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October 28, 2016

Ghouls and Goblins Scare Up Profits for Retailers

by Jharonne Martis.

This Halloween’s scary season is expected to ring up healthy sales at U.S. retailers.

The National Retail Federation says that total Halloween spending has grown 12% year-over-year and that total combined spending in 2016 is expected to reach an all time high at $8.4 billion (Source: National Retail Federation, Halloween Headquarters). Most of the money will be spent on candy, followed by home decorations and costumes.

We take a look at three companies affected by Halloween trends.

Hershey Co. (HSY.N)

This venerable candy company’s fourth quarter sales are expected to benefit as its products fill trick or treat bags. Our I/B/E/S suggests an $1.18 EPS estimate, a 3.5% earnings growth for Q4, ending Dec. 31.

The StarMine Earnings Quality Score for Hershey’s is 86 indicating cash flow and operating efficiency levels are healthy (Exhibit 1). On the flip side, its Credit Risk – SmartRatios Model score is a weak 30 out of a possible 100. This model looks at accounting ratio analysis, utilizing both financial statement data and forward looking analyst estimate data via the StarMine SmartEstimate. The score of 30 suggests that its Leverage Ratios look weak.

Still, the Credit Structural and Text Mining Models are in the top quartile. The Credit Structural Model score of 82 suggests that the company is very unlikely to default on its debt obligation over the next one-year period. The Text Mining Model applies sophisticated text mining algorithms to StreetEvents earnings conference-call transcripts, financial statements and other regulatory filings, Reuters News, and select broker research reports to identify language that is predictive of credit risk. Hershey scores a strong 86 on this model.

Exhibit 1: Hershey Co. StarMine Scores


Source: StarMine

Party City Holdings Inc. (PRTY.N)

This party supply and costume company announced its recruitment of seasonal workers for Halloween. Revenue and earnings per share are expected to grow 3.1% and 19.1%, respectively, for Q4 2016 (Exhibit 2).

Exhibit 2: Party City Quarterly Results and Outlook


Source: Eikon

More treats than tricks

Party City’s Insider Model score of 89 suggests that insider sentiment is bullish. What’s more, StarMine Value-Momentum Model also seems to be in the company’s favor with a score of 74. The strength is driven primarily by the analyst bullish sentiment, which is reflected in the StarMine Analysts Revisions Model score of 69. Also the valuation scores, in the 60’s and 70s, suggest that the company might still be undervalued.  On the other hand, the StarMine credit models warn that the company’s credit risk scores are low and that the company might have some credit problems.

Exhibit 3: Party City StarMine Scores


Source: StarMine

Michaels Companies Inc. (MIK.O)

Halloween is a big deal at this arts & crafts and home décor chain. Anecdotally, the checkout line was about 40 minutes long at a New York City store one week before Halloween. For the third quarter ending October 31, Michaels is expected to see a 16.1% growth in earnings, and a 7.8% growth in revenue. Its StarMine Earnings Quality Score of 88 indicates solid levels of cash flow, and strong operating efficiency. Finally, Its Valuation Momentum score of 71 is being driven by Relative and Intrinsic Valuation Scores of 75, and 74, respectively, indicating that the stock is still cheap.

Exhibit 4: Michaels StarMine Model Scores


Source: StarMine

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