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Editor's Note: Below is an excerpt from veteran Retail analyst Brian McGough's daily morning industry note "Retail Direct." Institutional investors email sales@hedgeye.com for more info on access to his team's research.

The Biggest Disruptor in Retail, $AMZN Cryptocurrency? & More - shopping

A Quick plug…

We hosted our Auto Parts Retail "Black Book" yesterday.

I think we raised as many questions as we did answers. But the way I see it, that’s a key part of what we do. Much more to come there… and more tickers than just AutoZone (AZO) (short), O'Reilly Automotive (ORLY)  and APP (Long both).

What I care about most this morning is…

Primark (ABF) which’ll most likely slip past most of the US today.

If you don’t know ‘em, Primark is likely the biggest disruptor to apparel retail since H&M (which is in trouble). Not since UnderArmour ‘compression apparel’ have I seen a business in retail with such high asset turns (8x) in conjunction with high margins (10%). There’s your 65% tax-adjusted RNOA. (UA was 10x turns at 30% margins…yeh that’s why it went public – oh how things change). Usually business models trade off one for the other. This one’s got both = $$$.

  • The company only has 8 stores in the US, but 360 globally.
  • Basically, these are fast(est) fashion boxes where you can buy a whole outfit for $15 – including shoes. Wear ‘em twice and then wash your car with them.
  • That said, sales missed. +7% vs Street at 9.7%.
  • Weak October, but strong holiday. UK strong, which is its powerbase.
  • Still failing in the US “work in progress”.

My sense is that Primark takes advantage of comatose US real estate as rents plummet. Concepts don’t make money in a region unless you can get over 50 stores. Primark will either step on the gas, or the brake. The over/under is on the gas. Current plan is for 30 new stores this year. That should accelerate – perhaps as much as by a factor of 2 (presuming it adds the talent to execute) in ’19. That’s mall-bullish and dept store (KSS/JCP/M/DDS) bearish.

Meanwhile...

GNC actually put up a positive pronouncement this morning. Sign of the apocalypse? Maybe, but it comped 5.7% against a -12%. Keep in mind that last year gross margin % contracted 710bps w EBIT mgn off 1030 in 4Q.  It’s a bad short today, and maybe a bad one for the next 1-2 quarters given the setup -- but does not mean it is not in the Pier 1 category of not existing in 3-years.

Unless it launches a crypto...

Speaking of Cryptocurrencies…

If you don’t know LITB (Light in the Box) you really don’t need to – unless you’re chasing crypto currencies. Company has announced it opened a blockchain technology research lab to explore and develop blockchain platforms for cross border e-commerce. Stock up 25% pre-market. OSTK, the new major “cryptoretailer” is up 350% yy. This is ridonkulous, imho.

My Partner Michael Blum (and Hedgeye President – and Hedgeye’s International Man of Mystery) asked me recently about the over/under of Amazon launching a Crypto-Currency. I’d peg the change of accepting bitcoin at less than 5%. That said, Bezos definitely thinks that he is more powerful than the Fed – and certainly more powerful and more relevant (and arguably more safe) than Bitcoin. In reality, he is. I’d peg a global Amazon chit at 80% or better over 18-24 months.

*Institutional investors email sales@hedgeye.com for more info on Retail analyst Brian McGough's research.