Keith bought Brinker in the Hedgeye Virtual Portfolio yesterday at $24.92. 


Brinker remains one of my favorite intermediate-term ideas in the restaurant space.  I began getting vocal about the name in April 2010, stating that the name had some volatile quarters ahead, but that FY11 would bring improved performance.  That scenario is largely playing out as top-line trends stabilize and margin gains are achieved by management.  I would expect continued improvement in margins in 2H11 and, as I wrote on 3/24, earnings has the potential to reach $1.90-$2.00 per share in fiscal 2012. 


Given current sales trends, I also believe that the current consensus estimates for 3Q11 and 4Q11 are low by $0.02 per quarter.


Besides the improving fundamentals, the steep drop in the company’s share count is also going to support EPS growth over the next few quarters.




Howard Penney

Managing Director

R3: WMT, OSTK, Modell’s, New Balance




April 5, 2011






  • In yet another sign that sporting goods retail stores are getting smaller, Modell’s announced the opening of its second sub-9,000 sq. ft. store in New Jersey following the company’s first in NYC last fall. While smaller than Sports Authority’s 12,000-15,000 sq. ft. S.A. Elite concept stores, the trend towards more convenient compact stores appears to be gaining traction.
  • Following speculation that he may be one of the front-runners to design Kate Middleton’s wedding dress, Erdem Moralioglu is also rumored to be the next collaboration for H&M. The designer’s namesake line, carried in roughly 50 high-end department stores and specialty shops in the U.K. and U.S. including Barney’s could be the next in a recent line of successful collaborations for the fast-fashion retailer. With the U.K. one of the few regions to post positive growth in H&M’s 1Q, we wouldn’t be surprised to see the company target the London-based designer.
  • After launching 6-months ago, Shoprunner – currently owned by GSI and soon to be sold by eBay has grown from a goal of 40 participating retailers by the end of 2010 to now having more than 70 among which is the recent addition of Dominos Pizza. Unlike the traditional free 2-day shipping, the restaurant/food retailer will offer members free shipping on all food orders.
  • In another sign that gun and ammunition sales continue to slow, Freedom Group Inc. the owner of Remington, Bushmaster and other firearm brands withdrew plans for its IPO. In addition to seeing its firearms segment sales down -24% in 2010 since filing in October 2009, the company’s former CEO left the firm in September further complicating plans to go public.



Wal-Mart Explores Selling Large Appliances - Wal-Mart Stores Inc. may begin adding large appliances such as stoves and dishwashers to stores in Texas this year as part of a pilot program that could lead to a nationwide launch. The retailer is looking at a program selling appliances from General Electric Co. and could roll out to more than 100 stores initially, according to analysts and consultants familiar with the retailer's plans. Last month, Wal-Mart's U.S. chief Bill Simon, speaking at an industry conference, said the company is "looking at everything including appliances right now." Mr. Simon didn't provide specifics about the scope other than saying: "If it's something that we believe there is customer demand for and an opportunity to make some money, we're going to get into it in a big way." A Wal-Mart spokesperson declined to provide details. A GE spokesman didn't respond to a request for comment. Budd Bugatch, retail analyst at Raymond James, said shoppers in Texas might expect to see 75 or more products in the appliance display areas that Wal-Mart is expected to set up, including major appliances such as stoves, washing machines and refrigerators.<WallstreetJournal>

Hedgeye Retail’s Take: Typically reserved for home improvement and electronics big-box retailers, appliances are one of the few categories that Wal-Mart hasn’t participated in – until now. Interestingly, a recent J.D. Power and Associates report revealed that when making big-ticket appliance purchases, a customer’s overall shopping experience was more important than the price itself when it came to price satisfaction. With WMT ranking not only below its direct peers Macy’s and Sears according to the American Customer Satisfaction Index, department and discount stores also rank lower than specialty retailers like Home Depot and Lowe’s that are key players in the appliance category. As such, expect WMT to be highly price competitive.


New Balance, Red Sox Strike Sponsorship Deal - New Balance has signed on to become the official footwear and apparel sponsor of the Boston Red Sox. The company has unveiled an illuminated sign featuring its logo on an HD videoboard in Fenway Park's right field. "From the outset, we knew this would be a special relationship. New Balance has consistently brought ideas to the table that demonstrate a shared commitment to adding value to important areas of our business, including our home, Fenway Park, and philanthropic efforts like the Run to Home Base," said Sam Kennedy, Executive Vice President/COO for the Boston Red Sox, in a written statement. "Today marks the beginning of a collaboration that brings two iconic Boston-based organizations together, and we couldn't be more excited." The New Balance sign will display a looped and flashing "we won" message to highlight Red Sox victories. <SportsOneSource>

Hedgeye Retail’s Take: Only days after signing Red Sox star Kevin Youkilis to an endorsement deal, the two historic Boston-based franchises finally unite. The notable increase in marketing spend not only supports the brand’s effort to gain share in the highly fragmented cleated business, but also stem Under Armour’s continued momentum in the space.


Overstock to Reward Customers in States Where it Cut off Affiliates - Hoping to turn its opposition to online sales taxes into increased customer loyalty, announced today a plan to shift money from affiliate programs shuttered because of newly enacted sales tax laws to consumers taking part in the e-retailer’s Club O rewards program. The promotion applies to online shoppers in the states of Illinois, New York, North Carolina and Rhode Island. Each state has enacted laws that require Internet retailers to collect state taxes if they work with in-state affiliates, which are web site operators that provide links to products sold by web merchants and then receive commissions on those sales. State officials say affiliates constitute an online retailer’s physical presence in a state, satisfying a legal requirement that lets the state require online retailers to collect the taxes. Overstock calls such laws unconstitutional and, along with, has cut ties with affiliates in states that have enacted the tax laws. “We have decided to sever our relationships with thousands of marketing affiliates in those states, take the money we would normally pay those affiliates, and use it to reward our best customers in those states,” says Patrick Byrne, CEO of Overstock, which is No. 28 in the Internet Retailer Top 500 Guide. <InternetRetailer>

Hedgeye Retail’s Take: Stepping up in opposition of what has been dubbed the “Amazon Tax” in Arkansas (see below), Overstock is adopting what appears to be a win/win strategy. With the likelihood that legislation requiring online retailers to collect taxes will pass, the company is utilizing rewards to strengthen ties with its customer base, something that will be remembered if/when online retailers are forced to collect.


Arkansas Newest State to Ready an “Amazon Tax” LawThe Arkansas General Assembly has passed and sent to Gov. Mike Beebe a bill that would require Internet retailers to collect sales tax if they accept referrals from affiliate web sites and do more than $10,000 a year in sales in Arkansas. Beebe, a Democrat, supports the legislation and is expected to sign it soon, a spokesman says. Once SB 738, which is referred to in Arkansas as the both Amazon Tax law as well as the Main Street Fairness law, is signed into law, Arkansas will become the fifth state to enact such legislation, joining New York, North Carolina, Rhode Island and, most recently, Illinois, according to Daniel Schibley, a state and local tax analyst at CCH Inc., a unit of Wolters Kluwer that publishes tax and business information<InternetRetailer>

Hedgeye Retail’s Take: The swell continues to grow at the state level. While the AMZN and OSTK continue to put up a good fight, gravity is inevitable.


Under Armour Secures Loan for Office Complex Acquisition - Under Armour, Inc. has entered into a credit agreement covering a total loan commitment of $325 million comprised of a revolving credit facility commitment of $300 million and a term loan commitment of $25 million. The company anticipates using a term loan of up to $25 million to finance a portion of the purchase price for the previously announced acquisition by the company of part of the office complex at the company's corporate headquarters.  The credit agreement replaces the company's existing $200 million revolving credit facility and has a term of four years, according to a filing with the Securities & Exchange Commission. The term loan commitment expires May 29, 2011. Subject to certain conditions, the acquisition is expected to close by that date. The $300 million revolving credit commitment amount under the credit facility may be increased to up to $350 million, subject to certain conditions and approvals as set forth in the Credit Agreement.  <SportsOneSource>

Hedgeye Retail’s Take: With nearly 50% of the property still leased by tenants, the acquisition of the company’s new headquarters is expected to be a cash flow neutral. That said, the new facility is also at more favorable rates at LIBOR (no floor) + (1.25%-1.75%) compared to the prior facility at LIBOR (subject to a floor of 1.25%) + (2.0%-2.5%).


Puig in Talks to Buy Gaultier Stake - As Parisian as the Eiffel Tower, Jean Paul Gaultier might soon become a Spanish-controlled company. According to market sources, Puig — the Barcelona-based parent of Carolina Herrera, Nina Ricci and Paco Rabanne — has entered into exclusive negotiations to acquire the 45 percent stake in Gaultier owned by Hermès International. It is understood Puig will also purchase some shares from Gaultier himself, which would give the Spanish beauty giant majority ownership of a landmark French house — and instantly make it a bigger player in the fashion world. Gaultier, 58, is expected to retain a significant stake in the company he founded in 1982, and remain at the creative helm. As reported, Hermès said Friday it had initiated discussions to sell its shares in Gaultier, without identifying the potential buyers. The maker of Birkin bags and silk scarves declined all comment on Monday, as did a spokeswoman for Gaultier. <WWD>

Hedgeye Retail’s Take: As a follow up to news of the sale out last week, it appears that Hermes is not struggling to find interest for the coveted fashion house.





The Macau Metro Monitor, April 5, 2011




PBoC said the benchmark 1-year lending rate will increase to 6.31% from 6.06% and that the 1-yr deposit rate will rise to 3.25% from 3%, effective tomorrow.  This is the 4th time that China has raised rates since the global financial crisis.



Marina Bay Sands is appealing a decision by the High Court registrar allowing new allegations to be made in a lawsuit over an aborted spa deal.  Investors of Spa@Sands claimed that management under former MBS CEO Tom Arasi reneged on an agreement to let them rent more than 23,000 sq ft of space for a luxury spa on the resort's 55th floor.  Instead, Banyan Tree was awarded a contract last year to manage the luxury spa.  No opening date is scheduled for the Banyan Tree spa, but it is expected to open soon, according to an MBS spokeswoman.


Spa@Sands argued MBS showed it accepted the spa agreement when it banked in the spa firm's two checks, $233,660 plus $44,866 in stamp fees.  But MBS attorneys said MBS had not accepted the offer and had refunded $278,526 paid by the spa.

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CHART OF THE DAY: The Shepherd's Way Off the Mark... Yet Again


CHART OF THE DAY: The Shepherd's Way Off the Mark... Yet Again -  chart

The Fiat Flock

“They would be our shepherds, and we are to be their flock.”

-Frederic Bastiat


After watching Maria Bartiromo interview Chicago Federal Reserve Bank President Charles Evans yesterday into the market close and then watching The Bernank shepherd the financial media into taking his word for it on The Inflation last night, I thought about becoming a sheep.


Or should I rethink my being in this interconnected Global Macro game of risk as a lemming? Perhaps a monkey? Or a donkey? Ah, so many attractive career options are available if I were to accept the wishes of the overlords of the Keynesian Kingdom and become a member of The Fiat Flock


Born in France in 1801, then orphaned at the age of 9, Bastiat penned the aforementioned quote when he wrote “The Law” in 1850. Not surprisingly, his work wasn’t well regarded by the French Socialists of his time. Neither was it promoted by Charles de Gaulle in the 1950s when his debt-financed-deficit-spending and devaluation programs destroyed both the franc and French credibility in global markets…


During days when the General-in-Chief of the US Federal Reserve (Bernanke) is more left leaning and socialist than the ex-Finance Minister of France turned head of the European Central Bank (Trichet), I think it’s worth taking a moment this morning to consider America’s constitutional definition of liberty as an alternative to this wanna be Centrally Planned world.


The Bastiat Questions (“The Law”, page 46):


“The pretensions of organizers suggest another question, which I have often asked them, and to which I am not aware that I have ever received an answer: Since the natural tendencies of mankind are so bad that it is not safe to allow liberty, how comes it to pass that the tendencies of the organizers are always good? Do they consider that they are composed of different materials from the rest of mankind?”


The Implied Answer (“The Law”, page 46):


“They have, therefore, received from heaven, intelligence and virtues that place them beyond and above mankind: let them show their title to this superiority. They would be our shepherds, and we are to be their flock.”


So how do you feel about that? How do you feel about American central planners debauching the longstanding entitlement we’ve had to the definition of a “free market” system? What’s so free about a market whose every breath of weaning volume depends on The Bernank’s heavy hand?


It’s sad to watch.


Back to this morning’s Global Macro Grind


The Top 3 headlines this morning are:

  1. “UConn beats Butler for the National Championship”
  2. “Texas Instruments To Buy National Semiconductor”
  3. “Bernanke Says Fed Must Monitor Inflation Extremely Closely.”

Great news for UConn and National Semi – but what’s up with The Bernank? What exactly does monitoring inflation “extremely closely” mean? Were our shepherds monitoring The Inflation somewhat closely before food prices hit all-time highs?


I don’t know how else to say it, so I’ll say it like the Chinese just did this morning by addressing The Inflation head on and raising China’s benchmark interest rate. If we’re not going to address reality about oil at $108/barrel, a new leader in the global financial system will. Don’t think for a New York minute that China didn’t do this in Bernanke’s face this morning for a reason.


China waited on Ben Bernanke’s speech to The Fiat Flock in Georgia last night. This what he said:


“So long as inflation expectations remain stable and well anchored… the increase in inflation will be transitory”


No, dear hard working red-white-and-blue-collared Americans, I couldn’t make that quote up if I tried. Yes, Bernanke makes up his own “forecasts” about matters like growth and inflation all of the time – and, yes, his forecasting track record speaks for itself. It’s terrible.


On Growth:

  1. Bernanke is still forecasting 2011 US GDP growth of 4% to Infinity and Beyond…
  2. The Street, including both Goldman and Bank of America, is cutting GDP growth estimates closer to the Hedgeye estimate

On Inflation:

  1. Bernanke calls inflation expectations well anchored and prices “stable”
  2. The Market, including Commodity and Volatility prices, is flashing the highest food prices and gyrations in price volatility, ever…

As we like to say at Hedgeye, Mr. Bernanke, ever is a long time…


There has never been a Federal Reserve Chairman who has overseen more Americans on food stamps (44 million people and counting). There has never been a Federal Reserve Chairman who has overseen 3-week explosions of price volatility (VIX) on the order of +40-60%, and then draw downs to higher-lows that are the most expedited in market history (7 days in March = VIX down -41.6%).


We are not your Fiat Flock. We do not trust your “forecasts.” And we want our markets back.


My immediate-term support and resistance lines for WTI Crude Oil are $105.91 and $108.92, respectively. My immediate-term support and resistance lines for the SP500 are now 1318 and 1341, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Fiat Flock - Chart of the Day


The Fiat Flock - Virtual Portfolio



TODAY’S S&P 500 SET-UP - April 5, 2011


Dollar rises against euro and yen and the futures are looking lower as Bernanke says Fed will act if inflation more than “transitory.”  As we look at today’s set up for the S&P 500, the range is 23 points or -1.12% downside to 1318 and 0.61% upside to 1341.




We are on day 2 of perfect with 9 of 9 sectors positive on TRADE and 9 of 9 sectors positive on TREND.    


THE HEDGEYE DAILY OUTLOOK - daily sector view








  • ADVANCE/DECLINE LINE: 225 (-908)  
  • VOLUME: NYSE 770.67 (-14.57%)
  • VIX:  17.50 +0.57% YTD PERFORMANCE: -1.41%
  • SPX PUT/CALL RATIO: 2.15 from 2.22 (-3.40%)


  • TED SPREAD: 24.60
  • 3-MONTH T-BILL YIELD: 0.06% -0.01%
  • 10-Year: 3.45 from 3.46
  • YIELD CURVE: 2.68 from 2.66


  • 7:45 a.m.: ICSC Weekly retail sales
  • 10 a.m.: Treasury Secretary Timothy Geithner testifies to Senate panel
  • 10 a.m.: ISM Non-manufacturing, est. 59.5, prior 59.7
  • 11:30 a.m.: U.S. to sell $24b 52-week bills, $40b 4-week bills
  • 12:45 p.m.: Fed’s Kocherlakota gives remarks in Minneapolis
  • 12:45 p.m.: Fed’s Lockhart speaks in Stone Mountain, Ga.
  • 2 p.m.: FOMC minutes released
  • 4:30 p.m.: API inventories


  • French government revises 2012 growth down to +2% from 2.5%
  • Moody's downgrades Portugal's bond ratings to Baa1 from A3, still under review down
  • Poland’s central bank may raise its benchmark rate by 25bp to 4%
  • Australia’s central bank left its benchmark interest rate at the highest level in the developed world.
  • Nasdaq to reduce weighting of Apple in Nasdaq-100




THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Silver Advances to Most Expensive Versus Gold Since 1983 on Inflation Risk
  • Copper Rises in London Trading Before U.S. Services Report: LME Preview
  • Oil Drops First Day in Four on Signs U.S. Demand Easing as Supplies Gain
  • China's 8% Growth to Bolster Consumption of Copper, Aluminum, Chalco Says
  • Gold May Advance on Libya, Inflation Concern; Silver Reaches 31-Year High
  • Rubber Futures in Tokyo Reach One-Month High on Yen, Thai Supply Concerns
  • Corn Near 33-Month Peak on Shrinking Supplies as Wheat at Four-Week High
  • Cocoa Falls as Ivory Coast Conflict May Be Ending; Coffee Prices Decline
  • Beef, Pork-Price Gains Boosting U.S. Craving for Chicken: Chart of the Day
  • Australia Posts First Trade Deficit in Year as Disasters Disrupt Exports
  • Kazakh Uranium Miner Seeks to Raise India, U.S. Sales Before Possible IPO
  • Extract Expects to Fund $1.7 Billion Uranium Project Amid Reactor Crisis



THE HEDGEYE DAILY OUTLOOK - daily currency view





European markets trade lower with the periphery again in focus and particularly Ireland, Spain and Portugal; Turkey and Switzerland are bucking the negative trend.    


EuroZone Feb retail sales +0.1% y/y vs consensus +0.6% and prior revised +0.4% from +0.7%
Mar final Services PMI:

  • France 60.4 vs preliminary 60.7
  • Germany 60.1 vs preliminary 60.1
  • EuroZone 57.2 vs preliminary 56.9
  • UK Mar Services PMI 57.1 vs consensus 52.5 and prior 52.6








The Asian markets turned in a mixed performance; China, Hong Kong, and Taiwan were closed for Ching Ming Festival. Australia February trade balance (A$205M) vs consensus A$1.2B and the central bank  keeps interest rates unchanged, as expected.














Howard Penney

Managing Director

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