Man has undeclared $10,000 seized at border after exchange rate pushes him over limit to take from country Review

Nationalpost.com: 04/02/2013

IM4.03 - Demonstrate an understanding of how changes in the value of the Canadian dollar can affect business opportunities.

Summary

A man from British Columbia knew that any amount of cash exceeding $10,000 had to be declared when crossing the border. Robert Docherty counted $9,880 U.S. dollars and $335 Canadian dollars with the currency’s exchange rate in mind in order to keep the amount within the legal limit. At the time of his flight to Costa Rica from the Pearson airport a few days later, the American dollar value had already increased sending Docherty past the limit of $10,000. Once a currency detector dog found the cash and the Canada Border Services Agents checked the Bank of Canada’s exchange rate, the cash was seized and Docherty has not retrieved any of it after discussing with two court levels. He argued he was not hiding it but making an effort to stay within it and the money was from an inheritance for himself and his daughter’s wild mushroom business to purchase property abroad. The government argued that cash being smuggled across international borders is often a sign of criminal profits though. Docherty had little proof of his business records, making it difficult to believe that it was the reason why he carried the cash. Due to his unverifiable explanation, the court dismissed his appeal and he will unlikely retrieve any of it.

Connection

Customs at the Toronto Pearson Airport,
Source: Ottawareness.wordpress.com

Currency exchange rates are constantly changing whether there are major or just minor differences in the values and they can have a significant impact on business opportunities. In Docherty’s situation, he was using the cash he claimed to inherit for start-up costs of his business. It was supposedly going towards the property that he and his daughter needed for their wild mushroom business which they were seeking to purchase in Costa Rica. But, within those few days between when he exchanged the cash and when their flight was, the American currency managed to reach an even higher value, pushing the amount out of bounds. The same issue can happen with any other currency which adds increased risk to conducting business activity outside of the home country. The risk is there when the other currency’s value increases because it suddenly makes everything more expensive for foreigners who are either travelling or new residents. On the contrary, if that foreign currency lowers in value then it can definitely have a positive effect on business opportunities which is why many companies take the chance on foreign investments. This was likely the reason why Docherty was purchasing land in Costa Rica in the first place because the cost of any decent properties in North America is far beyond the $10,000 in Canadian or American dollars that he was carrying on him.

Man has undeclared $10,000 seized at border after exchange rate pushes him over limit to take from country

Toronto’s Pearson International Airport, where Robert Docherty of Maple Ridge, B.C. last saw his $10,000.

Robert Docherty of Maple Ridge, B.C., knew any amount over $10,000 must be declared at the border when taking it out of Canada, and he purposely counted and calculated the exchange rate so the $9,880 U.S. and $335 Canadian he was packing were within that limit.

By the time he was boarding his flight to Costa Rica at Toronto’s Pearson International Airport two days later, however, the value of the U.S. dollar had risen slightly, pushing his tally over the $10,000 mark.

After a currency detector dog uncovered the cash and Canada Border Services Agents checked the Bank of Canada exchange rate that day in 2010, all of it was seized as suspected proceeds of crime.

Mr. Docherty has now lost his bid to get any of the money back.

He represented himself in two levels of court without success. His complaint to the Federal Court of Canada prompted the judge to declare: “This is a case of a traveller sailing too close to the legal winds. But for greed, this applicant would not be in court.”

Mr. Docherty then turned to the Federal Court of Appeal.

He said the money was from an inheritance that he and his daughter used in their wild mushroom business, which handled transactions in cash, and he was using it to buy property abroad. He argued he wasn’t hiding the money, only purposely trying to stay below the reporting limit.

Further, he said, the government was biased toward him because he has a criminal conviction from 1993.

The government argued there are reasonable grounds to believe the money was criminal profit.

“Smuggling cash across international borders is a strong indicator that the funds are proceeds of crime,” the government argued; “$10,000 was a very high threshold; most people did not have, let alone carry, this amount.”

‘$10,000 was a very high threshold; most people did not have, let alone carry, this amount’

Not helping his case was the fact that Mr. Docherty had little in the way of business records to prove the origins of the cash.

“Individuals are free to arrange their affairs so as to leave the smallest possible financial footprint,” wrote Justice J.D. Denis Pelletier, on behalf of the panel of appellate judges, last week. “The disadvantage of doing so is that when a question arises as to the source of large amounts of cash found in their possession, they have very few means of establishing the legitimacy of those funds.

“In the context of the issues sought to be addressed by the act — money laundering and the financing of terrorism — the government is entitled to ask for a reasonable explanation of the source of currency in excess of the prescribed limit found on persons leaving Canada.

“In this case, Mr. Docherty’s explanations were unverifiable and, as such, amounted to no explanation at all,” the court ruled in dismissing his appeal.

Mr. Docherty could not be reached for comment.

Economy showing strength as Canada adds 50,700 new jobs in February Review

Ctvnews.ca: 03/08/2013

BT2.03 - Describe how the state of Canada’s economy and industries can affect international businesses operating in Canada (e.g. the effect of low production and high unemployment rates)

Summary

The Canadian economy is showing signs of strength again with the addition of 50,700 new jobs in February this year - most of them being full-time, in the private sector, and Ontario - just a month after a loss of almost 22,000 in January. This economic gain has supported the lower unemployment rate of 7% even with another 60,000 Canadians joining the labour force. However, the growth of Canada’s economy is unlikely to come as soon as some economists had predicted. Finance Minister Jim Flaherty stated that nearly one million jobs had been added since the end of 2009’s recession which is certainly remarkable. Until today, economic indicators had signaled weaker times for the economy but many of these concerns have disappeared and the growth is forecast to speed up in the second half of 2013. The Canadian dollar also recently rose 0.53 of a percent to 97.67 cents US and settled at 97.25 cents US the same day. A StatsCan employment report showed that most new workers were employees, not self-employed, and there were more full-time jobs than part-time ones. The country has added 336,000 new jobs in the past year and hours worked has also increased 1.9%. The employment data from StatsCan showed growth in the service side, mainly in the scientific and technical service sector as well as the accommodation and food services sector.

$1 CAD = $0.97 US, Source: Cbc.ca

Connection

When the state of Canada’s economy and the industries within it are stable, international businesses are able to operate more successfully. Economic indicators such as unemployment rate and exchange rate often play an important role for international businesses because the unemployment rate tells them how many members of the labour force are without jobs while the exchange rate determines the value of the Canadian dollar in relation to the currency of another country. If the unemployment rate of a country happens to be significantly high, it can impact international businesses positively by allowing more members of the labour force to search for new employment opportunities. But if the unemployment rate is low, then there is a sign that most of the labour force is already employed and tends to be less beneficial for businesses in need of new employees. Relative to other countries’ unemployment rates, Canada seems to have an average rate that is not too high nor too low of 7%. Currency exchange rate is very important for international businesses too. Companies that trade goods and services with other countries need to adapt to currency fluctuations in order to spend most efficiently. For instance, if an international business in Canada’s food industry must import foreign agriculture from a country like Mexico they would expect the costs to be fairly low since the Canadian dollar is valued quite higher than the Mexican peso. However if the value of the Mexican peso suddenly rose past the value of the Canadian dollar, the companies trading with Mexico would need to make some price adjustments to their products in order to cover the costs of importing foreign goods. Since the Canadian dollar recently increased in value, international businesses can benefit from it by spending on higher quantities of imports or making foreign investments which they can purchase at lower prices due to the change in exchange rate.

Economy showing strength as Canada adds 50,700 new jobs in February

OTTAWA - Canada's economy showed signs it may be ready to bust out of its half-year funk by churning out a surprisingly strong 50,700 new jobs in February, most of them full-time, in the private sector and in Ontario.

The outsized gain was enough to keep the unemployment rate at the four year low of 7.0 per cent despite the fact over 60,000 Canadians joined the labour force in the month, another good signal for the economy.

Regionally, Ontario was the biggest generator of new jobs, adding 35,300, followed by British Columbia with an increase of 19,800. Quebec had the biggest drop in employment, shedding 13,100 jobs.

Finance Minister Jim Flaherty cited the "good economic news" Friday after his meeting with private sector economists, who gave him some bad news as well — the economy won't grow as fast as was expected this year.

Still, the minister noted that the latest bump in job creation meant that Canada had churned out almost one million new jobs since the end of the recession in July 2009.

"And just this morning, General Motors of Canada Ltd. announced an investment of $250 million to upgrade their plant in Ingersoll, Ont. That is a welcome investment," he said.

Economists had expected a second weak month in February given that most indicators have been pointing to modest growth and January saw an outright loss of nearly 22,000 jobs. The forecast had been for about 8,000 new jobs.

But instead the labour market reversed all the negative signals sent out in January, and then some. Not only did job gains swamp the previous month's losses, but Canadians who had exited the labour force returned with a vengeance.

"Up until today, economic indicators had suggested that the Canadian economy was sputtering as opposed to accelerating," said Sonya Gulati, a senior economist with TD Bank.

"Today's employment numbers put some of these concerns to bed. While headwinds are plentiful and downside risks numerous these should abate, enabling economic growth in Canada to pick up in the second half of this year."

Canada's economic prospects were also buoyed by what happened south of the border, where U.S. employers also ramped up hiring with 236,000 new jobs, pushing the unemployment rate down to 7.7 per cent. That's the lowest in four years.

With many of Canada's domestic growth engines — housing, government spending and consumer purchases — operating in low gear, analysts say the country's economic prospects over the next few years rest almost solely on a strong pick-up in U.S. and global demand to bolster the export sector.

The Canadian dollar surged shortly after the two announcements, rising 0.53 of a cent to 97.67 cents US. However the loonie had retreated somewhat from that mark by mid-afternoon, trading at 97.25 cents US.

The details of the Statistics Canada's employment report were almost as strong as the headline number. Most of the new workers were employees, rather than in the weaker self-employment category, in the private sector and full-time jobs beat out part-time positions two-to-one.

The only weak link came in the manufacturing, which continued its losing streak of the past few months. The factory sector dropped 25,600 workers in February, putting it in negative territory overall for the past 12 moths.

Bank of Montreal economist Robert Kavcic noted that the labour market has been blissfully unaware of how weak the economy is supposed to be for six or seven months. The country has been adding about 30,000 jobs a month, while the second half of 2012 saw output fall to a snail's pace of 0.7 per cent annualized.

"It's a bit of a head-scratcher," he said. "It doesn't really jibe with sub-one-per-cent growth."

Statistics Canada said the country has managed to add 336,000 new jobs over the past 12 months, almost all full-time. As well, total hours worked increased by 1.9 per cent.

What's more, Kavcic said it wouldn't surprise him if employment continued to register gains in the upcoming months as the economy rides the back of a gathering U.S. resurgence, particularly in housing, factory activity and consumer spending.

Economists warn against placing too much stock in one data point, but the jobs surprise was not a one-off occurrence. On Thursday, Statistics Canada reported that exports rebounded by 2.1 per cent in January, and also Friday morning, Canada Mortgage and Housing Corp. said home starts had jumped to 180,719 units annualized in February, reversing the previous month's slumping 158,998 number.

While the good news cames too late to change the advice economists gave Flaherty, they do offer some hope, said Doug Porter, chief economist with BMO Capital Markets.

"After a couple of months of pretty soggy data, there is at long last some hope that things have bottomed out and started to improve," he said.

"The job numbers on both sides of the border are good news indeed and the housing numbers give us some comfort ... we probably are headed for a soft landing on the housing side."

Earlier in the week, the Bank of Canada stuck to its forecast of 2.0 per cent growth for this year, although the consensus of private sector economists that Flaherty will use for budgetary planning is likely closer to 1.7.

CIBC's Avery Shenfeld says much depends on what happens in the global economy and the U.S. If they gather steam as expected, Canada will follow along on their coattails.

The February employment data showed all of the growth was in the services side, led by a 26,000 gain in the scientific and technical services sector. There were also 21,000 additional workers in the accommodation and food services, which may have been partly due to resumption of NHL hockey in late January. Public administration and agriculture also saw gains.

Little to laugh about in the movie that is HP Review

The Globe and Mail: 03/01/2013

IM3.01 - Identify companies that have made mistakes when entering markets and describe the most common mistakes.

Summary

California-based technology company, Hewlett-Packard Co. created another tablet, recently launched its HP Slate7 in an effort to outdo its first released tablet. The original one, the TouchPad, was removed from store shelves in as short as just seven weeks. On a positive note, HP’s stock has jumped more than 75% since its low of $11.35 American dollars in November 2012. Since November 20th, this is the second best performing stock in the Standard & Poor’s 500, following Netflix as the best. The company is currently experiencing new changes in top management with the replacement of not one but three directors. The current president, Meg Whitman, is HP’s fourth CEO in the past couple of years and the constant changing of top management has been one of the biggest weaknesses for the company, making it less stable and possibly contributing to the loss of other staff members. Whitman wants HP to continue as a company that offers corporations ‘anything from a laptop to a data centre’ and therefore it will remain as a seller of these typical technological devices for a while. With the late release of its tablet though, reviews have suggested that HP has no innovative edge to the HP Slate7.

HP's new Slate7 could just be another Android tablet for consumers
Source: Hitechreview.com

Connection

Hewlett-Packard Co. is one of the many examples in today’s technology companies that has had products fail in different markets. By entering the tablet market, Hewlett-Packard probably thought that it would be a great chance for them to increase their sales and compete with other companies that have already sold millions such as Apple, Blackberry, and Samsung. The concept of creating a new product for any company is great because that allows for unique ideas in innovation and attracting new customers. On the contrary, one of the most common mistakes companies make when entering these new product markets is entering them too late. Hewlett-Packard released its first tablet, the TouchPad in 2011 - the same year as the Blackberry Playbook and one year after the Apple iPad. The main problem with releasing products like tablets or new smartphones in North America, at least, is that many consumers are very impatient for these technological devices. The minute that everyone heard about the iPad release, most consumers decided to go out and buy one (if they were interested in purchasing a tablet) so almost any product similar to it that was released shortly afterwards was either irrelevant or less exciting to them. Because so many people already have their iPads, Playbooks or Galaxy Tablets, the HP Slate7 is not going to sell too well. That is unless the product has a more unique feature to offer, a strong competitive advantage, such as a time shift or magnifying lens camera that shows new developments in technology. Companies like HP need to take more time when it comes to creating a new product or even conduct some form of market research to discover what it is that their target consumers are looking to purchase.

Little to laugh about in the movie that is HP

The Globe and Mail: 03/01/2013

It was one of those weeks when you feel like you are stuck in time, like the obnoxious weatherman once played by Bill Murray in Groundhog Day, reliving the same scenes over and over.

Despite all the ominous warnings, Canadian banks posted earnings that defied gravity once more. And with profits topping the $6-billion mark at the five big banks that reported their results, almost all of their shareholders got their dividend-hike fix.

More déjà vu: Troubled computer makerHewlett-Packard Co. gave the tablet another shot with the launch of its HP Slate7, hoping to bury the memory of the ill-fated TouchPad, which was pulled off the shelves after only seven weeks. It is the latest attempt by the Palo Alto, Calif.-based company to extricate itself from a misery so profound and long-lasting that business reporters have run out of images to describe it – the falling knife no longer cuts it.

HP's 'ill-fated' TouchPad (2011)
Source: bgr.com

Curiously, though, HP’s stock has been on a tear of late. It has jumped more than 75 per cent since its low of $11.35 (U.S.) in November. Since Nov. 20, it’s the second-best performing stock in the Standard & Poor’s 500 (after Netflix). That surge, which is partly explained by results that weren’t as horrendous as feared, doesn’t fool the analysts nor the investors that have seen the stock tumble from the $50 range in the past three years. HP is not out of its time warp.

Some shareholders are now clamouring to replace three directors at HP’s annual meeting in three weeks. Among them is chairman Ray Lane, who signed off – along with current president Meg Whitman, incidentally – on the disastrous $11-billion acquisition of U.K. software company Autonomy Corp., which was almost entirely written off last fall.

But the rapidly changing top management – Ms. Whitman is the fourth CEO in the past two-and-a-half years, while the board was revamped in 2011 – is one of HP’s weaknesses. New administrators, however shrewd, might only compound the instability which has reportedly led to the widespread departures of key staff, as if the venerable Silicon Valley company was a mere farm team.

Yet you can hardly blame investors for being impatient with a turnaround plan that would take five years to complete – which is akin to a century in the tech business – and under which earnings would only start bouncing back in 2014.

Ms. Whitman wants HP to remain a one-stop shop, where corporations can buy anything from a laptop to a data centre. But as much as HP’s CEO wants to distance herself from her predecessor Leo Apotheker, who made the ill-advised announcement that HP would exit the PC business before the deal was done, holding on to a commodity business like computer manufacturing seems like the best way to stay trapped in the ’80s.

While HP recently reclaimed its title of world’s top PC maker from Lenovo Group, according to Gartner Inc., it likely sacrificed some of its profit margin to accomplish this.

There is good reason why IBM sold its PC division to Lenovo in 2005 and is all the better for it now. PC sales are slumping, as consumers switch to tablets and smartphones.

HP is nowhere to be seen in mobile. In tablets, where it is late to the game, the lacklustre reviews of its new Slate7 illustrate how difficult it is for device makers to have a technological edge that seduces consumers. “HP’s latest beige box, only flat” read one headline on a story about the 7-inch device described as a “cheap tablet” with “nothing particularly special about it.” An “unspectacular Kindle,” said another, and so on.

There is little here of the innovative genius that marked HP’s early days.

Ms. Whitman is now considering some small divestitures for HP, whose 2012 sales reached $120-billion. However, she refuses to consider anything as radical as the breakup that UBS analysts recently advocated.

The investment bank suggests separating the division that makes PCs and printers from the one that sells software, services and hardware to companies. While some have dismissed such a break-up as a typical Wall Street transaction to reap a quick buck, the fact is the two divisions are strong enough to stand on their own and big enough to retain most of their purchasing power. What they would lose in clout, they would gain in focus.

Besides, what is the alternative? Pressing on as an unimpressive laggard? Trying to convince customers that while none of the HP’s products stand out individually, all of HP’s products put together form an okay solution that is secure and just appealing enough for corporate customers? It doesn’t sound like a winning strategy. In fact, it looks like Groundhog Day all over.

This Eagle Could Soar Review

Barron’s: 02/18/2013

MC3.03 - Compare the disadvantages and advantages of different modes of transportation as means for distributing products to different world markets.

Summary

The teen retailer, American Eagle Outfitters, is currently experiencing a turnaround that might drive its shares up by about 50%. The growth in earnings averaged 75% per quarter which may be linked to the company’s new CEO Robert Hanson who joined in January 2012. Its stock is not considered expensive at 12.7 times fiscal ‘14 estimated earnings of $1.58 per share and is second to Abercrombie & Fitch, with its current stock price of $51.29, in this retail sector targeted at teens or young-adults. AE operates over 1,000 stores, mostly in malls, and a successful online store which is accountable for 14% of its sales. Management aims to raise the store count to 1,255 by the end of 2013 with 20 overseas, six in Mexico, and six in popular cities like New York and L.A while closing and remodeling some. The company recently struggled with raw material and manufacturing costs during a financial crisis. Hanson claims the company also has two years worth of work ahead to ‘fortify the brand’ and ‘sharpen the inventory investment’ since there was a lot of inventory waste in the past. To control inventory more successfully, it has begun shipping merchandise from its Asian factories to the U.S. by air rather than boat. This method is costlier, speedier, but maintains better merchandise assortment by pre-empting major markdowns. Management aims to continue online growth too, hopefully reaching 20% of sales.

Connection

American Eagle is no longer just a brand for Americans today. As the company’s top management has changed, the new CEO Robert Hanson has developed a better idea of how the brand’s products should be distributed among different countries. American Eagle has recently made the switch from delivering its products from factories in Asia by boat to delivering by air freight. This mode of transportation has both its advantages and disadvantages which are each mentioned briefly in this article. For one advantage, it is certainly much faster to deliver these products by air because it’s simply quicker than shipping by water and therefore the merchandise will reach the retailer a lot sooner. This also maintains a better supply of inventory since the major markdowns can get packaged up and sent off to another destination to be sold elsewhere. The sooner the retailers remove these old products, the sooner they can replenish their merchandise inventory and this in turn will attract more customers. Shipping by water is often quite disruptive to marine environments that the ships pass through but at the same time, shipping by air can also contribute some serious environmental damage by polluting the atmosphere; both modes are disadvantageous in terms of damage to the global environment. Another disadvantage to the air freight shipping mode is the expensive costs of it. However, if the merchandise meets the market faster, it is probably well worth it for the company as they have the ability to achieve higher earnings in a shorter period of time. This mode of product transportation is especially better for companies that have an online store. American Eagles has customers in 77 different countries - more than the number of which actual stores are in - who are demanding their orders and the shipments need to be delivered to them on time if they want to provide the best customer service. By making the switch from water delivery to air freight delivery, companies are making the better decision when it comes to distributing their products to foreign markets.

David Paul Morris/Bloomberg

American Eagle Outfitters store

This Eagle Could Soar

Barron's: 02/18/2013

American Eagle Outfitters suddenly looks hip.

Maybe it's that touch of Williamsburg the teen-apparel retailer has injected into its standard jeans and T-shirts merchandise mix, exemplified by such ur-Brooklyn garb as knitted hats and woven shirts.

Then again, it could be the stellar growth in earnings -- averaging 75% per quarter -- that American Eagle has rung up since CEO Robert Hanson, a Levi Strauss veteran, took the reins in January 2012. As a result, the company is expected to report March 6 that profit rose 63%, to $279 million, or $1.40 a share, for its fiscal year ended Jan. 31, on a 10% jump in revenue, to $3.5 billion.

Only on Wall Street, it seems, has American Eagle's coolness quotient slipped, with the shares (ticker: AEO) down 10% since mid-September, to $19.99. Yet the stock could soon be back in style, too, if recent corporate initiatives succeed in lifting operating profit margins, providing a further boost to earnings.

Dana Telsey, of the Telsey Advisory Group, argues that a three-percentage-point increase in margins, to 16%, would result in annual earnings power of more than $2 a share, which could propel American Eagle's shares to $32, up 60%. Add a 2.2% dividend yield, plus the likelihood of more special dividends -- like the $1.50 a share the company paid last September -- and investors could enjoy returns exceeding 60%.

The stock isn't expensive at 12.7 times fiscal '14 estimated earnings of $1.58 a share. Exclude the company's $2.75 a share in cash -- its balance sheet is unblemished by debt -- and the price/earnings ratio drops to 11, well below similar retailers' valuations. 

Founded in 1977, Pittsburgh-based American Eagle is the nation's second-largest merchant of teen and young-adult apparel, behind Abercrombie & Fitch (ANF), which has about $4.5 billion in annual revenue and caters to a more affluent demographic. American Eagle operates more than 1,000 mostly mall-based American Eagle and aerie stores, the latter specializing in intimate apparel, as well as 75 factory outlets, and a robust online store, which accounts for 14% of sales. Management expects to raise the total store count to 1,255 by year end, after opening 41 more outlets, 20 overseas units operated by licensees, six stores in Mexico, and six in New York, Miami, and Los Angeles. At the same time, it is closing underperforming units, and remodeling 50 stores, including the one in New York's Herald Square.

American Eagle hit a rough patch during the financial crisis, and has struggled in recent years with rising raw-material and manufacturing costs, uneven merchandising, and heavy price promotions. Hanson, hired to succeed retiring CEO James O'Donnell after a long search, was charged with returning the retailer to historic growth levels. Under his guidance, the company aims to deliver consistent revenue gains of 7% to 9% a year; annual growth in earnings before interest and taxes of 12% to 15%; and returns on invested capital of 14% to 17%, up from 11% in fiscal 2012.

"We have two years of work in front of us to fortify the brand, improve the assortment architecture, and sharpen the inventory investment," Hanson says. "We had a lot of waste in inventory in the past."

So far, his inventory-management skills have been winning kudos and leading to impressive financial results. In the October quarter, sales rose 9.4%, year-over-year, to a record $910 million, while inventory fell 13%, a result that David Berman, head of Durban Capital, calls "remarkable."

To better control inventory and compete with price-sensitive, fashion-forward chains such as Forever 21, Joe Fresh, and Uniqlo, which are targeting the same young-adult market, American Eagle has begun shipping more merchandise from its Asian factories to the U.S. by air, instead of boat. Although air freight is costlier, speedier delivery helps maintain a more timely merchandise assortment, pre-empting heavy markdowns of stale goods.

Management also is trying to ramp up online growth. American Eagle recently hired Joe Megibow from Expedia to manage its e-commerce business, which saw third-quarter revenue jump 27%. The company ships to 77 countries, and hopes to eventually get 20% of its revenue from online sales, nearly 43% above the current level.

The Bottom Line

American Eagle could rally to $32 from the current $20 as profit margins widen and earnings improve. With ordinary and special dividends, investors could reap returns in excess of 60%.

American Eagle's shares have rallied more than 40% in the past year, and some analysts contend that the stock is ripe for a pullback of roughly 10%, particularly if first- quarter sales or earnings are disappointing. Most retailers benefited from last year's balmy winter, while the current season is proving more challenging.

Not even weather, however, can shake American Eagle's quest to become the nation's No. 1 teen retailer, surpassing Abercrombie. Aéropostale (ARO), struggling with operational challenges, is a distant No. 3, while Urban Outfitters caters to a slightly older audience.

"We will stay humble and hungry," Hanson assured investors on the third-quarter earnings call.

That suggests that this Eagle will continue to fly.

Still In Love With Amazon.com Review

Online.barrons.com: 02/02/2013
IM4.05 - Explain why some companies are much more capable of achieving international business success than are others.

Summary

Shares of the e-commerce company, Amazon.com, are unusual because they rise when the company makes money and yet somehow they are able to rise even more without the company making any more. Late January, Amazon announced that it missed revenue and profit estimates that were expected for the fourth quarter of 2012. It also reported that shares rose by 10% in after-hours trading but then fell 4% to $265 by the end of the month. It remains strong though, with its shares up 48% in the past year. Some analysts say that the market ignores Amazon’s earnings trajectory because sales growth is the main goal for the e-commerce giant, but the revenue growth recorded in the last quarter of 2012 was up 22% while the percentage of the previous quarter was 35%. The revenue growth for the whole year was just 27%; not quite as significant as 2011’s 41%. Amazon’s ability to reach out for more third-party sellers shows that it is capable of one day, becoming a type of infrastructure through which e-commerce transactions will flow. Some hypothesize that eventually it might not sell goods, but will facilitate transactions between buyers and sellers, while collecting tolls. Stifel Nicolaus’s Jordan Rohan, who rates the shares Buy estimated that the total value of Amazon’s goods and services sold in the last quarter was close to $40 billion. As long as it continues to attract more buyers and sellers, the stock price is almost guaranteed to continue rising.

Connection

Amazon is clearly one of the top online retailers in the world today. If it has sold $40 billion worth of goods and services in one year, clearly it is doing everything right and has achieved international business success for at least that year alone. Businesses that operate globally or online and ship to many different countries around the globe have a stronger advantage when it comes to operating a successful business. For instance, McDonald’s is a global business that is recognized internationally with its golden arches and has over 33,000 restaurants in 118 different countries. Amazon on the other hand, may not have customers in that many different countries because many places around the world are still developing countries where not everyone has access to a computer or smartphone where they can order purchases online. But the site definitely still has a wide variety of different customers, like a global business, who are interested in buying anything from books to groceries to athletic equipment. Amazon has a product for almost anybody and what’s convenient about it is that for many people living in the developed countries, the product is literally delivered to their doorstep. They can order at any time of the day without worrying about the store closing and a lot of these products are sold at reasonable prices. By offering quality customer service online, an extremely diverse selection of products, and prices that are often better than certain department stores, Amazon and other ‘e-commerce giants’ are much more capable of achieving international business success.

Notice how amazon's logo has an arrow from 'a' to 'z'? It's symbolic of the wide variety of products offered.

Logo from Amazon.com

Still In Love With Amazon.com

Online.barrons.com: 02/02/2013

I'm going to go out on a limb here and assert that many value-conscious Barron's readers are baffled and even dismayed by the price action in Amazon.com (ticker: AMZN). Shares of the e-commerce giant rise when the company makes money, and sometimes rise by even more when it doesn't.

That illogical—some say unfair—situation could persist for a while, and the shares are likely to keep climbing.

Last Tuesday Amazon reported fourth-quarter results, and announced it missed revenue and profit estimates for the period. Its shares rose 10% in after-hours trading. They went on to notch a more modest gain of 5% Wednesday, but fell 4% to $265 on the week.

Still, Amazon shares are up 48% in the past 12 months, even as reported results swung from a profit of $1.37 a share in 2011 to a net loss of nine cents in 2012.

What gets people in a lather is the market's seemingly gross double standard. Amazon shines on the Street, while other deserving companies with better fundamentals get the back of the market's hand.

Apple (AAPL), for example, had better results the week before, slightly missing revenue estimates but slightly beating profit expectations. Quarterly revenue totaled $55 billion, and the company generated $23 billion of cash. Still, the stock tumbled 12% in the next day's trading.

THERE HAVE BEEN MANY THEORIES over the years as to why Amazon should enjoy share-price gains, not to mention a sky-high valuation, even when results don't always hit the mark. The market's infatuation has left the shares trading at 76 times this year's projected profit of $3.51 per share, excluding non-cash, one-time charges. Backing out net cash of $18.26 per share yields a slightly less lofty price/earnings multiple of 70.4.

Some say the market ignores Amazon's troubled earnings trajectory because sales growth is the only thing that matters for the online retailer. But that conjecture doesn't hold up on days like last Tuesday, when the company reported 22% revenue growth for its December quarter. Most companies would be thrilled to confess as much, but Amazon's revenue actually grew 35% in the year-earlier quarter.

In fact, revenue growth for all of 2012 was just 27%, well below 2011's 41% and 40% in 2010.

Nor does the argument that Amazon is more profitable on the basis of free cash flow or non-GAAP earnings (earnings calculated not in accordance with generally accepted accounting principles) amount to much.

Amazon's adjusted profit of $2.16 in the year just ended reflected a drop of about 2% from the prior year. And, free cash flow declined by a whopping 81% in the latest 12 months, as the company noted in its news release, in large part because it spent $1.4 billion on office space and property in its home town, Seattle.

Amazon's net $8.4 billion at year end of cash, cash equivalents, and marketable securities—arrived at after backing out $3.1 billion of long-term debt—was lower than the year-earlier tally of $9.3 billion.

So, no, the obvious metrics don't matter much to Amazon investors. And, as I have written before, that is really because Amazon is seen as having an extraordinarily long runway along which it gobbles up consumer spending like no other company. Wal-Mart Stores (WMT), despite having better profitability than Amazon, just isn't the same kind of sales machine.

Amazon reported an operating profit margin of 1.9% for its latest quarter, well above the consensus estimate for a margin of under 1%.

Never mind that the profit margin two years ago was a lot higher, at 4%. The margin, like revenue, net cash, and all the rest, is just one variable Amazon bulls use to justify their idea that Amazon is going to rule the world of shopping.

HIGHER OPERATING MARGINS owe to higher sales by third parties, or merchants who sell on Amazon and give the company a cut.

By one metric, Amazon's sales through third parties rose by 43% in its latest quarter, much more than total sales growth of 22%, which the Street takes as a sign the company is extending its tendrils into more corners of the shopping universe.

One mutual-fund analyst with a large firm, who'd rather not be named because he doesn't formally cover Amazon for his managers, explains the mindset behind investing in the company.

Amazon's ability to lure more third-party sellers, proves the company is becoming a kind of hub, or infrastructure, through which all manner of e-commerce transactions flow, the analyst says.

You can imagine Amazon retreating into the background some day, not actually selling any goods itself, but rather running the network that facilitates interactions of buyers and sellers, and collecting a toll.

As a consequence, "The people who own this stock for the most part do not think about the near-term [valuation] multiple" says the analyst. "From a business perspective, they're thinking this company has a single-digit percentage of online commerce worldwide, and that the percentage can grow substantially while more and more commerce moves online."

If you want to put a number on that, Stifel Nicolaus's Jordan Rohan, who rates the shares Buy, estimates that the total value of goods and services sold on Amazon last quarter was "nearly $40 billion." He has a price target of $335.

That is much higher than Amazon's actual net revenue of $21.3 billion, and the total figure rose by "an impressive 30%," year over year, more than the actual rate of sales growth, points out Rohan.

EVEN IF THE TOP LINE MISSES, the Street stands astonished at just how much stuff the company is moving between buyers and sellers. That likely won't please readers who take a more conventional view of sales and profits, not to mention valuation, and a P/E of 70 doesn't sit right with me, either.

But it is what most of the Street cares about. As long as Amazon increases the volume of goods whose trading it facilitates, and lures more sellers and buyers, its stock is apt to rise.