Back to School Blues- Buy Puts on these Apparel Makers

By Linda McDonough • July 19, 2017

Buy to open the January 19, 2018 put on Columbia Sportswear Company (COLM) with a strike price of $55 at $3.90 or lower. Symbol (COLM180119P55)

Buy to open the January 19, 2018 put on V.F. Corp (VFC) with a strike price of $55 at $3.30 or lower. Symbol (VFC180119P55)

It’s no secret apparel retailers, especially sports apparel, are in a house of pain. Macy’s will close 100 stores this year. Kohl’s is shrinking the square footage allocated to apparel. Sporting goods chain Gander Mountain filed for bankruptcy and Eastern Mountain Sports is closing half its stores. Sears Holdings is closing 42 Sears stores and 108 Kmart stores this year.

These store closings are just being put into effect and will dramatically cut into apparel suppliers critical third and fourth quarters. Not only will orders to refill inventory at closed stores completely disappear, excess inventory from them will cut into orders from those still open.

The brunt of these lower orders has yet to be felt and is not appropriately factored into analysts’ estimates for Columbia Sportswear (NSDQ: COLM) and V.F. Corporation (NYSE: VFC).

Buy puts on both these stocks into their second quarter earnings releases. Although the second quarter is a smaller one, I expect both companies to issue weak guidance for the critical September quarter when product is shipped to customers for Back-to-School and the early holiday season.

I’m recommending the further out dated puts (January) in case the companies hold out hope that new orders will come in before the holiday shopping season. However, subscribers who would like to put less capital at risk can instead buy the August 18, 2017 puts which are priced lower and still capture the earnings dates noted below.

What to Listen For:

VFC earnings

Date: July 24, 2017

Time: 8:30 am (EST)

Call Details: The conference call will be broadcast live on the Internet, accessible at ir.vfc.com.

VFC’s outdoor brands, which include The North Face and Timberland, generate 60% of the company’s profits. Almost three-quarters of those profits occur in the second half of the year.

What are forward orders looking like for the third quarter?
VFC saw a jump in accounts receivable last quarter- is the company relaxing credit terms to encourage customers to take on more product?
Profit margins have improved in prior quarters but sales and marketing expense is rising rapidly- is the company including promotional dollars in its marketing line?

COLM earnings

Date: July 27, 2017

Time: 5 pm (EST)

Call Details: To listen to the conference call, please dial 877-407-9205. The call will also be webcast live on the Investor Relations section of the Company’s website at http://investor.columbia.com.

Columbia does not explicitly break apart wholesale sales (those to department stores and sporting goods stores) versus direct-to-consumer sales (primarily e-commerce and a handful of its own stores). The company only says “the majority” of sales are to wholesale customers. What is the trend in wholesale sales? What percent is direct-to-consumer?
The company announced a strategic realignment of its management team on June 6 which includes the departure of its President and COO. What changes are being made to the company’s operating model to improve its results?
Sales and marketing have been increasing faster than sales- when will the company get some leverage from this expense and what are they spending it on?

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Roger Dehring

07/19/17 ‐ 2:18pm ET July 19, 2017 at 2:18pm ET

I like your analysis, Linda,

Went out to November with VFC, buying 55/50 puts for a -$1.48 debit. Should there be a pullback when they announce next week, I will probably exit. But wanted to go out further than August, just in case.

Thanks for the trade, have a great day!

roger

Linda McDonough

07/19/17 ‐ 10:27pm ET July 19, 2017 at 10:27pm ET

You’re welcome, Roger. Thanks for the comment. It’s very helpful for me to know which trades subscribers act on and how they choose to play it out.
Best,
Linda

Bill Crenshaw

09/29/17 ‐ 10:54am ET September 29, 2017 at 10:54am ET

Hello Linda,
I joined your service this week and looking over prior trade recommendations I noticed the COLM Jan 18 55 put at $3.90 or lower. Today it is trading at $1.75. Is this still a recommended trade for new investors?

Linda McDonough

09/29/17 ‐ 1:34pm ET September 29, 2017 at 1:34pm ET

Welcome!
Yes, Bill, with the option recommendations, any that are trading below my entry price represent good buys. When working on the COLM and VFC put purchases, I purposely recommended the January options so that we could capture any movement from the stocks from either third-quarter earnings or an early read on holiday sales.
COLM reports its third quarter on October 25th and VFC on October 23rd. Look for details about the call instructions for these two companies in my weekly update on Monday.
Regarding stock recommendations, any stock with a green buy advice button is trading below my “buy up to” price limit so these would represent good entry points.
Please let me know if you have any other questions.
Best,
Linda

Beauty

09/29/17 ‐ 2:49pm ET September 29, 2017 at 2:49pm ET

Whew!! I finally got my first 2 trades in. Getting to understand some of the processes and terminology.

On the ODFL, the strike price was $5.40, but got it for $2.50. At first I was bidding much lower, but I was only allowed to bid at 50%. I feel like a real trader now! LOL

Question: is there a limit on how many trades you’re allowed to do in a day?

Jim Pierce, thank you for your tenacity in getting me to accept your offer in subscribing to PCA. ?

SSA

09/29/17 ‐ 3:02pm ET September 29, 2017 at 3:02pm ET

Bought VFC puts, strike $55 Jan 19 @.52 at 3 pm on Fidelity

pb

10/02/17 ‐ 5:32am ET October 2, 2017 at 5:32am ET

Hello Linda,I just joined.Why are options not offered on the Equity trades?Also,looking at 2017 closed Equities the shortest open time is about 4 months but most are much longer and even over a year.Could you comment on that please?

Linda McDonough

10/02/17 ‐ 7:15am ET October 2, 2017 at 7:15am ET

PB,
Usually, when I offer a new stock recommendation for the portfolio, I include a call options trade. Some stocks do not trade options, so of course, it’s not possible in those situations. For those that I have offered call options suggestions, they have a limited life due to the nature of option expiration dates so I trade them quickly.
The bearish trade suggestions always come in the form of put trades. These are typically geared to an event in the future. However, if the options (puts or calls) rise quickly, I will almost always suggest booking that gain. Option prices move so quickly, a gain can often disappear in a day or two, so I like booking the profit.
Please let me know if you have any other questions.
Best,
Linda

Rick

10/02/17 ‐ 11:41am ET October 2, 2017 at 11:41am ET

Linda,

I missed this alert as I was crossing the pond when this was released. So with the benefit of hind sight, I placed Bear Put Debit spreads on both of these:

COLM Jan 65/55 Debit of $4.65 (accidentally overpaid on this by clicking submit before I adjusted my price – should have been able to get $4.20 to $4.25)
VFC Jan 65/57.50 Debit of $2.95

SSA

10/05/17 ‐ 5:18pm ET October 5, 2017 at 5:18pm ET

Luckily got in on the apparel put trade later, but still taking a hit on the upgrades/upswings. Realize this could easily turn around on the earnings reports. Know you recently addressed and still feel that grim news is forthcoming. I did buy puts although I had some issues with it. Being in the “sporty” and “travel” apparel market I love Under Armour (only long sleeved comfy tennis tops) and Nike. You still do not see any reason for the bull movement on these two? Need some reassurance!

Linda McDonough

10/06/17 ‐ 11:22am ET October 6, 2017 at 11:22am ET

SSA,

Many investors love to buy brand names and while VFC and COLM have decent brands, my analysis shows that growth for both is slowing and that estimates for both companies are too high. I have found that beating or missing estimates is the most predictable event for a stock moving up or down. The put purchases for VFC and COLM are based on this expectation.

An analyst at Pivotal Research recommended both of these stocks this week based on growth in digital or online growth. I’ll have more details in my Monday recap but my analysis shows the portion of sales coming from online is not large enough for either of these companies to make up for the slowdown in traditional retailers.

Best,
Linda

SSA

10/06/17 ‐ 4:06pm ET October 6, 2017 at 4:06pm ET

Thanks, Linda! You get my vote! I think you do a great job of researching and have your finger on the right pulse. I do hope that the sports/leisure/travel brands eventually come around to profit again though because so many of the products are good ones! Lots of Columbia wearers in SoFL too because of the heat. Thought it was weird that no Nike storefronts at the US Open (tennis) this year – first time in the 20 years we have been going.

Linda McDonough

10/09/17 ‐ 9:15am ET October 9, 2017 at 9:15am ET

Thanks for the insight! Nike has been a disaster. I missed the recent big drop in that name but have it on my radar.
Best,
Linda

SSA

10/10/17 ‐ 6:22pm ET October 10, 2017 at 6:22pm ET

Cool. Also, the Olympics are coming. I noticed that some brands do well in these years

pb

10/10/17 ‐ 11:59am ET October 10, 2017 at 11:59am ET

Hello Linda.Reading your alert I am struck with the view that it covers the same issues that every ordinary investor advisory does–excellent though it is.My point being that the promotion stresses the uniqueness of these phone calls that are tips on imminent action.There does not seem to be any reference subsequently on the quality or timeliness of that tip,rather a normal analyst report.Am I missing something,please?

Linda McDonough

10/11/17 ‐ 1:21pm ET October 11, 2017 at 1:21pm ET

PB,

Although many investor advisory sites may point out the overall weakness in retail sales, I have not seen any that include the quantitative work that I have done regarding drilling down into the brands of each company and how they perform. I do not include all of those details in the alerts but may consider that if subscribers think it would be helpful.

You are correct that the conference calls are the event to which I typically time the options purchase recommendation.

If you look through all of the Alert histories, you will see that some of the options are closed out before a call if they move dramatically. If they are still in the portfolio, an update is issued post call with a recap and a recommendation on whether to sell or hold the options.

I believe my 25+ years as a hedge fund analyst offer a unique perspective to analyzing public companies and timing my trade recommendations and think the track record supports that unique angle of analysis. You can see the record for options and stock trades by clicking on the closed button above the current portfolio.

Please let me know if you have any other questions.

Best,
Linda

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