R3: GPS, TGT, Neimans, Platinum


December 17, 2010






  • While Gap is noticeably absent from this holiday’s TV commercial onslaught, it hasn’t stopped the apparel retailer from being creative.  Enter Project Reindeer.  The company has tagged 8 reindeer with GPS and is tracking their movements to determine which deal will be offered each day over a 5 day period.  Thanks to “Bailey’s” long distance movements, customers will get 50% off sweaters today!
  • According to the National Retail Federation and BigResearch, nearly 30% of consumers ranked Target's holiday commercials as their favorite, compared to 17% for Wal-mart.  Additionally, more than one-quarter of consumers selected Amazon as their favorite online or email ad, while 14% chose Wal-mart.  Last year consumers chose Wal-mart’s money-saving commercials as their favorite.
  • Happy Free Shipping Day!  Shop online today, and 1,721 merchants will send your order for free wherever it needs to go, with many including priority deliveries in their offer.  2010 marks the third year of the event.




Shakeup Continues at Neiman Marcus - Following this week’s shuffling of responsibilities across the senior merchant team, Neiman’s has moved on to its store organization, naming Ann Paolini senior vice president and managing director of Last Call. She was NMG’s senior vice president and director of stores. No successor was named. At Last Call, Paolini succeeds Tom Lind, who has just become senior vice president, project management. NMG said Lind will lead the newly established project management office which will “analyze and define the standards of process within the organization.” The changes show that Neiman’s new management team, led by NMG chief executive officer and president Karen Katz and Jim Gold, president of the specialty retail group, is determined to accelerate the luxury chain’s recovery and take it in new directions. In October, Katz succeeded Burt Tansky and Gold stepped into his new slot after serving as ceo of the Bergdorf Goodman division.  <WWD>

Hedgeye Retail’s Take: Even with all the personnel changes, we wonder if the company’s ownership realizes that this super-luxury retailer needs help from the economy to ever get back to peak productivity?


Everlast Moves Exclusively to Sears and Kmart- Everlast apparel and footwear will be available exclusively at Sears and Kmart stores beginning next year. On Thursday, the $500 million fitness brand revealed it has signed an exclusive long-term licensing deal with Sears Holdings Corp. for apparel, footwear and accessories for men, women and children. Under the terms of the deal, the Everlast brand will be sold in 850 Sears stores, and a new diffusion brand, Everlast Sport, will be available in 1,325 Kmart locations. The product will also be available online. “Our parent company [Brands Holdings Inc.] bought this brand three years ago,” said Neil Morton, chief executive officer of Everlast. “And since then, we’ve been looking at the structure of the business and the opportunities both regionally and globally. In the U.S., we believe that a direct-to-retail partner is the best way to get the product into the consumers’ hands.” <WWD>

Hedgeye Retail’s Take:  Looks like a deal out of the Iconix playbook here.  Unfortunately, this will still not move the needle for stemming either retailer’s market share losses. 


Coty Extends its Global Reach - Coty Inc. is on a roll with its recent rapid-fire round of acquisitions, and chief executive officer Bernd Beetz is in no mood to let up. “It is important that we broaden our footprint and build strength in color cosmetics and skin care,” he said in an interview. He was speaking just a few days after winding up a series of deals for buying Dr. Scheller Cosmetics AG in Germany; the Philosophy skin care brand and nail enamel firm OPI Products Inc. in the U.S., and Tjoy, a Chinese skin care brand. Beetz laid out his vision for the company by detailing how these acquisitions were designed to diversify and build up the separate product pillars of the company, but also make Coty more of a power in the BRIC countries. Already, the buying spree, which industry sources estimate had a combined price tag of $2 billion or more, has had an impact. According to the company, after the acquisitions, the dominant fragrance share of Coty sales shrank in influence by 7 percent to 55 percent, color cosmetics swelled by 3 percent to 26 percent of Coty volume, skin care jumped from 4 percent to 10 percent and the share of toiletries was reduced by 2 percent to 9 percent. Following the first acquisition, Dr. Scheller, which bolstered Coty’s share of the German color market with sales estimated at $70 million, the company’s total sales were nudged upward toward $4 billion. That deal was seen as paving the way for Coty to realize its ambition by hitting $7 billion in sales by 2015.<WWD>

Hedgeye Retail’s Take: One of the more aggressive rollup strategies we’ve seen in the last few years. Given the company’s recent deal pace, we should see another close before year-end.


FTC Introduces New Regulations for Jewelers - The Federal Trade Commission on Thursday released guidelines for jewelry that will impact how certain platinum products can be marketed or advertised. The issue involves the marketing of jewelry that mixes other metal alloys with platinum. The practice, according to the FTC, has made “platinum” more affordable for consumers, but necessitated a clarification of acceptable marketing for the products. The new agency rules require that for products containing between 50 and 85 percent platinum, marketers disclose the composition of the item using the full names of the alloys and metals used, not abbreviations. In addition, marketers must make it clear to consumers that the product may not have the same qualities as a product made entirely of platinum. The FTC released two new publications to help businesses and consumers understand the changes. The FTC can issue cease-and-desist orders to companies that could result in fines if ignored. <WWD>

Hedgeye Retail’s Take: Hard to believe that “platinum” wasn’t always “platinum” when it came to jewelry.  Seems like a fair and reasonable crackdown, especially in light of commodity prices going through the roof.


John Hardy Launches First Store - After 20 years in business, luxury jeweler John Hardy is heralding a more mature phase with the opening of its first store on Monday in Jakarta, Indonesia. There are plans for another four units in the next three years. “We’re just getting out of the teen years,” chief executive officer Damien Dernoncourt said. “It’s probably a new chapter.…The brand grew up over 20 years, and we’re now very comfortable with who we are and what we stand for, and we know where we want to go.”  Dernoncourt said John Hardy wanted its first store to be in Indonesia because the company started in Bali, and it was appropriate to start building a retail presence “in your own garden.”<WWD>

Hedgeye Retail’s Take: Brands becoming retailers is a trend that we’ve seen in apparel/footwear over the last decade and is now starting to take hold in the jewelry industry. Following the likes of fine watch brands Omega and Panerai, Hardy becomes the latest to grow direct distribution.


UK Social Network Ad Spending to Double by 2012 - The rise of social networking, and the involvement of advertisers in these channels, was one of 2010’s mega-stories—not least in the UK. Though spending in social networks is still a fraction of total online ad spending, many UK brands have leapt at the chance to engage with consumers in an environment where they spend increasing amounts of time and are highly motivated to share their thoughts. eMarketer estimates social network ad spending in the UK will rise from £130 million ($203 million) this year to £275 million ($430 million) by 2012, an increase of more than 110% in two years. This will boost social network ad spending from 3% of all online ad spending to 6% over the same time period. Facebook, the most popular social network in the UK as in the US, will take the greatest share of spending as marketers continue to follow their customers to social media. “There’s a new breed of advertisers that have recognized this shift and understand that he who adds the most value to the consumer wins,” a representative from Facebook told eMarketer. “Agencies have been quick to recognize and harness the power of social but in the last six months alone, we’ve seen marketing directors start to truly understand the opportunities in this space and build a great social experience for customers.”<eMarketer>

Hedgeye Retail’s Take: No surprise given the push and popularity domestically. Moreover, many domestically based multi-nationals that have tested the waters in 2010 will be rolling out programs across other regions if for no other reason than e-commerce sites are just now being rolled out on a global scale. Case in point, RL with extensive e-commerce expertise and experience just launched its UK site back in October – you can bet foreign social media based advertising is on the 2011 budget.




Some news items and notable stock price moves in the restaurant space.

  • Starbucks gained on strong volume yesterday.  The Kraft issues are, in my view, insignificant for the longer term prospects of the company.  One blog,, is running a story about Starbucks being rumored to be buying Peet’s Coffee. 
  • WEN down on strong volume and underperforming peers over past week.
  • SONC upgraded today.
  • RT up 5.6% on strong volume.
  • BWLD also up on strong volume – we will have a note out on this name shortly.
  • MRT continues to perform well, better than any casual dining competitors over the past week.
  • Story in the WSJ about new wage and tipping rules in restaurants tells how the Department of Labor is mandating a hike in minimum wages and other procedural changes in the hospitality industry starting January 1st.  The move is likely to be met with stiff legal opposition.
  • If you thought fried chicken was important in Asian markets, you were right.  In South Korea, Lotte Mart undercut the market for fried chicken by 60 per cent.  This led to three-hour lines, street protests, a regulatory investigation, and some input from the office of the President on the issue.  View the story here.




Howard Penney

Managing Director


The Macau Metro Monitor, December 17th, 2010



According to a person familiar with the matter, the Macau government has rejected SJM's application for sites 7 and 8, as the two sites require a public tender.  The source said SJM is likely to secure land rights for another plot of land on Cotai in the 1Q 2011.  SJM CEO Ambrose So had forecasted that land rights for planned casino projects in Cotai would likely be granted to SJM, Wynn Macau and MGM Macau by the end of 2010.


SJM is talking with Macau Theme Park and Resort Ltd, who is owned by Angela Leong, to see if they can integrate their sites on Cotai.  Macau Theme Park and Resort has already acquired a 200,000 square metre site, and Leong said the park would not include gaming facilities.  The integrated resort project will be developed in three phases and each of them will take about two and a half to three years to complete.  In the meantime, SJM has already applied for a piece of land of some 70,000 square metres also next to the Macau Dome. 


Ambrose So predicts GGR will reach MOP 190 BN this year, slightly above his first forecast of MOP 180 BN.  “I am still bullish about next year.  I still believe Macau’s [gaming revenues] will grow at least 15 to 20%. I think we [SJM] will keep growing together with the market and gain a few percentage points more in market [share] like we did in the past," he said.

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TODAY’S S&P 500 SET-UP - December 17, 2010

As we look at today’s set up for the S&P 500, the range is 14 points or -0.71% downside to 1234 and 0.41% upside to 1248.  Equity futures are trading little changed to fair value following Thursday's positive finish, which saw the S&P close at its highest level since Sep 2008 to prolong the December rally. The main catalyst for the move was largely better-than-expected economic data.


News coming out of the EU Council summit is that members have agreed to create a permanent crisis-management mechanism by 2013 but specifics are thin. Germany's Chancellor Merkel has ruled out expanding the EFSF/ESM, which would have allowed the EFSF to buy governments' bonds. Today's macro highlight will be Novembers's Leading Indicators.

  • Accenture (ACN) raised FY2011 adj. EPS forecast; 1Q rev. beat est.
  • Cousins Properties (CUZ) rated new neutral at JPMorgan
  • Gilead Sciences (GILD) said DOJ decided not to “intervene” in a lawsuit filed by a former employee of CV Therapeutics regarding the promotion of Ranexa
  • Lockheed Martin (LMT)’s F-22 jets suffer corrosion, U.S. report says
  • Oracle (ORCL) sees 3Q adj. EPS above est.
  • Quiksilver (ZQK) 4Q adj EPS, rev. beat est.
  • Research in Motion (RIMM) 3Q rev. beat est.
  • Steelcase Inc. (SCS) 3Q adj. EPS, rev. top est.
  • Sonic (SONC) repurchased $62.5m of debt, will recognize gain of ~$5m
  • Take-Two Interactive Software (TTWO): Quarterly adj. EPS, rev. beat ests. Will sell 10m shrs via Credit Suisse.


  • One day: Dow +0.36%, S&P +0.62%, Nasdaq +0.77%, Russell 2000 +1.07%
  • Last Week:  Dow +0.25%, S&P +01.28%, Nasdaq +1.78%, Russell +2.70%
  • Month-to-date: Dow +4.48%, S&P +5.28%, Nasdaq +5.57%, Russell +6.82%
  • Quarter-to-date: Dow +6.59%, S&P +8.91%, Nasdaq +11.34%, Russell +14.85%
  • Year-to-date: Dow +10.27%, S&P +11.46%, Nasdaq +16.22%, Russell +24.17%
  • Sector Performance: +1.1%, Materials +1.1%, Utilities +0.9%, Consumer Spls +0.9%, Consumer Disc +0.8%, Healthcare +0.7%, Energy +0.7%, Financials +0.2%, Tech +0.2%  


  • ADVANCE/DECLINE LINE: 1072 (+2037)  
  • VOLUME: NYSE 989.84 (-10.91%)
  • VIX:  17.39 -3.07% YTD PERFORMANCE: -19.79%
  • SPX PUT/CALL RATIO: 1.10 from 1.12 -1.97%  


  • TED SPREAD: 17.70 -0.203 (-1.132%)
  • 3-MONTH T-BILL YIELD: 0.13% -0.01%  
  • YIELD CURVE: 2.81 from 2.85


  • CRB: 317.34 -0.47%
  • Oil: 87.70 -1.04%
  • COPPER: 411.60 -0.40%
  • GOLD: 1,371.91 -1.04%%


  • EURO: 1.3233 -0.32%
  • DOLLAR: 79.797 -0.10%




  • European markets have traded in a narrow range, with major indices mainly in slightly positive territory, and peripheral markets pressured by Moody's downgrade of Ireland's sovereign credit rating to Baa1 from Aa2 and negative outlook.
  • EU leaders agreed to set up a permanent bailout mechanism from 2013, though details were limited, and there will be no enlargement of the current temporary rescue fund. Leaders also indicated they would do whatever was necessary to protect the euro.
  • Advancing sectors lead decliners 12-6 with basic resources and technology shares leading gainers, while telecom and healthcare lag.
  • France December manufacturing Business Conf 103 vs consensus 101
  • Germany is trading lower by -0.11%  - Dec IFO Business Climate Index 109.9 vs consensus 109.1
  • European Automobile Manufacturers' Association Nov Commercial Vehicles Registrations in EU+EFTA countries +7.5% y/y
  • The UK is trading down -0.16% - The pound was pressured by Nationwide's Nov Consumer confidence index 45 vs prior 52, its lowest reading since Mar 2009 and BOE report that said UK banks were vulnerable to the debt turmoil in Europe


  • Asian markets were mixed today.
  • South Korea rose 0.85% - Post-close, Daewoo Engineering & Construction said it was considering selling a stake in Korea Express.
  • A broad-based rise sent Taiwan +0.41% to a new 31-month high. Chimei Innolux edged up on news that it will build a new factory in China.
  • Hong Kong rose slightly +0.20%. Cosco International rose 3% after saying it will sell its 17% stake in Sino-Ocean Land, which jumped 6% on the news.  China Datang Corp Renewable Power dropped 6% on its trading debut after considerably cutting back the size of its IPO.
  • Japan closed down -0.07%, with trading-house losses being balanced by rises in big banks and real-estate companies. Square Enix plunged 10% after reducing its FY net profit outlook. Sharp rose 3% on a report it will spend ¥100B on production lines for small and midsize LCDs. Mitsui & Co fell 2% on fears that the US government’s suing BP may lead to bigger oil-spill losses than predicted.
  • Australia finished down -0.44%, with Hills Holdings plunging 12% on a profit warning.
  • Thailand declined -0.69% - Thai Airways fell 1% on saying it expects revenues to grow 10% next year.

Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends













The Golden Haze

“A question that sometimes drives me hazy: am I or are the others crazy?”

-Albert Einstein


Per our friends at Wikipedia, “haze is traditionally an atmospheric phenomenon where dust, smoke, and other dry particles obscure the clarity of the sky.” That just about summarizes what I think about the US stock market right here and now.


When I say now, I mean yesterday’s closing price. The SP500 inched up another point above its YTD closing high, taking its YTD gain to +11.4%. If you’re looking at this market price through The Golden Haze of ‘everything is going to be ok’ from here, you must be saying that higher-highs in a market price are bullish. They are, until they aren’t.


Up until 2 weeks ago, The Golden Haze was quite tranquilizing in another asset class market price – Gold. Then the music of bullish price momentum started to fade away. It didn’t stop suddenly. It didn’t stop hastily. It just started to stop…


The price of gold is now hitting a 2-week low this morning and is officially broken on my immediate-term TRADE duration. What were bullish higher-highs before December the 6th can now be considered bearish lower-highs. Again, until they aren’t.


Since I sold our entire gold position on December 6th  (+3.4% higher at $138.55 GLD), I suppose I have some credibility in attempting to make another “call” on gold from here. So let’s take a shot at this and consider the why and where from here:


Why is Gold down?

  1. CORRELATION RISK: Over the long term, Gold tends to underperform when real interest rates are positive.
  2. RELATIVE STRENGTH: Real-interest rates (domestic and global bond yields) have been blasting to the upside since November.
  3. CURRENCY COMPETITION: Don’t look now, but the US Dollar is up in 6 of the last 7 weeks as Fed Fighting becomes fashionable.

Where does Gold go from here?

  1. Immediate term TRADE: as of this morning my immediate term TRADE lines of support and resistance are $1362 and $1391, respectively. Trade the range.
  2. Intermediate term TREND: I introduced this line to investors in Calgary and Vancouver in a slide presentation on December 5th and 6th and the TREND line hasn’t changed. There’s intermediate term mean-reversion risk in the price of gold down to $1313.
  3. Long-term TAIL: there is a world full of support down in the $1 range and I’d love to buy back my gold there.

Now anyone who knows me well knows that I probably won’t have the patience to wait for $1230 gold on my buyback program. Heck, I may not have the patience to wait for $1313 either. But, provided that I remain bullish on the US Dollar (long UUP) and US Treasury Yields (short SHY), I’ll have a very hard time explaining why I’d buy back gold anytime soon. Being short gold on the next rally to lower-highs may be the better bet. We’ll see.


Back to The Golden Haze that is being long US Equities here… I think it’s instructive to think through the same CORRELATION RISK, RELATIVE STRENGTH, and CURRENCY COMPETITION scenario analysis that I went through for gold.

  1. CORRELATION RISK: using an intermediate-term TREND duration (6 months), the SP500 has an inverse correlation to the US Dollar Index of -0.77 and an r-square of 0.60. In other words, sustained USD strength should be bearish for US equities.
  2. RELATIVE STRENGTH: since March of 2009, the SP500 has outperformed gold by a lot (SP500 is +83.7% from its March lows, whereas gold is up 53%). So if Gold can go down in the face of Fed Fighting (competing with higher real interest rates), US stocks can.
  3. CURRENCY COMPETITION:  seasonal spikes in the US Dollar Index have happened in both of the last 2 years (2009 and 2010). It wasn’t cool to be levered-long US Equities in either of those January-February periods.

Never mind the obscurity of making the “valuation” case for stocks here; valuation isn’t a catalyst. Never mind the atmospheric phenomenon of short-term politicking and its effect on stoking “growth” hopes in the US economy either. That’s now consensus.


Take the “call” to sell US stocks here from a man who is already -3.37% too early in his short position (that would be me), as every Big Broker’s “strategist” is now officially calling for the US stock market to be up next year.


My immediate term support and resistance levels for the SP500 are now 1234 and 1248, respectively. If the SP500 makes another higher-high in the coming weeks, look for me to short it again. Yesterday I moved to a 70% position in Cash in the Hedgeye Asset Allocation Model.


Enjoy your weekend and best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Golden Haze - 1

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