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October 23, 2009


I love being at the hub of investor sentiment and emotion of key issues in Retail. It’s easy to gauge by the velocity and tone of email after a print or piece of research (yes, it is often hate-mail, which is fine by me as it usually means I struck a chord). Here’s an exchange between a subscriber and me in the wake of the DECK print.

Question: DECK Q3 report and guidance is a blowout.  Q3 EPS beat is $0.34 and Q4 guide up is $0.30, bringing full year raise to $0.64.  That puts FY09 near $8.00, and I still think they are being conservative. Should end the year with approx. $20 per share in cash.  Also called out big pick up in UGG take away at retail in last 4 weeks, and strong acceptance of the brand overseas.  I know folks are skeptical, but shouldn’t this stock rip?  Interested in your thoughts when you get a chance. 

McGough: I'm in agreement on financials. This thing is a full-fledged brand. Ask any outerwear buyer at JWN.

But unfortunately I don't think the myopic Street will ever see the truth. 

That's why I will bet you dinner at the best rest in [XYZ City] that it is bought outright by this time next year. Someone will see the value – even if the Street does not.

Bottom Line: We’ve got $9 in earnings power in FY10 with $20 ps in cash. That’s about 4.5x EBITDA. Ignoring the cash (which you shouldn't), and applying a low 12-13x p/e for a ‘real’ high end brand, it gets to a stock easily over $110 – or 20%+ above where it is today.


Some Notable Call Outs

  • Investors and analysts have generally been fascinated by demographic trends and “ways to play” different target consumers. One area that receives a disproportionate amount of attention is Generation Y a.k.a The Millenials. While many statistics and studies have shown that teens and tweens like to shop, spend time at the mall, and are easily influenced by both the media and peer groups, a recent book suggests that those conclusions may in fact be understated. The statistic that jumps out at me is the finding that Gen Y shoppers spend five times more than their parents did at the same age (after adjusting for inflation).
  • In keeping up with the book wars, score one for the little guy. On behalf of independent booksellers across the U.S (are there that many left?), the ABA is asking the government to probe the recent and aggressive discounting by large retailers including AMZN, BKS, TGT, and WMT.
  • Most companies have been topping estimates by leveraging reduced cost structures and lean inventory positions, but COLM proved that heading into the quarter over-inventoried has its benefits– namely sales upside. The company outpaced its July sales outlook by more than 6%, driven by demand for fall products by U.S. retailers. We’re not suggesting companies with excess board shorts and tank tops are well positioned headed in the holiday, but rather companies with reasonable (i.e not too lean) inventory are likely to find an additional driver of upside beyond simple cost cutting and less clearance/promotional activity.


-Walmart Sees Faster Sales Growth on Store Expansion; Plans to Offer Lower Priced Items During Holiday Season - Wal-Mart Stores Inc., the world’s biggest retailer, expects sales growth to accelerate next year as it expands stores globally. Revenue will probably rise 1 percent to 2 percent this year and 4 percent to 6 percent next year, Chief Financial Officer Thomas Schoewe said at a meeting with analysts today in Rogers, Arkansas. Next year’s projection may prove to be conservative, he said. Wal-Mart announced it will offer weekly deep savings events and new everyday low prices on thousands of items across the store, starting today through the holiday period. Each week, Wal-Mart will announce new pricing reductions, beginning with selected items in groceries and entertainment. <bloomberg.com> <indiaretailing.com>

-China: Retail sales up 15.1% in Q3 - China's retail sales in the first three quarters rose 15.1% year-on-year, or 17% after deducting price factors, to top 8.97 trillion yuan ($1.31 trillion), revealed the National Bureau of Statistics. The volume of retail sales topped 6.10 billion yuan in urban areas, up 14.8% year-on-year, and 2.87 trillion yuan in rural areas, up 16%. In terms of sectors, sales in wholesale and retail rose 15% in the first three quarters, and expanded 17.4% in accommodation and catering. <fashionnetasia.com>

-India: Government visits Europe to lure textile investments - Indian's textiles minister Dayanidhi Maran will bring a business delegation to Switzerland, Italy and Turkey, followed by another trip to Germany and France in November in order to attract foreign investment in its textile and clothing sector. Promising 100% equity ownership, intellectual right protection and an average labour cost of US$0.70 per hour, India hopes to lure new capital to establish greenfield textiles, fabric, garment, technical textiles and clothing factories in the country. <fashionnetasia.com>

-Amazon's Q3 Sales Jump 28% - Amazon.com, Inc., which acquired Zappos.com in July of this year, said  sales increased 28% in the third quarter to $5.45 billion from $4.26 billion in third quarter 2008. Excluding the $41 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales would have grown 29% compared with third quarter 2008. Operating income increased 62% to $251 million in the third quarter, compared with $154 million in third quarter 2008. Excluding the $10 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, operating income would have grown 69% compared with third quarter 2008. <sportsonesource.com>

-Amazon introduces software for reading Kindle e-books on a PC - Having dramatically increased demand for electronic books with the introduction of its dedicated e-book reader, the Kindle, Amazon.com Inc. today announced plans to make it possible to read Kindle e-books on another popular device—the personal computer. Amazon says consumers will be able to download for free the Kindle for PC software starting in November. Once the software is installed, consumers will be able to purchase any of the over 360,000 Kindle-compatible e-books available through Amazon at Amazon.com/Kindlestore, and access their Kindle libraries of previously purchased e-books from Amazon servers. <internetretailer.com>

-Mayor Bloomberg to Hold Retail Dinner - Mayor Michael Bloomberg, motivated by the success of Fashion’s Night Out and its collaborative spirit, is continuing to press the cause of retailing in Manhattan. The mayor has been quietly staging group meetings with retail chief executive officers, and now has sent out invitations for a third, less discrete gathering: a big dinner at Macy’s Herald Square on Jan. 11 to be hosted by Terry Lundgren, chairman, ceo and president of Macy’s Inc.; Deputy Mayor Robert C. Lieber, and possibly the mayor himself. Fifty to 60 ceo’s are expected. The dinner will take place the same week as the annual National Retail Federation convention at the Jacob K. Javits Convention Center, which is being held Jan. 10 to 13. <wwd.com>

-Gucci Spotlights Mary J Blige Charity and Pop-Up Shop - Gucci was at both ends of greater New York on Thursday, feting a new partnership with Mary J. Blige’s charity in nearby Yonkers, N.Y., while preparing to open its Gucci-Icon Temporary pop-up store in SoHo. Creative director Frida Giannini, Blige and branding impresario Steve Stoute gathered in Yonkers to open the new Mary J. Blige Center for Women, a partnership between The Foundation For the Advancement of Women Now (FFAWN) — the charity that Blige and Stoute cofounded in 2007 — and Westchester Jewish Community Services (WCJS). <wwd.com>

-Larry J. Franklin of Franklin Sports Elected SGMA Chairman - Larry J. Franklin has been elected as the new chairman of the Sporting Goods Manufacturers Association (SGMA).  Franklin, president of Franklin Sports, Inc., based in Stoughton, Massachusetts, was elected for a one-year term at the SGMA’s annual business meeting in Chicago earlier this week. Franklin succeeds Tom Rogge, president and CEO of Cramer Products, who served as SGMA Chairman from 2004-2009 and will remain on the board as Immediate Past Chairman <sportsonesource.com>


NKE: Phillip Knight, Director, sold 896,000 shares ($58mm).

CRI: David Pulver, Director, sold 25,000 shares ($720k).

NFLX: Reed Hastings, CEO, sold 10,000 shares ($450k) after exercising options to buy 4,500 shares.

MW: George Zimmer, CEO, sold 25,000 shares ($650k).