• The first non-footwear Crocs-branded products included a line of adult and children’s socks from Sock and Accessories Brands, which launched in the holiday 2011 season.  These will also be available in Europe.
• Crocs has also signed up with Accessory Exchange for it to produce Crocs-branded accessories for men, women and children. These will include hats, bags, backpacks, socks and gloves for Crocs retail stores and the Crocs.com website.
• In April 2012, the Crocs brand will extend to children’s apparel through an agreement with the A Group in 46 countries. Crocs-branded sunglasses and sunglass accessories also will launch in May 2012 in a deal with Eye King, LLC to produce sunglasses for adults and youth for retail and wholesale distribution in the U.S. and Canada.
• Crocs Professional Footwear Division is in a partnership with ICER Brands to “build on the loyal following of medical professionals with the introduction of Crocs-branded scrubs. This new medical gear is available now through specialty stores and online.” 
• Paramount, a sports licensee, recently kicked off Collegiate and MLB licensed footwear for the brand.

OK. so let’s get this straight.  Medical scrubs, baseball shoes, eyeglasses, hats backpacks, and gloves… All with the Crocs label on them.

This just sounds bad on the surface.  As far as investors are concerned, if it grows the brand and captures new sales that were previously uncharted then it is a win.

200 million pairs of shoes sold is probably a better judge than us calling Crox one of the ugliest brands that there is.  After all, opinions greatly differ and the sales results probably speak louder than critical words.

JON C. OGG

The company beat earnings by $0.05 at $0.65 per share and revenues rose almost 13% to $3.39 billion versus Thomson Reuters estimates of $3.38 billion.  Whole Foods even raised guidance for its Fiscal year of 2012 to a range of $2.28 to $2.32 earnings per share from a prior target of $2.21 to $2.26 and against a consensus target from Thomson Reuters of $2.27 EPS.  It also raised revenue guidance for 2012 to a range of 13.5% to 15% and that looks mostly in-line with the expected figure of $11.6 billion expected.

Whole Foods is a great growth story, it is an incredibly well run organization, and it deserves a premium over traditional grocery stores which run on razor-thin margins.  Whole Foods has far higher margins and its expansion of its own 365 private-label brand is likely going to help it capture even higher margins even though the products are generally priced lower than other organic and natural brand-label foods. 

So, everything is positive… except for our headline.  The guidance is not exactly far higher than what was already expected.  At the mid-point of its new earnings range, Whole Foods stock trades at a massive 33.9-times the fiscal September 2012 consensus estimate and it trades at 1.2-times expected revenues.

Compare Whole Foods forward 2012 valuations of 33.9-times earnings and 1.2-times sales to The Kroger Company (NYSE: KR) and Safeway Inc. (NYSE: SWY).  Kroger trades at only 10.6-times earnings and only about 0.14-times sales; Safeway trades at 12-times expected earnings and only 0.17-times total sales.
 
The good news for the bulls is that Whole Foods has always been a premium stock.  It is even easy to argue that Whole Foods will always trade at a premium to grocery chains.  It has the whole lifestyle trade attached to it.  Whole Foods is far more of a fun experience compared to most grocery stores, at least until the bill comes.  Whole Foods is arguable the biggest luxury brand that there is. 

The bad news is simple.  Valuations at some point just have to give.  At $77.93 and after the stock hit a new high of $78.31, how can it rise?  The consensus target from analysts is $79.29 and even if that gets raised it can only rise so much.  With a $13.99 billion market cap, it is worth roughly two-thirds of the combined values of Safeway and Whole Foods while it is expected to generate only about 8% of the combined sales of the two food giants.

A great company, at a price that just feels too high to justify on any traditional financial metrics.  The stock can run up on news.  It just looks too hot now under rational evaluations.

JON C. OGG

The company has already increased its annual dividend rate to $1.14 per share and its 2011 earnings are $2.74 EPS.  It also repurchased 14.3 million shares totaling $733 million at an average price of $51.00 per share.

Worldwide system sales grew 11% before currency translation in the quarter, but this was a gain of about 33% in China.  The international growth was 10% versus 6% growth in the united States.  Same-store sales grew 21% in China, 3% in all international and only 1% in the U.S.  Worldwide restaurant margin declined 1.1 percentage points to 14.3%.

The company did note that results for Yum! Restaurants International and the U.S. reflect the benefit of an additional week, but noted that this 53rd week did not impact China Division results.

Yum! Brands closed down 1% at $63.19 but the after-hours reaction is up 2.3% at $64.70.  Keep in mind that $64.75 is its 52-week high AND its all-time high.

JON C. OGG

The company is aiming to bring a site for serious collectors and sports fans and offer a broad selection from official licensees of the National Football League, Major League Baseball, National Basketball Association, National Hockey League, and the International Federation of Association Football.

Collectors can now browse collectible items by item type, sport, year, team and price.  The offerings will be from trading cards and ticket stubs to game-used jerseys and autographed sports gear.

For many of these products, the store will display the authentication source and condition rating from authentication service providers like Professional Sports Authenticator (PSA) of Collectors Universe, Inc. (NASDAQ: CLCT), and other such as James Spence Authentication (JSA) and Beckett Grading Services (BGS).

You will not find that T206 Honus Wagner baseball card for sale that we just discussed.  That is for sale for $775,000 and a higher-grade sample just sold for north of $1.5 million.  More detail on investing in the T206 Honus Wagner is here.

As far as how Amazon will assure authenticity, it noted “The emphasis on authenticated selection, combined with our A-to-z Guarantee protection on purchases, allows customers to shop the new store with confidence.”

Buyers should know that this may distort prices paid in many cases.  If a wife or girlfriend wants to buy an item for an intimate other or if a father or mother want to buy collectibles for their kids, they may not have a firm grasp on the prevailing market price ranges that should be paid.

This will not derail the eBay auction dominance nor will it kill the auction houses which auction off the really high-end items.  What it may skew is all of the items out on the market in the under-$50 to $300 priced items.  The baseball memorabilia store’s top 7 items by price are all Babe Ruth signed baseballs and the rank is from over $46,000 down to $10,950.  Thanks, but no thanks. 

Lastly, keep in mind that Amazon has been selling many collectibles items.  This launch is more of a focused effort and it means that Amazon wants to attract many more sellers. The new launch is here.

JON C. OGG

Thomson Reuters has estimates of $0.19 EPS and $18.21 billion.  Keep in mind that this is the “money quarter” because of the holidays.  Amazon offers guidance usually and the estimates for the current quarter ahead ar $0.33 EPS on $13.41 billion in sales.  For all of 2012, the consensus target is $1.83 EPS and $65.42 billion in sales.

The big question we have is ultimately on margins, but we are more focused than just that tease.  The Kindles are reportedly sold at losses or razor-thin margins.  It is a “given the razor free and sell them lots of razor blades” model.  With millions of units now sold, we just have to wait and see what comes from Mr. Bezos.  The other issue is the endless costs of mail and packages. For the die-hard customers, Amazon often loses money on its mailing and UPS rates.

Amazon’s chart is at a critical juncture.  The key 200-day moving is higher at $202.30 while the 50-day moving average is lower at $185.81. With shares close to $192.00 today, the 52-week trading range is $160.59 to $246.71.

Analysts still have average price targets which are higher and the consensus mean target from Thomson Reuters is “Buy” oriented with a $233.90 target.

Options traders appear to be braced for a move of $11 to $12.50 ahead of earnings if you use the monthly options prices in puts and calls rather than the weekly expirations. Frankly, it seems as though the options traders may not be pricing in enough of a move because this quarter has the huge Kindle wild card associated with it.

JON C. OGG

The Index fell to a lower level in January to 61.1.  This is down from the reading of 64.8 in December.  It is also way under projections.  Bloomberg had the consensus expectation at 68.0.  Dow Jones was also expecting a reading of 68.0 for the January reading.

The Present Situation Index fell even more than the median point to 38.4 from 46.5. The only good news is that the “Expectations Index” was down only slightly as it slid down to a reading of 76.2 in January from 77.0 in December.

Consumer confidence may have already been tempered by some other retail data and also by the consumer income and spending data seen of late.  Still, it is hard to say that a drop of this size was expected by any means.

• Can you just blame gasoline prices being higher?  That seems unlikely.  Here was a quote from the Conference Board: “Consumers’ assessment of current business and labor market conditions turned more downbeat and is back to November 2011 levels.  Regarding the short-term outlook, consumers are more upbeat about employment, but less optimistic about business conditions and their income prospects.  Recent increases in gasoline prices may have consumers feeling a little less confident this month.”

JON C. OGG

Who is at fault as these issues and, most importantly, the issue of Avon’s financial performance, which has undermined the firm’s stock price and reputation? The board of directors.

The Avon board is an odd mix of people, some of whom are hardly qualified to sit in their positions. The board’s lead director, Fred Hassan, who should have been at the forefront of solving Avon’s management problems, has been much too slow in carrying out his duties. He has been a director as long as Jung has been CEO. He has been in a position to watch all of the firm’s troubles unfold and did nothing until he and others forced Jung out.

Maria Lagomasino, a private banker, has been on Avon’s board since 2000. It is hard to see how someone with her background has any reason to be involved with governance at a large public company. Don Cornwell has been on the board since 2002. He is a former radio executive. Paul Pressler, who was dismissed as the CEO of Gap (NYSE: GPS), is also on the board. His turn as the head of a public retail firm ended badly.

There are few precedents of public boards that have been dysfunctional as long as Avon’s. The best example may be Hewlett-Packard (NYSE: HPQ), where the board stumbled and bumbled for years. The tech company hired former eBay (NASDAQ: EBAY) CEO Meg Whitman. Many of the HP board members have left recently. The pressure for them to do so has existed for some time. It is remarkable that the board took so long to do what it should have long ago — bring in appropriately experienced directors.

The changes in Avon management have not been accompanied by changes on the board. Until they are, the reasons to trust that the company’s many problems can be fixed are nonexistent.

Douglas A. McIntyre

It sounds good on the surface considering how bad things have been.  The problem is that gross profit as a percent of net sales in the quarter is expected to be about 35%.  That margin was about 41% a year earlier and that implies far worse earnings.  The new earnings guidance is $0.11 to $0.13 per share.  A year earlier was $0.51 per share and Thomson Reuters was calling for $0.35 EPS.

The company blamed “a shift in mix within mobility sales towards certain lower margin smartphones and mobile devices; a higher percentage of mobility sales in the overall revenue mix, largely driven by the Company’s expansion of Target mobile centers; and the impact of a more promotional holiday season.”  That is a lot of moving parts and too many for investors.

Another blame was “in large part to the underperformance of the Sprint postpaid wireless business and reflect further unanticipated changes in Sprint’s customer and credit models.  These changes resulted in fewer new and upgrade activations and a decline in Sprint postpaid revenues in the fourth quarter compared to the 2010 fourth quarter and compared to third quarter 2011.  In addition, fourth-quarter results reflect a highly promotional holiday season and ongoing pressures on consumer spending.”

Sprint Nextel Corporation is down as well on the news by 1.4% in the after-hours.  That is nothing compared to RadioShack Corporation (NYSE: RSH) with a drop of over 17% to $8.43.

The prior 52-week low was only $9.15.

JON C. OGG

For 2012 the company “has raised its expectation for earnings per share to a range of $1.78 to $1.82 representing 17% to 20% growth over the $1.52 EPS in FY11, excluding the non-routine gains. EPS growth is expected to be approximately 10% in the first half of FY12 and approximately 25% in the second half of FY12.”

Starbucks noted that it “continues to target 10% revenue growth on mid-single digit comparable store sales growth.  The company is also maintaining that it will have 50 to 100 basis points margin improvement over fiscal 2011.

The coffee giant reported also that its global comparable store sales rose by roughly 9%, after a 7% traffic rise and a 2% higher sales price gain.

Another note is that Starbucks opened 241 net new stores globally.  The company now has 500 stores in both mainland China and Latin America. For 2012, the company is targeting 400 new stores in the Americas, 300 stores in Asia/Pacific, and 100 stores in the EMEA regions.

As far as the deal with Green Mountain Coffee Roasters, Inc. (NASDAQ: GMCR), the Starbucks report said that more than 100 million Starbucks- and Tazo-branded K-Cup packs shipped in the first quarter after the November 1 launch date.

Some investors may be puzzled that the stock is not higher.  Frankly, it is holding up fine (all things considered) as the valuation has to catch up to its share price.  Shares rose 1.2% today to $48.34 and it hit an all-time high of $48.49.  Shares are now down 1.2% at $47.80 in the after-hours session.

As we noted earlier, this is close to analyst consensus targets and it trades at 26-times this year’s expected earnings now.

JON C. OGG

The guidance on January 5 was victim of soft sales in the first two months of the quarter generating slightly negative same-store sales for its fourth quarter with non-GAAP earnings coming in a range of $0.65 to $0.70 earnings per share.

Our thesis was simple” For new investors, this is not a fourth quarter story.  This is not a story of guidance for the current quarter, and it may not even be a story of strong results in 2012… Ron Johnson is set to transform the look and feel of this company entirely.”

Penney’s shares at the time of our call were down over 6% on that day at $32.75.  The problem now, if there is a problem, is that the new concept unveiling and the leaner retail worker structure has met a guidance presentation all in one week.

A gain of 15% to $39.48 on Thursday now has shares up 20%.  Why is this a problem?  The consensus analyst target is down under $34.00 and the 52-week trading range is $23.44 to $41.00.  It was known that Ron Johnson was going to use his Apple magic to transform the company.  It was known that he was going to have the presentations.

A 20% gain in three weeks is generally a gift no matter how you cut it.  Even if analysts raise their price target objectives substantially, at a minimum we would only look to enter on a pullback now.  Taking at least some profit at this point would not hurt anyone even if it is only on part of the position.

JON C. OGG