CONCLUSION: I’m sitting here wondering why in the world I am not re-shorting it on this implosion. Let’s see how the day pans out – where the toxic market emotion lands, and we’ll make the right call from there – even if the call is to do nothing. #Reebok all over again.
To say “I learned nothing” on the UAA call would be a callous statement. I definitely did, but not what Planks wanted me to…
- I don’t care about Kevin eating humble pie again,
- I don’t care that basketball is still a challenge (it should ‘sell’ Curry to NKE – so Curry’s stock can be above water and he can be leveraged/marketed like he should be),
- I don’t care about challenges in the US environment.
- I don’t care that KSS, DSW and Famous were horrific mistakes.
- And MAYBE I don’t care that this is like a FL or LB that simply does not know to guide down bc it’s never had to in a pervasive downcycle.
ALL I care about is how one of the most aggressive brands in a generation will ever show the world that it is a growth company again. I could have stopped listening after the management cut SG&A and took down capex this year by 15% -- things a brand that is struggling simply does not do if it wants to accelerate growth. This company and this stock are both broken, and it could be 2-3 years before it gets going again – and it could be a $5 stock that has levered up and tapped capital markets to tread water in the interim.
If any positive, it’s props to the team for allowing the call to go 75min. Last 7 calls were 60 min or less. Companies that want to hide behind failure usually don’t extend a Q&A. Then again, it might not know how much it actually failed.
Hedgeye RetailDirect (HRD) comment from this morning.
1. Everyone on the planet knows the magnitude of UA’s rev rollover, margin ‘accelerated deceleration’ and the fact that inventories were +22 on revs down 5%. And the guide was awful. I’m most disappointed to see SG&A was down – only slightly – but should be up big for plank to do the right thing and get rev up again. He’s failing. This is bad…accelerates the ‘Reebok Path’ vs Nike. My biggest concern at this point is hemorrhaging awesome talent (and yes, there’s a lot of it). Average option strike price if you joined the company over 3-years is roughly $35. Remember how many great people RH lost when the stock went from $105 to $26. Same thing likely to happen here. And while Wall Street is bifurcated in thinking that Friedman is either crazy and/or a visionary, the reality is that he takes care of his people. Kevin Plank arguably does not. Here’s a thought…Kering is rolling out of its Puma position now. I highly doubt Plank is looking to sell AFTER losing $3bn in net worth – but if UA needs capital to fix the beast…it’s an option.
THIS SIGMA MOVE IS SIMPLY AWFUL. MIGHT PROVE TO BE THE WORST ONE WE SEE ALL EPS SEASON
Here’s what I wrote on UAA yest as well as our last research note. #accountability.
1. I’m not sure this UAA quarter can be relevant bull-side unless we see a genuine turn in GMROI – meaning that revenue needs to reaccelerate without buying it on the gross margin line and/or inventory build. If we see the trifecta of lower SG&A to make the quarter (i.e. pulling a TGT or a KSS) then watch out below. To Plank’s credit, he believes in his story so much that he won’t stop spending against it. I admire that – as he thinks he sees something that Wall Street doesn’t. He did it once and he might do it again -- even though it cost him $2.5bn in net worth since the peak. Remember the company noted a revenue push from 3Q to 4Q. That could be a simple sandbag – but I doubt it (it can’t back off of 4Q revs, but likely will)…AND the Street is still looking for a 10% 2-year stack (see algo). Not setting up well here – unless you’re short.
Link to our most recent note: Click Here
