12/11/15 08:44 AM EST

Retail Callouts (12/11): Online #contentwins. RH | Lost in Translation, KSS

Takeaway: UPS, FedEx, Online Sales #contentwins. RH Lost In Translation, KSS lowering shipping threshold for rest of Holiday.

UPS Struggles to Keep Up With Surge in Web Orders -- Bearish For Retail Pricing Power

(http://www.wsj.com/articles/ups-struggles-to-keep-up-with-surge-in-web-orders-1449796191)

On the heels of 9 consecutive days of over $1bn+ in online sales (for the first time in history according to comScore), it's no wonder that UPS and FedEx are at capacity. It'll be interesting to see if the rest of the Holiday plays out like 2013 when packages promised on the 24th showed up well after Boxing Day or the understaffed shippers can somehow find a way to handle the volume -- or just flat out shut down the spigot.

What this means for retail...We think it's becoming abundantly clear that Brick & Mortar retailers who don’t have a REALLY profound value proposition to draw people into their stores are likely in the early stages of going away. Consumers can now go directly to the brands -- we all know that, or the best overall shopping experience (like Costco, where content does not matter, but assortment and price do).

Specifically, our strong sense is that if UPS and FDX came to the retailers or brands and demanded another price increase to secure capacity for on-time delivery, the retailers would pay it in a heartbeat, and they would have close to zero leverage in passing that through to you and me in the form of higher prices.

RH - Lost in Translation

Conclusion: This RH quarter is going to draw a Mason Dixon line between the Bulls and the Bears. On one hand, the key factors that the Bulls (including us) need to see were profoundly present – giving us confidence that revenue will double, that we’ll see a 16% operating margin, and $11 in earnings power. In addition, RH beat the quarter, delivered 33% EPS growth in what should be the slowest growth quarter of the year, and it took up 4Q revenue guidance based on what it’s seeing so far this quarter (to 20%+). On the flip side, the Bears got a nice little gift in the form of weaker Gross Margins due to promotional activity, and renewed concerns about management. The reality is that this is a transformational growth story that will change on the margin more often than it doesn’t. Even though the 30% short interest already captures a whole lot of bad news, this print won’t make people cover – and probably validates the pressure the stock came under earlier this week. We’ll respect it for what it is, but based on our confidence in the earnings power at play here, we’d use any weakness as an opportunity to buy. The market combined with noise around the evolution of this story gives you a shot at buying it on the cheap every six months or so. We’re thinking that this is one of those times.

For our full note CLICK HERE

KSS - Kohl's Shipping Threshold

KSS is running a Free Shipping promotion under $50 through the rest of the Holiday down from the $75 norm, and this is the second time we've seen the company go to the Free Shipping well this Holiday season. For a company where the only part of the top line that is growing is dot.com and competitors (Target) have gone completely free, this makes sense. But it's important to keep in mind that KSS dot.com sales come at a margin 1000bps below a Brick and Mortar sale, not to mention that management previously said that a $25 threshold wouldn't work economically over the longer term. If $25 threshold does not work long-term, then $0 definitely doesn't work short-term.