Mostly Non-Black-Friday Retail Report (Macy's, J.Crew, Signet Jewelers)

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A Week of Nonstop Retail

Don't worry: Macy's ($M) has a plan (must read) and it includes finally trying to address what competitors - not just Amazon ($AMZN) - have been doing for, literally, decades. Of course, maybe, just maybe, the first part of their plan should be to make sure they're able to collect payment from their customers. But, we're not #BlackFriday experts. Anyway, thanks, millennials, you're killing the mall-based low-cost jewelry sellers. This week, Signet Jewelers ($SIG) reported dogsh*t numbers with same-store sales down 5% and downward-adjusted guidance for 2018. J.Crew Group Inc. = 💩💩💩. The company reported revenue down 5%, and aggregate comp sales down 9% (JCrew down 12%, but Madewell up 13%); it reported an all-in $17.6mm net loss (driven, in part, by its restructuring efforts...FEES!). The company also announced plans to close more stores for a total '17 tally of 50 closures. Elsewhere, people are concerned about derivative effects of big box retail: here, what happens to Salvation Army? Finally, happy 10 year anniversary Circuit City.

Andrew Left and Short-Selling a Company Into Bankruptcy

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The recent New York Times profile on Andrew Left (@CitronResearch) is fascinating and worthy of a solid read. There are a ton of little nuggets in there even if, in some cases, it begs certain follow-up questions. The comments following the article are equally interesting, many of them decrying the author for pitching Left as this savior of the little man without any regard whatsoever for who might be affected by a stock decline of the sort suffered by Valeant Pharmaceuticals ($VRX)(spoiler alert: lots of Moms and Pops...but also a lot of hedge funds who checked into the "hedge fund hotel").

A few things left us curious:

1. Track Record. The article notes that Left has a positive track record. But unlike Jim Chanos, another reputed short seller, Left needn't disclose his holdings and manages his own money. So how does the author KNOW this? He backs up the statement with this: "On average, the value of companies he writes about drop 10 percent in a year, and some drop as much as 95 percent." Well, on average, how many of Left's investments does he actually write about? Isn't the denominator there important? 

2. Abstract References. Why not more detail behind the referenced jewelry chain masquerading as a subprime lender? Presumably this is Signet Jewelers ($SIG)(which has now sold its financing business)? Wouldn't it make sense to highlight a business that caters to that demographic?

3. Lacking Disclosures. Left's observation that companies don't disclose information for a reason is interesting. With negative free cash flow and increasing heaps of debt AND no transparency behind viewership of original content, Netflix ($NFLX) comes to mind. If the numbers were bananas, they'd presumably justify the high content costs, yeah? We'd think that, as a basic matter, any analyst trying to understand the billions spent on such content would want to know what some of the metrics are there. Similarly, Apple ($AAPL) doesn't line-item Apple Watch sales; instead, it embeds those sales in a catchall line-item of "Services." That, too, should give some cause for concern (though Mary Meeker says 25% of Americans now own wearables). 

News for the Week of 3/12/17

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  • Commercial Real Estate Backed Loans. Looks like J.C. Penney store closures could impair $30b of loans.
  • European Elections & CDS. Investors perceive greater redenomination risk in France and Germany.
  • European Retail. It seems the bloody retail phenomenon isn't exclusive to US retailers. Jack Wolfskin, a German producer of outdoor wear and equipment, is in the midst of a restructuring of its $365mm of debt. The Blackstone Group is the company's sponsor and PJT Partners is shopping the company. Meanwhile, Jaeger, a UK-based clothier is also on the block, with an administration within the bounds of possibility. AlixPartners is advising the company.
  • High Yield. Valeant Pharmaceuticals, Foresight Energy and Community Health Systems all issued new high yield debt this past week and what screams of a massive yield grab. No, we're not joking: this actually happened. And demand was so strong that upsizing took place. We repeat: "demand was so strong that upsizing took place."
  • Oil & Gas Fallout. Like we said last week, we're crushing Ramen so it's hard to feel sorry for a man pulling in $2mm and a $50k/month consulting fee, but its interesting to see some of the effects of the energy downturn - here, relating to Energy XXI's former CEO. 
  • Power. The Westinghouse saga got juicier with Weil and the Japanese Prime Minister basically saying put up or shut up. Meanwhile, FirstEnergy is involved in shenanigans and Exelon is now getting active. 
  • Private Equity History Lesson. A review of J.Crew's take-private transaction and private equity's affinity for dividends, long-term viability be-damned. 
  • Puerto Rico. Sh*t is getting real and people are starting to clamor for bankruptcy.
  • Television. Netflix is going after unscripted reality TV. Choice quote: "The competition should be scared out of their minds. These guys are monsters — they're coming in to play and play hard."
  • Uber. Expansion in India seems to be predicated upon a mountain of driver debt.
  • Rewind I: Five weeks ago we reported the following: "The Finish Line Inc. announced its sale of Jack Rabbit Sports this week (66 locations) for undisclosed terms. "Undisclosed terms" = GU gels and a jock-strap." Apparently, we were too generous with our characterization of the financial consideration. Something tells us this won't stop Peter J. Soloman from dutifully and opportunistically noting the tombstone on its pitch materials for the next big retail mandate.  See, also, this.
  • Rewind II: Looks like Avaya Inc. has a potential buyer in publicly-traded Extreme Networks Inc. for its networking business (for $100mm).
  • Rewind III: Store closures. Add Staples to the list (70 locations) and Signet Jewelers (165 stores). And here is one report on the failure of BCBG.
  • Chart of the Week: 
  • Chart of the Week II: