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Takeaway: We saw what we needed to from RL. HBI is flirting with the penalty box. TGT free shipping math is perplexing.


Thursday (10/30)

COLM - Earnings Call: 5:00pm


RL - 2Q15 Earnings

This wasn't a perfect quarter by any means. Regardless of the EPS beat (off sandbagged guidance) the company deleveraged +4.1% revenue growth into a (-3.4%) EBIT decline, and 1.3% EPS growth.  Hardly something we'd expect from one of the preeminent companies in retail. But we moved the name from our Long Bench to our Core Longs last week, and we're glad we did.  Our rationale is that this is a quality name that is investing in both the P&L and balance sheet to reaccelerate growth in a Brand that probably has room to double globally.  Not many companies have that kind of opportunity. When we see a depressed multiple on a quality company that is doing the right thing to grow its footprint in a profitable way, we definitely get interested. We saw enough in the quarter that gives us confidence that RL earns at least $10/share next year suggesting a 16x p/e on a name that should have accelerating sales, margins and cash flow.

Retail Callouts (10/30): RL, HBI, Apple Pay, Marc Jacobs, TGT, KATE, M - 10 30 chart1

HBI - 3Q14 Earnings

Takeaway: We've had HBI on our Long Bench -- not because we like the base business -- but because the company has such meaningful upside in earnings and cash flow due to its acquisitions. We'll rarely laud a company that is a serial acquirer, but the reality is that it is diversifying away from a business with fierce competition, commodity pricing, and an unstable distribution base (at least on the department store side). But with consolidated EBIT growth slowing from 34% in 1Q, to 27% in 2Q, and now 23% in 3Q -- we're definitely less enthused. The DBA deal should accelerate in the upcoming quarter -- though it appears that this at least partially in company guidance. If there's one reason we're hanging in and doing more work, it's that we should soon start to see the positive impact of the 34% draw down in cotton costs over the past five months.

Retail Callouts (10/30): RL, HBI, Apple Pay, Marc Jacobs, TGT, KATE, M - 10 30 chart2

Apple Pay Rival CurrentC Hacked During Test of Payments Tech


  • "CurrentC, the retailer-backed mobile-payment system touted as an alternative to Apple Inc.’s platform, was hacked during a test of the technology, resulting in some e-mail addresses being stolen."

Takeaway: Unfortunately, when your credibility is entirely based on delivering a secure payment mechanism and you get hacked during your maiden voyage, it's potentially terminal.

Marc Jacobs, for Marc Jacobs, by Marc Jacobs

While this is hysterical at face value, Jacobs -- who is likely to go public at some point -- occasionally does satirical things like this with product. This was a particularly good one. "Jacobs by Marc Jacobs for Marc Jacobs in collaboration with Marc Jacobs for Marc by Marc Jacobs"

 Retail Callouts (10/30): RL, HBI, Apple Pay, Marc Jacobs, TGT, KATE, M - 10 30 chart3

TGT - Shipping Pencils

Takeaway: We already know that Target fired the first shot across competitors' bow with free shipping this holiday on everything -- with no spending threshold. So we tested it out. Here's an order for a package of pencils for $1.22. The company claims to pay the $5.49 for shipping. In reality, the real shipping charge is nowhere near that.  It's probably closer to $1.50. But do the math. $1.22 at a 30% GM = $0.37 in gross profit. There's the labor cost to handle the order -- but let's give TGT the benefit of the doubt that this is included in the $1.50 shipping charge. We're talking a loss of ($1.13) on an order of $1.22. Not good. We're not exactly concerned about mass ordering of pencils, hair scrunchies, and cheap lipstick. It's not financially material. But we are very concerned that this sets a precedent for future discounting behavior. Retailers are realizing that free shipping (and ultimately free returns) is a (temporary) competitive advantage. We still think that shipping charges will be a distant memory to consumers within 2 years. Bad for retailers with a low basket size like TGT and KSS.

Retail Callouts (10/30): RL, HBI, Apple Pay, Marc Jacobs, TGT, KATE, M - 10 30 chart4




  • "Big things are once again happening in the Spade family world. Kate Spade New York and Jack Spade have partnered up with Gap Kids to launch a holiday line exclusively for the little ones. On Oct. 30, kiddos can shop the collection during its two-week run. The collaboration is a pretty big deal for the Spades — it’s the first time the husband-and-wife duo have paired up to design a line and marks their debut into the children’s world."

M - Macy’s introduces Holiday Arcade in-store shops


  • "For the upcoming holiday season, Macy’s is introducing the Holiday Arcade---in-store gifting shops that will launch at six Macy’s locations from late October through mid-November, including Macy’s South Coast Plaza in Costa Mesa, Calif., Macy’s Union Square in San Francisco, Calif., Macy’s Dadeland in Miami, Fla., Macy’s State Street in Chicago, Macy’s Herald Square in Manhattan, N.Y., and Macy’s Center City in Philadelphia."
  • "Holiday Arcade gifting items will include: Build-A-Bear Workshop shop-in-shops at the Costa Mesa, San Francisco, Chicago, Manhattan and Philadelphia locations, as well as Seedling stocking stuffers, a Paddington Bear toy and apparel collection, Harry Barker dog gifts, Curious George merchandise, Madame Alexander dolls, Lionel trains, and Boo & Grumpy Cat toys from Gund."

KATE - Study: Kate Spade provides best online customer service in September


  • "Kate Spade provided the best overall customer service in Sept. 2014. This marks the retailer’s first time topping Stella Benchmarks from customer service research firm Stella Service in 2014. The retailer ranked in every area measured across fulfillment and customer care."



  • "The robots are coming. Lowe‘s is testing whether new bots on wheels can improve its customer service, like helping a shopper find a match for something as simple as a nail."
  • "Four robots are being tested an Orchard Supply Hardware store owned by Lowe’s Companies Inc. in San Jose, California."
  • "The robots dubbed OSHbots look like white columns with two large black screens on either side of them, and wheels to help them move. They are equipped with 3D cameras so they can scan and identify items. And customers can research items they want to buy on their screen. Then the robot can lead them to the aisle where an item is located."

RSH - RadioShack Hires Ex-Treasury Adviser to Help With Comeback


  • "RadioShack Corp. (RSH) named former U.S. Treasury Department adviser Harry Wilson as its chief revitalization officer, enlisting a turnaround expert who helped restructure General Motors and Chrysler."
  • "Wilson, founder of the advisory firm Maeva Group, will report to RadioShack’s board and Chief Executive Officer Joe Magnacca, the Fort Worth, Texas-based company said today in a statement."

JWN - Study: Nordstrom--online and in-store--top luxury retailer


  • "According to the group's 2014 Luxury Multichannel Engagement Index, Nordstrom had the highest incidence of customers spending online (26%) and in-store (45%). It also led in its share of total fashion spend (17%)."
  • "Bergdorf Goodman was the top-rated luxury retailer for in-store engagement with an in-store LMEI score of 8.17 out of 10. Ranking second for in-store engagement is Barneys New York (7.90), and Neiman Marcus (7.85) ranked third."

Boohoo Opening First Physical Store


  • "With prices mirroring Forever 21, production cycles similar to those of Zara and a focus on content production à la Asos, Boohoo.com is in a prime position to take on the U.S. market."