DECK : NASDAQ : US$85.90
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
Consumer & Retail — Footwear and Apparel
2014 ROADMAP TO 30% EPS GROWTH: RAISING ESTIMATES, NEW $111 TARGET, REITERATE BUY
In this report, we discuss our view on how 2014 will unfold for DECK and the roadmap to 30% EPS growth. The crux of our increase in sales/EPS estimates is our improved outlook for 2014 wholesale orders. After discussions with our industry contacts, we believe a positive 2013 holiday season has given retailers renewed confidence in the winter boot category which should manifest in strong 2014 orders. In addition, DECK is making solid progress on its structural gross margin expansion plan that we believe is still in the early stages as both retail and UGG Pure penetration should increase through 2015. With both sales and gross margin accelerating coupled with our expectations for a much improved inventory position, we reiterate our BUY rating and are raising our 12-month price target to $111.
We now anticipate wholesale growth in 2014 to be +6% vs. our prior estimate for -1%; an estimate that could prove conservative given a turn in Europe and an improving assortment in Asia.
While we expect Q4 results to produce a solid beat, we are not anticipating a pre-announcement at ICR since it is not customary practice (the last preannouncement was in 2008). That said, we expect positive commentary by management to be well received.
Our $111 target is a blend of 19x our 2015E EPS /12x EBITDA/ DCF
Posted by jackbassteam on January 13, 2014
BBBY : NASDAQ : US$79.68
Bed Bath & Beyond sells a wide assortment of merchandise including home furnishings, domestics, giftware, health and beauty care items, and infant and toddler merchandise. BBBY operates around 1,010 Bed Bath & Beyond stores, 270 Cost Plus World Markets, 75 Christmas Tree Shops, 85 buybuy BABY locations, and 50 Harmon stores.
All amounts in US$ unless otherwise noted.
Consumer & Retail — Specialty Retail
CHALLENGES PERSIST IN Q4
BBBY’s Q3 EPS of $1.12 was $0.03 below our estimate and consensus. Q3 SSS increased 1.3% on top of +1.7% versus our +3% forecast. Higher couponing and mix shift led to a 60bps gross margin decline, worse than our -13bps forecast. Items below the EBIT line added $0.02 compared to our forecast. We downgraded shares to a Hold rating on 10/30/13, and we remain concerned about retail traffic trends and heavy couponing. BBBY reduced Q4 EPS guidance by $0.10 to $1.60-$1.67 after December transactions fell short of expectations. We remain on the sidelines with shares trading at 14x our FY14 EPS estimate and 8x FY14E EV/EBITDA based on the after-hours quote of $73.
We believe BBBY suffered its first market-share loss since the World Market acquisition in Q2/12. Based on home furnishings sales as reported by the U.S. Census Bureau, we calculate BBBY’s share slid 19bps to 22.3%.
Weaker sales and greater margin pressure push our Q4 EPS estimate $0.16 lower to $1.64, versus prior consensus of $1.78. We lowered our Q4 SSS forecast 150bps to +2% on top of +2.5%. We reduced our gross margin outlook by 30bps and raised our SG&A expense rate forecast by 50bps.
Our price target moves from $84 to $73 based on our updated DCF model.
Posted by jackbassteam on January 11, 2014
TIF : NYSE : US$78.24
Tiffany & Co. is the parent corporation of jeweler and specialty retailer Tiffany and Company. Through its principal subsidiary Tiffany offers an extensive assortment of jewelry, as well as timepieces, crystal, sterling silverware, and accessories.
Consumer & Retail — Specialty Retail
GROSS MARGIN UPSIDE POTENTIAL NOT ENOUGH TO RAISE OUR RATING
We expect TIF will report a 65bps yr./yr. improvement in gross margin when it releases Q3 results on November 26, the second straight quarter of expansion following seven consecutive periods of declines. The company should be seeing some benefit from price increases introduced in Q1, and metal and diamond cost deflation is starting to flow through the P&L statement.
We analyzed the potential upside from sustained commodity cost deflation. Based on a composite we compiled, we believe that as this lower-cost product flows through inventories, it would add about 60bps incremental gross margin in FY14, and we are raising our EPS estimate by $0.12 to $4.01. We do not think this is sufficient for a rating change. Our FY14 EPS estimate remains $0.09 below consensus, and the $65 price target generated by our DCF model, up from $57, still indicates notable downside.
We expect weaker sales of silver product will remain a gross margin headwind. We think this higher-margin product has been a victim of stale fashion in recent quarters.
TIF trades in line with the luxury group despite slower projected growth. We expect sales and EPS will grow at compounded annual rates of 5% and 12%, respectively over the next three years versus the group averages of 10% and 13%.
Posted by jackbassteam on December 9, 2013
No Longer ” Crappy Tire” )
CTC.A : TSX : C$96.97
Canadian Tire is Canada’s most shopped general merchandise retailer, operating stores under the Canadian Tire, Mark’s, and PartSource banners. Through Canadian Tire Financial Services the company also manages a portfolio of credit card receivables.
All amounts in C$ unless otherwise noted.
Consumer & Retail — Merchandising
SOLID QUARTER, DIVIDEND RAISE WELL RECEIVED
We are reiterating our BUY rating and C$109.00 target price following Canadian Tire’s Q3/13 earnings results.
Canadian Tire reported Q3/13 earnings results on Thursday morning, before the market open. Revenue increased 4.5% YoY to $2,956 million. EPS of $1.79 was in-line with our estimate, and above consensus of $1.76 and last year at $1.61. The company also announced a 25% increase to its quarterly dividend to $1.75 per share.
Retail appeared to be firing on all cylinders during the quarter, with healthy same-store sales growth at all banners. CTR, Forzani, and Mark’s delivered 2.0%, 6.3% and 4.3% increases in same-store sales, respectively. At CTFS, a 118 bps YoY decline in write-off rates to 5.74% allowed the company’s return on receivables to increase to 7.21% from 6.68% last year. EBT at CTFS increased to $80 million, up 8.5% YoY.
Looking forward, we expect continued strength at the company’s Retail division as we head into the holiday season, with management noting that inventories remain in a healthy position in advance of Q4/13. Furthermore, we believe investors will focus on the potential announcement of a credit card partnership over the next 12 months which we believe should unlock meaningful cash for Canadian Tire.
Our 12-month C$109.00 target price reflects our sum-of-the-parts valuation, whereby we value the company’s real estate, Retail division, and Financial Service division separately.
Posted by jackbassteam on December 9, 2013
UA : NYSE : US$82.12
Under Armour is a leading manufacturer of athletic apparel, footwear, and accessories. The company sells through wholesale channels of distribution, factory outlet stores, and through its e-commerce platform. Geographically, North America represents 94% of UA’s sales with the remaining 6% from international countries.
Consumer & Retail — Footwear and Apparel
SOLID TRENDS EXPECTED IN Q3; RAISING PT TO $92, REITERATE BUY
We are expecting solid Q3 results from UA when it reports on 10/24 BMO. Despite generally inconsistent traffic at retail, athletic has been the outperformer with UA a key beneficiary of this trend, we believe. We estimate of 25% sales growth could prove conservative given new product intros at higher ASPs, accelerated shop-in-shop openings at DKS, and DTC growth. In addition, we believe modest gross margin upside stemming from the yet-unresolved Canadian duties issue could materialize. Separately, while UA has been vociferous about its intent to accelerate investments in international, resulting in less EPS flow-through, we believe this is more a Q4 event. As such, we are comfortable with our 69c EPS estimate (3c above the Street). With improving consistency in execution and sales momentum, we feel it appropriate to roll forward our valuation to 2015, resulting in our new price target of $92 from $76. We reiterate our BUY rating.
ColdGear Infrared (~$100M launch at 10%-15% higher prices), Alter Ego (first wholesale sell-in quarter), expanded Storm Fleece program, and a re-launch of bags should combine to propel sold sales growth in Q3. Also we expect ~60 new shop-in-shops at DKS to drive a significant sales lift that could contribute ~3c to Q3 EPS.
While input cost comparisons are more difficult in Q3, we believe there could be modest upside to our -35bp gross margin estimate stemming from (1) better quality/margin excess product in outlets
Posted by jackbassteam on October 28, 2013
FRAN : NASDAQ : US$18.08
Francesca’s Holdings Corporation is the holding company for specialty retailer Francesca’s Collections. Through a national chain of around 440 retail boutiques and an e-commerce web site, Francesca’s sells apparel, jewelry, accessories, and gift items with an assortment tailored to its core 18-35 year-old, fashion-conscious female customer.
All amounts in US$
GROWTH THESIS REMAINS INTACT
On September 4, FRAN reported Q2 results that fell below expectations as traffic weakened and greater promotional levels persisted. Since that time, the stock has declined 25%, compared with the S&P 500 index +2%, the RLX index +4%, and the specialty apparel peer group +2%. We consider this an overreaction for a company we forecast will grow sales and EPS at compounded annual rates of 15% and 17%, respectively, over the next five years. Traffic has remained soft, which does cloud the H2 picture, but we think this is priced in following the stock’s recent move. Over the long haul, we believe FRAN will continue to generate one of the highest EBIT margins (in the mid-20% range) and returns (TTM ROIC of 29%) in the specialty retail group. We do not think this is fully reflected with shares trading at 12x our C2014 EPS estimate and 7x C2014E EV/EBITDA.
We expect square footage to increase at a five-year CAGR of 18%. This is the highest rate of growth among all the retailers we cover and is three times the group’s average.
Shares trade at a discount to specialty apparel peers despite top growth prospects. FRAN trades at a sizable discount to the group’s average C2014E P/E of 17x and C2014E EV/EBITDA of 8x, while our sales and EPS growth projections are more than double the mean.
Posted by jackbassteam on October 8, 2013
GPS : NYSE : US$42.01
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 around 3,100 stores worldwide, and GPS products are sold
through 300 franchise locations.
GPS’s Q2 EPS of $0.64 met our expectation and consensus. The company generated 99bps of operating expense leverage, versus our estimate of a 52bps improvement. This was offset by a lower gross margin increase than our forecast and a higher tax rate.
The gross margin expanded 60bps, driven by buying & occupancy leverage, less than the +83bps we had expected.
Merchandise margins declined 30bps in the quarter, while we had modeled for an 80bps expansion. We believe the stock’s
current valuation of 15x our FY14 EPS estimate and 7x FY14E EV/EBITDA is appropriate for a mature retailer that we project
will grow square footage at a five-year CAGR of 2%.
We expect a flat gross margin in H2. We were previously forecasting a 30bps margin expansion in the back half of FY13. Our Q3 EPS estimate moves $0.01 lower to $0.67, $0.03 below prior consensus. We continue to view GPS’s FY13 EPS guidance of $2.57-2.65 as conservative.
For FY13, we are reducing our EPS estimate by $0.02, but we remain $0.04 above the high end of management’s outlook. Prior consensus was already $0.13 above the high end.
Our price target moves from $45 to $44 based on our discounted NOPAT model. We have adjusted on long-term EBIT projections about 1% lower.
Posted by jackbassteam on August 23, 2013
NASDAQ : US$54.18
Steven Madden, Ltd., together with its subsidiaries, designs, sources, markets and sells fashion-forward footwear for women, men and children. The company was founded in 1990 and is headquartered in Long Island City, New York. SHOO has a portfolio of brands that reaches globally among all economic tiers. SHOO offers products through wholesale partners, an e-commerce
platform and its own retail stores.
All amounts in US$ unless otherwise noted.
CEO Ed Rosenfeld presented at the Canaccord Global Growth Conference Wednesday.
Central to its strategy is (1) accelerating growth in the core Steve Madden women’s business from MSD to M-HSD, (2) expanding outlet door openings, and (3) market share gains with both new and existing brands. While still early, the reads on BTS have been positive and retailers are enthusiastic about the newness for fall ‘13 particularly in booties/boots. We reiterate our BUY rating and raise our target to $59 from $57 to reflect a slightly higher P/E multiple of 15x in our valuation.
SHOO continues to take share at M and as such its table doors dedicated solely to the Steve Madden brand are expanding by 13% from 230 to 260 this fall. Any weakness at M is not affecting SHOO.
Emerging brands (Betsey, Superga, and Freebird) are all performing well and have ample growth runway ahead. With the recent upturn in dress shoes, Betsey footwear growth should accelerate into 2014. Growth of outlet stores (12 currently) could accelerate next year as SHOO sees an opportunity to ultimately have 50-60 stores.
Our $59 target is a blend of 15x 2014E EPS, 9x EBITDA, and DCF.
Posted by jackbassteam on August 16, 2013
JCPenney in Frisco, TX (Photo credit: Wikipedia)
NYSE : $17.57
J.C. Penney was taking it on the chin Thursday after reporting weak Q4 results, with CEO Ron Johnson admitting the company had made big mistakes in its turnaround effort.
The retailer posted a loss of $2.51 per share, much wider than the $0.24 loss that analysts had expected while same store sales sunk by 31.7%. Internet sales, which have been rapidly increasing across the industry, fell by 34.4% at JCP. Revenue fell 28.4% to $3.8 billion. Johnson said that in his quest to “be the favorite store for everyone:, the retailer had made some errors, including marketing issues and an assessment that customers want simple pricing without constant sales.
He commented, “I had a personal conviction to deliver everyday value beginning with truth on the price tag. We worked really hard and tried many things to make the customer understand that she could shop anytime on her terms. But we learned she prefers a sale, at times she loves a coupon and always, she needs a reference price.”
Going forward, the company will be running sales, as opposed to “everyday low pricing” and will begin to offer some coupons.
Posted by jackbassteam on March 4, 2013
Cold Weather Is Coming, Beware! (Photo credit: Wikipedia)
COLM : NASDAQ
Columbia Sportswear reported Q4 EPS of $1.15 versus consensus of $1.14.
Initial 2013 guidance of flattish sales and EBIT margin contraction is worse than he expected. With the fall order book yet to be completed, visibility remains low as retailers exhibit incremental caution. Lyon believes the flat 2013 sales guidance from Columbia portends continued challenges for the winterreliant vendors in 2013.
While winter apparel inventory is relatively clean in the channel due to early and steep discounts, retailers are looking to cut fall 2013 pre-book orders by 10-20% in the category. They are becoming hyper-conservative after two warm winters and are trying to force the vendors to take all the inventory risk.
Lyon believes this heightens the risk for brands most exposed to this category such as COLM and North Face (VFC). Unlike apparel, cold-weather footwear inventory is heavy in the channel, he believes, and will likely result in retailers carrying product over to next season. This will likely lead
to a reduction in open-to-buy dollars for fall 2013. Given the extended lead times in footwear, the vendors will have to take inventory onto their balance sheets with the hopes of getting at-once orders later in the season, or build inventory to lower order levels. In either case, Lyon sees another challenging year for the cold-weather footwear brands like Deckers (DECK) and COLM, and to a lesser extent Wolverine World Wide (WWW).
Posted by jackbassteam on February 12, 2013