Retail Callouts (9/8): Idea List, RH, KSS, FDO, DG, DLTR, HD, AMZN

Takeaway: Hedgeye Retail Idea List, RH 2Q14 earnings preview, KSS discloses 2Q14 e-commerce growth rate - trends continue to soften on the margin.



Retail Callouts (9/8): Idea List, RH, KSS, FDO, DG, DLTR, HD, AMZN - chart1 9 8


This week's changes


WSM: Removed from Long Bench. Aside from the quality of the 2Q print - we're eight months away from RH rolling out its Kitchen concept. It will take a while for RH to chip away at WSM, but it's a risk that matters.




Wenesday (9/10)

  • VRA - Earnings Call: 9:30am
  • FIVE - Earnings Call: 4:30pm
  • WTSL - Earnings Call: 4:30pm
  • RH - Earnings Call: 5:00pm


Thursday (9/11)

  • LULU - Earnings Call: 9:00am
  • KR - Earnings Call: 10:00am
  • ULTA - Earnings Call: 5:00pm




RH - 2Q14 Earnings Preview


Takeaway: We think that people are missing the magnitude of earnings growth at RH, the sustainability of that trajectory over a long period of time, and ultimately the degree to which that will accrue to equity holders. The question is not whether the stock will go to $90 vs $100 (where we see most price targets), but whether it will get to $200 vs $300. Even the best stories, however, are not linear. There will be bumps along the road. But this print should not be one of them.  We’re well above the Street in Sales, Margins and EPS, and we flush out in this note where we could be wrong.


The full text to our note can be accessed by clicking the following link (RH – Key Thoughts Ahead of The Print).


KSS - 2Q14 Revenue Numbers (10-Q)


Retail Callouts (9/8): Idea List, RH, KSS, FDO, DG, DLTR, HD, AMZN - chart2 9 8

Retail Callouts (9/8): Idea List, RH, KSS, FDO, DG, DLTR, HD, AMZN - chart3 9 8


Takeaway: KSS has had the best e-commerce growth rate out of any major retailer over the past eight years (38.9%) CAGR and it has served as a pillar of support for KSS' growth algorithm. That’s clearly weakening. For the 2nd quarter in a row, management didn't disclose the growth rate during the company's earnings call after 3+ years of disclosure. For the quarter in aggregate, the growth rate was just north of 19% and that channel contributed about 140bps to the consolidated comp. That would imply 30% growth in July (per 2Q Conference Call) and 15% in May and June. The key here is that the 15% growth rate in the first two months of the quarter was organic as the comparable periods in 2013 were uninterrupted by the replatform. That syncs with what we've seen over the past two quarters where the channel grew at a 16.5% and 12.5% clip in 4Q13 and 1Q14 respectively. We have little faith in KSS' ability to get it's store base back to flat comps - which is what the company would need in the back half of the year to get comps for the year to flat and inline with the low end of guidance. We’re at $4.00 for the year. But the part of this story that we think people are missing is that it is likely to earn about $4.00 for the next five years straight.




FDO, DG, DLTR - Family Dollar Board of Directors Rejects Revised Proposal from Dollar General Based on Antitrust Issues



  • "Family Dollar Stores, Inc. announced that its Board of Directors has unanimously rejected the revised, non-binding proposal made by Dollar General Corporation on September 2, 2014, on the basis of antitrust regulatory considerations."
  • "Family Dollar’s merger agreement with Dollar Tree contains a customary provision that permits Family Dollar to enter into discussions and share information with any competing bidder, but only if the Board is able to determine that failure to do so would be inconsistent with its fiduciary duties and that the unsolicited, written proposal from the competing bidder would be reasonably expected to lead to a proposal that is not only financially superior, but also 'reasonably likely to be completed on the terms proposed.'”


WFM - Whole Foods Market® and Instacart Partner to Offer One-Hour Delivery across 15 Major U.S. Cities



  • "Whole Foods Market and one-hour grocery delivery service Instacart announced today a new partnership that enables customers to have Whole Foods Market products delivered in as little as one hour. Customers will soon also have the convenient option to place orders via Instacart and pick up their order at a local participating Whole Foods Market store."
  • "The two companies will pilot the in-store pickup option at select Austin and Boston stores in the next month."


HD - Class-action suit targets Home Depot for breach



  • "Several Home Depot customers filed a class-action lawsuit on Thursday, Sept.4 in the U.S. District Court for the Northern District of Georgia, Atlanta Division. The suit alleges that Home Depot failed to meet its legal obligation to protect their credit card and personal information and failed to timely warn them that their information had been stolen or compromised."


AMZN - Amazon enters in credit agreement



  • “On September 5, 2014,, Inc., Bank of America, N.A., as administrative agent, and the lenders party thereto entered into a credit agreement. The Credit Agreement provides the Company with an unsecured revolving credit facility with a borrowing capacity of up to $2.0 billion. The term of the Credit Agreement is two years, but it may be extended for up to three additional one-year terms if approved by the lenders.”


KR - Kroger Goes Shopping for 20,000 New Grocery Workers



  • "The nation’s largest supermarket chain, Kroger, plans to hire about 20,000 workers in a push for growth during a period of grocery consolidation. The new hires will join another 40,000 workers added to Kroger’s roster since 2008, bringing its workforce to 375,000."
  • "The Cincinnati-based retailer opened 216 new supermarkets last year to reach at 2,640 stores in all. Kroger executives increased its capital spending by $200 million annually to expand its retail footprint in 2012 as executives discussed growth opportunities in new cities."


CVS, WAG, AAPL - Apple iPhone’s Mobile Payments Expected to Include CVS and Walgreens



  • "Apple’s upcoming mobile payment system will get a big head start with the country’s two largest pharmacy chains coming on board."
  • "CVS and Walgreens are expected to accept purchases made with the new iPhone payment system, details of which Apple plans to announce Tuesday, according to a person briefed on the plans. With more than 15,000 locations combined, acceptance by the two chains will give Apple a huge footprint if all of their stores are involved."


Sycamore’s Nine West Footwear Group to Split Into Four Companies



  • "Nine West Holdings Inc.’s footwear business will be split up into four separate companies under a plan by private-equity owner Sycamore Partners LLC, part of an effort to squeeze more value from a stable of well-known brands."
  • "The new companies, which will remain part of Sycamore, will consist of Nine West, Anne Klein, Easy Spirit and NW Jewelry Group, according to a statement today. As her company splits up, Nine West Footwear Group Chief Executive Office Kathleen Nedorostek will be stepping down. Former Kohl’s Corp. executive Peggy Eskenasi, meanwhile, is joining Sycamore to help oversee the operations."

Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

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7 Tweets Summing Up What You Need to Know About Today's GDP Report

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Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

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GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

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Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

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Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

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Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

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People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

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UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

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Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

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An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

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