Thursday, January 18, 2007

Calls of Note Part 1

Prudential comments on (NASDAQ:AMZN) ahead of 4Q earnings (Feb. 1st). Although the company didn't disclose holiday sales results, the firm believes that certain data points from other retailers suggest that AMZN's holiday season could have been less than spectacular.

First, book retailers BKS and BGP reported tepid holiday comp-store sales of -0.1% of -1.9%, respectively, despite significant promotional activity.

Second, music retailers continue to struggle: BGP noted a steep decline in the category, BBY reported a decline, and CC's music comps were down double digit.

Third, electronics was the hottest product category over the holidays, but was driven by flat-panel TVs, where AMZN does not appear to be a significant player. In addition, the CE business was reported to be highly promotional, which could pressure AMZN's profit margins.

Finally, U.S. traffic on Amazon was up only 5.7% in 4Q (according to comScore), and trended down in each month of the quarter.

On a positive note, DVD comps were positive for most retailers, and video gaming sales were a standout. In addition, AMZN will record full toy revenue for the first time in five years, and could get as much as a $150 million revenue boost from currency exchange.

Reiterates Underweight rating and $25 price target on AMZN.

Notablecalls: I would not be surprised to see weakness in AMZN ahead of the results. Pru's call does not have any new datapoints in it but it does highlight the obvious.

No comments: