Yet Another Value Podcast - Brian McGough from Hedgeye on the (dismal) State of Retail

Episode Date: June 7, 2023

Brian McGough, head of retail at Hedgeye, joins the podcast to discuss the state of the retail sector, hit a wide variety of names, and explain why he's so bearish on the sector currently. You can find Brian on twitter here: https://twitter.com/HedgeyeRetail This podcast is sponsored by Hedgeye. Hedgeye is an investment research firm that delivers high-conviction investment ideas through fundamental, quantitative, and Macro analysis. If you’d like access to Hedgeye’s favorite long and short stock ideas, check out The Call @ Hedgeye, their daily stock investing webcast featuring Brian and the entire stock analyst team. Go to Hedgeye.com/Value and you’ll get a special introductory price of just $6 for the first 6 months. Chapters 0:00 Intro 2:15 What is Brian seeing in the retail sector now? 7:15 What retail companies look undervalued? 13:40 Discussing ASO's growth story 20:50 Is Hibbett cheap enough to consider? 25:20 Being bullish RH and buying their stock when they're not buying back 29:15 Comping WSM to RH 32:00 Brian's bearishness on Pelton 37:00 Can Nike really generate alpha from current prices? 42:10 CPRI's valuation and possible SOTP 45:00 Helen of Troy could be in for tough sledding 47:50 What's Brian's crystal ball telling him about the next six months?

This podcast is sponsored by Hedge-I. Hedge-I is an investment research firm that delivers high-conviction investment ideas through fundamental, quantitative, and macro-analysis. Our guest today is Hedge-I retail analyst, Brian McCall. A few weeks ago, we had industrialist, Jay Van Skiber, on the show. I think the depth and quality of their analysis always shines through in these conversations. If you'd like access to HedgeEye's favorite long-and-short stock ideas, check out the call at Hedge Eye, their daily stock investing webcast featuring Brian, Jay, and the entire

stock analyst team. Go to HedgeI.com slash value and you'll get a special introductory price of just $6 for the first six months. The standard price is $50 per month, so HedgeI is giving almost $300 off your first six months. That's HedgeI.com slash value for a special price of just $6 for your first six months. New HedgeI subscribers only. All right, hello and welcome to the yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot. If you could rate, subscribe, review it wherever you're watching or listening to it. With me today, I'm happy to have Brian McCall.

Brian is the co-founder of Hedge. I heard that in a past podcast and the head of retail over there. Brian, how's it going? It's going great. It's going great. Retail stocks are going down and I'm sure of them. I'm happy. Well, let's talk about that in a second, but let me just get a quick disclaimer out the way before we go there.

You know, nothing on this podcast is investing device. That is always true, but particularly true today, because Brian just mentioned shorting, which, you know, shorting carries extra risk, so everyone should certainly be aware of that. But, you know, we're going to talk through a lot of different names in the retail sector in general. So people should just remember, not investing advice, please consults financial advisor, all of that stuff. So, Brian, I want to dive into your bearishness to start, and then we can talk specific names. We're sitting here recording.

It is June 2nd. It has been a, you know, we're probably almost done with retail, with all the retail names kind of start reporting in mid-May running through now. We're almost done with them. It's been a disaster in general. I listened to prep for this podcast. I went and listened to an interview you did in January. And you said, look, I am super bearish. I could see myself getting bullish in the April, May timeframe after a lot of companies have kind of cut their numbers and earnings estimates have come down across the board. We're June. You kind of beat me to the punch when you opened and you said, I'm still bearish in short retail. But I just want to turn it over to you. In general, retail, what are you seeing? So I'm seeing nothing but red, actually green here. It's up here today, but let's just talk about the trends and about what's going on with the underlying businesses and most importantly what the management teams are seeing versus what they're saying and what the consensus is believing because I think they're all very different things and we have to take those into context.

So the consumer is getting weaker. There is no doubt about it. We've seen retail sales decelerate every month sequentially over the course of this year. Right now, the main one I look at is it's called the Red Book Sales Index. It comes out every Tuesday at 8.55 a.m. It's sitting up at about 1.5% right now. I would think that'll go negative by the end of June or July. You have student loans that are coming back, you know, over the course of a couple of months. That's bad. Credits tightening. The personal savings rate, which is a fear index, I'll call it. It's when people are afraid of their jobs. That's headed higher. That's crimping personal spending. So overall, I can't point to a single, actually, I can only point to one company who's pointed out an acceleration in their business, and I think they're lying. That's Nordstrom. I'll talk about them later. But everyone is just seeing decelerating trends across the board. And I had said, yes, I had said, yes, I had said six months ago and probably three months ago and probably three weeks ago that I was looking

to get more bullish around the April-May time frame, particularly May as earnings season came in. But the unfortunate thing is that management just didn't take down earnings expectations enough. Just to give you a couple of numbers, retail generates operating profit every year of about $150 billion. So for seven years straight, pre-pandemic, $150 billion every year, plus or minus two or three percent. Then came the pandemic. It dropped down to about $90 billion. And then we had this big surge back in 2022. The consensus in 2023 is looking for $230 billion in EBIT. When a normalized growth rate, never mind a recessionary growth rate or rate is 150 billion, and they're looking for the same thing in 2024. So what I was expecting, after management

teams getting kicked in the teeth a couple of quarters, having a guide down a nickel here, a dime there, quarter here, that they would really just take down guidance in a really, really big way, and they didn't. I can point to just a few. companies like two, three, maybe four of them that actually really took very conservative guides out. I was expecting closer to 20. So I was wrong in that regard. And I think management, they're just assuming that things are going to stay how they are. And you know how this game works. Management says, we think we're going to earn three bucks this year. And the sell side goes out there. They plug that in their models. And they say, okay, they're going to do three bucks this

year, bingo, and they don't count on what the Cardinal rule in retail is, is that the first guy down is never the last. Look, I love that. I guess I love how you're projecting it, because I certainly, you know, the past year has just been a disaster for anything retail, and I dip my toe into a couple of them, and, you know, some of them worked out okay, but most of them just got your face ripped off. I guess the first take would be like, I don't think there's anybody who, you know, I don't talk to anyone who's really bullish macro or who doesn't think we're going into a recession and you can debate the types of recession we're going through. But I think the first thing would say like, hey, people are getting, especially after the past couple weeks, people have gotten their head peed over with how bad the near term trends are going to be here. But if you're willing to take like a little bit of a longer term view, aren't these stock prices getting pretty darn attractive?

Like it's tough for me. I don't know, one that I looked at because we were going to report about two weeks ago in Foot Locker, I just reported. footlocker, right? They're guiding, they've taken numbers down quite a bit. I think they started the year guiding for 350. Now they're guiding to about 230 or something. The stock's at 25. So you're talking like 11 times earnings. And if I said, hey, this year is going to be a trow. Maybe it is, maybe it isn't. And I'm not saying footlockers like my favorite business model of all time. But, you know, if you think that 350 would be in play two years from now in a better environment, then wow, you're really starting to talk about a kind of cheap stock. So I guess the

counter is haven't these stocks drifted down enough where if you're taking a longer term time horizon, they look pretty darn cheap? There's, that's a great question, Andrew. There's, there's a couple of them that are. I will not call Foot Locker one of them. I think it's a structurally broken business. Yeah. It probably should trade out about six times earnings. Um, so it's probably fairly valued about now. I'm, I'm not short foot Locker. I'm short about 75 stocks. That's not one of them. Um, I, I was. and then it blew up. But there are certain businesses like Capri, CPRI, is a good name whereby this is trading at a free cash flow yield.

So the free cash flow to enterprise value of 18%, which is the highest it has ever been in the history of the company barring March of 2020. So the question then lies, are the things, the numbers people are looking at, are they right or are they wrong? So now this is when guys like me actually get paid to do our jobs, which is we got to get in the models, we got to get in the research, and we got to get really deep and figure out if consensus is right or if consensus is wrong.

For a company like Capri and other names like it, we could talk about, there are some that are getting so cheap that if I've got two brain cells and I'm in private equity. I would just buy this business outright. I would sell the pieces to LVMH and Keering and Richemont and Tapestry. And you would mint money on this transaction and get an IRR beyond their wildest dreams. So that is one of the reasons why I happen to like that stock right now, aside from the fact that I do think there'll be a meaningful earnings rebound next year. and it just guided down twice and it reaffirmed the year, I would argue the company should probably have just taken down the year

to get the hockey stick out of the way. I don't know if you're a hockey fan, Andrew, but Wall Street does not like hockey sticks. Anytime there's a hockey stick guide, like, yeah, things are bad now, but they'll get better in a couple of quarters, no one will ever believe that. And a company or a stock will never get a multiple in that regard. But in a direct answer to your question, yes, there are certain businesses like Restoration Hardware, R.H, which is one, Nike is another one. And certainly Capri is another one I threw out there that are, have gotten beaten down and are cheap enough on out-year earnings, where if you're a real long-term investor and don't want to play for a quarter or two, and you really just want to

invest and make like a multi-bagger over the course of a two-year, two or three-year time period. Yeah, there's a couple of names out there we could talk about. Would I be putting words in your mouth to visit? Like, you just did Nike, Capri, and RH, which are all, you know, all of them are more on the branded side than just your generic retailer. You know, we mentioned Foot Locker earlier, so I'll say it like Foot Locker, two years ago, they were just a Nike reseller, right? Now, Nike cut them off from some of the high heat stuff.

So they're trying to diverse up by a little bit, but it sounds to me like you'd like a little bit more than the differentiated retail with a little bit of a brand, or is that just that just happens to be where these three are sitting? No, no, what, I like great management teams with a great brand and a great vision and a great strategy. And this is, this is a business retail where you ultimately bet on people and you bet on execution. And those people and the execution of a great strategic plan where companies invest through down cycles, I love when companies invest through down cycles. You know, there are so many companies that hit this quarter and didn't guide down because they're cutting costs. They're cutting SG&A like Wayfair. Like, thanks, guys. Like, where's your top line growth going to come from if you're laying off all of your employees?

when things get tough and companies invest and they put money into the model, then that's when we come out of the recession, we come out of whatever we're in right now, and they come out stronger, they take share, numbers go up, multiples expand, and the stocks work. I haven't seen your note in a few weeks, but the last time I checked you were bearish underarmor and bullish Nike. I mean, that's been a great trade for the past 15 years, I'd say, but are you still bearish on Under Arm? I'm still bearish on Under Armour. I don't think it's a raging short here, raging, I define as being like 50% downside or better, but I definitely do think it should be a $5 stock. Under Armour, look, it was lightning in a

bottle 20 years ago. Everyone thought it was going to be the next Nike. It had like a 70 earnings multiple to it, but earnings are about the same now that they were 20 years ago. Problem is this brand has zero heat, like zero. It's dead in the water. And it's got a new CEO who so the CEO Patrick Frisk who was in place over the past four years he cut every cost out of business and you just heard me say how I love seeing companies invest in their business invest in people invest in town invest in sports marketing in invest in R&D and getting real hot product that the consumer's got to have and then convincing the consumer that they have to own it and if they don't buy it right now it's not going to be there anymore um underarm has done the

opposite. And they have this new CEO who just came in from one of the hotel chains. And the only thing that would get me bulled up on Under Armour now, if either A, it was a $3 stock, or B, if this person came out and she said, no what, we're going to take our current operating profit margin. We're going to cut it in half. We're going to invest in R&D and marketing and product. And we're going to get some brand heat going again in order to get our top line growing such that we can become a relevant brand in the eyes of the consumer. No, that's great. I just, you know, A, you mentioned Nike, so I thought I'd be, and then B, you know, as a

generalist followed it from a distance for 10 years and every time you look at Under Arm, it's like, it's a train wreck, maybe there's a brand there, maybe I can evolve. And the answer has always been just, don't touch it. You know, it's kind of the old, don't touch the second rate companies, the sector. Let me ask one, one more specific one. Do you cover Academy? I do. Yeah, what do you think about Academy these days?

I think Academy is an interesting story. I don't know if now is the right time to actually go ahead and buy it, but, like, Academy has always mentioned alongside Dick's sporting goods, and Academy actually has a leg up over Dick's sporting goods, and that it's an emerging square footage growth story. I've been covering retail 30 years in the old days of retail, anything that had square footage growth to it, always had a premium multiple. Academy does not have a premium multiple. It's really beaten down. It trades out a single digit multiple. It's an emerging growth story. It had the CEO who came in after the KKR IPO. It was a levered deal. And the pandemic allowed them to completely right-size the balance sheet and now focus on growth.

This guy did a great job. His name is Ken Hicks. And he did a very good job structurally taking up margins. So the debate in the sporting goods sector is because margins are very elevated. margins are very elevated versus pre-pandemic levels is to whether they're going to be sustainable and actually able to like track for a multi-year time period where they are now or they're going to mean revert. I think Dick's sporting goods is going to mean revert. I don't think Academy will. No, look, that's been one of the debates, right? I think a lot of people looked at it and said, hey,

Hicks came in. If I remember correctly, 2018, pandemic hits 2020, and that a big, big debate was, hey, margins went all the way up after the pandemic. If you looked right before the pandemic, it looks like Academy was starting to inflect. And Hicks is a great reputation. People love him. He's retiring. I think this month he's going to become the executive chairman. So I know a ton of longs who are terrified that he's going away and he was all the magic there.

But the debate rages, hey, are margins up because of what the team did or were margins up because the environment got so good? And as you said, they're going to mean revert as soon as he's gone. I knew several people who kind of pitch Academy and they say, look, This is AutoZone 2.0, right? You look at the sector. And for those who don't know Academy, this might not be fair or it might be fair, but people kind of can think of it as a discount Dix, right?

Like a value-driven Dix. It's mainly in the Southeast, mainly Texas. But the argument is they mint cash flow. The sector is decimated because all the mom and pops have gone bankrupt. You know, Nike cut their supplier base, their retail base to like 40 stores and Academy just made the cut. So, you know, five years ago there was sports, sorry, there was, what is, Models went bankrupt, all the other guys went, a ton of those changed on

bankrupt. So it's like, hey, it's a devastated sector. They've got an edge through Nike. They're only in the southeast. So as you said, they get the square footage growth and they mint money so they can both open stores and buy back shares. And that's going to be a great capital allocation story. People say AutoZone 2.0. I guess the pushback would be, hey, you know, they are just selling, they do more than this, but they're selling tennis shoes, right? You can get that at a Nike. You can get that online. Like it's a very, very, very competitive space where I think AutoZone probably had a little bit more of an edge there. Where would you fall on that story? So it's an interesting comparison. I think in the academy, it's very much a hub for team sports, which is very big. I like that. It does more

outdoor than Dix does. And outdoors is probably structurally better now than it was pre-pandemic. So for those reasons and because of what Ken Hicks did, and look, what did Ken Hicks do, it wasn't him. Like he hired a team of people. He wasn't personally going into the distribution centers and getting them. Yeah. No, like that's what great, great managers do. They hire people and empower them with capital budgets to hire more talent to build out an organization. And that's what Ken did.

He's still there. He'll still be there as the executive chairman, non-executive chairman. I don't know what ever his title is. But the fact is he's not completely going away. Management who's in place now is very good. And I believe the long-term story. I mean, if I were Big Five sporting goods, I'd be quaking in my boots right now. Big, Big Five, VGFV is going to zero.

I'm familiar. They, yeah. I mean, look, they are an example. though they're west coast focus right but they got cut out of nike and it's like hey if you're big five sporting and you don't have nike what is your reason to exist at this point i'm sure there's other issues there but that's got to be a massive one yeah they're they're up in the pnw and and and they're uh like kind of the hometown sporting good store but you know they're not making any money right now and nike just fired them as a customer and both academy and dicks are expanding into its

territory. And you don't want to compete with those guys. You'll lose 99 times out of 100. This Academy's business model, because I remember one of the things that attracted to me about 18 months ago was, you know, Dix and Walmart, not completely, but they mainly turned off gun sales. And I think 2018, 2019. I remember talking to some people from Texas, which again, Academy is not all Texas, but they've got a huge Texas base. And you could talk to customers who would say dicks doesn't share my values you know i do all my shopping at academy now because academy shares my values they sell guns and dicks doesn't and that's nice for uh that that's nice for modi reasons it's nice for brand reasons plays really well in the southeast when we're

academy strong but you know i do worry the map for academy is all southeast and if there there's lots of green space there right like they they've opened a lot in Atlanta there's a lot but if they're going to go past the southeast do you worry that that kind of hey we sell guns down-home business model. I mean, Academy, a lot of their advertising is around grills and stuff. Does that play as well outside of the Southeast? Yeah, it's a great question. I mean, the simple answer is the best retailers, and I don't know if I put Academy in the best retailer category, but it is a very good retailer. They merchandise locally. One company, Hibbitt Sports, used to be one of the best retailers out there. Oh, I know Hibb.

Yep. And they would literally like merchandise two stores in the same town completely differently because one high school would have softball as a fall sport. Another high school would have it as a spring sport. And that's how deep down into the local merchandising they'd get. And that's the kind of attention. I love to see attention to detail. I love seeing. So as they move, more into, say, blue states instead of red states. All they have to do is just not sell guns there. It's as simple as that. You mentioned Hibbitt. Do you follow Hibbitt as well? Yeah. Oh, yeah. I'm sure at that. What do you think about Hibbitt? Because that's another one that, you know, it does have foot locker-esque qualities to it. But I think their argument has been,

hey, we are in, our stores are in rural Mississippi, right? So we're kind of immune from the getting cut off from Nike issue because, A, we're not selling tons of high heat products. And B, Nike's not going to go build a Nike store in rural Mississippi or, you know, deep Kenner, where, Kenner, Louisiana, where I'm from, they're not going to build a Nike direct store. They need something to showcase physical products. You know, they just took the guy down quite a bit in their earnings. Their earnings were a complete disaster, to be honest with you. But now it's like they're trading at five times what you would hope is trial earnings.

What do you think about them? So I think it's actually trading out about eight or nine times. earnings, what the real earnings numbers are. So I still think it has another guy down ahead of it. I like to think of Hibbitt Sports as Nike's best off balance sheet asset. Yeah. You know, basically, if Nike has an excess product like it's had over the past year in the apparel space, you know, it picks up the phone, it calls up Hibbitt, and it says, you're taking this product, and Hibbitt says, thank you. And they sell it. They take all the margin hit. If they do excess emails that quote unquote destroy the brand, then Nike smacks them down

and they don't get allocations of Jordans in the upcoming quarter. So they're basically like a Nike clearance channel. Nike will never cut off Hibbitt ever. So I don't know if that's a good thing or a bad thing. 78% of its store has a swoosh on it. How the board of directors allows that to happen is beyond me. But the fact is that's what you got. That's a major structural risk because of Nike sneezes and they come up with a change of strategy, which they're going to have a new CEO in two years and strategy might very well change. And Nike's going more direct, as everybody knows, that's a huge risk for Hibbitt. So in the end, with Hibbit, I wouldn't buy it here. I think it's probably headed lower. There is a

price, I would buy that, but it's just probably about 20% lower than where it is now. That's another of the classic, of the classic capital allocations. I remember flipping through 10Ks or 10 queues like 15 months ago, and they bought 12 for, if I remember the numbers correctly, in like July 2021, when sales were booming, right, they bought 12% of their shares, not in a quarter, not in a year. They bought them 12% of their shares in a month. and I think it was about $70 or maybe $80 per share. And here you and I are talking June, 2023, and the stock is, what, 35?

So, yeah, you bought 12% of your shares in a month when things were great. And now the stock is way down. You'll notice they are not buying back shares currently, and they've certainly got issues there. I want to ask you real quick. Let me jump into men, Andrew. That's a major theme you just hit on, which really separates the great companies from the not great companies, the great companies buy back stock when they should. And the other companies buy back stock when they could. And there's a big difference there. When you should is when your stock

is beaten down, when you're missing numbers, when Wall Street hates you, when you're catching downgrades. And then there are other companies like Alta was buying back stock over $500, target buying back stock over $200, inhibit buying back stock at $70, $80 just because the cash flow happened to be there. They're very poor stewards of capital. They should have held onto the cash, wait until the cycle turned, which it was inevitable, and then stepped in the market and bought back stock

or pay special dividend, do whatever you're going to do. But just do it when you should do it, not when you could do it. You know, look, I absolutely hear you. It's also tough, though, because you're these companies, you get all this excess cash rolling in. I mean, just so many companies have done it, but you get all this excess cash rolling in. You think times are better. You know, you did have a lot of competitors closer in COVID. You don't think it's going to go away. And you're like, my stock's sitting out here at 10 times earnings. Let's go create some shareholder value. Let's run the AutoZone model. But yeah, so many of them did that. Just on RH, which we mentioned, I want to go to some other names, but on RH, you know, just on that they have done a incredible job of capital allocation, right? And reading their earnings calls are always fun because they will be very direct. My favorite is we've got an economic storm coming. People aren't prepared for the hurricane that come in. By the way, we're super excited about our new growth initiative. Custom yachts for the super rich. I just love the dichotomy. You get to turn a call there. But you mentioned they buy their stock back when they should. And they have done a

great job of that. One thing that I've always looked at RH is, hey, just don't buy the stock until they're buying stock back. And they're still not buying stock back yet. So is that a sign maybe, hey, if you're trying, yeah, if you've got a five-year timer, today's probably a great time to buy it if you believe in the brand and the story. But if you're really trying to time, well, should we maybe wait until they're giving us the all-clear and buying back shares? That's a great question. I would own some R.H. here, period. So, We can get tactical and say, do you want to wait for a pullback and buy it closer to 200? This is the name, I think, is going over 1,000.

So this is a really, really big idea over a tail duration, which we define as being three years or less. I've got earnings going to about $55 or $60. The consensus is at about 20. There is so much top line growth here ahead of this company through not its yachts and its jets. That's all BS that I wish the CEO wouldn't even talk about. That's just marketing that pays for itself. They're not brand initiatives. He wants to sell more couches like what you have in back of you there.

That is not an R-H couch. My wife would kill me if I even let somebody believe that. That is a secondhand. A friend was moving out their apartment and they gave us that couch for free, couch. Well, it looks our age. But anyway, Gary's all about. selling more couches. And this is a very big year of R.H. They're going international.

This Saturday, June 3rd, they're having their grand opening of their store in England, which is a very big deal. And what you have to think about is not them opening up a store. They're opening up a country. So they open up the e-com business, and they introduce this brand to a whole new country. And England is, relatively speaking, around the size of California, which is around a $500 to $600 million business for R.H, there's no reason why it can't match that. And I get a lot of pushback here. People think that the Europeans won't accept the U.S. look of furniture. Well, 80% of the designers at RH are European. It's us who have adopted their look. And RH, like we talked about with Hibid in the old days, they're going in and they're micro-merchandising. So they're

selling certain product in the store outside of Oxford, it'll be very different from what they sell in central London, where people have small flats and need small furniture and have very different tastes. It'll be different from what they sell in Paris, in Brussels, in Dusseldorf, in all these countries that they're opening up over 18 months. So I think you have a huge, huge growth driver here. And I would expect that once there's proof of concept that it actually does work over in Europe, that's when you're going to see the company really step on the accelerator and buy back stock. And I'm not talking about three, four hundred million out of clip. I'm talking like buying back a billion, $2 billion worth of stock.

That's great. One name that a couple friends have baddened around with me, which I think is kind of controversial. And I don't know for sure you cover, but I'm guessing yes. William Sonoma, WSM. And I think the pitch I've gotten from friends, I haven't really dug into it, is, hey, if you look at West Elm, West Thelm's results are absolutely incredible. Like, people don't think of it like an RH and they should. I'm a little skeptical of that, but the numbers,

they have put up pretty good numbers at Westallum, pottery brands, probably a nice brand. Like, what do you think of William Sonoma? I think it's a piece of garbage. I had a suspicion. That's what you were going to say. But I'll tell you, I get people who think it's the greatest deal ever, and they think people like you are just ignoring the numbers.

And then I have a lot of people who tell me the same thing. They think it's absolute garbage. Yeah, management is terrible. There was one executive that had any credibility with the street and with me, and her name is Julie Whalen. She's now the CFO of Expedia. So you had a nice upgrade at Expedia, but now there are no more adults in the room at WSM. This company is promising, promising guiding, same thing, plus or minus 3% comp this year. I will give you any of these guitars on my. my wall if they hit that comp number. It is not going to happen. The consumer is going to get worse. Business is going to get worse. The only way they hit those numbers is if they step on the gas pedal or the accelerator on the promos and they discount their product in order to drive the consumer into the store. That's their model. It's how they've always worked. It's how they're going to work again. The company earns $16 last year. The consensus is at $14 this year. I think the company

to be lucky to earn 10 bucks. As a matter of fact, I'm at eight bucks. Well, you know, I hope they hit the promos and hit that about flat guidance because then even if they do it at super negative margins, I'm going to be claiming one of those guitars. I don't play the guitar, but I'll figure out something to do with it. Let me quickly flip to one that you've been bearish for a while. I haven't followed in a while, but I am interested because I do have some friends who still ping me on it. And I used to love this doctor. I never got long it, but I love the company. And I've probably chilled on the company, Peloton, you know, the stock has just been absolutely beaten down. I know you're bearish on it or you were the last time I checked. I don't know if you flipped

on it. But I guess the thing a lot of will say is, yeah, they got way over their skis during COVID. You know, I would ride my Peloton every day during COVID. I'm sure there were a lot of people. And now, you know, I might ride it once a week at most or something. So I'm sure I'm not alone and my usage fell off. They way over planned. They got too much inventory, all this sort of stuff. But I have people who look at it now and they say, hey, you know, they've kind of stemmed the bleeding in members. I think their connected fitness members have been going up recently. And if you just look at this as put a multiple in the subscription business, you know, it is really cheap. And Barry is very incentivized to turn this around and get it sold at some point.

And I'm a little skeptical who would be there to buy it, but I'm sure they could find somebody to do it. I don't know. I'm rambling a little bit. Tell me why you're so bearish on Peloton. Yeah, so I'm not outright short Peloton here. We were, and we covered early. But there's also no reason why this can't be a $3 stock. So if you ask me, Brian, you have to do something with Peloton right now, buy it or sell it. I'm selling it. You're right in that the CEO is incentivized to actually get something done here. That's something is probably a sale. This company has a balance sheet problem. It's got a lot of. of debt. And that's something that a lot of equity investors don't pay enough attention to and they should. But the bike business, you said it, got way, way over at skis. My Peloton is like a very expensive, like coat hanging rack. I've got clothes thrown all over it. But there will be

value to somebody there, whether that's Apple. Apple's not big on Apple. acquisitions, but it does like customers, maybe Amazon, fold them into the ecosystem. Amazon, you know, is now exploring a mobile network, which I think is an interesting way to get prime subs, more prime subs, which is what Amazon is all about. So I could think of a couple of techie companies that might be interested in buying Peloton, but just not at this price. I think, you know, there's a chance that a deal could be done at a bankruptcy court. But this stock, I think, is headed lower. On acquisition. So I certainly hear you on, hey, Apple could buy them. Like the Pelisson brand does fit pretty well with the Apple brand,

premium product, and the home. There'd be some integration, you know, they'd watch integration, all sorts of stuff. Apple's obviously moving to tell. Amazon, I just have trouble. seen Amazon buying them because, you know, Prime is, how much is Prime nowadays? $199 a year? Like, Peloton membership is $40 a month. It's a very weird thing to bundle into each other. The brands don't super match, you know, Amazon's for everyone. Peloton's kind of an upscale brand.

And Amazon's trying to buy I-Robot and the government has a problem with them. Like if the government has a problem with I-Robot, how are they going to feel about Peloton? Like, aside from Apple, I just really struggled to see who a buyer is, you know, like Lou Lemon took a bath on mirror. I don't think Nike's going to go out and buy Peloton or something. I just, I have a lot of trouble seeing who the buyer could be. I will give you two guitars if Nike buys Peloton. Man, I'm going to have your whole guitar collection by the end of this podcast. We flip through several names. I've got a few more we can go through, but I'll just sort of what other names are interesting, either long, short, that you're following that people should be

thinking about? So Nike, I think, is definitely one long side. There's a few reasons why The A, it's Nike. It's a premium brand. It's now 40% DTC, meaning that it sells straight to the consumer instead of going through a foot locker. There's this new category of luxury sneakers, which is emerging now. I don't know if you've heard of Golden Goose, which is, it's a very popular brand now. They sell $700 sneakers, Nike. Is that Nike? Pardon? that's Nike or that's just a new brand that Nike is going to no oh no no that's an Italian brand it's independent it's likely to IPO later this year and it's going to be a hot deal but there's this new category of luxury sneakers whereby people go to work even if they wear a suit they're probably wearing a pair of Jordans or I'm all in on that trend I mean I don't wear a suit it's on anymore but the what's the Rob Rock Grankowski shoes that he does that he sponsors I've got them. They're like, they're nice, they're nice. They look kind of dressy, but they're

sneakers. I've got two pairs. I absolutely love them. So I'm all in on the sneakers with your suit's trend. Yeah. So sneakers are, if you're the kind of brand that's got pricing power, and if you've got the consumer connectivity that Nike does, your price points are just racing right up. So I think we have a secular trend over a multi-year time period. where the average price point, or ASP, as we call it, is just going to go higher and higher and higher for Nike. At the same time, it's a mix of business that's DTC, as in it sells, you go to Nike.com or you go to the sneakers app, is just going to go up. And it keeps so much more of the gross profit dollars there. And I juxtapose that against John Donahoe, who's the CEO of Nike,

John, look, I used to work at Nike. I know this company really well. John is the best CEO Nike has had since Phil Knight's step down. And there have been a few. Let me just on Nike. So I hear you, I love the Nike brand. I've always been a big fan. I can't tell you how much, like I'm looking at my laundry file right now, I can't tell you how much Nike is in there. But if I look at Nike, right, and my Bloomberg crash, so I'm just pulling up Yahoo finance, but trading about $110 per share, Yahoo Finance has that at 30 times price earnings, right? Is that right? Is that wrong? I'm sure it's in the ballpark of where Nike trades. And if I just look at that, I say, okay, cool, great company, no disagreement. Their margins go up

as they go more DTC. They probably have pricing power. You know, inflation should be great for a company like Nike because they have pricing power. They can probably outpace inflation. And as it cools down, you know, more, but 30 times price earnings, right? Like, there are a lot of really cheap stocks right now. We're not in a 0% interest rate environment anymore. You know, we can go get two-year treasuries at five and a half percent. That would yield more technically than Nike on a price earnings issue. Obviously, longer term, but am I really going to generate alpha getting Nike at 30 times price to earnings? No, you're not, but the question to ask is what the real earnings number is next year and year after that. And if my numbers are right, you're getting

it at 18 times two-year-out earnings. So what I always look at with Nike is I look at it relative to LVMH, which is probably one of the best run companies in the world in any industry. And LVMH you can buy now, and I happen to be long that, you can buy that now at 25 times earnings. So if I'm going to buy Nike at 30 times earnings or LVMH at 25, I'd rather go on LVMH. it's kind of a no-brainer. What LVMH has done, so we were long Tiffany's during the, during COVID when LVMH tried to back out and they got that little discount. And, you know, I don't follow LVMH super closely, but every now and then a look at Tiffany's

just because of that history. And what they have done with that brand is absolutely incredible. Like, and I think they're just, I think they've kind of said, we're just starting to scratch the potential or like really see the acceleration. But I think they five X turning since they closed that deal. And obviously there were COVID numbers and stuff. but they have just really flexed every muscle that they have on that brand. It's been unbelievable.

Yeah, 5X sounds a little heavy. I think it's closer to three, but you're right directionally. I might have been thinking off like COVID-COVID affected numbers or some. But even if it's three, I mean, it's just an incredible deal. They've been unbelievable at it. Which actually just, and I know we're talking about Nike and LVMH, but one name I'm short is Ralph Lauren. Ralph Lauren is trying to elevate its brand.

What the problem is, is that it's taking a price, price in the past quarter in this last quarter was up 12%, but total revenue and constant currency was up only 9%. That tells me that the units per transaction are coming down or it's firing its customers. I don't think Ralph Lauren, as in Mr. Lauren, I don't think he gives a crap about the quarter or the year. He's 83 years old. I think he cares about his exit strategy. He had conversations with LVMH a couple of years ago about doing a deal and it didn't get done. And I think it was because LVMH viewed Ralph Lauren as being too mass market. So my conspiracy theory around this is that Ralph is going to miss this year, is going to miss next year, but it's going to continue to

make the product better. And then LBMH is going to swoop in close to 80 bucks a share. The stock's now trading well over 100 and is going to buy Ralph Lauren. Interesting. Hey, let me go back to, that is a very interesting theory. But let me go back real quickly to, I guess on that theory, it does, in a backwards way, it reminds me of Michael Dell when he took Dell private in, what, 2013 and he completely destroyed the PC market for two years, took all the profit, not just out of Dell, but out of the whole market. Then lowballed his shareholders, took it private and made an absolute fortune on that deal. It kind of reminds you of that, right? Ralph Lauren needs an exit strategy. Do everything you can to get the company to where it can sell, even if,

you know, short-term stop paying just to get your exit strategy. Let me go back to Capri real quick. That was a company, CPR, you mentioned at the start, Versace, Jimmy Chu, Microsoft, look, I know absolutely nothing about luxury brands, but I have had friends pitch Capri to me before. And I think the debate that they've had is like, hey, Louis Vuitton, like, that is luxury, luxury brands? Is Capri just like a step below that to where they don't have the same moat, they don't get the same multiple? And it's not something that Louis Vuitton or a lot of buyers would be interested in, maybe private equity at the right price, but you're not going to get that strategic multiple if that makes sense. Yeah, so there are two ways I'd answer that. One is as a standalone company. Right now, Capri trades at five times earnings. So my argument is that it should get a tapestry multiple of 10

times earnings, and it'll put up numbers that will get it there. So that's point, point one. The point two is that Capri owns Jimmy Chew, which is a luxury brand, and Versace, which is also a luxury brand, which are in much better shape now than when they were up for sale three, four years ago when Capri bought them. They were just brands with no company built around them. And what management did it, Capri, is they actually built an organization and an infrastructure in order to grow, these brands, that's exactly the kind of company that LVMH and Kearing would want to own. So if you're PE and you want to buy this company, you sell these luxury brands off to the highest bidder, which funds the entire transaction, and then you're left with Michael Coors, which is just your cash cap.

Yep. So to be clear, I am not saying that this should get an LVMH multiple, never in a million years. Should it get 40% of an LVMH multiple? Yeah, I think it should. Not 20%. Gotcha. Gotcha. And I guess they do have a history of share repurchases. So while you're waiting, do you think, so you think it's a near term thing that private effort gets sold? Or you think you're just kind of looking at it saying, hey, the math makes sense. And if the math makes enough sense, eventually something will happen. I think if it stays at this price, something has to happen. Cool. Cool. Anything else in retail we should be talking about on the long, short, interesting

side? Oh, man, I could talk about any ticker you want. One name I absolutely hate, hate, hate, there are two actually. One is a company called Helen of Troy. Oh, so Helen and Troy, do they sell up the condoms in there? Do they still have? No, no, they sold those. Helen and Troy, they recorded earnings, what, like a month and a half ago, and it was a slight beat and the stock squeezed, and all my long, short friends, I was trying to talk to talk to him that day. And they're like, we can't talk. Helen and Troy is squeezing, we have no clue what the hell is going on. But please tell me why you hate Helen and Troy and what's going on with that. This company is good at using a zero interest rate environment, which it had for a generation. And it's good at buying average companies at peak multiples when the brands are hot. And then using special charges, to non-cash charges or getting people focused on non-gap, non-cash earnings, I should say, as being what the real earnings number is. So it's this card game here, and it's really a house of cards, and I think it's kind of fall down. The game the company plays is over.

It is completely over. It's levered up. It can't acquire any more brands. It can't acquire any more growth. all the brands it owns like Hydroflask and Osprey. They're fine brands. There's nothing wrong with them, but there's a higher price competitor above them and there's like a thousand below them. Forty-two percent of sales come from Amazon, Target, and Walmart. These companies are cutting out brands in the middle. So the company is going to keep losing share in its core

business. And because it's not doing any more acquisitions, it can take special charges. So the gap earnings of $10 is going to mean revert back to what the real earnings are, which is going to be closer to $3 to $4 a share. So you had the CFO who left last month. A couple of weeks go, the CEO announced that he's out. Management knows that this game is over. So I won't cover this until it's a $30 stock. What's the bull case here? Because I'm being serious. I've had four friends at least, and I don't have, most of my friends are more long focused than short focus, but I've had four friends at least who have told me they're short, Helen a Troy, and pretty big size. I mean, is the bold thesis, hey, we didn't do enough work here,

and the core earnings number is about 10 that they present. So, you know, it's a $90 stock we're buying at nine, and that's pretty cheap for consumer brands, or is there something smarter here? It's that the company's going through a cost-cutting program here, which again, You know, my feelings about cost cutting. I don't like it. And there are people who point to certain points in time and say that, no, this company is actually really good at running brands. I don't know what the hell they're looking at because it's not the same data I have.

All I see is deceleration. But, you know, the other people who are bullish are going to point to the fact that the company just put down organic sales across its whole portfolio of 20%, down 20% and that we simply have hit bottom and it's one of these companies where numbers just can't get worse. And I vehemently disagree with that statement. Let me ask one last question before we're in. So I said at the beginning, it's prep for this podcast. I listened to an interview with you from back in January or so. You said, hey, I can't wait. I'm super bearish, but I can't wait until the April-May timeframe where, you know, things are going to be worse and I'm going to be

bullish. Now we're in June. I think you think the environment's deteriorating, but probably the market and companies haven't appreciated how much the environment has deteriorated. So you're still bearish. And you can tell me if I'm reading any of that wrong. Do you think if you came back and you're welcome to six months from now, right? You and I are doing an end of the year wrap up. Would I be right to say if you had a crystal ball and nobody's got a great crystal on this forecast, but your crystal ball would be, hey, things are 10, 20, 30 percent lower. And now you're bullish because the market has self-corrected. The market's corrected or maybe overshot on all these businesses. Is that kind of how you think this all plays

out? Yeah, I think it does. And I'm currently thinking around the September time frame because I think the back to school season is going to be super important this year. That's going to be when we're going to see the rest of these companies guide down in a big way that already didn't. So come the Goldman Conference in the first week of September, it's going to be a super bearish conference. and I think the prices of most of these retail stocks are 20 to 30 percent lower. At that point, earnings expectations should be 20 to 30 percent lower. At the same time, we've got some kind of visibility towards the consumer improving. And if we have a positive rate of change with trough multiples on trough earnings,

that's when I want to be buying retail hand over fist. And as you said, at some point, like these things start to get cheap enough where retail has always been a favorite place for private equity to play. there is a lot of private equity dry powder on, interest rate stabilized, and maybe the stocks go 10 or 20% lower. At some point, you're going to start seeing private equity players start picking a couple of these guys off. And that always brings some juice back to the spaces.

Everybody starts saying, oh, no, the smart money's here. They think things are cheap. Who could be next? Let's get in front of this. Let's take advantage of that for ourselves. Exactly. Cool. Well, Brian, you know, September, it sounds like we might have to have you back on in the fall

timeframe to see how back to school went and maybe talk about starting to get more along these names, but this has been fascinating. Look, again, I'm a generalist. I tend to do deep dives into single companies. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.