EVENTS TO WATCH
Early Cyber Monday Data Points
Takeaway: The Cyber Monday numbers don't look any prettier than the data points we saw coming out of the weekend. Sales were up 8.5% compared to the 20.6% growth rate we saw last year, according to IBM (numbers that we've found to be reliable). That's not going to cut it. Especially when you consider the fact that average ticket was down and units were up which translates to an AUR down mid-singles.
The department store numbers are even uglier. According to IBM on Black Friday online sales growth was 23% versus 61% on the same day last year. Similarly, on Cyber Monday online sales grew 17.9%, down from 70.3% LY with average ticket down 10%.
One concern we have with the shift to online is 1) e-commerce is lower margin for department store and multi-line retailers -- full stop. It's higher margin for brands like Nike and Ralph Lauren. But not for any retailer with a basket size under $150. 2) Retailers don't know where sales will show up -- in store or on-line. As such, they need to keep stores fully-staffed (at 2-3x pay on Thanksgiving) in order to satisfy demand that might or might now be there. Our point is that the kick off of the holiday season is a dilutive event both ways.
We still think shorting KSS is the best move here. We'd also short TGT, M, FL, DKS, and DG.
KSS - Kohl's has 4% online operating margin, vs 10% for brick and mortar
KSS CEO Kevin Mansell said in a WSJ interview that "online operating margins at Kohl’s are about 4%, less than half the 10% operating margins of its nearly 1,200 physical stores."
Takeaway: Tough sledding when the only line item on the P&L that is growing is 600bps below the core. Especially when you put that up against where the company guided 2017 targets at its Analyst day in late October. Just to refresh, the company guided to $21bn in revs at a 9% operating margin. Not only does the company have to comp nearly 3% for the next 3 years, but we also have to see operating margin expansion as the company moves back towards national brands and pushes its 'Greatness Agenda' online. We made a big deal about this when we added KSS to our Best Ideas short list. The only line on the P&L that's growing (besides SG&A) is on-line sales. And yet consensus has KSS earning $5 in two years versus $4 today. After this year ends, we don't think KSS will ever earn $4 again. We're at $3.50 versus the Street at $5.
PETM - Apollo leading the pack in PetSmart bid, sources say
- "Black’s Apollo Global Management is seen as the most aggressive suitor, and likely winner..."
- "Private-equity firms BC Partners and the team of KKR and Clayton, Dubilier and Rice are also still in the running, sources said."
WMT - Wal-Mart to Cut 250 Jobs in China -- Update
AMZN - To Gain the Upper Hand, Amazon Disrupts Itself
- "But people are not going to be getting their stuff from an Amazon store in Midtown Manhattan this holiday season. A spokeswoman said in a statement that the 470,000-square-foot building was “primarily” corporate office space, and that the ground floor retail shops would be subleased."
AMZN - Moody’s Cuts Outlook After Amazon Debt Offer
- "Moody’s Investors Service in turn cut its outlook on the company’s “Baa1” credit rating to negative from stable."
TGT - Target to Open Second Brooklyn Store
- "Target is planning to open its second Brooklyn store in 2016, a CityTarget in downtown Albee Square, Brooklyn."
Black Friday breaks records at John Lewis
- "The lure of Black Friday bargains lifted weekly sales at John Lewis to the highest levels recorded in its 150-year history, with one tablet computer sold every second in the rush for pre-Christmas bargains."
WMT - Wal-Mart Canada adding more Grab and Go lockers