FIGS, Inc (FIGS) | Going Short FIGS. For those that don’t know FIGS, it is a broken IPO from last year – having gone public at $22, traded as high as $50, and now sits at a lowly $11. The company sells apparel to the healthcare community. We’re actually positively pre-disposed to the concept…innovating scrubs and other apparel for healthcare workers – something that hasn’t been done for 100 years. The market is significant – about $12bn in the US (and global call option) – with FIGS nabbing about 4% of that US share today – something that will likely double over a TAIL duration. What we don’t like is the TREND trajectory of the business, an optimistic guide, and what’s still a mind-numbing valuation of 55x earnings and 14x EBITDA. Nearly 50% of the business is nursing-related (including students) who embrace the innovation, style and comfort that FIGS brings to the trade. But 33% of the company’s customer base makes less than $50k per year, and customers are already ordering 2.1x per year at an average order value of $110 – which is no small ticket. We think the likelihood is high in this slowing consumer environment that we see a slowdown in new customers, order cadence, order value, or a combination of the three. If we see such a slowdown, this name has zero valuation support – and there’s no reason why it can’t see $5 – like so many other apparel-related names out there today that have crashed. The short interest sits at only 12%, which is surprising given the lofty multiple and potential for a re-rating on a lower guide. The company has a FY25 target of $1bn, which seems optimistic to us given that it sits at a run-rate of $450mm today. To its credit, the company has stellar gross margins – pushing nearly 70%. But as it scales and broadens its product assortment (and attracts new competition), we think those margins are at risk, or we see elevated Selling and Marketing expenses to facilitate growth. This is a name that we’d be interested in owning at a price. But we simply think we’ll get that opportunity much lower than $11. Based on what we know today, we’d be comfortable owning it at $5, or 55% lower.
Amazon (AMZN) | Removing from Best Ideas Long list. We made AMZN a Best Idea Long last fall on the view that the company’s investments would drive share gains and that the model would inflect in spring 2022 into a multi-quarter acceleration. We got the 2Q inflection and we think we are highly likely to see another acceleration in 3Q. We also think AMZN’s investments will continue to lead to gains in share, but the TREND model is now looking less bullish to us from a rate of change perspective. The Prime Day shift is putting outsized growth into 3Q, and when coupled with the consumer slowdown we are a seeing across retail so far this earnings season, we think revenue could slow in 4Q and potentially into 1Q23. AMZN is reportedly looking to add another “Prime Day” type sale event in October, which could help topline in 4Q, but that might come with some margin pressure. Without confidence in a prolonged acceleration in revenue and gross profit in the model, with a slowing consumer in Macro Quad4 we are removing this from the Best Idea Long list. Our note from Thursday AMZN | Accelerating Into 3Q. 4Q Is The Question Mark
The Container Store (TCS) | Cautious into TCS Print on Tuesday after the close. The CEO was on offense last Q after delivering strong 4Q (March end) results and guiding to long term growth targets including $3 in EPS (our note after last Q TCS | Underappreciated Growth Story). Management gave guidance knowing its results for half the quarter, and set the 1Q bar relatively low. But we have seen trends weaken in traffic and online interest since that point in time, and commentary from retail companies so far suggests weakening consumer demand in June and into July. Below is a look at visits and google interest. Visits data from Placer suggests visit trends in 1Q were about 4 points worse than 4Q, with trends being clearly worse in the second half of the quarter, i.e. after the company guided. Yet the current consensus comp estimate is for a 400bps acceleration. So its likely that business trends have slowed due to the macro/consumer headwinds. Google suggest online interest growth was better in 1Q, but again slowed in the 2nd part of the quarter and remaining weak in July. We’d argue an emerging unit growth story that’s trading at 6x P/E suggests the market likely expects some type of earnings pressure. Still we say it’s best to de-risk this event. Especially since short interest is now 1/3 the level of this time last year, so we’re less likely to get a “short covering” type of rally post a weak number like we have seen in other names in recent weeks. The near term trends do not change our view on the growth story and TAIL earnings power for TCS, but it does present some TRADE/TREND risk for the stock.
Source: Placer.ai
Source: Google
