen (Charles Rhyee)

• Near-term challenges to pharma segment remain as fewer branded drugs go generic


• CAH’s outlook for FY18 generic deflation to improve y/y suggests macro environment is starting to stabilize but will take longer than expected


• Market perform, PT $89

Leerink (David Larsen)

• CAH cited generic pricing and sell-side pressure for EPS views missing expectations for FY18 and FY19


• CAH facing other challenges including loss of Prime Therapeutics as a client; Leerink believes this deal was won by ABC, says shares could rally if co. meets earnings ests. this quarter


• Incrementally more cautious on MCK


• Rates CAH market perform, ABC outperform, MCK market perform

Source: Bloomberg

America's CEOs Have Never Been More "Optimistic"

It"s not just US consumer optimism that recently hit all time highs (even if, as UMichigan explained last week, it was largely split according to party lines). According to a recent analysis by Bank of America, in the current earnings season which is gradually coming to a close, despite tepid guidance, "one read on corporate optimism is at a record high."

As BofA"s Savita Subramanian writes, "guidance during 4Q earnings season is typically less positive than in other quarters as management sets a low bar for the year. While the ratio of above- vs. below consensus guidance has remained weak so far this month at 0.55, it is up from 0.44 in January and slightly above the post-2000 average of 0.48 for both months."

And yet, while managements’ official outlooks may be nothing to write home about, commentary on earnings calls has been notably optimistic. A simple count of mentions of the word “better” relative to mentions of “worse” or “weaker” on earnings calls is tracking its highest in over two years. And the word “optimistic” has been used on a record 51% of the calls this quarter, the highest ever in our data history.

Ironically the incidence of record high "optimism" mentions took place just one quarter after it hit a record low.

And while on the surface, this is great news for the future as it suggests companies may finally redirect their spending away from buybacks and dividends and into corporate growth, hiring and capex, it also means that the threshold for disappointment is the lowest it has ever been, and the pressure on both Trump and the Fed to deliver an environment that satisfied America"s CEO has never been higher.