Fashion (DNVBs = Distressed Opportunity?)

Look for Our Launch of New 'Lit' Brand "Unicorn & Bankruptcy" 

Why is that so many brands now are named "Something + Something"? Are we the only one's who've noticed that trend? Anyway, Bonobos is a failure because it sold(out?) for 3x its venture capital investment to Walmart Inc. ($WMT) - or so the narrative now goes. Curious. Walmart, after all, reflected the makings of a resurgence this week with a blockbuster earnings report that many largely attribute to's Marc Lore and the e-commerce expertise he's assembled around him. Like BonobosAndy Dunn, for example. Nasty Gal, however, is an entirely different story; it didn't sell for 3x. It sold for parts in bankruptcy court. Its ubiquitous founder, Sophia Amoruso, now runs a, gulp, digital media company (see above). Seeing Bonobos mentioned in the same breath as Nasty Gal must have Mr. Dunn questioning life's fairness. Anyway, read between the lines in the piece and it sure sounds like there could be a waive of would-be digitally-native disrupters disrupting themselves all the way to bankruptcy court (or an assignment for the benefit of creditors). Choice quote,"'We’re seeing that some of the same brands that get celebrated for raising $10M, or hitting $100M in revenue, are gone a few years later or eek out a distressed sale.'" You're damn right they do. Who wants to start the latest hot DNVB called "Unicorn & Bankruptcy"?

Recruiting (Short Perks That Will Disappear As Soon As Downturn Hits)

New Startups Target Millennials

We previously snarked about the ridiculousness of private equity recruiting. Rather than just make fun of the problem, we figured we'd offer some constructive suggestions. First, we note that Bravely, a New York-based startup recently raised $1.5mm in seed funding; it provides a platform that connects employees with expert communication and conflict coaches for off-the-record b*tch-sessions. Some VP busting your chops about a misplaced comma in the latest-and-greatest all-nighter-induced pitchbook? See Bravely. Some Partner just throw you under the bus while on a call with the client? See Bravely. If this is anything less than the equivalent of the shrink in Billions telling young professionals how "alpha" they are and how much value they provide to their respective firms, then fire up the "Busted Tech" column: it'll be there soon. And if that doesn't entice you to join the PE/investment-bank/biglaw ranks, maybe this will. After all, who WOULDN'T want to sleep where they work? Basically everyone other than millennials, it seems. We guess this explains WeLive.

Long Sleep, Short Sears?

Because this is Sears Holdings Corp. ($SHLD) and the logo looks crappy and the strip mall photo wildly uninvitingpeople are going to write-off its efforts to create "experiential" specialty stores focused only on appliances and mattresses. Hard not to. These guys can't do anything right. To be clear, though, it's not like the rest of the mattress industry is a no-brainer. How do you decide between Casper,LeesaPurpleSaatvaTuft & Needle, or blah & blah (how much space do we have in this newsletter?). Particularly when they're pulling shenanigans like this (a must read)? Anyway, mattresses are one item that people still want to touch, feel, and test. Given that nobody actually goes to Sears, that might actually be the spot to do just that: smaller likelihood of crowding. Or bedbugs. Go against the grain, we say. 

Chart: Lyft's Projections Don't Bode Well for Auto

General Motors is Cutting Production Volume

Two weeks ago we asked whether there'd be an uptick in auto distress. We didn't really even touch on to what degree ride-sharing will impact car ownership though we did point out GST Autoleather's assertion in its bankruptcy papers that Uber and Lyft have had an affect on OEM production levels. Well, this doesn't bode well for suppliers then. Take this chart for what it is: a bit of marketing, a bit of projection. After all, it is from Lyft directly and, of course, they want to show "up and to the left." Still, just imagine what this means if true.

Notably, General Motors ($GM) reported numbers this past week that surprised to the upside and the stock popped. They did discount heavily, but whatevs. Significantly, GM also noted a 26% decline in production. That, too, to our point, cannot bode well for the players in the auto supply chain. Keep an eye on auto - 3% GDP growth notwithstanding. 

Source: Lyft

Source: Lyft

Automation (Long Robots, Short Humans)

There Will Be Blood

This is a must read by Josh Brown on the rise of the robots. It's particularly relevant in a week where the FANG stocks went absolutely bananas. From a (financial) survivalist perspective, his point is hard to argue (and easier to support than investments in these stocks on the basis of valuation). That said, there does appear to be conflicting narratives on the automation point. Contrast this (oil & gas jobs are never coming back) with this (there aren't enough people to fill oil & gas jobs). Curious. We tweeted at Josh to see if he had thoughts on this contrast but he hasn't responded. Maybe because we only have 194 Twitter followers. Public service announcement: please follow us on Twitter.

Unicorns (Short the Hype)

Calling Out Digitally-Native Vertical Brands (DNVBs)

"You know what? F*ck unicorns." Let's not lose perspective here: a number of tech startups (or, shall we say, alleged "tech" startups) are valued at $1b+ merely because the market is awash in so much money and such a hunger for yield that deals are getting priced upwards. To think that a $400mm exit is anything short of successful is bonkers. Meanwhile, a number of those unicorns are digitally native vertical brands (DNVBs). Think Warby Parker. And thisthrows some serious shade on them. Choice quote, "Given all of the expectations surrounding Digitally-Native Brands and their limited optionality, it’s unlikely that many of them will be around in their 47th year, let alone as independent companies. There will always be exceptions to this rule—Dollar Shave ClubGlossierProper Cloth—might outlast the pack as brands that either successfully exited or are mostly in control of their future. But other than these rare exceptions, over the next few years this gold rush will probably turn into a bloodbath" (emphasis ours). In other words, don't count the chickens until they hatch. 

Unicorns 2.0 (Scooping Up Retail)

Hudson's Bay & WeWork Say "Let's Make a Deal"

Hudson's Bay Co. ($HBC) was a real newsmaker this week. The company sold its Lord & Taylor NYC location to WeWork for $850mm. It also got a (convertible preferred) equity infusion of $500mm through a joint venture between WeWork and the Rhone Group. Which means that Softbank basically owns a piece of Fifth Avenue now. Regulate THAT misdirection/obfuscation. Anyway, HBC will use the proceeds to pay down its $1.6b of debt and, presumably, pretty itself up for a potential take-private transaction. For sure, the future is uncertain. P.S. This re: WeWork (firewall). Bankruptcy Judge ABC: "And so, Banker XYZ, on what valuation basis is the company's plan of reorganization viable and feasible?" Banker: "Our valuation and size today are more based on our energy and spirituality than it is on a multiple of revenue." Judge ABC: "Come again? Bankruptcy plan confirmation denied!" Going forward, whenever we have a typo or a busted link we hope you'll only judge us on our energy and spirituality. 

Toys R Us (Long Trickle-Down Effects): Mattel & Hasbro

Toy Suppliers Get Hammered by Toys R Us Bankruptcy

Callback to the Toys R Us bankruptcy whereMattel Inc. ($MAT) was listed as one of the toy behemoth's largest unsecured creditors, owed a staggering $135.6mm. Notably, that was a big enough loss for Mattel to agree to sit on the DOJ-appointed official committee of unsecured creditors. For the uninitiated, that's a committee with fiduciary responsibilities to similarly situated unsecured creditors: it's a time commitment. Why do we mention this? Well, Mattel reported earnings this week and...they...were...pretty, pretty, PRETTY brutal. Quick recap: 13% sales decline. 22% domestic sales decline (half of which they directly attributed to Toys R Us). Those creepy-a$$ American Girl dolls? Down 30%. Consequently, the company announced a dividend suspension and a $650mm expense reduction; it also announced that it will explore the capital markets for an asset-based loan and lever up its balance sheet. So, in summary, here is this "disruption" illustrated:

Boatload of LBO-based debt 💰 + "Amazon Effect" = 😱  Toys R Us Bankruptcy 😱  = Mattel Inc. $135mm claim + 22% ⬇️  in domestic sales (American Girl ⬇️ , Barbie ⬇️ , Hot Wheels ⬇️ ) = Mattel stockholder/dividend-seeker 💩 = Mattel employees & supply chain ⬇️❗️= ABL lender💰💰💰❗️ = Kids don't care because video games are 🔥🔥  = Toys R Us & Mattel death spiral❓ 

Suffice it to say, Jefferies is skeptical about the turnaround plan. Finally, we should note that Hasbro Inc. ($HAS) also reported a 5% hit because of Toys R Us; it was the third largest unsecured creditor in bankruptcy to the tune of $59mm. Despite this, the stock went up on revenue and profit beats (thank you, Luke Skywalker, you're they're only hope).