Takeaway: Join us Monday for a pre-Qtr call to review European retail pre-earnings. Tickers include GPS, ANF, KORS, RL, URBN, DECK, GES, TIF, TJX.
We’d like to invite Hedgeye clients to participate in a call we are hosting on Monday February 4th to explore the state of retail in Europe in advance of 4Q retail earnings. We’ll be co-hosting the call with Stacey Widlitz of SW Advisors www.staceywidlitz.com where she will give us her view on incremental changes we’re seeing with different brands in Europe, including promotional cadence vs. last year, and general selling trends overall. When we hosted a similar call with Stacey last quarter, her insights proved correct on GES, GPS and ANF. We’ll revisit those names, as well as the following on Monday…
local competition-Debenhams, John Lewis, Next, BHS, House of Fraser
fast fashion (Zara, H&A, Topshop)
We encourage you to send any questions in advance to , and we’ll be sure to both ask (anonymously) and answer for you on the call. Stacey will also be available for Hedgeye clients after the call to discuss trends in more detail.
We hope you can join us.
In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance
NA REPLACEMENT MARKET
WAP INSTALL BASE
BALLY MOBILE PROGRESS
INTERNATIONAL GAME SALES
OPERATING MARGIN OUTLOOK
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Takeaway: Getting closer to a sale of Juicy? Regardless of the decision, we think the team has focus. Only good can come from that.
Reuters just noted that FNP is exploring alternatives, including a sale, of Juicy Coture. It says that the company has been having discussions, but has not yet made a decision.
This is completely in-line with our thesis on the company, that Juicy has gotten to a point where disposing the asset and paying off debt will allow FNP to focus on its crown jewel – Kate Spade – which is one of the fastest-growing assets in retail. At the same time, it will have Lucky Brand to continue its role as the annuity in the portfolio to help fund Kate’s growth prospects.
It’s easy to get hung up on internalizing near-term growth and margin performance – a hundred million in revenue here or there, or margins plus or minus a point or two. That seems like a lot in a given reporting period.
But with Kate, the company is en route to adding another $1bn+ in revenue and doubling margins. Will COH or KORS double margins? Not when they’re sitting at 31% and 20%, respectively. In fact, we’d argue that COH and KORS margins will converge closer to 25% over the next 2-3 years. Kate should get close as well from its current margin rate of around 12% (fully loaded).
Kate is doing it right. The company has been investing capital consistently back into building the operating platform to aggressively gain share. Some of that base investment tapers off as the company moves into adolescence. Our point is that in looking at what the company is capable of, think big. This is not about a few points of comp here or there.
We know that we sound like a broken record with our bull call on FNP. But quite frankly, it is a great story worthy of being a bull.
The company is hosting an analyst meeting for Kate Spade in 1Q where the growth opportunity should be more apparent to the investment community.
As for Juicy, we’re often asked “is it really worth anything?”, our answer is ‘definitely’. Think of all the times people chalked up certain consumer brands as being dead. It happened at FNP, actually, when the company owned Mexx – which was a far bigger dog than Juicy. We hate to pick a multiple out of the air in valuing assets, but does 0.5x sales sound in the ‘fair’ category? Sure, it's consistent with past transactions in retail. We wouldn’t be shocked by more. That suggests about $250mm, which could repay 65% of FNP’s debt.
(If the table below is tough to read, let us know and we'll send the file).
Pretty much what were expecting with the exception of better slot play in vegas and lucky table play.
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