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R3: JCP, M, DKS, LIZ

R3: REQUIRED RETAIL READING

March 10, 2011

 

 

 

 

RESEARCH ANECDOTES

  • JCP began testing price increases almost a year ago on women’s private label apparel and to a lesser degree on men’s.  Management found that customer response to raising pricing on opening or sharp price point goods was met negatively.  On more aspirational product there a was a bit more forgiveness in the consumer’s acceptance.  While just a small test, the results are certainly telling for those that sell deep-value opening price point goods.
  • Macy’s noted that March trends have started off well, following a similar trend to February. Recall that the Easter shift has yet to occur which will ultimately lead to negative sales trends in March and disproportionately better trends in April.  Management also noted that early and sporadic efforts to increase prices in certain areas have been met with little resistance and in some cases are actually helping to raise overall AUR’s.
  • With strength in the sporting goods channel across just about every category (including golf), the industry is becoming increasingly focused on the latest ‘untapped’ opportunity – the youth consumer.  At recent presentations, DKS management addressed this reality highlighting a strategy that includes efforts from both UA and NKE. The reality here is that while the youth consumer has not evolved overnight, but the industry is seeing increasing demand from the 8-12 year-old customer.

OUR TAKE ON OVERNIGHT NEWS

 

Kate Spade's Web Site Amps Up Edit - Kate Spade unveiled a redesigned Web site Wednesday, adding greater editorial content to its previously e-commerce-focused site. The new katespade.com will fuse a 50-50 ratio of shopping and editorial, according to digital marketing manager Cecilia Liu. Previously editorial content occupied just 15 percent. Now, when users arrive at the homepage, they are welcomed with a split screen that gives them the option to “shop” or “play.” The latter takes them to an image-driven, behind-the-scenes world of the brand. Consumers will also be able to engage in content such as company projects, partnerships, events and ad campaigns. <WWD>

Hedgeye Retail’s Take: Brand created content remains a key and growing aspect of a differentiated customer experience.  And, if done well the consumer will not even realize they are being seduced/induced to make a purchase! 

 

Asics Launches 33 Lightweight Running ShoeAsics introduced a lightweight, minimalist running shoe collection that encourages natural foot movement in its new 33 by Asics collection. Inspired by the fact that 33 joints in the foot allow it to move efficiently, 33 by ASICS styles features the GEL-Blur33 to debut in April 2011 and the Rush33 available in June 2011, both in select stores. "We're excited to introduce this new collection for the consumer looking for a lightweight, minimalist style," says Brice Newton, Running Footwear Manager. "We have been encouraging natural foot movement with our Impact Guidance System (I.G.S.) for years, and this is an opportunity to showcase out latest adaptation with 33 by ASICS." <SportsOneSource>

Hedgeye Retail’s Take:  For those who thought lightweight running was coming to an end, think again.  Asics, New Balance, and Nike have all released new and innovative product in the last week. 

 

City Sports to Launch New Private Label - City Sports is launching a premium collection of private label running and training apparel, called CS Designed by City Sports, according to The Boston Herald.  Prices range from $15 to $45 with offerings extending from shirts, shorts and sweatshirts to bras. City Sports, which has 18 stores on the East Coast, originally launched its CS private-label line five years ago, but began an overhaul of the line last year. "We felt like we weren't serving (customers) well enough," Chrissy Durden, head of design, told the Herald. The slogan for the collection is, 'Love It For Life.' <SportsOneSource>

Hedgeye Retail’s Take:  With just 18 stores there’s no reason to believe that any retailer can’t be in the private label business.  

 

U.S Retailers Look to Europe - There’s a renaissance under way among U.S. web retailers targeting Europe for e-commerce growth, according to data and analysis contained in Internet Retailer’s newly published Top 300 Europe research guide. Some U.S. web merchants such as eBags.com have tried selling online in Europe in recent years, but pulled back because of problems with unexpectedly high operating costs, language barriers, international payments processing and other issues. But today U.S. web retailing companies that are selling successfully in Europe—or have ambitious plans to create a viable European e-commerce business over time—aren’t doing it just from the U.S. And they aren’t doing it on a shoestring budget. <InternetRetailer>

Hedgeye Retail’s Take:  Clearly the easiest and fastest way to go global, e-commerce has also become a way for domestic brands to test the waters on a brand’s acceptance in international markets.  This goes beyond sales and actually helps to define broader market opportunities.  

  

Marketers Move Toward Engagement on Social Media - Companies and marketers are more comfortable on social networks and have started to engage more authentically and build communities with other users on the sites. PR firm Burson-Marsteller analyzed the social media presence of the Fortune Global 100 for its “Global Social Media Check-Up 2011” and found that 25% of companies worldwide are using all four major social media platforms: Facebook, Twitter, YouTube and blogs. Eighty-four percent are on at least one platform. Twitter, specifically, saw major growth compared to 2010, as 77% of companies around the world have Twitter accounts, up from 65% last year. As companies get beyond the idea that they “just have to be on” social media platforms, they are becoming more active on these sites. <eMarketer>

Hedgeye Retail’s Take:   Still much to do here with social media, marketing, and ultimately conversion.  Most exciting is the idea that  “fans” or “Twitterers” actually opt-in to their brand affiliations, adding a layer of responsiveness not seen with traditional media.

 

R3: JCP, M, DKS, LIZ - R3 3 10 11

 

 

 


INITIAL JOBLESS CLAIMS RISE 29K (26K AFTER REVISION) TO 397K

Initial Claims

The headline initial claims number rose 29k to 397k (26k after a 3k upward revision to last week’s data).  Rolling claims rose 3k to 392.25k. On a non-seasonally-adjusted basis, reported claims rose 55k WoW.  This is only the second WoW increase in NSA claims in 2011.  While seasonally adjusted claims have been volatile, the NSA series, until this week, was steadily falling. 

 

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 8.9%, it's 10.9%. So when we say that claims of 375-400k will bring down the unemployment rate, we are actually referring to the 10.9% actual rate as opposed to the 8.9% reported rate.

 

 INITIAL JOBLESS CLAIMS RISE 29K (26K AFTER REVISION) TO 397K - rolling

 

INITIAL JOBLESS CLAIMS RISE 29K (26K AFTER REVISION) TO 397K - raw

 

INITIAL JOBLESS CLAIMS RISE 29K (26K AFTER REVISION) TO 397K - 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 RISE 29K (26K AFTER REVISION) TO 397K - s p

 

Yield Curve Remains Wide

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 278 bps is unchanged vs last week.

 

INITIAL JOBLESS CLAIMS RISE 29K (26K AFTER REVISION) TO 397K - spreads

 

INITIAL JOBLESS CLAIMS RISE 29K (26K AFTER REVISION) TO 397K - spreads QoQ

 

Financial Subsector Performance

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

 

INITIAL JOBLESS CLAIMS RISE 29K (26K AFTER REVISION) TO 397K - subsector perf

 

 

 

Joshua Steiner, CFA

 

Allison Kaptur



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.30%
  • SHORT SIGNALS 78.51%

MPEL: MAY OPENING FOR GALAXY MACAU

Galaxy Macau’s opening in mid-May should force the sell side to raise Q2 estimates. Oh, and they're low for Q1 as well. 

 

 

The sell side models are still projecting an April opening for Galaxy Macau (GM).  In fact, one sell side research team put out a report yesterday that mentioned late March as a possibility.  Galaxy announced last night a May 15 opening date for GM, which is an auspicious date in the Chinese calendar.  This is a positive for MPEL as it relates to the sell side models.  It is consensus among the sell siders that MPEL's City of Dreams will be hit the hardest by Galaxy Macau. 

 

We are already way above the Street for 1Q and 2Q, approximately 16% higher for EBITDA in both quarters.


THE M3: GALAXY MACAU GRAND OPENING; CHINA FEB LENDING; BORDER CHECKPOINT; MORE ILLEGAL WORKERS

The Macau Metro Monitor, March 10, 2011

 


GALAXY ENTERTAINMENT: NEW MACAU PROPERTY GRAND OPENING MAY 15 WSJ

Galaxy Entertainment Group Ltd said Galaxy Macau will open May 15, 2011 with 450 tables, 2,200 hotel rooms and +50 F&B outlets.  Chairman Francis Lui said Galaxy will apply to the government to host more gaming tables (room for 150 more) beyond its initial 450 "if and when necessary."  It expects Galaxy Macau to be the only new resort to open in the Chinese gambling territory until "at least the end of 2011."

 

CHINA NEW BANK LENDING UNDER $600 BILLION YUAN IN FEBRUARY Xinhua News

Chinese banks extended less than $600 billion yuan in new loans in February.  In January, Chinese banks loaned just over $1 trillion yuan.

 

MACAU: BORDER CHECKPOINT HOURS TO BE EXTENDED Macau Daily News

The daily opening hours of the Gongbei‐Macau border is expected to extend by 2 to 3 hours by the end of the year or early next year.  The first meeting between Guangdong and Macau will be held next month, and both sides have already agreed to put the extension of immigration checkpoint’s opening hours and regulations for cars with Macau registration plates to be driven in Hengqin Island on this year’s agenda. The Macau government has indicated the ultimate aim to operate a 24‐hour border checkpoint.

 

The Macau government also plans to establish a joint venture with Henguin for developing the business zone. The construction of the Henguin initiative is expected to be kicked off by the end of next month. The government intends to support some high potential emerging industries and may introduce new measures to encourage gaming enterprises to develop non‐gaming businesses.

 

ILLEGAL WORKERS FOUND AT GALAXY MACAU'S SITE Macau Daily Times

According to the Public Security Police, Macau authorities yesterday found 23 illegal workers during a raid on the Galaxy Macau construction site.


Dark Moon

“I like to think that the moon is there even if I am not looking at it.”

-Albert Einstein

 

On this day in 1973 British rock band Pink Floyd released the Dark Side of The Moon. In Hedgeye-speak, that album was multi-factor and multi-duration, focusing on the interconnectedness of the world. Money, war, and death – from time to time, these can be the dark sides of this world. Pretending that their impacts on human behavior cease to exist isn’t my view of a risk management process; neither is hope.

 

So far, the best strategy we can offer Global Macro Risk Managers is grounded philosophically in Chaos Theory. Some people call it Complexity Theory – mathematically speaking, Chaos and Complexity theories are pretty much the same things.

 

Much like Einstein’s aforementioned admission of a Dark Moon, there are some things in markets that you can’t see. But, from dark pools, to the “flows”, and inside information – it’s all there. No matter where your concept of your research “fundamentals” go, there it is – either by expectation or by the actual “news”, it’s always being absorbed into the market’s last price.

 

Where I used to get run-over in positions was when I considered my research on a company the center of the universe. As if Mr. Macro Market knew me and owed me something. You can go get yourself a Yale degree and draw up a “smart” looking slide presentation about your bottom-up investment thesis – and that investment strategy will be all good and fine, until it isn’t.

 

Usually what hits you like Big Alberta when he has you lined up at the blue-line with your head down is the macro. Or, as some bottom-up only investors like to call it, “the unknown.” Well that excuse, losing your investor’s money, and a few false teeth might get you a ride home on the bus, but it’s certainly not going to give you an entitlement to dress in the next game.

 

The next risk management game in a globally interconnected marketplace starts now. Like a good Chaos Theorist, you either wake up accepting that Global Macro market risk is grounded in uncertainty, or you don’t. Like the moon, Asian Growth Slowing and Greek Debt Imploding is still there this morning, even if you weren’t looking at it…

 

Here’s this morning’s Global Macro grind:

 

1.       Asian Growth Slowing As Global Inflation Accelerates

-Japan revised its Q4 GDP estimate LOWER again to -1.3% (don’t forget that the US has done the same with Q4 GDP, twice)

-China reported a huge sequential slowdown in Exports for February at +2.4% (lowest level of demand since early 2009)

-South Korea raised interest rates to 3% (2nd rate hike for 2011 YTD with the #1 reason being inflation)

 

2.       European Sovereign Debt Yields Rising As Global Inflation Accelerates

-Credit ratings being cut in Spain this morning aren’t leading indicators – and neither is the assumption that more debt will solve this

-Greek bond yields continue to rise to higher all-time highs (all-time is a long time)

-British and German Equity markets are breaking down through their respective immediate-term TRADE lines of support

 

3.       US Growth Expectations Slowing (finally) As Global Inflation Accelerates

-US Treasury yields are finally backing off (2s down to 0.68% this morning) dulling one of the “growth signals” the bulls had in FEB

-Oil prices remain elevated and impose a significant sequential tax on US consumption growth (Q4 avg oil price = $85/barrel)

-Volatility (VIX) remains well above our intermediate-term TREND line of support (18.08) as fundamentals challenge the “flows”

 

So, that’s what we call The Big Stuff here at Hedgeye. And the Risk Manager strategy is to stay ahead of The Big Stuff. Whether you are looking at a company from the bottom-up or a country from the top-down, Growth Slowing as Inflation Accelerates in your cost structure definitely matters.

 

The Big Stuff can also morph into consensus. For example, I think The Inflation that we’ve been belaboring since October is now becoming consensus. This is where managing risk gets a lot trickier. What’s priced in? How long can consensus be right?

 

Here’s some more Big Stuff with potentially long-term tails:

  1. A Super Sovereign Debt Cycle Structurally Impairing Long-Term Growth
  2. A Global Inflation and Unemployment Problem Inspiring Revolutionary Revolt
  3. A Global Belief In The Fiat Currency System Coming Under Attack

Again, like the Dark Moon – it’s all there…

 

So, we’ll keep focusing on what we see in our globally interconnected risk management model, trying our best to change our asset allocation and long/short positioning as consensus changes are absorbed into market prices.

 

My immediate term TRADE lines of support and resistance for WTI crude oil are $102.11 and $108.71, respectively. My immediate-term lines of support and resistance for the SP500 are now 1302 and 1334, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Dark Moon - dark moon

 

Dark Moon - CH2


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