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Conclusion: Better than expected (and much better than broadly feared) numbers from our top long idea. Robust top-line numbers out of FNP. Earnings came in a few pennies better than Street estimates of ($0.13) with no change to the full-year outlook for adjusted EBITDA of $125-$140mm. Underlying comps improved across each of the brands against the toughest comps of the year with both Kate and Lucky tracking well ahead of company expectations. There’s still wood to chop here before year-end on the cost side, but let’s be clear – this quarter represents a very positive update for FNP.

  • Comps by Brand:
    • Kate Spade: Kate (50%+ of EBIT) posted an exceptional quarter with comps up +34% well ahead of our expectations and company plan for high-teens growth for the full-year maintaining underlying two-year trends north of 50%.
    • Lucky Brand: Lucky comps came in up +8% also above our expectations against the toughest compare of the year posting its second consecutive solid result vs last year when the brand really began to emerge. 1H trends here are also tracking ahead of company expectations for low-teen growth for the full year.
    • Juicy Couture: Juicy comps came in down -9%. While the two-year accelerated, this is below expectations. In what might be the only surprise in the numbers, inventories were problematic despite conservative management in 1H – apparently not conservative enough
  • Square Footage Growth: Expect upside to square footage growth opportunities to be a frequent topic of discussion in light of robust sales out of Kate and Lucky where growth will be primarily focused providing further sales upside.
  • SG&A: At 68% of sales, the cost structure remains a work in progress – one that we expect new CFO George Carrera to shed greater detail on the call. But we want to be equally clear on this as well -- this is not a cost-cutting story. Stories where cost cuts drive revenue growth are like Bigfoot. They're talked about but never seen (i.e. JCP).  FNP is investing in its SG&A line, but needs to better leverage those investments in higher sales growth.
  • EBITDA Outlook: No change to full-year expectations of $125-$140mm for the second time in as many quarters. For those familiar with the history of FNP, no change is net positive. With the bulk of profitability generated in 2H it would be premature to suggest this might be conservative, but the likelihood of this range increasing before year-end just improved.
  • Cap Structure: an improvement with excess borrowing capacity at $260mm vs. $210mm due largely to the 10.5% Notes offering intra-quarter provides FNP with added flexibility.

The dial-in for the 10am call is with pass code #99380732.


Casey Flavin

Director

FNP: Early Read Very Positive - FNP Direct Brand Comps 1yr

 

FNP: Early Read Very Positive - FNP Direct Brand Comps 2yr