My retail team’s two flagship products are 1) our Blackbooks – about 125 of them in Retail in our arsenal, and 2) our morning Hedgeye Retail Direct email (I call it HRD), which opens up our vetting process for new ideas and insight from everything happening globally in consumer every single morning (without fail) with between 5-10 ‘PM-appropriate’ thoughts per day. It’s the #grind that is absolutely 100% critical to our idea generation process for our best ideas (and incremental changes for existing ones). Out of the 45 key takeaways I hit on this past week, here are some of the more salient ones. If you are not on that distro list, I encourage you to reach out to me and I’ll add you.
1. Check these Gross Margin setups for department stores into next week. With the exception of Dillard’s all are bullish. Out of all of the names – KSS is most represented in the stock. Remember that we’re heard only revenue commentary. Now we need to see how much $$$ the companies are making off the sales. Likely not overtly bullish.
Source: Company Reports
2. Charlotte Olympia – a retailer you’ve probably never heard of (I haven’t) filed yesterday. Interesting in the cadence of CH11 filings vs this time last year. We’re looking at only 3 filings YTD vs 8 at this time last year. Speaks to the strength of the retail climate – of course. Though clearly manifesting itself is slightly better occupancy, and perhaps less bullish rents (for retailers, more bullish for REITs) than a year ago.
3. Big takeaway from this GIL print is that Branded Apparel (the HBI threat) is missing management’s expectations and is being restructured. So…the very business that went from 0% share to 12% and too 3-4 points from HBI over four years is ‘missing long term plan.’ That’s the same business that went from a 1100 door test at WMT to a full 4655 store rollout. Never bet against GIL. Even when it fails, it wins. What happens to Hanes when GIL really starts to succeed by its’ own standards?
4. Gap Brand CEO leaving the company. Larson still the entire planet’s choice for LULU CEO slot. That might be the most consensus call out there on management change. But this resignation from a former Murphy (Chairman of Board at LULU) company throws another wrinkle into the mix. Jeff Kirwan worked at Gap throughout Murphy’s entire tenure and worked with Larson at Old Navy. Let’s wait for deets around employment agreement. If he forewent comp in exchange for shorter non-compete, he might be getting the LULU job.
5. No way I’d own Wayfair into tomorrow’s print. We’re looking at a 140% gain over 12-months on top of eroding customer retention metrics, and a lower cost of growth – and consistent management stock sales. I’m short this. [Note, printed the following day w stock tanking down, -23% for the week.] 1. Here’s why Wayfair is likely headed lower. W | Written in the Cosmos: LINK
6. Here’s a really interesting anecdote on both Coach and UnderArmour real estate. Picked up the TPR nuggets by going through VNO filings after the close. Note that Fifth Avenue between 49th and 60th Street is still considered the most expensive in the world.
- The most prominent vacancy is the former Polo Ralph Lauren store on 5th and 55th. Ralph Lauren signed a $25M on average a year for 16 years in 2013 for the 39,000 square foot property.
- Vornado says 595 Madison Ave. retail rent is $1,224 psf. Coach says it has 20,000 sf in that store and 10,000 of it selling. That suggests $24.5M for the store. It’s probably doing better than $30mm for the year – but clearly a money-losing ‘brand-enhancer’. The only company making money on or off 5th avenue en masse is likely Nike and Tiffany (though less for the latter given Trump tower disruption).
- This new UAA flagship in the former FAO building on 5th (now a temp location for Apple) is looking at about $1,500/ft IN RENT – that’s 100bp in SG&A de-leverage ($45-$55mm). The over/under is that it will do less that – by 30-40% -- in revenue. The last thing UA needs is a higher cost structure – especially in light of step ups in athlete endorsements that it’s not generating enough revenue to cover. That said, it’s a fat organization…if Plank finds religion on cost cutting – this higher cost structure might not matter. There’s a case to be made about revenue stabilization. I might get there, but the research call is not supporting it for me yet.
7. We’re getting into the ULTA debate bigly. There are several critical questions that need to be answered, and I’ve got about 70% of the info I need to answer this question – which to me = a consensus call. Within three weeks we’ll have all the data and insight to answer all the critical uncertainties, at least as I see them. ULTA | What About ULTA?: LINK. Black book en route…
8. COF filed its 10-K giving some detail on is partnership with KSS. The company disclosed that revenue sharing with KSS was steady yy at $1.2bn. This confirms what we expected that revenue growth in the portfolio has slowed and essentially flat. The shared costs (with all credit partners) were up 24%, and the company is estimating a large increase in credit loss charges to partners in its provisioning. That is likely skewed by the Cabela’s acquisition, but appears bearish for credit costs at KSS. Ultimately, we’ve hit the inflection point in KSS credit where incremental costs will outweigh incremental revenue making credit an SG&A headwind vs the massive tailwind it has been for the company in the last 8 years. But no one cares bc management is selling this name as a growth company – and the market is buying it.
Source: COF 10-K
