Benzinga Weekly Preview: Apple To Reveal Highly Anticipated New Product Line

Apple Inc. AAPL will take center stage next week as the company reveals its highly anticipated new iPhone and smart watch. The iPhone 6 is expected to boast a larger screen, as well as a more durable display, while little is known about the specs for the watch. The company’s recent iCloud security breach cast a dark cloud over Apple shares recently, but the new product line is expected to be well received.

Key Earnings Reports

Next week, investors will be waiting for several key earnings reports including lululemon athletic inc. LULU, Campbell Soup Company CPB, Darden Restaurants, Inc. DRI and Kroger Company KR.

lululemon athletic inc.

Lululemon is expected to report second quarter EPS of $0.29 on revenue of $376.95 million, compared to last year’s EPS of $0.39 on revenue of $344.51 million.

On June 13, Merrill Lynch gave lululemon an Underperform rating, with a $35 price objective, saying that the current retail environment could prove a challenge in the upcoming quarter.

“lululemon reported adjusted Q1 2014 EPS of $0.34, $0.03 ahead of our estimate of $0.31. The beat was driven by better operating margins. Total company comps increased 1 percent. However, sales have decelerated thus far in Q2, and management reduced fiscal year 2014 EPS guidance to $1.71-1.76 from $1.80-1.90. We are lowering our fiscal year 2014 EPS estimate by $0.13 to $1.73 to reflect weaker sales margins and reducing our price objective to $35 to reflect our new estimates and increased uncertainty surrounding the turnaround. Management is relying on a more balanced assortment and easy comparisons to drive a substantial comp turnaround by Q4 2014.; Given the difficult retail environment, we do not think turning comps will be that easy. Product imbalances, weakening conversion and structural headwinds to general management are all risks to the turnaround. We maintain our Underperform rating.

On August 8, Credit Suisse gave lululemon a Neutral rating with a $38 target price following founder Chip Wilson’s decision to sell his stake to a private equity firm.

“Founder  Chip  Wilson  has  agreed  to  sell  half  his  stake  in  lululemon  to  private equity  firm  Advent  International. Advent, an  early  investor, whose  partners previously sat on lululemon’s board, will be granted two board seats, one of which will be that of co-chairman. We view this transaction as a positive development as the board can now put the distractions of public bickering behind them and focus on  developing  and  executing  a  strategic  plan  supported  by  a  unified board.

Campbell Soup Company

Campbell Soup is expected to report fourth quarter EPS of $0.49 on revenue of $1.87 billion, compared to last year’s EPS of $0.45 on revenue of $1.82 billion.

On July 22, Credit Suisse gave Campbell Soup an Underperform rating with a $42 price target, noting that the company will likely face several headwinds in the coming year.

“Campbell CEO Morrison articulated a sense of urgency that we haven't heard from other CEOs regarding the seismic changes in demographics, cultural habits and shopping behavior pressuring the food industry. 'We must recognize what's happening to us at this critical juncture,'  she  said, and those that don't will not survive. Indeed, Morrison has taken decisive actions to shift the portfolio away from the center of the store and better address the needs of younger and more diverse consumers.”

On July 21, following the company’s annual investor meeting, Merrill Lynch gave Campbell Soup a Neutral rating with at $46 price objective, saying that the challenging consumer environment will be the company’s primary problem.

“At the annual investor meeting, management indicated that it continues to assume that the challenging consumer environment will continue on as the 'new normal.' Long term growth rates (5 - 7 percent annual EPS growth) were maintained, and the company set the goal of  being a $10 billion company by 2020 (up from $8 billion currently) implying a 4 percent annual CAGR. Fiscal year 15 EPS growth is expected to be slightly below targets on a comparable basis reflecting both the industry challenges and certain company specific headwinds.

On August 20, S&P Capital IQ also gave Campbell Soup a hold rating with a $44 target price, saying that the acquisition of Plum Organics will likely increase the company’s growth prospects.

“Although we think a recent Plum Organics product recall is likely to hurt fiscal year 14 sales, we look for Campbell's 2013 acquisition of this provider of food for children to boost its longer-term growth prospects. We expect Campbell's overall future sales and profits to be bolstered by new or enhanced products. Also, we see Campbell's restructuring activity including a program to improve its U.S. supply chain cost structure, and to increase asset utilization.”

Darden Restaurants, Inc.

Darden Restaurants is expected to report first quarter EPS of $0.30 on revenue of $1.60 billion, compared to last year’s EPS of $0.53 on revenue of $2.16 billion.

On September 2, Merrill Lynch gave Darden an Underperform rating with a $40 price objective, noting that Olive Garden is expected to post soft sales this quarter.

“Darden preannounced first quarter (August) adjusted EPS will approximate $0.31-$0.33, exceeding our $0.30 estimate that matched consensus. We viewed the prior first quarter adjusted EPS guidance range of $0.28-$0.30 as conservative, so better than expected EPS is not meaningful. More importantly, the pre-announcement featured no evidence of a turn in Olive Garden sales, which are expected to decline 1.3 percent, near our -1 percent estimate. Olive Garden same store sales were strongest in August, up 0.8 percent, but not materially better on a two-year basis compared to June. The shift of the Never Ending Pasta Bowl promotion to September versus August last year resulted in a check increase in August while traffic declined. To date, three Olive Garden restaurants have been remodeled under the new image, up from one at the time of the fourth quarter fiscal year 2014 earnings call on June 20,  which have resulted in traffic lifts in excess of 10 percent. However, we note the remodels have been completed very recently and are therefore still in the honeymoon phase. LongHorn same stores sales continue to be strong, increasing 2.8 percent versus our up two percent estimate, while the Specialty Restaurant Group increased 2.1 percent. The company reiterated guidance for fiscal year 2015, including adjusted EPS of $2.22-$2.30 and Olive  Garden same store sales of flat to +1 percent, although we remain skeptical.

On July 2, Credit Suisse also gave Darden an Underperform rating with a $43 price target, noting that the company’s plans to decrease marketing spending could be a risk to profits.

“External  data from Kantar Media (which we can back-test as a predictor of DRI ad spend) shows that Darden already attempted a reduction in ad spend in fiscal year 2015. Olive Garden's ad buy  decreased  14 percent  in  the first quarter  and  33 percent  in  the second quarter  before  rebounding  to  down  only 9 percent in the third quarter. LongHorn spending went from double digit year-over-year growth to up on 6 percent in the second quarter and down 3 percent (the first decline since itmoved to a national buy) in the third quarter. Even  adjusting  for weather,  declining  spend  at  Olive Gardon  coincided  with  two-year  traffic  decelerating  to down  high-single  digits  to  low-double  digits. We  find  it  very  hard  to  believe that these two events are unrelated, and, even at LongHorn, which was a stronger comping brand, the slowdown in spend coincided with weaker comps.”

Kroger Company

Kroger is expected to report second quarter EPS of $0.69 on revenue of $24.92 billion, compared to last year’s EPS of $0.60 on revenue of $22.72 billion.

On August 5, Merrill Lynch gave Kroger a Buy rating with a $60 price objective, noting that the company’s sales growth will continue to prove an asset in the coming quarter.

“We believe  Kroger’s industry-leading  ID sales growth  will continue, given:  1) tailwinds from Kroger’s improved execution, presentations and offerings  in nat/org and fresh foods (Kroger’s fastest growing category); 2) ongoing traffic benefits from Kroger’s Fuel Rewards program; 3) impressive leveraging  of technology partnerships and investments (Dunnhumby, You Technology, QueVision) to drive sales growth; 4) post-integration  learnings from Harris Teeter; & 5) opportunities in non-edible consumables over the next two-to-three years. We believe Kroger’s improving  same-store  sales outlook (supported  by recent indications that Kroger is seeing “less cautious customers”) will support further P/E expansion to more of a premium  valuation  vs. Walmart and Target.”

On June 19, Credit Suisse was more conservative with a Neutral rating and a $48 price objective, saying that the stock is currently fairly valued despite the company’s optimistic outlook.

“Kroger  displayed  once  again  its  ability  to  harvest  years  of investment  in  its  differentiated  model  with  yet  another  beat  and  raise quarter. EPS  of  $1.09  exceeded  consensus,  and  our  estimate  of  $1.05, driven  primarily  by  stronger  than  expected  topline  growth.  Non-fuel  ID's  of 4.6 percent  accelerated  sequentially  and  exceeded  consensus  of  3.7 percent  as  share gains,  weather,  an  improving  consumer  environment  and  a  pickup  in inflation all contributed to growth. FIFO gross margin (ex-fuel) was about flat year over year as  expected  and  expense  control  was  solid. Management  raised  its fiscal year 2014  EPS  guidance  by  about  1 percent (at  the  midpoint)  to  reflect  its  better  top line  momentum. We  continue  to  rate  Kroger  Neutral. While  we  believe  the company  is  positioned  for  long-term  share  gains  given  its  differentiated model and  have  been  impressed  with  its  results  given  the  struggles  at competitors,  the  risk/reward  seems  balanced  at  the  current  valuation. We raised  our  target  price  from  $43  to  $48  to  better  reflect  the  company’s updated outlook.”

On August 30, S&P Capital IQ gave Kroger a Sell rating with a $43 target price, cautioning that lackluster consumer spending could have an impact on the company’s sales.

“We are concerned about a slow-growing U.S. economy and tepid consumer spending. We think DRI's recent marketing campaign to rebuild its brand image has not succeeded. As a result, same-store sales have been weak and underperformed peers. We believe the company can attract more budget-conscious customers by offering more deals, but we think that would hurt gross margins. We are skeptical of management making any corporate change, despite an activist shareholder's push to split the company into two.”

Economic Releases

U.S. retail sales will be in the spotlight next week as investors look to the report for a better picture of the nation’s economic health. The figures are expected to show an increase in August, which would bode well for U.S. GDP as consumer spending makes up nearly 70 percent of the U.S. economy.

Daily Schedule

Monday

• Earnings Releases Expected: Campbell Soup Company CPB, FuelCell Energy, Inc. FCEL, CHC Group HELI, Pep Boys- Manny, Moe & Jack PBY
• Economic Releases Expected: German trade balance, eurozone unemployment rate, eurozone investor confidence

Tuesday

• Earnings Expected: SAIC Inc. SAIC, Oxford Industries, Inc. OXM, Leidos Holdings LDOS, Krispy Kreme Doughnuts, Inc. KKD, HD Supply Holdings HDS, Barnes & Noble, Inc. BKS
• Economic Releases Expected: British industrial production, British manufacturing production

Wednesday

• Earnings Expected: The Wet Seal, Inc. WTSL, Vera Bradley, Inc. VRA, Men’s Wearhouse, Inc. MW
• Economic Releases Expected: French PPI, French industrial production,  Australian unemployment rate, Chinese CPI, Chinese PPI>

Thursday

• Earnings Expected From: lululemon athletic inc. LULU, Lands’ End, Inc. LE, Kroger Company KR, 1-800 FLOWERS.COM, Inc. FLWS
• Economic Releases Expected: German CPI, French CPI, Irish CP.

Friday

• Earnings Expected From: Darden Restaurants, Inc. DRI
• Economic Releases Expected: Japanese CPI, Spanish CPI, Italian industrial production, U.S. consumer sentiment, U.S. retail sales