Weekly Wrap: Mixed Results as Retail Landscape Shifts

In a week dominated by politics, the market turned in an unsteady performance with stocks rebounding Monday as North Korean fears eased but then falling Thursday amid some disappointing earnings.

Retailers posted some mixed results this week painting a mixed picture of how brick-and-mortar stores are grappling with e-commerce and shifting consumer tastes.

"We believe [the turnaround] remains on track as the company continues to remodel stores (300 more expected in 2018--these improve the store format, which enables digital capabilities), invest in private-brands (Cat and Jack Brand eclipsed $2 billion, 3% of sales, faster than anticipated), and improve the digital-channel experience. We continue to think margins will be pressured (price competition and a price-transparent e-commerce channel), but the company can drive 6.4% average operating margins (down from the 7% over the previous five years) over our 10-year forecast period, due to these initiatives of remodeling, private-label, and digital."

Not all retailers had signs of stabilization.

as comparable sales fell 8%. Still, she sees the firm at an inflation point.

"That said, we believe L Brands possesses a wide economic moat and operates in a space where fit, function, and comfort are more valued than price. We still view the anniversary of swim and apparel exits, as well as new bra product introductions in the back half of the year as likely to provide a boost to the top line and margin performance. Furthermore, we see China's long-term potential as capable of catapulting revenue growth back to the 3%-4% range over time. Therefore, we see only about a 2% reduction to our $71 fair value estimate to account for slightly lower-than-expected near-term growth but overall see our fiscal 2017 and 2018 estimates as already taking into account traffic and average unit retail headwinds. Our five-year outlook calls for low-single-digit average annual revenue growth versus the three-year historical average of 5% and operating margin at midteen levels versus high teens historical performance, which we still see as reasonable."

Overall, she thinks the fall in the stock prices has created a an "attractive entry point for investors with a long investment time horizon to own a wide-moat company that appears to be at a performance inflection point."

"We were encouraged by management's plans to deliver synergies of $30-$35 million, which would offset in part the reduction in profitability from the strategic pullback of Kate Spade wholesale disposition and online flash sales channels. Further, we think that these decisions are the right ones in the long run given management's track record of turning around the Coach brand."

In technology, shares of

"… there is more work to be done. With that, we are maintaining our $33 fair value estimate for narrow-moat Cisco. With the shares trading in 3-star range, we recommend potential investors seek a wider margin of safety before investing."