Simon goes on to say:

What we were really trying to do was [prove] the top line, and what we’re finding is that inside of 12 months they are actually delivering a positive bottom line as well. … Now, the next phase for us is about how big could this be. And I think that’s important in that we’re moving into a phase where we are going to work on the construction costs and we’re going to work on the distribution costs. Again, already profitable, but we want to get them up to what would be the fleet average, or hopefully beyond that. And we’re also going to work on density, like how many can you build in a market and to what point do you have to get you for this to matter on our large base.

So you will see us in the back half of this year go to a market and build them out very densely so that we can understand their interaction with the rest of the market, including us.

In answer to a question, Simon emphasized that the top line is driving the stores profitability. The company’s massive supercenters maintain 70% of Walmart’s inventory. These small stores don’t have the space for that, so store employees have to pick apart deliveries just as they would if they worked in a mom-and-pop store. That costs money, but the higher revenues Walmart is getting are the result of the “convenience” aspect of the stores, and could make the concept profitable provided the company comes up with a reasonably low-cost distribution scheme.

Walmart’s shares closed at $65.07 yesterday, slightly down from a new 52-week high of $65.18. The low end of the range is $48.31.

Shares are less than $5 from an all-time high and less than $0.25 from analysts’ consensus target price. Walmart may not be a value play in the retail sector, as we noted in our review of retail stocks yesterday, but the share price has jumped 9% since the beginning of the year and nearly 18% in the past 12 months. That’s not bad for a behemoth like Walmart.

An edited transcript of Simon’s presentation is available here and the slides are here.

Paul Ausick

When the stores reported first quarter earnings, the preponderance of guidance pointed to slower sales in the second quarter likely based on sales pulled forward into the first quarter due to warm weather. But it could be the case that falling gasoline prices are giving sales a lift in May that could continue through June. According to the latest report from Retail Metrics, retailers are on track to post a comparable store sales gain of 3.6% in May, excluding the negative effect of lost sales at Walgreen Co. (NYSE: WAG) due to its being dropped by pharmacy benefits management firm Express Scripts Inc. (NASDAQ: ESRX).

We looked at a dozen retailers with an eye toward discerning value opportunities for investors: Costco Wholesale Corp. (NASDAQ: COST), Wal-Mart Stores Inc. (NYSE: WMT), Target Corp. (NYSE: TGT), Macy’s Inc. (NYSE: M), Kohl’s Corp. (NYSE: KSS), J.C. Penney Company Inc. (NYSE: JCP), Gap Inc. (NYSE: GPS), Limited Brands Inc. (NYSE: LTD), American Eagle Outfitters Inc. (NYSE: AEO), Abercrombie & Fitch Inc. (NYSE: ANF), The TJX Companies Inc. (NYSE: TJX), and Dollar General Corp. (NYSE: DG).

Costco Wholesale Corp. (NASDAQ: COST) traded at $84.14 and has a market value of around $37 billion. The consensus target price from Thomson Reuters is $86.83 and the 52-week range is $70.22-$92.10. Costco has a dividend yield of 1.3%. The implied upside to the consensus target is just 3%, and we would note that the target is below the 52-week high.

Wal-Mart Stores Inc. (NYSE: WMT) traded at $64.65 and has a market value of around $220 billion. The consensus target price from Thomson Reuters is $65.28 and the 52-week range is $48.31-$64.88 (new high set today). Walmart has a dividend yield of 2.5%. The implied upside to the consensus target is barely 1%, but we would note that the target is still above the 52-week high.

Target Corp. (NYSE: TGT) traded at $56.84 and has a market value of around $38 billion. The consensus target price from Thomson Reuters is $63.65 and the 52-week range is $45.28-$58.95. Target has a dividend yield of 2.1%. The implied upside to the consensus target is 12%, and we note again that the target is above the 52-week high.

Wall St. has abandoned MSO shares because consumers have abandoned the firm’s products. Shares trade just over $3, down from more than $18 five years ago. That gives the company a market capitalization of only $207 million. Another sign of investor disinterest is that the stock trades, on average, less that 150,000 shares a day.

Investors lack interest for one simple reason: MSO has lost money four calendar years in a row. Revenue in 2007 was $328 million. Last year, that number fell to $221 million. First-quarter figures continued the trend. Revenue fell to $49.8 million from $52.7 million in the same period a year ago. The company had a net loss of $3.6 million.

MSO has attempted to build its some of its business on a series of partnerships with retailers and other companies that sell goods to consumers. The most recent misstep in this direction was a deal with JCPenney (NYSE: JCP) made in January. JCPenney invested $16.6 million in MSO and set a housewares partnership between the two companies. Macy’s (NYSE: M) challenged the deal because it claims to have an exclusive relationship with Martha Stewart Living. The fight has become less important that the original decision. Macy’s is healthy. JCPenney is a wreck that lost 20% of its sales last quarter. Under new CEO Ron Johnson, JCPenney will be lucky to remain a viable competitor in its range of the department store industry.

It is impossible to say with any conviction what happened to Martha Stewart Omnimedia. Its founder was once an important consumer brand on her own. That period is now nearly five years gone.

Douglas A. McIntyre

Earnings growth for the reporting retailers is up too, by 11.8%. Excluding Wal-Mart Stores Inc. (NYSE: WMT) due to its size, Retail Metrics reckons that its 120 retailers will show profit growth of 12.2% in the first quarter. Including Walmart, profits will rise 13.8%.

The best profit growth is expected in the recreational sector, with Dick’s Sporting Goods Inc. (NYSE: DKS) and Hibbett Sports Inc. (NASDAQ: HIBB) leading the way a 40%+ earnings gain. Home furnishing retailers are expected to post 40% gains, led by Bed Bath & Beyond Inc. (NASDAQ: BBBY) and Williams-Sonoma Inc. (NYSE: WSM). Footwear retailers are tabbed to grow profits 31%, following huge gains at Brown Shoe Co. (NYSE: BWS) and Footlocker Inc. (NYSE: FL).

The worst performing sector is projected to be consumer electronics, with teen apparel stores the only other retailing sector expected to post overall losses. Best Buy Co. Inc. (NYSE: BBY) and GameStop Corp. (NYSE: GME) are the big players here. Teen apparel retailers like Wet Seal Inc. (NASDAQ: WTSLA), Gap Inc. (NYSE: GPS), and Abercrombie & Fitch Co. (NYSE: ANF) have struggled with same-store sales and revenues, as well as earnings.

Paul Ausick

The figure that will stand out the most is that same-store sales so far in May are up 3.0% over May 2011 on a month-to-date basis.  These same-store sales are down about 0.9% sequentially if you compare these to April.

Redbook said that sales were slower in the last week and the culprit is shoppers taking a break after Mother’s Day and delayed shopping pending Memorial Day promotions.  The report also noted that cooler weather in some regions dampened demand for apparel, lawn and garden equipment and sporting goods at department stores and discount stores.

Redbook now expects year-over-year same-store sales growth of 2.8% for May, which actually translates to a 1.1% sequentially over the month of April.

The bad news is obviously a decline sequentially and an annual growth that is considered anemic on a system-wide basis.  The good news here is that this is still showing growth from a year ago.

JON C. OGG

The dividend will be payable on July 13, 2012, to stockholders of record on June 29, 2012, with an ex-dividend date of June 27, 2012.

As far as how this dividend compares to the other large apparel makers, this is as follows: V.F. Corporation (NYSE: VFC) has close to a 2.1% dividend yield and Columbia Sportswear Company (NASDAQ: COLM) has a 1.9% yield.  Having a 1% or 2% dividend might not sound huge on the surface when you consider the DJIA components and other dividend growers, but most of the large apparel companies either do not pay a dividend or they have a low yield.   Accessories maker Coach, Inc. (NYSE: COH) has a 1.8% yield. Even the great sports apparel and equipment maker Nike Inc. (NYSE: NKE) pays only a 1.4% yield to investors.

Maybe a 1.1% dividend yield now isn’t so bad after all.  The 5-year Treasury note pays only 0.74% and the 10-year Treasury pays 1.74% right now.

JON C. OGG

Besides competing with smaller national rivals like RadioShack Corp. (NYSE: RSH) and GameStop Corp. (NYSE: GME), Best Buy has to slug it out with retailers Amazon.com Inc. (NASDAQ: AMZN), Wal-Mart Stores Inc. (NYSE: WMT), and direct sellers like Apple Inc. (NASDAQ: AAPL).

And while Best Buy touts its increases in sales of mobile phones and other portable devices, it also notes:

Areas of comparable store sales growth in the Domestic segment included tablets and mobile phones within the Computing & Mobile Phones revenue category, eReaders within the Consumer Electronics revenue category and Appliances. These increases were more than offset by comparable store sales declines primarily in notebooks within the Computing and Mobile Phones revenue category, gaming within the Entertainment revenue category, and digital imaging and televisions within the Consumer Electronics revenue category. The Domestic segment online channel revenue grew 20 percent compared to the prior-year period.

Selling more cheaper devices does not make up for lost sales in pricier items, unless a retailer can sell an enormous number. Best Buy can’t do that because there’s simply too much competition from wireless carriers, other retailers, and direct sales.

The company reiterated its full-year adjusted EPS guidance of $3.50-$3.80, in-line with the consensus estimate of $3.59. But weak international sales and declining same-store sales mean that Best Buy will be forced to close more stores, which will hurt revenues and ultimately profits unless the company can really figure out a way to boost its online sales. The outlook is probably not as rosy as the company would like us to think.

Shares are up about 1.6% in the pre-market, but were up as much as 6% at one point. Current price is $18.43 in a 52-week range of $17.53-$32.85. The 52-week low was set yesterday.

Paul Ausick

Of the top brands, the following came in after Apple:

2. International Business Machines Corporation (NYSE: IBM)

3. Google Inc. (NASDAQ: GOOG)

4. McDonald’s Corporation (NYSE: MCD)

5. Microsoft Corporation (NASDAQ: MSFT)

6. Coca-Cola Corporation (NYSE: KO)

7. Marlboro of Altria Group Inc. (NYSE: MO)

8. AT&T, Inc. (NYSE: T)

9. Verizon Communications, Inc. (NYSE: VZ)

10. China Mobile Limited (NYSE: CHL)

11. General Electric Co. (NYSE: GE)

The ‘Top Riser” from 2011 to 2012 was Facebook, Inc. (NASDAQ: FB) with a 74% rise

The full Millward Brown study on these brands gets broken down into segments such as industry, brand growth, geographic, and sectors.

JON C. OGG

The specialty apparel retail outlet owner reported earnings of $0.23 per share versus the $0.20 per share estimate from Thomson Reuters. Revenues rose by more than 8.6% on a year over basis to $568.9 million. But Thomson Reuters was calling for revenues of more than $579 million.

It was the Urban Outfitters brand itself that led the sales as same-store sales there gained 6% and the direct-to-consumer sales rose 15% versus only 2% growth on the wholesale level. Despite the market treating this as a turnaround, the gross profit rate was down 131 basis points and the inventories rose by 13%. Selling, general and administrative expenses (SG&A) rose by 62 basis points.

Shares closed up 2.1% at $26.16 with a strong tape on the stock market today, but the after-hours reaction has shares up about 7% at $28.09 against a 52-week range of $21.47 to $33.90.

Today’s earnings report does not look or feel like a solid turnaround is coming on after the growth stalled significantly, but the market is treating it as “good enough” so far.

JON C. OGG

Take a look at any chart and you will see that Best Buy shares hit a low not seen since back in 2009 when every stock tied to retail and technology had hit the ‘free fall’ button.  This stock hit a low of $17.53 this morning and its prior 52-week range was $17.84 to $32.85.

Somehow Amazon remains the winner here.  Many buyers go to Best Buy to interact with consumer electronics and then turn around and buy the item online from a competitor to avoid sales tax and/or to pay a lower price.

Analysts still have a consensus price target around $25.00 for Best Buy, but for now that should not be trusted.  And what about that $3.59 EPS target for this year at Best Buy from Thomson Reuters?  Or the $3.72 EPS target for next year from Thomson Reuters?  If those were to remain true then Best Buy trades at only 5-times this year’s earnings and under 4.9-times next year’s earnings estimates.

The reality is that Best Buy has no CEO, it lost its founder, it is suffering from margin compression, and it is often cited as losing more and more of the potential customer base. BB&T Capital Markets also downgraded Best Buy shares to Hold from Buy just this morning, although admittedly that is just a very late downgrade.

The one thing which may actually act as a slingshot on any news that “lass bad” is that Best Buy has close to 54 million shares in its short interest per the most recent data.  It is hard to get excited that short sellers may drive up the price if the news is not just dismal.

JON C. OGG