RH is our favorite long term story in retail. When we put a $300 price target on the name several years ago (with the Stock n the $30s), people thought we were nuts. Lo and behold, it hit $300 this past week. The story has evolved so much over time, and the reality is that our $300 target is way too conservative over a TAIL duration. All of that said, we’re taking it a notch lower on our Long Bias conviction list this week. The Home space has been en fuego – shelter in place has driven much of that, which accrues to RH. But another critical factor for the Home names has been stimulus. The reality is that this applies to companies like Wayfair (Short Bias) and Home where you’re buying a $60 lamp. But not at RH where you’re buying a $12,000 sectional. My sense is that the company has been managing the business for cash and margin, and will err on leaving money on the table in the current retail environment. With the stock hitting new highs, it gives us pause heading into the upcoming quarter. Kind of a rounding error in the grand scheme of how much upside there is to this name over time, but we can’t ignore the risk/reward to the data point sitting in front of us.
AMZN moving down a few notches on Long Bias. After a killer 2nd quarter affirming the tail call the trend setup from here is likely to include a deceleration in revenue and profits. Guidance for 2Q was above the street on revenue thus taking up the expectation, and the top end of revs implies about a 700bps slowdown in growth. Prime Day is shifted out a quarter and the longer we go without a passage of new stimulus bill the greater the slowdown in revs is likely to be. At the same time AWS is seeing near term growth pressure as customers look for ways to cut expenses amid economic uncertainty. Gross margin remains under pressure from mix and incremental investments and the company cited the need to ramp investments in fulfillment capacity to meet demand in 2H at the same time inventories look overly lean. That means some potential margin and working capital pressure over the upcoming quarters as well. AMZN is still very much a tail long and it stays on the long bias side, but the trend setup is much less bullish than it was a few months ago.
