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
Lululemon Athletica (Photo credit: Wikipedia)
lululemon athletica inc
LULU : NASDAQ : US$72.30
Lululemon Athletica Inc. is a designer and retailer of technical athletic apparel operating owned retail stores primarily in North America and Australia. The Company offers a range of performance apparel and accessories for women, men and female youth. Its apparel assortment, including items such as fitness pants, shorts, tops and jackets, is designed for healthy lifestyle activities like yoga, running and general fitness.
LULU pre-announced Q4/12 EPS results of $0.74, above the $0.71-$0.73 guidance but in line with us and consensus. Sales are expected to come in at the high end of the $475M-$480M range, ex-the 53rd week, on a HSD comp. We believe expectations were for a LDD comp, and as a
result the stock traded off 7% after hours. We would use the weakness as a buying opportunity as: 1) demand for the brand has not ebbed
whatsoever, we believe, 2) gross margins were better than plan, indicating no incremental y/y markdown activity, and 3) strong gift card
sales were not a part of Q4 results, suggesting the potential for a solid Q1/13. Our expanding production/comp reacceleration thesis is very
much intact, and thus we reiterate our BUY rating and $91 target.
Consistent with our markdown analysis note from Jan. 9, LULU’s markdown rate was comparable to last year’s as evidenced by better-than-planned gross margin, suggesting demand for the brand is as strong as ever, and increasing competition is not a factor.
We believe Q4 gift card sales, which are not included in Q4 sales, were up triple digits. We estimate gift cards could add 7-8ppts to the
Q1/13 comp when redeemed.
Execution issues stemming from incomplete systems/POS upgrades also likely contributed to unmet sales during Q4.
We arrive at our $91 price target by applying a blended average of 35x our 2013E EPS, 25x EV/EBITDA, and DCF
Posted by jackbassteam on January 16, 2013
UGG Australia (Photo credit: Wikipedia)
Deckers Outdoor Corporation
DECK : NASDAQ : US$36.27
HOLD Target: US$37.00
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
While there was little commentary around current trends at the UGG fall 2013 line review, we were encouraged by some of the evolution in the
classic and fashion lines as greater innovation at reduced price points was a key message. Despite pre-lines going well, the challenge of
transitioning the younger classics consumer to fashion-forward product persists. Moreover, our immediate concerns around poor sell-through
rates at wholesale have not eased and as such, we maintain our HOLD.
Pricing on fashion product has been too high ($500+) prompting reductions to a more appropriate range of $200-$495, which should help improve consumer adoption of the line. UGG collection pricing will also be down 25%, indicating subpar sell-throughs. Importantly, classics pricing will not increase next year.
The fall 2013 line will have 100 fewer SKUs (~15% of total) via edits to the women’s core and collection lines. While a healthy move, it also appears that DECK is still searching for that fashion consumer.
UGG is adding more embellishments (i.e., buckles and studs), color/patterns/prints, and fold-down cuffs to the line. These trends correspond with current fashion; however, we fear UGG will be a season behind all other vendors.
Our $37 target is a blend of 9x 2013E EPS, 6x EBITDA, and DCF.
Posted by jackbassteam on November 28, 2012
Francesca (Photo credit: Paolo Neoz)
Francesca’s Holdings Corporation
FRAN : NASDAQ : US$23.95
BUY Target: US$30.00
Francesca’s Holdings Corporation is the holding company for specialty retailer Francesca’s Collections. Through a national chain of over 350 retail boutiques and an ecommerce 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 .
We believe FRAN’s unique business model positions the company to profitably expand its store base. A low-cost, small-footprint store model has translated to EBIT margins in the mid-20% range and one of the specialty retail group’s highest ROIC at around 30%. We expect FRAN’s boutique feel, driven by a broad and trend-right product assortment, should continue to resonate with customers as the company expands square footage at the highest annual rate among all of the companies in our coverage universe.
We estimate double-digit SSS growth will persist in FY13, and we are modeling for EPS of $1.29.
We forecast annual square footage growth of 18% over the next five years. By comparison, the specialty retail group average is +6%.
FRAN’s growth potential warrants a premium to the specialty apparel peer group. We estimate sales and EPS will grow at annual rates of 29% and 39%, respectively, over the next three years versus the group averages of 8% and 19%.
Posted by jackbassteam on November 19, 2012
The Williams-Sonoma flagship store in Union Square, San Francisco. (Photo credit: Wikipedia)
WSM : NYSE : US$45.11
BUY Target: US$55.00
Consumer & Retail — Specialty Retail
SALES MOMENTUM PERSISTS IN Q3
WSM reported Q3 EPS of $0.49, $0.05 ahead of our estimate and $0.04 above consensus. Prior guidance was $0.43-$0.46.
Comparable brand revenue (including DTC sales) increased 8.5% on top of +7.3%, above our forecast of 4.4% growth. Pottery Barn’s comparable brand revenue was up 11% on top of +7%, and the Williams-Sonoma brand turned in its first positive result in four quarters. The gross margin increased 70bps yr./yr., above our forecast for flat GM.
WSM raised its FY12 operating EPS guidance by $0.01 to $2.45-$2.52. We are raising our FY12 estimate $0.01 to $2.52. We are maintaining our BUY rating and DCF-generated price target of $55. At 15x our FY13 EPS estimate (ex-cash/share of $2.72) and 6x FY13E EV/EBITDA, we don’t
believe the growth potential of the e-commerce business is adequately reflected at the current valuation.
Q4 EPS guidance of $1.21-$1.28 appears conservative. This includes $0.02 in expenses related to WSM’s Australia expansion and the impact of Hurricane Sandy. Our Q4 EPS estimate moves $0.03 lower to $1.28 versus consensus of $1.33.
We are raising our FY13 EPS estimate by $0.04 to $2.90, $0.09 ahead of consensus. We forecast comparable brand revenue growth of 7.5% on top of +5.9%,
Posted by jackbassteam on November 15, 2012