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HIBB: Reaccelerating Store Growth

Yet another solid result out of the athletic footwear/sporting goods industry this morning with HIBB confirming the breadth of industry strength coming in at $0.44 vs. the Street at $0.38 and our $0.40 estimate. Here are a few callouts ahead of the 10am call: 

  • Accelerated store growth is the clear callout in Hibbett’s Q3 results. With 17 net new stores openings in Q3, the company increased its year-end outlook for net additions by 50% with only one quarter left. We suspect the majority of incremental growth is coming from existing real estate opportunities at Movie Gallery and Blockbuster locations in addition to a more aggressive approach to expand into adjacent states – added first store in South Dakota during the quarter.
  • Earnings upside was primarily driven by accelerating comp store sales of +12.5% improving sequentially on both a 1yr and 2yr basis. Similar to what we saw at DKS earlier in the week, top-line sales outperformed what management had suggested earlier in the quarter. Our read through via industry performance data suggests this strength has continued so far in Q4.
  • Margin expansion continues with gross margins up +124bps in-line with our expectations and leverage on the SG&A line (-79bps) despite higher store opening expenses better than expected. Exceeding prior peak operating margins is looking increasingly likely next year.
  • Inventories up +4% on 15% sales growth consistent with peers (FL & DKS). This is worth highlighting again as all three players are maintaining remarkable stability in the sales/inventory spread relative to what we’ve seen out of the vast majority of other retailers this quarter – positive for continued margin expansion into year-end as well.
  • Raised FY outlook:
    • Comp expectations up MSD in Q4. What’s notable is that the company would need 12%+ to keep comps flat on a sequential basis. Much like Ed Stack’s strategy at DKS, management is giving themselves a sizeable cushion in the face of potential consumer weakness. Preliminary Q4 sales will provide further color here on the call.
    • FY EPS increase to $1.63-$1.66 from $1.45-$1.55 reflects additional upside to earnings in Q4 given just over half the difference is reflected in Q3 results.

In addition to more aggressive store growth plans, it appears the company’s bet to accelerate outerwear as a percent of total sales is also helping drive accelerating top-line results. With a clear commitment to reaccelerating square footage growth already underway, not only are earnings headed higher, but so too is the company’s multiple. More to follow after the call.


HIBB: Reaccelerating Store Growth  - HIBB S 11 10


Casey Flavin



TODAY’S S&P 500 SET-UP - November 19, 2010

As we look at today’s set up for the S&P 500, the range is 11 points or -0.48% downside to 1191 and 0.44% upside to 1202.  Equity futures are lower as easing worries about Ireland’s debt is offset by concern about tightening measures in China. No important economic data is expected today.

  • Autodesk (ADSK) sees 4Q non-GAAP EPS 30c-33c vs est. 34c
  • Blue Coat Systems (BCSI) forecast 3Q adj. EPS 33c-39c vs est. 40c
  • Dell (DELL) reported 3Q EPS 45c vs est. 32c
  • Foot Locker (FL) reported 3Q rev. $1.28b vs est. $1.2b
  • Gap (GPS) reported 3Q EPS in line, said expects “choppy” sales in 4Q
  • Intuit (INTU) forecast 2Q adj. EPS 36c-40c vs est. 45c
  • KeyCorp (KEY) said CEO Henry L. Meyer will retire in May; Beth Mooney, currently vice chair, will replace him
  • Salesforce.com (CRM) raised year adj. EPS forecast to $1.18-$1.19 from $1.15-$1.17, vs est. $1.17


  • One day: Dow +1.57%, S&P +1.54%, Nasdaq +1.55%, Russell 2000 +1.85%
  • Month-to-date: Dow +0.56%, S&P +1.13%, Nasdaq +0.28%, Russell +2.49%
  • Quarter-to-date: Dow +3.79%, S&P +4.86%, Nasdaq +6.14%, Russell +6.61%
  • Year-to-date: Dow +7.22%, S&P +7.32%, Nasdaq +10.81%, Russell +15.26%
  • Sector Performance: Energy +2.20%, Materials +1.89%, Tech +1.68%, Industrials +2.03%, Financials +1.40%, Healthcare +1.41%, Consumer Spls +1.34%, Consumer Disc +0.87%, Utilities +0.60%


  • ADVANCE/DECLINE LINE: 1894 (+1283)  
  • VOLUME: NYSE: 1198.94 (+27.13%)
  • VIX: 18.75 -13.83% - YTD PERFORMANCE: (-13.51%)
  • SPX PUT/CALL RATIO: 1.19 from 1.60 -25.29%  


  • TED SPREAD: 15.35 0.203 (1.340%)
  • 3-MONTH T-BILL YIELD: 0.15% +0.01%
  • YIELD CURVE: 2.38 from 2.39


  • CRB: 302.51 +2.40%
  • Oil: 81.85 +1.75% - NEUTRAL
  • COPPER: 383.85 +2.80% - BEARISH
  • GOLD: 1,351.85 +1.09 - BEARISH


  • EURO: 1.3615 +0.62% - NEUTRAL
  • DOLLAR: 78.617 -0.59%  - BULLISH



European markets:

  • FTSE 100: (0.54%); DAX +0.02%; CAC 40 (0.08%)
  • Indices in the region trade flat to lower following a good show yesterday.
  • Investors cautiously watch the progress in the Irish debt talks. Chemicals and Media are among the best performing sectors, while Basic Resources and Banks are in the red.
  • Tech stocks are higher boosted by good Dell figures.
  • Germany Oct PPI +4.3% y/y vs consensus +4.2% and prior +3.9%
  • Germany Oct PPI +0.4% m/m vs consensus +0.2% and prior +0.3%

Asian markets:

  • Nikkei +0.1%; Hang Seng (0.1%); Shanghai Composite +0.8%
  • Asian markets were mixed in a fairly tight range today.
  • Worries about Ireland’s debt began to ease, and sentiment was boosted by a positive reaction to General Motors’s IPO.
  • South Korea rose on expectations of a resolution of Ireland’s debt crisis. Tech issues supported the market, but shippers fell on a lower Baltic Dry Index.
  • Tech stocks and carmakers gave Taiwan a slight rise after the island’s Q3 GDP growth beat estimates.
  • Japan rose early, but shed most of its gains as the day went on, as concern rose about declines in China and Hong Kong.
  • Australia slipped, with sentiment harmed when the QR National IPO was priced at the low end of its expected range.
  • Coal, metals, and banking shares paced morning falls in Hong Kong and China, but the markets rebounded in the afternoon. 

Howard Penney
Managing Director

THE HEDGEYE DAILY OUTLOOK - levels and trends














The Macau Metro Monitor, November 19th, 2010



According to hospitality sources, overall hotel occupancy will be 80% this week and 90% for Friday and Saturday.  They expect most of the hotels will be up to full occupancy once the Grand Prix event starts this weekend.  ADR is 10% higher YoY.



From Jan-Oct 2010, Macau fiscal revenue reached MOP $62.64 BN (up 37.2% YoY).  Gaming tax revenue hit MOP $52.15 BN (up 58% YoY).  Macau total government expenditure during this period grew 14.7% YoY to MOP $27.3 BN.



The Nevada Supreme Court threw out a lower court's decision to award Richard Suen, a Hong Kong businessman, $58.6 MM for allegedly helping LVS win a gambling license in Macau, ruling that the district court's errors warranted a new trial.  However, legal experts say that a new trial may not be LVS's favor because of the potential bad publicity and because one of its key witnesses, former LVS President William Weidner, is unlikely to be cooperative. Mr. Weidner resigned in March 2009 after almost 14 years at the company amid disputes with Adelson.


China's central bank will raise the reserve ratio by 50 bps to 18.5% from Nov. 29.  The PBoC said the hike "will strengthen liquidity management and control credit."

The Ber-nank Blame

“When you cease to exist, then who will you blame.”

-Bob Dylan


For a global macro analyst, the early morning grind is usually bland. It’s always dark and now it’s getting cold. This morning, however, fired me up! At 530AM EST, Ben Bernanke and his Fiat Friends were holding an academic groupthink session on live TV from Europe.


Before I get into Bernanke’s proactively predictable opening remarks, here’s your morning go-juice:

  1. Bernanke said that calling what the Fed is doing “Quantitative Easing” is “inappropriate”!
  2. As Bernanke was speaking, the Chinese raised rates on their reserve requirements by another 50 basis points (5th time this year)

It’s actually pretty funny. These academic Fiat Fools obviously take themselves quite seriously and while their god of Big Keynesian Government Intervention was speaking, the Chinese poked him again.


At 533AM, the play-by-play hitting the newswires looked like this:

  1. Bernanke says “inflation is expected to be subdued for some time… and the FOMC remains committed to price stability…”
  2. China raises rates again on “global inflation concerns”

You’ll never know what World War III looks likes until it’s staring you in the face, but this war may very well be in motion – a global economic war of both rhetoric and action between the Fiats and the Chinese.


While we wholeheartedly agree with Bernanke that calling Quantitative Guessing (QG) by any other name is “inappropriate”, what we completely disagree with this morning is Bernanke effectively joining the political arms race of blaming the Chinese for American economic problems.


Canadians will remember a South Park song titled “Blame Canada” (it was actually nominated for the Academy Award for Best Song in 1999). For whatever reason the lyrics of this damn song started playing in my head while I was watching Bernanke chirp the Chinese:


                “We must blame them and cause a fuss

                  Before somebody thinks of blaming us!”


It’s really pathetic and sad altogether that the 2010 equivalent of a South Park video has turned out to be the best explanation of what’s really going on here. Xtranormal’s cartoon “Quantitative Easing Explained” video (http://www.youtube.com/watch?v=PTUY16CkS-k) has been spreading to the world’s inboxes like wildfire in the last few weeks – last count as of this morning = 1,796,284 views.


Being at the hub of the Hedgeye exclusive network certainly has its privileges. I get to see what we call “the heat” in terms of what serious people care about on a real-time basis. Serious people aren’t just money managers. We have plenty of upstanding people around the world who work in a variety of professions who are sick and tired of being lied to. We offer them a platform to share their voice.


Washington has abused the global privilege of being the world’s fiduciary of the global reserve currency. Everyone who isn’t paid to be willfully blind gets that by now. The days of conflicted and compromised politicians and financiers living in the shadow inventory of American opacity are ending. If it takes a cartoon to expose the truth, sorry Heli-Ben, YouTube is going to smoke your academic dogma out of its hole.


In a roundabout way, this is all very good news. I don’t think I can handle watching American capitalism fold into the hands of crony-socialism for much longer. Plenty of foreign-born entrepreneurs hiring in the American business community feel the same. This isn’t the country that I came to in 1995.


I’m game to play American Capitalist against the socialists. I’ll even wear the red, white, and blue jerseys instead of my homeland’s. While The Ber-nank’s broken promises have perpetuated nothing but JOBLESS STAGFLATION and a global blame game against America’s #1 client (China), I’ve gone about bootstrapping my own American small business, hired 43 Americans, sucked up Obamacare costs like a slurpee, and liked it.


Back to the data, the lastest Nielson survey shows 89% of rural Chinese citizens expecting to see inflation in the next 12 months. Chinese consumer confidence just fell for the 1st quarter in the last 6 and the #1 concern was, take a wild guess blame gamers – inflation. Meanwhile German producer prices (PPI) came in higher again sequentially (month-over-month) this morning at +4.3% year-over-year growth.


Chairman Bernanke, it’s time to think outside of your Great Depression box and strap on some of global macro and accountability pants. If you don’t start seeing the data as it’s reported real time, “when you cease to exist, who will you blame?”


My immediate term support and resistance levels for the SP500 are now 1191 and 1203, respectively. I sold our entire US Equity position (6% position in the Hedgeye Asset Allocation Model) on yesterday’s fleeting US stock market strength. I don’t buy-and-hold what I don’t trust.


Best of luck out there today and have a great weekend,




Keith R. McCullough
Chief Executive Officer


The Ber-nank Blame - 1

FL: The Times They are a-Changin'

Conclusion: Blowout quarter for Foot Locker across all metrics.  Importantly this is only three quarters into a multi-year process.


For those who have been following the company for at least a decade, there is no probably no other time until now where you've seen the words "blowout" and "Foot Locker" in the same sentence.  The times they are a-changin'.


No matter how you slice it, Foot Locker’s 3Q results were nothing short of spectacular.  Same store sales up 8.1%, well ahead of our 5.5% estimate.  Earnings of $0.33, well ahead of our above the Street forecast of $0.20.  Gross margins just about a double from our forecast, increasing by 321 bps.  At the same SG&A was well controlled, although it appears there may have been some slight incremental spend into the quarter’s strong topline. We welcome a step up in marketing and store labor which will only accentuate the progress FL is making towards repositioning its brands.


From a balance sheet standpoint, FL continued to use its cash flow generation for modest share repurchase.  The company bought back $16.4 million worth of shares, paid its dividend totaling $70 million and also made a contribution the company’s pension plan of $40 million.  At quarter end, FL still has $400 million in net cash or just under $3/share.  Impressively, the topline acceleration comes with disciplined inventory management.  Total sales increased 5.4% while inventories declined 2.1%.  This marks the fourth quarter in a row of a positive sales/inventory spread.  We continue to believe after ten years of inventory growth exceeding sales, there is still meaningful opportunity to increase turns, reduce markdowns, and improve gross margins.


The only negative (and it’s a nitpicky one) stems from a lower than expected tax rate, which helped the quarter by $0.04.  All in this is the type of result that only confirms that strategies underway to strategically reposition the largest athletic footwear retailer are working.  Importantly, we do not believe that 3Q results which come only 9 months after CEO Ken Hicks and his team had a chance to influence change,  are the last in which we will see meaningful sales and earnings growth.


With the conference call slated for tomorrow morning, we expect to hear more about the company’s progress on its apparel initiatives, the successful launch of Under Armour basketball, the substantial opportunity that lies ahead in the near term with the accelerating basketball category, and potentially a hint at the company’s efforts to partner with NKE and the NFL on an NFL branded concept.


Our estimates move up to $1.15 for this year and $1.40 for 2011.  Recall that our original thesis called for FL’s 5-year plan to be accomplished in just 3-years.  It appears we and the company are on track.


FL:  The Times They are a-Changin' - FL 3Q


Eric Levine


General Mobama

This note was originally published at 8am this morning, November 18, 2010. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“There is, in a competitive society, nobody who can exercise even a fraction of the power which a socialist planning board would possess.”

-Friedrich Hayek


Hayek is to the Keynesians of Big Government Intervention what capitalism is to socialism. Watching some Americans beg for the scraps of a short-term socialist experiment this morning is apparently the kind of groupthink that President Obama supports:


“Through the IPO, the government will cut its stake in GM by nearly half, continuing our disciplined commitment to exit this investment while protecting the American taxpayer" –Barack Obama




Hearing our used-car salesmen of professional American politicking talk about “disciplined” investing for the American people must be some sadistic form of a joke. I, for one, will go on the record today calling this GM deal out for what it really is – socialism. General Mobama, nice trade.


Co-founder of investment banking outfit Evercore Partners, Roger Altman, loves this short-term trading of American capitalism for privileged socialist handouts. His firm was paid upwards of $46 MILLION in pre-GM bankruptcy fees and allegedly wants another $17-18 MILLION in what bankers call “success fees” for this GM deal going off with a bang this morning. Roger, nice trade.


I couldn’t make this up if I tried, but Roger met with General Mobama earlier this week to talk about his post GM deal day job. Roger likes to trade the banking-fee-cycle with time moonlighting in DC. And apparently the President of the United States liked doing this GM deal so much that he is considering Altman as Larry Summers replacement at the White House.


Wait, is Altman a banker or a politician? Sadly, when getting in tight on these socialist handout jobs, one is a prerequisite for the other. Roger Altman has an impeccable resume in old-boy network banking and politics:

  1. 1974 he became Partner at Lehman (banker)
  2. 1977-1981 he served as Assistant Secretary of the Treasury (politician)
  3. 1981- 1987 he went back to Lehman and became co-head of investment banking (banker)

Oh yeah baby, that’s the change General Mobama is talking about. Let’s bring back someone who really understood Jimmy Carter and Arthur Burns style economics and let’s get this Jobless Stagflation party started.


Don’t worry, you won’t be disappointed in this storytelling. The deeper you dig into a pile of dogma the more it smells. Altman loves working at places that lever and lather themselves up with cheap moneys. After Lehman, he did LBOs at Blackstone (banker). Then, in 1993, he went back to Washington as Deputy Treasury Secretary (politician) for the only 2 years that resembled 1970’s style US Jobless Stagflation until… well… today!


No matter where you go in America this morning, this is where we are. I, for one, won’t let my son and daughter YouTube me on this day of November 18th, 2010 as one of the pretending patriots who supports socialist bailouts.


Back to the market…


Today’s pump and dump government rally should provide a fantastic opportunity to put some of our short positions back on (in the Hedgeye Portfolio we currently have 15 LONGS and 10 SHORTS). The US stock market has only had 1 UP day in the last 8. In the last 2 days the SP500 became what our Hedgeyes call immediate term TRADE oversold.


Yes, like your US government, we trade…


In terms of the Hedgeye Asset Allocation Model, in the last week, on weakness, we’ve scaled back up to 6% positions across the board (from ZERO percent at the market top on November 8th) in US Equities, International Equities and Commodities. We are long US Healthcare (XLV), Germany (EWG), Corn (CORN), and Gold (GLD). All of these positions are candidates to be sold. Our current asset allocation to Cash = 58%.


Yes, like any free market capitalist, we reserve the unalienable right to see this government sponsored casino for what it has become…


In terms of levels on the SP500, going into today’s open, from the 1178 level, we measure 2:1 upside with a significant level of immediate term TRADE resistance up at 1191. If the SP500 closes above 1191, that’s bullish. If it breaks, that’s bearish.


In the face of 1. Global Growth Slowing 2. Global Inflation Accelerating, and 3. Interconnected Risk Compounding, I don’t want a banker or a politician telling me how to manage risk. I need a transparent and accountable General who I can trust gets this game – and I guess, for now, that will have to be me.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


General Mobama - JC

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.