Preannouncement Season -- Three Months Away
Conclusion: Yesterday we updated and emailed our SIGMA deck for about 100 companies, (Ping us if you would like a copy). The number of companies screening short is nearly 3x what we usually see. We think that it’s game-time for picking stocks in this group. Earnings matter more than ever. We need to manage risk ahead of what will likely be a busy preannouncement season this summer. We’ll be back with changes to our Idea List and Bench after vetting the tickers below appropriately.
As background, in this analysis we triangulate the P&L and balance sheet to hone in on which companies are likely to beat on the Gross Margin line, and of course…which companies are going to miss. Over time, the relationship between this analysis and stock moves is just over 90%.
In running this analysis for the group, we typically find that roughly 10% of the stocks fall onto our Long screen, with another 10% Short. This quarter, however, we’re looking at about 20% screening Long, and just over 30% Short. Tickers are as follows… (particularly notable callouts are bold and underlined)
Positive: AMZN, ADIDAS, BEBE, BGFV, CAB, CACH, CHS, COH, CRI, DG, GMAN, HD, INDITEX, KORS, LOW, MW, OXM, RH, SPLS, SSI, TFM, TPX, UA, URBN, WMT, ZQK
Negative: AMER Sports, APP, BBW, BBBY, BKS, COST, DDS, ETH, FIVE, FINL, FL, FOSL, GIL, GPS, HBI, H&M, JCP, JWN, KSS, NILE, NKE, PIR, RL, ROST, SHOO, SKX, SUMR, WSM, ULTA, TUMI, TIF, Fast Retailing
Industry Trend: The retail group in aggregate ended the fourth quarter in the sweet spot – sales growing faster than inventories, and margins up y/y. We know, that’s old news. When earnings season kicks off in earnest next week, we’ll see this position hold – which absolutely needs to happen with the group at 22x earnings and 9.5x EBITDA (peak, by a long shot). It is very rare that we see the group hold the upper right quadrant for more than two quarters – meaning that there’s likely risk to either a) guidance with the upcoming round of earnings reports, b) earnings misses when 2Q earnings hit in July, or c) multiple compression in anticipation of slowing earnings growth. We think that this summer’s preannouncement calendar will be particularly robust.
NKE, UA, AdiBok - Nike near deal for NBA uniform rights
Takeaway: There is not a chance that Nike let's this NBA deal slip through its fingers. Nike couldn't care less about Adidas or Reebok as a threat to its basketball franchise. But the thought of UnderArmour securing the NBA deal likely has Nike quaking in its boots. That's why there's almost no chance Nike loses it. Consider the math. The deal is now for about $36mm/yr. Let's say the new deal comes in at $45mm per year, that's just 4.5% of NKE's existing endorsement budget, for UA it's 50%. That's actually not too far above what Kevin Plank had Board approval to pay for Kevin Durant before Nike outbid them (near $30mm). But make no mistake, if Nike had to pay $100mm for this deal, we think it would. If UA was smart, it would push the bidding as high as possible to potentially dislocate marketing dollars that Nike would otherwise spend elsewhere.
Carlyle Group eyes retail and CPG world with Walmart exec on team
Sneaker Makers Train Their Eyes on Fashion
TJX - TJ Maxx Now Sells Plus-Size Clothing On Its Website
TGT - Lilly Pulitzer for Target Pop-Up Opens in Bryant Park
JWN - Nordstrom Partners With Italian Trade Commission
Macerich Shareholders Threaten Lawsuit
SRSC - Sears Canada CEO says more store closures possible
Do It Best relaunches ecommerce site
DSW - U.S. shoe giant DSW sticks to big-box format as it plans to double presence in Canada