Activist investor who shook up Bed Bath & Beyond and Kohl’s says this is the next big retail opportunity
Macellum Capital Management CEO Jonathan Duskin has two very successful, high-profile activist campaigns in the retail space under his belt, and is now shifting his gaze specifically to the underperforming apparel sector in a bid to find potential money-making opportunities.
“The market is entering a period of prosperity for traditional apparel retailers. The time has come when we will see apparel retailers consistently beat [number]s and be revalued higher,” Duskin wrote in a note obtained by Yahoo Finance. “In summary, the Amazon / [e-commerce] threat has been met, discretionary spending is set to accelerate with a meaningful tailwind, spending is shifting away from the home, the significant capital expenditure and SG&A spending cycle is over and having stores has suddenly become an offensive weapon. The result will drive earnings and cash flow significantly higher than 2019 and we believe the group will be accorded higher multiples as long-term visibility improves.”
Duskin told Yahoo Finance Live the apparel sector has several other positive catalysts lurking, including consumers rebuilding their closets and the kicking in of the child tax credit come the key back to school shopping season.
To be sure, Duskin has a solid case that many apparel stocks may be undervalued relative to their future earnings potential on the other side of the pandemic.
The Amplify Online Retail ETF — which tracks the performance of apparel brands such as Lands’ End and Stitch Fix —is only up 11.8% year-to-date. As for the S&P Retailing Index it’s up 12.6% this year. The S&P 500 has notched a 13% gain so far this year.
Meanwhile, a casual look at price-earnings multiples (PE) in the apparel space underscore Duskin’s point.
For instance, shares of apparel retailers Abercrombie & Fitch, Gap, American Eagle Outfitters, PVH Corp. and Polo Ralph Lauren all trade at relative discounts to the S&P 500 on a forward price-to-earnings multiple basis. The average discount for these five stocks compared to the S&P 500 from a P/E perspective is about 22%, according to data compiled by Yahoo Finance.
‘We think it’s a unique time for retailers, particularly apparel retailers. There is a lot of dynamics that will favor them, much like we saw coming out of the Great Recession. I think apparel retailers are poised to outperform over the next two to four years for a host of reasons. Inventories are low. They learned to do more with less during COVID-19. Stores are now a weapon,” explained Duskin.
Duskin’s missive follows a successful activist campaign at struggling Kohl’s in April. As part of a settlement with Macellum, Ancora Holdings, Legion Partners Asset Management and 4010 Capital Kohl’s added three new members to its board. It also expanded its stock buyback plan to $2 billion.
The activist says he is searching for new targets. He continues to hold shares of Kohl’s.
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