RH | Taking Up A Notch to the #2 Spot On Our Best Ideas List. With the recent sell-off to ~$550 we think that RH is a great buying opportunity. We’ve stated repeatedly that this is our favorite model in retail over a TAIL duration, and think you get paid by outsized growth in revenue in both US and International markets, and subsequent revaluation as it establishes itself to be more in line with global luxury peers. Our latest note outlines the path to $2,000 (Click Here). For our November Black Book, click the link. Replay Video Link: CLICK HERE
PLBY | Taking Two Notches Higher to #3 On Best Idea Long List. This stock got murdered off its recent highs – down 20% last week and down 35% over the past month. The latest move lower is due to a delay in the launch of CENTERFOLD. When we say ‘delay’ we’re talking days…this is simply the company holding off on the launch to allow the content creators to upload their videos and have a full library of content upon launch. Did the CEO do himself any favors by projecting a launch in the first half of Dec, and then delaying by a week? No. He should be more conservative with the expectations he sets with investors. But does this change the tremendous upside to the financial model as this ecosystem around sexual wellness is commercially built out in the metaverse and online? No. In the $20s (and $30s and $40s) we’d be buying PLBY all day. We think that CENTERFOLD should ultimately be worth multiples of the company’s current $1.2bn market cap. PLBY should have the mother of all earnings and cash flow accelerations in 2022, and we want to be long that big time.
Warby Parker (WRBY) | New Short Idea. (Note: We’re co-covering this one with Tom Tobin and our Healthcare research team.) Warby Parker, the trendy glasses store, came public via Direct Listing at $40/share back on Sep. 29th, traded up to about $55 and is now back in the $45 range. While we buy-in to the top line growth opportunity for WRBY in the highly fragmented glasses space, we think that the profitability expectations laid out in the S-1 and company roadshow are far too aggressive. The name currently gets a disruptor-esque 8x EV/Sales multiple, which might have made sense in the early days of the company when its unique online-only customer experience disrupted the vertically integrated glasses supply chain, which arguably overcharged consumers due to players like Luxottica that controlled the entire supply chain from manufacturer, to brand, to retail. But today, WRBY is closer to a 50/50 mix of online and retail. We’re all for a 50/50 mix of e-tail and retail, but WRBY operates very expensive stores with a structurally lower price point product – which does not make economical sense. This company can and will grow at several times the rate of the industry, but is simply no longer the disruptor it once was. Now it’s competing with National Vision (EYE) which trades at 2x sales. We’re all for giving WRBY a premium, but not four times the multiple of EYE, when EYE is currently profitable (and adding 75-100 stores annually to its base of 1,200), and WRBY will likely miss the Street’s expectation that it will turn profitable in FY22. We don’t think WRBY achieves profitability until 2024. With that profitability miss likely comes a re-rating from the nosebleed 75x EBITDA multiple on TAIL cash flow. This was a mis-priced IPO that we think has 30-50% downside. We’ll look to take this idea higher on our Short list as we get deeper in the research call along with Team Tobin.
Children’s Place (PLCE) | Removing from Best Idea Long list. We originally went long PLCE on 1/18 at $57, and it’s time to call it a day. As much as we like the structural changes that PLCE has made to its business in shuttering money-losing stores amidst a consolidating space for children’s apparel, the reality is that PLCE doesn’t have any asymmetric factors that will allow it to grow next year when the apparel category mean-reverts and the environment becomes more promotional. The stock is outrageously cheap right now, but the Street has largely caught up with our model, and we can’t argue any multiple expansion when we’re staring at such negative category trends square in the face. We’ll revisit this one long side on a sell-off.
Dillard’s (DDS) | Adding to Short Bench. We were long DDS earlier this year, and got off too early, but think it’s time to go the other way. Bulls will make the argument that the company is slowly taking itself private. But then why did it just pay out ~50% of its cash balance in the form of a special dividend instead of buying back its stock? Net cash on the balance sheet today is only $54mm, when we’re heading into a big mean-reversion year for apparel spending – especially in the secularly-challenged department store space. We’d hardly call DDS cheap at 12x earnings – especially with earnings clocking in at an unsustainable 10x pre-covid levels. Only 10% of the float is short today vs 40% pre-pandemic. At $245, we definitely like it better short-side.
