Nomura Securities on Hardline Retail: Amazon's (AMZN) Q4 in Retail Parlance - As Much Sq Footage as Best Buy (BBY)
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Rating Summary:
7 Buy, 25 Hold, 5 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 7 | Down: 5 | New: 19
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Nomura Securities on Hardline Retail: AMZN's Q4 in Retail Parlance - As Much Sq Footage as Best Buy (NYSE: BBY)
Analyst, Aram Rubinson, said, "Amazon's (Nasdaq: AMZN) Q4 revenues were 5% shy of expectations at $17.4B, with a deceleration in North America (+37% from +44%). At the same time, merchandise margins (ex shipping) rose 70bp. At first blush, it seems that retailers would have reason to cheer slower revenue and higher margins at AMZN, but we think that would be premature. For starters, the majority of the revenue moderation came in Media, while most physical retailers compete more with AMZN's EGM category. Second, higher GMs do not necessarily augur for a less competitive stance; an increase in the mix of third-party sales (including eBooks) probably explains 60bp of the 70bp rise in merch margins. AMZN’s 10-K says it added 18m new distribution sq ft in 2011. By the end of 2012, we think AMZN could operate as much square footage as Best Buy (58m sq ft). The best way for retailers to compete with AMZN is to improve the physical shopping experience. Office stores are the most vulnerable, followed by Bed Bath & Beyond (Nasdaq: BBBY). The least affected are Dollar stores, Auto Parts retailers and Home Improvement. Tractor Supply (Nasdaq: TSCO) and PetSmart (Nasdaq: PETM) are both relatively well protected, in our opinion."
Analyst, Aram Rubinson, said, "Amazon's (Nasdaq: AMZN) Q4 revenues were 5% shy of expectations at $17.4B, with a deceleration in North America (+37% from +44%). At the same time, merchandise margins (ex shipping) rose 70bp. At first blush, it seems that retailers would have reason to cheer slower revenue and higher margins at AMZN, but we think that would be premature. For starters, the majority of the revenue moderation came in Media, while most physical retailers compete more with AMZN's EGM category. Second, higher GMs do not necessarily augur for a less competitive stance; an increase in the mix of third-party sales (including eBooks) probably explains 60bp of the 70bp rise in merch margins. AMZN’s 10-K says it added 18m new distribution sq ft in 2011. By the end of 2012, we think AMZN could operate as much square footage as Best Buy (58m sq ft). The best way for retailers to compete with AMZN is to improve the physical shopping experience. Office stores are the most vulnerable, followed by Bed Bath & Beyond (Nasdaq: BBBY). The least affected are Dollar stores, Auto Parts retailers and Home Improvement. Tractor Supply (Nasdaq: TSCO) and PetSmart (Nasdaq: PETM) are both relatively well protected, in our opinion."
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