This morning’s ICSC retail sales reading (out of a sample of 80 retailers) was the strongest we’ve seen in nearly 15-years. There was some noise due to weather and the calendar shift (week leading up Easter helped), but the data is telling us that we’re seeing higher highs and higher lows.
The out-of-consensus call right now is to be bullish on retail. As much as we find it difficult to get there given peak margins and increased levels of capital spending and SG&A (both of which would erode returns and multiples), we need to be open to the potential for outsized top-line growth that could drive the group higher. At a minimum, it seems like there’s a story of have’s and have nots, like Nike and Urban Outfitters showing strength, and others like Guess? And Carter’s showing incremental sales weakness.
If you can find something that exhibits 'higher sales, lower capital intensity' we think that's where you want to be. Short the inverse -- now more than ever.
Longs: NKE, RH, RL, FNP, FL, KORS, URBN, WMT, and for those with a high risk tolerance and longer duration, JCP.
Shorts: DKS, UA, GES, CRI, M, KSS, GPS, LULU, GPS, FDO