NKE – IS 50% GROSS MARGIN IN THE CARDS?
For full research note: CLICK HERE
If you (like us) were wondering why Nike was so expensive, well now you know. Is this company for real? We expected a big earnings beat, and we got it (GAAP $0.98, $0.92 adj vs our $0.90 and the Street’s $0.83). But by just about any stretch, we should have seen some stress in Nike’s US Futures numbers with this print. No dice. Growth is healthy throughout the portfolio, margins are strong, and guidance is up for the quarter and full year. Revenue was +5%, GP +6%, EBIT +15% and earnings +26%. Not bad. The simple fact that we’re not seeing any holes (when we otherwise should) either a) speaks to the company’s increasing dominance with the consumer globally, b) points to the excess profits Nike is seeing as it’s e-commerce engine kicks into high gear, or c) suggests that CFO Don Blair jettisoned his usual conservatism in issuing guidance as Nike starts its new Fiscal Year (and Blair hands off these expectations for his successor to deliver upon – starting on Aug 1). We think it’s all of the above. Outlined in our note.
RH - $2mm Insider Buy
Takeaway: Lead Independent Director, Thomas Mottola, made a $2mm open market purchase on Wednesday. This is the first meaningful insider buy we've seen at the company since CEO Gary Friedman bought a $2mm slug back in September of 2014. That's when the stock was 25% lower than it is today. RH doesn't require its Board members to maintain a minimum ownership position, so this buy is all about Mottola's confidence in managements ability to execute on its long term plan.
RL - Ralph Voting % at 81.3%
RL Proxy Takeaways...
-Board now set at 11 directors vs 12 prior, 8 class B and 3 class A, as the board chooses not to replace Steven Murphy who resigned in May to become a company consultant.
-Ralph retains 100% of voting over the 8 class B directors -- no change there. That amounts to 81.3% of total voting power.
-Ralph's compensation came in at $24mm down from $24.5mm LY -- still among the highest paid CEOs in America. Given where the stock is, we'd expect this to come down materially in 2015.
IKEA to Ratchet Up Its Hourly Pay in U.S.
Takeaway: This IKEA decision is interesting for a couple of reasons.
1) For starters it's a non-public company that doesn't have to answer to the public markets, so it has a bit more wiggle room to be aggressive on wages.
2) The $11.62 minimum wage floor is 64% higher than the current federally mandated minimum wage and almost 20% higher than the $10 floor implemented by WMT, MCD, TJX, and TGT. The delta can be attributed to IKEA's need to attract and retain the right type of talent. We think that gets lost in the wage discussion. It's all about maintaining the spread for each retailer between itself and WMT, which means the reach of the wage hikes is far more widespread than many may otherwise assume.
FINL - Good Quarter. Interesting/Perplexing Insight into Occupancy
The headline EPS number looked good relative to expectations especially with short interest just off 2yr peaks at 11%. Reported comps for the month of May were up 12.6%. That syncs with commentary we heard out of HIBB and FL who indicated at the time of the 1Q release on 5/22 that May comps to date were up LDD QTD. Commentary from management indicated that June comps 85% of the way through the month were up MSD. On HIBB specifically there are considerable headwinds as we enter July with the shift in Tax Free Holidays in HIBB's core market from 2Q last year to 3Q last year. One notable factor is that management noted that FINL will not leverage occupancy costs -- even on a mid-single-digit comp. We've seen luxury retailers (KORS) with relatively high occupancy leverage hurdles, but never a retailer with an average basket below $100. That's either a sandbag, or its very disconcerting.
VNCE - Vince CFO is Resigns
Every time we step-up our work on VNCE as a potential long, something emerges that gives us pause. CFO resignation for a volatile high-priced apparel brand that is a) potentially still over-earning and b) really doesn't know what it wants to be -- is just flat out scary. There's something to do with this stock, we just don't know if its long or short. Either way, it's worth doing the work -- particularly given the eventuality of being bought by another company.
LULU - Lululemon recalls 185,000 tops in Canada for dangerous drawstrings
AMZN - What’s a Treasure Truck? Ask Amazon
More exec changes at 99 Cents Only