HRD Subs…
KSS meh-ish/JCP big labor chg/LB miss again, again, again -FL, HBI, UA, KSS, TIF, RL, TGT/BBY guide looks conservative/HBI defense in Boston/WMT follows DKS
“I don't work at being ordinary.” Paul McCartney
Make it a great one…
B
1. KSS print actually ‘about in line’ in the grand scheme of things. I was expecting fireworks this qtr, but instead got a box of those little white snappy things you buy for $0.50 in Chinatown. Guide is bullish at face value, but tax benefit now fully included – so operationally only slight positive. Inventory/sales looks about as good as we’ve seen from KSS since the 2015 peak in the stock – until the company subsequently failed to comp. As I type this, Mansell – in his last conference call ever before stepping down – is about as bullish as I’ve ever heard him. Ditto for Wes before he resigned. In fairness, the results support it for Kevin. But inventory levels suggest that the comp guide of 0-2% is not a sandbag. And the shift to (dilutive) third party brands as well as ecomm shift make the GM guide not sandbagged in light of better inventory position. Credit being broken out as separate line item – which should finally add transparency to one of the biggest risks to the story – aside from flat-out failing to drive traffic going forward when we anniversary the best retail macro climate we’ve seen since mid-cycle. Note change in comp calculation…co did not highlight this. Michele Gass has a high hurdle in 2018 – a very high one. And yet the market thinks KSS can push $6 in EPS. Even after taxes, I think $5 will be a push (ie below the guide). More to come after this call is over.
2. Starting March 11 JCP will be cutting full time employees to 25 hours a week from 35. New part time hires will also get 25 hours a week. There’s a way to offset base wage pressure, boost current year earnings, reduce service levels, miff employee base, and save on health care costs. This is almost as bad as RCII killing the role of COO.
3. WMT one-upped DKS in restricting age for firearms/ammo purchases to age 21 – even if otherwise legal. DKS cut sales of assault rifles in aggregate. Is it me, or is this enough to miff the core customer at WMT, and have zero impact on anyone wanting to acquire an assault rifle from actually getting their hands on one?
4. I can’t point to another stock I’ve missed short side more often that LB. I always have said ‘I missed it – it must be over.’ Apparently everyone else has as well – including management and its finance department. I might miss it again, but in the interim the I think a better way to play the new wave of ‘serial guide-downers will be FL, and UA, and KSS, and TIF, and RL, and TGT…
5. This BBY guide looks conservative. Beat in the Q shows how AMZN effect is slowing on the margin – materially – in categories where AMZN began its push over a decade ago. However, management guided Q1 below consensus citing calendar shifts and investments in supply chain and higher transportation costs (similar to what we’ve heard from other retailers). Remember management guided Q4 SSS to be +1-3% originally and yet it put up a +9%. That’s either a sandbag or horrific forecast accuracy. I think it’s the former.
6. HBI touring Boston today on the same day as GIL NYC analyst meeting. That’s no coincidence. #defense
