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Market Moving News + Research/Analysis/Opinion
For Tuesday, January 8, 2019
Published Daily by 11:30 AM ET
 
THIS WEEK'S CALENDAR
All Times Are Eastern
  • Monday, 1/7-- U.S./China trade talks begin in Bejing. ISM Non-Manufacturing Index for December due at 10:00 am, expectations are in the mid-58 area vs. a prior 60.7. Walgreens Boots to present at 6:00 pm ET at the JPM Healthcare Conference in San Francisco, Webcast available here.
  • Tuesday, 1/8 -- CES (formerly the Consumer Electronics Show) opens in Las Vegas, runs through Friday. CVS to present at 2:00 pm ET at the JPM Healthcare Conference, Webcast available here. FOMC Minutes for December due at 2:00 pm.
  • Wednesday, 1/9 -- Bed Bath & Beyond to report 3Q18 results after the close, call at 5:00 pm, Street at (0.3%) comps and EPS of $0.17. Costco reports December sales after the close, Street looking for 4.9% U.S. comps ex-gas. Zumiez reports December sales after the close, Street looking for 1.3% comps. Rite Aid to present at the JPM Healthcare Conference at 10:30 am ET, Webcast available here.
  • Thursday, 1/10 -- Target will provide a post-holiday financial update before the market opens, Street looking for 5.0% comps for all of 4Q18 and EPS of $1.52. December sales releases from Buckle (Street at -0.8%), Cato (no analyst coverage), Gap (Street at +0.8% comps consolidated), and LB (Street at +1.8% consolidated).
  • Friday, 1/11 -- CPI for December due at 8:30 am, expectations are for Core CPI in the 0.1%-0.2% area vs. a prior 0.2% reading.

TODAY'S EARLY TRADING
  • The S&P Retail ETF (XRT) is down slightly at 10:05 am and is underperforming the broader market as the S&P 500 climbs 0.9%. The market is shrugging off a profit warning from Samsung.
  • PIR is the biggest retail winner, up 19% on an analyst upgrade, then JCP (up 7%), FRED (up 5%), FRAN (up 4%) and TCS (up 3%).
  • SHLD is the biggest retail loser, down more than 30% on reports of a likely liquidation, then LB, KMX, EXPR, and AEO, all down 3%-4%. 
 
  • LAST WEEK: The XRT increased 3.7%, well ahead of the S&P 500's 1.9% gain. Retail stocks were particularly strong on Friday in reaction to the much better-than-expected December jobs report and indications from the Fed that it will be patient with interest rate policy.
  • Excluding SHLD, which is in bankruptcy, PIR was the biggest retail winner with a 39% gain, then FRED (up 25%), GME (up 24%, largely in response to a WSJ article suggesting a possible sale of the company), BGFV (up 20%), and BKS (up 17%).
  • SSI was the biggest loser, down 27%, then FRAN (down 12%), PLCE, and DECK (both down 5%), and URBN (down 3%).
 
TODAY'S MARKET MOVING NEWS
  • Eddie Lampert's $4.4 billion bid to save Sears  (SHLD) has been rejected in bankruptcy court according to sources familiar with the situation, CNBC story here. The company could announce a liquidation plan later this morning, though lawyers are expected to ask the judge to give Lampert more time to improve his bid.
  • Dollar Tree (DLTR) The WSJ's Heard on the Street column sides with Starboard Value in its view that Dollar Tree should sell its weaker Family Dollar banner, suggests private equity as a potential buyer, not Dollar General, which lost a bid to acquire Family Dollar in 2015 over anti-trust concerns. Story here, subscription required, notes that analysts think Dollar Tree could sell Family Dollar for 7x-9x EBITDA vs. the 11x it paid for the business.
  • Dollar Tree (DLTR) is upgraded from Neutral to Buy by Buckingham.
  • Nordstrom (JWN) is upgraded from Underweight to Equal Weight by Morgan Stanley.
  • Havertys (HVT) reported weaker-than-expected 4Q18 sales as comps decreased 1.6% vs. the Street's +1.3% estimate and as total sales decreased 2.8% to $209.0 million vs. the Street's $215.4 million. Management noted soft sales going into Thanksgiving vs. record levels LY, with lower transactions partially offset by higher average ticket, also said post-Christmas-to-date written sales and comps and comps are up mid-single digits. Company release here.
  • Amazon (AMZN) announces a number of new products and services to support its keyless entry initiatives, including an all-new Schlage Encode Smart Wi-Fi Deadbolt, Key for Garage, Ring app compatibility with Key, and Key for Business. Company release here.
 
INDUSTRY NEWS, VIDEOS, ETC.
  • More insight into activist Starboard Value's interest in Dollar Tree from Retail Dive, article here.
  • Activist Carl Icahn has sold his nearly 2% position in Dollar Tree stock and is no longer invested in the retailer according to the NY Post, story here, notes Icahn was also considering pushing for a sale of the Family Dollar banner.
  • Teen retail Charlotte Russe is considering a sale or bankruptcy filing and has hired Guggenheim Securities to explore strategic options according to sources that have spoken to the WSJ. Retail Dive story here, cites the Journal article, gives background on Charlotte Russe's financials, private equity involvement in retail.
  • CNBC interview with former Legg Mason money manager Bill Miller here, thinks Amazon will double in the next three years, doesn't see an anti-trust breakup of the company, also notes a "gigantic" addressable market.
  • Amazon is delivering merchandise to Prime customers' garages in 37 cities as part of its Amazon Key "smart entry" program. The program uses MyQ connected garage door opener technology and allows customers with a Cloud Cam to monitor their deliveries in real time. Chain Store Age article here.
  • Eddie Lampert's $4.4 billion offer for Sears incorporated a controversial funding proposal that may have contributed to the offer's rejection. Bloomberg story here.
  • CNBC video here with the latest on Sears' and its anticipated liquidation.
  • Midwest beauty chain Beauty Brands files Chapter 11 weeks after announcing it would close 25 stores and cut corporate personnel. The company will continue to operate more than 30 stores in 10 states, including 14 in Kansas City. KC Star article here.
  • Footwear News article here discussing the implications of last year's Supreme Court ruling on online sales tax for out-of-state purchases on eBay's sneaker business. In some states, the company itself will calculate, collect and remit the sales tax instead of relying on third-party sellers to do it.
  • Rite Aid's shares could be de-listed by the New York Stock exchange as they have traded below $1 per share for more than 30 days. The retailer is compliant with other NYSE listing standards. Retail Dive article here
  • RBC Capital Markets sees potential for Amazon to generate $4.5 billion from 3K Amazon Go stores by 2021 assuming an estimated $1.1-$1.95 million in sales per store. Retail Dive article here.
  • Amazon has launched a virtual furniture and home decor showroom on its website and mobile app. Retail Dive article here.
  • Another story on the success of buy online pick-up in store (BOPIS) over the holiday season, from The Robin Report, article here. According to Adobe Analytics, BOPIS purchases increased nearly 50% y/y from 11/1/18 through mid-December.
  • In-depth article from Bloomberg here on the strategic rationale behind yesterday's announcement that Kroger and Microsoft are partnering to create a futuristic grocery store using the cloud.
  • Mastercard updates its logo for the digital age, takes a page from Apple's, Target's, Nike's playbooks, drops the name Mastercard from the interlocking red and yellow circles. Chain Store Age article here.
 
MACRO/CONSUMER NEWS
  • Tax refunds will be paid despite the partial government shutdown following a decision by the White House Office of Management and Budget, though there are some questions on the legality of the decision. MarketWatch story here. There could also be some issues processing returns as only 12% of IRS employees are expected to continue working through a shutdown, CNBC story here.
  • Mortgage rates have fallen to their lowest levels in eight months, with the average rate for a 30-year fixed mortgage hovering just above 4.5% according to Freddie Mac. The lower rates could lift housing/refinancing/remodeling, which came under pressure in 2018.
  • Small business confidence fell for the fourth consecutive month, though some of the decrease appears to reflect difficulties finding workers in a tight labor market. MarketWatch story here.
  • Per the Energy Information Administration's weekly update, released late yesterday, the retail price for a gallon of regular unleaded gasoline was $2.24 on average across the U.S. last week, down from $2.27 the prior week and down from $2.52 for the same week last year. We note that regular unleaded is below $2.00 per gallon in a good number of states.
  • From Yesterday: The December U.S. ISM Non-Manufacturing Index came in at 57.6, slightly below the consensus of 58.5 and down from 60.7 in November. The reading on new orders was 62.7 vs. November's 62.5.
  • From Last Week: Non-farm payrolls increased 312K in December, well above expectations of ~180K and the best number since last February. The November figure was revised up 21K to 176K, and October was revised up 37K to 274K. The unemployment rate rose from 3.7% to 3.9% on a 0.2 ppt increase in the participation rate, which rose to 63.1%, its highest level since September 2017. Average hourly earnings increased a slightly better-than-expected 0.4%.
  • From Last Week: The December ISM manufacturing index fell 5.2 ppts to 54.1 vs. expectations of 57.8. It was the biggest decline since 2008 and incorporated weakness in most components. Commentary centered around slowing global growth and China tariffs.
  • Good, in-depth article from Coresight here on China's slowing economic growth and slowing consumer spending, notes that retail sales in November grew 8.1%, the slowest rate in 15 years.
 
SELECT ANALYST ACTIONS
  • At Home (HOME) Monness Crespi Hardt initiates with a Buy rating and $30 target, sees a very favorable risk/reward with the stock trading at a 29% discount to its average valuation since the August 2016 IPO and a 45% discount to other high-growth retailers.
  • Dollar Tree (DLTR) Buckingham upgrades from Neutral to Buy, raises target from $92 to $116, thinks Starboard's involvement and the potential for improving comps at the Family Dollar banner in 1H19 will lead to multiple expansion. Analyst expects challenging 4Q18 results but thinks events have de-risked the print.
  • FarFetch (FTCH) China Renaissance Securities initiates with a Buy rating and $22 target, sees market share in the high-growth luxury e-commerce market going from the current 3% to 7% in five. Analyst expects the company to break even in 2022 and achieve an EBITDA margin in the mid-to-high 20% range longer term.
  • Five Below (FIVE) Dougherty maintains Buy rating and $132 price target in front of the company's holiday sales update and ICR appearance next week, says recent store checks suggest comps are tracking at the high end or slightly above mgmt's 3%-4% guidance on broad-based strength across the store. FIVE remains the firm's favorite retail stock.
  • Nordstrom (JWN) Morgan Stanley upgrades from Underweight to Equal Weight, maintains $50 price target, notes pullback in the stock and a lower valuation.
  • Pier 1 (PIR) Gordon Haskett upgrades from Underperform to Hold, maintains $0.75 price target, cites 90% decline in the stock price since the firm's initial downgrade in December 2017.
  • Vitamin Shoppe (VSI) Barclays upgrades from Underweight to Equal Weight, $6 price target.
 
  • From Yesterday: Children's Place (PLCE) B. Riley FBR reiterates Buy rating, has a $167 price target, views recent weakness in the stock as an opportunity. Acknowledges potential for some near-term choppiness as Gymboree goes through bankruptcy but sees Children's Place as best positioned to capture displaced market share. Post the Gymboree liquidations, analyst sees double-digit EPS growth for Children's Place over the next couple years.
  • From Yesterday: Dollar Tree (DLTR) Analysts react to news that activist investor Starboard Value is pushing for a possible sale of the Family Dollar banner and for testing of a multi-price-point strategy at the Dollar Tree banner:
    • Gordon Haskett upgrades from Hold to Accumulate, raises target from $84 to $110, sees a more attractive risk/reward with fundamentals improving plus the potential for strategic changes with Starboard involved. Also says recent channel check point to improving traffic at Family Dollar. Target is 16.5x FY20E EPS for the combined company.
    • Wells Fargo maintains Outperform, raises target from $104 to $114 based on a 12.5x estimated 2019 EV/EBITDA multiple, sees activist involvement as a catalyst for change. Also thinks Family Dollar's issues are more execution-related than structural.
    • Loop Capital maintains Buy and $105 target, not surprised but encouraged by activist involvement, sees high interest should Family Dollar be put up for sale, including from Dollar General, doesn't think the Dollar Tree banner needs to go multi-price.
    • RBC maintains Outperform and $98 target, also not surprised by activist involvement but thinks an outright sale of Family Dollar would unwind realized deal synergies, mostly in procurement. Acknowledges investor frustrations but thinks the best path is to fix Family Dollar internally via an accelerated remodel program and labor investments.
 
THE WEATHER
It's a bit colder across northern states today, though temps are still expected to be above normal for this time of year and rise into the 30's and 40's. Most of the country should be dry, with the exception of the Northeast and parts of the West Coast, including San Francisco and Seattle, both of which are expected to see some rain. High winds are forecast for much of the Midwest.
Lower temps are expected over the next couple days, and snow is forecast for Michigan and the Northeast, especially upstate New York, Vermont, New Hampshire, and Maine. Rain is expected elsewhere in the Northeast, and rain is expected to become more widespread across northern California and the Pacific Northwest. Snow is likely in higher elevations in the Northwest.
Source for Weather Maps: The Weather Channel
Sources Include but Are Not Limited to: Company Websites and SEC Filings, FactSet (all "consensus" estimates, also referred to as "expectations," or the "Street"), Briefing.com, Money.Net (mostly for analyst actions), Retail Metrics (certain same-store sales estimates as noted), The Wall Street Journal, CNBC, Bloomberg, MarketWatch, TheStreet.com, Barron's, Reuters, AP, The Weather Channel, Chain Store Age, Retail Dive, The National Retail Federation, NPD, Fashion United, Women's Wear Daily, The New York Times, The Washington Post, Other Publications as Indicated, The Daily on Retail as Indicated.
ABOUT THE DAILY ON RETAIL
 
The Daily on Retail is a daily subscription newsletter oriented toward investors and retail executives looking for a "OneSource" destination for the most important company and industry news. We closely follow more than 150 retailers from A to Z (Abercrombie to Zumiez) and spend the majority of our time on names most relevant to institutional investors and retail industry professionals. We publish every day by 11:30 am ET and try to capture all the morning's (and prior afternoon's) most important news, plus we offer occasional proprietary research/analysis/opinion on high-impact topics across the sector. We provide a weekly calendar with key information, including Street expectations, and we highlight relevant macro/consumer news and select analyst actions. We also closely monitor any weather developments that could affect consumer spending patterns.
Patrick McKeever has followed retail for more than 20 years. Prior to founding The Daily on Retail in late 2018, he spent 11 years as a managing director, senior analyst and consumer sector head at MKM Partners. He has received a number of professional awards, including 2nd place in Multiline Retail for both stock picking and earnings estimation in the 2016 Thomson Reuters poll. He was awarded Top Stock Picker in Multiline Retail in the same poll, has been recognized in the Greenwich survey and has performed well in the institutional money manager voting process. He appears on CNBC and other networks to discuss retail and has been quoted extensively by industry publications and the financial press. Patrick started his career in equity research at Credit Suisse in New York. He is a graduate of Boston College and also has an economics-focused master's degree.
Disclaimer: The Daily on Retail constitutes a financial newsletter of general and regular circulation which does not offer individualized investment advice attuned to any specific portfolio or any person’s particular needs.  No mention of a particular security in The Daily on Retail constitutes a recommendation to buy, sell, or hold any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any reliance you place on such information is strictly at your own risk.  BEFORE SELLING OR BUYING ANY STOCK OR OTHER INVESTMENT YOU SHOULD CONSULT WITH A QUALIFIED BROKER OR OTHER FINANCIAL PROFESSIONAL TO VERIFY PRICING INFORMATION AND TO SOLICIT ADVICE AS TO THE APPROPRIATENESS OF A GIVEN TRANSACTION OR INVESTMENT.

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