WRC: A Tough Shot…But I’m Taking It

There are few events more volatile in this space than a Warnaco EPS report. Several people asked me what I’d do in advance of the numbers. Here’s my 2 cents…
This is a tough shot, but I’m going to take it. I remain quite negative on the 2-year margin outlook, but have burned myself on more than one occasion in being early on this call. But why negative now? A few considerations…

1. My model has revenue growth going from a 20%+ growth rate to a single digit rate – something I think it will be tough to beat organically with its current portfolio.

2. I maintain my view that WRC has passed too much of its incremental FX benefit to the EPS line over 5 years instead of reinvesting back into the business. With margins going from 2% to 10% over that time period, I’m confident that we’ll see a big swing the other way next year when an Obama administration inevitably takes up interest rates, and the dollar along with it. I can’t find another company with poorer positioning that WRC.

3. Aside from a sharp deceleration in revenue and margins, WRC is about to comp against 4 quarters of the biggest improvement in the company’s cash conversion cycle in its history.

4. 12% of the float is short, which concerns me – but we’re seeing it at 20-30% for better quality companies.

5. WRC beat every one of the past 9 quarters by an average of 42%. Do you think that just MAYBE the street is expecting another one? I can’t rule out a beat – though anything near recent magnitude is not gonna happen. Better yet, a guide down is increasingly likely.

6. Why should this name trade at 6x EBITDA – at the peaky end of retail today?

7. No covenant issues right now as first tranche of debt is not due until 2012. But cut margins in half (which is entirely possible) and we’re talking a very different story…

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more