Adding OLLI to Short Bias. We liked this one long side in the early stages of covid lockdown as one of the open stores where people can find good values. Long term unit grower, serves a customer getting big discretionary help from stimulus, closeout/liquidation buying opportunity to help drive comps. An attractive bull case. But now the stock is back to all time highs, and peaky multiples 25x EBITDA, 36x EPS. The company is showing the recent help from stimulus and just guided to 40% comps and about 700bps of margin expansion for 2Q. Moderated stimulus in July, more open competitors, and still no resolution on the next round of government help means comps will likely slow materially. And we wonder if whether all this stimulus is driving a consumption pull forward for its core consumer as well. All it took was one weak comp last summer for this to revalued significantly. Not a big short call yet by any means, but we’ll keep an eye out for potential catalysts to send the fundamentals in deceleration in coming quarters.
Stronger Conviction UAA Long Bias. Friday’s selloff was overdone, so we’re taking advantage of the weakness and upping our conviction level in UAA long side at $10.50. After a solid revenue beat the pre-market strength was more than wiped out after management signaled a) that revenue could continue to be down 20-25%, b) elevated inventories and expectations for a ‘highly promotional’ environment should negatively impact gross margin (GM was up solidly by 280bp in the quarter), and c) due to inventory reduction efforts, UAA may leave money on the table if there is an increase in demand. As it relates to the quarter – the fact that revenue beat so materially for a brand that’s perceived as dead was extremely bullish. For the back half, the company is managing the financial model for cash first and revenue second – given what this company has been through and where it is in its recovery process, I like the conservatism. I still need more confidence in the long-term top line trajectory – especially in footwear – go gain confidence to make this a Best Idea Long…but I’m gaining conviction on the margin.
