KSS, JCP, M - JCP Memo Signaling Weak 1Q
(http://nypost.com/2016/05/05/jcpenney-taking-emergency-measures-to-stay-afloat/)
Department store earnings start next week, and the NY Post stirred the pot in preview. This article discusses an internal memo from JCP management to store managers that declared significant cost cutting initiatives into quarter close. These cuts manifested in chopped employee hours and slashed T&E expenses.
The read-throughs here are very bearish for the rest of JCP's peer group. Coming off a low base JPC still has a lot of room to run as it regains parts of the $5.4bn it coughed up during the RonJon tenure. To date - the company has taken back only $800mm, with KSS being the biggest beneficiary. With JCP nickel and diming to manage expenses into quarter close, we would expect the hurt to be more pronounced on its competitive set as the comp trend in the industry continues to play out.
This is stage 1 of our 3 part KSS call continuing to play out. 'Stage 1' is characterized by weak sales simply as a result of the fact that KSS sells less and less of what consumers increasingly want to buy. The model is stretched with very few leverage points (not to mention the only sales line that is growing is online where the gross margin is 1000bps below a B&M sale), and no real estate optionality. Not to mention the risk to 30% of EBIT from a credit portfolio that has hit its peak. By the time our call gets to 'Stage 3', the dividend is wiped out, and this 'free cash flow support' we keep hearing about will wash away, taking valuation support with it.
For more details on our 3-stage KSS call, CLICK HERE.
LB - L Brands Stumbling in 2016
LB, traditionally one of the pillars of stability in the US retail group, continues its stretch of doing pretty much nothing right. Just 4 months into the year, the company has missed 3 times, and Fiscal Q1 EPS was guided below the street for the first time in over 3 years. The 2-year comp (see below) is testing negative territory for the first time in a generation.
The bear case about the Victoria's Secret catalog changes while the company is at peak productivity, peak margins, and cycle-peak multiples on almost every metric with only 3.7% of the float held short is clearly winning. But we're still intrigued here and continue to vet the name. In fact, it just got more interesting from where we sit. Stay tuned for a Vetting Book on that one.
AEO - American Eagle names Peter Z. Horvath Chief Global Commercial and Administrative Officer -- Horvath's previous roles include Exec VP COO at Victoria's Secret and President of Footwear at DSW
(http://www.businesswire.com/news/home/20160505006651/en/)
HBI - Australia Foreign Investment Review Board officially approves Hanesbrands' acquisition of Pacific Brands
(https://www.nzx.com/files/attachments/234982.pdf)
WMT - Walmart reviving door-greeters after removing program in 2012 -- tested program last summer and will roll out to all stores by mid-summer
(http://www.retailingtoday.com/article/guess-what-old-tradition-walmart-bringing-back)
JCP - JC Penney teams up with Michael Strahan for new athleisure line, released men's tailored line last year
(http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=2165587)
AMZN - Amazon CEO Jeff Bezos said company will hire over 25,000 military veterans and spouses over next 5 years -- in 2012 Amazon made effort to hire 10,000 veterans
Claire's Stores CEO Beatrice Lafon resigns & quits board, will be replaced by board member Ron Marshall
(http://www.retailingtoday.com/article/ceo-claires-stores-resigns-replaced-industry-vet)