Wayfair (W)
McLean: With Ethan Allen selling on a branded online Amazon studio shouldn’t we be looking at W short side? This type of collaboration should be seen more often, that means W share could be at risk. W trades on revenue, and if it slows materially the stock could pull back significantly. I think W goes to short bench.
McGough: I’d argue that it should be an outright short – not bench. Remember that we only added this long side bc the category is one of the best in retail right now. Even with the WSM’s of the world putting up so-so numbers, it is with a big industry tailwind. Wayfair is never gonna earn money on a consistent basis (if at all). I only had it Long side as a rental on near term revenue stability. Now we got the potential for an Amazon ‘t-mall-ish’ setup for brands helping in categories like Home Furnishings and apparel – that takes a massive bite out of anyone’s long case.
Ethan Allen (ETH)
JM: At the same time, we should evaluate ETH as a long. Trading about 16x earnings, in a hot category approaching easy compares with an Amazon partnership that could add material growth to a company only doing about $780mm in sales. Small cap but interesting set-up. I think we add to long bench and vet further.
BM: We’ve got bigger fish to fry. True, the number of long ideas is not great – but for ETH to be a BIG idea, I want to see that the management team is actually deploying capital into a real branded-growth strategy to take the brand higher – instead of just blasting excess inventory on Amazon. Keep an eye on it though…
Bed, Bath & Beyond (BBBY)
JM: After the print, should BBBY be higher, or lower, or stay where it is? Stock popped on the beat. Trend is looking less bearish with a positive SIGMA move and lapping GM hit from lower free-shipping threshold. Company still facing secular margin issues and increasing competitive pressure, further proven by the ETH deal. The stock is “cheap” at 9x earnings, question is when does it get cheaper.
BM: Saying ‘I will be short this forever’ is an irresponsible statement. So I won’t say it. But this thing is the new KSS. KSS ripped people’s face off short-side a few times. And truth be told, we have an accounting ‘hook’ on KSS that’s definitely not consensus. But BBBY has literally no way out, and management is easing off the capex and SG&A line when it should step on the gas. Let’s leave it where it is and consistently gauge sentiment. But I’ll need a lot of convincing – or a stock price in the $20's – to get less bearish. Remember its 90% above the cycle highs, and lacks Target’s div yield support.
Dillard’s (DDS)
JM: Why aren’t we short DDS? We’re short every other department store and this one has a lot of the same issues as the others. Stock is at 11x earnings. Has credit exposure, little to no real estate play, and has underinvested. Add towards top of short bench?
BM: I have no edge on this one. At least not yet. It actually does have a real estate play. Nowhere near Macy’s – but not as dire as KSS. Failed at creating a REIT 2x – but has enough meat on the bone to have tried. We have more high-conviction shorts than we can shake a stick at. If you think it should be on the list, then do your thing, and pitch it to me.
Let’s move the following to the vault.
HBC: I don’t know whether to long or short it. That’s called a ‘do nothing’ (which is, by definition, doing something).
ULTA: I missed it at $125, then at $200. Now it’s at $285. I had no edge then, and I don’t have one now. Let’s revisit when there’s a controversial debate where we can take a stand.
