prev

R3: JCP, DECK, PVH, VFC

R3: REQUIRED RETAIL READING

January 10, 2010

 

 

 

RESEARCH ANECDOTES

  • With the NFL season drawing to a close in just about a month, focus will ultimately shift to the 2011 season and the potential for a lockout.  While a year of no football would be devastating for the fans, it will also have a meaningful impact on all constituents whose revenue streams are tied to the league.  If the ’11 season were to be missed, it’s estimated that $12 billion in revenues would be lost.  Now that’s not all jerseys and fan gear, but that’s certainly a big part of it.
  • Amidst reports of particularly strong UGG sales over the last few weeks comes a report out of NYC podiatrist claiming that wearers are subject to a heightened risk of contracting foot fungus. In response, another NYC podiatrist weighed in on the claim suggesting that foot fungus generally affects roughly 40% of the population – a stat that hasn’t changed with the advent of the UGG phenomenon.
  • Add Luyou to the list of Chinese-based footwear companies looking to enter the fray by signing Steve Nash to an exclusive deal after 15-years with Nike. The move is the latest in a line of several such deals with foreign companies looking to leverage the notoriety of ‘seasoned’ NBA players. With both Anta and Li-Ning making similar deals over the past 12-months, expect Luyou to add a few more notable players from the NBA if they expect to compete with their domestic rivals.   

OUR TAKE ON OVERNIGHT NEWS

 

Ken Mangone Succeeds Peter McGrath at J.C. Penney - J.C. Penney has promoted Ken Mangone to executive vice president of product development and sourcing, succeeding Peter McGrath, who retired last month. It’s a critical role, particularly since 50 percent of Penney’s annual volume is generated by private and exclusive brands. McGrath will oversee the PD&S team, which handles all the trend analysis, product design and development, sourcing, manufacturing and quality control associated with private brands such as Worthington, Arizona, Liz Claiborne and St. John’s Bay. Mangone, who joined Penney’s 34 years ago as a management trainee, will report to Myron Ullman 3rd, chairman and chief executive officer. Mangone was senior vice president of product development, reporting to McGrath, and was instrumental in building up the in-house design team from under 50 five years ago to a current 250 textile and fashion designers. Mangone is also credited with sharpening and differentiating the lifestyle images of Penney’s key private brands as well as launching the a.n.a private brand.<WWD>

Hedgeye Retail’s Take: While this transition seems largely as planned, it’s still an interesting time (ahead of clearly rising costs) for the company’s chief of sourcing to change hands.  Perhaps this would be more troubling if the role had sat vacant rather then been filled  internally.

 

Tommy Hilfiger Strengthens Ties with Music Industry - Rolling Stones apparel? The Who sportswear? Tommy Hilfiger, whose brand has been closely associated with the music industry, is strengthening his ties with the entertainment industry. WWD has learned that MESH [Music, Entertainment and Sports Holdings], a company forged by Tommy Hilfiger, Andy Hilfiger, Bernt Ullman, Joe Lamastra and Li & Fung last year, is negotiating with Universal Music Group, which owns Bravado, to do worldwide deals for a host of musical stars. The arrangement would involve developing full apparel lines for Bravado’s entertainment clients that run the gamut from the Rolling Stones and The Who to Lady Gaga, Guns N’ Roses, Metallica and Justin Bieber.

According to sources, the first apparel collections for the musicians could start rolling out in fall 2011.<WWD>

Hedgeye Retail’s Take: One of the more formal approaches we’ve seen to catching a licensing stream while its hot.  History suggests these celeb lines are short lived, but a portfolio approach and tie-in with Universal may help to keep this “act” around for more than just one hit. 

 

Ugg Leads Holiday Season - Ugg continues to deliver big for many retailers. A number of key independents said the brand was their best seller during recent weeks. And the snow that blanketed much of the country during the Christmas holiday helped propel Ugg results even more than expected, retailers said. “Ugg took the cake,” said Joseph Wright, president of Vernon Powell Shoes in Salisbury, Md. Overall, stores were more upbeat about this season than last year’s period, although some said they were still facing obstacles. Below, retailers sound off on the season and the brands that drove business.<WWD>

Hedgeye Retail’s Take: This is hardly surprising for anyone that may have walked by one of the few UGG boutiques in NYC this holiday and saw the velvet rope containing a perpetual line of customers.  We originally noted that the line began to form in Soho in mid-October, only to last the entire holiday season. 

 

Timberland Sells IPATH -Timberland has sold the IPATH skate brand to Klone Lab, according to a memo sent to Timberland employees. In he second quarter of 2010, Timberland took a charge because IPATH had not met the revenue and earnings growth forecasted when it was acquired in August 2007.  A report on shop-eat-surf.com said that CEO Jeff Swartz wrote in a memo last week that IPATH's revenues grew 40% in the past year with increases in its account base domestically and internationally. However, Timberland decided IPATH did not fit with Timberland's core mission to become the No. 1 outdoor company. In the second quarter ended July 2, 2010, Timberland recorded an impairment charge of $5.4 million after concluding that the carrying value of goodwill exceeded the estimated fair value for its IPath, North America Retail and Europe Retail reporting units. It also recorded a separate impairment charge of $7.8 million after concluding that the carrying value of the IPath and howies trademarks and other intangible assets exceeded their estimated fair value.<SportsOneSource>

Hedgeye Retail’s Take: With competition in the outdoor space remaining at heightened levels, TBL’s fledgling side projects are less of a distraction after this divestiture.  Also a good lesson in “not all footwear is created equal”.

 

VF Corp. Promotes Rendle and Baxter  VF Corp. promoted two executives, Steve Rendle and Scott Baxter, to the newly-created position of Group President. Rendle, 51, has been promoted to vice president, VF and group president, Outdoor & Action Sports Americas. Since 2009, Rendle has served as president of VF Outdoor Americas. He will now be responsible for leading VF's Outdoor and Action Sports businesses in North and South America, consisting of The North Face, Vans, JanSport, Eagle Creek, Reef and lucy brands. Kevin Bailey, president of Vans and Jeff Moore, president of Reef will now report to Rendle. He will continue to be based in San Leandro, CA. In addition to continuing to lead its Imagewear coalition, Baxter, 46, will be assuming responsibility for its Jeanswear Americas business. Since 2008 Baxter has served as President of VF's Imagewear coalition, with responsibility for the coalition's Image and Licensed Sports Apparel businesses. Baxter's new title is Vice President, VF and Group President, Jeanswear Americas & Imagewear. Angelo LaGrega, who for the past 5 years has done a tremendous job as President of Jeanswear Americas, will now report to Baxter. Baxter and his family will be relocating to Greensboro, North Carolina in 2011. Karl Heinz Salzburger, currently Vice President, VF and President - VF International and a member of VF's Operating Committee, will assume the new title of Vice President, VF and Group President, International. <SportsOneSource>

Hedgeye Retail’s Take: With the complexity of its global business becoming increasingly challenging, the added layer of senior management to oversee day-to-day operations makes sense – it also happens to free up Wiseman and other key executives to focus on more significant M&A opportunities, which has been noticeably absent of late despite management’s interest.

 

Perry Ellis To Buy Rafaella - Perry Ellis International Inc. is expanding its profile with a deal to buy Rafaella Apparel Group Inc. from Cerberus Capital Management. The purchase price includes $70 million and 106,564 warrants to purchase Perry Ellis stock. The deal is expected to close by Jan. 28 and will help the company expand its women’s offering. The transaction helped lift Perry Ellis shares $2.77, or 10.6 percent, to $28.84 Friday after they reached a new 52-week high of $30.24 earlier in the day. “Perry Ellis will immediately become a more significant player in the women’s apparel industry,” said George Feldenkreis, chairman and chief executive officer. Rafaella designs, sources and distributes women’s better sportswear. The business had revenues of $122 million and adjusted earnings before interest, taxes, depreciation and amortization of $12.4 million for the 12 months ended Sept. 30. <WWD>

Hedgeye Retail’s Take: With low single-digit EBIT margins, the Rafaella acquisition not only adds over 10% to the PERY’s revenue base, but should also help return profitability back near double-digit levels last achieved in ’03.

 

India Trades Cotton for Onions - The Commerce Ministry on Saturday turned down the Indian demand to immediately allow the onions export through land route via Wagha border, however Islamabad would consider the New Delhi’s demand later, most probably in the coming week. “We have been asked by the Indian government through Foreign Office to allow the onions exports to India, as they badly needed the commodity. However the Ministry of Commerce will not allow it at present without consultations of stakeholders. Meanwhile an important meeting of all stakeholders is likely to be held on Monday to consider the Indian demand,” an official of the Commerce Ministry told The Nation. He further said, “The Commerce Ministry cannot make this decision alone, as consultations of all stakeholders are required in this regard and the Government will consider the Indian demand on Monday.”<Nation>

Hedgeye Retail’s Take:  In a change of roles, Pakistan now has the upper hand when it comes to commodity strangleholds on supply. With food inflation rampant, the Pakistan government has found one of the few levers to ease India’s restrictive cotton export policy.

 

 


BIG VOLUMES AND LUCK IN MACAU

January may hit another record.

 

 

The following details Macau table revenues for the first  9 days of January.  Note that the counts are performed 1 day in arrears so the total includes New Year’s Eve and New Year’s Day.  January is off to a stunning start both in terms of volumes and hold percentage.  We certainly expect growth to moderate later in the month as business typically slows down ahead of Chinese New Year which starts on February 3rd this year.  If we assume the current torrid pace continues, then gaming revenues would total HK$21.5 billion, up 58% and a new monthly record.  However, if we use the November pace for the rest of the month, we calculate total gaming revenues will be HK$18.5 billion, up 36% YoY.  Still a record and impressive growth considering last January generated a 63% comp. 

 

Market shares thus far in January continued recent trends.  Wynn knocked the cover off the ball in the first part of the month (again) while LVS was a laggard, dropping all the way to 14%.  Hold likely played a role in the LVS drop but we remain concerned with their weak Junket volume share.  The fact is that LVS is just not competitive with their junket commissions and credit policy.

 

BIG VOLUMES AND LUCK IN MACAU - macau


TALES OF THE TAPE: GMCR, SBUX, COSI, WEN, MCD, RUTH, RRGB, EAT, AFCE

News items and price action from Friday’s trading.  Between the Cowan conference and ICR the news flow for the balance of the week should pick up significantly.

  • GMCR rounded out a strong week by outperforming its QSR peers on accelerating volume Friday, gaining 3.7%.
  • SBUX also gained on accelerating volume, ending the session up 2.6%.
  • COSI again gained on accelerating volume, its shares rose 3.4% to finish the week up 29.4%.  I continue to like this stock and believe improvement in the company’s fundamentals remains
  • WEN  - converting an Arby’s to a Wendy’s in  PA - last Friday WEN declined on accelerating volume.
  • MCD gained slightly on Friday to round out a poor week’s trading during which its shares declined 3.1%.
  • RUTH outperformed on Friday, gaining 4.5% on strong volume.  This morning, the company announced preliminary 4Q10 sales results. 
  • RRGB shares increased 4.2% on accelerating volume on the back of news that activist shareholders are pushing for the company to go private
  • EAT continues to perform strongly, gaining 1.2% on Friday on strong volume. 
  • AFCE raised its forecast for the current fiscal year.

TALES OF THE TAPE: GMCR, SBUX, COSI, WEN, MCD, RUTH, RRGB, EAT, AFCE - stocks 110

 

Howard Penney

Managing Director


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

THE M3: SJM SELLS 4 BUILDING SITES; TAIWAN IVS; JAPAN CASINO CRUISE; S'PORE INFLATION

The Macau Metro Monitor, January 10, 2011

 

CHINA STAR BUYS SITES IN MACAU macaubusiness.com

Sociedade de Turismo e Diversões de Macau SA, the parent company of SJM Holdings, has sold 4 building sites in Macau to China Star Entertainment for HK$550MM.  The deal is pending approval from the Macau government.  The sites are adjacent to Hotel Lan Kwai Fong, Macao Polytechnic Institute, Forum de Macao and Golden Lotus Square.  They will be developed into office units and residential apartments for sale. 

 

The four sites were granted to STDM by the Portuguese administration, but the company failed to develop them within the agreed deadlines. The government decided to postpone the development period for 36 months commencing from 15 April 2010 (i.e. until 14 April 2013).

 

CROSS STRAIT TRAVELS UNDER INDIVIDUAL VISIT SCHEME China Daily

Certain Beijing and Shanghai residents may be able to travel to Taiwan under the Individual Visit Scheme starting April 2011.  Authorities on both sides had reached a consensus concerning the pilot scheme and that the preliminary planning is to impose a ceiling on the number of applicants at 500 per day.  An individual tourist visa is valid for three months and allows the holder 15 days on the island each time.


JAPAN PLANS TO OPERATE FLOATING CASINO FROM NAGASAKI TO SHANGHAI Macau Daily News, Nishi Nippon

Huis Ten Bosch intends to start a floating casino between Nagasaki and Shanghai this summer.  The 20,000-30,000 tons luxury ocean liner will target patrons from Mainland China.  Huis Ten Bosch had established a Panamanian company so that it can operate a casino on the ship.  The company invested 20 billion yen into the project and the ship will hold 1,500-1,700 passengers.


SINGAPORE EXPECTS INFLATION TO RISE, ON GUARD AGAINST OVERHEATING WSJ

Finance Minister Tharman Shanmugaratnam said increased Chinese demand and weather-related troubles will likely push up commodity prices, adding to inflationary pressures in Singapore.  Inflation is expected to rise in the first quarter of this year before moderating, he said.

 

Senior Minister of State for Trade and Industry S. Iswaran said there would be no need for stimulus measures in Singapore in 2011.  The government expects a "healthy" 4% to 6% GDP growth in 2011 but inflation needs to be watched closely, he added.


WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Positive / 4 of 10 improved / 3 out of 10 worsened / 3 of 10 unchanged
  • Intermediate-term (MoM): Neutral / 4 of 10 improved / 4 of 10 worsened / 2 of 10 unchanged
  • Long-term (150 DMA): Negative / 2 of 10 improved / 3 of 10 worsened / 4 of 10 unchanged / 1 of 10 n/a

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - summary

 

1. US Financials CDS Monitor – Swaps were mixed across domestic financials, tightening early in the week and then widening into the end of the week.  Swaps tightened for 16 of the 28 reference entities and widened for the other 12.  Bank of America saw tightening on the back of its settlement with the GSEs early in the week, while all the moneycenter swaps backed up on the news of the Massachusetts Supreme Court foreclosure ruling.  

Widened the most vs last week: WFC, C, GS

Tightened the most vs last week: LNC, MET, AON

Widened the most vs last month: CB, TRV, AGO

Tightened the most vs last month: SLM, MET, PRU

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - us swaps

 

2. European Financials CDS Monitor – In Europe, banks swaps flashed a warning signal.  Swaps widened for 34 of the 39 reference entities. German bank swaps widened an average of 22%, Spanish bank swaps widened an average of 17%, and Belgium’s KBC Group N.V. saw swaps widen more than 40%. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - euro swaps

 

3. Sovereign CDS – Sovereign CDS rose 21 bps on average versus last week amid growing fears of contagion.  Portuguese and Irish swaps saw the largest increase. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - sov swaps

 

4. High Yield (YTM) Monitor – High Yield rates fell 33 bps last week, closing at 8.00 on Friday.  

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index continued to charge higher, closing at 1590, 17 points higher than the previous week.   

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - lev loan index

 

6. TED Spread Monitor – The TED spread fell to 16.8 from 18.4 the prior week.

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - ted

 

7. Journal of Commerce Commodity Price Index – Last week, the index rose 4.5 points, closing at 31.8 on Thursday.

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields rose 14 bps to a new high of 1261.

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads increased into week end, rising 17 bps to 226.  

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - markit

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  The index fell to a new low of 177 amid Australian flooding. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - baltic dry index

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread held flat at 273 bps. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 2.1% upside to TRADE resistance, 2.6% downside to TRADE support. 

 

WEEKLY FINANCIALS RISK MONITOR: EUROPE FLASHES RED BUT DOMESTIC METRICS IMPROVE - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


Buck Breakout

“The best way to destroy the capitalist system is to debauch the currency.” 

-John Maynard Keynes

 

This year I am going to try my best to kick off each week with a Global Macro recap of the week prior. I’ll also try to address what decisions I made in the Hedgeye Asset Allocation Model to reflect ongoing and ever-changing Global Macro risks.

 

The biggest move that mattered last week was the Buck’s Breakout above my immediate-term TRADE line of $79.92 on the US Dollar Index. After taking a breather into December end, the US Dollar Index is now bullish again on both our immediate-term TRADE and intermediate-term TREND durations.

 

With the US Dollar Index closing up +2.6% on the week (up for the 8th week out of the last 10), here’s the big stuff that went down: 

  1. Euro = down -3.1% to close the week at $1.29 (we covered our short position in FXE into week’s end)
  2. CRB Commodities Index = down -2.7%, after hitting a new cycle-high of 333 on the 1st trading day of 2011
  3. Oil = down -3.7%, breaking its immediate-term TRADE line of support of $89.46 midweek (we sold our OIL this wk)
  4. Gold = down -3.7%,  breaking its December closing low (we remain short GLD)
  5. Copper = down -3.6%, after hitting an all-time closing-high of $4.48/lb on the 1st trading day of 2011 
  6. Volatility = down -3.3% to $17.14 on the VIX, after seeing volatility rise in an up US equity market in the 2 weeks prior

I’m no Keynesian, but I (like Keynes did when he was 36 years old) trade currencies and believe them to be a very important barometer of a country’s overall health. In those days, as Liaquat Ahamed wrote in one of my favorite financial history books (Lords of Finance, page 11), “in 1914 the single most important, indeed overriding, objective of these institutions was to preserve the value of the currency.”

 

As a direct result of last week’s US currency strength, I think last week was a win, win, win for most Americans who care, not only about how much money they make, but how the rest of society does in the meantime.

 

Let’s look at these 3 wins associated with a strong American currency:

  1. Stocks went up (SP500 was up +1.1% on the week)
  2. Inflation went down (that’s what should happen if a country’s currency is pervasively strong)
  3. Rates of return on our hard earned savings accounts went up (10yr and 30yr US Treasury rates climbed again week-over-week)

No, I’m not saying we are out of the woods yet. I’m just saying that last week was a better week for America by my global macro scorecard than the week prior was – and by the looks of the aforementioned Keynesian quote, the Fiat Fools should agree.

 

Nor am I saying this was good for the rest of the world (some of their currencies went down, and so did their stock markets):

  1. India’s BSE Sensex Index = down -4.0%
  2. Spain’s IBEX Index = down -3.0%
  3. Luxembourg’s LUX Index = down -2.6%
  4. Portugal’s PSI Index = down -2.4%
  5. Taiwan’s TAIEX Index = down -2.1%
  6. Indonesia’s Jakarta Index = down -1.9%

After all, inflation, like politics, is priced in local currency. This, of course, isn’t a consensus way to look at the world; particularly from a money printing government official’s perspective – but I think that will change.

 

Whether it was the price of oil hitting an all-time high choking off US consumption in 2008 or the price of the United Nation’s Food Index hitting an all-time high (this week) staring Indian and Indonesian stock markets right in the face (the #2 and #4 largest country size populations in the world), it’s all the same to me. The Fiat Fools around this world are just taking turns.

 

Back to the Hedgeye Asset Allocation Model, I ended the week with the same allocation to US Cash that I started the week with (61%). Although I did drop down to a 49% position in cash intra-week and changed the complexion of my invested position into Friday’s close (I call this managing risk around my gross invested exposure). My updated positioning is now as follows:

  1. US Cash = 61%
  2. International Currencies = 21% (all in the Chinese Yuan, CYB)
  3. International Equities = 9% (all in German Equities, EWG)
  4. Commodities = 3% (all in Corn, CORN)
  5. US Equities = 3% (all in Volatility, VXX)
  6. Fixed Income = 3% (all in Treasury Inflation Protection, TIP)

Now I fully understand that this isn’t the way that most strategists do it  - that’s why I do it this way.

 

As price, volatility, and volume studies change, I change both my asset allocation positions and invested exposures. For example, I started the week long oil (stocks and the commodity) and US Healthcare stocks (XLV), but Oil broke its immediate-term TRADE line of support and US Healthcare (XLV) became immediate-term TRADE overbought on Thursday. There are no rules stating that I can’t buy either of those positions back (lower) in the coming weeks.

 

Nor are there rules stating that I can’t get less bearish on US Equities if the US Dollar were to continue to strengthen. US stocks actually closed down for back-to-back sessions for the 1st time on Thursday/Friday since November 29th and 30th. I don’t have to buy them when they are on sale. I don’t have to get bullish on the way down either. I’m just saying that with a 61% cash position, I have plenty of options.

 

My immediate term support and resistance levels in the SP500 are now 1251 and 1276, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Buck Breakout - matt


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next