Category: Stock Report

INO – Inovio Strikes Coronavirus Vaccine Manufacturing Deal With Kaneka Unit

Inovio Pharmaceuticals Inc (NASDAQ: INO), which is developing a DNA vaccine against SARS-CoV-2, issued an update on its vaccine program Thursday, sending the stock higher. 

What Happened: The Plymouth, Pennsylvania-based company said it has executed an agreement with Kaneka Eurogentec, an affiliate of Japanese chemicals company Kaneka Corp., for manufacturing INO-4800 at Kaneka Eurogentec’s GMP plasmid production scales.

The terms of the agreement were not disclosed.

“Our partnership with Kaneka Eurogentec, one of the world’s largest and most experienced plasmid manufacturers, provides additional scale to our growing global manufacturing coalition,” Inovio CEO Dr. Joseph Kim said in a statement. 

Inovio counts Thermo Fisher Scientific Inc. (NYSE: TMO), Richter-Helm BioLogics and Ology Biosciences among its manufacturing partners. 

Related Link: The Week Ahead In Biotech: Hematology Conference Gets Underway, Vanda And BioCryst Await FDA Decisions

Why It’s Important: These partnerships were stitched up after Inovio had issues with South Korean CDMO VGXI, Inc. over the latter’s inability to scale up.

Additionally, the company announced in mid-November the FDA lifted its partial clinical hold imposed on the Phase 2 portion of the Phase 2/3 study of INO-4800.

Rival vaccine developers Pfizer Inc. (NYSE: PFE)-BioNTech SE – ADR (NASDAQ: BNTX) and Moderna Inc (NASDAQ: MRNA) are on the cusp of obtaining emergency use authorization for their respective vaccine candidates.

The coming days will be crucial, as the company hopes to successfully navigate through the clinical studies while also working on supplies.

Inovio’s vaccine has logistical advantages over the rest, as it has a shelf life greater than five years when refrigerated and stability for more than 30 days at 37 degrees Celsius — and more than one year at room temperature.

At last check, Inovio shares were advancing 4.68% to $12.53.

Related Link: Attention Biotech Investors: Mark Your Calendar For December PDUFA Dates

© 2020 Benzinga does not provide investment advice. All rights reserved.

NEWT – Newtek CEO, Barry Sloane, to Host Webinar to Discuss Navigating the Ever-Changing Cloud-Computing Technology Landscape

BOCA RATON, Fla., Dec. 03, 2020 (GLOBE NEWSWIRE) — Newtek Business Services Corp., (Nasdaq: NEWT), an internally managed business development company (“BDC”), today announced that Newtek’s CEO, Barry Sloane, and the experts from Newtek’s technology portfolio company, Newtek Technology Solutions, will host a webinar to discuss the importance of navigating the new cloud-computing technology landscape in today’s ever-changing operating environment. The webinar will take place on Tuesday, December 8, 2020 at 3PM EST, and will discuss how small- and medium-sized businesses can manage their IT in a secure private cloud, as well as what businesses can do to be at the forefront of innovative technology processes. Specific topics will include, ecommerce solutions, managed IT services to protect against security threats, and the advantages of private cloud hosting for scaling and managing an organization.
Please register through the following link Newtek Technology Solutions Webinar and learn how Newtek Technology Solutions can help your business stand out, with the right technology solutions to keep an organization secure and profitable.If you have any questions, please contact Newtek Technology Solutions at 1-877-323-4678 or email Business Services Corp., Your Business Solutions Company®, is an internally managed BDC, which along with its controlled portfolio companies, provides a wide range of business and financial solutions under the Newtek® brand to the small- and medium-sized business (“SMB”) market. Since 1999, Newtek has provided state-of-the-art, cost-efficient products and services and efficient business strategies to SMB relationships across all 50 states to help them grow their sales, control their expenses and reduce their risk.Newtek’s and its portfolio companies’ products and services include: Business Lending, SBA Lending Solutions, Electronic Payment ProcessingTechnology Solutions (Cloud Computing, Data Backup, Storage and Retrieval, IT Consulting), eCommerce, Accounts Receivable Financing & Inventory FinancingInsurance Solutions, Web Services, and Payroll and Benefits Solutions.Newtek® and Your Business Solutions Company®, are registered trademarks of Newtek Business Services Corp.
Note Regarding Forward Looking StatementsThis press release contains certain forward-looking statements. Words such as “believes,” “intends,” “expects,” “projects,” “anticipates,” “forecasts,” “goal” and “future” or similar expressions are intended to identify forward-looking statements. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. Such risks and uncertainties include, among others, intensified competition, operating problems and their impact on revenues and profit margins, anticipated future business strategies and financial performance, anticipated future number of customers, business prospects, legislative developments and similar matters. Risk factors, cautionary statements and other conditions, which could cause Newtek’s actual results to differ from management’s current expectations, are contained in Newtek’s filings with the Securities and Exchange Commission and available through   Newtek cautions you that forward-looking statements are not guarantees of future performance and that actual results or developments may differ materially from those projected or implied in these statements.SOURCE: Newtek Business Services Corp.Investor Relations & Public Relations
Contact: Jayne Cavuoto
Telephone: (212) 273-8179 /

MRNA – Should Investors Buy Moderna Stock for Its Coronavirus Vaccine?

On the surface, Moderna (NASDAQ:MRNA) looks like a great growth stock backed by its coronavirus vaccine. And the biotech also has potential to use its messenger RNA technology to develop other vaccines in its pipeline.

But in this video from Motley Fool Live recorded on Nov. 23, Corinne Cardina, bureau chief of healthcare and cannabis, and Brian Orelli, contributor, point out issues with Moderna’s current valuation, especially compared to other biotechs that already have drugs on the market.

Corinne Cardina: How about Moderna? What else is in Moderna’s pipeline that if it can show proof of concept for mRNA vaccines, and it looks like it has, is that promising for some other things in its pipeline?

Brian Orelli: Yeah, definitely. I think it proves out the mRNA concept, that you can design an mRNA to express whatever protein you want, and then get it into cells and have it express those things. They have a CMV vaccine that affects mostly newborns that had positive phase 2 data in September and they’re preparing to launch a Phase III clinical trial next year. They also have cancer vaccines that have enrolled their first patients in phase 2 expansion study for ovarian cancer.

Corinne Cardina: Yeah. Moderna’s revenue, over the past few years, has mostly come from partnerships. Vertex has been a big partner. It does currently have four billion dollars in cash and investments, but I think investors will want to see that it can actually have recurring revenue once it launches products on the market, so that will be something to watch. What should potential investors know about Moderna as an investment and its overall strategy?

Brian Orelli: I think the big thing that investors should know is that it’s really expensive. It’s a $38 billion market cap. I pulled out a couple of drugmakers that are popular with Fools. Seattle Genetics, which now goes by Seagen (NASDAQ:SGEN), has three drugs on the market. It’s a $31 billion market cap — that gives it a price-to-sales ratio of 16. BioMarin (NASDAQ:BMRN), they have maybe four or five drugs, but they are smaller drugs. Their market cap is almost 14 billion, I guess a price-to-sales ratio of eight, and Exelixis (NASDAQ:EXEL), which has just two, but it’s the same drug. It goes by to trade names and their market cap is only 5.8 billion and they have a price-to-sales ratio of 6.3.

We’re going from 16 for Seattle Genetics, Seagen, because they’re pegged for future growth. Two of their drugs have just recently been approved and so the investors are pricing in the future sales.

But Moderna has no drugs on the market and investors are already pricing in quite a bit of extra sales. I think, again, going back to my earlier thought, I think that whether Moderna is overpriced or underpriced right now, it depends on whether how long they can sell their coronavirus vaccines and whether it takes them to the next level. If they can sell it forever, then 38 billion is a reasonable [market cap], because if they’re doing $5 billion in sales, that’s only an 8 price-to-sales ratio. That’s completely reasonable. That’s in the BioMarin level and that’ll give money to go get the next thing. If it’s just a one and done, and it’s $5 billion in sales and they don’t sell anymore, now we’re back down to zero. So I don’t think that’s a reasonable valuation for the company.

Corinne Cardina: Yeah. The stock is up more than 400% year-to-date, so valuation should definitely factor in to any investment decision for Moderna.

SPLK – SPLK LOSSES ALERT: Bernstein Liebhard is Investigating Splunk Inc. for Violations of the Federal Securities Laws

New York, New York–(Newsfile Corp. – December 3, 2020) –  Bernstein Liebhard, a nationally acclaimed investor rights law firm, is investigating potential securities fraud claims on behalf of shareholders of Splunk Inc. (“Splunk” or the “Company”) (NASDAQ: SPLK) resulting from allegations that Kandi might have issued misleading information to the investing public.

If you purchased Splunk securities, and/or would like to discuss your legal rights and options please visit Splunk Shareholder Investigation or contact Matthew E. Guarnero toll free at (877) 779-1414 or

On December 2, 2020, Splunk announced its third-quarter earnings in a press release. The report stated that Splunk’s revenue was $559 million, missing Wall Street estimates of $613 million. Splunk also stated in the report that it expected revenue for its fiscal fourth quarter in the range of $650 million to $700 million, well short of Wall Street’s expected $777 million.

On this news, the price of Splunk’s shares fell sharply.

If you purchased Splunk securities, and/or would like to discuss your legal rights and options please visit or contact Matthew E. Guarnero toll free at (877) 779-1414 or

Since 1993, Bernstein Liebhard LLP has recovered over $3.5 billion for its clients. In addition to representing individual investors, the Firm has been retained by some of the largest public and private pension funds in the country to monitor their assets and pursue litigation on their behalf. As a result of its success litigating hundreds of lawsuits and class actions, the Firm has been named to The National Law Journal’s “Plaintiffs’ Hot List” thirteen times and listed in The Legal 500 for ten consecutive years.

ATTORNEY ADVERTISING. © 2020 Bernstein Liebhard LLP. The law firm responsible for this advertisement is Bernstein Liebhard LLP, 10 East 40th Street, New York, New York 10016, (212) 779-1414. The lawyer responsible for this advertisement in the State of Connecticut is Michael S. Bigin. Prior results do not guarantee or predict a similar outcome with respect to any future matter.

Contact Information

Matthew E. Guarnero
Bernstein Liebhard LLP
(877) 779-1414

To view the source version of this press release, please visit


DG – Dollar General Corporation's (DG) CEO Todd Vasos on Q3 2020 Results – Earnings Call Transcript

Dollar General Corporation (NYSE:DG) Q3 2020 Earnings Conference Call December 3, 2020 10:00 AM ET

Company Participants

Donny Lau – Vice President, Investor Relations and Corporate Strategy

Todd Vasos – Chief Executive Officer

John Garratt – Executive Vice President and Chief Financial Officer

Jeff Owen – Chief Operating Officer

Conference Call Participants


Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Dollar General’s Third Quarter 2020 Earnings Call. Today is Thursday, December 3, 2020. All lines have been placed on mute to prevent any background noise. This call is being recorded. Instructions for listening to the replay of this call are available in the company’s earnings press release issued this morning.

Now, I would like to turn the conference over to Mr. Donny Lau, Vice President of Investor Relations and Corporate Strategy. Mr. Lau, you may begin.

Donny Lau

Thank you, Rob and good morning everyone. On the call with me today are Todd Vasos, our CEO; Jeff Owen, our COO; and John Garratt, our CFO. Our earnings release issued today can be found on our website at under News & Events.

Let me caution you that today’s comments include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 such as statements about our strategy, plans, including but not limited to our 2021 real estate outlook, our initiatives, goals, priorities, opportunities, investments, guidance, expectations or beliefs about future matters, including but not limited to beliefs about COVID-19’s future impact on the economy, our business and our customer and other statements that are not limited to historical facts.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections, including but not limited to those identified in our earnings release issued this morning under Risk Factors in our 2019 Form 10-K filed on March 19, 2020 and in our Form 10-Q filed this morning, and in the comments that are made on this call. You should not unduly rely on forward-looking statements, which speak only as of today’s date. Dollar General disclaims any obligation to update or revise any information discussed in this call unless required by law.

We also may reference certain financial measures that have not been derived in accordance with GAAP. Reconciliations to the most comparable GAAP measures are included in this morning’s earnings release, which as I mentioned is posted on under News & Events. At the end of our prepared remarks, we will open the call up for your questions. Please limit your questions to one and one follow-up question, if necessary.

Now, it is my pleasure to turn the call over to Todd.

Todd Vasos

Thank you, Donny and welcome to everyone joining our call. I’d like to start by thanking our associates for their tireless work over the past several months in helping our customers and communities impacted by the COVID-19 pandemic. Despite continued significant uncertainty in the operating environment, our team members have been unwavering in their commitment to fulfilling our mission of serving others by providing affordable, convenient, and close to home access to everyday essentials at a time when our customers need them most.

I could not be more proud of their efforts. As always, the health and safety of our employees and customer continues to be our top priority. We continue to closely monitor CDC and other governmental guidelines regarding COVID-19 and are evaluating and adapting our safety protocols as that guidance evolves.

As one of America’s essential retailers, we remain committed to being part of the solution during these difficult times. And we believe we are well-positioned to continue supporting our customers through our unique combination of value and convenience, including our expansive network of more than 17,000 stores located within five miles of approximately 75% of the U.S. population.

At the same time, we remain focused on advancing our operating priorities and strategic initiatives as we continue to meet the evolving needs of our customers, and further position Dollar General for long-term sustainable growth. To that end and from a position of strength, I’m excited to share an update on some of our more recent plans.

First, as you saw in our release, we plan to further accelerate our pace of new store openings and remodels in 2021. In total we expect to execute 2,900 real estate projects next year as we continue to lay and strengthen the foundation for future growth. As previously announced, we recently introduced our newest store concept, pOpshelf, further building on our proven track record of store format innovation. We opened our first two locations during the quarter, and while still early, we are encouraged by their initial results.

Finally, one of our core values is representing and respecting the dignity and differences of others. Building on this core value along with our commitment to diversity and inclusion, we recently updated our fourth operating priority to better capture and express our intent. We will discuss each of these updates in more detail later on the call.

But first, let’s recap some of the results for the third quarter. The quarter was once again highlighted by exceptional growth on both the top and bottom lines. We’re particularly pleased that for the quarter our three non-consumable categories once again delivered a combined sales increase well in excess of our consumable business. Of note, this represents our tenth consecutive quarter of year-over-year comp sales growth in our non-consumable business, which speaks to the strong and sustained momentum in these product categories.

From a multi-cadence perspective, comp sales for Q3 periods range from the low double digits to mid teens with the best performance in August followed by modest moderation as we moved through the quarter. Overall third quarter net sales increased 17.3% to $8.2 billion driven by comp sales growth of 12.2%. These results include significant growth in average basket size partially offset by a decline in customer traffic, as we believe customers continue to consolidate shopping trips in an effort to limit social contact.

Once again this quarter, we increased our market share in highly consumable product sales as measured by syndicated data, driven by double-digit increases in both units and dollars. Importantly, our data suggested increase in new customers this quarter as compared to Q3 of 2019. These new customers skew [ph] younger, higher income and more ethnically diverse, further underscoring the broadened appeal of our value and convenience proposition.

We are also encouraged by the repurchase rights of new customers and are working hard to retain them with more targeted marketing and continued execution of our key initiatives. We are particularly pleased with and how we delivered significant operating margin expansion, which contributed to third quarter diluted EPS of $2.31, an increase of 63% over the prior year.

Collectively, our Q3 results reflect strong and disciplined execution across many fronts and further validate our belief that we are pursuing the right strategies to create meaningful long-term shareholder value. We operate in one of the most attractive sectors in retail and with our unique combination of value and convenience further enhanced through our initiatives, we believe we are well-positioned to successfully navigate the current environment and emerge even stronger than before.

With that, I’ll now turn the call over to John.

John Garratt

Thank you, Todd. And good morning everyone. Now that Todd has taken you through a few highlights of the quarter, let me take you through some of its important financial details. Unless I specifically note otherwise, all comparisons are year-over-year and all references to EPS refer to diluted earnings per share.

As Todd already discussed sales, I will start with gross profit, which was positively impacted in the quarter by meaningful increase in sales, including the impact of COVID-19. Gross profit as a percentage of sales was 31.3% in the third quarter, an increase of 178 basis points and represents our sixth consecutive quarter of year-over-year gross margin rate expansion.

This increase was primarily attributable to a reduction in markdowns as a percentage of sales, higher initial markups on inventory purchases, a greater proportion of sales coming from non-consumables categories, and a reduction in shrink as a percentage of sales. These factors were partially offset by increased distribution and transportation costs, which were driven by increased volume and our decision to incur employee appreciation bonus expense.

SG&A as a percentage of sales was 21.9%, a decrease of 62 basis points. Although we incurred incremental costs related to COVID-19, these costs were more than offset by the significant increase in sales. Expenses that were lower as a percentage of sales this quarter include occupancy costs, utilities, retail labor, depreciation and amortization, repairs and maintenance, and employee benefits. These items were partially offset by increases in incentive compensation expense and hurricane-related expenses.

Moving down the income statement, operating profit for the third quarter increased 57.3% to $773 million compared to $491 million in the third quarter of 2019. As a percentage of sales, operating profit was 9.4%, an increase of 240 basis points. Operating profit in the third quarter was positively impacted by COVID-19, primarily through higher sales.

The benefit from higher sales was partially offset by approximately $38 million of incremental investments that we made in response to the pandemic, including additional measures taken to further protect our employees and customers and approximately $25 million in appreciation bonuses for eligible front-line employees.

Year-to-date to the third quarter, we have invested approximately $153 million in COVID-19 related expenses, including about $99 million in appreciation bonuses for our frontline employees. Our effective tax rate for the quarter was 21.6% and compares to 21.7% in the third quarter last year. Finally, as Todd noted earlier, EPS for the third quarter increased 62.7% to $2.31.

Turning now to our balance sheet and cash flow, which remained strong and provide us the financial flexibility to further support our customers and employees during these unprecedented times, while continuing to invest for the long term, we finished the quarter with $2.2 billion of cash and cash equivalents, a decrease of $760 million compared to Q2, and an increase of $1.9 billion over the prior year.

Merchandise inventories were $5 billion at the end of the third quarter, an increase of 11.8% overall and 5.9% on a per store basis. while out of stocks remained higher than normal for certain high demand products, we continued to make good progress with improving our in-stock position and are pleased with our overall inventory levels. Year-to-date to Q3 we generated significant cash flow from operations totaling $3.4 billion, an increase of 103.7%.

Total capital expenditures through the first three quarters were $698 million and included our planned investments and remodels and relocations, new stores and spending related to our strategic initiatives. During the quarter we repurchased 4.4 million shares of our common stock for $902 million and paid a quarterly dividend of $0.36 per common share outstanding at a total cost of $88 million. At the end of Q3 the remaining share repurchase authorization was $1.6 billion.

Our capital allocation priorities continue to serve us well and remain unchanged. Our first priority is investing in high return growth opportunities including new store expansion and our strategic initiatives. We also remain committed to returning significant cash to shareholders through anticipated share repurchases and quarterly dividend payments, all while maintaining our current investment-grade credit rating and managing to leverage ratio of approximately 3x adjusted debt to EBITDA.

Moving to an update on our financial outlook for fiscal 2020, we continue to operate in a time of significant uncertainty regarding the severity and duration of the COVID-19 pandemic, including its impact on the economy, consumer behavior and our business. As a result we are not providing guidance for fiscal 2020 sales or EPS at this time and are unlikely to resume issuing guidance to the extent such uncertainties persist. With regards to share repurchases, capital spending and real estate projects, our outlook for the year remains unchanged from what we stated in our Q2 earnings release on August 27, 2020.

Let me now provide some context as to what we expect in the fourth quarter. Given the unusual situation, I will elaborate on our comp sales trends thus far in Q4. From the end of Q3 through December 1, comp sales accelerated increasing approximately 14% during this timeframe, reflecting increased demand in our consumables business.

And while we remain cautious in our sales outlook, we are encouraged with our sales trends particularly as we move further past government stimulus payments and the expiration of enhanced unemployment benefits under the CARES Act. That said, significant uncertainty still exists concerning the duration of the positive sales environment, including external factors related to the ongoing health crisis and their potential impact on our business.

Beyond these macro factors, there are a number of more specific considerations as it relates to the fourth quarter. First, we anticipate higher transportation and distribution costs in Q4. Like other retailers, our business is seeing the effect of higher transportation costs due to a tight carrier market as a result of driver shortages and a greater demand for services at third-party carriers.

In addition, we are in the process of building, expanding or opening a number of distribution centers across our dry and DG Fresh networks. And while we expect these investments will enable us to drive even greater efficiencies going forward and further support future growth, these investments will pressure gross margin rates in Q4.

Also please keep in mind that the fourth quarter represents our most challenging lap of the year from a gross margin perspective, following 60 basis points of rate improvement in Q4 2019.

With regards to our strategic initiatives, we continue to anticipate they will positively contribute to operating margin over time, as the benefit to gross margin continues to scale and outpace the associated expense, with both NCI in DG Fresh on pace to be accretive to operating margin in 2020. However, our investment in these initiatives will pressure SG&A rates in the fourth quarter as we further accelerate their rollouts.

Finally, we expect to make additional investments in the fourth quarter as a result of COVID-19 including up to $75 million in employee appreciation bonuses, which includes our recent announcement to award approximately $50 million in additional bonuses, bringing our full year investment in appreciation bonuses to approximately $173 million as well as continued investments in health and safety measures.

In closing, we are very proud of the team’s execution and service resulting in another quarter of exceptional results. As always we continue to be disciplined in how we manage expenses and capital with the goal of delivering consistent and strong financial performance, while strategically investing for the long-term. We remain confident in our business model and our ongoing financial priorities to drive profitable same-store sales growth, healthy new store returns, strong free cash flow, and long-term shareholder value.

With that, I will turn the call over to Jeff.

Jeff Owen

Thank you, John. Let me take the next few minutes to update you on our four operating priorities. Our first operating priority is driving profitable sales growth. The team once again did a fantastic job in Q3 executing against a portfolio of growth initiatives.

Let me highlight some of our recent efforts, starting with our cooler door expansion program, which continues to be our most impactful merchandising initiative. During the first three quarters, we added approximately 49,000 cooler doors across our store base. In total, we expect to install more than 60,000 cooler doors this year, the majority of which will be in our higher capacity coolers, creating additional opportunities to drive higher on-shelf availability and deliver an even wider product selection.

Turning now to private brands, which remain a priority as we look to drive overall category awareness and even greater customer adoption through rebranding, repositioning, and expansion of select brands, as well as the introduction of new product lines. We’re very pleased with the continued progress across these fronts, including the successful rebranding of six product lines and the introduction of two new brands so far this year and we’re excited about the continued momentum we’re seeing across the portfolio.

Finally, a quick update on our FedEx relationship. During the quarter we completed our initial rollout of this convenient customer package pickup and drop-off service, which is now available in more than 8500 stores. We’re very pleased with the reception this offering is receiving from our customers and we continue to explore innovative opportunities to further leverage our unique real estate footprint to provide even more solutions for our customers in convenient and nearby locations.

Beyond these sales driving initiatives, enhancing gross margin remains a key area of focus for us. In addition to the gross margin benefits associated with our NCI, DG Fresh, and private brand efforts, foreign sourcing remains an important gross margin opportunity for us. The team once again did a great job during the quarter working with our supply partners to ensure product availability.

Looking ahead, we continue to pursue opportunities to increase our foreign sourcing penetration, while further diversifying our countries of origin. We also continue to pursue supply chain efficiencies, including the continued expansion of our private fleet, the opening of additional DG Fresh facilities, and the recent purchase of our future Walton, Kentucky dry distribution center, which should contribute to a further reduction in stem miles beginning early next year.

In addition, we recently began construction on our first ever ground up combination DG Fresh and dry distribution center in Blair, Nebraska. We anticipate this facility will be completed in early 2022 enabling us to drive even greater efficiencies as we move ahead. The team is also executing against additional opportunities to enhance gross margin, including further improvements in shrink as we continue to build on our success with electronic article surveillance.

Our second priority is capturing growth opportunities. Our proven, high return, low risk, real estate model continues to be a core strength of our business. As previously announced, we recently celebrated a significant milestone with the opening of our 17 thousandth store. This is a testament to the fantastic work of our best-in-class real estate team, as we continue to expand our footprint and enhance our ability to serve even more customers.

As a reminder, our real estate model continues to focus on 5 metrics that have served us well for many years in evaluating new real estate opportunities. These metrics include new store productivity, actual sales performance, average returns, cannibalization and the payback period. Of note, we continue to see strong performance across these metrics.

For 2020, we remain on track to open 1000 new stores, remodel 1670 stores, and relocate 110 stores. Through the first three quarters we opened 780 new stores, remodel 1425 stores, including more than 1000 in the higher cool account, DGTP or DGP formats and we relocated 76 stores. We also added produce in more than 140 stores, bringing the total number of stores which carry produce to more than 1000.

As Todd noted, for fiscal 2021 we plan to execute 2900 real estate projects in total, including 1050 new stores, 1750 remodels, and 100 store relocations. Additionally, we plan to add produce in approximately 600 stores. Notably, we expect approximately 50% of our new unit openings and about 75% of our remodels to be in the DGTP or DGP formats.

The remainder of our new store openings and remodels will primarily be in the traditional format with higher capacity coolers. Our plans also include having approximately 30 stores in our new pOpshelf concept, which Todd will discuss in more detail, by the end of fiscal 2021, up from two locations today. Overall, our real estate pipeline remains extremely robust and we are excited about the significant growth opportunities ahead.

Our third operating priority is to leverage and reinforce our position as a low-cost operator. Over the years, we’ve established a clear and defined process to control spending, which governs our disciplined approach to spending decisions. This zero based budgeting approach, internally branded as saved to serve, keeps the customer at the center of all we do, while reinforcing our cost control mindset. We continue to build on our success with Fast Track which Todd will discuss in more detail later.

As a result of our efforts to-date, our store associates are able to better serve our customers during this period of heightened demand, as evidenced by our recent customer survey results, where we continue to see overall satisfaction scores at all time highs. Our underlying principles are to keep the business simple, but move quickly to capture growth opportunities, while controlling expenses and always seeking to be a low cost operator.

We have three business operating priorities, but at the heart of them is our foundational fourth operating priority. This priority is anchored in our people and is truly foundational to everything we do at Dollar General. Our fourth operating priority is investing in our diverse teams through development, empowerment, and inclusion.

As Todd noted, this updated language more fully expresses our values and core beliefs and more closely aligns with the investments we continue to make in the development of our people. Importantly, we believe these investments continue to yield positive results across our store base, as evidenced by continued record low store manager turnover, record staffing levels, healthy applicant flows, and a robust internal promotion pipeline.

As a growing retailer, we also continue to create new jobs and opportunities for career advancement. In fact, more than 12,000 of our current store managers are internal promotes, and we continue to innovate on the development opportunities we can offer our teams. We believe the opportunity to start and develop a career with a growing and purpose driven company is a unique competitive advantage and remains our greatest currency in attracting and retaining talent.

We also recently completed our Annual Community Giving campaign where employees across the organization come together to raise funds for a variety of important causes. I was once again humbled by the generosity and compassion of our people. This event truly embodies the serving others culture that is so deeply embedded at Dollar General.

In summary, we are executing well from a position of strength and our operating priorities continue to provide a strong foundation from which we can drive continued growth in the years ahead.

With that, I will turn the call back over to Todd.

Todd Vasos

Thank you, Jeff. I’m proud of the great progress the team has made in advancing our strategic initiatives. Let me take you through some of the most recent highlights. Starting with our non-consumable initiative or NCI, as a reminder, NCI consists of a new and expanded product offering in key non-consumable categories. The NCI offering was available in 5,200 stores at the end of Q3 and given our strong execution to-date, we now expect to expand the offering to more than 5,600 stores by the end of 2020 including approximately 400 stores in our NCI light version. This compares to our prior expectation of more than 5,400 stores at year end.

We’re especially pleased with the strong sales and margin performance our NCI stores once again delivered in the quarter. We also continue to benefit from incorporating select NCI products and planograms throughout the broader store base. And we are pleased with the performance of our light stores, which incorporates a vast majority of the NCI assortment, but through a more streamlined approach.

As noted earlier, we are also excited about the recent introduction of pOpshelf and the opening of our first two locations, which further builds on our success and learnings with NCI. pOpshelf aims to engage customers by offering a fun, affordable, and differentiated treasure hunt experience, delivered through; first, continually refreshed merchandise, primarily in targeted non-consumable product categories.

Second, a differentiated in store experience, including impactful displays of our offering design to create a highly visual, fun and easy shopping experience; and third, exceptional value with approximately 95% of our items priced at $5 or less. Importantly, while pOpshelf delivers many of Dollar General’s core strengths, including customer insights, merchandise innovation, operational excellence, digital capabilities and real estate expertise, it is specifically tailored to a different shopping occasion, will primarily be located in suburban communities, and initially targets a higher income customer, potentially unlocking additional and incremental growth opportunities going forward.

We’re proud of all of the incredible work the team has done in standing up this concept. And with the initial work now behind us, we look forward to welcoming additional customers to pOpshelf as we move forward, our goal of approximately 30 stores by the end of 2021.

Turning now to DG Fresh, which is a strategic multi-phase shift to self distribution of frozen and refrigerated goods. As a reminder, the primary objective of DG Fresh is to reduce product costs on our frozen and refrigerated items by removing the markup paid to third party distributors, thereby enhancing gross margin and we continue to be very pleased with the product cost savings we are seeing.

In fact, DG Fresh continues to be the largest contributor to gross margin benefit, we are realizing from higher initial markups on inventory purchases. Importantly, we expect this benefit to grow as we continue to scale this transformational initiative.

Another important goal of DG Fresh is to increase sales in these categories. We’re pleased with the success we are already seeing on this front, driven by higher overall in-stock levels, and the introduction of more than 55 additional items, including both national and private brands in select stores being serviced by DG Fresh.

And while produce is not included in our initial rollout plans, we plan and continue to believe DG Fresh could provide a potential path forward to expanding our produce offering to even more stores in the future. In total, we were self distributing to more than 13,000 stores from eight DG Fresh facilities at the end of Q3. We expect to capture benefits from this initiative in more than 14,000 stores from 10 facilities by the end of this year, and are well on track to complete our initial rollout across the chain in 2021.

Next, our digital initiative, where our strategy consists of building a digital ecosystem specifically tailored to provide our customers with an even more convenient, frictionless, and personalized shopping experience. In an environment where customers continue to seek safe, familiar, and convenient experiences, we believe our unique footprint combined with our digital assets provides a distinct competitive advantage.

More specifically, I’m pleased to note that during the quarter we expanded DG Pickup, our buy online pick up in the store offering to nearly 17,000 stores compared to more than 2,500 stores at the end of Q2, providing another convenient access point for those seeking a more contactless customer experience. In addition to DG Pickup, our plans include further expansion of DG GO! checkout, as we look to make this feature available in select stores, that includes self-checkout, further enhancing our convenience proposition.

By leading our channel in digital tools and experiences, we believe we are well positioned to drive more in-store traffic, grow basket size and offer even greater convenience to new and existing customers.

Moving now to Fast Track where our goals including increasing labor productivity in our stores, enhancing customer convenience, and further improving on-shelf availability. We continue to be pleased with the labor productivity improvements we are seeing as a result of our efforts around rotator optimization and even more shelf ready packaging.

The second component of Fast Track is self-checkout, which provides customers with another flexible and convenient checkout solution while also driving greater efficiencies for our store associates. During the quarter, we accelerated the rollout of self-checkout to more than 900 stores, compared to approximately 400 stores at the end of Q2, with plans for further expansion as we move forward. And while still early, we are pleased with the initial results, including our customer adoption rates, as well as positive feedback from both customers and employees.

Overall, we remain focused on controlling what we can control, while taking actions, including the continued execution of our key initiatives to further differentiate and distance Dollar General from the rest of the discount retail landscape. As a mature retailer in growth mode, we are also laying the groundwork for future initiatives and continue to believe we are pursuing the right strategies to capture additional growth opportunities in a rapidly changing retail landscape.

In closing, we are very proud of the team’s performance and our results through the first three quarters of 2020, which further demonstrate that our unique combination of value and convenience continues to resonate with our customers and positions us well going forward. As we are in the midst of a busy and extended holiday season, I want to offer my sincere thanks to each of our more than 157,000 employees across the company for their hard work and dedication to fulfilling our mission of serving others.

With that operator, we’d now like to open the lines for questions.

Question-and-Answer Session


Thank you. [Operator Instructions] Thank you and our first question comes from the line of Matthew Boss with JP Morgan.

Matthew Boss

Great, and congrats on another nice quarter.

Todd Vasos

Thank you, Matt.

Matthew Boss

Todd, so clearly the company is hitting on all cylinders today. What do you think DG takes from this pandemic following a vaccine and in any categories that you believe the company is taking multiyear market share, what are you seeing from new customer acquisition? Just kind of thinking about the after versus obviously the clear momentum that you’re seeing today?

Todd Vasos

Thank you, Matt, that’s a great question, because here at Dollar General, we’re always focused on that long-term, right. And we believe that through the initiatives that we have in place, including DG Fresh, including our digital assets, and Fast Track, including our cooler initiatives that we continue to benefit from and feel that we’re still in the early innings of the ballgame on, we feel that those will serve us very well, post-pandemic, and let’s hope that post-pandemic comes sooner than later.

But as we continue to look forward, we also are encouraged on some of the early initiatives we have around pOpshelf and that concept, because we believe that there’s a fair amount of whitespace out there for a discretionary format like pOpshelf. And again, I think we’re encouraged as we look at the first two stores on what that customer response has been.

On the customer acquisition side of the equation, we’re very pleased with the amount of new customers that we’ve seen and what really encourages us is that’s a little different customer, one that is very adjacent to our core customer, but as I said SKUs a little younger, more digital savvy, and a little bit more ethnically diverse and that really gives us the opportunity to speak to her a little differently.

And I’m happy to say that toward the end of Q3, we actually launched our new customer acquisition platform through social media, and a few other means that we won’t talk about exactly. I don’t want to give away too much, but suffice it to say, we’re happy with some of the early response that we’ve even seen from that, so more to come. We’re doing everything that we believe is appropriate right now, while we’re in the midst of the pandemic, to retain and keep those customers as we move into 2021.

Matthew Boss

Great, and then a follow up maybe for John. On gross margin, if I look at expansion in the last two quarters, you’ve shown 150 [ph] basis points plus relative to multiyear second and third quarter historical levels. So maybe could you just elaborate on the fourth quarter factors that you’ve mentioned and is the point that we should expect moderation in gross margin expansion, or do you actually see these headwinds outpacing the tailwind?

John Garratt

Great question, Matt. First, I’ll start by saying we’re very pleased with the gross margin expansion we’ve seen with six consecutive quarters of year-over-year expansion, as you mentioned, 178 this quarter. I’ll maybe start by talking about the drivers this quarter and that can help inform as we look ahead. I think it’s important to note that the initiatives like DG Fresh and NCI are really contributing and impactful to the three biggest drivers we saw this quarter.

First, lower markdowns, with the strong sell through our non-consumables, we didn’t have to take as much clearance markdowns, as well, as we’ve been talking about for a number of quarters now, we’re just continue to be more and more targeted on promotional activity and have less promotional activity necessary.

Secondly, when you look at higher initial markups, that was primarily driven by DG Fresh. We continue to see that same substantial cost takeout and that only grows as we scale. And then third, the mixed benefit. Again, the key driver there was non-consumables. Obviously, there’s been a shift in wallet, but I would say that we really positioned ourselves very well with what we’ve done to that part of the box with the impact of NCI and spreading the learnings from that, as evidenced by the 10 consecutive quarters of non-con comps.

In addition to that we did have lower shrink, which we were pleased to see as a percent of sales. Now partly offsetting that was higher distribution and transportation costs. So as we look ahead, as you alluded to in Q4, we’re not providing specific guidance given the uncertainty of the environment. But I think factors to consider as you look ahead, consider first that, we expect anticipate higher transportation and distribution costs in Q4 to continue with the tight carrier market and the DC startups.

Also, Q2 and Q3, it certainly was enhanced by the mix shift into non-consumables, which it’s hard to say, but, when but it’s likely to moderate somewhat over time, from those heightened levels. And then I think in Q4, it’s also important to note that it is the most challenging lap of the year, as we mentioned, as we’re lapping 60 basis points of gross margin expansion in Q4. So, while there are some uncertainties and some near term headwinds, we continue to believe there’s opportunities to increase our gross margin and operating margin over time.

We continue to see a growing benefit from initiatives like DG Fresh and NCI as I mentioned, and those will only grow as they scale. We continue to see opportunities in the levers that we talked about; category management, private brand penetration, foreign sourcing penetration, supply chain efficiencies, and shrink. And while we always reserve the right to invest in price, where needed, where appropriate, we’re currently in a great spot on price and don’t see the need to make any investments there right now. So believe we’re making the right investments and have the levers to continue to improve gross margins and operating margins over the long-term.

Matthew Boss

Great color, congrats again on the performance.

John Garratt

Thank you.


Next question is from the line of Karen Short with Barclays. Please proceed with your questions.

Karen Short

Hi, thanks very much and congratulations from me as well. Thinking and I hate to focus on 2021, but I think that’s what everyone is kind of concerned about as it relates to the tough compares. And so I wanted to ask a couple of questions. I appreciate there’s a lot of unknowns, but is there any way to kind of provide a framework with respect to puts and takes? And I would ask that in the context of while I understand you definitely can’t predict sales, how are you thinking about freight into 2021 year-over-year? And then how are you thinking about wages specifically, because you outlined, I got $173 million in bonuses, but you also probably will have around $53 million in COVID expenses? But, once you’ve offered these bonuses, how do you think about taking them away? Maybe a little color, on both of those would be great.

Todd Vasos

Yes, Karen, let me start and then I’ll have John chime in as well here. As we look out to 2021, what again we’re really squarely focused on is controlling what we can control. And that is, really and our key initiatives, ensuring that we execute at a high level, retain as many of these new customers as we possibly can through the means that we have talked about and also again, with our with key initiatives being a nice backdrop to the new consumer. She can do a much fuller shop inside of our store than she ever has been able to do in the past.

As you start to think about 2021, and in the labor side to your point, wages, again, we don’t have a crystal ball. So we don’t know exactly, what the pandemic is going to look like in the first part of the year or how fast this vaccine will be given. We’ve got some hints, obviously, from the, CDC and through the government. But the one thing I think, just to take away is that we are going to do what’s right by our employees first. Right.

And so, we’ll continue to watch that, and we will continue to keep them safe, through this pandemic, until a vaccine is widely available. And if we do need to pay additional bonuses to reward our frontline workers for taking care of the customers then we’ll do that. But again, I think it was too early to tell in Q1 exactly what’s going to happen at this point.

John Garratt

Yes, I think the only thing that I’ll add to that, as you mentioned, it’s challenging in this uncertain environment, given the fluid nature of the pandemic, and the impact that could have on the economy and the consumer to say what sales looked like. But to Todd’s point, what we’re focused on is controlling what we can control next, accelerating virtually all our strategic initiatives, which we feel great about, and are really pleased with what we’re seeing them contribute to the top line and the bottom line.

And again, those will continue to have an increased impact as we scale those. And so we’re focused on that as well as, as Todd alluded to, doing whatever we can to take care of those customers, those new customers trading in to keep them coming back, as they’ve indicated they intend to, and also keeping those baskets bigger. And I think what we’ve done to make the box more relevant than ever, providing that fuller fill in trip positions us well. So focused on controlling what we can control. In terms of puts and takes we feel great about I’ll tell you the fundamentals of the business, the strength of the business model, the initiatives and having a model that performs well in all cycles of the economy.

In terms of a couple of specific things you mentioned, you mentioned freight, and it remains to be seen. I think a big part of freight is the capacity constraint right now and the heightened volume. So it remains to be seen, that’s something that this is time of the year with the holiday seasons it’s usually at its peak. And certainly all the volume is straying that now hopefully that is something that would normalize over time. And certainly we have a lot of mitigating efforts to go after that in terms of further scaling our private fleet, continuing to expand and diversify our carrier base, and then ongoing efforts around stem mile reduction, load optimization and DC productivity efforts.

And then the other thing, I pointed to in Q4 around gross margins, is we have over the last two quarters gotten additional benefit from that mix shift into non-consumables. We feel fantastic about the non-consumables business as we continue to scale NCI, as we continue to import the best ideas from that to the rest of the chain. So we feel great about that piece of the business, but remains to be seen if you can continue to get that kind of mix shift and would imagine that that would over time moderate somewhat. And so, I think that’s just some of the considerations for next year, but feel fantastic about the fundamentals of the business.

Karen Short

Okay, if I could just ask one more, is there any pattern or anything you could point to on performance of rural versus urban stores, and then that in the quarter, but then also with the acceleration that you saw into the quarter today, any patterns to point out there other than consumables accelerating in 4Q?

Jeff Owen

Hi Karen, this is Jeff. In terms of the rural versus urban, the nice thing about our model is consistency really across the store base, but specifically to rural we did see our rural stores perform well and outperformed our urban stores. So we’re pleased with that performance and continue to be real pleased with our remodel program, our new store development program, and the fact that 75% of the U.S. population is within five miles of our store network. So that unique footprint continues to serve us well.

You mentioned about the trends in terms of the sales piece. We did mention as John said earlier in our prepared remarks around the sales and so we’re pleased we’re ready for the fourth quarter, I can tell you that in terms of the team’s ability to set holiday. We’ve made great improvements in our in-stock position and the inventory side. So we are certainly ready to serve that customer and excited about the remaining parts of the fourth quarter.

Karen Short

Great, thank you.


Next question is from the line of Simeon Gutman with Morgan Stanley. Please proceed with your questions.

Simeon Gutman

Hi, everyone, good morning. A little bit along the lines of Karen’s question, let me, maybe unanswerable around 2021, I want to ask through the lens of the top line, and in the past, you’ve been fairly deliberate around some of your sales drivers, like bottoms up, new store remodel, sales initiatives. I think we talked about a recession uplift and all of this is on top of, I think, normally some inflation.

Are you still thinking about 21 in this way? Can you share your thoughts on any of these items? And then I don’t know how you think about stimulus, if that’s part of a sales plan or not for next year?

Todd Vasos

Yes, assuming and you know as we look at the sales number for ’21, again, way early, we’re not giving any guidance here yet by any means. But I would tell you that a lot of the long-term algorithms are still well intact. Our new store algorithm is still very strong. As you saw, we’re going to be opening more stores next year, at the same an accelerated pace. And I think that should show you that we’re very, very pleased with our store performance, our new store performance.

And quite frankly, our remodel program accelerating next year is also a great sign that we’re seeing tremendous value and our consumers are seeing tremendous value coming out of those remodels. So, all of the fundamentals around the top line, including our initiative drivers are well intact.

Stimulus, we’ll have to wait and see. We don’t want to guess what may or may not come, but any stimulus that does come would be a tailwind for us and I’m sure many retailers, but we’ll watch and see what happens there. We’re not betting on that right now, until we see it. What we are big on here, and I’ll keep saying this is controlling what we can control and that is driving that top line through our long-term strategic initiatives. And I think they have served us well over the many years, and are set up to serve us well for many years to come.

Simeon Gutman

Thanks, Todd. My follow up, it’s related to margin. It’s the second call out in the release the initial higher markups. I think we presume that’s the DG Fresh. And Todd I think in your prepared comments you said its building? And that’s my question. I wanted to ask, if you can talk about the rate of, I guess, sequential momentum there? Because I think it was initially called out in last year’s fourth quarter and so trying to think about how that ramps into ‘21. Is it ratably or is there some step change that we should expect from that item alone next year?

John Garratt

Yes, I think the way to think about that is and you’re exactly right, that is the primary driver of that initial markup benefit that we’ve been talking about for a number of quarters now. It’s already accretive to the business. And to your point, it will grow over time, not only linearly, as you add more stores, but you have economies of scale, as you serve more stores from existing DCs, as you get the efficiencies of operating the team, but has been amazing how quickly we’ve gotten this up and running and gotten quite efficient at this. So you get both benefits.

So it continues to grow as it scales, both in terms of the gross margin benefit. That’s substantial cost takeout. But then the other thing we’ve talked about is the sales benefit. We’re already seeing in those stores served by our self distribution, better in-stocks, better sales and we expect that to grow, that benefit to grow.

And then the other thing is now we’re free to improve the assortment. We had agreements before which precluded us from carrying certain competing brands and private label. This opens that up and as we mentioned, we’re already adding new SKUs there. And then, longer term in unlock, we see that as the opportunity to unlock further expansion of produce to more stores. And so, we think it’s the gift that keeps on giving, both in terms of cost and margin, but also in terms of sales.

Simeon Gutman

Okay, thanks John, and have a good rest of fourth quarter.

John Garratt

Thank you.

Todd Vasos

Thank you.


Our next question is from the line of Michael Lasser with UBS. Please proceed with your questions.

Michael Lasser

Good morning. Thanks for taking my question. So Dollar General reported a 17.5% comp, year-to-date. If you had to guess or maybe put some analysis behind it, how much of that 17.5 is due to market share gains and then how much due to other factors like wallet share gains?

Todd Vasos

Yes, we’re not going to probably Michael get into too much of that due to competitive reasons obviously, but I would tell you that we’re really happy with the share gains that we’ve seen. Those share gains continued to come from a multitude of different disciplines that are out there. Drug continues to be the largest share donor that we’ve seen. But some new emerging trends that we’ve seen and have some evidence of is that in the discretionary areas, we’re taking some share at a rapid rate as well.

And in many cases, that’s probably from some of the consolidation that has happened on that side of the equation recently. And so couple that with our initiatives around NCI and now pOpshelf, I believe we’re well positioned as we move into ’21 to capitalize and keep those customers that we’re seeing there in the share gains that we’ve already gotten in 2020.

Michael Lasser

Got it, and then my follow-up question is, around your expectations or your initial thoughts on, as there is a slower environment for consumer retail, presumably, the promotional environment is going to increase in which your use price and all the good margin expansion potentials that you have and given the setback in setback in price, picking a disproportionate amount of market share in a softer consumable environment overall?

Todd Vasos

Well, we always say we, we always reserve the right to lower price to ensure that we keep those footsteps coming into the Dollar General and more importantly, service that consumer. As we sit right now, though, Michael, we don’t see any evidence and or need to pull a price lever. The promotional activity, the everyday price activity across retail right now seems to be pretty tame and about the same as it has been for many quarters now.

But, as we continue to watch the environment we will do whatever we have to do to ensure that we’re priced right. But I think it’s also important to note, in the 12 years that I’ve been here, this is the best competitive positioning we’ve ever been in on price, the very best. So from a position of strength, we’ve already lowered price, got it where it needs to be, and is in and are in very good shape as we move into 2021.

Michael Lasser

Thank you very much and have a good holiday.

Todd Vasos



The next question is from the line of Paul Lejuez with Citi. Please proceed with your questions.

Paul Lejuez

Hi, thanks, guys. I’m curious if you could talk about some of the new customers that you’ve acquired earlier in the year and if there are any retention metrics that you might have, that you can share? And then second, just going back to your comments about lower markdowns, just curious if that was true across both consumables and non-consumables, and if you could talk about the gross margins within each of those businesses relative to themselves a year ago? Thanks.

Jeff Owen

Sure, this is Jeff. First on the new customer retention metrics you asked about. As Todd earlier stated, we’re real pleased with the launch of our retention strategy that we did at the tailwind of the Q3. So first, I got to tell you, it’s a little early, but one of the things here at Dollar General that we do very well is, we measure everything and we are very focused on monitoring our efforts, so that we can pivot if we need to, or we can accelerate if we need to.

And so, what I can tell you is that initially we’re pleased with what we’re seeing from the new customer retention strategy that we put in place. We think it’s the right time to do that. When you think about that, not only from when we started acquiring new customers, call it six months or so ago and then also thinking about that as it relates to 2021 and our desire to try to retain as many as we can.

So very pleased with the surgical digital approach that we’re taking. Rest assured we are measuring that and then I think at a future date we’ll be able to talk more about that, but right now, it’s a little bit early. And then I’ll pass it to John, on the margin question.

John Garratt

Yes, on the markdowns, it really is both. We’ve been talking about lower markdowns as a percent of sales for a number of quarters. And, the driver of that has been lower promotional activity. The team has gotten very targeted and got very sophisticated and the tools we put in place and the processes to really go after what gives the biggest bang for the buck, what really moves the needle on true incrementality of traffic and profitability and so that’s been throughout.

But with the strength growing strength of non-consumables, and the better sell-through there, we have then more recently seen a reduction in the amount of clearance activity required to clear those goods. So it really is both consumables and non-consumables.

Paul Lejuez

Thanks, guys. Best of luck.

John Garratt

Thank you.


Our next question comes from the line of Rupesh Parikh with Oppenheimer. Please proceed with your questions.

Rupesh Parikh

Good morning. Thanks for taking my question. So I want to go back to the launch of the pOpshelf concept. I’m just curious in terms of decision to launch the new concept right now during the pandemic, is that triggered by maybe more real estate opportunities or just any more color you can provide there?

Todd Vasos

Sure, as you could imagine, any concept of this magnitude, the work had begun long before COVID, the pandemic or any of that. Probably as you really know, the clock back about 18 months or so ago, really started that process. And I would tell you that the plan all along was to launch about this time that we launched it. So we were very much right on track to our initial launch times.

Now, obviously, we did anticipate the pandemic, that what we didn’t anticipate either was the abundance of available real estate that would be out there and that’s been a real positive for us. With some of the consolidation that we’ve seen from discretionary retailers, that may no longer be in business at this point, we’ve seen some real opportunity to grab some very good real estate that we’re able to open up this concept in. And that’s why we’re pretty bullish on the 30 by the end of 2021, both from a real estate perspective, but also the initial sales of this concept, at least in the first two stores has been very, very strong and exceeding our expectations.

So again, hitting on all cylinders on the initiative so far, but again, it’s early. But rest assured, we are — we will do what we do best here at Dollar General and that’s execute at a high level and continue to refine this new concept to make it the best it can be.

Rupesh Parikh

Great, thank you. Maybe just one follow-up question. Any thoughts you can share in terms of what you guys are seeing thus far in the holiday season in-house performance versus expectations? I know, your quarterly trends accelerated, due to be driven by the consumables category. Just curious if you think that the November, almost a November performances represent any forwarded demand from…?

Todd Vasos

Sure. I think it’s a little early to talk about what Q4 is going to look like in totality. A lot of selling in the last month of December for retail obviously is very big. I don’t have to mention that, but I will. But when you start to look at our numbers the great thing that we saw was, our traffic numbers in November started to rebound pretty nicely, really came back to where we saw some of those traffic numbers in Q2.

And so, that was a great sign for us that the consumer was out shopping, not only the consumable side of the business, but the non-consumable discretionary side of that equation as well. The other thing and Jeff alluded to in part of his comments earlier; we really leaned in on inventory for Q4 around holiday. We knew it was going to be a good holiday season for Dollar General. We went and bought more inventory from the close up market mainly. And we are from what- some of our best inventory positions in holiday than we’ve been in many years and are very encouraged by the early sell-through what we’ve seen in holiday. So encouraged, but a lot of selling left to go.

Rupesh Parikh

Great, thank you for all the color.

Todd Vasos



Thank you to everyone who’s joined us today. This will conclude today’s teleconference. You may now disconnect your lines at this time and we thank you for your participation.

GMS – GMS Inc. (GMS) CEO John Turner on Q2 2021 Results – Earnings Call Transcript

Call Start: 8:30 January 1, 0000 9:20 AM ET


Q2 2021 Earnings Conference Call

December 3, 2020 8:30 AM ET

Company Participants

Leslie Kratcoski – Vice President, Investor Relations

John Turner – President and Chief Executive Officer

Scott Deakin – Vice President and Chief Financial Officer

Conference Call Participants

Mike Dahl – RBC Capital Markets

Kevin Hocevar – Northcoast Research

David Manthey – Baird

Keith Hughes – Truist Securities

Matthew Bouley – Barclays

Steven Ramsey – Thompson Research Group

Trey Grooms – Stephens Inc.

Sam Darkatsh – Raymond James


Greetings and welcome to the GMS Inc. Second Quarter Fiscal 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn this conference over to your host, Ms. Leslie Kratcoski, Vice President of Investor Relations. Please go ahead.

Leslie Kratcoski

Thanks, Laura. Good morning and thank you for joining us for the GMS earnings conference call for the second quarter of fiscal 2021. I am joined today by John Turner, President and Chief Executive Officer; and Scott Deakin, Vice President and Chief Financial Officer.

In addition to the press release issued this morning, we have posted presentation slides to accompany to this in the Investors section of our website at

On today’s call, management’s prepared remarks and answers to your questions may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties, many of which are beyond our control and may cause actual results to differ from those discussed today.

As a reminder, forward-looking statements represent management’s current estimates and expectations. The company assumes no obligation to update any forward-looking statements in the future. Listeners are encouraged to review the more detailed discussions related to these forward-looking statements contained in the company’s filings with the SEC, including the Risk Factors section in the company’s 10-K and other periodic reports.

Today’s presentation also includes a discussion of certain non-GAAP measures. The definitions and reconciliations of these non-GAAP measures are provided in the press release and presentation slides. Please note that references on this call to the second quarter of fiscal 2021 relate to the quarter ended October 31, 2020.

Finally, once we begin the question-and-answer session of the call, in the interest of time, we kindly request that you limit yourself to one question and one follow-up.

With that, I’d now like to turn the call over to John Turner. JT?

John Turner

Thank you, Leslie. Good morning and thank you for joining us today. All of us at GMS hope everyone joining this call, as well as your families and colleagues are safe and well.

I’ll start with a review of our operating highlights, and then turn it over to Scott who will cover our financial results. I’ll then share some closing thoughts before taking your questions.

Starting on Slide 3, outstanding execution by our team enabled us to achieve solid second quarter results, while the overall operating environment remains challenging throughout the period, particularly with respect to commercial construction, we realized benefits from the strong residential market in a progressively improving environment in Canada.

Net sales and organic net sales on a per day basis declined 4.2% and 5% respectively year-over-year exceeding our previous expectations. As anticipated, our gross margin of 32.6% was lower than the second quarter record of 33% last year. However, it increased 10 basis points sequentially indicating continued discipline on both the demand and supply sides of our business amid the tight competitive environment.

Controlled alignment of our cost structure to current demand enabled us to improve SG&A and adjusted SG&A as a percentage of sales while ensuring a continued relentless focus on serving our customers. As a result, adjusted EBITDA margin of 10.2% marked the second consecutive quarter of exceeding 10% in a very tough market with decremental adjusted EBITDA within the outlook range provided on our first quarter call.

We generated positive free cash flow and our balance sheet and liquidity position provide us with exceptional financial flexibility.

On the health and safety front, we maintain enhanced operating protocols in compliance with public health requirements, recommendations and guidelines aimed at reducing the spread of COVID-19 and the health and safety of our employees, business partners and communities remains our top priority.

Considering the environment in which we are operating, we continue to perform very well in the second quarter. My congratulations and thanks go out to the entire GMS teams who made these results possible remaining engaged, focused and proactive as we come together in support of our customers and each other.

At the same time, we offer our gratitude for the continued partnership we share with both our customers and suppliers.

With that, I’ll now turn it over to Scott to provide more perspective on our financial results for the second quarter. Scott?

Scott Deakin

Thanks, JT. Good morning. Looking at Slide 4, net sales totaled $812.9 million, down 5.7% year-over-year as continued COVID-19 market pressures in the U.S. were partially offset by higher sales in Canada. Overall, organic net sales declined 6.4%.

With one last selling day year-over-year, daily net sales and organic net sales were down 4.2% and 5% respectively relative to an all-time quarterly record in the second quarter last year, the teams continue to reposition and realign resources to capture demand where does the strongest allowed us to exceed our previous expectations.

Wallboard sales of $330.5 million decreased 5.7% or 6% on an organic basis, principally due to a decline in mix driven by a shift to a greater weighting of residential wallboard. Price declined marginally, down less than 1%. On a per day basis, wallboard net sales were down 4.3% with volumes declining only about 1%.

Ceiling sales of $111.3 million decreased 9.4% year-over-year, virtually the same on an organic basis, driven by lower volume, partially offset by higher price and mix. Daily net sales of ceilings were down 8% year-over-year.

Steel framing sales of $111.3 million decreased 18.3%, again roughly the same organically year-over-year due to declines in volumes and price. On a per day basis, net sales declined 17%.

Year-over-year sales declines were more pronounced in ceilings and steel, product categories tied primarily to commercial construction, which remains challenged during the quarter. Residential activity on the other hand was very strong, up both year-over-year and sequentially.

Our complementary other product sales of $259.8 million increased 2.9% or 1.2% on an organic basis due to positive contributions from acquisitions, execution of our strategic growth initiatives, as well as organic growth and favorable pricing in Canada. Daily net sales of other products were up 4.5%.

Gross profit of $265.1 million decreased 6.8%, compared to the second quarter of fiscal 2020, primarily due to the lower sales. Gross margin of 32.6%, as expected declined 40 basis points year-over-year principally due to challenging mix dynamics, again particularly in the commercial segment.

Turning to Slide 5, adjusted SG&A expense as a percent of net sales of 22.5% improved 20 basis points despite a 40-basis point headwind from the deflationary price and unfavorable mix impacts with certain products, notably steel and wallboard. Approximately 60 basis points of improvement was realized as a direct result of the continuing measures to align the company’s cost structure with the current demand environment, as well as favorable business mix towards single-family residential with respect to operating costs.

As a result, second quarter adjusted EBITDA of $82.5 million compared to a record $89.9 million a year ago. Adjusted EBITDA margin of 10.2% declined only 20 basis points year-over-year and represented a 15% decremental adjusted EBITDA margin, the midpoint of the outlook range of 10% to 20% provided on our first quarter call.

All considered, we were pleased with our execution in the second quarter, again just generated an adjusted EBITDA margin in excess of 10% despite the market-related decline in sales.

Turning to Slide 6, we generated free cash flow of $32.7 million or 40% of adjusted EBITDA in the second quarter. This was lower year-over-year due to changes in net working capital, driven by opportunistic inventory build in advance of manufacturer price increases and related timing of cash flows associated with certain purchasing incentive programs.

We continue to generate healthy free cash flow in this environment and expect to do so in the second half of this year.

Capital expenditures of $7.1 million were down $1.6 million year-over-year. Nevertheless, we maintain our estimate for cash capital expenditures in fiscal 2021 of approximately $25 million.

As of October 31, 2020, we had cash on hand of $118.2 million and $415.4 million of available liquidity under our revolving credit facilities. During the second quarter, we reduced our net debt by $27 million and net debt leverage was 3.0 times as of the end of the quarter, equal to that at the end of the first quarter of fiscal 2021 and down from the 3.5 times as of the end of the second quarter of fiscal 2020.

Our balance sheet remains healthy, and as an indication of the overall stability of our capital structure, we were pleased to receive an upgrade of our debt ratings from Moody’s in October. As a reminder, the large majority of our debt is not due until 2025.

Now let me turn the call back over to JT before we open the line for questions.

John Turner

Thanks, Scott. Turning to Slide 7, while we continue to carefully monitor and address market developments, we remain committed to our strategic growth priorities, is four initiatives and our Q2 progress are as follows: first, expanding share in core products, particularly in geographies where we are underpenetrated.

In ceilings, we believe we are obtaining share in both the mineral fiber and architectural specialties segments of the market as evidenced by our sales levels compared to available market data. Also, our focus over the past year on increasing our penetration in residential construction and in geographies where we have historically been underrepresented has enabled us to capture demand more effectively in this strong end-market.

Next, to diversify and profitably expand our product offerings, we are focused on growing select other product opportunities outside of core products. Success on this front stems from multiple initiatives in both the U.S. and Canada resulting in higher year-over-year growth in this category for the second quarter in a row despite the difficult market.

One example is one of our region’s early success in expanding its offering of waterproofing products in response to customer demand. While we are in early innings, we are beginning to extend this initiative to other regions through sharing of best practices and leveraging capabilities across our platform.

Third, we are developing our platforms through accretive acquisition and Greenfield opportunities, while maintaining balanced progress in debt reduction. We opened a new Greenfield location in n Hillsboro, Oregon in the second quarter and are actively working a robust acquisition pipeline. At the same time, we’ve reduced our net debt by almost $30 million.

And finally, so that we deliver a best-in-class customer experience, as well as drive productivity and further profit improvement, we are leveraging our scale in employing technology and best practices. Deployment of our e-commerce platform progresses with key adoption metrics including quoting, customer account activations and online payments increasing across our operations.

Near-term execution of these strategies equips with not only meaningful scale and technology advantages, but with balanced product geographic and end-market portfolios, all of which are serving to enhance our performance in this current environment. At the same time, these strategic growth priorities guide our long-term management of a very attractive business with significant long-term growth potential.

And finally, turning to Slide 8, as we look ahead, expected continued strength in residential construction is well documented with strong housing data, coupled with robust order growth and positive commentary from homebuilders. Commercial construction remains challenged, although more recent forecast while still projecting declines are more favorable than previous estimates.

Ultimately, we believe the actual near-term trajectory for commercial will depend largely on developments in addressing COVID-19 and the impacts on the broader economy. For our fiscal third quarter, we currently expect to generate a year-over-year sales decline, which will be slightly improved from the 5.7% or 4.2% on a per day basis realized in the second quarter. As was the case in Q2, there is also one less selling day in Q3 of this year versus last year.

In terms of profitability, we anticipate gross margin in the third quarter to be similar to that generated in the first half of this fiscal year, which will be lower than the 33.3% realized in Q3 of last year. As a result, we currently expect to generate a decremental adjusted EBITDA margin within the range of 10% to 20% for the third quarter of fiscal 2021.

As we conclude, our focus remains on controlling what we can. We have taken and intend to continue to take the necessary actions to optimize our operations and align our business with demand. I am confident in our teams’ ability to continue to leverage opportunities, address challenges and execute on our strategic plans to ensure that GMS remains well positioned to generate value for our shareholders.

Operator, we are now ready to open the call for questions.

Question-And-Answer Session


[Operator Instructions] Our first question comes from the line of Mike Dahl with RBC Capital Markets. You may proceed with your question.

Mike Dahl

Hi. Thanks for taking my questions. Wanted to start out just on the kind of third quarter commentary and maybe it will be helpful if you could give us some perspective on monthly trends progressed through your second quarter and then, trends in November.

And the second part of that question, yes, I think we can get a sense of resi versus non-resi by looking at some of your commercial oriented segments, but could you just help break out for us what you think your overall resi sales did versus commercial on year-on-year basis? Thanks.

Scott Deakin

I’ll take the first part of your question and JT can follow-up on the second part. Trends progressively through the quarter were positive every month over the course of the quarter on a year-over-year basis improved. And I can extend that into November low. So really for the last four months, we’ve been improving year-over-year every month.

John Turner

And as we talked about previously, I think the REIT is coming to pass and that is that residential is strengthening and each month as we go forward, we are beginning to shift the starts from three to six months in previous announcements. Commercial, however, has also continued to decline at fairly significant rates and while it feels like that rate of decline is flattening, we haven’t completely seen that yet.

And so, I think that our idea in the third quarter of being slightly better than we were in the second quarter is simply the reality of residential continuing to strengthen and commercial not getting a lot worse. And that will give you the net-net of our 55 commercial, 45 residential kind of get you to the number little bit better than we did in the second quarter.

Mike Dahl

Okay. Thanks. That’s helpful. The second question just as a follow-up to residential and thinking specifically, I guess on wallboard, this is clearly across the industry you are seeing a shift in terms of distribution’s focus on capturing the residential demand and allocating efforts to do so more than probably in the past there is clearly a strong backdrop for residential.

So, this may be enough to go around but from a competitive standpoint, have you seen any major shifts in terms of the competitive dynamics and how are you thinking about kind of pricing going forward?

John Turner

Well, the good news for us is that we started from a more balanced position than some of our competitors, but also we’ve been talking for 18 months and you are probably getting tired hearing me talk about it, but the reality is, one of those strategic pillars is to gain share in our core categories and we recognize well before the pandemic and well before this dramatic market shift that we have some opportunity in residential.

So, I think we have a little bit of a head start there than some of our competitors for sure. And in residential, those discussions aren’t happening every single solitary day with major builders, right. There is only few times during the year when you are having those discussions and you are able to secure that business with the bigger builders. Now with the smaller builders and the contractor controlled business, sure that’s a day-by-day effort.

The other thing I think we have an advantage is, is just we have the ability to service the entire product mix that all of those contractors and/or builders in the event we have the ability to do that in every market and there is – we also have the scale of our ability to handle the inventory and we have the ability to get the inventory from the suppliers based upon being for the most part the largest player in the space.

So, I think we offer a lot of advantages that maybe some of our competitors don’t. All that being said, price is an issue and residential board is the most commoditized board out there in the market. We are capable of providing just about any price that is reasonable with our excellence on the operating side, we can make money.

So, I think we can be very competitive where we need to be. On the other hand, maybe we are getting into an environment where there is some inflationary pricing and that will – again, we think that benefits us even more than the balance of our competitive space.

Mike Dahl

Okay. Thanks, JT, Scott. Good luck in the quarter.

John Turner

Thank you.

Scott Deakin

Thank you.


Our next question comes from the line of Kevin Hocevar with Northcoast Research. You may proceed with your question.

Kevin Hocevar

Hey, good morning everybody.

John Turner

Hey Kevin.

Kevin Hocevar

On that last point, there is a wallboard price decrease over the mid to late October, early November, so curious, if you can comment on your expectations if you are seeing that hold? And secondly, I know, one of the manufacturers after January increased, so curious if you have seen anybody else follow and if you think that the market is able to accept another price increase in that timeframe?

John Turner

Well, we are right in the middle of what I would say is the execution phase of any kind of increases and what’s going to hold or not hold from the October piece. We are certainly believing that the demand picture may shape up such that it does make sense to have some pricing in the market, it’s not that way yet, but I think it could be in relatively near-term.

And as we said before, better prices – prices are better for everybody quite frankly. They are better for the entire supply chain. And so, hopefully, calm heads prevail and maybe some of that comes to fruition. As far as one on top of the other, I think all of the building product space is in the middle of hearing and seeing price increases and how much of that’s going to stick and how many are going to come into the market, I don’t know.

I think between October and January, there should be some degree of those to two to six, you would think, right now. But again, that’s really, really early in that game and we probably won’t really know until we get well into this quarter and maybe even into the next one to see what’s shaping up.

Kevin Hocevar

Okay. And then, steel prices have really moved up the past few months, and things kind of unique in that obviously, the steel side of the business is softer and the commodity has gone up quite a bit. So, curious, does that have any impact the weakened markets, does that have any impact on your ability to push through the steel pricing there?

Or is it just since steel prices are so well-known, it’s easy to pass that through regardless of the demand environment? And with that type of inflation, how does that typically impact? Is there a timing with the sort of increases we’ve seen? Is there a timing impact or maybe there could be a gross margin hit as you try to push those prices through? Just kind of curious your thoughts on the impact to the business from the rising steel prices.

John Turner

Well, sequentially, we saw very, very slight increases in our pricing, but we didn’t see dramatic, what we call the squeeze internally here, right, which is your kind of alluding to there. Steel is generally speaking, we are going to quote what we are buying, we are going to buy it out fairly quick. We are going to try to work if we have longer projects, we are going to put escalators on those longer projects.

And then, we are really buying out the big projects, really close to the time in which we ship them. There is a lot of back and forth there. Stock steel prices, if we pay more, we raise the price and that’s our stock steel price, right. And then, it’s sure there is still day-to-day negotiations on that front.

But you are correct, when you are looking at market that’s down significant double-digits, that puts some extra pressure on the price. I’d certainly would prefer to be in the other environment with rising commodity price and rising demand, then I think we’ve got to rise certain. But it’s a negotiation. There is no question.

But I don’t think, you can see it in our gross margins, right. I think our gross margins are pretty good and I think the discipline in the business is good. We are earning the pricing by being the best in the space from a service perspective.

Scott Deakin

I’ll just add, it’s a very fragmented supply base too. So, all of our purchasers are very localized and got tight relationships with the suppliers and we are working with them to make sure we manage that tightly.

Kevin Hocevar

Okay. Great. Thank you very much.


Our next question comes from the line of David Manthey with Baird. You may proceed with your question.

David Manthey

Thank you. Good morning everyone. Let me approach, again, good morning. Hope you are going to approach this wallboard pricing question from another angle, JT, you recently noted that the wallboard production capacity is something like 10% higher than current demand. And I am just wondering maybe from a historical perspective, has the company been able to achieve positive pricing with this type of capacity versus demand gap?

John Turner

This is as tight as I’ve seen it and, of course, I’ve really been here about 18 months/ So, if you go back in history, I think when capacity tightens and demand is increasing, there has been successful periods of time in which pricing has gone up. So, I don’t expect it to be any different. I just don’t think we are kind of at it. We are not – we maybe at an inflection point.

Right now, it feels maybe like that, but we won’t know for sure this is the actual inflection point until we get into next year one. I think we have to confirm the demand, right. I think we have to confirm the residential is going to continue to grow to the rate it’s currently growing, because we know commercial is not going to be very good for a period of time, still.

I mean, that’s obvious based on starts in the ABI and everything else. So, what we don’t know is, residential, are we going to continue to have these great starts numbers every month throughout the winter and into the spring and is demand going to continue as kind of stimulus were offset around the economy.

So, that side is still, I guess, what I would call the unknown. But if all that comes together from a demand picture up against in an environment where there is 10%, 15% capacity left to be filled. I think you are getting tight enough there to where it just makes sense that the whole industry should go up.

David Manthey

Okay. Thank you for that. And the second question, could you give us sort of a longer term perspective on contribution margins during a recovery? I guess, as I am looking at the model and thinking about the moving pieces here, there is probably a slight downward bias to gross margin given that in a recovery we see steel and ceilings and things going faster.

Any thoughts as it relates to either the gross margin? Again, one, two years plus and the contribution margins in a recovery.

John Turner

Yes. Let me flip the script a little bit on the question. I don’t know what the gross margin may or may not do in a recovery. But I can tell you that in the early stages of a recovery, growing off of the lower cost base, and the disciplined nature of our team, I would expect us to not add cost until we are confident that we are in that growth phase, right. So, we should get some leveraging in the beginning phases of any recovery for sure.

Now, what happens on the gross margin side, I don’t really know. Scott, do you have any perspective?

Scott Deakin

I just look at the past history, I think if you look at, it’s a pretty good series of quarters in the past history. Our gross margin differential from quarter-to-quarter over that kind of period doesn’t move all that much. So, the business we are in is really making sure we are aligning supply with demand and trying to maintain that spread as tightly as possible regardless of the cycle.

So, we do that. That said, as we’ll continue to guide our businesses based on EBITDA to try to make sure we align the operational side of the house with the gross margins and we’ll continue to do that as well. And I guess, what we just continue to guide too is that sort of 10% to 20% kind of incremental EBITDA margin decremental kind of rates.

And taking JT’s point in terms of how we’ll manage the cost structure on the upside will kind of we’ll try to maintain as well. So, that’s the best guidance we can give you at this point as we deal with the cycle and as we deal with mix dynamics in this market.

David Manthey

Okay. That’s helpful. Thanks for the color.


Our next question comes from the line of Keith Hughes with Truist Securities. You may proceed with your question.

Keith Hughes

Thank you. Now looking for the next quarter or two, given potentially inflation coming at wallboard, do you anticipate some of the gross margin pressure that you discussed for the quarter or coming quarter, is that coming from the kind of lag as you touch through wallboard increases on to your customers?

John Turner

There is a little bit of lag, obviously, in there as well. There is also the mix shift dynamic that the residential board has a little bit lower gross margin, right that we’ve talked in the past about the operating margins being similar between the residential and the commercial. But on the pure gross margin side, there is a little bit of a mix.

There is always a little bit of lag in the – but again, we are acutely, I mean, we are looking at it, tracking it, following it, talking about it every single week with our operators out there trying to lead in the space and continue to deliver exceptional service and earn a little bit of a premium. And I think that, in times like this, we are in a decent position to do that.

Scott Deakin

I’ll just add a few – when we talk about pressure, again, please keep in mind that Q2 and Q3 last year were particularly strong. And so, if you look at on a sequential basis we are really expecting to do pretty similar in Q3 versus what we did in Q2 and we recognize going into Q2 and Q3 that they would be tighter not so much because of the market, although that’s a factor but really it’s a tougher compare versus prior year.

Keith Hughes

Okay. And switching to the other products, this had really nice growth in a tough environment, particularly last couple quarters. Can you kind of rank order at this point what are the largest products you sell in that segment?

John Turner

Insulation is the largest, primarily commercial insulation but we have a nice residential insulation business also with the – what I would call a – for the market in Canada, pretty good share of that business in Canada. So we have insulation is our number one product category.

After insulation, kind of those down into some of the related products with wallboard, you end up with joint treatment and fasteners things like that, but lumber is becoming more and more important to us and there is major focus across the business on lumber. Most of our lumber is fire-treated lumber, and/or lumber used in commercial construction, not your traditional lumber packages are trusses or anything like that.

Things that our customers have to buy, so, we’ve moved that direction. And then, you get down into tools and you get into stucco and EIFS, which is a continuing focus for us. Predominantly through the south, where stucco and EIFS is used more, but and you’ve heard me talk about waterproofing brand new, but I do think the exterior envelope is something that we will be successful at over time and it’s in its infancy, but I think the signs are we can be good at that as well.

Keith Hughes

And how did Canada do versus the average revenue change in the quarter?

Scott Deakin

Canada was a source of strength for us. I think we’ve got this within the footnotes of a Q. but Canada is up about 9.3% and relative to U.S. and down in roughly the 8%.

Keith Hughes

Okay. Thank you.

John Turner

Thanks, Keith.


Our next question comes from the line of Matthew Bouley with Barclays. You may proceed with your question.

Matthew Bouley

Good morning. Thanks for taking the question. One more on wallboard price. You talked about building inventory out of the manufacturer price increases. Was that a pre-buy ahead of the October price increase or the January price or both? And does it kind of signal that that you do have a stronger view about the market accepting price this year relative to the past couple of years?

John Turner

Let me answer the first half of your question. It’s really both. Also, we are big believers of servicing our business and so, inventory is important. And in the event there is a tightness anywhere we want to make sure we’ve got the inventory. But two, I don’t think it signals much in the – the reality is we turn that inventory 13 times. So, we are buying now. We don’t think price is going down.

So, the reality is we can buy a little bit now and if they do go up, then we are in good shape. If they don’t go up, it doesn’t matter, we sell our inventory. So, I wouldn’t read too much into it, other than we just think it’s smart to put a little bit of cash over there.

Again, it doesn’t age out. You don’t have a situation where we don’t sell that inventory and turn it back into cash very, very quickly if we need to. So, I think that, we are just improving.

Matthew Bouley

Okay. Got it. Second one on back-end commercial construction and JT you talked about sort of signs of stabilization at lower levels. I don’t want to put words into your mouth.

But I am wondering with your own customers, if you are kind of seeing those sort of signs of life in the forward-looking indicators that you have whether it’s quoting new jobs, A, if there is any specific verticals or regions that you think may be kind of inflecting in the near-term? Thank you.

John Turner

Well, on you are quoting at lower levels, right, but it’s stable. And that’s really the message across the board and that makes sense to all of the macro indicators that are out there. So, our pipeline reflects what I think are the macro indicators, our quoting is reflecting the macro indicators. The new product pipeline, the new construction pipeline seems to be bottomed and maybe moving up a little bit.

As far as quotes go, I think people are expecting things to be better a year from now. A lot of those projects are starting to bid now. The big emphasis for us or the big problem really today commercially is in all regions is tenant improvement. Tenant improvement is off in all regions. And tenant improvements is an important part of what we do. So that’s the biggest negative in our business is the lack of tenant improvement.

Matthew Bouley

Okay. Got it. Thank you.


Our next question comes from the line of Steven Ramsey with Thompson Research Group. You may proceed with your question.

Steven Ramsey

Great. Thanks. A couple things. You guys discussed ceilings share gain, can you share more on why this is happening? And do you feel like it’s accelerating in a challenging environment? And is that because of competitors are shifting back and was able to compete as effectively? And that share gain – can you discuss if that tenant improvement-related or new construction-related?

John Turner

Yes. The share gain is coming from the concerted effort across our entire business to be the number one ceilings distributor in every market in which we participate. And we are fortunate to have very, very strong relationships with Armstrong and USG, the number one and number two player in ceilings.

And so, it made sense for us to make that commitment again as part of that first strategic pillar of growing our core products 18 months ago, we recognized that we needed to put effort everywhere, because we had examples of being the best in major markets and they did make any sense not be the best everywhere. So we’ve been working to do that.

I am not going to say, we are the best everywhere, yet. But that’s our goal, right. So, we’ve added sales people, we’ve added engineering capability around architectural specialties. We’ve had quite a bit of success with architectural specialties. And I would say that most of that is new projects and not in the TI space. That the TI space is really the acoustical tiles, right. The mineral fiber.

But we have decided everywhere to participate in ceilings and there are very, very few parts of our business today where we don’t have a good ceiling blind. And where we don’t have a good ceilings line today, I promise you were beaten down the doors of the manufacturers to get access to their line in those markets. So, I really think that’s what’s happening.

Steven Ramsey

Got you. And then, switching to single-family side and wallboard there. Is there an increasing lag time that’s pushing back the time that your products go into the home for various reasons? It seems like we’ve heard various building product companies who have seen lag times extend beyond the normal timeframe. I guess, what I am getting at is, is demand better than what near-term revenue shows on single-family and maybe does that support sales in the upcoming quarters?

John Turner

Well, I mean, we’ve been talking about the fact that, if you looked at the strengthening sequential sales of residential for us, we are six months after those starts number started to come alive, right. So, and we were stronger in November than we were in October. I don’t necessarily have any data that would say that those lead times are extending.

But of course, we are just one part of the process of building a home. So, if it takes longer to get the land preparedness, taking longer to pore the foundations and it takes longer to build the lumber out, then it’s going to take a little bit longer for them to order and install the drywall and the other products that we sell into the home. That’s a fact. So, if you got data or you can see and talk to the homebuilders that instead of 90 day cycles to build houses they are at a 120 days, well, then, yes. That’s a direct impact on us.

Scott Deakin

In today’s price point we have heard evidence of things like lumber appliances and other products that go into a home being a little bit extended from certainly what we are seeing on our supply side, which is a factor, but it’s not significant, at least at this point.

Steven Ramsey

Great. Thank you.


Our next question comes from the line of Trey Grooms with Stephens. You may proceed with your question.

Trey Grooms

Hey, good morning. Thanks for taking my question.

John Turner

Hi, Trey.

Trey Grooms

Hey, JT. So, first one, we spend a lot of time talking about wallboard pricing and lot time on that clearly still up in air. But what about on the ceilings side? How are you thinking about ceilings pricing as we go into 2021? I think there was a price increase announced recently from one of your big suppliers. So, just any thoughts around the ceiling pricing as we look into next year given the demand backdrop.

John Turner

I would probably say that everywhere other than potentially the commodity mineral fiber, the market will accept the prices. I think that the architectural specialties is a continuing trend. It will be a larger part of ceilings going forward and those are quoted on an individual basis.

And so, I think that those prices will continue to rise and I think the higher end and the more premium mineral fiber and acoustical ceilings will bear whatever pricing the two leaders put into the space on the manufacturing side. I do think on the commodity side, it’s going to be continue to be a struggle, because that’s just a little bit more competitive there and there is just more players.

Trey Grooms

Understood. And I don’t know if we can get into the weeds this much, but with your ceilings business, do you – can you give us an approximate mix of what is more commodity kind of ceilings are versus the acoustical and some of the others that you are talking about?

John Turner

I don’t have it. I don’t have it sitting right here with me. It would just be all speculation.

Trey Grooms

Fair enough. So, my next one is a little bit higher level here looking into 2021, but it sounds like, and correct me if I am wrong, but it sounds like the commercial side could be bottoming. It sounds like, maybe it’s not getting worse.

And so if that’s the case, and we are looking at the res side where clearly res has been good from a start standpoint, you guys are definitely starting to experience some benefits from that and I would expect that to continue as we go over next few quarters. And – but my question is really as we look a little further out, if this continues to be the case, at what point do we start to see some revenue growth or volume growth in your business overall?

John Turner

Again, we usually just give you that one quarter out, because it’s really all we can see right now and this is a very difficult time to be forecasting. I would tell you that November commercial was still slightly worse than October commercial and we are talking about double-digits. So, I am not all that excited about bottoming at these levels and how long we would stay here, I don’t really know.

Commercial was super strong obviously last year, right up against COVID. So, we get into that April and then we start rolling into next year, May, June, July, those first months after COVID, we might be able at the end of the next quarter to give you a view of this as, hey, maybe that’s the time. But commercial is still pretty, I mean, I don’t want to be dower, but it’s not good.

Our steel sales are fairly reflective of that, right. And we are gaining share in ceilings, thankfully that we focused on that quite a while ago and we also are gaining share I think residentially where we focus on that quite a while ago with our wallboard and all of that is helping us perform a little better than we otherwise would have. But commercial is certainly not going to be a tailwind I believe until late 2021.

Scott Deakin

You are going to get some natural lapping from a financial standpoint on the ceiling side, which is good. So you won’t see the year-over-year declines that are as pronounced as we’ve got this year. Those will start to moderate and then you got the strength on the residential side, going forward based on the starts we are seeing that should start to give us some pretty positive indication. But we are just not in a position to be able to find exactly how that shapes out after a quarter or so at this point.

John Turner

I mean, I think we are feeling better. But we are not feeling good yet.

Trey Grooms

Understood. And I understand it with the tough question given uncertainty in the – that we are sitting here looking into right now. But I appreciate the color. The last one for me, and it kind of dovetails from that one, just kind of where we – given where we are in the cycle, and on your strategic priorities, one that you point out is the platform expansion.

So, I guess, could you go into a little bit more color around that? I mean, your leverage has come down you’ve reduced – even your net debt metrics are improving. So, as we look at where we are today in the cycle and then we look at opportunities that are out there, both Greenfield and M&A.

How are you – and you know that you are balancing it with debt reduction priorities, but can you go into a little more detail about that? Especially, given where we are right now in this cycle and kind of the little bit more uncertain outlook currently?

John Turner

Yes, I mean, we have five or six Greenfields in the pipeline that are in process that, of course put them on hold in the April timeframe when we looked at COVID-19 and of course, we put anything on hold and then you got to pull them back out of the can, so to speak and get them done. It’s hard to get it done, right. And we’ve got to go get property. We got to hire people.

There is some things that takes a little bit of time. But, so, we are back half loaded this year in our Greenfields for sure. But we got the one open in up there in Oregon which is Western Portland and we are super excited about that, because of that it’s going to be a blooming market. And we’ve got four, five more good ones that will get done, if not this fiscal year really very, very closely thereafter.

So, they’ll all be kind of coming together. The acquisition pipeline is good and we are talking to multiple players and multiple people. And I think that we’ll have some things to talk about in the next quarter or two on that front. I just, unfortunately today, I don’t have any exciting news for you. But we’ve got a good pipeline and we agree with you, we have a good balance sheet, good liquidity and we should be a good acquirer.

Trey Grooms

Great. Thanks for all the color. I appreciate it and good luck.

John Turner

Thank you. I appreciate it.

Scott Deakin

Thank you.


Our next question comes from the line of Sam Darkatsh with Raymond James. You may proceed with your question.

Sam Darkatsh

Good morning, JT. Good morning, Scott. How are you?

John Turner

Good Sam.

Sam Darkatsh

Just a couple quick housekeeping questions with respect to capital allocation, I don’t want a major in the minor, but I noticed that you bought a little bit of stock in the quarter for the first time in a while. I think the last time you did so was early 2019 when the stock was half the price and the valuation was around six times. Anything as to the rationale or the reasoning behind that?

I know you have $58 million left under the authorization and you are about to go into a heavy seasonal cash flow time of the year. Is there anything there that we should take from that activity?

Scott Deakin

We telegraphed that in our last quarterly call that we were going to start doing that, Sam. It’s nothing more than a modest share repurchase associated with offsetting our equity compensation programs. We are issuing equity obviously as part of those programs and you’ll see us over time engage in some limited buyback to offset the dilutive impact of that. But at this stage, it’s really nothing more than that.

Sam Darkatsh

Got you. And then, my last question, the typical free cash flow expectations I think, Scott, are between 40% and 50% of EBITDA. Is that still the expectation for the fiscal year? Or are you looking to hold a little bit of extra inventories throughout the next couple quarters?

Scott Deakin

So, it’s towards the lower end of that range in this environment with EBITDA being down versus where we were, say, last year. But in that low 40s, it certainly is a still pretty good indicator. And then, as we come back out of that, I think, on a more normalized basis, back to that 50 is probably the – a good indicator of what the business is capable of overall but in this environment closer to 40, that will be about right.

Sam Darkatsh

Very good. Thank you gentlemen. Stay well.

John Turner

Thank you. You too.


Ladies and gentlemen, we have reached the end of today’s Question-And-Answer Session. I would like to turn this call back over to Ms. Leslie Kratcoski for closing comments.

Leslie Kratcoski

Thanks, everyone for joining us this morning. A replay and transcript of our call will be available shortly on and as always, we thank you for your interest. Good day.


This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your evening.

T – Warner Bros Sets Entire 2021 Movie Slate To Debut On HBO Max Along With Cinemas In Seismic Windows Model Shakeup

WarnerMedia didn’t have to wait until Wonder Woman 1984 debuted both on HBO Max and in theaters: The Burbank, CA-based studio is putting its entire 2021 theatrical slate on HBO Max for their respective first month of release, concurrent with a global cinema release.

Following the one month HBO Max access period domestically, each film will leave the platform and continue theatrically in the U.S. and international territories, with all customary distribution windows applying to the title.


Dune Warner Bros

And get a load of what you’ll be able to see in-home next year: Denzel Washington’s The Little Things, Judas and the Black Messiah, Tom & Jerry, Godzilla vs. Kong, Mortal Kombat, Those Who Wish Me Dead, The Conjuring: The Devil Made Me Do It, In The Heights, Space Jam: A New Legacy, The Suicide Squad, Reminiscence, Malignant, Dune, The Many Saints of Newark, King Richard, Cry Macho and Matrix 4.

Warner Bros.

This morning’s release reads, “The hybrid model was created as a strategic response to the impact of the ongoing global pandemic.” Movie theaters aren’t apt to be entirely happy with this and it will be interesting to see what they charge for admission to the Warner Bros’ movies. Exhibition busted their butts to get open for Tenet, and today’s news may come to some a thumb in the eye.

That said, look at WarnerMedia’s dilemma: Is it better for the studio to reshelve their entire slate and collect dust and interest charges? And for those theaters that are open, is it fair that they don’t have any notable product to play? How does the studio commit to $40M P&A domestic spends in advance when the U.S./Canada marketplace may not be open or unpredictable?

Exhibitors, like AMC, may perceive this model as some sort of manna from heaven. As my mother-in-law says, “There’s no such thing as a coincidence” and well, what do you know? AMC has 200M shares up for sale as of today.   Buzz hit on Thanksgiving eve that WarnerMedia shoved off a $200M bid by Netflix for Legendary’s Godzilla vs. Kong so that they could make a play at putting the movie on HBO Max. Warners denied that, saying the pic was committed to theatrical. That was only half true.

Today’s earth-shattering, gravity defying announcement was made by Ann Sarnoff, Chair and CEO, WarnerMedia Studios and Networks Group (of which Warner Bros. is part) and Jason Kilar, CEO, WarnerMedia.

There were murmurs at rival studios that WarnerMedia was going to drop a bombshell in December — no one knew it would be this big. Even some of the creators close to the movies, I can tell you, weren’t in the fold on this decision (except those with financial stakes). This is clearly a top down corporate decision as the the conglom bets aggressively on HBO Max, which hasn’t been an immediate triumph out of the gate. The new streaming service’s hurdle has been distribution with only 8.6 million accounts activated, but another 28.7 million not switched on even though there’s no-cost HBO Max access to current HBO subscribers. Third-party distribution has also been a bottleneck, though the company recently reached a deal with Amazon Fire TV. Roku, which has 46 million active accounts, is another top-tier streaming venue where HBO Max is not yet available.

Many are expecting that Wonder Woman 1984 will already lose money, with financial analysts in the know saying that the $200M DC sequel will need to do 40% more than Tenet‘s current global take of $357.8M to hit breakeven. “If Wonder Woman 1984 does Tenet numbers, it will lose money,” one industry insider told Deadline recently.

Well, here’s an entire annual theatrical slate which will trade in any possibility of a domestic box office comeback for sheer subscriber numbers — that is, if they come.  This is a hedged bet that a COVID-19 vaccine is not coming soon enough to quell numbers and reopen cinemas. This despite all the headlines about one, and Pfizer, and the Dow’s recent aggressive upswing in response to the upbeat headlines. However, Warners believes that the pipeline is getting clogged, and the ecosystem needs to live, and that even if the vaccine comes, it may not reopen theaters fast enough and spur foot traffic. Some medical sources say that a nationwide accessible vaccine may not come until October.

Clarifies and assures Chief Operating Officer, Warner Bros. Pictures Group Carolyn Blackwood, “This is a temporary 2021 plan. We have to support exhibition with the product. We don’t think we’re changing the economics of these movies any more than the pandemic has. We’re adding another interval and period for revenue with HBO Max.”

“We’re living in unprecedented times which call for creative solutions, including this new initiative for the Warner Bros. Pictures Group,” said Sarnoff in a statement. “No one wants films back on the big screen more than we do. We know new content is the lifeblood of theatrical exhibition, but we have to balance this with the reality that most theaters in the U.S. will likely operate at reduced capacity throughout 2021. With this unique one-year plan, we can support our partners in exhibition with a steady pipeline of world-class films, while also giving moviegoers who may not have access to theaters or aren’t quite ready to go back to the movies the chance to see our amazing 2021 films. We see it as a win-win for film lovers and exhibitors, and we’re extremely grateful to our filmmaking partners for working with us on this innovative response to these circumstances.”

“After considering all available options and the projected state of moviegoing throughout 2021, we came to the conclusion that this was the best way for WarnerMedia’s motion picture business to navigate the next 12 months,” said Kilar. “More importantly, we are planning to bring consumers 17 remarkable movies throughout the year, giving them the choice and the power to decide how they want to enjoy these films. Our content is extremely valuable, unless it’s sitting on a shelf not being seen by anyone. We believe this approach serves our fans, supports exhibitors and filmmakers, and enhances the HBO Max experience, creating value for all.”

“This hybrid exhibition model enables us to best support our films, creative partners and moviegoing in general throughout 2021,” said Toby Emmerich, Chairman, Warner Bros. Pictures Group in a statement. “We have a fantastic, wide ranging slate of titles from talented and visionary filmmakers next year, and we’re excited to be able get these movies in front of audiences around the world. And, as always, we’ll support all of our releases with innovative and robust marketing campaigns for their theatrical debuts, while highlighting this unique opportunity to see our films domestically via HBO Max as well.”

It’s going to be very interesting to see the outcome of WarnerMedia’s decision here today and its ramifications on exhibition, rival studios and other streaming players like Amazon and Netflix. Netflix has been aggressive about closing the window, and always ran into headwinds when trying to make a deal with big exhibition. The HBO Max deal changes everything.

Will Disney following WarnerMedia’s lead here and dump the entire frosh Marvel movies on Disney+? How does exhibition come out of this? When Cineworld/Regal reopens, will they even play Warner Bros.’ titles?

Here’s WarnerMedia’s video about today’s announcement:

PSTG – Pure Storage Named a Leader in Gartner Magic Quadrant for Primary Storage Arrays

MOUNTAIN VIEW, Calif., Dec. 3, 2020 /PRNewswire/ — Today Pure Storage (NYSE: PSTG), the IT pioneer that delivers storage as-a-service in a multi-cloud world, announced it has been positioned by Gartner as a Leader in the 2020 Magic Quadrant for Primary Storage Arrays. This is the seventh year in a row that Pure Storage has been named in the Leaders quadrant of various Gartner Magic Quadrants.

“This Magic Quadrant validates Pure’s strategy to enable code-based, real-time access to resilient hybrid cloud data storage for IT, and Developers and DevOps alike,” said Charles Giancarlo, Chairman and CEO, Pure Storage. “This is an honor achieved by our great team, loyal customers, and partners.”

In the last year, Pure has continued to innovate and deliver new solutions that solve pressing customer needs. This included announcing the third-generation all-NVMe FlashArray//X, providing Mission-Critical SAP Workloads on FlashArray, delivering a unified block-and-file solution with Purity 6.0 software, and bringing to market the capacity-optimized all-QLC FlashArray//C, which renders legacy hybrid disk obsolete. Pure also significantly increased adoption of Pure as-a-Service, which provides flexible consumption models for our customers. In 2020, Pure was also named a Gartner Peer Insights Customer’s Choice for Primary Storage.

A full copy of the Gartner Magic Quadrant for Primary Storage Arrays report is available here.

Gartner Disclaimer   
Gartner does not endorse any vendor, product or service depicted in our research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. Gartner Peer Insights Customers’ Choice constitute the subjective opinions of individual end-user reviews, ratings, and data applied against a documented methodology; they neither represent the views of, nor constitute an endorsement by, Gartner or its affiliates.

About Pure Storage   
Pure Storage (NYSE: PSTG) gives technologists their time back. Pure delivers a modern data experience that empowers organizations to run their operations as a true, automated, storage as-a-service model seamlessly across multiple clouds. One of the fastest-growing enterprise IT companies in history, Pure helps customers put data to use while reducing the complexity and expense of managing the infrastructure behind it. And with a certified customer satisfaction score in the top one percent of B2B companies, Pure’s ever-expanding list of customers are among the happiest in the world.

Pure Storage, the “P” Logo, DirectFlash, Evergreen, FlashArray, FlashBlade, FlashStack and Pure1 are trademarks or registered trademarks of Pure Storage, Inc. All other trademarks or names referenced in this document are the property of their respective owners.

SOURCE Pure Storage

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WEC – WEC Energy to raise dividend by 7.1%, but will still yield below utilities peer group

WEC Energy Group Inc. WEC, -1.31% said Thursday it plans to raise its quarterly dividend by 7.1%, to 67.75 cents a share from 63.25 cents a share. The utilities company’s new dividend will be payable March 1 to shareholders of record on Feb. 14. The stock slipped 1.4% in afternoon trading. At current prices, the new annual dividend rate implies a dividend yield of 2.87%, which compares with the payout yield for the SPDR Utilities Select Sector ETF XLU, -0.87% of 3.09% and with the implied yield for the S&P 500 SPX, +0.03% of 1.56%. Separately, WEC said it expects 2021 earnings per share of $3.99 to $4.03, compared with the FactSet EPS consensus of $4.01. WEC shares have edged up 2.4% year to date, while the utilities ETF has slipped 2.2% and the S&P 500 has gained 13.7%.

RCL – Expect a Major Turnaround with Royal Caribbean

Royal Caribbean Group (NYSE:RCL) will likely experience a predictable turnaround in its finances over the next year. RCL stock is worth at least 56% more or $122.96 per share. This is based on a wide distribution of novel coronavirus vaccines and safety restrictions that allow more cruises to ramp up.

Source: NAN728 /

It is also reasonably easy to model this out. The company’s fairly stable earnings history over the past three years allows us to do this.

Earnings Power Forecast

The way to do this is to estimate the company’s earnings power, using its historical earnings, adjusting now for dilution and higher interest.

From 2017 through 2019 Royal Caribbean made the following diluted earnings per share (EPS) from continuing ops: $7.53, $8.56, and $8.95. That averages out to roughly $8 per share.

Now, we also have to adjust for higher dilution and higher interest expenses. Royal Caribbean recently said that it expects interest expenses of $275 million per quarter. That works out to $1.1 billion on an annual run-rate basis. However, compared to 2019, interest was only $408.5 million. That means that going forward there will be $691.5 million in extra interest.

Moreover, the company raised about 3% more shares. Let’s call it 5% to be careful. That brings the total to 220 million shares outstanding going forward. That lowers the baseline earnings power to $7.62 per share.

So, with higher interest, EPS will be $3.14 per share lower (i.e., $691.5 million in extra interest divided by 220 million shares).

That means its earnings power is about $4.48 per share. However, earnings power will rise fairly quickly in the following years as the company pays down its debt.

Estimating True Value

In addition, we can apply a history multiple to its earnings. According to Morningstar, the company sported an average of 19.2 times earnings multiple from 2015 to 2019. Let’s call it 20 times on average.

That means RCL stock is worth $89.60 (i.e., $4.48 in earnings power times 20). That is about 13.7% above current prices. However, keep in mind that earnings power will rise over the next three years as debt is eliminated.

For example, as of Sept. 30, the company had about $17.33 billion in debt, compared to $8.4 billion at the end of 2019. So debt has risen almost $9 billion this year alone.

Let’s also assume Royal Caribbean pays down the debt each year with its earnings. That works out to about $1 billion a year (i.e. $4.50 EPS times 220 million shares). In five years, the company could pay down a significant portion (56%, or $1 billion divided by $9 billion) of the debt. It could probably raise $2 billion or $3 billion in equity at higher prices to pay down most of the rest. That might only result in a 10% dilution (i.e. $2 billion divided by $20 billion market cap).

My point is that the true earnings power will likely be close to 90% of the former $7.62 baseline earnings power, or $6.89. So on average over the next five years, Royal Caribbean’s earnings power is an average of $5.69 per share.

Therefore, at 20 times its adjusted earnings power of $5.69, RCL stock is worth $113.80. That represents a potential gain of 44% over the price of $78.81 per share on Nov. 30.

What’s Next With RCL Stock

Analysts are not as sanguine about the future value of RCL stock as I am. For example, reports that a survey of 10 analysts has an average target price of $62.22. That is 21% below the Nov. 30 price.

Moreover, has a similar result. The consensus price target from 20 analysts is $70.12, or 11% below today’s price.

In other words, analysts don’t really believe in the company. I think it is probably pretty easy to write them off. As travel picks up with the widespread distribution of Covid-19 vaccines, price targets will likely rise.

It’s always better to look forward and try and put together a simple model of a company. That is what I have tried to do with this analysis of Royal Caribbean and RCL stock.

We can put a probability estimate on this. Let’s say that there is just a 60% probability company eventually makes its original $7.62 baseline earnings power and is worth $152.40. Commensurate with that there is a 40% chance RCL stock stays flat at $78.81.

The result: its expected value is $122.96. That is seen by multiplying 60% times $152.54 and adding it to 30% times 78.81 (i.e., $91.44 plus $31.52, or $122.96, 56% above the Nov. 30 price).

This shows that RCL stock is worth considerably more than its present price. The idea is to forecast its value yourself and wrap it with a probability estimate. There is considerable upside left in RCL stock.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.