The Zacks Analyst Blog Highlights: Gap, Salesforce.com, Google, Microsoft and Fastenal

Aug 22, 2011, 09:54 ET from Zacks Investment Research, Inc.

CHICAGO, Aug. 22, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Gap Inc. (NYSE: GPS), Salesforce.com Inc. (NYSE: CRM) Google Inc.  (Nasdaq: GOOG) Microsoft Corp. (Nasdaq: MSFT) and Fastenal Co. (Nasdaq: FAST).

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Here are highlights from Friday's Analyst Blog:

Gap a Penny Ahead, Sales Disappoint

Gap Inc.'s (NYSE: GPS) second-quarter 2011 earnings of 35 cents per share declined 2.8% from last year's 36 cents per share, but were a penny ahead of the Zacks Consensus Estimate.

Quarter in Detail

During the quarter, net sales edged up 2.0% to $3,386.0 million from $3,317.0 million in the year-ago quarter. Same-store sales slipped 2.0% for the quarter versus an increase of 1.0% in the prior-year quarter. Gap reported a decline in same-store sales across all brands except Old Navy North America in which it reported flat comparables.

Same-store sales of Gap North America, Banana Republic North America and International brands inched down 3.0%, 2.0% and 4.0%, respectively. Total revenue missed the Zacks Consensus Estimate of $3,703.0 million.

Quarterly gross profit fell 4.8% year over year to $1,251.0 million, and gross margin contracted 270 basis points (bps) to 36.9%. Operating expenses, as a percentage of sales, decreased 50 bps from the prior-year quarter to 27.1%. Gap's operating income plunged 15.9% year over year to $334.0 million, while operating margin fell 200 bps to 9.9%.

Store Count

During the reported quarter, Gap opened 31 stores and shuttered 28 locations. In fiscal 2011, the company now expects to open net 75 new stores. The company ended the quarter with a total of 3,248 stores.

Guidance

The company has maintained its fiscal 2011 earnings guidance in the range of $1.40 to $1.50 per share.

San Francisco, California based Gap Inc. is a premier international specialty retailer offering a diverse range of clothing, accessories, and personal care products for men, women, children and babies. Its flagship brands include Gap, Banana Republic, Old Navy, Piperlime and Athleta.

In a drive to boost international operations, Gap consolidated its foreign business under one division from London. Lackluster sales in North America compelled the company to explore business in other shores. In order to counter the domestic market saturation, Gap is aiming to generate 30% of total sales from its overseas operations and online business by 2013.

To achieve this end, Gap has opened its stores in China, Italy and Australia and has launched e-commerce business in more than 90 markets, which are expected to bolster its top and bottom line performance, moving forward.

Solid Revs Drive Salesforce's 2Q

Salesforce.com Inc. (NYSE: CRM) reported second quarter fiscal 2012 adjusted net income of 6 cents per share, which was modestly ahead of the Zacks Consensus Estimate of 3 cents. The adjusted figure excludes amortization of intangibles and a debt discount, but includes stock-based compensation. The earnings beat came from solid top-line growth, partially offset by higher operating costs.

Revenues

Revenues in the quarter were $546.0 million, up 38.5% from $394.4 million in the year-ago quarter. Results exceeded the company's own guidance range of $526.0 million to $528.0 million. Salesforce.com enjoyed robust demand for its products, along with broad-based revenue strength across all regions.

Segment wise, Subscription and Support revenues of $509.3 million escalated 38.0% from the year-ago quarter. Professional Services and Other revenues jumped 44.5% from the year-earlier quarter to $36.7 million.

Geographically, on a year-over-year basis, revenues in the Americas improved 33.6% to $366.9 million, contributing 67.2% to the total; Europe shot up 55.7% to $102.1 million, contributing 18.7%; and the Asia-Pacific grew 42.2% to $77.0 million, contributing 14.1%.

As many as 6,300 paying customers were added since the prior quarter. The number of net paying customers at the end of the second quarter was 104,000.

Guidance

Salesforce.com has provided guidance for the third quarter and fiscal 2012. For the third quarter of 2012, total revenue is expected in the range of $568.0 million to $570.0 million. GAAP loss per share is expected at between 6 cents and 5 cents, while non-GAAP diluted earnings per share are expected in the range of 30 cents to 31 cents.

For full-year 2012, Salesforce.com raised its revenue outlook to $2.22–$2.23 billion from $2.15–$2.17 billion. Diluted GAAP loss per share is expected in the range of 11 cents to 9 cents (previously 3 cents to 1 cent), while diluted non-GAAP EPS is projected in the range of $1.30 to $1.32 (reiterated).

For both the third quarter and fiscal year, Salesforce.com assumes an average diluted share count of 145 million.

The non-GAAP EPS guidance for the third quarter and fiscal 2012 exceeded the Zacks Consensus Estimates of 2 cents and 23 cents, respectively.

Our Take

Salesforce.com reported decent second quarter 2012 results. It also provided an encouraging revenue guidance for both the quarter and fiscal year based on strong demand for its business software and customer additions. But the earnings guidance was gloomy, indicating that costs will offset revenue growth.

Though the analysts are positive about the company's entire product line (Sales Cloud, Service Cloud, Platform, and Collaboration), they are also concerned about continuous R&D investments as it would rationalize the margins to some extent. However, they find Chatter a key driver of Salesforce.com's enterprise license agreements.

We, however, caution investors about strong competition in CRM application and cloud-computing areas. Google Inc. (Nasdaq: GOOG) and Microsoft Corp. (Nasdaq: MSFT) are worthy of special mention, since they have been fighting to win government clients at local, state and federal levels to use their online e-mail and other applications that fit into the cloud-computing space. But the acquisition of Radian6 (in May) could provide additional support that will come from huge growth opportunity in the media monitoring market.

Currently, Salesforce.com has a Zacks #3 Rank, implying a short-term Hold recommendation.

Fastenal's July Sales Up 16.6%

Fastenal Co. (Nasdaq: FAST) reported net sales of $222.3 million for July 2011, up 16.6% from $190.7 million, a year ago. Average daily sales during the month amounted to $11.1 million versus $9.1 million in July 2010.

Daily sales to manufacturing customers (who represent almost 50% of revenues) improved 16.6% in July 2011 as compared with the July 2010 daily sales performance. Alongside, daily sales to non-residential construction customers increased 18.9% year over year in the month under study.

Four new stores were opened in the month such that the total store count of the company at the end of July amounted to 2,562 in Canada, Mexico, the Dominican Republic, Puerto Rico, Singapore, China and all the 50 states in the U.S.

Last month, Fastenal released its financial results for the second quarter of the year. The company posted a 36% increase in profit to $94.1 million in the second quarter of the year from $69.2 million a year ago.

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