prev

Game Time: US Dollar Levels, Refreshed

POSITION: Long UUP

 

After writing about The Last Entitlement in this morning’s Early Look, I am getting a lot of questions surrounding what I am going to do with this US Dollar long position.

 

The questions are well-placed. To recap my current USD position’s history, we have positive P&L in the position effectively because we bought it at its most recent bottom (November 4th after the Midterms) in expectation of US fiscal reform. That said, most recently my patience with the Fiat Fools has once again run thin, and I now have this position on a very short leash.

 

While there is an immediate-term TRADE line of support at $77.80, that’s not good enough for me to stay in the game here trusting that professional politicians are going to do good by their word and cut spending. As long as the long-term TAIL and intermediate-term TREND lines of resistance in America’s currency credibility remain overhead, so will many globally interconnected consequences.

 

So tonight is the night – and watching the US Dollar lose its early morning gains here reminds me that the entire global currency market is betting that the President of the United States panders to the political wind of easy moneys and US Dollar Debauchery.

 

It wouldn’t be a new strategy – neither would my selling this long position and turning around immediately and shorting it.

 

Standing by,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Game Time: US Dollar Levels, Refreshed  - 1


COH: Questions Trump Answers

On an absolute basis, Coach’s F2Q was a pretty good quarter.  The topline was better than expected (NA comps up 12.6% vs. a whisper of 8-9%) and quarterly EBIT margins of 35.9% by all accounts remain tops across the entire apparel, retail, and luxury sectors.  Growth clearly remains the top priority for management with square footage expected to increase by 10% (vs. 8% LY) driven by aggressive expansion in China, new moves into Europe, and modest growth in the US supported by a resurgent men’s initiative.  Cash generation is also a strong point as it always has been.  The company ended the quarter having repurchased $388 million worth of stock, with $940 million on its balance sheet and no debt. 

 

The “growth” story and the cash are hallmarks of Coach and factors that certainly shouldn’t be ignored.  However good this may be, we come away from the quarter with more questions than answers on two fronts. First, is the Street really prepared for extremely challenging gross margin hurdles over the next three quarters after barely printing a gross margin gain of 15bps on an easy LY compare? And secondly, if SG&A growth remains high to support the company’s growth initiatives, will be there be meaningful earnings leverage in the near-term to satisfy those that are accustomed to consistent upside?  Couple these unanswered questions with the fact that inventories ended the quarter up 36%, a full 17 points higher than sales growth and we believe there may be more risk than reward in the near term.  While the SIGMA chart is not a perfect predictor by any means, this pattern is turning out to be a classic setup for future downside.

 

COH: Questions Trump Answers - COH S 1 11

 

Eric Levine

Director


R3: SBUX, KSWS, VFC, Prada

R3: REQUIRED RETAIL READING

January 25, 2010

 

  

 

RESEARCH ANECDOTES

  • Keep an eye on the upcoming spring launch of K-Swiss’ women’s apparel collaboration with Biggest Loser trainer/star Jillian Michaels.  The line will be launched on amazon.com and will aim to bring feminine and flattering looks to women embarking on life-changing weight loss efforts.  With the show still one of the more popular on national television, expect to see K-Swiss leverage this tie-in.
  • With the internet opening the door to just about any possible consumer review, positive or negative, the government is about to join the fray.  The Consumer Product Safety Commission is set to release its 38 year old consumer complaints database to the public on March 11th, when the agency will begin releasing the complaints to the public.  The site will be called SaferProducts.gov.  Score one for transparency.
  • It’s estimated that roughly 4% of the population are using location based apps to “check-in” to locations such as Starbucks, Walmart, McDonald’s, etc…According to Adage, the most “checked-in” merchant last week was Starbucks with 151k, followed by McDonalds with 51k, and Walmart with 31.6K.  Key to growth in location based advertising will be the extension of store-specific promotions which encourage consumers to report their shopping whereabouts.

OUR TAKE ON OVERNIGHT NEWS

 

Li & Fung USA Acquires Beyond Productions - LF USA, a subsidiary of Li & Fung, has put a ring on Beyoncé’s finger. LF USA has acquired Beyond Productions LLC, the apparel and accessories company led by Beyoncé and Tina Knowles. Beyond Productions is a designer and licenser of women’s fashion apparel and accessories whose brands include House of Deréon, Deréon, Curvelicious and Miss Tina. In addition, LF USA has entered an endorsement agreement with Beyoncé for House of Deréon and Deréon. Terms of the long-term deal weren’t disclosed. <WWD>

Hedgeye Retail’s Take: Wondering if there’s a China play here or if this is just a chance to lock in the residual benefits of Beyonce’s likely long-lived star power. 

 

North Face Will Outfit US Freeskiers - The North Face will become the official outfitter of U.S. freeskiers for the 2014 and 2018 Olympiads, according to a report from The Wall Street Journal. The United States Ski and Snowboard Association is expected to announce the deal on Tuesday. The North Face deal is said to be worth more than $6.5 million over the next eight years, sources told the Journal. North Face also gains a  presence at related events throughout the country. North Face has long been a dominant brand for back-country adventure sports, but was said to be looking to expand into a trendy new category. It's also sponsoring the Winter X Games this year. <SportsOneSource>

Hedgeye Retail’s Take: Don’t confuse the “freeskiing” sponsorship with UA’s sponsorship of “freestyle” and “alpine” skiing.  Freeskiing combines the popularity of snowboarding with the progression of freestyle skiing.  Participants are often found in terrain parks specifically designed for tricks.

 

Miuccia Prada Speaks On China - There are fashionable people here that you wouldn’t even find in Paris, New York or London,” Miuccia Prada said of the burgeoning Chinese market. “They have already understood everything that they had to understand.” And Prada’s company wants to tap further into that growing understanding. The luxury goods house last weekend staged its first-ever runway show in China at this city’s Central Academy of Fine Arts Museum, displaying a slightly revamped spring collection. The show is part of Prada’s plan to continue to expand in the region as it opens more stores in Mainland China and nearby territories. <WWD>

Hedgeye Retail’s Take:  Recall that a Prada IPO has been off and on for about five years now.  China would certainly help to boost the brand’s growth profile.

 

Fabric Firms Feel Slow Recovery - As designers put the final touches on their fall collections, they are beginning to think about spring 2012. While there is still much uncertainty in the textile sector, exhibitors, designers and buyers attending textile shows in Manhattan the last two weeks had reason to believe the economic doldrums are starting to lift and the rebound will soon begin to positively impact business. That was the general spirit at the Première Vision Preview New York and Direction by Indigo shows that took place Jan. 11 and 12, and offered designers an early look into fabric and print trends for next year, and sourcing specialist Texworld USA, which ended its three-day run last Thursday. “We are certainly emerging from the worst of the crisis,” said Philippe Pasquet, chief executive officer of Première Vision. <WWD>

Hedgeye Retail’s Take:  Interesting perspective on demand with no mention of costs.  Perhaps the higher end nature of the show makes costs less relevant, at least for now.

 

ANCI Rolls Out New Initiatives - ANCI, the National Italian Footwear Association, is rolling out two initiatives to highlight the country’s storied tradition and know-how in the footwear industry. The first is a new promotional campaign, called Taste Beauty, that aims to inspire consumer confidence in the style and quality of Italian-made footwear by displaying images of a tower of mozzarella cheese, a fresh tomato, a plume of basil and a shoe. The campaign will be used in both print and online advertising to coincide with the principal fairs organized by ANCI. <WWD>

Hedgeye Retail’s Take: It’s no often we see a country promoting its heritage, but it’s clear that the Italians must be looking to gain some share back in the “quality” category.

 

Online Shoppers in the UK Increased Spending by 16% in 2010 - Online shoppers in the United Kingdom spent 44 billion pounds (US$70.4 billion) in 2010, up 16% from the previous year, according to a report released today by comparison shopping site Kelkoo and consultancy The Center for Retail Research.  The report forecasts a 13.6% increase this year for U.K. online spending, to 50 billion pounds (US$80 billion). By contrast, the report says that all retail spending in the United Kingdom will grow only 1.4% in 2011. The report adds that annual online spending in the U.K. accounts for nearly 11% of all British retail spending. That is the highest market share for online retailing among European countries, the two organizations say. <InternetRetailer>

Hedgeye Retail’s Take:   While the online market in the UK is about half the size of the US market, the growth rate appears to be moving forward at a rate about 50% higher than domestic growth. 

 

Website and Email Critical B2B Investments - According to a survey of business-to-business (B2B) marketers, traditional online tactics remain key to marketing success. Just over half of B2B marketers surveyed told BtoB Magazine their budgets would go up this year, mostly by less than 15%. With a primary marketing goal of customer acquisition (69%), the greatest number of respondents expected spending increases to come from online (78%). By contrast, 44% said they would be spending more on events and 36% on direct mail. Online, B2B marketers were most likely to report planned increases in marketing spending on their websites and email programs, followed by social media. <eMarketer>

Hedgeye Retail’s Take: There is a clear shift in spend towards more offensive online marketing tactics underway. With considerable improvement in alternatives to more passive forms of outreach, companies are clearly warming to the sniper versus shotgun approach with customers. 

 

R3: SBUX, KSWS, VFC, Prada    - R3 1 25 11

 

 


GET THE HEDGEYE MARKET BRIEF FREE

Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

EAT: NIRVANA BOUND

In contrast to our view on MCD which trends are taking it into a “deep hole” EAT is headed to “nirvana.”   Ultimately this has implication for the trends in valuation. 

 

While EAT sales remain challenged (adjusting to reflect the one week calendar shift) company-owned comparable restaurant sales were (3.7), (4.9) and (4.1) percent for October, November and December, respectively, resulting in (4.1) percent for 2Q11.  We believe that the worst is over for EAT from a top line perspectives and the company initiatives to drive top line sales will take Brinker's same-store sales into positive territory for the balance of fiscal 2011.

 

Specifically, as I wrote in my post titled, "EAT - A BADGE OF HONOR", on November 14th, the following three points are pivotal to EAT's second half of fiscal 2011.

  1. Chili’s is lapping the introduction of menu changes that caused sales to decline last year
  2. “2 for $20” is to become permanent menu item; this will be incremental to sales in 2HFY11
  3. In January, Chili’s will be rolling out a new lunch menu focused on gaining traction in a day part that has been challenging for the company.

More details after the call at 10am.

 

EAT: NIRVANA BOUND - eat quadrant

 

Howard Penney

Managing Director


CHART OF THE DAY: Will the U.S. Handshake and Currency Earn Respect Again?

 

CHART OF THE DAY: Will the U.S. Handshake and Currency Earn Respect Again? -  chart of the day


THE M3: MACAU VIPs; HO FAMILY DISPUTE

The Macau Metro Monitor, January 25, 2011

 

DOWNSIZING FOR SOME MACAU 'VIPs' DURING 2011 Asian Gaming Intelligence

An industry insider suggested that if the Macau market continues its high-growth trajectory without a significant new supply of live VIP tables, then some of the lower high rollers could effectively be bumped into the mass market.  In this scenario, AGI believes a new segment would be formed, along the lines of the junkets found on mass floors in some properties and some jurisdictions in Asia.  This bump down might result in those players losing some of their existing privileges with retail banks.

 

A full utilization of the VIP tables is unlikely as operators have pointed out that giving their VIP customers the flexibility to move from table to table within the same room is very important.  In addition, given that many junket operators run rooms in several properties, they want to be able to offer players different venue options.

 

FAMILY SEIZED STANLEY HO'S STDM SHARES WITHOUT HIS CONSENT, SAYS LAWYER: REPORT macaubusiness.com

Gordon Oldham, Stanley Ho's lawyer, said Dr. Ho might take legal action against his family for seizing his stake in STDM, without his consent.  Brunswick Group, representing some of the family members, said that Mr Ho provided written authorization of the share transfer.  SJM Holdings suspended trading pending the release of an announcement.



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.

next