“I think there’s a good money making opportunity here short Carter’s,” says Hedgeye Retail analyst Brian McGough of the maker of apparel for babies and young children
“While it’s an excellent brand and very dominant, its market share gain is slowing. Its distribution is under pressure. We’re at the tail end of an economic cycle and we’ve got demographics going the wrong way.”
In the video excerpt above (from a recent institutional research call), McGough explains his three reasons why Carter’s (CRI) is a short:
- Good Company, Not A Good Stock – Not a terminal story, great brand, good management. But not growing.
- P&L/Balance Sheet Eroding – Running out of meaningful US growth. Store growth is slowing. E-commerce business is struggling. Cotton costs are rising.
- Cheap Stock On Wrong Numbers – Returns no longer headed higher. Hence, historical peak multiples are irrelevant.
“I think virtually every income statement and balance sheet item that I look at is eroding,” McGough says. When asked, during the live Q&A, where Carter’s ranks on his short list: “Look, it’s not a Hanesbrands that could get cut by 80% but it is a good relatively liquid short that’s not overly shorted right now.”
Bottom line: McGough sees 25% downside from here.
