'Note' Version of our morning HedgeyeRetailDirect email -- at least the first round of it today...Ping me if you don't receive it every day before open -- and want it (which I'd recommend).
1. Too many preannouncements out of ICR to list. Newsflash – Holiday was strong. Retail sales (pushed 6%) in Nov told us that. Every super-duper channel checker told us that. And clearly the market told us that with the junktail rally. But still, this is the best comp and positive guidance event since this cycle. Now to what matters…
2. KSS: 6.9% -- Clearly this is an absolutely stellar number – outperforming a 6% aggregate retail sales number -- with Kevin Mansell delivering the keynote presentation in his farewell quarter as CEO. There’s no way to defend the comp if you’re short – like we are (tho largely expected w stock +35% since last print). But the big issue is that SG&A was up 6% on the quarter – the biggest increase we’ve seen since 4Q09 – that’s when it was winding down it’s JPM/Chase credit partnership. Credit is booked as a counter-expense on the SG&A line. Higher SG&A means lower credit income. I still think that credit is breaking down regardless of the consumer environment (see our Black Book LINK for reasons why) at a rate far greater than the consensus (and management) thinks. Took up guide to upside of $4.08. I think this is the last time KSS will see an EPS number starting with a $4 – forever. At today’s price, you’re looking at near 15x peak earnings on KSS – a number it’s likely to miss this year. This is one of the best set ups I’ve seen for KSS since it hit $80 in Mar 15. $5 upside, and 20-25 downside over 12 months. Until equity value ultimately goes away.
3. Biggest plus for us is LULU, with a 5% EPS beat on a 3% revenue. Still my #2 long behind TPR. The reality is that I’m getting concerned that this is a consensus long given the upgrades and positive news, and the bullish statement today supports that. But the flip side is that earnings estimates are still too low, even if the environment cools -- we’re 20% above consensus next year.
4. I’m liking RH even more long side. Not at ICR, bc the reality is that it hates the ICR one-on-one hedge fund thing. But I think the company outcomping retail as well as the category – with numbers low next year by $0.50-$0.75. $15 downside $50 upside over 9-12 months. Not for the faint of heart. But after living this from 28-105 to 26 to 105 again – I don’t faint.
5. TIF not an ICR name – but amidst the best comp setup we’ve seen in 8-years, I’m willing to bet we still see the company struggle to put up a +2% comp. So many problems at this company. I’ll go against the activists on this. Granted, I’ve been wrong on the stock w the retail rally), but easing comp pressure simply makes bulls (mgmt. and activists) less focused on the underlying brand problem. This name is like RL – but three years later (RL brand started to crater 2-3 years ago).