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R3: SKX, Barneys, TLB, Jobs

R3: REQUIRED RETAIL READING

February 7, 2010

 

 

 

RESEARCH ANECDOTES

  • In a continued effort to draw attract a younger customer, Talbot’s latest Spring marketing campaign features actress Julianne Moore.  The print images are a complete upgrade for the brand from an artistic perspective, however the translation into a return on sales still remains unknown.
  • Call it luck or clever marketing strategy, but last night’s Superbowl ad for Skecher’s Shape-Ups featuring Kim Kardashian came at a critical point in the game.  Had the game been a blowout, millions of viewers would have likely moved on with just two minutes remaining.  However, with the Steelers getting one last opportunity the timing for Skechers couldn’t have been better. 
  • An interesting timing of events with the arrival of new Barney’s CEO Mark Lee and the likely IPO of Prada sometime in the near future.   On Friday, Lee announced that the iconic luxury retailer will no longer carry Prada handbags or women’s apparel.  While there is some confusion surrounding the rationale behind this move, there is speculation that Prada wished to convert those business into leased departments which is against Barney’s policy. 

OUR TAKE ON OVERNIGHT NEWS

 

Retailers Add Jobs -  Coming off of a solid holiday season, retailers boosted their payrolls in January with some of the strongest employment gains in months, as the overall unemployment rate fell sharply to the lowest level in nearly two years, the Labor Department said Friday. Clothing and accessories stores added 14,600 jobs to employ 1.422 million last month. It was the biggest gain in the sector since December 2006, when clothing and accessories stores added 16,000 jobs. <WWD>

Hedgeye Retail’s Take:   While customer service wasn’t mentioned as a factor in January’s sales upside, it certainly would be a reason why certain retailers would feel more confident on the hiring front.

 

Mark Lee Talks Barneys Plans - Mark Lee’s vision for Barneys New York is starting to take focus. At a breakfast meeting at Fred’s with several reporters Friday, Barneys’ new chief executive officer hinted at some changes to come at the luxury specialty retailer. Among the new developments:  A black-and-white spring image campaign that was photographed backstage at fashion shows in New York, London, Milan and Paris. Cinematic images will appear in national newspapers, magazines and online, and will be displayed gallerylike throughout the store and windows and Renovation of the Madison Avenue flagship’s main floor and men’s Co-op department — two major projects that will be undertaken this year. <WWD>

Hedgeye Retail’s Take:  Aside from marketing tweaks, expect Barney’s to up its ante on the exclusive, ultra-luxury front.  The store aims to be differentiated once again, after losing its premier fashion status over the past several years.

 

Jones New York Introduces Legwear - The Jones Group will be introducing its first collection of legwear and socks bearing the Jones New York label for fall. A licensing agreement was signed last fall with Leg Apparel, a division of Aimee Lynn Inc., to manufacture and distribute the legwear line. The legwear will be launched simultaneously with a handbag and a footwear collection for fall by Jones New York, which is being produced in-house, said Mary Bell, president of licensing at The Jones Group. <WWD>

Hedgeye Retail’s Take:   Definitely not a game changer or needle mover for the brand that continues to struggle with its identity (and market share).

 

Wal-Mart, Humbled King of Retail, Plots Rebound - The battle for shoppers is playing out in this New York suburb: Wal-Mart versus everyone else. Dollar stores beckon, their small size ideal for quick shopping. Target offers 5 percent off if you pay with its store-branded card. Costco tempts with high-end, brand-name food and designer clothes at competitive prices. Bernadette Clark used to visit Wal-Mart here twice a week. Now it's twice a month. She got fed up last year when Wal-Mart stopped stocking some of her favorite brands and she couldn't count on low prices. "It gave me the opportunity to look elsewhere," she says. "I shop around more." <TheWallStreetJournal>

Hedgeye Retail’s Take:  Not a single bit of new info here except that the PR machine remains alive and well.  The message continues to be that merchandising and pricing changes are underway, yet we still wonder what impact all this “chatter” has on actual sales results.

 

Harry Winston Remodels Store in Las Vegas - Harry Winston is putting a friendlier face on its retail. The grand opening Thursday of the fine jewelry brand’s Las Vegas store within the Crystals at CityCenter marked the official introduction of a revamped store design instituted to convey Harry Winston’s accessibility by simultaneously being more open and more intimate than past stores. The new look was unveiled as Harry Winston is embarking on an aggressive expansion plan to grow its existing retail network of 20 units to 50 within the next five years, including seven stores this year. <WWD>

Hedgeye Retail’s Take:   No longer is the exclusive, members-only club feel going to work if the brand is to expand its target audience.  Bottom line, Harry Winston was/is an intimidating place to shop for anyone other than a very, very small percentage of high net worth inidivduals.

 

January e-commerce spending rose 12% - Online spending in January rose 12% year over year, marking the third consecutive month of double-digit growth, according to an estimate released today by MasterCard Advisors, the consulting arm of MasterCard. “A combination of rising consumer demand and strong pricing continued to drive retail sales in January,” says Michael McNamara, vice president, research and analysis for MasterCard Advisors SpendingPulse. “Although less robust, the trends we observed were similar to those recorded in the fourth quarter of 2010.” <InternetRetailer>

Hedgeye Retail’s Take: Still one of the fastest growing channels in retail. 

 

Patagonia Opens UK Flagship Store - Patgonia announced the opening of its first UK flagship store in Covent Garden. The 2,500 square foot store will be a partner store in collaboration with Outside, who also opened Patagonia's Hathersage store in the Peak District. The Covent Garden space was selected in keeping with the company's retail brief, to use historic sites and to preserve the integrity of the building. Patagonia and Outside intend to work collaboratively with the architects to ensure sensitivity when working with the historical aspects of this unique space, which they hope will in turn be enhanced by the bespoke fixtures and fittings which are to be sourced. Patagonia's sales for last fiscal year end of April 2010 were $333 million. <SportsOneSource>

Hedgeye Retail’s Take: International growth at one of The North Face’s ‘better’ competitors is worth noting, but with the UK store marking Patagonia’s sixth store in Europe, the brand is hardly on the heels of VF, which is taking a much more targeted and aggressive approach to penetrating Europe.

 

Best Practices for Mobile Retail Strategy - Mobile devices accompany consumers everywhere throughout a busy day. Through mobile initiatives, retailers have unique opportunities to engage with consumers as they move through each purchase phase—whether they’re in a store, in transit, at work or at home. Data from InsightExpress showed that during the holiday 2010 season, smartphone owners used their devices at different stages of the purchase funnel: to receive sale alerts (awareness), look for better prices and product reviews (consideration) and redeem coupons (conversion). This gives retailers many opportunities to connect with consumers and encourage purchase and loyalty. <Emarketer>

Hedgeye Retail’s Take: Perhaps the most notable callout here is how much progress is yet to come with over 60% of retailers looking to enhance their current mobile platforms.

 

R3: SKX, Barneys, TLB, Jobs - r3 2 7 11

 


TALES OF THE TAPE: SBUX, MCD, CMG, CHUX, GMCR, BWLD, EAT, CBRL, DIN, PFCB

Notable news items/price action from Friday’s trading session.

  • SBUX featured in an article in Barrons this weekend and reported sell-side views that earnings forecasts have 15% upside over the next 12 months.
  • MCD chief communications officer, Jack Daly, passed away on Saturday morning after a battle with cancer.
  • CMG is facing a wider probe of its hiring by immigration officials after the company came under scrutiny in Minnesota and had to fire workers. 
  • CHUX reported operating results for the fourth quarter of 2010 on Friday and results were disappointing.  Company-operated same-store sales came in at -1.4% and EPS from continuing operations of -$0.77 versus the Street at -$0.30.  Its shares declined on accelerating volume on Friday, underperforming casual dining peers.
  • GMCR shares gained 4.8% on accelerating volume to close out a strong week following well-received earnings results last week.
  • BWLD and EAT shares declined on accelerating volume.
  • CBRL and DIN shares gained on accelerating volume.
  • National Restaurant News reported a survey of consumers by Sandelman & Associates.  The top 10 chains based on the percentage of “excellent overall” ratings were:
  1. Café Rio
  2. Pei Wei Asian Diner
  3. In-N-Out Burger
  4. Raising Cane’s
  5. Chick-fil-A
  6. Captiotti’s
  7. Paradise Bakery
  8. Costa Vida
  9. Lenny’s Sub Shop
  10. Chipotle

TALES OF THE TAPE: SBUX, MCD, CMG, CHUX, GMCR, BWLD, EAT, CBRL, DIN, PFCB - stocks 27

 

Howard Penney

Managing Director


 


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Investors Starting to Believe That Inflation Threat is Real


WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS



Financial Risk Monitor Summary (Across 3 Durations): Now positive across all three durations.

  • Short-term (WoW): Positive / 7 of 10 improved / 2 out of 10 worsened / 2 of 10 unchanged
  • Intermediate-term (MoM): Positive / 7 of 10 improved / 1 of 10 worsened / 3 of 10 unchanged
  • Long-term (150 DMA): Positive / 5 of 10 improved / 4 of 10 worsened / 1 of 10 unchanged / 1 of 10 n/a

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - summary

 

1. US Financials CDS Monitor – Swaps were mostly tighter across domestic financials, tightening for 23 of the 28 reference entities and widening for 5.  Tightening was strongest among the moneycenter banks, while the mortgage insurers saw widening swaps. 

Tightened the most vs last week: JPM, BAC, WFC

Widened the most vs last week: PMI, MTG, RDN

Tightened the most vs last month: C, WFC, COF

Widened the most vs last month: MTG, PMI, RDN

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - us cds

 

2. European Financials CDS Monitor – Banks swaps in Europe followed a similar pattern, widening for 34 of the 39 reference entities.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - euro cds

 

3. Sovereign CDS – Sovereign CDS fell sharply across Europe, falling 48 bps on average last week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates fell 8 bps last week, closing at 7.85 on Friday.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - high yield

 

5. Leveraged Loan Index Monitor – The Leveraged Loan Index continued to ascend, closing at 1616, 4 points higher than the previous week.   

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - lev loan

 

6. TED Spread Monitor – The TED spread fell slightly last week, ending the week at 15.9 versus 16.4 the prior week.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index rose 3 points, closing at 36.2 on Friday.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - JOC

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell 51 bps.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - 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 fell early in the week before rebounding somewhat to close at 178, 15.5 bps below the previous Friday’s close.  

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - mcdx

 

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.  While Australian floods and oversupply have been pressuring the Index, it has fallen 33% so far this year and is down 60% from its most recent peak.  Last week was no exception, as the index fell a further 94 points to end the week at 1043.

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - baltic dry

 

11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins.  Last week the 2-10 spread widened 10 bps to 288 bps. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - 2 10

 

12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 1.2% upside to TRADE resistance, 0.6% downside to TRADE support. 

 

WEEKLY RISK MONITOR FOR FINANCIALS: NOW POSITIVE ACROSS ALL THREE DURATIONS - XLF

 

 

Joshua Steiner, CFA

 

Allison Kaptur


Luxury Things

This note was originally published at 8am on February 02, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Poverty wants some things, Luxury many things, Avarice all things.”

-Benjamin Franklin

 

Yesterday, one of our young Jedi analysts at Hedgeye, Kevin Kaiser, sent me a highlight from “The Grocer” (an industry trade rag) that inflating food prices are making ordinary breakfast items like orange and apple juice a “luxury.”

 

Now a Wall Street analyst at a sell side investment bank would find a way to dress this data point up with a pig’s lipstick and call it an “affordable luxury”, whereas someone working for The Ber-nank in DC probably calls something like breakfast “non-core” or “free.” But we simpleton, non-recipients of government bailout moneys, just call it what it is – inflation.

 

Six months ago we didn’t have Global Inflation Accelerating

  1. We had a US Dollar Index that wasn’t being debauched (+7.7% higher at $83)
  2. We had a CRB Commodities Index (19 commodity basket) that was -30% lower in price
  3. We didn’t have Quantitative Guessing Part Deux either

While I’ll be the first to admit I remained too bearish on US Equities in December of 2010 (but appropriately bearish on emerging markets and bonds), I’ll also be the first to remind the fire engine index-chasers of all the emails they were sending me on August 24th of 2010 that I was “crazy” to be covering my short positions in the SP500 (SPY), Russell2000 (IWM), and Consumer Discretionary stocks (XLY).

 

Back then, free markets pricing in a strong US Dollar and low inflation was a bullish signal to buy US Equities. Today, you have the latest Big Government Intervention scheme Debauching the Dollar and perpetuating higher inflation. Back then, I dropped my Cash position to 46%. Today, I’ve raised it to 67%. All the while, understanding that I’m not one of these perma-bulls who needs to be invested trying to get back to a 2007 high-water mark gone bad.

 

Yesterday, we saw a new high-water mark established in the real-world inflation reading. With the US Dollar getting burned at the stake (down 1% on the day, making a move towards a 6 month low), the CRB Commodities Index was hitting a freshly squeezed 6-month high. All Luxury Things considered, if you are one of the 44 MILLION Americans who lives on food stamps, how do you like them apples?

 

Now setting aside the inconvenient truth that there’s never been a global economic powerhouse that has devalued its way to prosperity, let’s give the ole Ber-nank a little something to bring to his dance with America’s new Chair of the US Financial Services Sub-Committee on Domestic Monetary Policy, Ron Paul, on February 9th. Here are the 6-month price percentage moves in some of the things people need to live with:

  1. Cotton = +125.7%
  2. Sugar = +82.6%
  3. Corn = +59.0%
  4. Coffee = +41.4%
  5. Rice = +40.5%
  6. Oats = +36.6%
  7. Copper = +36.1%
  8. Lumber = +33.8%
  9. Oil = +25.1%

Yeah, I guess for the sake of professional policy makers in DC who get dinner for free and a car service to work, I should stop there. To make the Top 10 things that may or may not be considered Luxury Things, you really need to have inflated on the order of +25% or more. Pork bellies are only up +10.7% in the last 6 months – so go have yourself some powdered Keynesian Kool-Aid with some sausage links for lunch and like it.

 

Over that same 6-month period:

  1. The Buck has Burned almost 6% lower and now has an inverse correlation to the price of rice and wheat of -0.91!
  2. The 112th Congress jacked up America’s Budget Deficit projections by 34% (CBO upward revision from August to January)
  3. The countries most affected by global inflation (Asia, Africa, and the Middle East) have started to display some fairly evident social unrest

So where does that leave the almighty American Consumer? That’s easy, pull up some charts of US Consumer stocks – and pull up some big ones like Proctor & Gamble (PG), McDonalds (MCD), and Target (TGT).

 

Sure, since most people in this business read points of view in terms of how it directly addresses their personal positioning, I’m sure you can find me some US Consumer stocks that used to look like Coach (before the man-purse idea didn’t fly Captain Lew to the moon), but overall, Consumer Staples (XLP) and Consumer Discretionary (XLY) are the 2 worst sectors in the entire US stock market all of a sudden for a reason, down -1.84% and -0.97% in the last 3 weeks of trading, respectively.

 

On a more positive note, this morning The Mu-barak turned on the internet. So now all of our Egyptian friends can start tweeting Hedgeye’s 6-month table of real-world inflation to their friends again. Social networking tools are going to continue to revolutionize the transparency and accountability standards that The People of this world hold their governments to. That’s a Luxury Thing of personal liberty that I can believe in.

 

My immediate term TRADE lines of support and resistance for the SP500 are now 1290 and 1308, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Luxury Things - unrest


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