Below is my write up from this morning’s Hedgeye RetailDirect (HRD) product. After I clicked ‘send’ and went off to meetings in Boston, the story changed…again. Co affirms the quarter – the quarter my model says it will come out and beat by 15% – until it beats the year by 23%. And Next year by 45%. Yes, I round-tripped this from $30 to $105 to $25. I’m worried about it here. But I’ll trust our process. I’ve never had a long that did not work without a massive dose of angst. If you want to short it here from a technical standpoint, then go nuts with that. Fundamentally, the business is ‘far better than fine’.
1. RH has another $100mm – at 8.25% coupon. A recession might be out of Friedman’s plan – having just bought $1bn in stock (half of SO), but is in Apollo’s. (ownership call option). Balance sheet hardly de-risked – but slightly (and I mean slightly) less risk than yesterday. If you short it, keep in mind that both business and the P&L are ripping. I won’t join you there.
- Should the stock be at $70? Not sure -- at least this fast.
- But should the stock have been below $40? Absolutely not.
- The company flubbed 3 growth initiatives -- big -- when the category decelerated by 800bps. Bad but at least it's investing in its business.
- Is Friedman buying too much stock? Yes. He probably hates you if you're short.
- Is the 'triple preannounce' being questioned by some given peculiar timing in advance of buying 40% of the float? To be clear, I'm not making that case. But to be intellectually/analytically honest, acknowledging this bear case needs to be part of the investment process.
- But in the end, my math suggests that the company could have printed a 1Q EPS number in the mid-$0.20s. It printed $0.06.
- If you want to short it here for a technical standpoint, then go nuts with that. Fundamentally, the business is ‘far better than fine’.
*EPS Numbers are before adjusting for new share count.
