March 18, 2019

Opportunity Equity Update for Week Ended 3/15/19

StitchFix Climbs Higher on Strong FY19 Guidance While ADT Falls on Disappointing FY19 FCF Guidance

Last week, the Opportunity Equity strategy gained 2.44%, underperforming the S&P 500’s 2.95% gain (Exhibit 1). The strategy ended the week up 16.47% YTD, or 336 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Opportunity Equity Strategy Versus S&P 500, Through 3/15/191

Time Period Opportunity Equity S&P 500
Last Week (3/8 – 3/15) 2.44% 2.95%
MTD -2.67% 1.46%
QTD 16.47% 13.11%
YTD 16.47% 13.11%
Inception (annualized since 6/26/00) 6.99% 5.65%

Source: Bloomberg, Miller Value Partners

Stitch Fix Inc. (SFIX) crossed above the 200-day moving average after announcing 2Q results and strong FY19 guidance. The company reported revenue of $370m ahead of consensus at $365m with gross margins of 44.1% above the 43.5% expected leading to EBITDA of $19.2m versus $11.2m expected. The company guided for 3Q revenue of $388-398M and adjusted EBITDA of ($4m) – $1M versus consensus of $384m and $3.6m, respectively. The company raised its FY19 revenue guidance to $1.53-1.56B from $1.49-1.53B prior and raised its EBITDA guidance to $33-43M up from $20-40M guided earlier. The company expects to invest $15M in Brand Marketing and another $12M in SG&A spend for their UK launch in the back half of the year. Genworth Financial Inc. (GNW) announced the extension of its acquisition deadline to April 30th from the March 15th deadline. Inc. (AMZN) crossed above the 50 and 100-day moving average. There was minimal news on Avon Products Inc. (AVP) and OneMain Holdings Inc (OMF).

Exhibit 2: Significant Contributors to Performance, 3/8/19 – 3/15/19

Name Type Return
Genworth Financial Inc Equity 10.2% Inc Equity 5.6%
Stitch Fix, Inc. Equity 24.5%
OneMain Holdings Inc Equity 6.1%
Avon Products Inc Equity 9.0%

Source: Miller Value Partners

ADT Inc. (ADT) crossed below the 50 and 100-day moving average after reporting strong 4Q results but disappointing FCF FY19 guidance. The company had strong 4Q results with revenue of $1.185B ahead of consensus of $1.16B with EBITDA of $614m beating expectations of $604m and EPS of $0.13 matching consensus. The company announced a dividend reinvestment program (DRIP) that enables shareholders to receive their dividend in common stock rather than in cash and noted that its largest shareholder, Apollo, will participate. In addition, the company will be buying back $150M worth of stock to offset any dilution from the DRIP. The company guided for FY19 revenue of $4.9-5.1B above consensus of $4.9B and adjusted EBITDA of $2.46-2.50B below consensus of $2.52B and FCF of $570-610m below consensus of $700M due to a setup in investments for their new DIY offering, a brand refresh and establishment of a leading commercial platform. Discover inc (DISCA) crossed below the 50 and 200-day moving average. RH (RH) crossed below the 50-day moving average. Morgan Stanley cut their price target of Endo International (ENDP) to $8 from $17 previously citing concerns on CCH’s prospects. Michael Clayman, CEO of Flexion Therapeutics (FLXN) purchased 4k shares at $12.36 for a total consideration of $50k increasing shares owned by 0.5%.

Exhibit 3: Significant Detractors from Performance, 3/8/19 – 3/15/19

Name Type Return
ADT Inc Equity -11.9%
RH Equity -4.5%
Discovery Inc Equity -5.2%
Flexion Therapeutics Equity -8.2%
Endo International plc Equity -2.4%

Source: Miller Value Partners

1The performance figures reflect the results of a representative account net of management fee and certain other expenses. For important additional information about Opportunity Equity performance, please click on the Opportunity Equity Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

©2019 Miller Value Partners, LLC

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