RL | Fountain of Youth

Takeaway: With one press release and three headcount moves, the average age of RL’s C-Suite came down by 22% -- from 60 1/2 yrs to 47.

We think this CEO change is a huge win for RL shareholders. It’s important, we think, for the age of the executive team at most consumer brands to be as closely aligned with its core customer as possible. For too long, that’s been going the wrong way at RL. But RL just made the biggest adjustment in that regard that we’ve seen at any company – perhaps ever.


We’re definitely more inclined to own RL on this announcement. Questions around management and Ralph’s oversight that we outlined in our June Vetting Book (CLICK HERE) were the biggest factors keeping us back from getting involved on the Long side. Those are now done. Now we need to get through the ongoing restructuring and SAP implementation, and yes, we’re still blown away that these two are happening at the same time.  But that’s 2-3 quarters away from an improving delta on the EBIT line. We think that once the bottom is in (perhaps in the early Feb print), demand to own this one will be strong.


Some Thoughts On The Announcement

  1. It’s Long Overdue. Ralph will be 76 years old in two weeks, making him the 7th oldest CEO in the S&P500. Since Roger Farah left his COO post in May 2014, Ralph has been taking on more and more responsibility, at a time when his age dictates he should probably be doing less.
  2. Jackie Is Out. Jackie Nemerov, current President and COO, will also be leaving in November. It’s amicable, but our sense is that this wasn’t exactly in her immediate-term plan. Nobody will come out and say it…but here goes. We’re happy to see Jackie go. Jackie is tough as nails and is a great leader internally, but her external profile was not good – especially with Wall Street. In her mid-60s, she helped prop up the average age in the C-Suite along with Mr. Lauren.
  3. Chris Peterson (49) remains President of the newly formed Global Brands Group. In other words, the six-headed Hydra that is Ralph’s new Brand structure entirely reports to him. This is a massive project, and the company’s bottom line will go nowhere until it’s done. As noted, we think its 2-3 more quarters until the rate of change turns positive.  
  4. New Guy Is From Where? All the calls we fielded this evening were hyper concerned about one thing…that Stefan Larsson, the new CEO is coming from none other than Old Navy – not exactly a fashion mecca. True.  That said, Old Navy is Gap’s biggest division, and both knows and serves its customer extremely well – even if it’s not RL’s customer. While no one on our team has met him personally, everything we know about his resume is impressive – very much so. First off, he’s 40-years old. He spent the bulk of his time at H&M where he rose from Regional manager, to Head of US Expansion, Head of Global Expansion, and ultimately Head of Global Sales. This is key because one of the biggest threats to RL is getting beat by Fast Fashion retailers like H&M.  Ultimately, he’s got age on his side, time at H&M, International experience, and a background in store growth – all the things that RL needs to grow.
  5. Too Young? We’ve already heard that one several times, and no, we’re not concerned. We’ll take a hyper-overachieving young gun over an ‘above average’ fifty-something anyday. We think age is irrelevant.
  6. Dramatic Changes? We heard this three times tonight. “Will the new CEO come in and make sweeping changes?” Keep in mind that Mr. Lauren’s office will still be occupied everyday, as he will maintain his role of a) Chairman of the Board, and b) driver of the creative process within Ralph Lauren. Also, there’s no coincidence at the massive age gap between Lauren and Larsson. Larsson could almost be Lauren’s son – in fact, he's 3-years younger than David Lauren, SVP Marketing at RL. Ralph was likely attracted to having someone young who is firmly entrenched to carry out his agenda by working side by side with him over the course of 2-3 years without rocking the boat. Remember, Ralph has 81% of the voting stock at RL – the second highest in the S&P (CEO of Universal Health is higher at 83%). In other words, Larsson will likely not so much as change the wattage of light bulbs in the Mansion without Ralph’s approval. The only friction we’d expect would be with Nemerov. But we don’t have to worry about that anymore. 

RL |  Fountain of Youth - Stefan Larsson 2

Stefan Larsson

Image Source: Gap


RL |  Fountain of Youth - RL chart 2

RL |  Fountain of Youth - RL chart 3c

MUST-SEE | McCullough vs. Wesbury on the Fed, Markets and Growth

(In case you needed another reason to tune into Fox Business, we bring you this gem.)


During this recent animated exchange hosted by Fox Business' Maria Bartiromo, Hedgeye Founder & CEO Keith McCullough and First Trust Chief Economist Brian Wesbury square off on the Fed's rate hike delay and the outlook for U.S. and global economic growth.

Cartoon of the Day: Bears Crossing

Cartoon of the Day: Bears Crossing - Bear crossing cartoon 09.29.2015


"Rate hike or no rate hike? Who cares – stocks are now going down on both," Hedgeye CEO Keith McCullough wrote in a recent Early Look.

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Retail Callouts (9/29): Titleist Looking To Go Public | RH Modern

Takeaway: Titleist looking to go public, but is golf investable? Consumer look at RH Modern, launching Oct. 1. Worst chain store growth # of the year.

NKE, UA, Adidas - Titleist looking to go public, but is golf investable? 

Acushnet Co (Titleist/FootJoy) is talking to banks about going public.  Acushnet (once owned by Fortune Brands) was purchased by Fila Korea Ltd. In 2011 for a purchase price of $1.225bn.  So naturally, the IPO is rumored to value the company at $2bn.


Titleist and FootJoy are among the best brands in Golf, and just about every 3-handicap PM who will be shopped the deal is likely to agree. But lets not forget that this is a low margin, operating asset intensive, high R&D business with two huge competitors (Nike and UA) who are jacking up the cost of growth by way of much more cash-rich core businesses.


Also, there is a net exodus of players from the game. Since 2007 (Economy & TigerGate) the number of people playing golf in the US is down by 5mm, or 17%.  Rounds per player has gone up since then, showing that it is the beginner that has left the game. That's definitely the lower-spending golfer, but the fact is that today's beginner is tomorrow's expert. 


Another thing  to consider is that if we're talking about an IPO, it likely means that the company has been shopped to UA and Adidas (Taylormade), both of whom presumably balked. And lastly, in the heyday of golf (circa 1999/2000) Callaway flirted with a $2bn valuation. Today it is below $700mm.  Titleist is a great brand, but is it 3 Callaways?


Perhaps it is. But they're going to have a tough round at this price.


Retail Callouts (9/29): Titleist Looking To Go Public  |  RH Modern - 9 29 chart1



RH Releases First Look at Modern to Consumer -- Launching Online October 1st 

CLICK HERE for Video

Retail Callouts (9/29): Titleist Looking To Go Public  |  RH Modern - 9 29 chart2



ICSC - Chain Stores put up worst growth number of the year at +1.2%. Eight straight weeks of decelerating growth on 1yr, 2yr, and 3yr basis.

Retail Callouts (9/29): Titleist Looking To Go Public  |  RH Modern - 9 29 chart3

Retail Callouts (9/29): Titleist Looking To Go Public  |  RH Modern - 9 29 chart4


JWN - A look at the new 140,000 SqFt Twin Cities Nordstrom store.  Uses the new store design including girlfriend fitting rooms, a 135 seat restaurant, and a kids playhouse.



Bob’s Furniture is entering Chicago-area market President’s Day weekend.  Company is planning five stores in the region, which was signaled in January upon leasing a 752,000 SqFt DC in Shorewood, IL



WMT - Wal-Mart making good on its commitment to get to using 100% renewable energy, announcing a long term power agreement with Pattern Energy Group for wind power.



Just a few weeks after the launch of Android pay, Samsung is launching its own payment solution, Samsung pay.  The phones are equipped for both near field communication magnetic secure transmission.



TUES - Michael Rouleau, CEO of Tuesday Morning, retiring from company and board effective  immediately. 


CHART OF THE DAY: The Consummate U.S. Growth Industry

Editor's Note: The chart and brief excerpt below are from today's Early Look which was written by Hedgeye Director of Research Daryl Jones. Click here if you'd like to get a step or two ahead of consensus.


CHART OF THE DAY: The Consummate U.S. Growth Industry - zz ben cod 09.29.15 Chart


...In the bubble that is Washington, no one seemed to notice the beat down that the stock market was taking yesterday.  In part, this makes sense since the federal government is a growth industry, and in most years appears to have no real correlation to the real economy or stock market.  In fact, since 1950 federal government outlays have declined on a year-over-year basis in only 5 of those 65 years. Over the entire period, as we’ve highlighted in today's Chart of the Day below, spending is up an astounding 87x.


At annual outlays of more than $3.5 trillion, an annual deficit of close to $500 billion, and outstanding debt of more than $18 trillion, it is pretty clear that the federal government eats while we are sleeping.  And then eats some more.  And more.



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