• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

This was perhaps the earliest (and often most painful) call of my career. But you can only hold a balloon underwater for so long. WRC is finally being exposed for what it is. A massive over-earner.
A colleague shot me an email this morning saying “Warnaco finally pulled a Warnaco!” How true. I’m not going to waste your time or mine giving the run-down of what they said on the call, or what happened. The bottom line is that this has largely been a FX-induced margin story as the company printed too much FX benefit, and understated the impact to the Street. Check any of my past posts for the math. I won’t bore you with it now.

So what’s in the stock now? That a 10% margin is not sustainable after all without FX tailwind. 7% is closer to reality. But what happens if a new Obama Administration takes up rates in '09 and the dollar along with it? Then FX turns into a headwind, and there is no reason margins cannot go back to the low/mid single digit range. That’s when cash flow gets to a point where we need to start to look at debt covenants again.

There will come a time to buy this stock. But even with a 30% hit from yesterday – and 2/3 off its 1-year high, we’re not there yet.