HEDGEYE RETAIL IDEA LIST
CHANGES THIS WEEK
- HBI: Removed HBI from our Long Bench. We like the balance sheet story, but now it's printing bad numbers even with the benefit of acquisitions. Not for us.
- COH: Took COH off Long Bench. This name was there for all of 2 weeks (an odd call for us). After it bought Stuart Weitzman -- which we think is perhaps the worst deal we've seen in retail in a year, we actually added to our LONG bench. The reason is that COH -- a company whose net income is below levels experienced in the Great Recession, would finally manufacture earnings growth with this deal. But we think that COH will end up having to pay closer to $1bn vs the reported $574mm due to underinvestment by the former owner. This stock might work for a few bucks on the 'less bad' trade. But it should start with a $2-handle.
- DG: Removed from Short Bench. Our short bias was a "lose if they win, and lose if they lose" scenario as it relates to Family Dollar. Either DG pays too much (12-13x EBITDA), or it loses and the stock falls back to where it was when it started. The deal appears to be a non-starter, and DG is only 6% above where it was when the bidding began. With gas prices having fallen so far, there's likely no catalyst on the downside here.
EVENTS TO WATCH
LULU - lululemon athletica Founder Chip Wilson Announces Resignation from Board
Takeaway: No surprise here at all. First Wilson traded in his Chairman title in exchange for the Board putting through Laurent Potdevin as new CEO (despite his lack of qualifications). But handing in his Chairman title, in effect, neutered Wilson -- a) could no longer call a Board vote, b) did not have anything close to a majority vote on the Board, and c) was banned from the building except for Board meetings due to his behavior. Within six months, Wilson sold half of his stake to Advent International at $38 for $845mm. For the record, that investment is now worth $1.38bn not six months later. Wilson has stated publicly that he feels 'handcuffed' to LULU due to his ownership. To his credit, he's a successful entrepreneur at heart, and his family members are trying to start up a retail concept without his 'official' involvement. It makes all the sense in the world that he'd pull away from the Board, and we wouldn't be surprised to see him sell the rest of his stock in a negotiated transaction -- like with Advent. In fact, if he doesn't, it probably means that the pool of buyers out there is slim, which will worry us.
Tory Burch's Growing Value: Firm Now Worth $3.5B
Takeaway: A good article outlining the ownership of Tory Burch -- something we think equity investors will need to know in 12-18 month's time when the company goes public. The $3.5bn valuation implied by recent private transactions makes sense to us. Kate Spade is trading about $4.3bn, 23% higher despite the fact that it's footprint is actually a third smaller than Burch. This isn't a function of KATE being overvalued -- in fact we'd argue the opposite. Getting in at $3.5bn for Tory appears to be a no-brainer. We think that the bankers couldn't have made this name more marketable by getting Roger Farrah on board from Ralph Lauren. The Burch/Farrah co-CEO one-two punch is easily good for another 5-10 multiple points -- whether Roger actually succeeds or not. Wall Street will definitely give him the benefit of the doubt (they'll remember his success at RL, and forget his failures at Foot Locker and Federated).
UA, FAST - Murray/Djokovic Sport Confusing Brand Images
Takeaway: We got confusing brand messages in the Final of the Australian Open.
In one corner was Novak Djokovic, who wore his trademark Uniqlo apparel, while donning nondescript white Adidas court shoes. We've grown to accept that, as his primary endorser -- Uniqlo -- does not make shoes.
But it was Andy Murray who was more interesting. After signing a deal with UnderArmour on Dec 30th, he was proudly covered head to … knee in UnderArmour product. His toes, unfortunately, were still wearing Adidas. This simply shows the complexity of the footwear business model vs apparel. The day UA announced the deal, Murray was proudly wearing top-of-the-line UA apparel. But five weeks later, UA does not have a shoe that he is comfortable performing in at a major event. That's not a knock on UA -- as it's almost impossible for most brands to work that fast (Nike probably could). But the design, development and production process might mean that Murray has to wear dual-brands for another few months at least. On the bright side, UA can blame Murray's loss on Adidas (and believe us, they will).
DKS - DICK'S Sporting Goods Announces that Chief Financial Officer Andre J. Hawaux will Assume Additional Responsibilities as Chief Operating Officer
TGT - Target to seek two-month extension of protection from creditors
RSH - Chapter 11 as Early as Today
Neiman Marcus, Office Depot to accept MasterPass
L Capital Acquires 50% of Ba&sh
Gucci to Appeal Guess Case in Paris
DSW - DSW shifts exec roles, responsibilities