Retail Callouts (2/12): SKX, NKE App, Ports, JCP, WMT, TGT

Takeaway: New Nike App is another demonstration of DTC commitment. Bad for FL, HIBB, etc

EVENTS TO WATCH

Retail Callouts (2/12): SKX, NKE App, Ports, JCP, WMT, TGT - 2 9 chart2

COMPANY HIGHLIGHTS

SKX - 4Q14 Earnings

Takeaway: In line quarter with a solid algorithm on the P&L -- revs up 26%, EPS +53%. The mid-point of 1Q guide was 8% and 18% above consensus for revs and EPS respectively. But, keep in mind that SKX has never made it more than 8-quarters with out an earnings surprise on the down side. This quarter marks the 5th quarter in a row where the company beat but that has slowed dramatically from the big blowouts we saw at the start of the year. Sales are slowing sequentially on both a 1yr and 2yr basis. We're 3-6 months away from a tough margin comparison, and the company will lap the memory foam benefit from 2014 this year. Overall AUR trends for the year were a big benefit for SKX, the trend looks like this: -3.1% in 4Q13, +5.1% in 1Q14, +4% in 2Q14, +1.2% in 3Q14, and +7.4% in 3Q14. Gross margins ended the year about 40bps off all time highs and EBIT margins are creeping in the same direction. Though we have a negative bias on this name, we have to respect what the company has done over the past two years. The question for us is whether there is something structurally that has changed for the better at this company, or is it due for another Skecher-esque blow up. If we see the inventory/sales trend continue to drift lower in 1Q, this will make it to our Short bench for sure. 

NKE - Nike SNKRS App

Takeaway: There is a lot going on with this new Nike SNKRS app. The takeaway right up front is that it makes buying shoes easier on a mobile device. That's bad for retailers like FL, HIBB, FINL, etc. We haven't seen this type of technology before but it makes sense given Nike's push into the direct business. A few more nuances worth mentioning…

  1. Everything purchased on the app ships for free. The free shipping threshold on nike.com sits at $75. As we were typing this it made sense to us because this is a sneaker-head app which will probably not feature any styles under the current hurdle rate, but it’s a solid piece that the marketing department can use. We think that Nike moving to free shipping across the board is a 12-18 month development.
  2. The app will curate specific styles that fit the consumers taste. That's cool, but we think the more important feature is the limited/new release notifications. Limited releases are a big driver for the likes of FL. Nike now has a way of communicating with its target consumers directly about these releases.

Retail Callouts (2/12): SKX, NKE App, Ports, JCP, WMT, TGT - 2 12 chart1

OTHER NEWS

Work at West Coast ports to scale back for 4 days

(http://www.latimes.com/business/la-fi-port-shutdown-20150212-story.html)

WMT - Walmart Canada announces expansion plans

(http://news.walmart.com/news-archive/2015/02/11/walmart-canada-announces-expansion-plans-retailer-continues-to-accelerate-food-and-e-commerce-growth)

TGT - Target Cuts 550 Jobs With More to Follow

(http://www.wwd.com/retail-news/mass-off-price/target-cuts-550-jobs-with-more-to-follow-8171129?module=Retail-latest)

GOOG, AAPL - Google Testing Payment Service

https://www.theinformation.com/As-Apple-Payment-Strategy-Takes-Shape-Google-and-Square-Respond?token=16f2ef5c1548c9e132c1efc59907f657

JCP - J.C. Penney expanding Disney shops to additional 116 stores

(http://www.chainstoreage.com/article/jc-penney-expanding-disney-shops-additional-116-stores)

ZU - Zulily CFO Out

https://www.sec.gov/Archives/edgar/data/1478484/000147848415000015/zu-2015x2x11x8k.htm

Scott Kessler Named Belk's Chief Information Officer

(http://www.wwd.com/business-news/human-resources/scott-kessler-named-belks-chief-information-officer-8167809?module=Retail-latest)

ASNA - Ascena Retail Group, Inc. Appoints Robb Giammatteo as Chief Financial Officer

(http://phx.corporate-ir.net/phoenix.zhtml?c=81419&p=irol-newsArticle&ID=2015766)

Plac to Enter U.S. Retail Market

(http://www.wwd.com/retail-news/designer-luxury/plac-to-enter-us-retail-market-8171072?module=Retail-latest)