Lumber Liquidators Holdings

LL : NYSE : US$70.42

BUY 
Target: US$100.00

COMPANY DESCRIPTION:
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
MOMENTUM VANISHES IN Q2 PUSHING OUR ESTIMATES LOWER
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

radioshack

 

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

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RSH1yr2

 

Google Finance

 

View gallery

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RSH10yr2

 

Google Finance

Steven Madden, Ltd.

SHOO : NASDAQ : US$32.83

BUY 
Target: US$43.00

COMPANY DESCRIPTION:
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
ACCENTUATING THE BRAND’S
STRENGTH VIA EXCLUSIVES
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
ACCENTUATING THE BRAND’S STRENGTH VIA EXCLUSIVES
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.

Valuation

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.

Dick’s Sporting Goods UPDATE

DKS : NYSE : US$43.60

HOLD 
Target: US$49.00

Consumer & Retail — Footwear and Apparel
STEPPING TO SIDELINES AS GOLF WILL TAKE TIME TO BOTTOM OUT;
DOWNGRADING TO HOLD, $49 Target Price
Investment recommendation
On the back of disappointing Q1 results (1.5% comp/50c in EPS vs. our
4%/54c estimate) coupled with its reduced 2014 outlook, we are
downgrading DKS to HOLD from Buy and lowering our price target to
$49 from $67. The Q1 issues driven by poor performance in golf (-HSD)
and hunting (guns/ammo) are expected to persist through year end.
Moreover, current Q2 trends have continued to soften as golf is comping
down low teens while hunting is down high teens, resulting in a ~4.5%
comp headwind. Hunting faces tough but easing comparisons through
year end. DKS believes golf clearance activity will be confined to Q2, yet
we are less optimistic and believe markdowns could spill into 2H14.
What’s more troubling is the lack of visibility in golf and when it will
bottom out. While the 18% decline in the stock appears excessive, we
believe it will take time for DKS to recover its comp momentum, and
thus believe the shares will trade sideways until we see evidence of
stabilizing golf and hunting trends.
Investment highlights
 To combat negative traffic, the company will increase its
promotional cadence and advertising. As a result, Q2 guidance (62-
67c vs. our prior 83c est.) came in dramatically below our estimates.
On the positive side, athletic apparel/footwear and team sports did
well as the rest of the store comp’d up 6.6%.
Valuation
Our $49 target is a blend of 15x 2015E EPS, 8x EBITDA, and DCF

CLUBBED BY GOLF: DOWNGRADING TO HOLD
We are downgrading DKS to HOLD from BUY. While DKS is a best-in-class retailer, we
believe there are both structural headwinds the company faces in golf and cyclical
headwinds in hunting (guns/ammo) that will result in depressed comps for the balance of
the year, mitigating the strength of other categories such as athletic footwear and apparel.
As such, we believe it is prudent to step to the sidelines as right-sizing these
underperforming categories will take time, particularly as DKS works through excess golf
inventory and demand resumes. Our price target goes to $49 from $67.
In search for a bottom in golf
The issues with the golf category (~15% of the business) are two-fold. First, the
combination of persistently cold weather in Q1 coupled with a glut of inventory in the
channel depressed replacement purchases in Q1. As with any category in which there is a
build-up of excess inventory, DKS has begun discounting and believes it can work through
the excesses in Q2. That, however, is creating incremental pressure on pricing (AUR was
-16% in Q1 and units were -2%) as the discounting of older inventory is skewing demand
toward older inventory at the expense of newer technologies. Management suggested the
consumer does not understand the technological benefits the new clubs have. While that
might be true to some extent, we believe the customer is more heavily skewed by price. We
expect this negative cycle to persist through year end as inventory issues (and potential
margin pressures) always take longer to clear out than initially believed.
Second, structural concerns around the decline in rounds played are also troubling given
the sq. ft. allocated to the category (~8% of store sq. ft.). What’s more disconcerting is that
management does not know where the bottom in golf is. While we appreciate the candor, it
is nonetheless troubling to hear. To date, DKS remains committed to the golf category but
is actively reducing the sq. ft. allocated to it in-store in favor of women’s and youth
apparel. We support this decision; however, it may not be enough to fully offset the
declines.
Hunting facing a year of tough comps
Hunting, and more specifically guns/ammo (~15% of business), is facing difficult
comparisons this year due to the acceleration in purchases over the last couple of years
that were driven by fears of potential legislative changes to gun ownership laws. While this
appears to be more of a cyclical issue than anything else, it remains a headwind for the
balance of the year.
2017 goals likely get pushed out one year or more

Retail Stocks To SELL

Sell These  Stocks Immediately

Struggling Retailers

These retailers can’t seem to get their reluctant customers to open their wallets these days. When they do, they want big discounts. That makes it difficult for the companies to achieve real earnings growth in the current environment

Children’s Place Retail Stores (PLCE) has a tough road ahead as it tries to compete with improved discount children’s merchandising from Wal-Mart (WMT), Target (TGT), J.C. Penney (JCP), Sears (SHLD), and even Costco (COST). Children’s Place is also susceptible to higher cotton prices and then there’s the danger of discounting to move inventory, which eats away at margins.

Radio Shack (RSH) is another business struggling with competition from giants like Amazon and Best Buy (BBY). The company met analysts’ expectations in its fourth-quarter report, but that came on the heels of four straight earnings misses. Part of the problem is that a higher percentage of the company’s sales have come from mobile products, which carry very low margins, and changes at Sprint have also impacted results.

Ralph Lauren (RL) has cheap lines, such as Denim & Supply, which will dilute the brand and bring down sales. Also, many customers have complained about this season’s merchandising/styles.

There’s a lot of moving parts in perhaps the company’s most important division right now, and I would stay away from the stock until there’s a clearer picture of where the company is going.

Sales and profits at Sears Holdings (SHLD), which also owns Kmart, just keep dropping. With poor customer service and concern about the quality of their appliances and other one-time A-level items, the retailer is on a bad downward path.

Analysts and traders have speculated about the fate of SHLD since Lampert combined Sears and Kmart in 2005, and investors have endured wild swings in the stock. Ultimately, I see Sears as unable to make it.

CEO Eddie Lampert has been scrambling to raise cash and calm investor fears, and he does have a history of temporarily igniting investor interest from time to time. To stay afloat with enough cash flow, Sears has been trying to sell off or spin off its stores. One well-respected Wall Street analyst called the process “a controlled liquidation of its chain,” and I agree. The chain plans to sell 11 stores and spin off its Sears Hometown among other efforts that are expected to add about $1 billion to the company’s coffers.

While the move put rumors of bankruptcy to rest, Sears, in the end, looks on a path to fall short of money again. After all, it was only two months earlier when it secured $350 million by closing up to 120 Kmart and Sears stores and reducing inventory. You can’t run a business by selling off assets. Sears needs to address fundamental problems and find a buyer that can provide synergistic upside.

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Monday – Friday 9:00-5:00

Deckers Outdoor Corporation BUY Target $ 103

DECK : NASDAQ : US$78.53

BUY 
Target: US$103.00 

COMPANY DESCRIPTION:
Deckers Outdoor Corp. engages in the design,
manufacture, and marketing of footwear and accessories
for outdoor activities and casual lifestyle use. DECK
distributes their goods through specialty retailers,
department stores, outdoor retailers, sporting goods
retailers and online retailers. DECK also sells directly to
consumer through its websites and retail concept stores.
The company was founded in 1973 and headquartered
in California.

All amounts in US$ unless otherwise noted.

Consumer & Retail — Footwear and Apparel
SOLID Q, IMPRESSIVE BACKLOG; REITERATE BUY, $103 TARGET
Investment recommendation
DECK reported a solid EPS beat of -8c vs. our -14c estimate driven by
stronger sales growth (+11.7% vs. our 6.4% estimate), greater gross
margin expansion (+210bps vs. our +35bps), and modestly better
expense leverage. As we anticipated, the extended cold winter helped
drive sales of UGG boots and slippers, while spring product has recently
begun to sell well in warmer weather markets. As such, inventory was
down 18%, indicating a healthy position heading into the new fiscal
year. In no uncertain terms, this was a solid, clean quarter. In addition,
the backlog ending March 31, was up a very strong +19% vs. our 10%
estimate driven by strong demand for UGG, HOKA, loungewear, and I
Heart UGG product. That said, wholesale growth was guided +LDD,
suggesting strong upside potential to w/s estimates. Nonetheless, given
the strength across all brands, DECK raised F14 guidance. With all
aspects of the business working well, we reiterate our BUY rating.
Investment highlights
 DECK is taking its German UGG distribution in house beginning July
1, 2014. We expect both sales and gross margin will benefit from
the transition, thus contributing incrementally to FQ2 and FQ3 EPS.
 New store growth is increasing from 25 to 30-35 stores as DECK
takes advantage of opportunistic real estate openings. E-commerce
(+45%) experienced robust growth as well, and should continue to
aid in brand awareness, particularly internationally (e.g. Germany).
Valuation
Our $103 target is a blend of 19x 2015E EPS, 11x EBITDA , DCF

Amazon Update

AMZN : NASDAQ : US$337.15

HOLD 
Target: US$365.00

 

Technology — Internet
STEADY Q1; INT’L MEDIA GROWTH
AND INT’L MARGINS REMAIN LOW
Summary
Amazon reported solid Q1 results marked by strong North American
growth and margins, while International Media sales growth decelerated
to 4% and International margins dipped back below zero. We still see no
International margin expansion in sight, due to a long list of investment
priorities including fulfillment in places like Spain and China, and “early
market” inefficiencies in everything from product sourcing to warehouse
operations. Based on this view, and with consensus estimates implying
margin expansion, we believe we will be in “EPS push-out” mode for at
least another year.
Key points
 Bullish: 33% gross profit growth was much faster than 23% unit and
revenue growth, largely driven by 3P (margin expansion) and AWS
(not included in units). N. American margin stayed high at 4.7%.
 Bearish: International media revenue grew by only 4% y/y,
impacted by the continued shift to digital; guidance implies
continued low margins internationally
 Estimate changes: Our revenue estimates bump up slightly while
EPS heads lower on International margin pressure. Our new 2014,
2015, 2016 non-GAAP EPS estimates go to $5.13, $10.44, and
$14.55 from $5.76, $10.58, and $14.67.
Valuation
Our price target remains unchanged at $365, and is based on a 25x
multiple to our revised 2016 non-GAAP EPS estimate of $14.55

Urban Outfitters

URBN

NASDAQ : US$37.51 
BUY  Target: US$49.00

 COMPANY DESCRIPTION

Urban Outfitters is a specialty retail offering fashion apparel, accessories, and home goods through around 500 stores, online, and catalogs. The company operates under the Urban Outfitters, Anthropologie, Free People (which includes a wholesale segment), Terrain, and BHLDN brands. A

Consumer & Retail — Specialty Retail ANTHROPOLOGIE PERFORMS WELL; NAMESAKE WEAKNESS PERSISTS
Investment recommendation

URBN reported Q4 EPS of $0.59, $0.04 above our estimate and ahead of consensus of $0.54. The company generated 4bps of yr./yr. gross margin expansion, versus our forecast of a 31bps decline, which was largely offset by an SG&A expense rate that was 40bps higher than we had anticipated. A lower tax rate drove the bulk of the upside over our projection. We are maintaining our bullish stance driven by sustained fashion improvements and performance at the Anthropologie brand (41% of total C2013 sales). Q4 SSS increased 10% on top of +7%, and the brand’s level of markdowns was 20% lower yr./yr. despite the highly promotional environment that persisted in the quarter.
Investment highlights

We expect a slow recovery at the namesake brand. We are modeling for Urban Outfitters’ (44% of total sales) SSS to decline 8% in Q1 on top of +6% as difficult weather and fashion misses continue to plague the brand.
 Weaker UO sales push our Q1 EPS estimate $0.08 lower to $0.28. Prior consensus is $0.33. We are reducing our consolidated SSS forecast by 190bps to -0.8% on top of +9%. We now expect 141bps of SG&A expense deleverage versus our prior estimate of a 33bps improvement.
 Our price target moves from $48 to $49 as rolling forward our DCF model one year offsets our reduced outlook

Dick’s Sporting Goods

DKS 

NYSE : US$56.67 
BUY  Target: US$67.00

COMPANY DESCRIPTION

Dick’s Sporting Goods operates as a sporting goods retailer in the United States. It provides apparel, athletic shoes and accessories for sports. It also engages in e-commerce and catalog operations. Dick’s Sporting Goods was founded in 1948 and is headquartered in Pennsylvania

Consumer & Retail — Footwear and Apparel FLEXING ITS MUSCLE ACROSS ALL ASPECTS OF ITS BUSINESS: REITERATE BUY, NEW $67 PT
Investment recommendation

Consistent with its preannouncement on February 10th, DKS reported Q4 EPS of $1.11 on a very healthy 7.3% comp (traffic +6.3% and ticket +1.6%) with merchandise margins up 33bps. We are most impressed with the strength of DKS’ e-commerce business (+53% in Q4) as well as its improving profitability profile, dispelling the fears of online competition eroding its share. As we look to 2014, the initial Q1 guidance (3%-4% comps and EPS of 51c-53c) looks appropriately conservative given tough weather dynamic with potential upside coming from apparel and footwear (UA/NKE predominately). We view the planned space allocation changes that will shift to higher margin/higher return categories (e.g. women’s/kids apparel) positively. These space changes will be completed ahead of back to school, suggesting potential upside to 2H comps and margins. Undoubtedly, DKS is operating well, and with strengthening aspects of its business (e-commerce, in-store comps, and its margin profile) we reiterate our BUY rating and $67 price target.
Investment highlights 

While e-commerce profitability is below that of stores (largely due to the fees it pays GSI), it is improving and should eclipse that of stores in 2017 (when the GSI contract terminates). Today, incremental improvements in fulfillment (ship from store, pick up in store, etc.) are already helping and should keep pace with the growth of e- commerce sales. That said, DKS continues to invest (-3c to 2014 EPS) in the multi-banner infrastructure of this important platform

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