There are many tools we use to prep for a quarterly earnings release. As it relates to PSS, we included several of them below. The bottom line is that we’re well ahead of the Street. The consensus is looking for a loss of $0.26. We’re at a loss of $0.10. Could we be aggressive? Perhaps.
We need to temper comp expectations given the pull forward into 3Q from the Oprah promotion as well as the fact that PSS is not benefitting as much as some other retailers due to its lack of meaningful exposure to the ‘toning’ category. But when all is said and done they’re still going up against a -11% slide in traffic last year. A positive low/mid single digit comp is perfectly reasonable.
On the margin side, we’re coming out at a +470bp boost in margins versus last year. Yes, that’s a sequential reacceleration. But PSS is looking at the most favorable sales/inventory spread it’s seen in years. If there were ever a time to come in strong on the gross margin, now is it. If there’s any area we’d point to on the cost side that might be aggressive, it is our assumption for a 1% boost to SG&A – as we could see a potential pick up in incentive comp spending given the rebound in operating performance this year.
So yes, we’re anything but conservative headed into this print. But even if we soften up our comp and SG&A expectations, we have a tough time modeling a loss that starts with a $0.2 handle. Is this a trade into the print? We don’t think so…not after a 18% run in the stock over the past 4 weeks. But we don’t think they’ll give enough ammo relative to expectations to cause a mass exodus from this name.