Hedgeye Retail Idea List
This Week's Changes
Coach (COH): Added to our Long Bench for Vetting. Near $30, we simply need to give this perennial dog a look on the long side. The decision tree is one where all the business needs to do is stabilize, and the stock works. The business improves -- even if by accident -- and the stock goes up a lot. This would be a tactical TRADE/TREND call, and nothing more.
Costco (COST): Added to Short Bench for initial Vetting. Half of our team thinks this name is starting to screen like a good short. Half of our team thinks the other half is nuts. Still, a process is a process. We're vetting it.
Lululemon (LULU): This has been sitting on our Short Bench waiting for a better price. But we think that the CEO is fired within six months in conjunction with another miss. This company can either invest in people who can develop a real strategy, or sales can drift lower while management chases the elusive mid-50's GM%.
Pier 1 (PIR): Booted to the long bench. The call here is simple. It’s not easy, but it is simple. If you DON’T think we’re headed into a recession, or are not concerned about growth slowing incrementally from here…then you’re looking at a 20% FCF yield and 6% dividend yield as PIR recovers from a 3-year investment to build its online business from 1-20%. In a normal economy next year, this stock could be a 4-bagger. But if you’re in the other camp, then the equity value could go away entirely. We still think that the upside to a $20-something stock is there. But unfortunately, has the potential downside to zero, which we don't like so late in an economic cycle.
NKE - Meaningful Tweak To Endorsement Strategy
http://www.wsj.com/articles/nike-still-has-room-to-run-1450639115
The crux of this article is that Nike has been conservative with athlete endorsements in recent years. Despite the headlines, that's actually true -- on a relative/competitive basis, at least. The reality is that Nike has $6.2bn in minimum endorsement obligations, which is 16x what Under Armour has committed. UA is at 6.5% of Nike's endorsement levels today, vs 4.5% just two years ago, and 2.0% in 2010. That's on the heels of Nike uncategorically losing the spotlight to UA on its home turf during 2015 thanks to the likes of Steph Curry, Misty Copeland, Jordan Spieth, and Tom Brady.
We can't say that UA's reign will end. But we're near certain that a major theme in 2016 for Nike will be spending more money on athletes. While first blush is that this would be ROIC dilutive...consider that Nike could add the equivalent of UA's entire 10-year endorsement budget to its current capital base with no cash payback, and it would erode Nike's 21% ROIC by only 60bps.
WMT, TGT, KSS, Department Stores - BOPIS Kinks not ironed out. More investment needed.
For retailers today, the standard ante chip for an 'omnichannel' operation involves a few key functionalities: website, mobile app, ship from store, and buy-online pickup in store (BOPIS). Scan any brick and mortar analyst day or earnings call transcript and you will see the mention of either the development or implementation of this group of strategies. But, it appears that the group still has a long way to go on the infrastructure side in order to service the ship from store/BOPIS functionality. This holiday season, 60% of BOPIS orders ran into a problem - that's notable as it's supposed be a) a margin saver as e-commerce sales are typically bps GM dilutive, and b) a traffic driver to stores. These services become most important during the peak shopping periods (especially when handlers are struggling to keep up with the volume), and its clear that the kinks are not ironed out. Meaning more investment needed in the IT/infrastructure side, and more employees to service the program.
BABA - Alibaba Group Appoints Matthew Bassiur as Head of Global Intellectual Property Enforcement
JCP - JCP names new CIO with Target background
(http://www.retailingtoday.com/article/jcp-names-new-cio-target-background)
FDX, UPS - Jet.com warns shoppers that packages will not arrive in time for Christmas
(http://blogs.wsj.com/digits/2015/12/18/holiday-shipping-delays-claim-retailer-jet-com/)
60% of shoppers wait for last minute Holiday deals, up from 50% last year.
(http://www.wsj.com/articles/holiday-shoppers-wait-until-the-last-minute-for-deals-1450521042)
ADS - Milan Shoppers On The Hunt For Black Adidas Yeezy 750s
KSS, M, WMT, SHLD - For last-minute shoppers, big retailers offer deals, extended hours
NKE, GPS, HM-B - Cambodia workers protest after $20 monthly wage hike not implemented
(http://www.channelnewsasia.com/news/asiapacific/cambodian-police-use/2366600.html)
Returns Scams to Cost Retailers Billions
Holiday return fraud is expected to cost retailers $2.2 billion this year, up 15% over 2014 levels, according to a National Retail Federation survey released on Thursday.
