Following Q4 Reports JOAN Moves To SELL, XMTR Remains at BUY
Joann Stores (JOAN) reported Q4 results after the bell yesterday that beat on the bottom line and missed on the top line. Revenue was down 13% to $735.3 million (missing by $17 million) while adjusted EPS of $1.16 beat by $0.12. Adjusted EBITDA of $88.9 million was below consensus of $94.2 million and adjusted gross margin of 48.9% was in line (up 1.9% from the year-ago quarter). However, adjusted gross margin strips out $35.3 million in excess freight costs that Joann paid above contracted freight rates. These are supposedly one-time costs but I could see a scenario where in two or three quarters freight costs reset at higher-than-expected levels and “adjusted.”
Headwinds that Joann faced in the previous quarter seemed to abate in Q4. These include Omicron keeping shoppers out of stores, weather and inventory delays. While these are incremental positives management also said newer customers picked up during the pandemic aren’t spending as much (core customers are doing just fine). This is concerning because part of the big-picture thesis here is that Joann would be able to keep a fair share of the customers that the pandemic brought in, ultimately driving higher sustained revenue, margin, EPS, etc. That said, overall expectations here are still quite low and management sounds confident in its ability to maintain and/or expand (modestly) margins throughout the year.
Stepping back and considering the future potential in JOAN stock the big question is whether investors will look at this as a company in transition, as a slow but steady grower with a secure dividend sweetener, or as a potential takeout candidate (i.e. like Michaels, which was taken out with a multiple that implies roughly 100% upside in JOAN). The challenge with the bullish takeout perspective is that one could sit and wait for a long time for an offer that may or may not ever appear. That leaves us with a mix of the other two scenarios, which probably means a murky outlook until business trends firm up and a stock that would do just OK, at best. I’m not convinced JOAN will live up to expectations soon enough so I’m moving to SELL. SELL
Xometry (XMTR) remains a BUY following the Q4 report. Revenue rose 77% to $67.1 million (beating by $1.86 million) while adjusted EPS of -$0.29 was essentially in line with consensus estimates of -$0.30. Active Buyers on the platform grew 49% to 28,130 with strength seen in robotics, medical devices and consumer products. Active Sellers was also up, by 43% to 2,010. Commentary implied better-than-expected growth in sales per Active Buyer (estimated +10% to +14%, to $2,183). Now 95% of revenue comes from 701 accounts that have spent over $50K within the last 12 months (701 is up 80% over last year and up 16% over the previous quarter). Large accounts in both North America and Europe are helping with this and international revenue is surging (off a small base). It rose around 400% over the last 12 months and now makes up around 8% of revenue.
Moving on to the Thomasnet.com acquisition … management expects to integrate the Xometry platform (with instant quoting) into Thomasnet.com in Q2 2022 as part of its Xometry Everywhere initiative (i.e. integrating Xometry into many more websites). If all goes well this project could significantly expand use of the Xometry marketplace, especially since Thomasnet.com expands the addressable market for supplier types over pre-acquisition Xometry by a factor of 10.
Management guided for Q1 2022 revenue of $81 - $82 million (+84% to +87%), above $79.6 million consensus. Full-year 2022 revenue guide is $390 - $400 million (+83% at the high end), also above pre-report consensus of $381 million. With adjusted EBITDA in Q4 coming in a little lower than expected EBITDA profitability now moves from 2022 to 2023.
Overall, this was a great quarter and illustrates the long-term potential of Xometry as a potentially disruptive marketplace for buyers of industrial manufacturing supplies. Following the report analysts seem to be maintaining price targets in the 75 – 100 range, implying 100% (or more) upside from current levels. While that doesn’t mean XMTR is going to immediately surge higher investor confidence should begin to build in this newly-public company that now has nine months of trading, is past lockup expiration and has been beaten up by a tech stock rout. BUY