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Takeaway: Changes to our Ideas list: Longs (RL, NKE, BBBY, URBN, JWN), Shorts (M, DKS, GPS). VFC earnings. Reebok sale - more noise than possibility.


Retail Callouts (10/20): RL, NKE, BBBY, URBN, JWN, M, DKS, GPS, VFC, AdiBok - 10 20 chart1

This week's changes


RL: Moved from Bench to Core Longs. The company should earn more than $10 next year. In the $150s, this is about as cheap as RL will get.

NKE: Like RL, moved from the Bench to Core Longs. We've been waiting for a pullback to get louder. But fundamentally, that's unlikely to happen. Expectations for the current year might be in check, but one thing people consistently underestimate is not necessarily the strength of the business, but the duration over which that strength sustains itself.

BBBY: It's at the top of our Long Bench. BBBY is a quality company with a great management team, but one that missed for the better part of two years after integrating Cost Plus. But in the latest quarter it finally showed improvement in most metrics. That's hindsight, but it's our sense that the rebound could last as long as the downturn -- if not longer.

URBN: Booted from the Long Bench. We've been waiting for a reason to be more constructive on URBN. Last week's announcement about weak comps at Anthro gave us the opposite. One thing about concepts that have such high sales productivity is that they take very long to inflect -- both positive and negative. We've got some time on this one.

JWN: In conjunction with our Department Store deep dive last week, we added JWN to our Long Bench. Tough to argue that JWN actually works if the significantly negative fundamental trends (i.e. 1,000 store closures) takes place. But the reality is the company is well positioned for how consumer shopping patterns are changing. We like it long term, and at the right price. 


M: Added to Core Shorts. We get the whole 'best in breed' thing, as well as its focus on Omni-channel, and Localized selling. But the fact is that when we're calling for 16% of department store square footage to exit the industry, Macy's will feel the pain along the way. It's too big not to.

DKS: Still on our Core Short list, but if we get the sense that Sears is taking a turn for the worse, then it will benefit DKS on the margin. Everyone thinks that DKS and TSA are the biggest sporting goods retailers in the US. They're not. It's Sears, by a long shot.

GPS: Moved two notches higher on our Bench. Gap is not in trouble because Glenn Murphy is leaving. Glenn Murphy is leaving because Gap is in trouble. Big difference.


Wednesday (10/22)

SKX - Earnings Call: 4:30pm

Thursday (10/23)

CRI - Earnings Call: 8:30am

UA - Earnings Call: 8:30am

CAB - Earnings Call: 11:00am

KER-FR - Earnings Call: 12:00pm

DECK - Earnings Call: 4:30pm

AMZN - Earnings Call: 5:00pm


VFC - 3Q14 Earnings

Retail Callouts (10/20): RL, NKE, BBBY, URBN, JWN, M, DKS, GPS, VFC, AdiBok - 10 20 chart2

AdiBok - Investors Seek to Buy Adidas’s Reebok Unit


  • "A consortium of investors from Hong Kong and Abu Dhabi is launching a bid to buy Reebok from Adidas AG in a move that, if successful, would unwind an eight-year-old marriage of sneaker makers that has shown disappointing results."
  • "Jynwel Capital, the investment arm of the billionaire Low family of Asia, and funds affiliated with the government of Abu Dhabi planned to send a letter to Adidas directors imminently, offering to buy its Reebok business for about €1.7 billion ($2.2 billion), people close to the matter said. They are expected to argue that Reebok would have a brighter future if it were managed independently, echoing a sentiment that has underpinned a recent wave of corporate breakups."

Takeaway: This is laughable. Anyone who did their diligence on Reebok should know two things 1) After Adidas bought Reebok in 2005, it German-engineered the Massachussets-based company to seamlessly integrate on all levels with German-based Adidas. In doing so, they lost about $1bn in sales -- handing most of it to Nike, and opening the door for UnderArmour as the #2 player in the US.  These actions make Reebok nearly impossible to separate from Adidas. 2) Adidas has a long valuation memory. It bought Reebok for a staggering $3.8bn. There's no way it will sell it for $2.2bn and book a $1.6bn loss. That would be the nail in the coffin for CEO Herbert Hainer.

Sounds to us like this is someone trying to make some activist noise to shake up the stock.


M - Apple Pay Rolls Out, With Holes in System


  • "Macy’s spokesman Jim Sluzewski said he expects the Macy’s branded card to be added eventually. He said roughly half of Macy’s sales come from its proprietary card, which is also linked to its loyalty program."
  • "Store-branded cards are “the big gaping hole in Apple Pay,” said Richard Crone, founder of Crone Consulting, a payments advisory firm, who estimates that merchants collect as much as 4% of each transaction with their proprietary cards."

SHLD - Family Dollar Issues Statement Regarding Director Nominations for 2015 Annual Meeting


  • "Family Dollar Stores, Inc. a leading national discount retailer offering name brands and quality, private brand merchandise, today confirmed that, on October 17, 2014, affiliates of Elliott Advisors  Limited delivered a notice that purports to preserve the ability of Elliott to seek to elect seven directors if there were to be a 2015 annual meeting of the stockholders of Family Dollar. Family Dollar will review the notice in due course."

SHLD - Sears Holdings Announces Seven Lease Agreements With Primark


  • "Sears Holdings Corporation announced today that it has entered into lease agreements with Primark, a leading fashion retailer in Europe, for seven standalone stores.  Sears will continue to have a significant presence in six of these locations with a streamlined store format of up to 100,000 selling square feet at each store."
  • "Pursuant to the terms of such agreements and subject to customary conditions, Primark will lease from Sears Holdings a total of approximately 520,000 gross square feet of retail space (approximately 400,000 net square feet retail space) in mall-based stores located in the Northeastern United States.  The space is expected to be delivered to Primark over the next 12 to 18 months."

SHLD - Sears Holdings Corporation Announces Intent to Conduct Rights Offering of Units Consisting of Senior Unsecured Notes and Warrants


  • "Sears Holdings Corporation today announced that the Company's board of directors has approved a rights offering allowing its stockholders to purchase up to $625 million in aggregate principal amount of 8% senior unsecured notes due 2019 and warrants to purchase shares of its common stock. This rights offering will generate up to an additional $625 million in proceeds, if it is fully subscribed and closes as planned, with the proceeds to be used for general corporate purposes."

Obama Unveils Cyber Security Initiative


  • "Retailers lauded the initiative, calling it a “catalyst” for the next generation of payment security tools, in the wake of massive data security breaches that have ensnared retailers, banks and government agencies and compromised the financial and personal data of millions of consumers across the country."

VFC, H&M - North Face and H&M Try to Clean Up the Down Business


  • "Down insulation, for all of its warmth, can be a cold and dirty business. Ducks and geese are often plucked alive and many of the fine feathers in comforters and puffy coats come from birds that were force-fed to make foie gras. The North Face, recognizing a problem in its pitch, is backing a certification standard to create a down supply chain that customers can feel warm and fuzzy about."

WMT - Walmart bring lockers to hometown supercenter


  • "Walmart’s newest omnichannel initiative is on display at a supercenter in Northwest Arkanas where the retailer has installed lockers for online order pickup."
  • "The large blue structure is located just inside the entrance to a supercenter in Rogers, Ark. and builds upon the retailer’s well-established Site to Store omnichannel offering. The big difference is shoppers who place orders online for in store pick up no longer need to visit the customer service counter to retrieve merchandise. Instead, once merchandise arrives in store or the order is pulled from existing store inventory it is placed in an appropriately sized locker."