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CHART OF THE DAY: Understanding #TheCycle & #GrowthSlowing

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... I’ll stop there. You get the point. Again, all I’m doing, every day, is measuring and mapping the immediate-term moves relative not only to themselves, but in the context of the entire macro market message… and then contextualizing it across durations.

 

This is Global Macro. There’s a lot of clutter. And lord knows there are a lot of politicized, ideological, and linear opinions that clutter the clutter. But, if we can have the patience to wait and watch, we’ll eventually find simple opportunities."

 

CHART OF THE DAY: Understanding #TheCycle & #GrowthSlowing - 08.04.16 chart


Find Simplicity

“Out of clutter find simplicity.”

-Marc Benioff

 

That’s one of the many great business-builder quotes from Marc Benioff in Behind The CloudThe Untold Story of How Salesforce.com Went From Idea to Billion-Dollar Company – and Revolutionized an industry.

 

I’m just finishing the book now, but Benioff actually wrote it in 2009. No matter what you think of the guy as a person (I don’t know him), as an entrepreneur and innovator, his growth story is an incredibly powerful one. No matter what happens to CRM from here, he took on the establishment of the software industry, and won.

 

As a leader, he hammers home a lot of principles that resonate with me. He says we should all “have the courage to pursue our innovation before it is obvious to the market.” That might sound simple. Executing on it, repeatedly, is not. You have to foster a culture that isn’t afraid to fail fast, recover, and re-accelerate. I’m working on that too.

 

Find Simplicity - benioff

 

Back to the Global Macro Grind

 

Where do we go from here? What’s the next @Hedgeye Best Idea? Who is the next best hire? How are we going to keep pushing the envelope on not only the creation of original content, but how we present and deliver it?

 

So much to do.

 

When it comes to idea generation (particularly on the long side), there isn’t a lot of clutter to simplify. Especially when it comes to long-term sovereign bonds and/or any “safe-yield” equity (that looks like a bond), reality is that they’ve all gone up into the right.

 

To a degree, that’s accelerated our business. Lower and Slower-For-Longer used to be our original idea, inasmuch as the willingness to buy “expensive” and short what’s “cheap” was. Now, the deep simplicity associated with #GrowthSlowing is priced in.

 

So where do we go from here?

 

If growth was accelerating, I’d have a ton of “new” ideas. I’d basically reverse all of what I own and short it (Ex-Hedgeye and my wine). But it’s not. So I stay the course. Keep the winning team on the field, and pick my spots.

 

How do you pick your spots?

 

  1. Wait and watch for macro “events” that knock the Long Bond, Gold, Utilities, etc. to the low-end of their risk range
  2. Wait and watch for the Old Wall to “upgrade” stocks and/or asset classes we don’t like to the top-end of their range
  3. Wait and watch during the Morning Research Meeting for legitimately “new” ideas that I haven’t yet considered

 

And, all the while, grind…

 

That’s it really, so the rest of this note will be a line by line copy of my notebook this morning. That’s the grind.

 

I do the same thing, every morning. I measure and map price/volume/volatility, across asset classes and across durations. Eventually something simple jumps off the page as “new.” And new is what I’m looking for…

 

  1. US Dollar Index is testing the low-end of my 94.50-96.60 risk range and remains bullish TREND
  2. UST 10yr Yield is in the middle of my 1.45-1.62% immediate-term risk range and remains bearish TREND
  3. SP500 tested and held the low-end of my immediate-term 2153-2178 risk range (bullish TREND)
  4. Nasdaq tested and held the low-end of my immediate-term 5038-5196 risk range (bullish TREND)
  5. US Equity Volatility (VIX) backed off the top-end of my 11.77-15.32 risk range (bullish TREND)
  6. Utilities (XLU) are still in correction mode (bullish TREND), with a risk range of 51.04-52.99
  7. Financials (XLF) are still in squeeze mode (bearish TREND), with a risk range of 23.13-23.99
  8. Japanese Equities bounced off the low-end of my risk range and remain bearish TREND
  9. Chinese Equities bounced off the low-end of my risk range and remain bearish TREND
  10. Malaysian Equities bounced off the low-end of my risk range and remain bullish TREND
  11. Spanish Equities bounced off the low-end of my risk range and remain bearish TREND
  12. Italian Equities bounced off the low-end of my risk range and remain bearish TREND
  13. Russian Equities bounced off the low-end of my risk range and are testing a bearish TREND break-down
  14. Commodities (CRB Index) have already broken down back into bearish TREND mode
  15. Oil (WTI) bounced off the low-end of my $38.71-41.90 immediate-term risk range and remains bearish TREND
  16. Gold is correcting off the top-end of my $1 immediate-term risk range and remains bullish TREND
  17. Platinum is correcting off the top-end of my risk range and remains bullish TREND
  18. Copper failed at the top-end of my immediate-term risk range and remains bearish TREND
  19. EUR/USD failed at the top-end of my $1.09-1.12 risk range and remains bearish TREND
  20. GBP/USD failed at the top-end of my $1.29-1.34 risk range and remains bearish TREND

 

I’ll stop there. You get the point. Again, all I’m doing, every day, is measuring and mapping the immediate-term moves relative not only to themselves, but in the context of the entire macro market message… and then contextualizing it across durations.

 

This is Global Macro. There’s a lot of clutter. And lord knows there are a lot of politicized, ideological, and linear opinions that clutter the clutter. But, if we can have the patience to wait and watch, we’ll eventually find simple opportunities.

 

I’m not finding one today that I’d consider new. So here’s to what tomorrow might bring!

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.45-1.62%

SPX 2153-2178

VIX 11.77-15.32
USD 94.50-96.60
EUR/USD 1.09-1.12
Oil (WTI) 38.74-41.90

Gold 1

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Find Simplicity - 08.04.16 chart


August 4, 2016

Want more from Daily Trading Ranges? CLICK HERE to submit up to 4 tickers you'd like to see on the list. 

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
1.62 1.45 1.55
SPX
S&P 500
2,153 2,178 2,163
RUT
Russell 2000
1,193 1,225 1,212
COMPQ
NASDAQ Composite
5,038 5,196 5,159
NIKK
Nikkei 225 Index
16,041 16,499 16,083
DAX
German DAX Composite
9,991 10,388 10,170
VIX
Volatility Index
11.77 15.32 12.86
USD
U.S. Dollar Index
94.50 96.60 95.53
EURUSD
Euro
1.09 1.12 1.12
USDJPY
Japanese Yen
99.90 104.19 101.25
WTIC
Light Crude Oil Spot Price
38.74 41.90 40.83
NATGAS
Natural Gas Spot Price
2.55 2.92 2.84
GOLD
Gold Spot Price
1,330 1,380 1,364
COPPER
Copper Spot Price
2.15 2.24 2.19
AAPL
Apple Inc.
99.54 108.85 105.22
AMZN
Amazon.com Inc.
725 773 754
NFLX
Netflix Inc.
84.01 94.93 93.10
JPM
J.P. Morgan Chase & Co.
62.17 64.78 64.66
FB
Facebook Inc.
119.97 125.81 122.51
TSLA
Tesla Motors
215 235 225


Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, along with our intermediate-term (TREND) view.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

ICI Fund Flow Survey | One-Two Punch

Takeaway: In the past two weeks, domestic equity mutual funds have experienced their two largest withdrawals so far in 2016.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Two weeks ago, domestic equity's -$10.3 billion withdrawal set a new low for the largest outflow year-to-date. Investors then followed that with a -$8.2 billion withdrawal last week, the second largest domestic equity withdrawal YTD. Additionally, all other active equity categories experienced withdrawals, contributing to the total equity mutual fund category losing -$11.2 billion. Meanwhile, the reallocation to passive products continued with equity ETFs winning +$3.5 billion. In fixed income, investors defensively contributed +$4.9 billion to total bond mutual funds. Bond ETF flows were also positive but fairly low at +$129 million.

 


ICI Fund Flow Survey | One-Two Punch - ICI1

 

In the most recent 5-day period ending July 27th, total equity mutual funds put up net outflows of -$11.2 billion, trailing the year-to-date weekly average outflow of -$3.6 billion and the 2015 average outflow of -$1.6 billion.

 

Fixed income mutual funds put up net inflows of +$4.9 billion, outpacing the year-to-date weekly average inflow of +$2.6 billion and the 2015 average outflow of -$475 million.

 

Equity ETFs had net subscriptions of +$3.5 billion, outpacing the year-to-date weekly average outflow of -$170 million and the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$129 million, trailing the year-to-date weekly average inflow of +$1.8 billion and the 2015 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.



Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:

 

ICI Fund Flow Survey | One-Two Punch - ICI2

 

ICI Fund Flow Survey | One-Two Punch - ICI3

 

ICI Fund Flow Survey | One-Two Punch - ICI4

 

ICI Fund Flow Survey | One-Two Punch - ICI5

 

ICI Fund Flow Survey | One-Two Punch - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | One-Two Punch - ICI12

 

ICI Fund Flow Survey | One-Two Punch - ICI13

 

ICI Fund Flow Survey | One-Two Punch - ICI14

 

ICI Fund Flow Survey | One-Two Punch - ICI15

 

ICI Fund Flow Survey | One-Two Punch - ICI16



Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey | One-Two Punch - ICI7

 

ICI Fund Flow Survey | One-Two Punch - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors pulled -$309 million or -4% from the industrials XLI ETF.

 

ICI Fund Flow Survey | One-Two Punch - ICI9



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

ICI Fund Flow Survey | One-Two Punch - ICI17

 

ICI Fund Flow Survey | One-Two Punch - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$12.7 billion spread for the week (-$7.7 billion of total equity outflow net of the +$5.0 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is -$4.0 billion (negative numbers imply more positive money flow to bonds for the week) with a 52-week high of +$20.2 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | One-Two Punch - ICI10 2

 


Exposures:
The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey | One-Two Punch - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

Patrick Staudt, CFA







SP500 held the low-end of my immediate-term risk range – US jobs report up next…

Client Talking Points

Pound

Bank of England’s turn this morning with GBP/USD signaling immediate-term TRADE overbought at $1.34 (within its bearish intermediate-term TREND); downside to $1.30 depending on how dovish Carney can get – it’s sad to watch, but he’s probably going to devalue the purchasing power of the British People and perpetuate a UK recession.

Oil

Did the 1-day bear market bounce thing and shows no follow through this morning; immediate-term risk range = $38.74-41.90 and I’d say it has a good chance of testing the low-end of that range on a “good” jobs report; from a monetary asset price inflation perspective, Oil needs bad US economic data (dovish Fed), don’t forget.

UST 10YR

Ahead of the jobs report the 10yr Yield is sitting right in the middle of its risk range (1.45-1.62%) so we'd do nothing on that and/or yield chasing securities – bad jobs print gets you 1.45%; “good” gets you 1.62% and I’m not in the business of guessing the number – no one we know has process driven edge on nailing NFP consistently.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/3/16 57% 5% 6% 6% 13% 13%
8/4/16 56% 5% 6% 7% 13% 13%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/3/16 57% 15% 18% 18% 39% 39%
8/4/16 56% 15% 18% 21% 39% 39%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
GLD

To summarize our active ideas, long Gold (GLD) and long U.S. Dollar position (via PowerShares DB US Dollar Index Bullish Fund (UUP), netted out Friday, with gold catching a bid against a USD that got crushed on the report. (Part of the reason we added UUP to Investing Ideas was the expectation of a GDP print that may have sent a hawkish message to the market.) Think of Gold and the USD as a position against a basket of other currencies.

TLT

The good news for #GrowthSlowing bulls is that the Treasury rate curve will likely get pushed lower over the coming days as investors take stock of this week’s ugly data. That's good for Treasury Inflation-Protected Securities (TIP) and Long Bonds (TLT).

UUP

See update on GLD.

Three for the Road

TWEET OF THE DAY

BREAKING: #BoE cuts rates by 25bps to 0.25% Increases QE target to £60 bil ... including £10 bil corp bond purchases pic.twitter.com/ZY1nGitV3d

@Hedgeye

QUOTE OF THE DAY

“The difference between ordinary and extraordinary is that little extra”

-Jimmy Johnson

STAT OF THE DAY

Marquis Grissom played 17 years in the MLB, with 2,251 hits.


KATE | Let’s Start Seeing Other People

Takeaway: When the research changes, so do we. The TREND call is such that we could just as easily see $12 as we could $20.

Investment Conclusion

Without question, we hate losing even more than we love winning. Though we a) have been into KATE big time since she was a strung-out $4 stock, b) still build up to a 35% EPS CAGR for the next 3-years, and c) d) and e) absolutely cringe at the prospect of backing away AFTER a 20% implosion, the fact is that the research has changed. And when the research changes, so do we. Specifically, the intermediate-term (TREND) call is uncertain enough that the name could just as easily see $12 as it could $20 (it’s $16 today). That kind of ‘push’ is not something we want to stay married to when management’s credibility is falling faster than it could lower its own expectations – or we could lower on our own. How things stand today, we’d opt to get back involved at either $12 or $20 (as odd as that sounds) after either the story is de-risked, we have the simple passage of time (6-9 months how we see it), or management steps up, puts its money where its mouth is and actually starts to own some stock in size.  

 

To be clear, we would not short one squirt of this stock despite our diminished confidence in the team. The fact is that it remains a healthy, high-quality brand that is extremely likely to double earnings over just two years and is trading at just 12x ensuing EPS and 5.1x EBITDA. Furthermore,  it has what we think is a defined $1bn near-term market opportunity with at least 100bps in margin upside per year – and still will be over 1,000 basis points below peers. To boot, sentiment around the name is simply atrocious, not reflected in current short interest which has come off some 400bps to 7.5% of the float with two-thirds of current sell-side ratings at a buy equivalent (which the chart below measures). But, the incremental interest on this name has completley dried up.

KATE | Let’s Start Seeing Other People - 8 4 2016 KATE sentiment

 

As a frame of reference on interest/sentiment -- For every 20 inquiries we get from investors on our RH Long call (where we still have very high confidence in the fundamentals and the team despite the stock telling/mocking us otherwise), 25 inquiries on our HBI short call, and 30 calls on our view of the dynamics behind NKE/FL/DKS/HIBB, we get maybe one or two from people being interested in going long KATE (and those are probably the two people reading this). If you want to go short that setup outright at $16…knock yourself out. But you’re probably going to lose.  The only thing we hate more than losing ourselves is when our customers lose.

 

But building an Intermediate-term long case is quite tough – and that’s the duration on which most people involved in this perennial hedge fund stock will be focused.  This print confirmed what we feared (and outlined in our note KATE | Thoughts Into The Print) headed into the quarter in that management took down guidance for the year by 11% due to some factors that come as no surprise, such as a) weakness at the high-end, b) volatility in the category overall, and c) re-basing ‘out-of-reach’ comp expectations to a beatable level (like competitors do) – with that last point as the most significant factor. But KATE also laid the biggest earnings egg under the current regime and put up a paltry 4% comp when all indications were that it could have, and should have, done better. Adolescent growth retailers should be comping better than 4% -- even in a moderate recession.

 

If you have the luxury of looking at 2018 numbers and staring through a few bucks downside from here, then it’s definitely time to dust off those KATE/FNP/LIZ files. They should result in a pretty penny 12-18 months out due to factors mentioned above.  In all likelihood, we’ll be re-joining you on the table-pounding side of this call.

KATE | Let’s Start Seeing Other People - kate financials 8 4

 

Here’s where we stand on each of the value creators on the sales and margin side after the print…

 

Sales: Perhaps there’s nothing more jarring to a long-term thesis than a sequential comp deceleration of 15 percentage points. Not that we’re not used to it from this company at this point, the only difference is that in past situations the company properly managed expectations, at least on the downside. Take a look at the 5.5 year history of KATE (first LIZ, then FNP) reported comps vs. consensus estimates, this is the first time the company missed expectations in nearly four years, and it wasn’t by a point or two, but a massive gap of 900bps. What gives? Management pointed to 4 key issues for the slowdown and attributed 700bps of the 900bps comp miss to the following factors: 1) an uptick in tourist dependent traffic issues in the outlet channel, 2) self-inflicted product transition headwinds, 3) others in the competitive set being more promotional, and 4) weaker consumer spending in Japan.

 

Call it what you want KATE, but if history has taught us anything with this company is that low-mid-teen comp guidance for the year was a low ball number, this isn’t a company who has ever done anything but obliterated comps. That means there was a serious change in the trend in the business in the two months between when the company reported 1Q numbers and the end of June. Given the confidence issues pervasive in this market when it comes to management – we think the top-line trend is troubling but the far greater concern is the management credibility issues associated with a miss of this magnitude for a company with an already suspect track record.

KATE | Let’s Start Seeing Other People - 8 4 2016 KATE Comps V2

 

But that’s a more backward looking review of the topline, going forward we still see KATE essentially doubling its reported revenue base to north of $2bn over the next 4 years, but have less confidence in the company’s ability to meaningfully exceed those levels given the choppiness we’ve seen reported by the company over the past 18 months as it reacts to waning consumer demand in the category and a constantly changing business model. Here’s where we stand on each of the value creators…

 

1) Store Build and Maturity: This isn’t necessarily new, but the company has taken a considerable step back in its store growth plans. For a company with just over 100 full price doors in NA and 65 outlets (compared to KORS at 390), 9% sq. ft. growth in the US, and just an incremental 5 new fully owned doors (23 YY) doesn’t exactly scream compelling growth story. We give the team at KATE some credit for using different vehicles to expand the footprint, mainly e-comm which has a track record in the branded space 2nd to none and some opportunistic ‘better’ wholesale expansion, but for this model to work we need to see the top line pumped by well executed real estate expansion. We think the opportunities are there, but given management’s reluctance to step on the accelerator, maybe the question should be why is the pace so slow? 

 

2) Market Share Opportunity: KATE ended 2015 with ~5% share of the global handbag space, compared to KORS and COH who collectively account for 40%+ of the market. That simple discrepancy in KATE’s relative share compared to its most closely associated (and we should note only publically traded) competitors explains why the company has been able to defy gravity at the same time that its competitors and the wholesale partners who sell them have been bleeding. We still think there is plenty of share out there to be gobbled up, but we just saw the first resistance to KATE’s product assortment evidenced by the soft June novelty commentary. And, a) the outlook for category growth may have bottomed but doesn’t appear to be accelerating from LSD, plus b) the spending patterns of the upper quintile (right in KATE’s  consumer wheelhouse) which represent 40% of consumer expenditures here in the US just put up two consecutive quarters of negative YY growth for the first time since 2010.

The punchline there being our lower confidence in KATE’s ability to demonstrably outperform the rest of the market in a soft category and weakening macro environment doesn’t bode well for accelerating top-line trends.

KATE | Let’s Start Seeing Other People - luxury spend

 

3) Quality of Sale: We’ve been flat out bullish on KATE’s decision to buck the trend in the retail space and promote quality of sale for its brand both in the wholesale and fully owned distribution channels. But, there is a big difference between protecting the brands accessible luxury image and playing offense. Clearly the company wasn’t quick enough on the trigger in 2Q to balance the delicate relationship between the two. We get that merch margin expansion in the full-price channel is important, but when it comes at the expense of sales dollars for a growth company still trying to establish its presence in the handbag market the public-markets are less forgiving. Now that the company is turning back on the promotional juice, it might re-excite the consumer, but we think on a deeper level it speaks to the need for a strong promotional posture for a brand like KATE who is only in month 7 of new normal when it comes to promotional cadence after a yearlong pull back effort. Ultimately what it comes down to is that KATE needed to promote to ensure category/retail leading performance in its early days, then it didn’t, and now it does again.

 

4) International: Sales in the international segment were up 20% on top of a 25% decline in 2Q last year. There is plenty of noise due to the decision to partner in SE Asia and Brazil that makes the compares tricky here, but the one metric we really care about, average sales per sq. ft. in company owned retail (mainly in Japan and W. Europe) was down 12% in constant currency for the first 6 months of the quarter. We like the partnered low capital/low risk strategy especially at a time when international demand looks dodgy, but it’s hard to get more bulled up in light of the slide in owned retail.

 

 

Margins: In regular circumstances, 140bps of margin leverage (90bps of adjusted EBITDA) on a 4% comp would be more than enough to get us excited about a retail print, but this is KATE and the bar is set much much higher. The obvious hiccup in the latest print was on the gross margin line, which underperformed expectations for the second consecutive quarter. The 200bps of deleverage flat out stinks when you consider the company most likely got a 75bps lift (in line with 1Q commentary) in full-price product margins, meaning that the off-price (~20% of the business), which we think accounted for the largest chunk of the GM drag, cost the company around $8mm in gross profit. The wholesale bit we understand is due to timing, but there was also an offset on the EBIT line as wholesale comes at a lower SG&A rate.

Over the long term, we’d argue that the company doesn’t need KORS or COH esque margins which topped out at 32% for this stock to work, but we also think the climb towards 20% and ultimately $2.00 in earnings power will be more measured than our original thesis called for on a slightly lower top line trajectory. If this quarter taught us anything on KATE, it is that the P&L is highly levered to a slowdown in demand. The ironic thing is that the company moved away from its Flash Sale events to promote quality of sale, but those same events were accretive to margins. With those tempered, the company had no online vehicle to stimulate demand and promote margin traction into a softening outlet environment.

Corporate leverage has another 18 months or so to run, the Li & Fung transition will be good for about 60bps plus in year 1, next year will be all about easy compares, and the shifting dynamics in international and sales mix (between retail/wholesale/licensing) KATE has plenty of runway to grow the margin profile organically. The building blocks are certainly there, but given the volatility in the face of easy compares execution of the plan and recognition of the upside has us much more concerned. 


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