Two changes to our Position Monitor this week. 1) Adding Canada Goose (GOOS) to our Long Bias list ahead of its 1Q print next week, and 2) Lower conviction on our Peloton (PTON) Best Idea Short.
- GOOS: We’ve been short GOOS for much of the past year. But in looking at the current setup, it leans bullish from where we sit today. First off, one of the tenets of our bear case is that the company is taking the brand downstream as it shifts away from its parka business and into knitwear and more discountable/non-durable items. The reality is that management has managed this transition better than we expected, and even in the off-season there is minimal discounting going on at the brand-level. Secondly, COVID is happening during the perfect time for the company from a seasonal perspective. If stores were shut down from October through February we’d be talking a missed selling season. But the reality is that stores will be reopening at the perfect time for GOOS as it relates to seasonal demand. Do we like the fact that we’re relying on selling $1,000 coats in a deep recession – not quite. But the seasonal calendar is lining up nicely. Lastly, we think that expectations have been rightsized for the upcoming quarter, and think that there is very low risk to a big shortfall. Not a Best Idea Long side yet, but we like how the story is developing.
- PTON: We still think that this is one of the most fundamentally overvalued securities in consumer discretionary, but the reality is that the only force that could drive the company to miss this quarter is an inability to meet elevated demand – which is a very high class problem to have. It could be several quarters before we see the underlying growth rate and churn risk pressuring the stock. In hindsight, we should have covered this one when COVID broke out, because the shot in the arm it gave to near-term demand clearly blunted which we think is a longer term disconnect between the model and economic reality. But we’re definitely not going to throw in the towel altogether in the face of what will likely be a peak quarter for the company in the best environment it could possibly imagine – and still will be barely turning a profit. Taking conviction level to the bottom of our best ideas list.
