Consumer Discretionary

Report by Hedgeye

Brian McGough sees a compelling long/short opportunity, driven by a structural transfer of economics as PVH reclaims key licenses. PVH represents ~40% of GIII revenue but closer to ~60% of cash flow, implying a sharp earnings reset as contracts roll off through 2027. Brian expects GIII EBITDA to fall from ~$325m to sub-$150m, with equity risk skewed towards mid-single digits. Conversely, PVH could see EPS power inflect from ~$11 to $15+ as higher-margin revenue is internalised, supporting a rerating from ~5x to ~10x EBITDA and a potential $200 stock. With near-term earnings distorted by transition dynamics (GIII cutting costs to mask deterioration while PVH absorbs upfront investment), the setup offers alpha on both sides of the trade.

Consumer Discretionary

Report by Hedgeye

Hedgeye provides updates on 3 of their top Retail shorts. For GIII, they expect the next guide for the year to be an absolute disaster; forecasting a 20%+ cash flow hit from the the loss of major Calvin Klein and Tommy Hilfiger licenses back to PVH, while prior channel stuffing and tougher retail conditions could force the company to increase markdown support to key partners. Meanwhile, VFC is caught between a heavy debt burden and weakening brand momentum; Hedgeye believes a massively dilutive equity raise will ultimately be required. And finally, DDS remains a mispriced security, trading at ~12x EBITDA despite a sharply decelerating model and the company overearning by 800-1,000bp. That suggests that the real earnings power is between $10-20 per share. 5x earnings, is an appropriate department store multiple, suggesting 80-90% downside.

Consumer Discretionary

Report by JJK Research Associates

4Q EPS guidance came in well below consensus, reflecting a $0.09 FX headwind and -150bp to -200bp Y/Y gross margin deterioration tied primarily to a heated up promotional environment in the US. Janet Kloppenburg views this outlook as a red flag that brand performance maybe deteriorating since she has not witnessed ramping promotions across the DTC or wholesale channels in 4QTD. Thus, while North American wholesale revenue improved to +LSD in 3Q, she worries that margin trends in the quarter maybe under pressure, particularly in the CK brand. For FY25, she was surprised by management’s outlook for 50bp of gross margin pressure as 20% of the GIII business is brought in house. As a result, Janet has cut her EPS forecast for next year as well.

Consumer Discretionary

Report by JJK Research Associates

Much stronger merchandising execution - CK’s assortments continue to evolve across hero products as well as the development of more compelling wear to work, non-denim bottoms and activewear assortments. JJK sees this as returning to the brand’s minimalist roots, which is better differentiating CK’s positioning with Gen Z and millennial target markets. In addition, TH’s classic positioning has been elevated across the brand’s polo shirt collection, wear to work and now relevant casual / activewear assortments. JJK models +4.5% FY23 revenue and EPS >$10.75 (vs. $10.35 guidance). Looking into FY24 they expect +MSD top line gains and EPS of $12.20 as EBIT margin improves to 10.7%.

Consumer Discretionary

Report by JJK Research Associates

JJK looks for the consumer’s appetite to renew normal living to support upside across PVH, Victoria's Secret, TJX and Ulta Beauty. Demand driven by a return to work, social activities and travel should fuel continued demand strength for apparel, accessories and beauty. With strong evidence from the luxury players including LVMH and Capri Holdings, JJK expects the consumer’s strong demand for these categories to be sustained, with little resistance to elevated pricing.

Consumer Discretionary

Report by JJK Research Associates

Consumer stocks are climbing the wall of worry reflecting supply chain challenges, higher distribution expense, rising prices and tough comps. Hence, there is limited visibility on the consumer sector delivering yoy F22 earnings gains. JJK highlight a select few who are well positioned for growth, including the value focused off-price retailers (TJX, Burlington, Ross) and beauty leaders (Bath & Body Works, Estee Lauder, Ulta). Upgraded growth strategies and Europe’s emerging rebound should also drive strong upside at A&F, Capri Holdings, Lululemon, PVH, Ralph Lauren and Victoria’s Secret.