Operationally De-Risked. Game On.
- KATE pulled forward the print, no Q&A, Board commitment to getting something done.
- How are those ‘$21 Sell-Side Deal Targets’ looking now?
- We still think there are upwards of six interested parties, and this will initially go for a price in the mid-$20s, with a final ticket post-bidding war starting with a $3. People are underestimating the lack of rationality on the part of bidders when we’re seeing a generational change in the way people shop, and the value of the underlying content.
- Biggest hold up at this point is valuing/using the NOL under changing tax legislation. But I’d argue that a deal makes sense even if the NOL is worth zero – especially at this price. I’m also not sure that companies that have underinvested in growth with CEOs that will have to buy content/distro else fire themselves AND have the balance sheet to do a (near-term) dilutive deal care about an NOL.
Quick points on the quarter – though not sure it matters so long as the operational story is de-risked (which it is):
- DTC Comp accelerated to 260bps to 9.3%, a 30bps 2yr acceleration.
- Gross margin was down 105bps, but saw a notable sequential improvement on a 1 and 2 year basis against a much more difficult compare.
- Algorithm looked solid 10% revenue growth, 8% gross profit growth, 24% EBIT growth and 25% EPS growth.
- Plus the working capital improved materially, putting up an annual cash from operations growth rate of 132%.
- Simply put, this is a solid brand and business, comping high single digits, in a segment with multiple players starving for growth.
- SIGMA looked killer. Not many brands growing sales faster than inventory in this environment while still improving margins yy.
