Douglas - Shifting position

All,

Please refer to our detailed model here.

A tour of Douglas stores yesterday produced strong (anecdotal) feedback. We did not manage to tour a great number of shops, but the four Douglas stores we have visited and spoken to (two on high street, two in shopping malls) all reported "strong demand”, “can’t complain”, “normal” etc. and staff was overall very upbeat. All of course acknowledged the vast disruption during the actual lock-down, but since then they reportedly experience no change to demand before. Douglas are also running a successful 20% off campaign for members, growing an increasingly significant rooster of loyal clients who are unlikely to venture to other stores.German high streets appear as full as they’ve ever been. By comparison, apparel seems to have trouble due to the seasonality of the collections (July apparel sales stood at -10% YoY). Travel has its own problems, as do a number of other sectors of course. But ordinary high-street footfall appears virtually unchanged. So we remain bullish on the name and see upside to our model in the all-important Q121. Meanwhile the SSNs have traded up significantly following the Q2 reporting and the confirmation that sufficient liquidity is available to trade through Christmas 20. However the SUNs, given their unequivocally junior status, have not mirrored the move. Ahead of the results, we are therefore selling what we consider a relatively beta prone - now 6% of NAV - position in the SSNs at 87.5c/E today and are adding alpha risk instead - a 4% position in the SUNs at 50c/E. Clearly this trade is not without its risks, but we are perceiving a similar 20 point downside risk for either bond in case we have it completely wrong. Thus the total risk embedded in the position is somewhat similar, but the upside is greater in the SUNs.Do reach out to discuss.Wolfgang