UA/KSS…Let’s keep our eyes on what matters folks. And for KSS, UA is close to irrelevant to KSS in the grand scheme. Fade the hype.
I saw a research note this morning about UA(A) and KSS. Biggest launch in KSS history…product looks great…blah blah blah.
- Let me assert my opinion (and my team’s analysis) on this one.
- Regardless of what management says, this is likely to be a 50-70bp revenue boost for KSS.
- That’s net of the space it has to give up to add more athletic wear.
- That assumes that Nike is no longer comfortable accounting for 100%+ of incremental growth at KSS for 3-years running and won’t push back to stay in the pole position vis/vis UA.
- UA is at least 1,000bp lower margin in store than private label.
- It’s ANOTHER 1,000bp lower margin if people buy it online.
- These product launches are NEVER as big as the hype. And that’s not a tongue-in-cheek comment. Truly – they never are as big as expected.
- There’s only one that was big for KSS, and that’s Chaps. Why? Bc Ralph tiered the product – lower end product but with the right value proposition for KSS, at different prices, and with exclusivity. That’s not being done here. (and this is a VERY underappreciated risk out there -- CRI and HBI are your best shorts there).
To be fair, I think I just let myself fall into the trap. I allocated way too many words to way to few EPS. How about this…
KSS = $3.50 in ES today (headed to $2.50)
- $1.65 = in Credit income – big risk in ’17 regardless of the credit cycle
- $1.25 = sales and (non credit) EBIT from sub-prime consumers brought on this cycle
- $1.00 = added EPS for signing the most egregious leases you’ll find in all of retail. They come on balance sheet next year, fyi.
In other words = on what I call a ‘real’ basis. KSS is earning NOTHING.
So let #oldwall write all the ‘research notes’ it wants on a singular brand move. It doesn’t matter.
Let’s focus on what matters…and for KSS, UA does not.
Oh and by the way, UA will likely have to sell equity more than 30% lower. No implications for KSS there. Just sayin...
