Here’s what we took away from the filing…
Runners Point
Management is considering an asset impairment charge for Runners Point and Side Step given the poor sales trends. Not a shocker to anyone following the story, but this definitely falls into the ‘oops’ department.
Merchandise Margin
+40bps of Gross margin was driven by 50bps of merch margin and 10bps deleverage in occupancy with the NYC store relocation. Note that merchandise margin compares are quite tough over the next 4 quarters.
Segment Margins
We already knew brick and mortar stores did well both in comp and margin, but DTC was weaker than we suspected. In actuality, Brick & Mortar margins were 12.2%, up 54bps yy. DTC was 10.8%, that’s down 328bps yy. While still positive on a 2-year basis, the 150bps deficit to in-store margins flies in the face of management’s assertion that e-commerce is not margin dilutive.
Cash from Ops / Payables
Payables accounted for 77% of the $157mm CFFO this Q… higher than normal as the last two years saw 46% and 49%. It’s possible that we’re seeing better terms from vendors on product given the TSA bankruptcy and brands looking to fill the distribution void with product that’s already been ordered. But then again, 73% of sales bearing a Swoosh, and we don’t think Nike budged with its receivables. That suggests to us that perhaps Adidas, UnderArmour and Puma have gotten more aggressive.
