Category Archives: Companies

Advance Auto Parts Check-In

Key Points of Interest
In observing Advance’s ability to execute, I’m curious of the following:

  • Integration problems are driving concerns: difficulty rolling out daily replenishment whilst preserving high fill rates, which leads to dissatisfied customers and potential loss of market share
  • The absence of growth negates the prospect of unlocking shareholder value due to the high leverage structure in the business. Assuming constant costs, a !5% operating margin for AAP would require 6% revenue growth a 20% margin 13% revenue growth
  • Working capital optimization has the capacity to enable cash flow growth. The business currently has high levels of inventory from opening a new DC (for worldpac) and consolidation of CarQuest stores – more importantly, where will the company allocate its cash flow, if and when it begins to strengthen?

Status Quo

  • Abysmal comparable store sales (due to continued integration of CarQuest stores. Greco noted that they’ll slow down integration efforts to continually focus on best practices)
  • Albeit improved versus recent periods, Gross Margin and SG&A still hostage to declining top-line performance

Tableau Competitive Positioning

Question (Brent Bracelin Pacific Crest Securities – Analyst): I just want to drill down there a little bit. What question can you answer that I can’t get Microsoft, PowerBI try to answer, you got to get a concrete example of that.

Response (Francois Ajenstat Tableau Software, Inc. – VP of Product Development): So, a good concrete example, let’s say you want to look at your year-over-year difference in sales, very simple question, what is the difference this year compared to last year? In Tableau, that’s a three second solution. Three clicks, you’re done. And PowerBuoy or even tools like Qlik, you’ll have the right code, you’ll write complex calculations that would get you there. Which means, in order to do that, very few people, only specialists can do it, where what we want to do is expand the opportunities for the number of people that can do that. It’s a very simple question, right. Even in a running sum. What’s our running sum of sales this quarter. Really simple question. Extremely hard to do in any other tool. Three clicks in Tableau.

  • Ajenstat also notes that DATA is available in cloud or on-prem (as well as deployable in AWS). He notes that PowerBI is Cloud-Only (and not AWS compatible) and that Qlik is on-prem only with no cloud option. Note that Qlik was recently acquired by Thoma Bravo

Oracle and AWS in IaaS

The transition from DBaaS to SaaS to IaaS has been done out of necessity, analysts say. Amazon Web Services has grown into a $7 billion-plus annual revenue vendor focusing almost solely on IaaS. At its re:Invent conference, AWS Senior Vice President Andy Jassy practically mocked Oracle for its aggressive sales tactics and lock-in licensing. AWS is aiming directly at Oracle in its products too, releasing a database migration tool that will automatically replicate an Oracle or any other database into an AWS equivalent one. Aurora is AWS’s MySQL cloud database, which it says is now the fastest growing product in AWS history.

“From a purely competitive standpoint they need to halt customers from moving to a public cloud IaaS provider such as AWS, Azure and others,” wrote Gartner cloud analyst Sid Nag. “AWS (and others) are adding and continue to add new features, capabilities and toolsets for customers to migrate Oracle’s products, for example databases, on to AWS.” This summer Oracle’s profits slid 24%, thanks to cloud competitors. Oracle had to stem the tide.

Source: Does Oracle have a shot in the IaaS cloud market versus Amazon and Microsoft?

Vipshop, Initial due diligence

Company stats

  • online discount retailer for various brands in the People’s Republic of China
  • limited inventory risk
  • 6.5bn market cap
  • 6.7bn cy15 revenue
  • COGS is 75% of revenue (5.1bn)
  • SG&A is largest expense line item at 71% of gross profit (1.2bn)
  • 4% (260mm) net income margin
  • >20% expected EPS growth
  • multiple compression from China fears

Competition

  • Alibaba (191bn)
  • Dangdang (500mm)
  • JD (31bn)
  • Jumei (700mm)

Initial Observations on Skechers (SKX)

Derived from Piotroski screen

Observations

  • Trading at less than 50% of its 52-week high resulting from missing Q3 earnings
  • International sales comprises of 40% of revenue, near its 50% target
  • Correction (presumably) derives from negative sentiment associated with soft consumer discretionary products (driven by low oil prices) for Apparel, Accessories and Footwear
  • Revenue growth of > 20%
  • $4.5bn market cap, net debt negative
  • Relatively cheap shoes (versus Under Armour, Nike)
  • NTM P/E: Current of 13.5x; Average of 19x; High of 28x
  • EPS expected to double from $1.50 / sh to $3.00 / sh

Analyze

  • Dividends / repurchases
  • Sensitize EPS

First Look: Mylan

Observations

  • Has portfolio of over 1,400 drugs
  • Mylan down 30% YoY
  • Share price declined from ~$70 / sh to ~$40 / sh following rejection of takeover bid by Teva ($82 / sh)
  • Acquired Meda for $7.2bn
  • Multiple compression in late 2015 due to attempts to acquire Perrigo
  • 2018E EPS  of $6.00 / sh, (2016E $5.92 / sh)
  • NTM EPS Average of 12x; Current of 10x; High 18x
  • Ranked #1 for generics sales
  • Mylan is a beneficiary of the patent cliff for branded drug companies
  • 45% of revenue is from international markets

Considerations

  • High revenue and profitability growth – what does terminal state look like?
  • To what degree is management distrust warranted?
  • What is management’s strategy for shareholder payout?

Analyze

  • Return on capital over 8 years
  • CFO / Total assets for 8 years

Reference Material