Editor's Note: Below is a brief excerpt from our Retail analyst Brian McGough's morning note to customers called "Hedgeye Retail Direct." If you would like information on how you can access our institutional research email to sales@hedgeye.com.

Why Retail Is (Still) Shortable - zr4

We’re hosting a Black Book presentation on Tuesday about why retail is still shortable.

While my team works on this deck, the group sells off another 2% every day. It makes me wonder if we’re bottom ticking the retail malaise.

When I go through the math, I come to the realization that there’s more downside to come. The XRT is at 14.9x earnings now. Well below when we issued our ‘Apocalypse Now’ deck over the summer. But still above the trough 11.2x p/e we saw the last time retail earnings expectations were ahead of economic reality.

We’ve seen multiple compression, and next comes the earnings reset. 11% EBIT growth for US retail – which is the current consensus – still way too optimistic.

I’m in Boston today spending time with clients. Apparently…so is DLTR mgmt. That’s probably why the stock was +0.6% with the XRT -2.6%. Management still working the angle that the company can do it on their own. But would not outright admit that the new Board member was completely their doing. Sounds like activists are starting to have an impact.

In client meetings, people are flat-out scared of China. I think that the TIF print – which blamed global weakness on less Chinese tourist spend – is inflicting the fear of God into people looking at global brands and potential upside/downside. Seems overdone to me as it relates to the lux group. TIF has its own issues that should be isolated.