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Conclusion: There’s no change to our thesis – LIZ remains one of our top long ideas and we like it headed into the quarter.

While the stock is up 30% since the last print, we think LIZ is still trading at a significant discount and is headed higher. We expect slightly higher revenues versus the Street and a smaller loss (-$0.09 vs. -$0.13E) as well as further clarity on company fundamentals with updated brand comps through April when LIZ reports tomorrow morning. In the company’s least significant quarter, the focus will be squarely on brand performance. That said, let’s look at where the risk is heading into the quarter:

  1. Be mindful of the holiday impact on April comp headlines.
  2. Comp expectations at Kate is the biggest potential risk. While we don’t expect an issue here, let’s consider the following:
    • January and February results reported on the Q4 call were better than expected coming in at +30% and +16% on comps of +96% and +87% proving the brand can comp the comp. In March, Kate goes up against a less challenging +44% comp coupled with the benefit of Easter demand shift. We’d consider anything less than a mid 20s comp for the quarter a disappointment.
    • That said, April will be up against a +82% comp and then +88% in May and +56% in June. Taking the Easter pull forward out of April, a stable 2-year comp rate could produce a negative comp in April and a headline scare. Be mindful of the holiday shift as this is fully accounted for in our numbers, but might be less well accounted for in the minds of more recent investors.
  3. At Lucky, the brand reported strong mid-quarter comps up +29% and +21% on comps of -2% and +12% in Jan and Feb and then goes up against a +1% in March. We expect a mid 20s comp here as well. While April-June comps of +23%, +24%, and +16% are the toughest of the year, we expect a positive MSD comp for Q2 modeling a modestly negative comp in April. Again, this is already in our number.

With management having several opportunities to be in front of investors YTD, we think expectations for the timing of a turn in both the Juicy business as well as the reduction in corporate expenses is appropriately set as a multi-quarter process. Additionally, with new hires at both the CFO level and a co-President at Juicy during the quarter, the company is taking steps to address these lingering concerns.

We are at $0.25 in EPS for F12 and $0.65 in F13 reflecting $140mm and $210mm in F12 and F13 EBITDA respectively. As we move through 2012, we think investors will start looking out to $1 in earnings power in three years (F14). That still isn’t reflected in the stock at $13. While we could see some near-term volatility as the company reports over the next few quarters, we think there is at least $7+ in upside from current levels. With over 50% upside, LIZ is still one of our top ideas.

For more detail following the February print, see our note “LIZ: Noise = Buying Opportunity.

Casey Flavin


LIZ: Q1 Preview - LIZ SOTP