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Takeaway: SIGMA summary. ZQK equity nearly worthless - ripe to be restructured. PVH/KSS misrepresented by mainstream media – we don’t like either.

COMPANY HIGHLIGHTS

ZQK - 3Q14 Earnings

Takeaway: This one definitely deserves some commentary. There's definite brand value here, but there's just no bottom visible on the top line in what was once ZQK's core market. The company continues to have execution issues across several businesses. It will find a bottom -- and our sense is that it will be a matter of quarters instead of years. But until then, cash burn will increasingly be an issue.  But one thing we can't shake is that we're seeing companies like Dollar General bid 12-13x EBITDA for marginal assets like FDO, which seems flat-out egregious from where we sit. And yet there's a company like ZQK with under $1bn in EV, but $1.3bn in NOLs.  At this price, the equity is pretty much worthless, and the reality is that this company shouldn't be public. A purchase and balance sheet restructuring is just a matter of time.

Retail Callouts (9/5): ZQK, PVH, KSS, KORS, Endorsements - chart1 9 5

PVH - 2Q14 Earnings/KSS Read Through

Takeaway: Business is better on the margin, but to be clear, this was one of those 'EBIT is still down, but just not down as bad as we guided' quarters.  We're waiting to see how the Street comes in with EPS estimates. We definitely have a bias to the short side here.

One of the more interesting things was how PVH's comments on KSS were misrepresented by the mainstream media.  Like clockwork, CEO Chirico was on Cramer immediately after the print (one of the few companies to religiously use this format as spin-control 16 hours before the conference call with the Investment Community). The following exchange was hysterical...

Chirico: "At Kohls, we have really started to see our business take off the last couple of weeks there."

Cramer: "That’s what I'm feeling, I'm feeling Kohls is making the turn."

Now, let's put this into context. PVH’s Izod brand launched at Kohl’s in mid-Aug. Of course that business is turning! That does not mean KSS as a whole is improving sequentially. KSS traded up on this, but it shouldn't have.

Retail Callouts (9/5): ZQK, PVH, KSS, KORS, Endorsements - 9 5 chart5

GIII - 2Q15 Earnings

Retail Callouts (9/5): ZQK, PVH, KSS, KORS, Endorsements - 9 5 chart2

BEBE - 4Q14 Earnings

Retail Callouts (9/5): ZQK, PVH, KSS, KORS, Endorsements - 9 5 chart3

ZUMZ - 2Q14 Earnings

Don't let the good-looking SIGMA deceive you -- ZUMZ guided down 3Q due to a weaker than expected sales outlook. Not a shocker that this happened in conjunction with the ZQK miss.

Retail Callouts (9/5): ZQK, PVH, KSS, KORS, Endorsements - 9 5 chart4

KORS - Silas Chou and Lawrence Stroll to Sell Remaining Stake in Michael Kors

(http://www.wwd.com/business-news/financial/chou-and-stroll-to-sell-remaining-stake-in-kors-7865950?module=Business-latest)

  • "Silas Chou and Lawrence Stroll are about to exit the Michael Kors business."
  • "Michael Kors Holdings Ltd. has filed a shelf registration to sell slightly over 11.6 million shares of common stock in a secondary public offering that would have Chou and Stroll resign from the Kors board upon the closing date of the offering."

Takeaway: Chou and Stroll are the longest standing Board members of KORS (12 yrs). On one hand, we're glad they're gone. Their history in retail corporate governance never sat well with us (remember the early days of Tommy Hilfiger? That was Chou). On the flip side, when two Board members -- who have managed their own PA quite well over time -- both leave at the same time, it is never a good sign.

Fast Retailing- Uniqlo Tennis Bet Pays as Endorsers Featured at U.S. Open

(http://www.bloomberg.com/news/2014-09-04/uniqlo-tennis-bet-pays-as-endorsers-featured-at-u-s-open.html)

  • "Fast Retailing Co. is ready for war. The clothing maker’s battle begins Saturday, when world No. 1 Novak Djokovic takes on 10th-seed Kei Nishikori in the U.S. Open semifinal."
  • "Billionaire Chairman Tadashi Yanai wins, regardless of the outcome. Both players, signed on in the last three years, will be wearing his Uniqlo brand clothes at the final Grand Slam of the year in New York."

Takeaway: Djokovic has always been a huge win for Fast Retailing, but the fact that they have two athletes competing in such a high profile event against one another is pretty huge. The irony is that they will win, but will also lose. Our sense is that this gives FAST the bug and it gets more aggressive in the endorsement game. Not good for the traditional sports brands.

OTHER NEWS

COST, LB, GPS, BKE - August Comparable Store Sales

Retail Callouts (9/5): ZQK, PVH, KSS, KORS, Endorsements - 9 5 chart6

HD - Home Depot asks Canadians to report ‘unusual activity’ on credit cards

(http://globalnews.ca/news/1544137/home-depot-asks-canadians-to-report-unusual-activity-on-credit-cards/)

  • "A spokesperson said Thursday the big box renovation store can’t yet confirm whether a breach has occurred at Canadian or U.S. stores."
  • "'Our forensics and security teams have been working around the clock since we first became aware of a potential breach Tuesday morning,' Home Depot spokesperson Paula Drake told Global News."
  • "Drake also advised Canadian consumers 'to closely monitor their accounts and contact their card issuers if they notice any unusual activity.'"

TGT - Target to open city store TargetExpress in Berkeley

(http://blog.sfgate.com/inberkeley/2014/09/04/target-to-open-city-store-targetexpress-in-berkeley/)

  • "Berkeley residents often complain there’s nowhere in their city to buy underwear. That might change now that Target has announced it will open one of its new breed of city stores, called TargetExpress, in downtown."
  • "The Minneapolis-based retailer is poised to turn a long vacant building at the corner of Shattuck Avenue and Allston Way into one of its new-concept TargetExpress stores by March 2015."

JWN - Nordstrom Board of Directors Authorizes $1 Billion Share Repurchase Program

(http://investor.nordstrom.com/phoenix.zhtml?c=93295&p=irol-newsArticle&ID=1963854&highlight=)

  • "Nordstrom, Inc. announced today that its board of directors has authorized a repurchase program of up to $1 billion of the Company’s outstanding common stock, through March 1, 2016. The Company intends to fund the repurchase program from existing cash on hand."