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1、Dept Stores / Specialty SoftlinesBoss Global Brands 3Q Preview: Fieldwork & Mgmt Access Points; Downgrade PVH to NeutralNorth America Equity Research28 October 2019Ahead of 3Q EPS season across the global brands, we thought value-add to layout keytakeaways from our recent fieldwork and management ac

2、cess and implications to our multi-year models (updated financial models available on request).Similar to our “Return to Relative Retail” July primer on the Department Stores & Specialty we recommend a selective stance (winners vs. losers) across the global brands. Specifically, we raise estimates (

3、 Street) on Overweight-rated LULU, lower estimates ( 1.1x 3-year trailing average) we are downgrading PVH to Neutral. Model Specific: Our 2H19 EPS remains unchanged modeling FY19 EPS of $9.42 representing a 2% YOY decline (vs. $9.30-$9.40 guide) lowering our FY20 EPS to $9.94 (vs. Street at $10.12)

4、equating to +5.5% growth and FY21 to $10.74 (+8.1% growth). 3 Key Points:(1) North America Structural Changes: Tommy/Calvin North America revenues inflected to negative low-single-digit organic (excl G-III Jeans transition) in 2019E (& -LSD% implied in 2H19E guide by our work) or a high-single-digit

5、 negative swing versus positive mid-single-digits in FY18. Driving the sequential moderation (w/ current trend-rate likely sustained through 1H20 by our work) is the combination of (i) Outlet Exposure: 80% of N/A retail revenues by our work facing the combination of tourism traffic declines (USD at

6、1.11) and share loss to online (convenience)/off-price(value), and (ii) Department Store Exposure: 20-25% exposure to US department stores with the domestic sub-sector sector facing structural multi-year market share pressures with FY19 gross profit dollars down 2.5% YOY reaching a new trough by our

7、 models (& 4th straight sequential annual decline).(2) CK Mgmt Turnover Raises Turnaround Timeline Risk: Trends at CK have materially moderated both in North America (negative low-single-digit same-store- sales in 2H19E) and internationally (negative mid-to-high single digit SSS in 2H19E with notabl

8、e weakness versus peer set in China) driven by brand/product specificEquity Ratings and Price TargetsRetailing Department Stores & Specialty SoftlinesMatthew R. Boss, CPA AC(1-212) 622-2630 HYPERLINK mailto:matthew.boss matthew.bossBloomberg JPMA BOSS Grace Smalley, CFA(1-212) 622-4894 HYPERLINK mai

9、lto:grace.smalley grace.smalley Steven Zaccone, CFA (1-212) 622-8996 HYPERLINK mailto:steven.zaccone steven.zacconeElliott Simon, CFA(1-212) 622-9147 HYPERLINK mailto:elliott.m.simon elliott.m.simonJ.P. Morgan Securities LLCCompanyTickerMkt Cap ($ mn)Price ($) Rati Curng PrevCur Price TargetEndPrev

10、DateEnd DateLevi Strauss & Co.LEVI US7,007.7817.12OWn/c20.00Dec-2021.00n/cPVH Corp.PVH US7,041.2492.77NOW93.00Dec-20n/cn/cRalph Lauren CorporationRL US8,145.2498.79Nn/c104.00Dec-20124.00n/cUnder Armour, Inc.UAA US9,389.6621.06OWn/c28.00Dec-2029.00n/cV.F. CorporationVFC US33,506.5984.15OWn/c108.00Dec

11、-20n/cn/clululemon athletica inc.LULU US27,318.10208.00OWn/c231.00Dec-20230.00n/cTiffany & Co.TIF US12,328.6098.55Nn/c98.00Dec-20n/cn/cSource: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 25 Oct 19.See page 27 for analyst certification and important disclosures.J

12、.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 report as only a single factor in making thei

13、r investment decision. HYPERLINK / issues in addition to macro (global tourism / geopolitical volatility) and structural channel mix (outlet/dept store exposure). Digging deeper, the product assortment (Jeans in particular) is not expected to be fully on track until 2020 (vs. 2H19 prior) with sequen

14、tial improvement expected (2H20 1H20) as product fixes lag marketing (seen improving in 2H19). Raising the risk profile in our view is recent management level turnover including: (i) Oct 19: CMO/CDO Marie Gulin Merle (after 18 months tenure and having expanded her role as PVHs first-ever Chief Digit

15、al Officer in May 19), (ii) Jun 19: CEO Steve Shiffman (following 5 years at the helm), and (iii) Dec 18 Chief Creative Officer Raf Simons (hired in Aug 16) with the strategic direction of President Stefan Larsson (hired June 19) unknown at this juncture. On the Tommy side we also note the departure

16、 of Tommys Chief Brand Officer A. Baker in June 19 following 21 years at the brand (replaced by M. Scheiner from Holliser in Oct 19) as additional mgmt change worth monitoring.(3) Model Sub-Algo Multi-Year: PVHs EPS profile turned negative in FY19E for the first time since 2016 (mid-point of current

17、 guidance = 2.6% EPS decline) versus+19% average the prior two-years. Looking forward and putting the pieces together, our model points to a back-end loaded +5.5% EPS growth profile in FY20 moving to +8.1% growth in FY21 or 3 consecutive years below managements prior double- digit outlined target al

18、gorithm based on positive mid-single-digit revenue growth.Breaking Down Our 2H19 Model: We model 3Q19 EPS of $3.01 (vs. St. $3.00) on+0.7% revenue growth and 4Q19 EPS of $1.85 (vs. $1.84 Consensus) on +2.2% revenue growth equating to FY19 EPS of $9.42 (vs. $9.30-$9.40 guide). (1) Top- Line: We model

19、 Tommy N/A SSS down -8.5% in 2H19 (in-line w/ mgmts negative high-single-digit guide) equating to a -700bps deceleration in 2-yr stacks (vs. 1H19) and Calvin Klein N/A SSS down -3% equating to a 400bps deceleration in 2-yr stacks (vs. 1H19). Internationally, our model embeds CK same-store-sales down

20、 5% in 2H19 (vs. 2Q flat) incorporating weaker Hong Kong SAR trends equating to a 650bps deceleration in 2-yr stacks (relative to 1H19) modeling Tommy international (75% Europe w/ minimal China/HK exposure) 2H19 same-store-sales up 5.5% (vs. 2Q +9%) more/less holding 1H19s 2/3yr stacks. (2) GPM: We

21、model 2H GPM+125bps (in line w/ mgmts guidance vs. prior guidance calling for 200bps 2H GPM expansion) driven by CK recapture (lapping last years Jeans product issues) and favorable international mix partially offset by increased promotional activity at Tommy N/A (negatively impacted by tourism) and

22、 tariff headwinds. (3) SG&A: We model 2H SG&A dollars +6.7% on our math vs. 1H Flat due to the reinvestment of Calvin Klein savings (e.g. CK50 marketing campaign) w/ mgmt commentary citing a heightened focus expense efficiency pointing to potential 2H19/FY20 SG&A flexibility in our view.TIF (Neutral

23、): Cutting Estimates Below Street (w/ Strategic Spec 1st Take). We are lowering 3Q SSS to -2% (below Consensus +2%) modeling 3Q EPS of $0.79 (below the Street at $0.86). Regional SSS Breakdown: Asia ex. Japan: -6% in 3Q decelerating 700bps vs. 2Q at +1% incorporating Hong Kong SAR (18% of regional r

24、evenues) down 40-50% in line w/ LVMH commentary partially offset by continued robust trends in ML China (w/ no signs of consumer backlash by our work). Japan:+5% in 3Q accelerating 800bps vs. 2Q at -3% driven by front-loading of consumer purchases ahead of the 10/1 VAT increase (w/ mgmts current ful

25、l-year guidance confirmed to embed a “2H Neutral impact” w/ Aug/Sept front-loading offset by Oct- Jan reversal). Americas: -3% (vs. 2Q -4%) equating to 200bps sequential deceleration on a 2-yr stack w/ the scaling of TIFs 2H product innovation weightedmore to 4Q (Mens, Fragrances, “&” Jewelry, Color

26、 Tiffany T, Holiday Novelty) and tourism an ongoing headwind despite easing compares (average USDCNY 3% stronger YOY in 3Q). Europe: +1% in 3Q more/less in line w/ 1H flattish trends. On margins - we model Q3 GPM -3bps to 62.1% vs. Street +10bps to 62.3% incorporating fixed cost deleverage, unfavora

27、ble product mix (diamond/gold/high jewelry inventory investments) and China tariffs offset by price increases (implemented towards the end of 2Q) and the lapping of $8.5M COGS charge LY (bankruptcy filing of a precious metals refiner) modelling SG&A $s -3% (-82bps SG&A leverage) driven by ongoing st

28、rict cost control/efficiencies in reaction to weakened top-line trends w/ mgmt alluding to ongoing cost flexibility. For FY19: we lower our EPS to $4.65 equating to a 2% YOY decline on -2% same-store-sales - below mgmts current guidance for low- to-mid-single-digit EPS growth on Flat comps w/ produc

29、t innovation, “brand activation” and US local consumer sentiment (lapping last-year market sell-off) key three factors were monitoring for incremental downside to our current 4Q P/L. Looking into FY20 we lower our FY20 EPS to $4.79 (below the Street at$5.20) on +1.7% revenues ( Street at +4%) and Fl

30、at GPM ( 13% margin for the above transaction average peers set) we see a takeover value range of 15x-17.5x EBITDA (= 3.3-4x sales) as reasonable equating to a range of $120-$140 (w/ TIFs mid-2018 stock-price peak of $140representing 17.5x). On shareholder sentiment short interest has risen to 12% o

31、n the back of weaker fundamentals and potential downward EPS revisions (supported by our estimates revision above) w/ LVMHs timing seemingly opportunistic noting a European luxury takeover has been a premise of key-holders investment thesis. On LVMHs potential strategic rationale please read more in

32、 in M. Flouquets note Tiffany, Be My Valentine.RL (Neutral): Reducing Estimates & Lowering PT to $104. We are lowering 2Q consolidated revenues to -0.5% (below the Street at +0.1%) comprised of +0.9% constant-currency growth (vs. guidance +1%) and 130bps FX headwind ( 90-100bps guidance) modeling 2Q

33、 EPS of $2.40 (in-line w the Street). Where Are We Different:N. America (-3.9% decline in 2Q vs. 3.3% in 1Q = 375bps sequential 2-year stacked deceleration), and (2) Asia (+5.5% vs. +7.8% in 1Q & +double-digits TTM) accounting for softer HK trends. On North America - based on our recent fieldwork we

34、 are (i) lowering 2Q N/A retail same-store-sales to -3% comprised of a 7% decline in E-commerce (vs. -3% in 1Q ex Easter shift) and -1.5% brick/mortar trend and (ii) reducing our 2Q N/A wholesale estimate to -7% (vs. 1Q +2%) accounting for the combination of an unfavorable shipment timing shift (int

35、o 1Q) and below-plan underlying sell-out trends. Rounding out the regions - we are lowering 2Q Asia retail same-store-sales to +3% ( 1Q +5%) to account for weakening HK trends in Jul-Sep not fully compensated by a repatriation in spend to other APAC markets noting HK represents “just under 10%” of R

36、L APAC revenues including key flagships stores. On margins - we model +20bps of 2Q gross margin expansion to 61.1% (in-line w/ Consensus) driven by favorable channel and geographic mix (w/ 2Q North America wholesale -7% a tailwind to GPM) partially offset by FX headwind (-20bps) with elevated promot

37、ional activity by our work (in particular at Lauren) primarily accounted for by increase in inventory reserves taken in 1Q (+$14M YOY) modeling a 1% reduction in SG&A dollars YOY lapping a $20M increase in marketing dollars a year ago. Looking ahead, we lower FY20 EPS to $7.62 (below the Street at $

38、7.68) based on +0.9% consolidated revenue growth ( Street +13.6% & guide of “l(fā)ow-teens”) or flat sequentially on a 2/3-year stacked basis and EPS to $0.97 ( Street $0.93 & guide $0.90-$0.92) representing +30% YoY growth. Importantly, our fieldwork points to momentum maintained throughout the quarter

39、 (vs. “pleased with where we are and continue to see strong traffic” commentary on 9/5) with product strength led by bottoms across genders (womens “Fast & Free” pant / mens “ABC” franchise) as well as select areas of newness including outerwear for Fall elevating AURs and the Metal Vent Tech 2.0 in

40、 mens tees. By channel, we model 3Q brick & mortar SSS of +10% (w/+17% 2-year stack pointing to potential incremental upside vs. 2Q +21%) and e- comm growth of +38% (+84% 2-year stack vs. 2Q +78%). On the margin front, we model +30bps of gross margin expansion ( guide Flat to up modestly) and SG&A l

41、everage of +26bps YoY (vs. guide for “modest leverage”). Looking ahead, we see managements $4.63-$4.70 EPS outlook raised by the 3Q beat modeling 4Q EPS of $2.12 ( 9/5 $2.04-$2.09 implied guide) based on +13% same-store-sales, +30bps gross margin expansion, and 64bps of SG&A leverage. Reiterate Anal

42、yst Focus List pick and raise our Dec. 20 PT to $231 based on 34x 2021 EPS (1.75x PEG).UAA (Overweight) 3Q & 4Q Breakdown w/ FY20 2H Weighted. We model a - 2.2% 3Q revenue decline (vs. Street -2%) and EPS of $0.19 ( Street at $0.18). -5%3Q North America Revenue Build: Our -5% North America estimate

43、(in-line w/ negative mid-single-digit guide) incorporates: (-) Off-Price: unfavorable timing of off- price shipments (out of 3Q into 4Q), (-) Outlets: ongoing weak outlet traffic representing 90% of UAAs North America store base hurt by decreased tourism traffic (w/ average USDCNY 5% stronger YTD) &

44、 ongoing structural share shift to off- price, (-) Lower Promotions: decreased transactions as the consumer adjusts to UAAs reduced promotional cadence YOY given lower inventory levels on hand, (+) Wholesale: Improved full-price wholesale business (noted as positive ytd and “trending slightly health

45、ier than originally anticipated”) w/ DKS mgmt pleased w/ UAAs 2Q performance and that they suspect theyll be pleased through the balance of the year, (+) Execution: UAAs improved service levels and execution driving more timely shipments and pull-forward of deliveries into 4Q (out of 1Q20). Internat

46、ionally, we model +4% reported revenue growth or +5% c/c with the slowdown vs. +17% CC in 1H19 driven by the ongoing structural shift of wholesale/distributor shipments out of 3Q into 4Q (i.e. closer to need) as well as international store openings weighted to 4Q (both partner operated and directly

47、operated) and ongoing headwinds from the Brazil distribution change to a license business not lapped until 4Q. 3Q GPM & SG&A Street: we model +150bps of 3Q gross margin expansion to 48.0% ( Street +130bps) driven by favorable mix (lower off-price sales YOY) and continued product costs/supply chain i

48、nitiative tailwinds (albeit moderating vs. 1H) with SG&A dollars up 5.3% YOY ( Street at $0.48) with our model back-half weighted and 1Q20 the trough given the pull-forward of shipments into 4Q (improved service levels) with management citing “step-stone” growth in FY20 with marketing/product initia

49、tives our key Spring focus.VFC (Overweight): 5 Mgmt Follow-Up Takes & Model Update. (1) US October/QTD Acceleration: Mgmt noted following a soft-end to Q2 in Sept in the US that trends have improved “across all brands” in October month-to-date w/ weather breaking in “certain parts of the country” no

50、ting improvements in both DTC trends as well as wholesale partner sell-through. (2) TNF/Vans: Management raised their revenue outlooks for both TNF (+9-10% vs. +8-9% prior) and Vans (+13-14% vs.+11-13% prior), which collectively make up 60% of total consolidated VFC revenues. On TNF management cited

51、 “stronger than expected” initial sell-through from Futurelight as well as a strong “halo” and brand heat” effect around the overall brand since the 10/1 select assortment launch (Summit, Steep & Flight Series). On Vans mgmts increased outlook embeds 2Qs outperformance (+16% vs. low-teens internal e

52、xpectation) and increased visibility on 2H wholesale orders with the AVE Pro launch at $100 AUR ( typical $50-65 typical price-point) global sell-out a positive microcosm for continued pricing power and breadth beyond Vans core. Near-term for3Q mgmts guidance embeds TNF up high-single-digits and Van

53、s up low-double- digits by our work. (3) Work Wear Break Down: Mgmt lowered FY19 Work category guidance by 50bps for the year at the mid-point (+4-5% vs. +4-6% prior) or by $9M on a $1.8B base driven by “acknowledgement” of moderation in industrial/manufacturing sector growth noting 30% of VFCs work

54、 portfolio (in particular RedKap, Bulwark) is tied to cyclical factors clarifying that trends to date are not fundamentally in a different place. On Dickies specifically, growth slowed to -3% in 2Q (vs. 1Q +2%) including a 900bps negative shift impact owing to the YOY timing of shipments to a mass r

55、etailer YOY w/ mgmts guidance (+5-6% vs.+6-7% prior) embedding 2H trends up low-double-digits supported by lifestyle and international shipments. (4) 2H Margin Outlook: Mgmts unchanged gross- margin outlook of +80bps to 54.1% implies +50bps 2H expansion moderating vs. 1H due to worsening FX w/ 3Q ex

56、pected to be a little stronger than 4Q. On SG&A mgmt expects SG&A leverage to be heavily weighted to 4Q w/ 3Q expected to see60bps of deleverage. (5) Balance Sheet for a “Big Deal”: CFO Roe spoke to the ability to do a “really big deal” on the call w/ TSR accretive acquisitions remaining mgmts #1 ca

57、pital allocation priority w/ mgmt comfortable w/ both issuing equity as well as increasing leverage (to the extent of one-step downgrade to credit rating to BBB+) for the right deal. On potential categories recall mgmts identified $500B addressable market notably identifying categories such as Stree

58、twear, Health & Wellness, Experiences, Performance Footwear, and Work Inspired outside of VFCs current Outdoor/Active/Work segment. On Model Implications: We model 3Q20 EPS of $1.20 and 4Q EPS of $0.62 equating to FY20 EPS of $3.38 (vs. $3.32-$3.37 guide) based on +6% revenue growth, 84bps gross mar

59、gin expansion and 10bps SG&A leverage. On risk/reward a 1.5x PEG on the mid-point of managements 12-14% EPS growth profile points to $85 versus $108 applying a 1.5x PEG to our mid-teens modeled profile the next 3 years.LEVI (Overweight): Mgmt Access & Model Dive = Lower PT to $20. We lower 4Q19 reve

60、nues to a -1.6% decline (below the Street at -0.6% / guidance -3%) modeling EPS of $0.22 (vs. Street at $0.21). 3 Builds We Are Monitoring Near-Term: (1) US Wholesale: Modeling a 7% YOY decline in 4Q US wholesale (vs. 3Q -10%) comprised of a 200bps “underlying core” wholesale decline (vs. -4% in 3Q