GAP Target Price $ 51


NYSE : US$37.90 BUY 
Target: US$51.00

Gap is a global specialty retailer of clothing and
accessories for women, men, and children. GPS brands
consist of Gap, Old Navy, Banana Republic, Athleta, and
Piperlime. The company operates 3,200 stores
worldwide, and GPS products are sold through nearly 400
franchise locations.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Specialty Retail
Investment recommendation
We are raising our Q3 EPS estimate by $0.08 to $0.73 driven by
better margins than we had expected. GPS guided for Q3
adjusted EPS of $0.72-$0.73, excluding a $0.06 benefit resulting
from the recognition of certain foreign tax credits. Prior
consensus was $0.71. We are raising our Q3 gross margin
estimate by 50bps and reducing our operating expense rate by
90bps. We expect gross margin expansion to return in Q4 and
continue into FY15 and beyond as GPS starts to reap the rewards
from its supply-chain initiatives, at first through fabric
platforming and later from vendor managed inventory and rapid
response inventory management. We continue to believe the
long-term margin expansion opportunity is underappreciated
and not reflected at the stock’s current valuation of 12x our
C2015 EPS estimate and 6x C2015E EV/EBITDA.
Investment highlights
 October SSS split the difference between our estimate and
consensus. GPS’s consolidated October SSS declined 3% on
top of +4%, versus our -4% forecast and consensus of -2%.
October is largely a clearance month, and we are leaving our
top-line outlook unchanged for the remainder of FY14.

 We are raising our price target by $2 to $51 based on our
discounted NOPAT model.

Family Dollar Stores Target Price $ 74.50

FDO : NYSE : US$77.75
Target: US$74.50 

Family Dollar operates over 8,000 retail discount stores
in 44 states, providing a merchandise assortment
including consumables, home products, apparel and
accessories, seasonal goods, and electronics.
Merchandise is generally sold for $1 to $10.
Consumer & Retail — Specialty Retail
Investment recommendation
We continue to move closer to the completion of the acquisition
of FDO by Dollar Tree (DLTR : NASDAQ : $56.70 | HOLD). In
early September, the companies accelerated the expected
timeframe to the end of November, compared to the initial
schedule of early 2015. We are raising our price target to the
deal price of $74.50 (which includes $59.60 in cash and $14.90
in stock). We would take a much more positive view on the
combined entity as it would create an instant market-share
leader with over 13,000 stores and annual sales of $18B. We
think DLTR’s superior merchandising organization and greater
store consolidation than what was included in the companies’
initial outlook would drive annual synergies above the $300MM
the merger is expected to generate by year three.
Investment highlights
 Dollar General is still in the picture. DG extended its
$80/share tender offer to 10/31, but FDO remains confident
this combination would not receive antitrust approval.
 Q4 EPS missed our estimate by $0.07, but shares should
continue to trade on the potential acquisition. FDO reported
Q4 EPS of $0.73 on SSS +0.3% on top of flat. Gross margin
was 90bps below our forecast, and there was 16 bps more of
SG&A expense deleverage than we had anticipated.

Rent-A-Center BUY

RCII : NASDAQ : US$26.59
Target: US$32.00

RCII is the largest RTO operator in the United States with
over 40% market share. The company operates
approximately 3,025 stores in North America. RCII also
operates nearly 1,360 AcceptanceNOW kiosks located
within retail stores, offering RTO agreements to
customers unable to garner financing to make an in-store
All amounts in US$ unless otherwise noted.

Consumer & Retail — Specialty Retail
Investment recommendation
RCII dug deeper into the initiatives aimed at improving
profitability in the core business at Canaccord Genuity’s Global
Growth Conference, and we think the decision to transition to a
more flexible labor model is a no brainer. In Q2, virtually all of
the core’s yr./yr. revenue decline fell through to the bottom line
as a result of the company’s fixed-cost labor model. We think
there is an opportunity to substantially reduce labor costs by
incorporating more part-time hours into the core RTO business.
The addition of Guy Constant as CFO should prove valuable
through this transition, as his 10-year tenure in the restaurant
industry has exposed him to a much more efficient labor model.
We believe simply replacing overtime hours in 20% of core RTO
stores with part-time labor would generate over $20MM in
annual cost savings in 2015 and lift RCII’s operating profit
margin by 110bps. We are raising our rating to BUY given the
potential EBIT margin and EPS upside we believe this transition
Investment highlights
 We are increasing our long-term EPS estimates by 28% on
average. Our 2015 estimate of $2.59 is $0.25 above
 Our price target moves to $32 based on our DCF model.

Gordmans Stores BUY More then a double BUY

Target Price $ 9.00
Gordmans Stores is an everyday value price retailer
offering merchandise up to 60% off department and
specialty store prices. The company operates nearly 100
stores in 20 states, located in multiple shopping center
formats including regional shopping malls, lifestyle
centers, and power centers. The merchandise
assortment consists of apparel, home fashions, and
accessories including fragrances.

Consumer & Retail — Specialty Retail
Investment recommendation
GMAN generated a Q2 loss of ($0.16) per share, in line with our
estimate and a penny below consensus. As expected, the
company spent the bulk of Q2 clearing out stale inventory ahead
of H2. The higher level of markdowns resulted in 95bps of yr./yr.
gross margin contraction in Q2, which did not come as a surprise
to us. We believe this was necessary to make room for an
improved product assortment, including the recent launch of a
Missy contemporary department. Gross margin should begin to
recover in H2 as better product rolls into stores. We believe SSS
will be slower to rebound, however, and we are lowering our Q3
SSS forecast to -5% on top of -6.1% versus our prior flat estimate.
This pushes our Q3 EPS estimate from $0.02 to ($0.09). We
continue to believe GMAN’s long-term recovery potential is not
reflected with shares trading at 0.2x C2015E EV/revenue.
Investment highlights
The appointment of department store veteran Andrew Hall
as CEO should bring some stability to GMAN. Hall spent six
years at Stage Stores, including a run as CEO from 2008-
2012, and 13 years prior at May Department Stores.
We are reducing our price target from $10 to $9 based on
our DCF model. There is still notable turnaround risk here,
but we believe investors will be paid for their patience.

Dick’s Sporting Goods In The Rough ?

DKS : NYSE : US$44.21 HOLD 
Target: US$49.00

Consumer & Retail — Footwear and Apparel

Investment recommendation
DKS reported Q2 EPS of 67c. vs. our estimate and consensus of 65c,
driven by stronger-than-expected comp growth of 3.2%, tighter expense
controls and a lower share count, partially offset by gross margin
contraction as steep promotions in golf drove traffic at the expense of
margins. The hunting category continues to experience challenges as it
comp’d -HSD in 2Q14.
That said, growth in other outdoor categories is
offsetting the weakness in guns/ammo, which drove flat total category
comps. The company provided EPS guidance of $0.38-$0.42 for 3Q14,
including a -2c impact due to higher SG&A expense related to 32 new
store openings in the third quarter.
Investment highlights
 DKS has taken meaningful steps to mitigate the impact of the
struggling golf business, but the promotional activity is expected to
continue into 2H. Also, generally high promotional activity across
the industry will impact DKS by an estimated 4c in 2H14 as it will
need to keep the promotional pace with its competitors to drive
traffic. Lastly, hunting is expected to offsetDKS is benefitting from its move to reduce sq ft in golf and increase
the space in Women’s & Youth apparel. We would like to see an
incremental reduction in golf sq ft.; however, the company is being
methodical about the space shifts and resulting cost/benefits.
Our $49 target is a blend of 15x 2015E EPS, 8x EBITDA, and DCF the growth in other
outdoor categories in the near term.

Michael Kors Holdings Limited

KORS : NYSE : US$77.01
Target: US$123.00

Consumer & Retail — Footwear and Apparel
Investment recommendation
KORS reported solid Q1 EPS results of 91c vs. our 82c estimate. Stronger
comps (+24.2% vs. our 20% est.) and gross margin expansion (+20bps
vs. our -20bps est.) drove the beat. Broad based growth across
geographies and categories continues to be robust as evidenced by NA
comps of 18.7%, European comps of 54.2%, and Japan comps of 48.8%.
Not only does KORS continue to take share domestically, but it is also
taking share from luxury brands across Europe.

With respect to gross margins, wholesale margin expansion of 62 bps more than offset
incremental markdowns at retail (-48bps) that were driven by a higher
sell thru mix of markdown product despite the same SKU count and rate
of markdowns y/y. That said, margin guidance for Q2 and the year is
-50bps from down slightly previously as the much anticipated and very
natural evolution of margin normalization has begun. We therefore
expect to see modest margin contraction in both retail and wholesale in
the near term, until retail mix helps margins mix higher.

Overall, F2015 guidance was raised by a few pennies in excess of the beat. We believe
the stock’s reaction (-6%) is unwarranted given the momentum the
brand has across its business. Moreover, the current valuation (18x
forward EPS) puts KORS at a 30% discount to its growth rate. With still
vast market share growth opportunities in Europe and Asia, which
combined represented just ~16% of total sales last year, we would use
this weakness as a buying opportunity. We reiterate our BUY.
Investment highlights
Europe continues to experience dramatic growth (+128% in Q1).
With greater confidence in its brand positioning, KORS increased its
long term market opportunity to $1.5B in sales from $1B

Lumber Liquidators Holdings

LL : NYSE : US$70.42

Target: US$100.00

Lumber Liquidators is the largest specialty retailer of hardwood
flooring in the U.S. The company offers premium hardwood
flooring products in a wide variety of domestic and exotic wood,
as well as engineered products, laminates, bamboo, cork, and
accessories. Lumber Liquidators assortment is largely comprised
of proprietary brands including the flagship Bellawood brand.

Consumer & Retail — Specialty Retail
Investment recommendation
We are lowering our Q2 EPS estimate from $0.94 to $0.61,
compared with guidance of $0.59-$0.61 and prior consensus of
$0.90. LL reported a Q2 SSS decline of 7.1% on top of +14.9%
versus expectations of +7%. Total customers invoiced declined
5% yr./yr., the steepest decline in three years. LL did not regain
momentum after difficult Q1 weather as we had anticipated, and
management is blaming macroeconomic factors. The 131 stores
impacted by weather experienced a SSS decline of 13%, with
non-impacted stores -2%. We are lowering our FY14 EPS
estimate from $3.35 to $2.70 on SSS -2.5% on top of +15.8% (we
had previously forecast +6.3%). We still project double-digit sales
and EPS growth over the long term, keeping us BUY rated. Given
consecutive quarterly EPS misses and limited near-term visibility,
we think investors will view LL as a show-me stock over the next
few months.
Investment highlights
 An inventory shortfall accounted for $18MM of Q2’s $47MM
revenue downfall versus our estimate. LL expects quality
assurance-related supply-chain issues to resolve in Q3.
 We are reducing our price target from $122 to $100 based on our discounted free cash flow model. This is a long-term target, and reflects our belief that LL’s model of better selection, service, and value should enable it to take market share

RadioShack ( RSH) Is Collapsing



Wikimedia Commons

RadioShack shares were down as much as 21% in premarket trading after the electronics retailer reported a wider than expected quarterly loss.

The company posted a net loss of $98.3 million, or $0.97 a share. Analysts were looking for a loss of $0.52 per share.

Revenue fell 13% from a year ago to $736.7 million and on a same-store basis, sales fell 14%, which the company said was driven by traffic declines and poor sales in its mobile business. Analysts were expecting revenue of $767.5 million.

The electronics retailer said it ended the quarter with total liquidity of $423.7 million, including $61.8 million in cash and cash equivalents and $361.9 million available under a credit agreement.

“Overall, our first quarter performance was challenged by an industry-wide decline in consumer electronics and a soft mobility market which impacted traffic trends throughout the quarter,” chief executive Joseph Magnacca said in a statement.

Magnacca added that the company has taken steps to cut costs, including lowering its corporate head count and reducing discretionary expenses.

These charts show RadioShack’s performance over the last year and the last decade.

It’s not pretty.


View gallery




Google Finance


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Google Finance

Steven Madden, Ltd.

SHOO : NASDAQ : US$32.83

Target: US$43.00

Steven Madden, Ltd., together with its subsidiaries,
designs, sources, markets and sells fashion-forward
footwear for women, men and children. The company
was founded in 1990 and is headquartered in Long
Island City, New York. SHOO has a portfolio of brands that
reaches globally among all economic tiers. SHOO offers
products through wholesale partners, an e-commerce
platform and its own retail stores.
Consumer & Retail — Footwear and Apparel
Investment recommendation
We visited the SHOO showroom to preview the late summer/early fall
’14 fashion deliveries. While the latest fashion trends were key topics of
discussion, underlying questions around consumer demand and recent
performance of SHOO’s wholesale customers were also top of mind.
First, traffic (both at retail and wholesale) is the main concern, not the
lack of trends. To combat pervasive discounting of similar products
across competing retailers, SHOO is implementing an “exclusives”
strategy to segment the market, much like Nike does with its marquee
basketball product. The exclusive shoes will be advertised as “in store
only” and should help redirect traffic back to stores while also limiting
unnecessary discounting. As for what is selling well, dress and sneakers
(pony-hair/quilted/perforated etc.) are outperforming sandals, which
have yet to rebound (although the last two weeks have been better). The
sneaker trenConsumer & Retail — Footwear and Apparel
Investment recommendation

SHOO showroom  - to preview the late summer/early fall
’14 fashion deliveries. While the latest fashion trends were key topics of
discussion, underlying questions around consumer demand and recent
performance of SHOO’s wholesale customers were also top of mind.
First, traffic (both at retail and wholesale) is the main concern, not the
lack of trends. To combat pervasive discounting of similar products
across competing retailers, SHOO is implementing an “exclusives”
strategy to segment the market, much like Nike does with its marquee
basketball product. The exclusive shoes will be advertised as “in store
only” and should help redirect traffic back to stores while also limiting
unnecessary discounting. As for what is selling well, dress and sneakers
(pony-hair/quilted/perforated etc.) are outperforming sandals, which
have yet to rebound (although the last two weeks have been better).

While SHOO will not cycle the deceleration of booties (i.e., Troopa) until late Q3, we believe the implementation of a
segmentation strategy in the fall will set up 2015 for a resumption of strong double-digit EPS growth. As such, we reiterate our BUY.


PT $43 – a blend of 15 x 21-5 earnings, 10x EBITDA and DCF


Golf : Market Sector In The Rough

Please refer to our previous update on DICK’s ( posted this week)

The golf industry is in the rough.

Once the go-to activity for corporate bonding, the sport is suffering from an exodus of players, a lack of interest among millennials and the mass closure of courses. The tangled personal life ofTiger Woods, who for years was golf’s biggest ambassador, also hasn’t helped. All that has taken a toll on the companies that make and sell golf equipment, including Dick’s Sporting Goods Inc. (DKS) and Callaway Golf Co. (ELY)

About 400,000 players left the sport last year, according to the National Golf Foundation. While almost 260,000 women took up golf, some 650,000 men quit. A severe winter on the East Coast worsened the situation this year by delaying the start of golfing season for many. Slow sales of clubs and other gear dragged down results for Dick’s this week, sending its stock on the worst tumble since the retail chain went public in 2002.

“Golf is in a bit of a drought,” said Allen Adamson, managing director at brand consulting firm Landor Associates in New York. “It’s a pretty high-price sport, and leisure time is getting crunched.”

Slow golf sales over the past 15 months created a glut of golf inventory at wholesale and retail outlets, forcing them to slash prices. Dick’s is selling some drivers for $99 that were priced at $299 just 20 months ago, Chief Executive Officer Ed Stack said this week on a conference call. Golf sales missed Dick’s target about $34 million in first quarter.

Photographer: Ramin Talaie/Bloomberg


“We don’t feel we’ve found the bottom yet in the golf sales number,” Stack said.

Deep Discounts?

The bleak outlook rippled through the golf industry. Shares of Callaway, a Carlsbad, California-based maker of golf clubs, tumbled 9 percent to $7.60 on May 20. Callaway, which sells the Big Bertha driver, had delivered its own dim forecast last month. The company warned that full-year profit could come in at the low end of its previous guidance, especially if discounting is heavier than expected.

“We anticipate a heavy promotional environment while the industry works through excess inventory,” CEO Chip Brewer said on a conference call in April. The company hasn’t reported an annual profit since 2008.

TaylorMade, the Adidas AG-owned brand that makes clubs and golf accessories, also is suffering. The business saw a 34 percent sales drop in the first quarter, Adidas said earlier this month. Still, not all golf equipment is in decline. Overall, manufacturers’ sales rose 1.2 percent last year, according to the Sports & Fitness Industry Association. While sales of golf balls fell 4.9 percent, clubs grew 4.2 percent.

Younger Generation

Though cold weather and the sluggish economy are providing temporary headwinds, a generational shift may be a bigger cause for concern. The sport is suffering the biggest decline from younger players, according to the National Golf Foundation, with 200,000 players under 35 abandoning the game last year.

“Everybody’s hooked up to their handhelds, so it’s social networking instead of sports,” said Gerald Celente, publisher of the Trends Journal in Kingston, New York. The motivation for wannabe executives to spend hours chasing small balls no longer exists, he said.

“It’s something that’s associated with boom times,” he said. “Most of society’s not moving up, and golf is associated with moving up.”

Woods, 38, helped draw younger players to the game, though his personal challenges may have reduced his influence. He divorced his wife of four years in 2010 after admitting marital infidelity and has suffered a series of injuries.

Fewer Courses

There also are fewer places to play golf these days. Only 14 new courses were built in the U.S. last year, while almost 160 shut down, the National Golf Foundation said. Last year marked the eighth straight year that more courses closed than opened.

The people sticking with the sport are playing fewer rounds than before, often opting for nine holes rather than 18. In total, U.S. golfers played 462 million rounds last year, according to Golf Datatech. That was the fewest number since 1995.

“Golf has been a crummy business for a long time,” said Paul Swinand, an analyst at Morningstar Inc. in Chicago.


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