PSS: Dark Horse Move?


This is going to be a messy quarter for PSS, which reports after the close today, but the reality is that numbers may or may not matter. It’s the company’s first since the departure of CEO Matt Rubel and you can bet that it will be sweeping everything it can under the rug this quarter. All in, we’re at ($0.03) vs the Street at $0.12.


The fundamental call is still that this is a company with two divisions with the PLG group alone worth where the stock is currently trading. That’s unlikely to change with the print. But we can’t debate the fact that this synthetic value is more elusive than ever without a real CEO. Given our below-consensus estimates, we wouldn’t buy into the print, but if it trades off meaningfully around any bloodshed, we’d definitely look to get more constructive.


The ‘dark horse’ move here for PSS (i.e. the move that the 25%+ of the float that is short does not want to see) would be to clear its balance sheet in a meaningful way – especially given that Inventories have been growing disproportionately to sales over the last four quarters. This would tag EPS this quarter, but would be a positive margin event for 2H12.


Here are our assumptions for the quarter:



  • We expect sales up +2.7% driven by PLG and continued international expansion.
  • In looking at NPD POS footwear data, we can get a sense of what brands are doing from a directional standpoint. While in no way does the data capture all U.S sales of the Performance Lifestyle Group’s big brands, it has still proven to track closely with reported trends. Since Q1, three of PLG group’s four brands have accelerated sequentially or remained flat. In addition, with Q3 backlog up +39% compared to +49% in Q1, we expect revs up +20% on the heels of +22.5% growth last quarter.
  • In the domestic business, sales in the family footwear channel have improved sequentially coming in at -1.3% for the quarter up from -2.4% in Q1. In light of a particularly abysmal Q1 and a significantly more favorable compare relative to peers, we expect a stronger sequential pickup with domestic comps still performing below the industry at -4.5% up from -8.3% last quarter.
  • On the international front where the company has been performing significantly better, we expect comps up +5% reflecting a modest sequential deceleration on a 2-year basis.
  • In aggregate, we expect the Payless comps to come in down -2% driven by an improvement in traffic from last quarter as well as mix (more toning and boots), which is likely to keep ticket up LSD.

Gross Margins:

  • We are modeling a 250bps decline in Q2.
  • Similar to Q1, higher product costs and channel mix will pressure margins in Q2. However, with product costs expected to be up LDD from +6% last quarter, we expect this headwind alone to impact margins by -250bps. Mix will likely account for another -40-50bps headwind assuming $35mm of incremental PLG sales at sub 30% margins.
  • Offsetting these headwinds to some degree will be modest tailwinds from rent/occupancy equating to +20bps and product mix with greater volume from toning and boots.


  • We are modeling SG&A growth of 5.5%, however this may vary considerably as the company could opt to sweep all sorts of costs under the carpet this quarter.
  • With a $10mm severance-related charge expected in the quarter (=~$0.10 in EPS) along with costs associated with building out the international business offset in part by increase PLG growth spending last year ($5mm+), we expect SG&A to be up +5.5% in the quarter.


PSS: Dark Horse Move? - PSS PLG 8 11


PSS: Dark Horse Move? - FW Mo ChanSales 8 11


PSS: Dark Horse Move? - PSS CompTable 8 11


PSS: Dark Horse Move? - PSS Comp Trends 8 11


PSS: Dark Horse Move? - PSS Quick hit part 1


PSS: Dark Horse Move? - PSS quick hit 2 8 11


PSS: Dark Horse Move? - PSS Sigma 8 11


PSS: Dark Horse Move? - PSS sentiment 8 11



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

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more