Put 3% in Kohl's $KSS @ $45.1. Shorted 3% Consumer Staples $XLP @ 69.99. Overwrote $KSS Jan 21'22 50 Call for $2.48 (5%). Market is over-discounting Kohl's long term story & huge buyback with a short term supply chain narrative.

1/ Debt holders are unconcerned
2/ A double downgrade out of BoFa on supply chain concerns 'derailing' turnaround plan has caused Kohl's equity to implode versus other retail comps and elevated near term equity volatility. Per the charts above, however, this has not flowed into the company's LT financing costs
3/ Carry. The yield of this trade is extreme. Kohl's has likely 300m of buyback auth into end of the year - an 18% annualized yield on top of the overwriting yield of 22%. When you net out consumer staples capital return of 5-7% annualized leaves you 33% of annual low beta yield
4/ Let's quickly cover the company's financials. The company overcame threats from ecommerce to generate record free cash flow of 2.4b$ in the last year (only $6.7b market cap). It's partnered with Amazon as a deliver hub and is becoming a Sephora destination nationwide
4/ There are 3 reasons why recent underperf is likely too extreme. 1] Back to school is easy covid comp. 2] Sephora transition is a 2022-2023 event. 3] Supply chain isn't a surprise. This was all covered in Sept 9 call from Goldman's retailing conference. investors.kohls.com/events-and-pre…
5/ This isn't controversial. Despite large underperformance vs peers on supply chain issues 2022 EPS expectations are largely unchanged near $6 Thus the stock trades at only 7.5x fwd earnings. Consumer Staples, also supply chain effected, $XLP at near 22x forward earnings
6/ Sephora should accelerate Kohl's traffic. 100 initial Sephora stores are performing above expectations per Sep investor day. LVMH gave an Oct 13 update implying the Kohl's rollout took Sephora back to pre-covid levels. There will be 200 Sephora Kohls in 2022, and 800 in 2023.
14/ In September, The CFO also outlined that Kohl's partnership with Amazon -- as a place to pick up packages - drove an additional 2 million customers to the store over the past 2 years, and sounded excited about this continuing to roll out. This mitigates disruption concerns
15/ Long term expectations are very low. 2023 revenue growth is expected to only be 2.5% and EPS is actually expected to decline versus 2022 to 5.91. This doesn't line up with a mix shift of higher end e-commerce and make up customers increasing by a factor of 4 into 2023
16/ Mgmt stated their inventory problems are known but viewed their stock as grossly undervalued vs this long term vision at $60 a share (now down 25% from there). Already have $400m buyback auth into year end. Given debt markets it'd be surprising if they don't increase buyback
17/ As a final point -- per Google Trends, searches for Christmas shopping and early Christmas shopping in the US started a-seasonally surging in August and shoppers are being warned by the media to get going now. This should be able to give companies more time to sort issues.
18/ I believe Consumer Staples is the right hedge here because A] They are heavily affected by supply chain issues as well per almost every recent investor day (including $PG). B] They are affected by food inflation on top of this. So if the supply chains spiral, $XLP will drop.
19/ In summary - low inventory caps Kohl's $KSS Xmas upside but long term transition to an Amazon pickup center and Sephora makeup destination look to be on track, which given uninterrupted debt financing should embolden mgmt to ramp buyback into Nov 19 EPS providing huge yields

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More from @goodalexander

14 Oct
Took .75% position in Chainlink $LINK at 25.941. I think it has asymmetric risk reward into a humiliating defeat for Biden in the midterm elections. This will remove Gensler's sword of Damocles hanging above Chainlink's Oracle TAM.

1/ Republican sweep odds just broke 50%
2/ Odds of $1.5 T or lower package just hit highs. Support for aggressive green spending for tomorrow is probably harder to muster when the world's gas infrastructure seems to be blowing apart today. Biden is uncharismatic, doesn't do interviews, and is fading fast.
3/ Gensler's aggression re: defi regulation compared to Jay Clayton is heavily predicated on him having a mandate. A republican sweep of the house and senate would raise the spectre of Trump 2024 who would probably like defi bigly. Gensler already seems unpopular with the crowds
Read 11 tweets
13 Oct
Just going to share some interesting quotes from JPM earnings, one of my favorite indicators for earnings season
1/ Double Digit Spend Growth in 3q vs 19. "Combined credit and debit spend was up 24% versus the third quarter of '19. Softened in Aug and reacceled in recent weeks."
2/Seem Convinced Delta is Done. "we see some signs of life and we believe that recovery is strongly underway and it seems hopeful like Delta is really fading so that's going to help."
3/ Credit Quality is Improving a Lot. "But it's also worth noting that net charge-offs of just over $500 million were approximately half of last year's third-quarter number.
Read 14 tweets
12 Oct
I took a .5% position in Roblox $RBLX Nov 19'21 75 Calls for $3.5 to play a strong Nov 16 investor day. Data tracking in spite of back to school and a metaverse focused catalyst calendar I think can send the stock back to the $85 area

1/ Exhibit 1: Web Tracking data is surging
2/ This spike in traffic is surprising and corresponds with good app store performance. In Roblox's September investor day the CFO cautioned investors that back to school might see some decelerating usage. After seeing a brief dip to #50 in iOS we are stabilizing back near #20
3/ Roblox sells Robux tokens to players. Investors appreciate in game currency as an effective revenue model. For example, the crypto game Axie Infinity has 1.5 million daily active players and a $32 billion market cap compared to Roblox 46 million players and $40b market cap
Read 17 tweets
11 Oct
I am long BTC @ 57,400. 2.5% of capital with 3 catalysts in mind to move Lightning story forward which builds BTC maxi narrative
Twitter/SQ Earnings: Oct 26, Nov 4
Nov 18: El Salvador Lightning Conf @GaloyMoney

1/ Lightning Capacity will likely be a hockey stick into the events
2/ Lightning is important because
a] it enables global adoption of Bitcoin as currency, powering things like El Salvador's Chivo wallet
b] Layer 2 allows apps - including NFTs to run directly on bitcoin, creating a story for fees can displace the block reward in the long run
3/ ETH story around NFTs, artwork likely is forgetting things like Satoshi.Place pictured below built on top of lightning network. Layer 2s provide theoretically higher TPS and interoperability with Twitter via strike.me . Twitter already verifying NFTs
Read 15 tweets
5 Sep
Some markets related reading I've done past 2 months I found actionable/interesting:
1/ IESE Biz School Paper on equity risk premium in 88 different countries in relation to risk free rate. Nice because it has standardized results going back to 2008. poseidon01.ssrn.com/delivery.php?I… Image
2/ Paper on run up into the close -- hedging intraday demand -- fairly robust discussion of all major asset markets. TLDR it's worth studying how momentum/ mean reversion plays out statistically in stuff you trade going into the close. long backtest
www3.nd.edu/~zda/intramom.… Image
3/ Marc Andreesen on crypto. Think we're seeing some (rumored) monster venture flows into the space next few months which is part of price action and this piece helped catch decent amount of ETH move marginalrevolution.com/marginalrevolu…
Read 9 tweets
22 Jul
quick rant about "constructing a neutral exposure" while I wait for something to load. a qualitative description about step by step optimization for us peons who take seconds to calculate (not microseconds on a custom ASIC like some here)

1/ Have a quant strategy. What's that?
2/ A quant strategy is a thing that assigns an expected value to many assets over a short period of time. It justifies itself primarily out of a process working historically specifically *having been able to predict profits*. A bit on what that means/ why it's important
3/ Basically - if you have the Russell 3k and split it into 50 buckets, a good quant strategy should have bucket 50 work *out of sample* better than 49 work better than 48... 2 better than 1. Having good quartile profitability allows you to have some notion of expected value.
Read 14 tweets

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