We’ll start with key callouts from Retail earnings season – that’s finally coming to an end. The punchline is that we were expecting well over 20 companies to put on their ‘Macro Aware’ hats after nickel and diming guidance cuts for 2-3 quarters, and finally take a material (40-50%) cut to this year’s earnings. We didn’t get it. The number of material guide downs were few and far between. With the exception of RH (Best Idea Long), TCS (Best Idea Long), FL (no position), AAP (which we went short last year, and though it was a win we weren’t there for last week’s implosion), Macys (Short), and perhaps AMZN (only looking ~2 months out), there were few companies that really took down estimates to beatable levels and contextualized the real US Macro risk contemplated in the guide. And that’s amid a backdrop of credit tightening, personal savings rate rising (fear index), heading into an ugly employment cycle, and student loans biting the consumer across the demographic spectrum in two months. We hoped/planned on this being a period where we can start to get constructive on retail after being massively short for the past 18 months. But given the lack of guidance/consensus reductions, we still think it’s too soon. Slightly easier compares in June could make for a squeezy head fake, as retailers talk ‘improving trends at upcoming conferences’ but we think harder compares in late summer alongside a return of student loan payments presents another catalyst for the shorts. We think retail has a another leg down – even with XRT having recently made new lows (lows beget new lows) – around the August reporting season (capping off with a bearish Goldman conference in September), which should be a bloodbath, and come with commensurate guide-downs – not just 5-10% -- but closer to 30%. We want to be bullish on retail, but more importantly we want to be right. And the right call today is to still be short the group. Shorts outweigh our longs by 2 to 1, and as we’ve stated before, many of our longs are still likely to head lower over the summer – creating astounding buying opportunities.
Call Details:
Wednesday, June 7th at 12:30pm ET
Live Video Link CLICK HERE
