Canaccord Genuity on Apple, McDonald's, and Nike

By Canaccord Genuity  OCT 01, 2012 11:00 AM

Apple apologizes for its maps, McDonald's gets downgraded, and Nike was helped by better sales and gross margin.


The following are excerpts from Canaccord Genuity analysts' commentaries.

Apple (NASDAQ:AAPL): So Berlin Isn’t Actually in Antarctica?

On Friday, Apple said that the company is “extremely sorry” for the frustration that its maps application has caused and it’s doing everything it can to make it better. In a letter posted online, CEO Tim Cook said Apple “fell short” in its commitment to make the best possible products for its customers. Cook recommends that people try alternatives by downloading map apps from competitor firms from the App Store while Apple works on its own maps products, suggesting Microsoft’s (NASDAQ:MSFT) Bing, MapQuest, and Waze, or using Google (NASDAQ:GOOG) or even Nokia (NYSE:NOK) maps by going to their websites and creating an icon on your home screen to their web apps.

As you’ve probably heard, Apple released an update to its iPhone and iPad operating system last week that replaced Google Maps with its own maps application. But users complained that the new maps have fewer details, lack public transit directions, and misplace landmarks, among other problems. Cook hinted at the rumored reason for the rupture  with Google, writing: “As time progressed, we wanted to provide our customers with even better Maps including features such as turn-by-turn directions, voice integration, Flyover and vector-based maps. In order to do this, we had to create a new version of Maps from the ground up.” Start digging.

(See also: A Walk With iOS 6 Maps: Apple's (NASDAQ:AAPL) Horribly Revamped App Does New York.)

McDonald's (NYSE:MCD): Like Running Out of Sweet ‘n' Sour Sauce After Just Three McNuggets.

Shares of McDonald’s were under pressure after Janney downgraded the stock to a neutral rating. The brokerage firm says its sources have said that the first two to three weeks of September saw same-store sales at a pace that would make it the weakest month thus far in 2012. The report read, "Given that McDonald’s is the largest player…by quite a wide margin, this is a pretty good hint that" US sales “are going so-so, at best.”

The brokerage also said that it is concerned that Wall Street is overestimating what the restaurant will be able to generate in US same-store sales over the next nine months, suggesting that some may decrease their forecasts in the near future in the face of tough year-over-year comparisons. The downgrade weighed on the rest of the fast food sector, with YUM Brands (NYSE:YUM), Burger King Worldwide (NYSE:BKW), and Wendy’s (NASDAQ:WEN) trading lower. Nike (NYSE:NKE): Your Shoelaces Are Untied.

Nike’s adjusted Q1 EPS of $1.27 exceeded Canaccord Genuity Consumer Products Analyst Camilo Lyon’s $1.15 estimate and the consensus of $1.12. Relative to Lyon’s model, better sales and gross margin helped by $0.07 while lower shares/other income helped by $0.05. Despite the beat, Lyon notes that futures tell a mixed story. Global futures of +8% were comprised of +5% units and +3% average selling prices. North America (+13%) continues to power ahead while Western Europe (+6%) surprisingly held in. China (-6%) was the negative outlier, weighing on shares Friday.

Gross margin guidance was moderated to flat from up slightly due to regional mix (North America is lower margin), innovation investments, and further discounting pressure in China. On a positive note, inventory was +10%, in line with sales as post-Olympic inventory is clean. The inventory issue in China is likely to get worse before it improves and we suspect it will take Nike two to three quarters to fully right-size. With China correcting, no discernable sales catalysts and moderating price increases, Lyon maintains a neutral rating on Nike shares, but raised his price target due to the flow through of the Q1 EPS beat.

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