Two changes to the Retail Position Monitor this week...
DOL-TSE – Less bullish. We’re taking Dollarama off our Long Bias list. The stock has been working all year, and yet the potential for the company to introduce new higher price points has been becoming less likely. Quad 2 in Canada won’t help it further along, nor will increased competition from Wal Mart, which is getting more aggressive on price. The street is now looking for peaky EBITDA margins on 2021, valuation is back near recent peaks at nearly 25x, and short interest is near trough sub 1%. Dollarama has gone lower by several notches on our Long list over the past year, and now it’s off. There’s no reason to be bearish here, to be clear, but not too much to get incrementally excited about on fundamentals and price either. A far better play on expanding price points in retail is in the US with Dollar Tree (DLTR -- Best Idea Long), which is just starting off on the higher price point strategy started by DOL over a decade ago.
SFIX – Less bearish: Removing Stitch Fix from Short Bias List. We were wrongly positioned here on the latest print when the company smoked numbers and announced a new CFO from AMZN. The EV/Sales multiple on this name is sitting at about 3.1x – which is way too high for a model that we think is fundamentally flawed and is running out of TAM too quickly. But the reality is that 40% of the float remains short, and it’s likely to be a beneficiary of when consumers re-stocks closets in 2H01 at the higher-end on top of a more rational cost structure and an upgraded management team. In other words, this name has another squeeze left in it, and we don’t want to remain on the wrong side. It pains us to walk away here given how expensive (and ultimately terminal) it is, but we’ll come back to this one short-side when the setup is tighter.
