Friday, November 14, 2008

JCPenny (NYSE:JCP) Merchandise Giveaway; Profits Lower

I had a very timely experience with what I call "sales plan insanity" at J.C. Penny recently, where JC Penny was essentially giving inventory away for nearly nothing (almost FREE). And, when I first encountered this sales strategy first hand, I knew for certain that JCPenny's earnings were going to suffer dramatically.

But, I guess the "analysts" that cover J.C. Penny Stock (NYSE:JCP), do not bother actually visiting the department store they are "analyzing". If they had, perhaps they would not so often be incorrect in their "analyst estimates" that seem to always miss the mark, as today's Bloomberg story on JC Penny earnings stated:
Nov. 14 (Bloomberg) -- J.C. Penney Co., the third-largest U.S. department-store company, forecast earnings that trailed analysts' estimates and posted its fifth straight quarterly profit decline as shoppers cut spending on home goods and jewelry.
Third-quarter net income decreased 52 percent to $124 million, or 56 cents a share, from $261 million, or $1.17 a share, a year earlier, the department-store chain said in a statement. Sales fell 8.7 percent to $4.32 billion from $4.73 billion.
Let me clue all you Wall Street analysts in as to how insane the management at various retailer in the United States is behaving: they are selling products for next to nothing, with obviously zero margin or, quite likely, negative margin.

This is not just conjecture, but rather fact that I will demonstrate with my recent sales receipt from J.C. Penny (click image to view larger size):

This is ridiculous! J.C. Penny has been sending (in the mail) these special Sales-Event Coupons for "$10 off $10 or more". First of all, that is just stupid! Every time they send one, I pick up more free or nearly-free items. Come on management: wake up and make it $10 off $20 at least (50% off is STILL darn good, and you may actually break even on the proposition). I realize you *hope* people will come in and buy much more than $10, but in this current economic environment, that is a bet I would not take.

The last time I got a coupon in the mail, I went looking around Pennys for kicks again, to see what I could perhaps use. I stumbled upon sales for 75% off on a few Polo shirts (and that was off existing markdowns or something). And, it gets better... they had yet another promo going where you could buy one get one (BOGO) too, and none of THESE promotions were excluded on that $10-of-$10 coupon.

Look at that receipt showing the proof of this SALES INSANITY: I purchased a total of 3 shirts that originally retailed for $104.00 for a grand-total, after Sales Tax, of $5.84. Give me a break! What moron management team came up with these incentives? I can not help thinking that they would have done better just to give the inventory to charity and write it off. How can you cover the cost of goods, let alone the cost of labor, advertising, floor-space, and so on by doing this?

Well, the bottom line is that this speaks volumes as to the state of the PANIC IN RETAIL right now. Retail stocks are all beaten down on the stock market, and for good reason -- the management of most retailers has decided that, in order to show any revenue production, they will have to engage in an insane race to the bottom along with all their competitors. As such, do not be TOO surprised if these stock market "analysts" continue to miss obvious indicators that earnings are going to be terrible for a long time to come.

Perhaps some bright spots will emerge in Retail yet (aside form WalMart), but it is a bit early to tell. Even though I am very cautious about investing in retail stocks, I have taken some "Mall walks" the past few weeks on various days of the week to see if any particular retailers seem to "stand out" consistently with regard to foot-traffic and, more importantly, purchases (I look to see what brand's bags are being carried around the Mall by people - if any one brand stands out).

I spotted a couple retailers that have my interest, like New York & Company (NYSE:NWY) being one I noticed decent store / Mall activity in, and a couple others. In the case of NWY, their stock is trading for around $2.00, so for the price I paid for my three uber-discount JC Penny shirts, I could purchase nearly 3 shares (or, at the original retail price of those shirts, I could purchase 50 shares). This puts the retail pricing strategy into perspective even more perhaps.

Friday, November 07, 2008

Stock Analysis: Nvidia (NASDAQ:NVDA) and Ford (NYSE:F) Company Performance

I just have to compare and contrast the operating results reported by two companies today (Nvidia and Ford Motors), and especially discuss a fundamental difference between these two companies' management philosophies and ability to adapt to changing markets. That difference is a large one, and an obvious one: market agility and anticipating the future - Nvidia does this well, Ford does not.

Both have faced similar challenges with regards to their products and markets lately: their markets have been challenged by competitors (for Nvidia, that mean AMD / ATI; for Ford, just think Toyota, Honda, etc.), consumers have been demanding different products (for Ford, that means higher mileage cars; for Nvidia, that means higher performing graphics processors and more and improved Notebook graphics chip functionality), and each company has seen their products caught in a period of transition.

But, where they differ dramatically is in how they reacted to these challenges, and how quickly they reacted to known changes as well as anticipating uncertainty.

Let me start by quickly presenting an excerpt from earnings reports for each company - first Ford, then Nvidia:
NEW YORK ( -- Ford Motor reported a $3 billion operating loss in the latest quarter, and said Friday it would reduce staff and capital spending in order to preserve its dwindling cash.

Ford said it would cut salaried employment costs by 10% - reducing compensation of its white collar workers by eliminating merit pay, bonuses and the company's matching contributions to their retirement accounts.
Now, Nvidiia's quarterly results release:

SAN FRANCISCO, Nov 6 (Reuters) - Graphics chipmaker Nvidia Corp reported quarterly results on Thursday that topped Wall Street's estimate, as the company held the line on expenses while sales fell, and shares surged 12 percent.

Nvidia (nasdaq: NVDA) said its fiscal third-quarter net earnings for the quarter ended Oct. 26 came in at $61.7 million, or 11 cents a share, down 74 percent from $235.7 million, or 38 cents a share, in the year-ago period.

But after excluding items related to the company's recently announced layoffs and other charges, Nvidia earned 20 cents a share, beating the average analyst estimate of 12 cents a share, according to Reuters Estimates.

Notice the key differences.


Nvidia has been profitable in the past, and REMAINED profitable by acting quickly to reduce costs in light of the fact that demand was slowing and product-mix changes were taking place. In September, the company announced plans to cut 6.5 percent of its workforce when it was obvious their market was changing, and this quick reaction has helped them avoid losses.

You can argue that a graphics chip maker is inherently more agile than a car company because of the product lead-time and engineering/manufacturing cycle brevity compared to building cars, but on the other hand, that same logic must be applied to *competitors* that can also move just as fast to change their lineup of graphics cards and GPU offerings. So, Nvidia deserves credit for having management that is willing to act quickly, and decisively, in order to keep products inline with consumer expectations while keeping costs down as sales volume deteriorates a bit during a macroeconomic slowdown.

In addition, Nvidia shows foresight for future demand and growth in the parallel computing field with their CUDA offerings (this CUDA parallel processing cores feature is in nearly all their current GeForce and Quadro product lineup). I have been watching more and more commercial applications target this particular Nvidia platform advantage (which, I consider to be VERY large), and have seen applications like the upcoming Adobe Creative Suite CS4 even marketed as being best-with-Nvidia cards (and, Nvidia has a nice new high-end Quadro video card marketed specifically to Adobe CS4 users). This is great product planning, and will give them sales for many quarters to come.

And, if this were not enough reason to consider Nvidia a company with great foresight and momentum, consider how Apple Computer has just started offering the Nvidia mobile GeForce chipsets / GPUs in their new notebook lineup. As soon as I heard that news, it was even more obvious that Nvidia is making moves to future-proof their sales and grow their markets.


Ford has been losing money for a long time, and even while losing money, their management consistently acts slowly to reduce costs in light of the fact that demand was slowing and competitors were eating them alive. Ford Motors seems destined to live up to the image of the American Auto in general: outdated and behind the competition. Their entrenched management (just like General Motors) is a bunch of overpaid executives whose only tangible "plan" to fix things of late is to borrow (or be handed) more money from the United States Government and taxpayers.

I won't get into how lame this whole "rewarding failure" concept is with giving incentives to companies that fail is (instead of rewarding those that succeed and produce profits and jobs!), but it is highly indicative of the underlying problem with Ford and GM. They still, even after massive multi-Billion dollar repetitive quarterly losses, fail to act BEFORE the crisis gets worse, and are never able (or willing) to get ahead of the curve and show that they have any sort of visionary management abilities.

It is not like they have no knowledge of where the consumer is headed, where the economy is heading, and how their products stack up against the competition in regards to quality, features, mileage, and the like (start by reading Consumer Reports guys!). Nvidia has the same knowledge of what their competitors are doing (AMD's ATI division especially), and they must act to counter such competition quickly - and they do!

Ford looks like a slug by comparison to Nvidia, and repeatedly fails to deliver REAL change, and by the time (if ever it occurs) their management makes the DEEP CUTS and GROUNDBREAKING CHANGES required, they will have burned all their cash and find themselves once again knocking on Uncle Sam's door in hopes of more easy money. This door-knocking must be ignored, as it only encourages a repeat of their lame decisions, and will reinforce poor management "vision" while essentially penalizing those auto companies that DO have good vision for their companies' futures (by essentially subsidizing inferior products from Ford or any other competitor that is using government funds to prop-up their business).

Well, I think it is time to let some of the Silicon Valley management have their shot at Ford Motors management - or at least some of their foresight needs to go into play in Detroit. Funny thing is, the one Silicon Valley motor company I really find interesting (Tesla Motors) has breakthrough forward-looking products (like fully Electric sports cars), is creating new Auto-industry jobs, but yet has to compete with Detroit's entrenched industry without the massive handouts and support packages from the US government.

Instead, Tesla must secure private funding at market rates, and actually produce a product people want and set a price-point for its products where it can stay in business and perhaps even post a product. Gee, what an idea! All the more reason Detroit's antiquated auto industry needs to be allowed to simply DIE if they can not do the same -- it is time to reward success, and not failure. And, with regards to today's stock analysis, I plan to reward Nvidia's success with further purchase of their products (I have a Quadro in mind for before EOY 2008 yet) and their stock; but, by contrast, there is ZERO chance I will be buying a Ford product or company stock!