Mixed EPS event for SBH…beat the quarter with $0.50 vs the Street at $0.47…but pushed out the recovery play by at least a quarter by guiding 2Q revenue lower due to store closures in Canada and California – something we were concerned about for 1Q earnings when we made the call last week. 45% of stores are under pressure from closures and restricted hours. Tough to comp with that as a backdrop. I think the company is coming in on the conservative side with the 2Q guide. But still. This is a tough one. I’m long…to be clear. But I have this on a tight leash, and was definitely disappointed with the underlying quality of the guide.
Big top line recovery in 2H, and now 1H22 – and the stock is absolutely hated (for good reason by long term investors that invest in quality). I liked that at end the quarter there were 163k private label credit card holders versus 80k last q – which I like to see given the stickiness of that customer and the higher average order value for a private label credit card customer – but in fairness, it didn’t show up in comp. So we’re early in the adoption curve.
GM came in strong for the quarter, though this was likely driven by valuation allowances on the COGS side that is not part of the mainstream narrative. That’s likely to remain in place for another two quarters, but then we see a mean reversion and GM pressure into 2022. The good news is that this is when we start to see SG&A leverage in the model due to comp strength – though we need to take into account the return of furloughed employees last year. But if our comp numbers are right, it’s on track for 2021 to be a de-levering year, which will help the 7-8x earnings multiple.
I’m taking down my 2021 estimate to $2.18 vs prior $2.45. Not happy about that. But the Street is likely to come in at around $1.75. So we’re still well ahead. Also looking for outsized recovery-led beats in 1H of FY22. Is this my favorite idea? No. Basing a Long call on 3 quarters worth of volatile earnings model math is really not my schtick. But if I’m right on the model, this heavily shorted/hated stock should see the low/mid $20s vs the current $15.80. If I don’t get a better read on 2H and more confidence in the quality of the financials. I’ll punt it and move on to real businesses that I fundamentally believe in and have a massively divergent view over a TAIL duration. Losing capital on a secular loser is against everything I stand for. Won't let that happen.
