thredUP (TDUP): TDUP reporting Monday after the market close. There are some puts and takes into this print. On a net basis we are coming out positive. The stock we think has seen some pressure from an early lockup expiration that happened in the company’s quiet period. Some insiders made sales given the liquidity opportunity post IPO, creating some selling pressure with buyers perhaps concerned about the timing of the expiration (even though it was signaled as a possibility in the prospectus). Our reads on 3Q are that the quarter was solid, we expect an acceleration given the comparison setup. We think the company beats (we’re at an EBITDA loss of $9mm vs street at $-11mm). The long term call here is basically a play on the future growth of mid to lower priced apparel resale. TDUP has built a unique model for facilitating resale at this price level delivering profitable unit economics and attracting retailers/brands to partner with them for resale offerings. Some might not like the valuation, as an expensive 5.5x EV/Sales multiple stock, but it is one of the most powerful brands and business models in what will be a huge growth segment of consumer in the coming decade.
Adidas (ADDYY): We think Adidas comes in roughly 10% ahead of the consensus, and guides better than the Street is currently discounting. Since Nike guided down on Sept 23rd due to production issues in Vietnam, ADDYY has underperformed NKE by about 14%, which makes no sense to us given that Adidas is less reliant on Vietnam than NKE (42% of ADDYY footwear vs NKE at 50%). It’s also clear based on comments from players like UAA that the production issues in Vietnam are getting better on the margin, with most factories back on-line and working back up to full production. We really like this name longer term as we think it has the most focused and coherent growth strategy we’ve ever seen from the company, which isn’t represented in consensus numbers. The biggest risk is that this (very European) management team is terrible at pitching an offensive message on quarterly conference calls. Unlike Nike, which sticks to a very offensive defendable narrative on its conference calls, Adidas is almost too transparent and focuses people on the negatives ad nauseum. If the company is all beared-up on Thursday, we’d be buyers based on what we know today.
Cricut (CRCT): The volatility in this name is simply massive, so its not for the faint of heart. But the reality is that with 25% of the float short – and more Sell ratings than Buy – this name likely tops the list of the most likely to squeeze if the company even hits the quarter by accident. We’re right in line with the Street at EPS of $0.15, and think that the Street is focused on the view that CRCT can’t hit numbers due to a pull-forward in demand in Arts and Crafts during the pandemic. We actually think that the Gross Margin story here over a TAIL duration is incredibly impressive, with what we think is ~1,000bps expansion as the mix shifts to higher margin accessories and a subscription model. Ultimately we build to $2.50 in EPS, vs ~$0.80 today. Even if we assume that the multiple compresses by 25% from here, that suggests a $70-$80 stock over a TAIL duration vs its current $28. If you’ve got duration, we’d own it here. It will take a lot of bad news to send this stock meaningfully lower on the print, which we don’t think will be the case. If we’re wrong on this quarter and the stock trades down, then this name is a good Best Idea candidate given the TAIL call.
Yeti (YETI): Our patience is running very thin with this short idea. While the financial model should show some cracks this quarter (reports Thursday), it is likely due to supply chain issues that are impacting everyone. The brand continues to surprise on the upside with its ability to scale into new categories. Though category expansion is likely to come at lower margins, the reality is that this short is unlikely to really work until the brand breaks. We still struggle with why a cooler company should trade at 6x Sales and 25x EBITDA – and don’t like that only 6% of the float is short and the sell-side overwhelmingly loves this name. But we’re simply not seeing the brand slow, which is what’s likely needed to crack the stratospheric valuation on this name.
Tapestry (TPR): The market likely has this one right headed into EPS, but the multiple gap between CPRI and TPR is still too tight. To be clear, this name is no CPRI (Best Idea Long) – far from it – and is highly unlikely to show the kind of brand strength across the portfolio that CPRI put up last week. TPR should beat the quarter due to higher margins, but we’re not likely to see evidence of a turnaround at Kate Spade or anything material from Stuart Weitzman. It’s all about the Coach brand, and we don’t love that so much is riding on the Coach asset. TPR is +7% since the CPRI print (vs +18% for CPRI), which sounds about right. If this name trades up on the print, we’re likely to punt it from our Long Bias list. Over a TAIL duration we like the pair trade here with CPRI.
Purple (PRPL): PRPL is the name we’d most like to own on a miss and guide down. We can drive a truck through the bull and bear case on PRPL. At face value we like the name, and think it is at the precipice of exploding its market share from 4% today to 7-8% over a TAIL duration. BUT, management needs to execute a complex strategy of selling different products at different price points to different consumers in different channels. If it follows a Nike-esque path in simultaneously driving wholesale and DTC models, then this stock can be a 3-bagger, even with a horrible industry backdrop. But, if management fails to get it done right, the stock could get cut in half. We have more research to do on this name – with the sole focus being on the Product Tiering opportunity/risk. Knowing what we know today, we’d be interested in going long in the $16-$18 range (~10-15% lower).
