Shorting Tanger $SKT
"Factory Outlets" are dead or dying. Stock sports a 40x PE.
This is not an event-based short. The company reports earnings today, and I do not know how they will be received. I’ve done pretty well with these secular shorts but am almost always wrong on timing, so do not consider this qualified investment advice!
The reasons to be short are secular:
Factory outlets have been eroding in terms of consumer attractiveness for years. I remember them being great (over twenty years ago), offering top-quality branded products at liquidation prices. Many years ago, brands started producing “outlet-specific” SKUs to feed the growing “outlet” category. These are not bargains, just cheaper versions of the real stuff. (Again, there are counterexamples with some brands, like Lululemon, but they are exceptions.)
Premium brands have focused on D2C for years and now offer sale and clearance items directly to their existing, often loyal, customers. It improves engagement and margins for the brands. Larger, less exclusive brands still often need to offload large amounts of inventory but they have alternatives now.
Better alternatives are led by companies like TJX TJX 0.00%↑ . You may know them better by TJ Maxx, Marshalls, and Sierra. They have trained shoppers to return often to “treasure hunt” their racks to find real bargains on branded merchandise. Other active players include Ross Stores ROST 0.00%↑ and even Costco COST 0.00%↑ moves mid-priced brands like Orvis and Wrangler.
Tanger is growing at single digits yet trades at a 40x PE and 10x EV/Sales. This is a real estate play so it has a yield but it’s only 3.2%. I’d rather own Icahn IEP 0.00%↑ at 19% or Papa John’s PZZA 0.00%↑ at 3.7%.
Positioning and Risks
Most people will say that the “chart looks beautiful,” so it’s included for your enjoyment and consideration.
I’m also terrible at the timing of shorting stocks, so do not consider this good investment advice.
Tanger is expanding into “open air” and “lifestyle” shopping locations that can offset some of the weakness in the outlets segment. These outlet properties could also be converted into something else that would justify a drive to distant shopping location. This could include more “experience” tenants like indoor sports, skydiving, large format bars/restaurants like Bombshells $RICK.
My positioning is to be short the stock against other longs in my taxable account and to be long puts in both the taxable and tax-free accounts.
I also buy call options around events like an earnings report to protect myself from a sudden sharp move in the wrong direction and help extend my patience in waiting for the short thesis to play out or be disproved by subsequent information.
