HEDGEYE RETAIL IDEA LIST
JWN: Took off our long bench. The company is guiding to high single digit sales growth, and potentially a down year for earnings. A sandbag? Perhaps. But we can't prove that. And at 21x earnings and near trough short interest, we don't want to be near this one.
NKE: After CFO Don Blair announced his retirement, we booted NKE from our list of Core Long ideas. We always said that he was the ONLY person at Nike we'd be genuinely scared to see leave -- and it's not because of the respect he has earned by the Street. Without him, the organization is likely to change materially -- and we don't yet know if the resulting entity is one we'll like. For now, business is solid. But there's work to do on this name.
RL: We kicked this one to the long bench. A reactionary move -- the kind we never like to make. But the thesis was that after 2-years of investing, RL was accelerating sales, margins and ROIC. Not the case. Now entering another investing period -- by the time it's over, Mr. Lauren will be pushing 80 years. As with Nike, we need comfort on the organization structure here.
TGT: We moved this up a notch on our Short Idea List. While not expensive relative to the market (TGT is at 17x earnings), we think that cost pressures are building. Not just because of WMT's big pay hike. But because of the actions Cornell will have to take to rebuild TGT's long term growth trajectory.
EVENTS TO WATCH
Takeaway: We took the implied increase in annual pay for each Walmart employee, and extrapolated that to WMTs relevant competition for employees. That equates to about $1850 per employee. We think that's a fair estimate given that a bump from $7.25 (current minimum wage) to $9.00 per hour is equal to $3650 per year.
The most at risk:
- KSS - This surprised us on a few levels. a) KSS pays the lowest hourly wage of all the big players in this space comparables include: WMT, TGT, M, and JCP ($9.16). b) We applied the wage hikes only to KSS part-time employees. The 106K part-timers make up over 77% of the work force. Add all that up and you get to 100bps in margin pressure and a $0.62 hit to EPS (14% impact to the streets 2015 number). At 1,200 stores, KSS might not face the media pressure of a WMT or a TGT, but it directly competes with Walmart for it's workforce.
- TGT - see our note. For the link CLICK HERE
- HIBB - This may not seem as relevant, but given HIBB's 'Remora' strategy we think it impacts them as well. Though we'd argue that the 25% employee discount will help mitigate attrition. Adding it all up we get to a $0.24 hit to EPS (8% impact to the streets $3.00 FY16 estimate) and 100bps of margin headwind.
West Coast Ports Deal Reached
TGT - Target sees initiative on organic, natural products to hit $1B in sales this year
Mall of America Heightens Security
RSH - Report: RadioShack cleared to sell 1,100 store leases
APP - American Apparel Fires Both of Its Creative Directors
WAG - Walgreens.com to offer patients drug 'reviews'
Prada to Open Vancouver Flagship
Chanel Unveils Rome Flagship