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R3: TJX, SKS, DLTR, LOW

R3: REQUIRED RETAIL READING

 

February 24, 2010

 

 

 

 

RESEARCH ANECDOTES   

  • DLTR noted that the weather had an impact on the company’s quarterly sales results, but that sales momentum picked up with more normal weather patterns.  Additionally, management noted that Valentine’s week was the best sales performance in the company’s history.  Overall February is off to a strong start.
  • Saks noted that the company sold about 70% of its merchandise at full-price in 2010, which takes the selling levels at or slightly higher than pre-recession percentages. 
  • TJX noted that while inventory levels have been down across all divisions over the past couple of years, the bigger changes have come from the company’s smaller divisions.  While still cautious on taking meaningful amounts of inventory out of Marmaxx, it is for this reason that management believes there are still opportunities ahead to improve corporate turns.
  • Contrary to HD’s strong performance in appliances over Black Friday, Lowe’s chose to not be as promotional.  As a result, appliances comped “just above” the overall result of a 1.1% increase.  HD appliance comps increased by double digits in November and added 120 bps to the company’s overall comp in the quarter. 

OUR TAKE ON OVERNIGHT NEWS

 

Nike Unveils Mega-Logistics Center in China - Nike Inc. on Tuesday unveiled its biggest logistics center in Asia in Jiangsu province. The new 200,000 square meter facility is on target to be the first LEED (Leadership in Energy and Environmental Design Green Building Rating System) accredited warehouse complex in China. Construction of the facility generated 1,800 jobs and is expected to provide up to 1,500 permanent jobs by 2015. The 200,000 square-meter center in the city of Taicang, Jiangsu province, is the company's first such facility in China and the sixth worldwide, after centers in Belgium, Canada, Japan, South Korea and the U.S. <SportsOneSource>

Hedgeye Retail’s Take: China remains a key bogey for Nike particularly after reporting flat sales in the region in F10. This center is not a game changer alone, but will certainly help the company further penetrate not only the Chinese but arguably the Japanese market as well over intermediate-term.

 

Joe Fresh Opens Flagship in New York City - Joe Fresh, an apparel brand sold in Canadian supermarkets, will open a 15,000- to 20,000-square-foot flagship at 510 Fifth Avenue here this fall. The value-driven fashion brand is owned by Loblaw, a chain with more than 1,000 locations. It was created five years ago by Joseph Mimran, founder of Joseph Mimran & Assoc., who launched Club Monaco in 1985 and sold it to Polo Ralph Lauren in 1999. Joe Fresh is sold in 330 Loblaw’s and Real Canadian Superstores. The brand opened its first freestanding store in Vancouver in October and four more stand-alone units are slated for this year. Mimran said he plans to open 30 to 50 additional stores. <WWD>

Hedgeye Retail’s Take: The newest fast-fashion concept enters the domestic market with what could be considered perfect timing as higher prices begin to crimp unit consumption. In addition, as the U.S. consumer shifts toward greater value product, the lack of fashionable competition may get Joe Fresh noticed in a hurry.

 

Keds Entering Sportswear - Keds, the nearly 100-year-old footwear brand owned by Collective Brands Inc., has enlisted the help of sourcing powerhouse Li & Fung to break into the apparel market for spring 2012 with its own take on classic American sportswear.  The line, which will include a broad range of men’s and women’s looks, will cater to Millennials, who are mostly in their 20s. Under the licensing agreement, Keds and the Regatta team at Li & Fung’s LF USA division will develop the collection. Li & Fung will be responsible for marketing and sales to boutiques and better department stores across the U.S.  The casual line will launch with a limited edition collection and expand into more complete offerings in 2012. Keds plans to take a measured approach, setting up a business that can last decades.  <WWD>

Hedgeye Retail’s Take: Regatta, known for its proprietary brand development, is a not only an opportunity to expand the Keds brand, but also leverage the store footprint at Sperry. Management has highlighted their interest in collaborating with an apparel brand to enhance the presentation of an expanded portfolio – they’ll now have an opportunity to cross market the brands.

 

Best Buy Closes Stores in China and Turkey - Best Buy, the world’s largest electronics retailer by sales, is closing all of its branded stores in China, highlighting the resistance of Chinese shoppers to some western-style store experiences.  The retailer, which will continue to run 170 stores in China under the Five Star brand acquired five years ago, is also giving up an attempt to enter Turkey, with the closure of two trial-run stores opened in the past two years. The company said in a statement it would close all nine China stores that carry the Best Buy brand, one of the best-known US retail marques, but one that has failed to catch on in China. It captured less than 1 per cent of the China market, analysts said, struggling to compete against the more agile and aggressive homegrown rivals Gome and Suning, which each have more than 1,000 branded stores in China.  <FinancialTimes>

Hedgeye Retail’s Take: BBY’s failure to penetrate the Chinese market may be more an indication of the commodity-like nature of the electronics market than domestic brand preference, but it’s noteworthy nonetheless for the many other domestic brands looking to make concerted efforts to gain share overseas in 2011.

 

Facebook Reaches Majority of US Web Users - As Facebook continues to solidify its role as the world’s top social networking site, eMarketer estimates that more than half of internet users in the US were logging on to the site at least monthly as of the end of 2010. This year, eMarketer forecasts, 132.5 million US web users will use the site. That increase of 13.4% in the number of users means Facebook will reach almost nine in 10 social network users and 57.1% of internet users. By 2013, 62% of web users and almost half (47.6%) of the overall US population will be on Facebook. <eMarketer>

Hedgeye Retail’s Take: 50%+ penetration of all internet users is simply astounding and a rate the company will surely look to leverage when it looks to go public.

 

R3: TJX, SKS, DLTR, LOW - R3 2 24 11

 

Lady’s shoes rise 20% in price in China- Retail prices of lady’s shoes increased by 20% during the spring season in Shanxi province, China, sources reported.  Hiking production cost is the major reason for the price increase, according to a local shoe producer. For example, leather prices have risen by 20% over the last two consecutive years, coupled with surging labour costs. Meanwhile, shoes for ladies are made of leather and accessories of higher quality, and therefore they cost more in terms of processing, design and materials in order to met the consumer demand. <FashionNetAsia>

Hedgeye Retail’s Take: A comeback for “pleather” in 2011 perhaps?

 

 

 

 


TALES OF THE TAPE: JACK, PZZA, TXRH, SAFM, TAST, RRGB, RT, DIN, DRI, MRT, DPZ, CMG

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

  • JACK reported earnings last night after the close.  EPS came in at $0.61 versus the street at $0.48.  Approximately $0.02 came from a tax benefit. 
  • PZZA gained following its strong results on Tuesday after the close.  Management struck a confident tone on the earnings call yesterday.
  • TXRH held an Analyst/Investor Day in NYC yesterday and outlined aggressive growth and expansion plans.  The company is providing aggressive comp guidance that could be at risk if the company has to take more price than it is currently planning on taking in 2011.
  • SAFM reported weak earnings this morning.  An insightful comment from the press release: “While retail demand for chicken has remained steady, we have continued to see weak food service demand, and we expect this trend will remain until the national unemployment rate improves.  Consumers are simply not dining out as frequently and restaurant traffic has remained under pressure.”
  • TAST reported Q4 EPS of $0.12 versus consensus at $0.19 and announced its intention to split the business into two, separate, publicly traded companies.  Specifically, the company stated in its press release, “The separation of our Hispanic Brand and Burger King restaurant businesses is a natural evolution for Carrols. We believe that the separation will enable each company to better focus on its respective opportunities as well as to pursue its own distinct plan and growth strategy. We also believe that a separation offers the potential for improving shareholder value as each publicly traded company will be better positioned to align its business with its respective shareholders' objectives."
  • RRGB saw one of its holders, Clinton Group, lower its stake to 5.2% from 9.72%.
  • RT, DIN, RRGB, TXRH, and DRI all declined on accelerating volume yesterday. 
  • MRT gained yesterday on strong volume.  The company reports today after the market.
  • DPZ and CMG declined yesterday on accelerating volume.  Both are at risk to commodity exposure.  DPZ is facing a vertical cheese price chart and a difficult 1Q compare versus 1Q2010 and CMG is largely unlocked from a commodity cost perspective.

TALES OF THE TAPE: JACK, PZZA, TXRH, SAFM, TAST, RRGB, RT, DIN, DRI, MRT, DPZ, CMG - stocks 224

 

Howard Penney

Managing Director


THE HEDGEYE DAILY OUTLOOK

Today’s S&P 500 set-up – February 22, 2011

 

Equity markets continued to slide yesterday as uncertainty surrounding events in Libya mounted.  The VIX gained 6.4% and was accompanied by a spike in oil prices.  Asia traded down overnight and Europe is currently trading slightly down across the board.  As we look at today’s set up for the S&P 500, the range is 24 points or -0.11% downside to 1306 and 1.73% upside to 1330.

 

 

MACRO DATA POINTS

  • 08:30 a.m.: Chicago Fed Nat Activity Index, January.  Est. 0.09, prior 0.03
  • 08:30 a.m.: Initial Jobless Claims, February 19th, Est. 405k, prior 410k
  • 08:30 a.m.: Continuing Claims, February 12th, Est. 3880k, prior 3911k
  • 08:30 a.m.: Durable Goods Orders, January, Est. 2.8%, prior -2.5%
  • 08:30 a.m.: Durables Ex Transportation, January, Est. 0.5%, prior 0.5%
  • 08:30 a.m.: Cap Goods Orders Nondef Ex Air, January, Est. -1.0%, prior 1.4%
  • 08:30 a.m.: Cap Goods Ship Nondef Ex Air, January, prior 1.7%
  • 10:00 a.m.: New Home Sales, January, Est. 305k, prior 329k
  • 10:00 a.m.: New Home Sales MoM, January, Est. -7.3%, prior 17.5%
  • 04:30 p.m.: Fed Balance Sheet

 

WHAT TO WATCH

  • GM missed estimates this morning, announcing a profit of $0.31 per share versus consensus EPS of $0.44.
  • Oil is approaching $120 in London on concern Libya’s uprising is reducing shipments from Africa’s third-largest producer
  • Angela Merkel is planning to accelerate cuts in borrowing next year as it complies with a legal requirement to shrink debt.  The EU summit on March 24-25 will be interesting to watch as the debate over interest rates on aid and the plan to control Europe’s debt crisis heats up.
  • U.S. railroads’ fuel-efficiency advantage over trucking companies may expand as they boost investments in technology while trucking companies are forced to invest more in personnel.
  • The Bloomberg “Chart of the Day” shows the combined 12-month earnings forecast for companies in the MSCI Emerging Markets Index and outlines the need for earnings revisions as interest rates rise.  Interest rate risk for emerging market economies has been highlighted repeatedly by the Hedgeye Macro Team over the past several months.
  • TGT reported earnings this morning of $1.45 per share versus consensus of $1.40.  However, included in the $1.45 was a $0.07 tax benefit.

 

PERFORMANCE:

 

We have 3 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.

  • One day: Dow -0.88%, S&P -0.61%, Nasdaq -1.21%, Russell 2000 -1.64%
  • Month-to-date: Dow +1.80%, S&P +1.65%, Nasdaq +0.85%, Russell +2.36%
  • Quarter/Year-to-date: Dow +4.56%, S&P +3.96%, Nasdaq +2.64%, Russell +2.04%
  • Sector Performance: - Materials -0.74%, Energy +2.03%, Consumer Spls -0.24%, Healthcare -0.96%, Utilities -0.22%, Industrials -1.75%, Tech -1.18%, Consumer Disc -1.46%, Financials -0.44%

 

EQUITY SENTIMENT

  • ADVANCE/DECLINE LINE: -909 (-2378)
  • VOLUME: 1330.38 (+1.0%)
  • VIX: 22.13 (+6.4%)
  • SPX PUT/CALL RATIO: 1.34 from 2.40 (-4.4%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 19.08 from 18.98
  • 3-MONTH T-BILL YIELD: 0.11% from 0.13%
  • 10-YEAR: 3.43% from 3.49%

 

COMMODITY/GROWTH EXPECTATIONS:

  • CRB: 348.5 +1.13%; YTD: +4.56%
  • Oil: 100.60 +2.55%; YTD: +9.09%
  • Copper: 431.55 0.56%; YTD: -2.79%
  • Gold: 1416 0.31%; YTD: +0.31%

 

COMMODITY HEADLINES:

  • Oil Surges to $119 on Libya Crisis; Goldman Sees ‘Upside Risk’
  • Platinum to Stabilize at ‘Comfortable’ $1,800, Anglo Says
  • Food-Price Threat Worsened by Government Mistrust of Business, Olam Says
  • Wheat Resumes Plunge as African Unrest Drives Away Speculators
  • Gold Fluctuates Near Seven-Week High on Libya, Inflation Concern
  • Food Inflation Quickens, Adding Pressure on Government Before India Budget
  • Surging Prices From Singapore to Vietnam Herald Higher Rates, Currencies
  • Oil Rises on Libya Disruption; Goldman Sachs Sees ‘Upside Risk’
  • Palm Oil Output in Malaysia to Gain in 2011, Yusof Predicts
  • Wheat, Corn Advance as Demand for U.S. Supplies May Increase

 

CURRENCIES

  • EURO: 1.3764 -0.16%
  • DOLLAR: 77.131 -0.36%

 

EUROPEAN MARKETS

  • FTSE 100: (0.36%); DAX: (1.20%); CAC 40: (0.22%)
  • Zapatero Extends Lead Over Socrates in Debt Race: Euro Credit
  • Europe Economic Confidence Reaches Highest Since Late 2007 on German Boom
  • Allianz Raises Dividend After Fourth-Quarter Profit Gains, Target Exceeded
  • Swiss Franc, Yen Climb as Deepening Libya Violence Spurs Demand for Safety
  • Barclays, After Victory, May Face Writedown of Lehman Assets

 

ASIAN MARKETS

  • Nikkei (1.19%); Hang Seng (1.34%); Shanghai Composite +0.56%
  • Deutsche Bank Gets Six-Month Trading Ban in South Korea
  • Surging Prices From Singapore to Vietnam Herald Higher Rates, Currencies
  • Lu Pledges to Clean Up Alibaba After Scandal Led to Ouster of Predecessor
  • India's Sensex Falls Most Since November 2009 on Inflation, Oil Concerns

THE HEDGEYE DAILY OUTLOOK - levels and trends 224

 

Howard Penney

Managing Director


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INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008

Initial Claims

The headline initial claims number fell 19k WoW to 391k (22k after a 3k upward revision to last week’s data).  Rolling claims fell 16.5k to 402k, the lowest print since 2008. On a non-seasonally-adjusted basis, reported claims fell 38k WoW.  NSA claims in 2011 to date have been less volatile than typical. 

 

We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down.  If this level is held, we expect to see unemployment improve.  That said, it is worth highlighting an important caveat. This recession has been different in that it has pushed the labor force participation rate down by ~200 bps, which has had a correspondingly positive improvement on the unemployment rate. In other words, the unemployment rate isn't really 9%, it's 11%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11% actual rate as opposed to the 9% reported rate.

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 1

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 2

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 3 

 

One of our astute clients pointed out the relationship between the S&P and initial claims shown below.  We show the two series in the following chart, with initial claims inverted on the left axis.

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 4

 

In the table below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - 5

 

Joshua Steiner, CFA

 

Allison Kaptur


INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008

Initial Claims

The headline initial claims number fell 19k WoW to 391k (22k after a 3k upward revision to last week’s data).  Rolling claims fell 16.5k to 402k, the lowest print since 2008. On a non-seasonally-adjusted basis, reported claims fell 38k WoW.  NSA claims in 2011 to date have been less volatile than typical. 

 

We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down.  If this level is held, we expect to see unemployment improve.  That said, it is worth highlighting an important caveat. This recession has been different in that it has pushed the labor force participation rate down by ~200 bps, which has had a correspondingly positive improvement on the unemployment rate. In other words, the unemployment rate isn't really 9%, it's 11%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 11% actual rate as opposed to the 9% reported rate.

 

 INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - rolling

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - raw

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - nsa

 

One of our astute clients pointed out the relationship between the S&P and initial claims shown below.  We show the two series in the following chart, with initial claims inverted on the left axis.

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - s p with claims

 

Yield Curve Continues to Widen

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 1Q is tracking 42 bps wider than 4Q.  The current level of 274 bps is slightly tighter than last week (278 bps).

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - spreads

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - spreads QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 

 

INITIAL JOBLESS CLAIMS FALL TO 391K - ROLLING CLAIMS AT LOWEST LEVEL SINCE 2008 - subsector perf

 

 

 

Joshua Steiner, CFA

 

Allison Kaptur


CHART OF THE DAY: Almighty Central Planning Works Both Ways

 

 

CHART OF THE DAY: Almighty Central Planning Works Both Ways -  chart


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