Several high-profile retailers/brands reporting this week. Specific callouts include UAA and RL (Tuesday), and ADDYY and W (Thursday).
Under Armour (UAA): On Tuesday UAA is set to report its’ seasonally smallest quarter of the year, so while we’re expecting the company to double the consensus, the stock might not get revving until 2H earnings when the Street realizes that the company is going to earn 2023 estimates 2-years early. Nonetheless, we’re bullish on the name headed into earnings this week. It’s seriously right-sized its fixed cost structure, and we’re likely to see solid gross margins as it focused on less off-price selling and better quality of sale. The stock has been sputtering around in the $20-$22 range for much of this year, we think that the positive 2H earnings revisions will take the stock closer to $30.
Ralph Lauren (RL): RL is no stranger to extreme volatility in both earnings and the stock around quarterly prints – but this week we think it will go RL’s way. The Street is at $0.88, and we think the set-up is for a good 40% beat. The company is going to have a tough time keeping numbers down for the balance of the year as RL is one of the big beneficiaries of the blowout in inflation spreads for the remainder of 2021 that we’ve been talking about in recent weeks. Overall we’re looking for a 2000bp revenue beat vs the company guide, and EBIT margins of 9.4% vs guidance of 7.7%. For the year the consensus is sitting at $6.12, and we’re at $7.06 with a bias closer to $8. The stock has underperformed the market by 22% since hitting its high of $140 just before the last print. We think that $150 is in play by the end of this year, with Tuesday’s earnings serving as the first of several earnings catalysts. Taking this one higher on our Long list.
Adidas (ADDYY – ADR): We added Adidas on April 3 as a Best Idea long at €270 (stock now at €306) due to our expectation for better consistency in driving the top line and margins than we’ve ever seen from this company. Now that Reebok is out of the picture (discontinued ops, soon to be sold) it’s safe to say that Adidas is competing with its former sister brand to a greater degree than ever – and winning. What we like here is that Adidas is finally playing its own game – not trying to compete with Nike on Nike’s terms. We finally have a global duopoly that is each company making a simply massive push to a consumer direct model, which should push both Nike and Adidas to new peak margins over a TAIL duration, with luxury-esque multiples to boot. We expect this Adidas quarter to play out not unlike the one we saw out of Nike last month – big revenue beat, with strength on the gross margin line. Ultimately, we’re at €1.82 vs the Street at €1.53. The only real risk is that the company throws out a note of caution about manufacturing capacity constraints due to plant closures in Vietnam – which is a challenge for the industry. We don’t think the problem will cost the company material enough supply in the back half and as such, we’re at €8.70 for the year vs the Street at €7.88.
Wayfair (W): Best Idea short Wayfair has underperformed the S&P by 32% since the June highs, but we think this one has far more downside to go. We’re seeing a clear shift to Brick & Mortar vs e-comm right now, as evidenced by results at both Amazon and Overstock (which we’d pair long side against the Wayfair short). With the revenue slowdown – on top of an incredibly tough 84% compare from last year, management changed the narrative from top line growth to margins – keeping in mind that its gross margin trend is already 300bps above the long term goal. We think that Wayfair is stepping on the gas on advertising and marketing spend to try to get its top line growing, which could put pressure on OpEx this quarter. We’re at EPS of $1.02 for the quarter vs the Street at $1.17 – setting Wayfair up to be one of the few misses we see out of retail this quarter. While missing amidst a slowing category, slowing channel mix, tough comps vs last year, over-earning on the gross margin line and rising opex, this name could see another 30-40% downside.
