Takeaway: Going into preannouncement season, XRT at all-time high, peak multiple, trough short int, trough vol (conviction). Be careful what you own.

HEDGEYE RETAIL IDEA LIST

Retail Callouts (1/5): Idea List, Retail Trading Focus, TGT, AMZN, NKE - 1 5 chart1

The only change this week is that we removed AMZN from our Short Bench. We're in the middle of our research process for our e-commerce Black Book, which will be released on Thursday January 22. We'll likely come out with a more conclusive opinion on AMZN -- which could just as easily be positive as negative. We'd rather take it off our list now, and then add back in the appropriate place when our research is done. 

RETAIL INDUSTRY

This chart of the XRT is so telling to us.

  1. Price is at all time high.
  2. Earnings and margins are all time high.
  3. Multiple is at all time high.
  4. Short interest (the white line in the chart below) is at 5-year low – in line w levels 9 months before the ’08 meltdown. (We know it's risky to gauge sentiment based on short interest in an ETF, but the sequential slowdown is notable).
  5. Volume is near all-time lows (volume = conviction. i.e. conviction in owning the group has never been worse).

We question how people could objectively  own names like KSS, M, FL, TGT, GPS, etc…etc…etc… with this kind of setup?

Retail Callouts (1/5): Idea List, Retail Trading Focus, TGT, AMZN, NKE - 1 5 chart2a

Source: Factset 

COMPANY HIGHLIGHTS

TGT - Canada Exit Rumors

Takeaway: A lot of media outlets have picked up the idea that Cornell is set to shut down Canada in 2015. We have a hard time seeing that as an option so early into the new CEO's tenure. Even so, we'd argue that Canada speculation was the primary catalyst behind the run from $58 to $75.  15 months ago TGT execs. laid out the 2017 financial targets which called for Canada to generate $6bil in revenue and $0.80 in earnings power. We're a long way from that now. The bigger question for us is, "what led Target into Canada in the first place?" The answer isn't that business prospects in the US were just so dang good. We get the easy comp argument through 2Q because of the 2013 data breach, but TGT is one of the most expensive names in retail relative to its underlying growth. Based on our 2016 earnings number of $3.75, TGT is trading at 17x earnings (ex. Canada) and 20x earnings of the combined entity. We have a hard time reconciling that type of valuation.

OTHER NEWS

DKS, BBBY, GME, PIR - Pier 1, Dick’s Are Among Retail LBO Picks: Real M&A

(http://www.bloomberg.com/news/2015-01-05/pier-1-dick-s-are-among-retail-lbo-picks-real-m-a.html)

AMZN - Amazon Sellers Sold Record-Setting More Than 2 Billion Items Worldwide in 2014

(http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2002794)

Japan Retailers See Mixed Dec. Sales

(http://www.wwd.com/business-news/financial/japan-retailers-see-mixed-dec-sales-8088871?module=Business-latest)

WTSL - Wet Seal Receives Default Notice From Creditor

(http://www.bloomberg.com/news/2015-01-02/wet-seal-says-it-received-default-notice-on-27-million-in-notes.html)

NKE - Nike Golf Patent: Recycled Golf Ball

(http://www.bloomberg.com/news/2015-01-02/nike-playboy-activision-gitanjali-gems-intellectual-property.html?cmpid=yhoo)