Link to Replay and Slides: CLICK HERE
Yesterday we held our short call outlining Kevin Plank's egotistical characteristics that are clouding his vision and disabling him from acting on what is inevitably in the company's best long term interests. The focal point is Kevin, with further analysis supporting our short thesis that includes the company's structural HR problem, real estate issues and the firms inability to leverage athlete endorsement contracts.
Key Points:
This is All about Kevin’s Duration
This not about a company. It is about a man. He has two paths – become Reebok today by levering up, letting revenue roll, and invest in SG&A and capex to reaccelerate and add another $3bn in profitable revenue in 2-3 years, or 2) Cut costs, get this to be a $25 stock and face the inevitable perennial ‘Reeboking’ of a once great company. I bet on the latter.
Structural HR, Real Estate, Athlete and Org Problems
We all know about the HR dysfunctionality. But there are even bigger – and structural – issues with the org structure, Athlete endorsement strategy, and real estate direction. Some are cost cut opportunities (Athletes and Real estate) if Plank’s ego will allow it. The Org/Footwear problem will take capital – a lot of it.
Polarizing, and Both Sides will be Right = #duration
Kevin is likely to follow the ‘Could’ vs ‘Should’ path. Both ultimately end in an $8 stock with a potential CEO margin call. Kevin could lose his company despite having C class shares. The cost cut call could = $0.50 in EPS power and a $22-25 stock. That’s when you short with impunity. Until then – scale up short position on green days. This company has the greatest probability I can find of an ‘oh crud’ moment of a 5-10% revenue guide down – this year.