Stock Sonar

Capri Holdings (NYSE:CPRI) – mrkt cap $5.5B; Price $43.73; trailing P/E 6.4

PASS. Capri Holdings is a fashion company that owns Michael Kors, Versace, and Jimmy Choo.  CPRI has lagged peers with its share prices staying flat over the last decade. This was due to Kors diluting their brand by over expanding into wholesalers such as Macys and Nordstroms (revenue from wholesale increased almost 4x from 2012 to 2016!). Owner-operator John Idol is committed on returning Kors to a premium aspirational luxury brand by using the same playbook as peer fashion brand Coach: elevating the brand through increased quality, reducing wholesale footprint making it more exclusive, and increasing prices. CPRI’s other brands Versace and Jimmy Choo fortunately do not suffer from the same brand impairment; CPRI plans to grow them in a measured fashion by increasing both the store footprint and brand extensions. We have initiated a small weighting in Capri Holdings.

Ralph Lauren Corp (NYSE:RL) – mrkt cap $7.95B; Price $120.40; trailing P/E 16.2

MORE RESEARCH NEEDED. RL is an iconic brand that has struggled to grow in large part due to its closure of discount outlets stores and reduction in wholesale distribution. Bears believe brand equity is impaired–we don’t think so. RL’s plan to grow sales includes several measures: 1. RL aims to increase penetration of women’s wear sales, which currently account for approximately 30% of the company’s sales 2. RL plans to increase its DTC retail presence in Asia 3. Finally, RL plans to increase its millennial penetration through a significant increase in digital ad spend. This strategy has seen signs of traction, but we are still in the early stages of a full analysis.

Yellow Corp (NAS:YELL) – mrkt cap $100mm; Price: $1.93; trailing P/E 4.6

PASS. Yellow Corporation is in the hyper cyclical trucking industry (‘Less Than Truckload’ shipping). The industry is currently in a cyclical downturn and overleveraged companies like Yellow are starting to burn cash–roughly $40mm a year. We estimate the company owns hard assets (12,000 tractors, 33,000 trailers, 167 terminals) worth north of $2.6B and their debt (along with unfunded pension liabilities and other liabilities) is currently ~$2.2B. This would bring equity value to ~$400mm and the current market cap is $100mm, almost a 3X ROI. Equity holders also retain some security against unfriendly management policies given they are invested alongside the US Treasury who is a major shareholder at 30% ownership (yes, you read that correctly). There is potential upside but without a catalyst to unlock value we will remain on the sidelines.

Hanes Brands (NYS:HBI) – mrkt cap $1.83B; Price $5.25; trailing P/E na

SPECULATIVE POSITION INITIATED. HBI is one of the largest producers of innerwear. They used debt capital to go on an acquisition spree from 2012-2018 and inorganically increased gross income from ~30% to 38%. This has now caught up with them—the brands they acquired are undernourished and variable interest payments have increased dramatically. FCFE margins are thin (roughly 6% of revenue) and any volatility in cost structure would see them evaporate. Channel stuffing in 2022 hurt them but should be alleviated soon as retailers work through inventory. Despite the uncertainty, we have taken a small tactical position given the upside for this company could be dramatic if management executes on their ‘Full Potential’ plan. If the name sells off violently, we will look to add more.

Medifast (NYS:MED) – mrkt cap $1.08B, Price $99.8, trailing P/E 7.8x

PASS. Medifast is centered around a line of weight loss products all under the Optivia brand. While they fit the health and wellness trend nicely, we do not believe in MLM as a reliable distribution mechanism. In addition, last year had revealed some topline softness. Recent price increases won’t help as this is likely a price elastic product category. The valuation is tempting but we cannot say with conviction cash flows will continue to be healthy.

FUNKO (NAS:FNKO) – mrkt cap $440mm; Price $9.27; trailing P/E NA

PASS. Funko makes pop culture collectibles for adults. Funko generates $1.3B in sales with about 30% gross margins. Although these collectibles are well loved and have a good track record, predicting future consumer demand is difficult as collectors are the main demographic. Additionally, there were operational mishaps and the CEO was replaced by the founder and the CFO stepped down. The difficulty of forecasting demand will keep us on the sidelines.