Week 3 of March is the first week of the three-week shift from the Easter/Spring Break move out of March and into April; the shift’s negative impact should be expected but seems to be exacerbated by Blizzard Stella in the NE which hit on 3/14/17. The Easter holiday (and accompanying Spring Break holidays) shifts to April’s week 3 from March’s week 5, delaying spending further into the quarter. Last year, Easter Sunday was March 27, 2016 versus April 16, 2017 (three weeks later). We note the shift of Easter/Spring Break is most relevant for children and teen retailers due to the associated spring break holiday.
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Expect below-Consensus 1Q17 guidance on a potentially negative low- to mid-teen comp and FY17 EPS guidance back-end loaded in 2H17. 4Q16 sales and EPS were preannounced to be approximately $0.68 (high end of guidance of $0.60 to $0.70). Given the difficult start to retail in 2017, we believe 1Q17 guidance could potentially be well-below Consensus of $0.06. However, we assume RH will reiterate their FCF positive goal for the end of 2017 with the year back end loaded. RH’s 4Q16 call is AMC on Tuesday, 3/28/17 (dial-in: 866-394-6658).
Expecting 4Q16 EPS at, or slightly above, high end of guidance; expect higher average unit retail, lower average unit cost, and YoY increase in merchandise margin above expectations. On 1/9/17, LULU guided to $0.99 and $1.01 (high end of initial range). We expect in-line comps (Cons. +5.4%) with better-than-expected merchandise margin. We note LULU did not anniversary two January 2016 physical warehouse sales over the MLK holiday weekend, suggesting 4Q16 ended with clean inventory and sales on plan. We also note they were able to work through excess online clearance inventory through Black Friday (please see Exhibit 10 on page 5). Both data points should bode well for 4Q16 GM expansion. Call is 3/29/17 AMC at 4:30pm ET (1-800-319-4610).
Onsite meeting with Martin Waters, President of International, and Amie Preston, Chief Investor Relations Officer. We firmly believe this management team has the experience, breadth, and depth across all critical operations to drive forward on their global growth strategy. However, we believe 2017 is a transitional year, with uncertainty on the top-line impact from the exit of certain categories in the midst of a tough competitive environment. The exited categories were ~$400 million in 2016 with ~$330 million of sales volume in 1H17.
March sales to benefit from delayed tax refunds, offset by the shift of Easter/Spring Breaks into April from March. The Easter holiday (and accompanying Spring Break holidays) shifts to April from March, delaying spending further into the quarter. Easter Sunday was March 27, 2016 versus April 16, 2017 (three weeks later). We note the shift of Easter/Spring Breaks is most relevant for children and teen retailers due to the associated spring break holiday.
Introducing a New Metric: Retail Earnings Quality (“REQ”) Score. WSM received an REQ Score of 6 out of 10. Beginning this quarter, we are introducing a new quality-of-earnings metric that we call the Retail Earnings Quality Score. We rank a retailer on a scale from 0 to 10, with 10 points representing “perfect” earnings quality. Our REQ Score assesses the health and quality of a retailer’s quarterly earnings report by assigning point values on eight criteria. See page 3 of this note for our criteria.
Introducing a New Metric: Retail Earnings Quality (“REQ”) Score. WSM received an REQ Score of 6 out of 10. Beginning this quarter, we are introducing a new quality-of-earnings metric that we call the Retail Earnings Quality Score. We rank a retailer on a scale from 0 to 10, with 10 points representing “perfect” earnings quality. Our REQ Score assesses the health and quality of a retailer’s quarterly earnings report by assigning point values on eight criteria. See page 2 of this note for our criteria.
The Wolfe Retail Monthly Short Report is published using the end-of-month reported short interest positions each month. Our Retail Monthly Short Report helps to gauge sentiment on individual stocks. In this report, we show two metrics 1) short interest shares as a percent of float and 2) short interest share change month-over-month for the last twelve month period. Given the increasing volatility in the sector, particularly ahead of earnings reports, we believe that tracking short interest in concert with recent stock price moves relative to valuation is another useful tool to gauge near-term investor sentiment.
In this note, we outline a comprehensive, multi-prong analysis of why we believe an investment in DKS has merit, including analysis of the competitive backdrop, attractive valuation metrics relative to history, and the potential market share opportunity that lies ahead.
WSM reports 4Q16 earnings AMC on Wednesday, (3/15/17). We are forecasting comp sales to come in at the low end of guidance range of (1%) to +4%, given a deceleration of home furnishing trends for November through January (albeit still slightly growing), a second consecutive quarter of declining customer deposits for WSM, and still-negative mall traffic trends YTD. Per usual the company is expected to provide guidance for 1Q and FY17; however we note that, per the company, WSM will incur the 53rd week impact in 4Q18 (ending January 2019), and not this 4Q17. The earnings call will begin at 5:00pm ET (Dial-in: 719-457-0820; ID: 1437684).
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