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JP 摩根-美股-零售行业-美国百货商店与软线零售行业策略分析-48-47页.pdf
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JP 摩根-美股-零售行业-美国百货商店与软线零售行业策略分析-48-47页.pdf
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www.jpmorganmarkets.com
North America Equity Research
08 April 2019
Equity Ratings and Price Targets
Mkt Cap
Rating
Price Target
Company
Ticker
($ mn)
Price ($)
Cur
Prev
Cur
End
Date
Prev
End
Date
Big Lots, Inc.
BIG US
1,631.65
38.37
N
n/c
42.00
Dec
-
19
38.00
n/c
Burlington Stores
BURL US
10,791.05
156.46
OW
n/c
174.00
Dec
-
19
n/c
n/c
Capri Holdings Ltd
CPRI US
9,899.95
48.09
N
n/c
54.00
Dec
-
19
47.00
n/c
Five Below
FIVE US
6,997.75
125.41
N
n/c
133.00
Dec
-
19
n/c
n/c
Kohl's Corp.
KSS US
17,046.00
72.00
OW
n/c
84.00
Dec
-
19
76.00
n/c
Macy's, Inc.
M US
7,952.88
25.49
N
n/c
26.00
Dec
-
19
n/c
n/c
NIKE, Inc.
NKE US
155,718.40
85.40
OW
n/c
90.00
Dec
-
19
n/c
n/c
PVH Corp.
PVH US
10,295.33
127.26
OW
n/c
144.00
Dec
-
19
139.00
n/c
Ollie's Bargain Outlet Holdings
OLLI US
5,839.00
89.69
OW
n/c
97.00
Dec
-
19
95.00
n/c
Tiffany & Co.
TIF US
13,448.25
107.50
N
n/c
104.00
Dec
-
19
n/c
n/c
Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 05 Apr 19.
Dept Stores / Specialty Softlines
Boss' Round-Up Prep Pack: Stock Setups; 5
Industry/Macro Themes & Key Questions
Retailing – Department Stores &
Specialty Softlines
Matthew R. Boss, CPA
AC
(1-212) 622-2630
matthew.boss@jpmorgan.com
Bloomberg JPMA BOSS <GO>
Steven Zaccone, CFA
(1-212) 622-8996
steven.zaccone@jpmorgan.com
Grace Smalley
(1-212) 622-4894
grace.smalley@jpmorgan.com
J.P. Morgan Securities LLC
See page 45 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its
research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this rep
ort as only a single
factor in making their investment decision.
Ahead of our 5
th
Annual Retail Round-Up (RRU) this week (April 10
th
& 11
th
) we
thought value-add to lay out our latest fieldwork and micro/P&L-specific questions for
each of our companies at the conference (full listing by company of detailed questions
on pages 9-19 herein) as well as 5 key macro themes of discussion.
Top Ideas By Sub-Sector Into The 5
th
Annual RRU: (1) Department Stores:
Overweight KSS (#1 weather/Easter sensitivity) vs. Underweight JWN/DDS. (2) Off-
Price Retail: Disruption/demographic sub-sector beneficiary w/ Overweight
ROST/TJX core compounding holdings and OW-rated BURL an attractive near-term
buying opportunity. (3) Global Brands: OW-rated NKE/VFC remain best-in-class
mid-teens compounders w/ upside to the “E” and multiple at OW-rated LULU (top
growth idea), OW-rated PVH (top value idea), and OW-rated RL initiating a long
trading call on Neutral-rated CPRI through the ’19 RRU & June analyst day. (4)
Dollar/Discount Stores: Defensive growth = way to play brick & mortar retail w/
OW-rated DG (GARP) and OW-rated OLLI (Growth) well positioned multi-year w/
1Q SSS tracking > Street at Neutral-rated FIVE and Neutral-rated BIG by our work.
(5) Mall-Based Specialty: Selective stance w/ OW-rated BOOT our only OW w/ the
near-term March/April > Jan/Feb “data trade” underway across mall-based Specialty
(Neutral-rated URBN/AEO/ANF) noting tougher 2Q and 2H compares on tap.
Day #1: Wednesday April 10
th
:
KSS (Overweight) – Raise PT to $84: We are hosting CEO Gass and CFO
Besanko at our Retail Round-Up on 4/10 and for a 4-day European roadshow from
4/15-4/18. Trading at 5.7x our FY20 EBITDA w/ a 3.7% dividend yield (~10%
FCF yield), at 2x adjusted debt leverage we see 4 areas of focus key to the next
leg: (1) 1Q Top-Line Confidence: Our work points to an improving same-store-
sales cadence as the quarter progressed (April-to-date > March > February) with
mgmt.’s 1Q “low-end of 0-2%” guide achievable in our view lapping a 100bps
detriment from store closures a year ago (+ additional seasonal impact). (2)
Category Opportunity: Women’s is a top improvement area for 2019 (Nine West
launch) with Cosmetics a top forward focus and continued growth in active/athletic.
(3) Inventory: KSS entered 1Q with healthy inventory levels (-2% per store) – a
positive outlier across the dept stores with management confirming inventory
2
North America
Equity Research
08 April 2019
Matthew R. Boss, CPA
(1-212) 622-2630
matthew.boss@jpmorgan.com
management in only “middle-innings” today. (4) Gross Margin: Tone/commentary
around gross margin drivers for +10bps in FY19 led by inventory mgmt
/efficiencies, partially offset by national brands and e-comm.
BURL (Overweight / Analyst Focus List Pick): In our view – BURL’s current
200bps P/E multiple discount to the company’s 3-year average (19x today vs.
21x average) points to continued upside opportunity with 4 key focus areas into
this year’s RRU: (1) The 1Q17 Lateral: March/April same-store-sales were up
+4.5% in 1Q17 post February down high-singles (similar weather/refund delay
headwinds) w/ mgmt's confidence in +0-2% guidance implying positive low-to-mid-
singles to close the quarter. (2) Inventory Position: Any update to comp store
inventories planned down mid-singles by 2Q-close (vs. +1.8% exiting 4Q18 &
similar plan for 1Q-end). (3) Ladies Heritage: Company specific execution versus
industry/macro drivers of the company’s recent ladies apparel weakness which
accounts for 11-12% of the business. (4) The Multi-Year SG&A Hurdle Rate:
Return to SG&A leverage at a +3% comp beyond FY19 would equate to
management’s mid-teens bottom-line growth algorithm (w/ capital allocation
incremental).
OLLI (Overweight) – Raise PT to $97: We continue to view OLLI as a multi-year
“niche” growth story as the number 1 player outside of apparel in a $65B closeout
market with slightly below 20% bottom-line growth driven by mid-teens unit growth
and 1-2% comps. 3 Key Focus Areas: (1) SSS Cadence Noting Low-1Q Bar:
Management’s +1-2% comp guide matches prior precedent (vs. trailing 5-yr +4.2%
comp) with 1Q (weather) and 4Q (compare) expected at the lower-end of the range
versus 2Q/3Q forecasted at the high end. Importantly, based on our recent checks
(& April opportunity) combined with a “positive turn in business trends in the
last couple weeks” at the time of the 3/26 EPS call noting material “pops” in the
business seen in regions of the country where weather has turned – we raise our
1Q comp to +2%. (2) Gross Margin Visibility Given Back-End Buying: FY19
gross margin guidance calls for flat performance w/ 25-30bps merchandise margin
expansion offset by supply chain/freight headwinds with Flat 2H gross margin due
to "potential" ocean freight surcharges. We anticipate mgmt. is embedding
conservatism for the sulfur regulations, but we await further details noting higher
off-price gross margin visibility given "back-end" buying to incorporate headwinds
particularly during times of strong availability. (3) Capital Allocation Priorities:
Mgmt. announced for the first time a $100M share repurchase 2-year authorization
representing ~2% of the free-float today. Importantly, share repurchase represents
upside to mgmt's bottom-line guidance w/ current FY19 guidance today not
embedding any impact from share repurchases.
FIVE (Neutral): 4 Key Points of Focus: (1) Confidence in +3-4% 1Q SSS: A key
point from our 3/27 mgmt follow-up was "strong line of sight” to 3-4% comps based
on QTD comps and anticipated April performance. Based on our work (& noting
FIVE as a top beneficiary in 1Q17 from a later Easter), we are modeling +4% comps
in 1Q w/ new customers post 4Q/Holiday from TOY, increasing brand awareness,
and small TV test incremental YOY. (2) 2H SSS Drivers In Place: Looking over
the balance of 2019, mgmt. sees a significant license opportunity led by the build-up
into the Frozen 2 release on Thanksgiving (in addition to Aladdin, Toy Story 4 and
Avengers), 50 remodels should account for a 20-30bps tailwind (mid-singles lift), as
well as continued emphasis on customer experience, and adding impulse items to
>100 stores. (3) Upside to New Store Embedded Economics. Our math on FY19’s
store plan implies ~90% of 2019 revenue (~20% at mid-point) is already accounted
3
North America
Equity Research
08 April 2019
Matthew R. Boss, CPA
(1-212) 622-2630
matthew.boss@jpmorgan.com
for in new store growth at management’s modeled ~90% NSP. Importantly, mgmt.
plans for 90% productivity below 2018 at 100%. (4) Margin Walk-Through: 1H
vs. 2H margin runway w/ gross margins roughly flattish in FY19 (negative in 1H)
noting ~50bps of SG&A pressure in FY19 derived from (i) DC builds/Depreciation
= 20bps, (ii) Lease Accounting = 20bps, (iii) Wage reinvestment = 10bps.
BIG (Neutral) – Raise PT to $42: Trading sub-10x our 2020 EPS with 3.1%
dividend yield we see a favorable near-term setup in BIG. 3 Key Focus Areas: (1)
Same-Store-Sales Drivers & Sustainability: Key will be the drivers and
sustainability of the comp inflection in 3Q18 to 3%+ comps, which accelerated to
positive mid-single-digits in Dec/January. Importantly, mgmt. guided both 1Q19
and FY19 SSS up low single digits incorporating tax-refund delay headwinds in
2H February with our lateral work (DG/WMT commentary) pointing to recent
acceleration (noting high correlation to big ticket furniture) with the break of
favorable weather this past weekend coinciding with BIG’s higher volume
Friends & Family promotion equating to potential upside to our +2.5% 1Q
comp. Looking ahead, management continues to see a high-single to low-double
digit comp lift from Store of the Future remodels (slated to be 30-40% of the chain
by year-end). (2) The Gross Margin Roadmap: Both 1Q and FY19 guidance calls
for "higher" gross margin with driven by better IMU, lower shrink, and favorable
merchandise mix (furniture/seasonal and soft home), partially offset by increasing
product costs. (3) SG&A Hurdle Moderates in 2H: Embedded within full-year
SG&A guidance $ growth of mid-singles is the start of a 3-year $100M cost
reduction program which will be used to fund growth activities included in
guidance, namely accelerating the strategic investment in stores of the future (215
vs. 100 in FY18), relocating stores, and wage increases. Mgmt. sees the leverage
point for the business moving to a low-single-digit SSS level by 2H19 (& into
FY20) from the 1H19's mid-single-level.
TIF (Neutral): At 20x our FY20 EPS TIF’s current valuation is commensurate with
both its 5-year average and +4% traditional premium to European luxury peers.
Larger picture, we expect mgmt to highlight progress on strategic initiatives under
their control while being cognizant of macro-volatility and tougher compares near-
term. 3 Key Focus Areas at The ’19 RRU: (1) High-End Macro Update/Impact:
With the SPX >20% off December lows (& historic .85 R2 to Americas SSS), US-
China trade tensions easing, and the RMB strengthening off of recent lows;
management's current view of the macro backdrop and health of global consumer
groups (in particular the US and Chinese consumer). (2) Top-Line Initiative
Timeline Bridge: Progress on Tiffany's six strategic priorities and marketing and
product innovation pipeline in 2019 and bridge to FY21 P/L implications at full
implementation. (3) Sustainability of FY19 Cost Efficiencies: Details and
sustainability beyond FY19 of cost-savings efficiencies driving operating margin
expansion on low-single-digit revenue growth (versus mid-single-digit hurdle
historically).
CPRI (Neutral): Initiate Long Trade Through Analyst Day / Raise PT to
$54: With CPRI's market cap off $2.8B since late September (> $2.1B Versace
acquisition price) or shares off 29% (vs. SPX Flat) trading at ~6x our CY20
EBITDA (incorporating $1.5B forward debt pay-down) or a ~15% discount to peer
TPR, well below the ~10x global brands average (range of 8-12x), and in-line w/
Dept Stores/Mall based Specialty retail - we see a favorable risk/reward setup on
CPRI through the company’s 6/4 analyst day including management’s presentation
4
North America
Equity Research
08 April 2019
Matthew R. Boss, CPA
(1-212) 622-2630
matthew.boss@jpmorgan.com
at our Retail Round-Up. Three Key Points: (1) 300bps+ MK Margin Erosion
Fundamentally Priced-In: Digging deeper– our SOTP valuation points to the
Michael Kors standalone brand trading on 5x FY21 EBITDA assuming 10x or a
~50% haircut to acquisition multiples for Versace/Jimmy Choo (in-line w/ EMEA
lux) - below the 5.5x mall-based department stores average effectively pricing in
more than 300bps of MK EBIT margin compression on our math (vs. “generally
stable” guidance at 19.5% today). (2) Fieldwork Points To Signs of Improvement:
Our recent fieldwork (& promotional tracker) points to sequential improvement in
the Michael Kors' brand top-line and margin front as the quarter progressed (March
> February > January). Driving the improvement by our work is the combination of
improved retail traffic, elevated logo penetration and assortment improvement
(including accessories) supported by the successful Bella Hadid Spring campaign
1/28 launch with our promotional tracker pointing to stable main-line promotions
YOY in Feb/March following a more promotional January YOY w/ mgmt noting
competitor promotional dynamics "not new news" in 4Q. (3) June 4 Investor Day
on Tap: Beyond our Retail Round-Up next week – we see CPRI’s 6/4 Analyst Day
as a further catalyst for the stock noting FY20 and three-year financial plan targets
“de-risked” w/ June’s Investor Day to provide incremental color and showcase
management’s confidence (as evident during our 3/8 Chicago Roadshow) and
underlying drivers of financial targets including management access across the three
brands.
Day #2: Thursday April 11
th
:
PVH (Overweight / Analyst Focus List Pick) – Raise PT to $144: Despite PVH’s
+14% move since its 3/27 4Q print (& +37% move YTD vs. SPX +15%) – PVH is
trading on 11x our FY20 EPS, a 17% discount to its 13x 5-year average or a sub 1x
PEG to management's 12%+ multi-year stated bottom-line algorithm, which we
heard CEO Chirico reiterating at the RRU. 4 Key Focus Areas: (1) Consumer
Backdrop Clarified: Post CEO Chirico’s recent comments of macro volatility – we
expect investors to focus on the health of the consumer separating potential
temporary factors (weather, Easter-shift, government shutdown, tax refunds) vs. any
recent structural stepdown in the consumer (USA + Europe + Asia). (2) Calvin
Klein: CK Jeans company-specific or category issue and timeline for turnaround,
signs that CK brand is healthy and resonating with the consumer, top-line
opportunity across regions and product categories, multi-year margin opportunity
noting Calvin margins ~300bps below Tommy’s. (3) Tommy Hilfiger: Focus on the
“recipe of success” driving Tommy’s strong brand momentum and the sustainability
of top-line growth including category and regional top-line opportunity, Sportswear
opportunity post Macy’s exclusivity lift (likely more FY20/21 weighted), further
scope for margin opportunity post +350bps margin expansion since FY16. (4)
Guidance: Post PVH’s 3/28 EPS Print - drivers of PVH’s 1Q19 (particularly
relative to weak QTD trends) and FY19 guidance and areas of potential
conservatism, with our model pointing to potential upside opportunity on
international top-line and CK margins given significant gross-margin recapture
opportunity and cost efficiencies.
NKE (Overweight): With Street 4Q19/FY20 EPS now rebased post NKE’s 3/21
EPS print, we see the profile transitioning to mid-teens EPS growth next year with
potential upside to our multi-year EPS power consisting of: (i) Top-Line supported
by a strong product pipeline through FY20, (ii) Gross Margin: 200bps+ ASP
tailwinds w/ Channel and geographic mix opportunity, and (iii) SG&A: leverage to
meet 5-year plan represents upside to our model. Key Focus Areas: (1) Top-Line
5
North America
Equity Research
08 April 2019
Matthew R. Boss, CPA
(1-212) 622-2630
matthew.boss@jpmorgan.com
Momentum & Multi-Year Drivers: Initiatives to sustain top-line momentum,
product innovation pipeline and improvements in go-to-market process, in particular
in North America, (2) Margin Opportunity & Forward Runway: Breakdown and
incremental color on margin drivers including full price selling (+270bps GPM
tailwind in 3Q), DTC mix shift, product cost headwinds (240bps GPM headwind in
3Q), FX (70bps GPM tailwind in 3Q) and digital investments with the timeline for
leverage within the 5-year plan. (3) Guidance: Interpretation and drivers of NKEs
3/21 preliminary FY20 guidance for profitability in line w/ October 2017 Investor
Day plan (we believe referring to NKE mid-teens algorithm).
M (Neutral): 4 Key Focus Areas: (1) Update on "Core” vs. Offensive Growth
Drivers: With mgmt.’s guidance for SSS of Flat to +1% inclusive of Backstage and
Growth-150 initiatives, investors will be focused on an update regarding in-store and
digital initiatives to improve the underlying organic run-rate. (2) SSS Cadence &
Drivers of 2H Improvement: M CEO recently cited on 3/12 that trends were more
“stable” following tax refunds normalization and the govt. shutdown conclusion
noting current FY19 0-1% comp guidance embeds Fall trends to slightly improve
versus 1H19 despite tougher multi-year compares. (3) Category Performance: M
cited strength in fragrances, skin care, women’s shoes, active, fine jewelry, men’s
tailored and furniture, but noted disappointment with women’s sportswear, handbags
and color cosmetics in 4Q showing category performance remains mixed in FY19
SSS outlook. (4) Fund Our Future Size and Multi-Year Magnitude: Mgmt.
outlined $300M of incremental cost savings for FY19 to be used to fund top-line
initiatives and continue to stream-line the organization consisting of $100M in
SG&A restructuring savings and $200M “Fund Our Future” productivity
efficiencies (GPM &SG&A) to improve the supply chain and optimize inventory
mgmt. noting “additional opportunity over time".
5 Key Industry/Macro Themes Into 2019’s Retail Round-Up:
Theme #1: Current Health of the Consumer: We expect management teams to
cite an overall favorable consumer backdrop in 2019 with the magnitude of
moderation in tone versus the conference a year ago and variables to monitor in
2H19 our key focus this year. As a reminder 2018’s RRU key theme was
“confidence” in the consumer backdrop, with underlying strength having inflected
in Q417 driven by improved consumer confidence, increased wages, employment,
tax-reform benefit more than offsetting headwinds from higher gas prices and
rising interest rates
Theme #2: 1Q Cadence & 2H Roadmap. With retail seeing a weaker start to 1Q in
February due to the adverse combination of weather and tax refund delays, we
expect mgmt. teams to discuss a more April-weighted 1Q especially with Easter 3
weeks later this year (4/21 vs. 4/1 LY) and weather gradually turning more
favorable. Importantly, lateral commentary has pointed to an improvement business
as the quarter has progressed with WMT (4/4) citing consumer is in about the “same
shape” they were in 4Q netting out all the pluses & minuses traditionally in 1Q,
including weather; DG seeing lift once tax refunds hit (particularly the child tax
credit) and OLLI citing material “pops” in the business in March in regions of the
country where weather has turned. Looking ahead, the FY19 retail roadmap
includes a number of hurdles: (1) 2Q comparisons ramp ~100bps sequentially
relative to 1Q (FY18 high water mark) lapping LY’s weather break, (2) 3Q a
mixed bag setup according to WTI (w/ October “unfavorable”) lapping a “very
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