Apparel Sector grade: C+ in 4Q17 (from B+ in 3Q17). Despite a strong holiday, the Softlines sector is less clean than it was entering 4Q17. As a result, this may weigh on margins. In addition, promos are rampant throughout the industry, so pricing power and margin expansion remain fleeting. Unresolved, still, is the pressure from omni-channel deleverage as sales transfer out of brick-and-mortar to the e-commerce channel. For 4Q17, 43% of covered retailers posted a positive sales-to-inventory spread (down from 57% in 3Q17). Take note, however, that supply (inventory) management is no longer yielding gross margin expansion as mall traffic (demand) remains in a multi-year decline. Even with “clean” inventory at the beginning of a quarter, slack demand requires promotions to drive sales. A sales-to-inventory spread at parity is only supportive of margins insofar as future demand is, at worst, flat.
Search Coverage List, Models & Reports
Search Results1-10 out of 807
The Wolfe Retail Monthly Short Report is published using the end-of-month reported short interest positions. Our Retail Monthly Short Report helps to gauge sentiment on individual stocks.
We recently marketed with CEO David Kornberg, CFO Perry Pericleous, and VP of IR Mark Rupe. We came away feeling that management has a keen understanding of the inevitable impact from shifting to e-commerce. Yet, sustainable positive comps remain fleeting. Competition in the fast fashion apparel is fierce and pricing pressure remains. We see EXPR setting a solid foundation of tight inventory, fixed cost reduction, and most importantly, product- and customer-focus. Despite cheap valuation, we look for customer response as catalyst for us to become more constructive.
March comps post slight beat of +4% versus Consensus of +3.2%. The composition of comp was driven by a significant beat at BBW of +10% versus Consensus of +4.6%, offset by ongoing issues at the VS brand, which missed and delivered a +1% versus Consensus of +2.8%. VS merchandise margins were under pressure from deeper-than-expected promos, and PINK is now decelerating with a surprise announcement that PINK will also exit the swim category during 2018. We expect this to cause additional pressure to margins and comps. We continue to believe that building trends towards body positivity and a more natural look will continue to pressure VS performance for the foreseeable future. Until we see evidence of a turn, we remain skeptical that the core brand can turn in the near term. In reaction to the VS and PINK comp miss, LB shares traded -5% during yesterday’s trading session.
Roadmap to 2020 Vision requires significant investments. Despite a better-than-expected 4Q17, guidance implies a significant earnings decline for FY18 and FY19. BBBY is embracing an omnichannel transformation with a slew of new initiatives on the come, all of which require incremental investments in their path to a potential earnings inflection for FY20. These include a move to improved sourcing and fulfillment, SKU rationalization, technology investment, piloting in-store dynamic pricing, and wage investments. The resulting model implications are continued gross and operating margin compression over the next two years. Guidance calls for FY18 EPS of low-to-mid $2.00 with continued earnings decline for FY19, which sent shares falling ~20% during yesterday’s (4/12/2018) trading session.
Maintaining its lead. We recently marketed with CEO Jane Elfers, COO Michael Scarpa, CFO Anurup Pruthi, and VP Finance & IR Bob Vill. We have written extensively about management’s five-year plan initiated in 2012 that set the foundation for accretive e-commerce growth. Now, a new three-year digital transformation plan is underway. While competitors struggle to maintain relevance, PLCE is focusing on convenience, speed, and value with a superior product offering. In this note, we lay out the multiple opportunities PLCE possesses as they transform the business.
After market on 04/05/18, URBN announced the departure of David McCreight, CEO of Anthropologie Group and URBN President, effective April 27, 2018. Hillary Super, Anthropologie Group President of Apparel and Accessories, and Andrew Carnie, Anthropologie Group President of Home, Garden and International, will lead the brand. While Mr. McCreight was instrumental in the growth of the Anthropologie brand during his tenure, we believe that the Anthro brand is in highly accomplished and capable hands. After all, it should be noted that Anthropologie’s historical struggles have been on the apparel side of the business and during this time Home continued to perform well under Mr. Carnie. In addition, we believe the recent turnaround in Anthro apparel can be partially attributed to the arrival of Ms. Super in early 2017. In reaction, URBN shares are currently off ~1% in the pre-market session.
Peak comps +LDD. After market on 04/02/18, URBN filed its 10-K and reported 1QTD retail segment comp of +LDD. We believe QTD comps are at the high end of the range (+12%). Included in the Management's Discussion & Financial Analysis, URBN commented on the consolidated QTD comp trend (including DTC), “Thus far during the first quarter of fiscal 2019, comparable Retail segment net sales are low-double-digit positive.” URBN reported at the peak of the quarter (just after the two-week earlier Spring Break/Easter shift), and likely experienced its best traffic of the quarter. Even after accounting for a pullback in April, we see 1Q18 comps in the +HSD/+LDD range; last year the Easter shift affected comps by ~300 bps. Shares remain largely unchanged after-hours.
Secular theme investing. We have three investing themes over the next three- to five-years, a period that retailers refer to as their “long range planning” horizon. Our secular thematic trends include: 1) a successful omnichannel evolution defined by both accretive e-commerce margins and EPS, 2) China/Asia-specific global growth, and 3) brand resonance with the fast-growing Millennial generation. The LULU story possesses all three secular trends in addition to a highly desirable brand. Despite a rich current valuation (trading at a forward PE multiple 1x above historical median), after a solid 4Q17 print and confident guide, we have increased visibility on brand momentum. In reaction, shares traded up ~9%.
A “D-commerce” pure play. We believe New World Retail requires a new analytical lens. Our Retail “Death Curve” thematic cautions against the perils of cannibalizing brick-and-mortar sales by shifting them to the e-commerce channel. Margin erosion is further exacerbated if one has an undifferentiated brand or product. RH is among very few retailers who compete on brand scarcity, unlike most other retailers who compete on price for commodity goods. In this note, we offer two new thoughts: 1) a New World Retail definition of “brand” and 2) a view of RH as a pure play Direct-to-Consumer commerce (“D-commerce”) play. We note that while it appears RH’s retail to e-commerce split is roughly 56%/44% of net sales, we posit RH is a D-Commerce pure play model that avoids omnichannel deleverage altogether. Put differently, the roughly 97% of sales generated through Galleries, catalog, and website all result in an order that is fulfilled from RH’s distribution centers (not exorbitant retail real estate).
- 1 of 81
- next →