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BLMN: Closing Best Idea Short

We added Bloomin’ Brands (BLMN) to our Best Ideas list on 11/27/2013 at $26.71/share.  Since this time, 2014 EPS estimates have been revised down from $1.33 to $1.22 and the share price has acted accordingly (down ~20%).  With this note we are removing Short BLMN from our Best Ideas list.

 

In our view, Bloomin’ still has issues but we feel our short thesis is largely played out.  At 8.02x EV/EBITDA (NTM) and 16.66 P/EPS (NTM), Bloomin’ screens rather attractively relative to other casual dining companies.  With that being said, we continue to believe casual companies in general are quite expensive.

 

Considering an attractive relative valuation and reset expectations, we believe the short setup is no longer favorable from a risk/reward perspective.  Decelerating two-year same-store-sales trends and stagnant margins continue to give us cause for concern, but staying short at these levels is no longer compelling. 

 

Despite our move to the sidelines, we continue to believe 2015 estimates for 19% EPS growth on 7% revenue growth are too aggressive.

 

Research Recap:

New Best Idea: Short Bloomin’ Brands (11/27/2013)

BLMN: A Bloomin’ Mess (01/13/2014)

BLMN: Beat & Guide Down (02/25/2014)

BLMN: Still Bearish (05/09/2014)

 

BLMN: Closing Best Idea Short - 1

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


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Retail Callouts (5/14): KSS, JCP, TGT, SHLD, ANF, KER, URBN, CROX

Takeaway: KSS enters the CEO hunt. We give prospects for top job at KSS TGT JCP. SHLD looks to exit Sears Canada. Yet TGT sticks to egregious targets.

EVENTS TO WATCH

 

THURSDAY

  • WMT - Earnings Call: 4/15, 7:00am
  • KSS - Earnings Call: 4/15, 8:30am
  • JCP - Earnings Call: 4/15, 4:30pm
  • JWN - Earnings Call: 4/15, 4:45pm

 

COMPANY NEWS

 

We'll have separate comments on Macy's and Kate Spade earnings.

 

KSS - Kohl's CEO Planning Management Shuffle

(http://online.wsj.com/news/articles/SB10001424052702303851804579559911754291166?mg=reno64-wsj)

 

  • "Mr. Mansell is planning a management shuffle, according to a person familiar with the matter. And he is also scouting for a new chief merchant who would be a candidate to ultimately succeed him, people familiar with the matter said."
  • "The CEO is seeking to boost growth when the retail industry is struggling with budget-conscious shoppers who are increasingly turning to the Internet for everyday purchases."
  • "Kohl's board is looking for Mr. Mansell, 61 years old, to demonstrate progress on those fronts at a board meeting Wednesday, the day before Kohl's reports first-quarter earnings. At that session, he is expected to describe plans for a broader management reorganization, said a person familiar with the situation."
  • "In April, Kohl's lost its chief merchandising officer, Donald Brennan, who joined the company in 2001 and was promoted to chief merchant in 2010 but had received a weak performance grade, according to regulatory filings. Mr. Mansell has been personally sounding out candidates for the chief merchant's job with an eye to having them eventually succeed him as CEO, several people familiar with the situation said."
  • "Mr. Mansell has reached out to Brendan Hoffman, who earlier this year said he plans to leave his post as CEO of Bon-Ton Stores Inc. when his contract expires in February, these people said. Mr. Hoffman is unlikely to take the job since it wouldn't immediately place him in a CEO role, one of the people said."

 

Takeaway: This tells us that there's now three potential top jobs open at mega-US retailers; Target, JC Penney, and Kohl's. The pool of candidates is not huge, but there are some heavyweights. There's Roger Farah, who has only two weeks left at Ralph Lauren. Bill McComb, who is currently on vacation after turning the dog that was Liz Claiborne into the hyper-growth Kate Spade. Vanessa Castagna, who was the underappreciated architect of the Eckerd-era turnaround at JCP over a decade ago. Let's also not forget Glenn Murphy from Gap. The fact of the matter is that he is a far better CEO than a company like Gap probably deserves. He's done a great job fixing the company, and at age 51 -- has a much bigger and better job left in him.

 

SHLD - Sears Holdings Provides Update On Its Interest In Sears Canada Inc.

(http://searsholdings.mediaroom.com/index.php?s=16310&item=137287)

 

  • "Sears Holdings Corporation announced today that it is exploring strategic alternatives for its 51% interest in Sears Canada, including a potential sale of Sears Holdings' interest or Sears Canada as a whole. In connection with those efforts, Sears Holdings intends to engage an investment banking firm."
  • "Sears Canada's board of directors has advised Sears Holdings that Sears Canada's board and management intend to cooperate fully with Sears Holdings in this process to achieve value for all shareholders."

 

Takeaway: And Target still thinks it can generate productivity in its Canada stores above what it sees in the US with Gross margins 500bp better than US levels. Seriously?

 

OTHER NEWS

 

URBN - Urban Outfitters Getting Active

(http://www.wwd.com/markets-news/intimates-activewear/urban-outfitters-getting-active-7679159)

 

  • "Since March, the apparel and accessories brand developed by Urban Outfitters to cross the fitness, cycle, trail and surf categories has taken over roughly 1,500 square feet inside the retailer’s high-profile stores in New York, Costa Mesa, Calif., Santa Monica, Calif., King of Prussia, Pa., Portland, Ore., San Francisco, Seattle and Hollywood, where Without Walls officially launched with a party in April."
  • "In June, a Without Walls in-store shop will be added at the Urban Outfitters location in New York’s Herald Square before the concept will expand to another four to six doors in the fall and possibly three to six doors in 2015."

 

Retail Callouts (5/14): KSS, JCP, TGT, SHLD, ANF, KER, URBN, CROX - chart1 5 14

 

KER - Puma’s Power

(http://www.wwd.com/footwear-news/people/fn-spy-toms-goes-ape-puma-taps-jadeveon-clowney-7679560)

 

  • "Puma added some firepower to its endorsement lineup. The brand announced that No. 1 National Football League draft pick Jadeveon Clowney is joining its training team. The new Houston Texan will be included in Puma’s new 'Forever Faster' campaign, set to launch later this year."
  • "It will be the first in his multiyear agreement. Clowney, who called his deal with the brand a 'dream come true' in a release, will join fellow NFL players Jamaal Charles and Cordarrelle Patterson on the Puma roster."

 

ANF - Michael Jeffries Pay Drops at Abercrombie

(http://www.wwd.com/business-news/human-resources/michael-jeffries-pay-drops-at-abercrombie-7679608)

 

  • "Abercrombie & Fitch Co. chief executive officer Michael Jeffries saw his total reported compensation decline by more than 70 percent last year to $2.2 million…"
  • "The new pact, which can be terminated by Jeffries or the company with 12 months’ notice after its first anniversary next February, also removed provisions which could have added about $88 million to Jeffries’ severance in the event of a change of control."

 

CROX - Brand Management Veteran Andrew Rees Named President of Crocs Brand; CEO Search Continues

(http://investors.crocs.com/phoenix.zhtml?c=193409&p=irol-newsArticle&ID=1930540&highlight=)

 

  • "Crocs Inc. today announced consumer brand management expert Andrew Rees has been named President of the Crocs brand.  Rees also will assume the role of principal executive officer until the company's search for a permanent chief executive officer is successfully concluded.  Rees will report to the Crocs board of directors.  He is expected to join the company officially on or about June 9th."
  • "Rees joins Crocs from LEK Consulting, a global management consulting firm with offices across Europe, the Americas and Asia-Pacific.  He founded and led LEK's retail and consumer products practice for 14 years, building the practice into one of LEK's major consulting areas."

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