It’s tempting to take FL off our Best Ideas Short list on today’s -17% move, but the reality is that I don’t believe guidance. The company just missed on the easiest top and bottom line compare of the year, and is guiding to msd comps for the full year at a time when Adidas is no longer stuffing the store with Yeezy’s to drive the comp. 2Q guidance looks simply terrible, and while it might be sandbagged, a bull case scenario is that EPS is flat – not worth paying for. People beat up the company in the Q&A for not buying stock in the quarter, but it knew what it was doing – it knew the stock would get shellacked after missing targets that were in effect blessed just 5 weeks before the quarter ended at its analyst meeting on March 28th. The company is guiding to msd full year comps and a high single digit EPS growth rate for the year, which I think is aggressive given compares get so tough and traffic is negative. I’ve got EPS flat in my model for the year. I understand that the stock looks dirt cheap at 9x earnings and 5x EBITDA – but Hedgeye’s Macro call is that we’re headed for a Q2 GDP miss, and Macro Quad4 is valuation agnostic. The cheap get cheaper – especially when earnings are revised downward. I’m moving FL down a few notches on my Best Idea Short list given today’s action, but unless the consensus comes out with EPS growth for the year closer to flat, I’m staying short.
Takeaway: Cheap gets cheaper while numbers come down (especially in Macro Quad4), and revisions to the downside aren’t done yet here.