In the News: CRM, FL, DG, BBY

Image Source: Mike Mozart

By Brian Nelson, CFA

Salesforce Issues Weaker-Than-Expected Outlook

On May 29, Salesforce (CRM) reported mixed first quarter results with revenue missing the consensus estimate, and it issued lackluster guidance that sent shares tumbling following the report. In the quarter, revenue advanced 11% in constant currency and its first-quarter non-GAAP operating margin came in at 32.1%. Its current remaining performance obligation was $26.4 billion, up 10% in constant currency. Operating cash flow and free cash flow were up nicely in the quarter, to the tune of 39% year-over-year and 43% year-over-year, respectively. However, the rosy cash-flow performance was overshadowed by the company’s second quarter sales outlook that came in lower than the consensus forecast. Even though Salesforce kept its fiscal 2025 total sales outlook intact, the firm lowered its Subscription & Support revenue growth guidance for fiscal 2025 its fiscal 2025 GAAP operating margin guidance. We think the market is overreacting to the weaker-than-expected outlook, but we have no plans to add Salesforce to any newsletter portfolio at this time.

Foot Locker Reaffirms Optimistic Bottom-Line Outlook for 2024

Foot Locker (FL) reported first-quarter results May 30. Total sales fell 2.8% in the quarter, while comparable sales faced pressure, falling 1.8%. Non-GAAP earnings per share came in at $0.22, while inventory dropped 5.6% on a year-over-year basis. Management noted that comparable store sales and its gross margin were in line with expectations and reiterated that “earnings per share outperformed due to disciplined expense management and some favorable shifts in expense timing.” The company ended the quarter with cash and cash equivalents of $282 million and total debt of $446 million. What pleased the Street the most is that the company reaffirmed its 2024 financial outlook, with full-year non-GAAP earnings per share guidance of $1.50-$1.70, as the consensus forecast was $1.52. Foot Locker is doing a better-than-expected job with bottom-line performance, but weak comps and net store closings keep us on the sidelines with respect to the name.

Dollar General Benefiting from Increased Store Traffic

Dollar General (DG) issued first-quarter results on May 30. During the quarter ended May 3, 2024, net sales increased 6.1%, while same-store sales advanced 2.4% (consensus had been looking for a 1.7% advance) thanks to an increase in customer traffic, which was only partially offset by a reduced average transaction amount. The earnings performance at Dollar General wasn’t great with operating profit falling 26.3% in the quarter relative to the same period a year ago. Total merchandise inventories, at cost, were 9.5% lower than the same time last year on a per-store basis. Dollar General’s outlook for fiscal 2024 wasn’t bad either. Net sales are anticipated to grow 6.0-6.7% on same-store sales growth in the range of 2.0%-2.7%. Diluted earnings per share is targeted in the range of $6.80-$7.55 for the year, which compared to the $7.26 consensus number at the time. We no longer include Dollar General in any newsletter portfolio, and while its outlook isn’t bad, we think there are better considerations in the newsletter portfolios. Shares yield ~1.7% at the time of this writing.

Best Buy Continues to Face Comparable Store Sales Pressure

On May 30, Best Buy (BBY) reported mixed first quarter fiscal 2025 results. Revenue and comparable store sales faced pressure during the quarter, but the big box retailing giant was able to drive a 4% year-over-year increase in non-GAAP diluted earnings per share. Management noted that “the mix of macro factors continued to create a challenging sales environment for (its) category during the quarter and (its) sales were slightly softer than (its) expectations.” For the second quarter of fiscal 2025, Best Buy expects comparable store sales to fall 3% and its non-GAAP operating income rate to be ~3.5%. Comparable store sales for all of fiscal 2025 are expected to be down 3%-to-flat on the year, while its enterprise non-GAAP operating income rate is targeted in the range of 3.9%-4.1%. Management guided non-GAAP diluted earnings per share for fiscal 2025 in the range of $5.75-$6.20, which compared to the consensus mark of $6.14 at the time. Though Best Buy continues to work to stay relevant in the retail space, we remain on the sidelines with respect to shares. Shares yield ~5.2% at the time of this writing.

—–