Industry: Aggregate Visits data slightly accelerated this week from -5.5% to -5.2% while its 5Wk Avg saw a stronger acceleration from -6% to -5.2%. At the same time, Redbook Retail Sales saw a strong deceleration from +6.3% YY to +3.0% YY, showing that shoppers really took advantage of holiday/Black Friday deals two weeks ago. Our bet is that trends will decelerate as the holiday approaches given a big pull-forward in demand.
- Notable Industry Callouts: Beauty & Spa and Car Shops & Services saw massive accelerations this week, while more discretionary stores like Electronics and Recreational & Sporting Goods stores saw big decelerations following strong Holiday/Black Friday spending.
Companies: Numbers below = YoY Rate of Change from week to week
- Notable Accelerations: Bath & Body Works +13%, Valvoline Instant Oil Change +11%, Meineke Car Care Center +11%, Monro Auto Service & Tire Center +11%, Camping World +10%
- Notable Decelerations: Bluemercury -21%, Bloomingdale’s Outlet -13%, Hollister Co. -13%, J.Crew -11%, Tiffany & Co. -10%
Notable Winners & Losers:
Winner: Coach (TPR). Visits at Coach stores, owned by Best Idea Short Tapestry, have trended significantly higher since September from about down -20% YY to +10%YY. While this is positive for the “crown jewel” of Tapestry in the short term, we think there is still significant risk to the model given the leverage that the company will take on once its deal to acquire Capri (Best Idea Long) closes in 2024.
Loser: Lovesac (LOVE). Non-comp visits at Best Idea Short Lovesac continue to look awful, despite the company growing its store base. With its earnings release today, guidance for 4Q implies a slowdown, and is tempered slightly in the context of the full year revision on the 3Q small beat. It is investing to grow, with very weak output on the revenue and incremental margin flow, meaning, despite the best furniture selling environment of a generation during the pandemic, the company is not generating free cash flow. LOVE layered on ~$135mm in implied debt from leases, carrying a 7.4 year weighted average lease duration, which seems like a lot of operational risk/inflexibility for a single product company with cyclical risk into a home retail recession. We’re building to TAIL earnings power of around 1.00 to 1.50 while the street is building to 4+ including EBIT margins building into the teens. We think those expectations are ridiculous, and think the stock is worth around mid to high teens.
Charts:
- Industry
- Companies
-Source: Placer.ai
