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瑞信-美股-零售行业-软线零售与全球品牌:前方道路更加艰难-18-60页.pdf
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瑞信-美股-零售行业-软线零售与全球品牌:前方道路更加艰难-18-60页.pdf
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Softlines Retail & Global Brands
A Tougher Road Ahead; Lowering Estimates
Across Softlines, Downgrading M/GPS/LB
Specialty Softlines | Sector Forecast
■ Cautious Fall/Holiday + 2020 Street Consensus Still Too High = Lowering
Estimates for US Softlines Retail: Our checks along with recent commentary from
BOSS/LEVI suggest US industry trends remained sluggish in C3Q. Our expectation is that
pressured trends are likely to continue into fall/holiday—with macro pressures weighing on
already-weak recent trends (shorter holiday shopping calendar, ongoing tariff/tourism
uncertainty, and tough weather compares lapping cold weather that extended through
much of 4Q18). Importantly, looking to 2020, we think Street estimates are still too high.
(Consensus ests currently assume industry SSS, GM & EBIT margin trends will ALL
accelerate in 2020 vs. current run-rates… we don’t see any clear drivers to support such
an acceleration.) We’re lowering our EPS ests by –3% on avg for 2019 and by –5.5% for
2020 for US department stores (
M
,
JWN
,
KSS
,
JCP
), brands with significant exposure to
US dept stores (
RL
,
PVH
,
HBI
) and challenged mall-based retailers (
GPS
,
LB
).
■ Could a Tough Holiday Catalyze Large-Scale US Store Closures in 2020? We
recently published our updated Credit Suisse US Store Closure Index showing that 2019 is
on track to be the biggest store closure year in the 24 year history of the index—with
Softlines retail companies driving 75% of announced store closures YTD. Looking forward,
if better holiday 2019 trends don’t materialize, we think it’s going to be increasingly tough
for Softlines retailers to avoid even bigger closures in 2020. In fact, our real estate
contacts are bracing for another round of large scale store closure announcements after
the holiday, and our conversations suggest this round could have significantly higher co-
tenancy risks for other retailers and shopping centers…even when compared to prior years
with big closures.
■ Low Valuation Won’t Be Sufficient to Offset EPS Downside and Longer-Term
Structural Concerns; Downgrading M, GPS, LB to Underperform from Neutral: The
US Softlines Retailer group (incl M/JWN/KSS/JCP/GPS/LB among others) is now
trading at a -3% discount to its 5-yr avg EV/EBITDA (vs. a +3% premium to the 5-yr avg
one year ago today)—adding some margin of safety for Softlines stocks. That said, the
negative NT industry data points are adding up. As we look across our coverage, we see
the most risk of negative revisions to 2020 Street ests for Macy’s, GPS and LB—and we
think low valuation alone won’t be sufficient to protect further stock downside. We are
downgrading Macy’s, GPS and LB to Underperform from Neutral previously. Lowering M
target price to $12 from $19, GPS TP to $14 from $20, and LB TP to $14 from $22.
■ Our Top Picks in a Volatile Macro: VFC, ROST, BURL, NKE: Given our more
conservative view for 2H19 and 2020, we’re updating the pecking order of our top picks.
The stocks we see best positioned to outperform include: 1) VFC (raising TP to $116 from
$104); 2) ROST (raising TP to $130 from $120); 3) BURL (raising TP to $245 from
$235); and 4) NKE (raising TP to $112 from $105).
18 October 2019
Equity Research
Americas | United States
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS,
LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse 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 report as only a single factor in making their
investment decision.
Research Analysts
Michael Binetti
212 325 7812
KC Katten
212 325 7814
Zachary McCullough
212 325 7815
Louis Rizzuto
212 325 2892
18 October 2019
Softlines Retail & Global Brands
2
Executive Summary
We’re increasingly cautious on the Fall/Holiday outlook for US Softlines Retail. And we don’t
think Street estimates for 2020 yet reflect the reality of the increasing amount of structural
industry pressures facing the US Softlines group today. We’re lowering our EPS estimates for
2H19—as well as for 2020—for several stocks most exposed to the increasing headwinds
facing the US department store and the specialty apparel retail groups, based on:
1)
Sluggish 3Q Trends:
Our recent channel checks, along with recent commentary
from BOSS/LEVI, suggest US sales trends have remained sluggish in C3Q, with
heavy markdown levels adding both SSS & GM headwinds.
2)
More Cautious 4Q/Holiday Outlook:
We expect sluggish 3Q SSS & high
promotional levels to continue into 4Q, with a shorter holiday shopping period (six
fewer days between Black Friday & Christmas), tough weather compares (lapping
favorable colder weather trends that extended through much of 4Q18), and ongoing
macro uncertainty (tariffs, tourism).
3)
Current 2020 Consensus Estimates are Too High:
Consensus estimates already
assume SSS, GM and EBIT margin trends will all accelerate in 2020 for the Softlines
group…We don’t see any clear tailwinds to support such an acceleration.
4)
Retail Store Closure Tipping Point Ahead?
Separately, our real estate contacts
are bracing for another round of large scale store closure announcements after the
holiday…and our conversations suggest this round could have significantly higher co-
tenancy risks for other retailers and shopping centers vs. prior years with big closures.
Figure 1: Current Consensus Estimates Assume Industry SSS, GM and EBIT Margins Will All Accelerate in 2020
Source: Company data, Credit Suisse estimates, FactSet. Note: Softlines Retail group includes: AEO, ANF, BURL, CHS, CPRI, DDS, EXPR, FL, GPS, JCP, JWN, KSS,
LB, LULU, M, ROST, TJX, TPR, ULTA, URBN
Lowering Estimates for Select Softlines Stocks…
As such, we are lowering our EPS estimates by –3% on average for 2019 and by –5.5% for
2020 for US department stores (M, JWN, KSS, JCP), brands with significant exposure to US
department stores (RL, PVH, HBI) and challenged mall-based retailers (GPS, LB). See a
summary table of our estimate changes in Figure 2.
…and Downgrading M/GPS/LB to Underperform
The US Softlines Retailer group (including M/JWN/KSS/JCP/GPS/LB, among others) is now
trading at a -3% discount to their five year average EV/EBITDA (down from a +3% premium to
the 5-year average at this time a year ago)—adding some margin of safety for Softlines stocks.
Softlines Industry SSS Growth Softlines Industry Gross Margins Softlines Industry EBIT Margins
+0.6%
+0.8%
+2.8%
+0.8%
+1.8%
+0.0%
+1.0%
+2.0%
+3.0%
2016 2017 2018 2019E 2020E
37.0%
36.8%
36.6%
36.3%
36.4%
36.0%
36.5%
37.0%
37.5%
2016 2017 2018 2019E 2020E
9.8%
9.5%
9.0%
8.3%
8.4%
7.0%
8.0%
9.0%
10.0%
11.0%
2016 2017 2018 2019E 2020E
18 October 2019
Softlines Retail & Global Brands
3
That said, we are downgrading Macy’s, L Brands, and GPS to Underperform (all three were
previously Neutral) based on our view that structural challenges are poised to accelerate in
2020…and we think 2020 Consensus estimates for all three are likely to be revised
significantly lower. Bottom line: We think low valuation alone won’t be sufficient to protect
further stock downside.
1)
Macy’s (TP to $12 from $19):
SSS trends likely running below Street ests in 3Q,
and guidance to a big 4Q SSS inflection is tough to embrace without downside GM
risk. Longer-term, EPS algo in much more fragile state today vs. pre-2008
recession—leaving big downside risk to Street ests in 2020 if consumer spending
trends slow.
2)
The Gap (TP to $14 from $20):
We believe the pending spinoff of Old Navy will
ultimately prove to have been destructive to equity value, and we have low confidence
that the company will be able to achieve the offsets to dis-synergy costs laid out in its
recent presentation.
3)
L Brands (TP to $14 from $22):
In a tougher US backdrop, we see risk to 2H guide
that assumes a fairly quick turn in VS. trends…with the multitude of challenges facing
the company today making it difficult to support the stock on valuation alone.
Top Picks in a Volatile Retail Backdrop
Given our more conservative view for 2H19 and 2020, we’re updating our top Outperform
rating pecking order:
1)
VF Corp (Outperform, TP to $116 from $104):
High probability of positive
revisions to guidance/Street estimates in the NT, multiple sources of upside to
recently issued 5-year targets, and valuation upside to NKE/LULU PEG levels.
2)
ROST (Outperform, TP to $130 from $120):
NT sources of SSS upside from
improving ladies apparel & better inventory availability, plus increasing visibility in an
EPS acceleration back to its +double digit EPS growth algorithm in 2020.
3)
BURL (Outperform, TP to $245 from $235):
Conservative 4Q guidance +
emerging SSS/margin drivers (with accelerating tailwinds from stepped up 2019 new
store opens) that should support a best-in-class EPS algo…even if investments step-
up slightly under the new CEO.
4)
NKE (Outperform, TP to $112 from $105):
Accelerating global rev trends
(bolstered by an innovation pipeline that’s the strongest we’ve seen in years) and
better SG&A leverage should translate to accelerating EPS upside through FY20 and
into FY21.
18 October 2019
Softlines Retail & Global Brands
4
Figure 2: Estimates Changes To and From
Source: FactSet, Company data, Credit Suisse estimates
Note: JWN no longer reports SSS.
SSS Sales Growth EPS Chg to Comments
C3Q19 C4Q19 2020 C3Q19 C4Q19 2020 C3Q19 C4Q19 2020 2020 EPS
Prev. CSe (0.1%) 1.6% 0.4% (0.9%) 0.9% (0.1%) $0.02 $2.18 $2.71
Curr. CSe (1.4%) 0.6% 0.0% (2.4%) (0.2%) (0.4%) ($0.01) $2.06 $2.43 -10.4%
Cons. (0.5%) 0.7% 0.4% (1.0%) 0.2% 0.3% $0.01 $2.08 $2.60
Prev. CSe - - - (3.6%) 2.7% 1.5% $0.66 $1.57 $3.48
Curr. CSe - - - (3.6%) 2.7% 1.5% $0.62 $1.49 $3.35 -3.6%
Cons. - - - (1.7%) 1.8% 2.0% $0.65 $1.51 $3.40
Prev. CSe 1.3% 1.8% 0.5% 1.1% 1.6% 0.4% $0.92 $2.26 $5.43
Curr. CSe 1.0% 1.5% 0.5% 0.8% 1.4% 0.4% $0.87 $2.23 $5.27 -2.8%
Cons. 0.6% 1.1% 1.0% 0.7% 1.1% 0.8% $0.87 $2.20 $5.30
Prev. CSe (8.0%) (8.0%) (3.0%) (8.7%) (8.7%) (3.9%) ($0.63) $0.04 ($0.93)
Curr. CSe (8.0%) (8.0%) (2.2%) (8.8%) (8.8%) (3.2%) ($0.63) $0.05 ($0.91) nm
Cons. (8.0%) (7.6%) (0.5%) (8.6%) (8.5%) (0.9%) ($0.57) $0.00 ($0.85)
Prev. CSe (2.0%) (0.0%) 1.1% 0.0% 2.1% 1.9% $0.54 $0.70 $2.14 Lowering 2H19 & '20 ests on sluggish
Curr. CSe (3.8%) (2.5%) (0.2%) (1.7%) (0.2%) 0.7% $0.52 $0.62 $1.90 -11.1% ON/Gap/BR trends. Dis-synergies likely to signif.
Cons. (2.5%) (0.5%) 0.4% (1.2%) 0.2% 0.8% $0.56 $0.65 $2.09
hurt 2020 EBIT guidance. ON valuation likely to
be well below what GPS intended at time of
spin announcement
Prev. CSe (1.2%) 1.1% 1.4% (3.2%) (0.9%) 2.8% $0.04 $2.01 $2.50
Curr. CSe (1.4%) 0.5% 0.4% (3.3%) (1.6%) 1.7% $0.03 $1.89 $2.20 -11.9%
Cons. (0.8%) 2.3% 2.0% (3.1%) (0.4%) 2.1% $0.02 $2.00 $2.47
Prev. CSe - - - 0.6% 1.3% 3.2% $2.97 $1.77 $10.25
Curr. CSe - - - 0.5% 1.4% 2.9% $2.97 $1.77 $10.15 -1.0%
Cons. - - - 0.6% 1.7% 2.9% $2.99 $1.84 $10.09
Prev. CSe - - - 0.5% 1.0% 3.9% $2.43 $2.43 $8.80
Curr. CSe - - - 0.5% 1.0% 3.9% $2.36 $2.43 $8.65 -1.6%
Cons. - - - 0.1% 1.3% 2.8% $2.39 $2.46 $8.47
Prev. CSe - - - 1.1% (1.4%) (1.6%) $0.55 $0.52 $1.77
Curr. CSe - - - 0.5% (0.9%) (1.8%) $0.54 $0.50 $1.75 -1.2%
Cons. - - - 0.5% (0.9%) (1.5%) $0.54 $0.50 $1.77
While Champion is in the middle of a fashion
cycle with ongoing distribution growth, HBI still
has significant d-store exposure in core
categories. Further, HBI brands are largely self-
purchase, which we think are most impacted by
a shorter holiday selling period.
HBI
JCP
PVH
RL
GPS
LB
We think a slower than anticipated improvement
at the struggling VS brand in 2H19 will limit the
inflection implied in guidance and Consensus
SSS and EPS, adding negative revision risk to
an already fragile 2020 turnaround story.
M
JWN
KSS
Some good initiatives but M is most exposed in
group to many LT structural challenges. 3Q
checks have been weak.
NYC flag could bolster P&L in the NT, but we
think underlying negative trends for rest of fleet
continue, promotional environment adds GM
Strong product newness and AMZN program
could offset broader industry headwinds in the
NT. But checks point to a sluggish start to 3Q
and heavy promotions across peer group.
High debt levels and stores in deteriorating
shopping centers adds significant financial/oper
deleverage risk. JCP will likely see large scale
closures in 2020.
While current year guidance contemplated a
weak NA wholesale market (RL was early to
address this) the continued deterioration in end
markets adds downside revision risk to EPS,
especially in 2020.
Maintaining below Street 2019 EPS of $9.30 vs.
Street $9.39, but trimming '20 slightly due to
softening NA wholesale & ongoing sluggish US
outlet trends that add incremental downside
Retailers
Brands
18 October 2019
Softlines Retail & Global Brands
5
Structural Challenges Will Dictate the
Narrative Again in 2020
Our Updated Industry Thesis
In October 2018 we published our updated thesis that margins of safety were eroding for
Softlines retail stocks (link here). Our view was that, while Consensus forward year SSS
estimates looked more reasonable (for the first time in several years), we still expected SSS
downside in 2019 as tax reform driven consumer spending tailwinds in softlines categories from
2018 were likely to slow. Additionally, Consensus forecasts for EBIT margins to expand
seemed likely to disappoint—which we believed would result in 2019 Consensus EPS
estimates needing to be revised lower. Coupled with valuations at this time last year that were
above historical averages, we saw a more cautious stock backdrop emerging.
Fast forward to today, Softlines Retail stocks have underperformed the S&P 500 by -28pp YTD.
After 5 quarters of SSS beats (4Q17 through 4Q18), SSS trends for the group have missed
Consensus estimates for the past two quarters. Ongoing structural cost headwinds remain
(wage rates, ecom fulfillment), and new cost headwinds have emerged (tariffs on
apparel/footwear/accessory imports from China).
Today, forward Consensus estimates for 2020 are once again overly optimistic—with
Consensus already assuming industry SSS, GM and EBIT margin trends will accelerate in 2020
for the Softlines group…we don’t see any clear tailwinds to support such an acceleration.
Valuations for the US Softlines Retail peer group have compressed slightly…to a –3% discount
vs. their 5-year EV/EBITDA average (compared to trading at a +3% premium to the 5-year
average one year ago this time)—adding some defense for the stocks.
That said, our view is that structural challenges are poised to accelerate and dominate the
narrative for Softlines stocks again in 2020. In particular, we think that 2020 Consensus
estimates for Macy’s, GPS and L Brands are all likely to be revised significantly lower (with low
valuation alone not sufficient to protect from further stock downside). We are downgrading
Macy’s (most exposed to negative structural industry headwinds), GPS (Old Navy spin will likely
prove to be a value destroyer at this point), and L Brands (VS. brand turnaround is still likely far
away) to Underperform. All three were previously Neutral.
Consensus is already assuming Softlines
industry SSS, GM and EBIT margin trends will
accelerate in 2020…we don’t see any clear
tailwinds to support such an acceleration
We see structural industry challenges
accelerating in 2020, and are downgrading
three heavily exposed stocks to Underperform
from Neutral: M, GPS, LB
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