LIZ: Positive Delta

 

LIZ’ guidance update provides us with a few nuggets on the state of business through February. There are puts and takes, but for a company that has only dished out disappointing news, this is somewhat of a positive. We still think that LIZ continues to have one of the most positive asymmetric risk profiles in  retail.  

 

In looking through the details of the release, the reality is that with the company maintaining its 2011 EBITDA outlook there is little to dissect here beyond the current sales performance within the company’s Direct Brands. As you can see in the chart below tracking comp trajectory by brand, sales have improved sequentially at both Mexx Europe and Lucky following disappointing December results, Juicy has picked up as well after decelerating in January and Kate Spade remains off the charts with comps up 90% YTD. These trends are consistent with an acceleration in the 2-year comps as well. Mexx Canada is the only negative callout with sales decelerating on the margin in February. As a reminder, while Fx is expected to provide a modest tailwind for Mexx in Q1, it provided a positive benefit of more than 6% last year suggesting that underlying sales are indeed improving. Overall, sales in the Direct Brands appear to be coming in slightly better than expected.

 

As it relates to Q1, the company also provided initial EBITDA guidance that suggests profitability is coming in lighter than the consensus (though LIZ did not offer any guidance before hand). The implied EBIT guidance suggests a loss of $57mm-to-$52mm compared to our estimate of a $29mm equating to EPS of (-$0.53-$0.57) vs. our (-$0.34E) and the Street at (-$0.27E) assuming a 25% tax rate. While likely due to a combination of both gross margin contraction as a result of both inventory clearance and inability to leverage SG&A, we expect the former to improve with stronger sales over the balance of the year and an update on the later at the analyst day in April.

 

It’s also worth noting the timing of the analyst day which was moved from the original date of March 31st. The sole reason for moving back the analyst day is due to management’s roadshow associated with the proposed offering of $200mm senior secured notes – the proceeds of which will be used to refinance the 5% Euro notes due July 2013 providing added flexibility.

 

Net/net, this is not a name without hair – the 1H was and continues to be one that is expected to be a choppy; however, with the full-year EBITDA outlook unchanged and sales trends improving on the margin, we view the announcement as a slight net positive for LIZ.

 

LIZ: Positive Delta - LIZ Comp Traj 3 11

 

Casey Flavin

Director


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more