Tomorrow we get the University of Michigan consumer sentiment reading for February and recent indicators, such as the ABC consumer comfort index, suggest that the consumer may be turning more UNeasy. 


Last month, the Thomson Reuters/University of Michigan final index of consumer sentiment decreased to 74.2 from 74.5 in December.  The median forecast calls for a reading of 73.3, up from a preliminary figure of 72.7 issued earlier this month.  As it stands now the February preliminary reading is for an increase from 75.0 up from 74.2, according to Bloomberg.  In my view, a reading below 74.0 would not be surprising.


The reason for our caution is premised on the following factors:

  1. Political unrest in Egypt is playing a role in consumers’ heightened concerns for political and national security issues.
  2. While the holidays are in the rear-view mirror, the holiday bills are not.
  3. On Wednesday, the ABC consumer comfort index declined from to -46 from -41.  Significantly higher gas prices were cited as the primary culprit.
  4. With average pump prices well over $3.00 per gallon, drivers are increasingly absorbing higher fuel expenses by cutting costs of other household expenses.
  5. Despite the Federal Reserve’s focus on the stock market, Main Street is still focused on making ends meet.
  6. The jobs picture is improving but needs to improve faster.  Also, with regard to the longer term picture, the prospect of higher interest rates does not bode well for job growth.
  7. The Small Business Optimism index showed an improvement, but the hesitancy to hire remains evident.
  8. The Overhand of Austerity is looming large on the American Consumer.  As more and more column inches are dedicated to the implications of cutbacks and job growth, I expect this to drag on sentiment.

At this juncture, continuing improvement in consumer confidence is critical.  Much of the inflation in input costs is expected to be passed on to consumers; if the consumer is not prepared to take on this burden, the outcome for corporate profits will likely be dire.



Howard Penney

Managing Director


 CONSUMER UNREST - univ mich sentiment jan

Athletic Apparel Trends Stable


The weekly athletic apparel data reflects positive sales for the week adding to a more stable trend of positive sales observed for each of the last four weeks. The family retail channel continues to strengthen posting the only sequential improvement on the week.  It’s also worth noting that prices firmed up, with ASP’s increasing across each of the channels.  This marks a change in trend for the first time since the week before Christmas and coincides with recent anecdotes coming out of January that inventories may indeed be in healthy shape.


In looking at the brands, we highlight the disparity in outerwear between the growth in The North Face at up +10%, while Columbia continues to decline down -1% posting the only such loss on the week.  Lastly, the Pacific region continues to underperform all other regions for the third week in a row – a trend worth noting in our book and unfavorable for retailers over-indexed to the west coast such as BGFV. It just so happens the company cited negative comps in December as the reason for negatively preannouncing last month. A trend that may have continued so far in 2011.


Athletic Apparel Trends Stable - FW App App Table 2 10 11


Athletic Apparel Trends Stable - FW App App 1Yr 2 10 11


Athletic Apparel Trends Stable - App Region chrt 2 10 11


Casey Flavin



Thank you to those who joined us for Hedgeye’s conference call: “Mayhem in Munis: Framing Up the Muni Bond Debate and How to Play It” with our CEO Keith McCullough, Managing Director Daryl Jones, and Analyst Darius Dale.


The replay of the call is now available to Hedgeye MACRO clients. 

The prepared remarks were roughly 30 minutes with an additional 25-30 minutes of live Q&A. Topics included:

  1. Will we see "hundreds of billions" of defaults in 2011?
  2. Will or won't States go bankrupt?
  3. What will the impact of Federal, State, and local austerity measures be?
  4. Will the Federal Government backstop State level debt?
  5. What are the lessons of history?
  6. How much do fund flows matter?

Please contact us at if you have any follow up questions.


We thank you in advance for your continued support.


Warm regards,


The Hedgeye Macro Team

FL/Sporting Goods: More or Less Volatility?

For all you watchers of the weekly footwear and apparel data that comes from NPD and Sportscan, you may be in for more volatility on earnings reports. Why? Two days ago Foot Locker told NPD that it needs to make a choice – sell a weekly data product to Wall Street WITHOUT Foot Locker participating, or simply pull all weekly data distribution to the Street.


The catalyst was Ken Hicks at Foot Locker realizing that NPD was having its cake and eating it too. With an analyst taking his forecast lower two weeks ago based in part on NPD data, it led management to question why they were being subject to increased weekly volatility and speculation by the Street.  Didn’t we get out of the weekly sales reporting game years ago? At the same time, FL became more aware than ever that NPD has been servicing the Street and the trade with the same data, for which FL is a large contributor.   Ultimately something has to give here, and it’s likely that the days of weekly data feeds to the Street are over.   


Now there are two notable items…


1)      Our sense is that monthly data will still be available. Monthly numbers in this space are actually quite accurate and smooth out the weekly gyrations that can be the result of a variety of factors (weather, promos, and product launches).  Plus the monthly data offers more specificity into products, brands, and channel performance. Weekly numbers in the past only reflect the specialty athletic channel.


2)      People are likely to pick up the phone and call Sportscan to subscribe to SSI’s footwear data, a similar product but one with its own limitations.  SSI is less accurate. Instead of reporting only the sales data provided by the retailers, SSI includes its own estimates for retailers absent from the sample.  This is similar to the process IRI uses with estimating Wal-Mart’s sales.  While SSI may now be the only solution, we point out that even the big brands like Nike don’t even use SSI’s footwear data. They use apparel, which is more accurate.


Brian P. McGough
Managing Director


Heading into CMG’s earnings after the market closes the stock is near an all time high and up 10% over the last 5 days and 15% over the past month.  Consensus expectations are for CMG to have a good quarter - revenue is estimated to be $462.0M and EPS is expected to come in at $1.31.  Same-store sales and restaurant level margins are expected to be +9.9% and 25.3%, respectively.  


Guidance going forward is likely to be very different that what the company talked about last quarter.  Last quarter, CMG was looking for 3% food inflation and since them food prices have surged.  In addition, they now have a potential labor problem with the ongoing probe into the hiring of illegal immigrants by Chipotle restaurants.  It will be interesting to see how they forecast what incremental costs will be in 2011. 


Here is a look at CMG’s commentary on some forward-looking commentary during their most recent earnings call on October 21st, 2010.




“Food costs were 30.6% for the quarter, which is down 20 basis points from last year.  Prices for avocados, corn, rice and chicken were slightly lower in the quarter, which were partially offset by increases in barbacoa and steak due to the continued rollout of naturally raised beef.  We continue to expect modest increases in our food costs for the fourth quarter as we continue to invest in increasing our supply of naturally raised chicken and as prices for avocados increase due to a Chilean freeze…As we look to 2011, we will continue to invest in our Food With Integrity initiative and we expect inflationary pressure on many of our ingredients, especially chicken, beef, pork and avocados. As a result, we anticipate overall food cost inflation in the low- to mid-single digit range for 2011.”


“If we had 3% inflation, for example, that would be roughly 100 basis points on the food line” [assuming no price increase]

“If corn prices are going to increase, that’s generally going to cause both naturally raised and commodity meats to go in the same direction”


The chart below show the prices of key commodities since the last quarter's call. 







[In the event of a food price increase] “We would like to leak out smaller price increases than do a big giant increase all at one time.”


“We feel good that we have pricing power, it’s been two years now since we’ve raised prices in most of our markets…but we’re going to be patient about it.  I think what we’ll do is watch what happens…see how the consumer responds to price increases of other competitors and if it looks like inflation is going to hold, increases are generally being accepted by consumers, then we’ll be prepared to increase prices if need be.”


“Typically if we’re going to try to offset inflation, and inflation’s 3%, if we’re going to raise prices at all, we would look for something in the same ballpark as inflation would be, so somewhere around 3%.”





“If you have 3% inflation on food, we typically have inflation on our labor line of somewhere between 2% and 2.5% as well, something in that ballpark across many of the other line items”


“In the quarter, labor costs decreased 70 basis points to 24.2% and a 50 basis point decrease to 24.7% for the year.  The decrease for the quarter was the result of labor leverage driven by the comp increase, as our restaurant teams did a nice job recapturing some of the labor leverage lost in 2Q, along with the 40 basis point accrual adjustment I mentioned earlier, which we don’t expect to continue in the fourth quarter.


Howard Penney

Managing Director



Mayhem in Munis Macro Presentation: Dial-In & Materials Details

TODAY, FEB. 10, 2011 11AM EST


Valued Client,


5-10 minutes prior to the 11 AM EST start time please dial:

(Toll Free) or (Direct)
Conference Code: 861369#


To access the "Mayhem In Munis" materials please cut and copy the following link into your web browser:


To submit questions for the Q&A, please email .









Join Hedgeye's CEO Keith McCullough, Managing Director Daryl G. Jones, and Analyst Darius Dale who will discuss the Municipal Bond Market. The key questions being answered include:



-Will we see "hundreds of billions" of defaults in 2011?


-Will or won't States go bankrupt?


-What will the impact of Federal, State, and local austerity measures be?


-Will the Federal Government backstop State level debt?


-What are the lessons of history?


-How much do fund flows matter?



Please contact if you have any questions.



Jen Kane

Managing Director and Head of Institutional Sales



111 Whitney Avenue

New Haven, CT 06





















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