J.P. 摩根-美股-零售业-美国百货与软线零售：老板假日实地调查和ICR预览-2020.1.6-37页.pdf

North America Equity Research06 January 2020Equity Ratings and Price TargetsMkt CapRatingPrice TargetCompanyTicker($mn)Price($)CurPrevCurEnd DatePrevEnd DateAbercrombie&FitchANF US1,201.6017.38Nn/c19.00Dec-20n/cn/cAmerican Eagle OutfittersAEO US2,504.9114.39Nn/c14.00Dec-20n/cn/cBoot BarnBOOT US1,294.3845.35OWn/c52.00Dec-2049.00n/cFive BelowFIVE US7,107.77127.67OWn/c144.00Dec-20n/cn/cJ.C.Penney Co.,Inc.JCP US335.501.10UWn/cn/cn/cKohls Corp.KSS US11,645.7349.19Nn/c46.00Dec-2040.00n/cL Brands,IncLB US5,366.5418.86Nn/c18.00Dec-20n/cn/clululemon athletica inc.LULU US30,554.24232.64OWn/c255.00Dec-20231.00n/cMacys,Inc.M US5,157.3616.53UWn/c15.00Dec-2013.00n/cNordstrom,Inc.JWN US6,755.6739.88Nn/c41.00Dec-20n/cn/cOllies Bargain Outlet HoldingsOLLI US4,005.0861.52OWn/c68.00Dec-20n/cn/cThe Gap,Inc.GPS US6,853.9217.44UWn/c15.00Dec-2014.00n/cUrban OutfittersURBN US3,067.3427.95Nn/c27.00Dec-2025.00n/cSource:Company data,Bloomberg,J.P.Morgan estimates.n/c=no change.All prices as of 03 Jan 20.Dept Stores/Specialty SoftlinesBoss Holiday Fieldwork&ICR Preview:Consumer Strength w/Favorable 1H20 SetupRetailing Department Stores&Specialty SoftlinesMatthew R.Boss,CPA AC(1-212)622-Bloomberg JPMA BOSS Steven Zaccone,CFA(1-212)622-Elliott Simon,CFA(1-212)622-Grace Smalley,CFA(1-212)622-J.P.Morgan Securities LLCSee page 34 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 report as only a single factor in making their investment decision.With 80%of 4Q now in the books,we thought value add to share takeaways from our recent fieldwork/management access to assess the setups into Holiday pre-announcements this week and the ICR Conference next week.Bottom line our work points to a robust Holiday 19 overall led by continued consumer strength(unemployment at 50 year low/4%wage growth)with 76%of companies across our Department Stores&Specialty Softlines coverage universe tracking to“meet or beat”current 4Q Street Consensus same-store-sales by our work noting average 1&2-year stacked SSS compares into 1H20 moderate 270bps relative to the trailing 12-month average(-300bps for Dept stores/-240bps for Specialty)with WTI calling for a“Favorable/VF”March(i.e.warmer/drier kickoff to Spring YOY).Potential 4Q SSS Upside vs.Street:LULU,BOOT,JWN,KSS,M,GPS(ON Gap).4Q SSS More/Less In-Line vs.Street:FIVE,URBN,ANF,LB(BBW/Pink VS).Potential 4Q SSS Risk vs.Street:OLLI,AEO,JCP.Boss 4Q-To-Date Fieldwork:Department StoresM(Underweight/Raise PT to$15):We raise our 4Q owned same-store-sales estimate to-1.5%(above the Street at-2.5%/implied guidance of-1.5%to-3%)equating to 4Q EPS of$1.91(Street at$1.87).On cadence,our fieldwork points to“book-end”4Q-to-date performance with(1)weather-driven top-line improvement in 1H November on seasonal categories and(2)notable acceleration in mid/2H December lapping the West Virginia DC fire and promotional shift(“Earn and Redeem”event)with business peaking 12/21-12/23 by our work partially offset by softer trends in late November through early December by our work.Putting this into perspective and pointing to potential for incremental upside Ms 4Q compare is 220bps easier sequentially(relative to 3Q)including a 70bps DC fire/promo shift headwind with e-commerce penetration ramp+50-100bps accretive noting mgmts implied 4Q same-store-sales guide provided on 8/14 was+2%on our math subsequently lowered to negative 1.5-3%on 11/21.On the bottom-line,we model 38bps of gross margin contraction(vs.4Q guide for a little more compression 2North America Equity Research06 January 2020Matthew R.Boss,CPA(1-212)622-than 3Q)comprised of a-65bps headwind from e-commerce delivery costs,partially offset by 27bps of strategic outlined cost efficiencies with merchandise margin Flat YoY.Digging deeper driving the 44bps positive merchandise margin delta(4Q modeled Flat vs.44bps YTD compression average)is the lap of 80bps of markdown-led contraction a year ago partially offset by elevated promotional activity on outerwear and womens sportswear particularly on private label apparel by our work(w/mgmt expecting to exit FY19 with comp store inventories down YOY versus Flat exiting 3Q).On SG&A,our 4Q flat dollar assumption equates to 75bps of deleverage and FY19 dollars down 0.1%(versus mgmts“down slightly”guidance).For FY19 our model stands at$2.70 EPS(vs.the Street at$2.65/$2.57-$2.77 guide)based on-1.2%owned comps(vs.-1.2%to-1.7%guide).KSS(Neutral/Raise PT to$46):We raise our 4Q SSS to+1.5%(above the Street at+0.4%and implied 4Q guide Flat to+1%)equating to EPS of$2.05(Street$1.98).Notably,our fieldwork points to same-store-sales consistently above 3Qs+0.4%comp with 1H November trends similar to 2H October(i.e.+1%)and strength over Black Friday weekend a positive outlier by our checks led by non-apparel categories(i.e.home)with newness in womens and AMZN partnership(1,000 incremental doors YOY&600 doors w/Home offering)offsetting the 1H December traffic lull by our work.Putting this into perspective and pointing to potential for incremental upside KSS 4Q compare is 150bps easier sequentially with e-commerce penetration accretive noting mgmts implied 4Q same-store-sales guide provided on 8/21 was+2%on our math subsequently lowered to“Flat to+1%”on 11/19.On gross margin our 93bps 4Q contraction estimate falls below managements 69-83bps implied guidance with merchandise margin contraction of 50bps(15bps 3Q compression)driven by a continuation of elevated promotional activity in home,beauty,and womens apparel(notably in private label)in addition to mix shift headwinds from both lower margin e-commerce(35bps 20-30bps historical headwind)and national brands(5-10bps)with management noting comfort with aged inventory levels exiting 3Q.Regarding SG&A,we model+3.2%4Q SG&A dollar growth(AMZN/tech shift/lease acctg),which equates to FY19$s up 2%(in-line w/mgmts“high-end 1.5%-2%”guidance).For FY19,our model stands at$4.93(vs.Street$4.86&guide$4.75-4.95)based on SSS-0.8%(vs.guide-1%to-1.5%).JWN(Neutral/$41 PT):We raise our 4Q revenue growth to+2.3%(Street+1.6%)comprised of+2.5%Full-Price sales and+2.1%Off-Price sales growth equating to 4Q EPS of$1.55(Street at$1.47 and implied guidance of$1.35-$1.55).Embedded within our 4Q build we model a+170bps consolidated company with our work and management access in December(including NYC Flagship tours)pointing to potential“market halo”upside to+150bps consolidated lift guidance and the combination of 4 initiatives driving sequential improvement across the remainder of the fleet:(i)right-sized inventory in-stocks(relative to 1H19),(ii)improved loyalty program and digital marketing YOY,(iii)expanded gifting focus(77 gift shops this year),and(iv)elevated price laddering with particular emphasis on items at/under$200 noting footwear(across genders)and mens apparel as consistent positive category callouts.At Off-Price,our recent work points to improved conversion tied to better assortments with inventory clean exiting 2Q and traffic aided by a 30%increase in flash sale events YOY(similar to 3Q).On gross margin,we model a-15bps decline YoY based on 25bps of occupancy cost deleverage due to the NYC flagship with potential upside to+11bps of embedded merchandise margin expansion(comprised of Off-Price improvement partially offset by Full Price decline)lapping the models easiest full-price merchandise margin comparison of the 3North America Equity Research06 January 2020Matthew R.Boss,CPA(1-212)622-year due to higher markdowns last year on below-plan full-price trends with inventory exiting 3Q19 480bps below managements implied 4Q sales plan.Regarding SG&A,we model 4Q SG&A$s-0.5%YoY for 83bps of deleverage equating to FY19 SG&A$s-1%(in-line w/guide).For FY19,our model stands at$3.50 EPS(vs.Street at$3.43/managements$3.30-$3.50 guide)based on-1.9%revenues.Please see our upgrade note published today:Signs of Structural Change w/Transitory Headwinds in Later Innings;Upgrade to Neutral w/$41 PT.JCP(Underweight):We model 4Q same-store-sales of-8.3%(below the Street at-7.8%)equating to a 4Q EPS loss of$0.04(vs.Street EPS loss of$0.06).Three Key Model Takes from Our Fieldwork and Recent CFO Access-(1)4Q SSS=Low-End of Annual Guidance Range:Our 8.3%4Q comp decline equates to 100bps of sequential reported comp improvement from 3Qs-9.3%comp driven by the combination of(i)moderating headwind from appliances(-220bps vs 3Q-270bps by our model)and(ii)elevated promotional stance(JPM estimating a 175bps 2-year stacked sequential GPM deceleration)translating to a-8%comp for the year(=low end of 7-8%guide).Said differently,our-8.3%4Q reported comp equates to a-6.1%core comp(ex appliances)versus-6.6%in 3Q and-5.7%in 1H19 translating to a-12.1%2-year stacked core comp decline exiting FY19.Looking ahead,management cited incremental merchandising improvement opportunity in womens apparel by Spring with meaningful Home category improvement tied to 12 month lead times pointing to Fall 2020.(2)Gross Margin Puts/Takes:We model+190bps of 4Q gross margin expansion(at the higher end of+30-190bps implied guide)based on 120bps of improvement in selling margin,40bps benefit from shrink improvement(similar to 3Q),and 30bps benefit from lapping appliances with the primary delta vs.2Q/3Qs 330bps average gross margin expansion being increased promotional intensity or neutral markdowns YoY versus an avg.benefit of 150bps in 2Q/3Q by our math.Looking forward,mgmt.sees continued opportunity for gross margin improvement noting the pre-appliance business level of 36%in FY15 as a high water mark(vs.JPM at 34.5%in FY19)citing greater fulfillment efficiency and faster inventory turnover as key levers for forward improvement partially offset by a higher mix of line-item dilutive e-com penetration.(3)SG&A Puts/Takes:Our+1%4Q SG&A dollar growth estimate matches mgmts Flat full-year guide noting one-time factors of$5M for home office expenses and a residual on one-time asset sale gains(=2.1%underlying$decline).Looking forward,mgmt.is focused on continued efficiency savings to offset investments in e-com fulfillment,and store fleet experience(90 stores already seen investment w/encouraging test results).For FY19,our model stands at EBITDA of$528M(vs.Street at$524M&guide of“exceed”$475M)based on-8.1%comps(vs.guide-7-8%).Boss 4Q-To-Date Fieldwork:DiscountersFIVE(Overweight/AFL growth pick$144 PT):We model 4Q SSS of+2.6%(market expectations/+2-3%mgmt guidance)equating to EPS of$2.03(vs.Street$2.02 and$1.97-2.05 mgmt.guidance).On cadence,our fieldwork points to strengthening performance as the quarter progressed noting November same-store-sales in-line w/internal plan(w/the exception of softer foot traffic over Black Friday weekend lapping a material toy driven lift a year ago)and 2H December top-line trends accelerating into Christmas and later Hanukah(which shifted 20 days later YOY)with Januarys comparison easing 400bps to a Flat comp(vs.Holidays+4.9%last year).Importantly,the combination of pricing actions and to a lesser extent licensing(i.e.Frozen II)represents the offset to the+190bps toy category tailwind a year ago by our bottom-up build-translating to a 4North America Equity Research06 January 2020Matthew R.Boss,CPA(1-212)622-+2-3%underlying 4Q“core”comp or commensurate with the companys 5-year trailing average(ex Craze trends)with the toy headwind materially moderating into FY20(&pricing/Frozen tailwinds in addition to easing 2-year stacked compares representing 1H20 upside opportunity).On margins,we model+95bps of gross margin expansion(vs.Street+89bps)driven by 35bps of merchandise margin expansion(anniversarying negative impact from toys LY),30bps benefit from pricing actions(tariff headwind),25bps from distribution leverage,and 5bps from transportation cost leverage(lapping higher carrier costs LY).Regarding SG&A,we model 4Q leverage of 32bps,noting leverage on fixed costs and reduced corporate expenses YoY.For FY19,our model stands at EPS of$3.17(vs.Street$3.19&guide$3.11-3.19)based on+2.5%comps(in-line w/guidance).OLLI(Overweight/$68 PT):We lower our 4Q same-store-sales estimate to-2.5%from-1.5%(below-1.4%Consensus and at the lower-end of Flat to-3%implied guidance)equating to EPS of$0.77(vs.$0.73-$0.78 implied guide and consensus of$0.79).Importantly,our fieldwork points to decelerating top-line trends as 4Q progressed with our recent checks highlighting below-plan toy category sales(lapping 190bps lift in 4Q a year ago by our math)and softer seasonal/Christmas decor in December.2 Red Flags by Our Promotion Tracker:(1)25%-off all Toys hit circulars on 12/17(post Ollies Army Night on 12/15)moving to 33%-off on 12/26 versus no advertised%-off category promotion a year ago,and(2)75%off Christmas Seasonal merchandise starting 12/26 exceeding 50%-off levels a year ago.Holding the cannibalization and reverse store waterfall headwinds unchanged sequentially(-200bps combined in 3Q)points to an underling-0.5%“core-comp”decline in 4Q or a 200bps sequential deceleration from 3Q commensurate with a 190bps Toys tailwind a year ago by our work noting a+9.8%2-year stacked compare(or+310bps +6.7%faced in 3Q).A key point from our recent fieldwork and management access-top-line trends in trade areas outside of cannibalization epicenters(i.e.Florida)and TOY acquisition markets,which on math represents 70%of the fleet,comped more/less in-line with the models+1-2%historical algorithm in 3Q excluding the 90bps supply chain headwind.On margins,we model 44bps of gross margin contraction(vs.Street-27bps)matching managements implied guide(i.e.39.5%for FY19)with potential risk to our 40bps merch margin expansion estimate(toys/seasonal markdowns)likely mitigated by flexibility with 85bps of embedded distribution headwind.Regarding SG&A,we model 4Q dollars+11.6%equating to 8bps of deleverage versus guidance for flat to 10bps of deleverage,translating to FY19 deleverage of 16bps versus guidance for 10-20bps of deleverage.For FY19,our model stands at EPS of$1.99(vs.Street$2.00&guide$1.95-$2.00)based on-1.3%comps(guide of down-0.5%to-1.5%).OLLI is not attending ICR or expected to pre-announce holiday sales and will report 4Q EPS results in March.Boss 4Q-To-Date Fieldwork:Specialty/AthleticLULU(Overweight/AFL growth pick-Raise PT to$255):We raise our 4Q SSS to+15%(Street+13%)based on+8%store comps and e-com comps+30%equating to 4Q EPS of$2.19(Street at$2.16&$2.10-2.13 guide)modeling gross margin+50bps(vs.guide up“modestly”)and SG&A leverage of 30bps(vs.guide to leverage“modestly”).Importantly,we anticipate management will raise its 4Q SSS guidance from low-double-digits provided on 12/11 with our recent fieldwork pointing to continued broad-based traffic momentum across genders with notable category call-outs from recent fieldwork in womens bottoms and