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Takeaway: The Athletic Black Book-call details and time change. Hedgeye Retail Idea List (LULU, ZQK, RL, WSM, WMT). PETM pods justify multiple.

The Athletic Black Book (***Please note date and time change)

On Thursday, December 18 at 1:00pm EST, Hedgeye's Retail Team will be hosting a call to review our next Black Book, which will be focused on the Athletic footwear and apparel space.  

Specific names include Nike (NKE), Adidas (ADDYY), UnderArmour (UA), Foot Locker (FL), Hibbett (HIBB), Dick's Sporting Goods (DKS), and Finish Line (FINL) - which collectively offer up a good mix of longs and shorts.

Retail Callouts (12/15): ATHLETIC BLACK BOOK, IDEA LIST, PETM, LULU, ZQK, RL, WSM, WMT - 12 15 chart2


Call Details

Toll Free Number:

Toll Number:

Password: 13597073

Materials: CLICK HERE


Retail Callouts (12/15): ATHLETIC BLACK BOOK, IDEA LIST, PETM, LULU, ZQK, RL, WSM, WMT - 12 15 chart1B

We made the following changes to our idea list this week.

  • LULU: Still on our Best Idea list, but the stock is up 35%, and the reality is that the management team has really done little to deserve it. We're taking it down a couple of notches on our list below RL and NKE for now. We should be seeing better growth in the business as LULU laps its product and PR gaffes from last year. We still think that there will be big changes at the company, which will likely come after the new CFO starts (within 3 months). We rarely put so much stock in one individual, but for several reasons, we think it makes sense with LULU. See our note LULU - Long, But On A Short Leash from last week for more details.
  • ZQK off of our Long Bench.  We've been holding out hope that what once appeared to be a rock star management team would start to deliver, and that a $2 stock would prove to be a great call option. But the reality is that this team can't get it together. Not worth our time.
  • RL: moved it two notches higher on our idea list. No change in the model, but the risk/reward relative to other names on the long sheet is looking better.
  • WSM: moved two notches higher on our Short Bench, as we're getting that much closer to the point where RH will begin to compete with WSM in kitchens. Perhaps not a negative earnings event for WSM immediately, but it won't help the multiple.
  • WMT: Off our Short Bench. No reason other than the fact that it has been on our bench for most of 2H14. We don't see a company-specific reason to press this one, and with oil in a free fall, it only helps WMT.


Retail Callouts (12/15): ATHLETIC BLACK BOOK, IDEA LIST, PETM, LULU, ZQK, RL, WSM, WMT - 12 13 chart3


PETM - Consortium led by BC Partners to Acquire PetSmart for $83.00 per Share in Cash


Takeaway: Nothing unexpected here given all the activism over the past year, and the fact that the stock spiked to the high-$70s in mid-November. What's interesting is that the take-out is about 9x EBITDA, which at face value looks cheap compared to other bids like what we've seen at FDO -- a lesser quality company but with bids as high as 12x EBITDA.   That said, PETM is one of the select few retailers that never put up a negative annual comp. But it's on track to break that trend this year -- with negative comps in 2 of the three quarters-to-date. At the same time peak productivity is rolling over, the company is sitting at peak Gross Margins, trough SG&A margins, and obviously peak EBIT mgns. With that context, the 9x EBITDA multiple seems a lot more fair.


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