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Athletic Apparel Sales Reaccelerate

Underlying trends for athletic apparel remain strong with sales reaccelerating after a meaningful slowdown last week. The rebound was less significant than we had expected, however given unprecedented weather disruptions year-to-date, the reacceleration should be viewed positively on the margin. In looking at the regional trends in greater detail, there was a notable divergence between sales in western regions (Pacific and Mountain) compared to reaccelerating trends across all other regions – particularly the South Atlantic and South Central. While the national weather data suggests more precipitation out west than average last week, we suspect year-over-year comparisons to be the cause for underperformance.  

 

Lastly, given disruptions over the last few weeks we expect to see continued acceleration in sales next week. With the final two weeks of the retail calendar accounting for 40%-50% more sales volume compared to the 1H of the month, January’s monthly performance will fall largely on the shoulders of next weeks’ results.

 

Athletic Apparel Sales Reaccelerate - FW App App Table 1 26 11

 

Athletic Apparel Sales Reaccelerate - FW App Reg 1 26 11

 

Athletic Apparel Sales Reaccelerate - Weather 1 26 11

 

Casey Flavin
Director


TALES OF THE TAPE: PNRA, BAGL, PZZA, DPZ, GMCR, SBUX, EAT, CAKE, DIN, TXRH, BWLD, CPKI, MCD

Notable news items/price action over the past twenty-four hours.

  • Despite the continuous upward trend in wheat prices, PNRA and BAGL gained on strong volume.
  • PZZA and DPZ are up despite cheese prices gaining 8.2% week-over-week
  • GMCR declined on accelerating volume.  SBUX wants K-Cups’ 70% share of the instant coffee market.
  • A HedgeyeEdge favorite, EAT, surged 11.3% on accelerating volume after investor confidence in the turnaround story grew.
  • Other casual dining names gained on the solid results from EAT. CAKE, DIN, TXRH, BWLD and CPKI all saw a gain in share prices.  I find that interesting given that we know, via Malcolm Knapp’s casual dining sales data, that casual dining sequentially slowed during 4Q10.
  • MCD share price ticked up slightly on the day with weak volume.
  • MCD has announced that it will accept contactless payment at its 1,200 restaurants throughout the UK, making it one of the first tier-one merchants to implement the technology in the country.
  • According to adage.com, the most “checked-in” merchant last week was Starbucks with 151,000 last week, followed by McDonald's with 51,000, according to Foursquare check-in data.

 

TALES OF THE TAPE: PNRA, BAGL, PZZA, DPZ, GMCR, SBUX, EAT, CAKE, DIN, TXRH, BWLD, CPKI, MCD - stocks 126

 

Howard Penney

Managing Director


HOTELS: BLAME THE WEATHER

Analysts are blaming the January RevPAR slowdown on the weather. We remain more concerned with the shock of potentially negative RevPAR growth in June/July.

 

 

January RevPAR growth in the Upper Upscale segment has only averaged +3.5% YoY, versus 10% and 5% in November and December, respectively.  Usually, we see the weather excuse used by retail and restaurant companies but give the analysts a pass.  Besides, we are less concerned with YoY comps given the wild volatility in RevPAR over the past three years.  Rather, we prefer to track RevPAR on a sequential, absolute dollar basis, adjusted for monthly seasonality.

 

Through this lens, we saw a major spike in RevPAR during the spring and early summer of 2010 – pent up demand in our view – followed by a drop off in August/September and stagnancy through the rest of the year.  Of course, the YoY comps told a different story.  2010 RevPAR ended up almost 6%.  But as shown below starting in August 2010, RevPAR has either been underperforming or slightly above depressed seasonal expectations.

 

HOTELS: BLAME THE WEATHER - UUP2

 

The analysts not focused on dollar RevPAR will be shocked when there is a marked slowdown in RevPAR growth post the February peak.  In fact, RevPAR was so strong in June and July that we could actually see RevPAR go negative, assuming there is not a meaningful sequential pick up.

 

HOTELS: BLAME THE WEATHER - UUP1

 

If we are right, the slowing comps will have negative earnings ramifications relative to Street Q2 and Q3 estimates.  Of course, if January’s significant slowdown is related to anything more than just weather, the downside will be that much more severe.


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WEEKLY COMMODITY MONITOR

Another strong week of price gains for commodities tracked in our commodity monitor.  Here besides the table below detailing the moves, here are a few takeaways I think are relevant.

 

1)  The increase of cheese prices continues, now up 23% YTD and gaining 8.2% on the week.  As I wrote in last week’s note on commodity costs, this is significant for CAKE, DPZ, and CMG among others. 

  • CAKE COGs raised by 50 basis points last quarter largely due to pressure from cheese and dairy costs.  CAKE’s commodity basket remains exposed and, week-over-week, the move in cheese (and dairy) prices is bad news for their margins.
  • DPZ margins were negatively impacted by rising cheese prices in 3Q10.  The company is facing difficult comparable restaurant sales compares over the next few quarters and gaining leverage over these rising cheese prices in the first quarter, facing a 14.7% comp last from 1Q10, may prove difficult.
  • CMG, as I wrote last week, seeks to source as much of its ingredients as possible from local and organic sources which means margins face significant exposure to commodity headwinds.  The company has been impressive in terms of its offsetting commodity costs with operational initiatives inherent in its business model.  Given the magnitude of commodity cost increases, operational efficiency may not insulate CMG’s bottom line from cost inflation in perpetuity.

2)  Coffee declined once again but, behind wheat and corn, remains on the podium as far as year-over-year changes go. 

  • SBUX reports today and they may take some comfort in the week-over-week decline in coffee prices along with the continuing pain of 66% year-over-year inflation in coffee prices.

3) Favorable chicken wing prices continue: good news for BWLD.  See chart below.

 

WEEKLY COMMODITY MONITOR - comd monitor

 

WEEKLY COMMODITY MONITOR - cheese

 

WEEKLY COMMODITY MONITOR - coffee

 

WEEKLY COMMODITY MONITOR - chicken wing

 

Howard Penney

Managing Director


CHART OF THE DAY: The Inflation --- Coming to a Complacent Stock Market Near You

 

CHART OF THE DAY: The Inflation --- Coming to a Complacent Stock Market Near You -  chart of the day


The Ber-nank's Housewives

This note was originally published at 8am on January 21, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“By and large, mothers and housewives are the only workers who do not have regular time off. They are the great vacationless class.”

-Anne Morrow Lindbergh

 

Japanese Equities closed down -1.6% overnight and have been making a series of lower-highs from their leverage-cycle peak for more than 2 decades. Japanese housewives are not happy.

 

In an especially interesting survey from the Sompo Japan Life Insurance Company this week, it appears that Japanese housewives are getting plugged by global inflation. Their secret savings (or what the Japanese called hesokuri) fell -18% in 2010 to their lowest levels since late 2007. Not ironically, that’s also when US Consumption rolled into the red for the 1st time after 64 consecutive quarters (or 13 years) of being positive.

 

As Ludwig von Mises said, inflation is a deliberate policy that government people choose without openly stating it to the public. Whether or not a humble looking man with a beard calls it that or not from his perch upon-high at the US Federal Reserve is of no concern to the rest of the world. Unfortunately, the large majority of the world’s population doesn’t consider US owner’s equivalent rent (42% of US CPI) inflation.

 

Whether they be Japanese housewives or folks in India and Indonesia (the 2nd and 4th largest country populations in the world, respectively), energy and food prices matter – big time.

 

In the Japanese survey, vegetable prices, energy bills, and higher tobacco taxes ranked #1, #2, and #3 as top concerns. In Japan, don’t forget that it’s the women who make most of the budgeting decisions in Japanese households (Darius Dale and I scoured the survey looking for all of the offsetting goodies Japanese women found associated with Japanese style Quantitative Guessing (QG), but couldn’t find any).

 

Quantitative Guessing (QG) in Japan has obviously failed. That should be no surprise however as it’s been empirically proven at this point (Reinhart & Rogoff) that when a country crosses the proverbial Rubicon of debt/GDP thresholds (over 90% debt/GDP), long-term economic growth is structurally impaired.

 

The Keynesian/Princeton-connection of Paul Krugman (who told the Japanese to “PRINT LOTS OF MONEY” in 1997) and Ben Bernanke really don’t like it when Global Macro Risk Managers call out these simple concepts like real-world inflation and structurally impaired growth. That’s because their charlatan storytelling is largely focused on fear-mongering about depressions and deflation.

 

Whether you want to do your own channel checking on this and call the 57,000 Japanese housewives in the survey or the 44 MILLION Americans that are currently on food stamps (all-time high; nice job Ben), I think that calling anyone who lives on a budget will render the same answer.

 

If you’ve been positioned long-dong silver anything Emerging Markets in the last 3 months (stocks or bonds), you see the same inflation readings that housewives and I are talking about. It’s on your screen.

 

There’s really 1 thing that can crush both Bond and Emerging Market investors alike – inflation. When the “reflation” trade becomes the inflation, it can start to hurt equity market returns too.

For the YTD, here’s what’s going on in Global Equities outside of where Apple is trading:

  1. Indonesia = down -8.7%
  2. India = down -7.3%
  3. Peru = down -7.1%
  4. Egypt = down -6.2%
  5. Philippines = down -6.0%
  6. China = down -3.3%

Chinese growth slowing is perpetuated by inflation accelerating. When the Government of Thailand cut its GDP forecast in HALF this week (versus 2010’s +8% growth) to 4-5% for 2011 they weren’t thinking about how many cashmere sweater-sets Macy’s is selling on snow days. They pointed to one issue  - Chinese growth slowing.

 

Yes, at a point, Chinese demand slowing should take the edge off The Ber-nank’s inflation trades. The inflation is sticky, but it can come off its highs. In fact, in the last 24 hours, we’ve seen the following 3 immediate-term TRADE lines break in our Global Macro risk management model:

  1. Brazil’s Bovespa Index immediate term TRADE line support = 70,554, broken
  2. Copper immediate-term TRADE line support = $4.31/lb, broken
  3. Basic Materials Sector ETF (XLB) immediate-term TRADE line support = $38.51, broken

And yes, part of these rollovers in inflation readings have to do with sober governments in Emerging Markets either raising interest rates or signaling that they will (Brazil raised +50bps yesterday and the Chinese signaled).

 

But the best way to fight Global Inflation Accelerating, is for the world to see a sustainably strong US Dollar. That’s where the real popular political juice is. That’s where American credibility in the global financial community can find her footing again. That’s what I and the hardest working global class we have, housewives, want to see.

 

My immediate term support and resistance levels for the SP500 are now 1264 and 1295, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough

Chief Executive Officer

 

The Ber-nank's Housewives - housewives


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