I am quite encouraged by the action in American Apparel (APP). After getting whacked again on Wednesday off a confusing earnings report and conference call, the stock has bounced back strongly. The initial post earnings trades held above the April lows and unlike in April a rebound got underway quickly. Also, volume spiked for one day but fell by 75% on the second day. If volume continues to slide and the stock works higher I think it will be a sign that the shorts are losing traction and any longs looking to sell are long gone. Positive catalysts lie ahead including new executive hires, compliance with Sarbox, and monthly comps at extraordinary levels. Given the history a negative surprise is possible but I think the tide may be turning here and if it does, the shares could double. I added in new accounts on the initial post earnings weakness.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-05-16 10:02:332008-05-16 10:02:33Encouraging Action in American Apparel
This rally has been really impressive. The S&P 500 is off less than 3% this year as of Thursday’s close, hardly a blip considering all the angst earlier this year and late last year. I think the largest reason for the rally has been that earnings have exceeded expectations. According to Ned Davis Research, the median gain in 1Q08 earnings for the 90% of the S&P 500 that has reported is 9.1%. It is true that overall earnings growth is negative, down more than 15% in fact. However, NDR tells me that according to Zachs Investment Research, financial sector earnings are off 80%. Thus, the median figure is a far better indicator of the health of corporate earnings in 1Q. Add in the facts that guidance has been decent, expectations for 1Q and the rest they year had been low, and the economic statistics while soft have generally indicated stronger than expected growth and you got the ingredients for this nice rally. Will it last? Will the rally push higher, above the recent top end of the trading range? I’m not sure but if it does, I don’t think it will be by much. I don’t see catalysts now that earnings are done and I think the bears will press if given the opportunity.
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-05-16 10:01:112008-05-16 10:01:11Thoughts On The Market’s Rally
The broadcast TV networks made their upfront presentations this week. As I’ve written before, this year’s upfront is going to be problematical for the broadcast networks (ABC/Disney, CBS, FOX/News Corp, and NBC/General Electric). During the upfront, the networks sell advertising time for the upcoming TV season, in this case the 2008-09 season that begins in September.
I don’t think the upfront is tradable on a short-term basis but trends established as ad sales are completed over the next month definitely have ramifications for the stocks of broadcast and cable networks owners over the next six months and into 2009.
The combination of very poor ratings, the writer’s strike, and the weak economy makes this a bad time for the broadcast networks to be selling advertising. Most observers expect the upfront to be down this year which means revenue is less predictable for the owners of the networks. Raising the risk further is the possibility that in order to generate greater upfront sales the networks may liberalize cancellation terms.
The pain to the broadcast network owners will be somewhat mitigated by what is expected to be a good upfront for cable networks. Cable networks have gained in ratings and their narrow genres translate better online. Broadcast and cable networks are both packaging online ads with TV ads. One caveat is that if the most cautious views of the broadcast upfront come true (down mid-teens), even the cable networks will suffer from spillover.
Among the broadcast network owners….
Controversial and rapidly growing retailer American Apparel reported 1Q08 results last night after the close. While there are many extremely positive numbers in the results, I believe that several confusing items will cause the shares to trade lower today, possibly much lower. That said, I think the trends in core retail business look better than expected and on that basis the shares are deeply undervalued.
For 1Q, revenues rose 52% and gross profits rose 45%. US Wholesale gross profits fell 32% as gross margins in this segment fell from 38% to 20%. All other business segments, which are predominately US and International retail, enjoyed a 72% increase in gross margins. EPS were 2 cents. There was only a single analyst estimate which called for 5 cents on revenue of $99 million. Management also outlined approximately $3 million in legitimate one-time expenses which cost 2 cents.
Management affirmed full year guidance of 32-36 cents and EBITDA of $70-75 million. Management also tried to explain the drop in wholesale gross margins but given the fact that company is not Sarbox compliant and has minimal finance staff the two sell-side analysts and the two hedge fund analysts were skeptical (worth noting is that SAC Capital, the largest outside shareholder, was one of the hedge funds putting to rest rumors that they had sold their position). The explanation actually makes sense assuming the promised lift in US Wholesale gross margins for the rest of the year occurs. But since EPS “missed” the single estimate and the conference call was confusing expect the shorts to bear their teeth initially. I had hoped this quarter would be the one that swung momentum to APP bears but it looks like it will take at least one more.
So here is the situation, you have a company comping in the mid 30s in 1Q and likely to comp in the mid 20s against tougher comparisons in 2Q. Retail operations are growing over 50% on the top line and operating income more than doubled in 1Q. The American Apparel brand and retail concept can be described as nothing less than “hot.”
At the same time, accounting remains an issue. The CEO remains an issue due to his personal practices although one can hardly argue with what he has done with growing the company. No one outside of shareholders like me, the two sell-side analysts, and the few hedge fund shareholders, will cut these guys any slack. No one will trust the numbers….
DirecTV reported another strong quarter. Overcoming potential headwinds from the economy, the housing recession, and the loss of AT&T marketing in former BellSouth territories, DTV produced an across the board beat in its 1Q08.
EPS of 32 cents and revenues of $4.59 billion beat consensus estimates of 31 cents and $4.47 billion, respectively. EPS grew 18% and revenues grew 17%. EBITDA also came in ahead of expectations.
Both U.S. and Latin America contributed to the upside. US only revenues grew 14% with EBITDA up 22%. Latin America is definitely turning into a significant value generator for DTV shareholders. Revenues rose 47%, EBITDA rose 73%, and 200,000 new subscribers were added. Latin America accounts for over 10% of total DTV EBITDA.
The good financial results were matched by even better subscriber metrics….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-05-12 14:41:452008-05-12 14:41:45DirecTV Still Rolling And I Missed It
Cablevision reported better than expected results driven by its core Cable operations and Madison Square Garden. Revenues grew 11% to $1.84 billion ahead of consensus of $1.78 billion. EBITDA grew 20% to $610 million, ahead of estimates for $560 million.
Financial and subscriber metrics at the Cable systems were better than expected. Revenues rose 8.6%, in line with expectations, while EBITDA rose 13.3% against consensus for 10% growth. The EBITDA beat provided about $15 million of the $50 million EBITDA surprise at the corporate level. Basic subs fell by 4,000 but analysts were expecting a fall of 8,0000 to 10,0000. Digital subs grew by 43,000, in line with estimates. Data and Telephone subs beat estimates rising 62,000 and 102,000 respectively….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-05-12 14:39:112008-05-12 14:39:11Cablevison: Cable Good But Strategy A Mess
News Corporation reported a confusing set of earnings figure. On the call, management said that adjusted EPS were 30 cents vs. the reported figure o 91 cents. The 91 cents included a $1.7 billion gain while the 30 cents assumes a tax rate of 37%. Consensus was 32 cents so it looks like a miss but I think the tax rate is too high so let’s call it inline on EPS.
Revenues exceeded expectations by $100 million at $8.75 billion. Cable Networks and to a lesser extent Newspapers provided the upside, offsetting big miss at the impossible to model Filmed Entertainment segment.
Operating income grew 16%, ahead of expectations for 11%. For me, this is the key metric. Television provided almost all the upside as the Fox Network more than doubled, the TV stations grew 12%, far ahead of the industry, and MyNetwork TV losses fell. Cable Networks also contributed to the operating income surprise as some the revenue gain flowed through. Cable networks would have been even better without the pressure form expenses for political coverage at Fox News….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-05-08 18:44:192008-05-08 18:44:19News Corp Operating Income Up 16%
Disney easily beat estimates with EPS of 58 cents coming in well ahead of the 51 cents consensus estimate. Here are the comments I posted on the quarter on RealMoney.com before and during the conference call. Alos, please find the earnings summary produced by Gary Dvorchak, my colleague at Real Money.
03:14 CST: Based on a quick read of the press release and plugging segment numbers into my spreadsheet it looks like a very good quarter will all segment revenue estimates being too low and all segment operating income estimates too low except for Consumer Products. Parks may have benefited from the timing of Easter. Disney appears to be continuing its run of absolutely superb operational performance.
04:11 CST: The quarter was excellent but in my prior post I overstated the breadth of upside on revenues. Cable Nets, Broadcasting, and Consumer Products matched estimates will the Studio and Parks beat handily. My statement ath operating income beat across the board except for Consumer Products stands.
DIS does not do guidance but does provide color. I’d say that they are very confident but see 4Q (Sept) stronger than 3Q (June). Mostly it is timing stuff for both this year and the year ago comparison. On theme parks, trends are still decent with bookings up for the rest of the fiscal year (slightly down in June Q but up nicely in Sept Q). Pricing on rooms is up slightly. International parks are definitely doing better. Overall, the theme park message is that DIS is more resilient this cycle and better positioned than in 1991 recession.
The possibility that June Q may be a bit slower relative to 2Q just reported and 4Q to come MIGHT hold back enthusiasm about the results. No reason for true longs to be concerned, however. DIS is setting the standard for large cap media companies. For that matter it is setting a standard for all large companies, especially among consumer facing peers.
Please click “Continue Reading for Gary’s summary….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-05-07 12:53:002008-05-07 12:53:00Another Great Quarter For Disney
Time Warner (TWX) reported another mediocre quarter even after adjusting for some items that cause the reported numbers to understate the results. Revenue grew just 2% and adjusted EBITDA grew just 3%. The revenue figure matched estimates while the adjusted EBITDA is a bit ahead. EBITDA strength came from cost controls at AOL that kept the EBITDA decline to just 25%. The company also announced that it will fully separate Time Warner Cable (TWC) although no details were provided. Investors were expecting a final decision on TWC and I believe the weak action in the shares has more to do with this than the financial results.
I thought management was defensive and analysts skeptical, frustrated, and even hostile on the call. For the stock, I think the current position of the analysts and investor community is bullish. We are in give up phase and the stock sits at a multiyear low. Some good news lies ahead in terms of restructuring and a pickup in growth. Segment results in this quarter reveal some underlying strength for the two largest contributors to EBITDA, Cable and Cable Networks. The pending split of Cable leaves open the question of whether value will be conferred to TWX shareholders and in what manner so right now investors won’t pay for the better results at Cable. Similarly at Cable Networks, heavy [program investments are restricting margins so the strength in ratings and advertising is no flowing through and thus going unrewarded.
With Cable having its own currency already and now showing some improvement in subscriber metrics, I think that AOL remains the biggest obstacle to a higher stock price. Any transaction involving AOL that creates clear value in the $12 to $15 billion range would significantly help TWX’s stock price if it meant AOL was separated from TWX. The Yahoo situation cries out for TWX management to get involved….
https://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gif00Steve Birenberghttps://dev.northlakecapital.com/wp-content/uploads/2026/02/nl_logo.gifSteve Birenberg2008-05-06 09:26:002008-05-06 09:26:00Time Warner: So Bad It Might Be Getting Good
Comcast reported good 1Q08 results. EPS matched estimates while revenue, EBITDA, and free cash flow exceeded estimates. Most subscriber metrics also beat estimates. Margins fell slightly as Comcast upped its marketing spending and began its aggressive rollout of service to small and mid-sized businesses.
Comcast’s results closely paralleled those of Time Warner Cable. It appears that the cable industry has stabilized after a poor 2007. Both companies were able to accelerate subscriber growth with only a small sacrifice in margins. Both companies also saw stable capital spending. The mix of upper single digit revenue and EBITDA growth and stable capital spending means rapid growth in free cash flow. With both companies focused on returning cash to shareholders and investor expectations reset to a lower growth profile, the stocks should continue their recovery with additional upside of 10-15% possible in the near-term, especially if 2Q08 results, during the seasonally slow period, confirm the 1Q trends….
