Today's Retail Direct,
Some critical insight here today you care about avoiding a big junk-tail downdraft next year after a 4Q rally. Ditto for being long Nike – which I am. And don’t miss Hedgeye’s inaugural Top 10 Ideas call today. This one will be killer.
“Sometimes the toughest and most difficult decisions are actually quite simple. Not easy to digest. But in the end, quite simple.” – Me. Today. (vague, I know.)
#win today.
B
1. Direct from KM this morning. Worthy of my #1 callout today. “One big new product we’ve been building @Hedgeye for the last 3 months is called the Top 10 Long/Short Hedgeye Ideas. We’ll launch that at 11AM EST today. It’s the best of the best from our 40-analyst research team. Like most things we’ve created in the last 10 years of building the firm, this product/service is born out of client demand. The #1 thing a CIO, PM, etc. asks me for when I present our Global Macro Themes deck are “stock ideas” that fit what we foresee happening top-down”
2. The biggest retail macro risk – deviation from otherwise strong US macro ‘real growth’ setup -- bc of industry-specific price/cost compression just got worse on the margin. Remember this supply chain delta injected $3-4bn into a $20mm softlines EBIT stream over the past year. Now it’s trending to zero. The absence of a positive = a negative. Presence of a negative = acceleration in junk-tail demise – even w tax reform. This is bad.
3. RH back near all time high. The interesting thing is that in the latest quarter it put up the biggest GM increase in company history – in addition to the biggest share count decline I have seen for any company outside of a Dutch auction. We all knew that was coming/guide/preannounce – no surprise. But stock back to where it was when fundamentals mattered. FY19(Jan) will be the year where fundamentals matter again – and they’re better than the consensus thinks. Remember that the company’s TTM EBIT margin is sitting at 6.2% vs 10.0% at the prior peak 2-years ago. The street has the company falling short of prior peak in FY20. RH likely to hit prior peak a year earlier. Black Book in the pipe for next week – Wed, 2pm. Dial-in and deck links to come.
4.Google pulled YouTube From Echo Show and FireTV, saying “It Isn’t Playing Fair”. C’mon Googler…find any other quality company -- a company that’s a winner – that takes action blaming ‘being fair’. It’s called competition. Good business move, but flat out wimpy PR.
5. High hurdle rate into tonight’s LULU print, and I’m ok w that. We’re looking at EPS of $0.55 vs Street at $0.52 w at least inline guide. Should be revenue-driven (DTC likely – GM also bullish)). After the guidance/merchandising gaffe from two qtrs ago, I think this story is clearly on track. Remember that all of the ideas/strategies that were bad three years ago have turned bullish. Ivivva gone, Men’s momentum likely adding to renewed unit growth, no wholesale disruption (like we see at NKE, UA, etc), Int’l working, Footwear initiative is a call option. If management fails we see CEO swapped out. Stock goes up on that day. I totally get it that a big (bad) earnings day would initiate a CEO ouster. But negativity on biz likely to be short lived. If management does fails, then the new management team won’t – leading to $3+ in EPS power.
6. Mulberry noting strong tourist spending in London. Attributing in part to ‘post Brexit’…which is flat-out weird and late…but notable, again, that TIF is the only high end brand to #fail in capturing tourism increase.
7. Nike officially going commercial with on spec manufacturing. Flagship battle likely to end before it begins between NKE and UA. It’s like one of those Mike Tyson circa mid-1990s fights that lasted on average – like 20 seconds, three punches, and no beads of sweat for the guy left standing.
- Nike blend of Brand + Experience. This is how you win. New Nike NYC flagship on 5th/52nd that opens in ’19 will have a floor for ‘ID Members only’ and will blend experience w brand. i.e. flyknit (or what it’s called after inevitable name change) and take up ASP for the privilege of getting custom kicks in 30min or less. This has been my (2-years too early) contention. Seemingly starting a (paid?) membership model, which is unexpected for me. That’s the future of retail folks. Knock this stock all you want. It’s entering the 7th megacycle since 1968. Bet against it at your own peril.
- UA flagship = this is how you lose. #plankfireplank Will be around the corner from Nike current 57th Street store in former FAO Schwartz location within 6-months of Nike store launch. Not experiential, just filled with ‘me too’ product that at best is a notch above what it sells at DKS, and two notches (i.e. not enough) what it sells at Kohl’s.
- Adidas opened its 45,000 square foot location in midtown a year ago on 46th and 5th Ave (the former Build a Bear location). Rent is estimated to be $1,000 psf and the lease is for 15 years.
8. Mad props to ‘girlwithnojob’ calling out a ridiculous tweet by CNN. This is absolutely hysterical…
Source: Twitter
