PVH: Adding to Long Bias list ahead of the print on Thursday. We think that PVH, owner of Calvin Klein and Tommy Hilfiger, is likely tracking close to $2.50 in EPS vs the Street at $2.07 despite the supply chain issues plaguing the industry. This call is far more than just a trade on the quarter – but the stock is down 12% over the past month when we’re modeling a beat, which makes no sense to us. More importantly, we like the regime change in the C-Suite here, as new CEO Stefan Larsson is one of the best minds in retail, and is good for 2-3 points in margin in the portfolio over a TAIL duration – which is likely driven by more DTC growth internationally. That puts the company at a hardly-heroic 12% EBIT margin, or about $20 per share in TAIL earnings power with the Street sitting at $15. We also think that there’s a powerful de-levering story, with Net Debt/EBITDA going to 1x from 3x over 3-years. Note that each EBITDA multiple turn here equates to about $16 in the stock price. Ultimately, we’re looking at 10x EBITDA, which is about $220 over a TAIL duration – double today’s $110. This is one of the few apparel names we’d actually own here and into 2022 (the other being TJX). If we're off on the quarter later this week and the stock sells off, this is a strong Best Idea candidate.
HIBB: We’re taking Hibbett lower on Short Bias list. We haven’t been loud on this short idea given the momentum the company is seeing in its core business. This quarter should be no exception to that trend, as we’re looking at $1.80 in EPS vs the Street at $1.59. A meaningful beat with 20% of the float short isn’t where we want to be. The reality is that the company continues to gain share as Nike (~65% of sales) takes up its allocations to HIBB and closes down marginal wholesale distribution. We’d ordinarily boot a name off of our short list with an impending earnings beat, but the reality is that Nike is likely to take down 1H22 shipments by ~20% due to product availability issues. This means that comps are likely to go negative in 1H for HIBB, and the company should miss the consensus by ~25%. We’re at $7.40 next year vs the Street at $10.00. If the stock trades up on the 3Q beat/4Q guide, we might look to get heavier into a downward earnings revision cycle next year.
CTRN reporting Tuesday before the open. Barring any unforeseen supply chain issues (a la GPS last week) the results here should be good. Demand reads and margin trends across similar retailers remain strong. The company should still be benefiting from the child tax credit and discretionary income tailwinds as well as a US consumer flush with cash from an increased savings rate with a strong back to school season and momentum into holiday. Consumer sentiment has weakened some in recent months, but we think the democratic, low income, urban consumer that CTRN serves is outperforming from a sentiment perspective. We see a longer-term sentiment reversion tailwind for CTRN with government dollars flowing to support its consumer base whether directly or indirectly at the same time the company is being better managed with a new exec team that looks to be overqualified for a small cap retailer like CTRN. The execs with leadership experience from Five Below, L Brands, and TJX probably see a much bigger opportunity than where the company is today. The stock sold off with recent small cap pressure amidst the greater market weakness over the last week. This is a model with unit growth, comp opportunity, operational improvements, and share repurchasing. That deserves at least a mid to high teens multiple in our view. We have NTM EPS about $1.00 ahead of consensus, and 2022 EPS at $7.25. A fair price for this stock is likely in the $95 to $115 range. CTRN remains on our long list.
