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Athletic Apparel Posts Solid Week


Weekly athletic apparel came in strong. Sales accelerated both on a sequential and underlying trailing-3-week basis for the second consecutive week. While footwear should be out shortly where we see a greater benefit from the holiday shift, strong top-line apparel trends are a positive indicator of healthy consumer spending during the critical pre-Easter selling period. In addition, ASPs were up across all channels suggesting sales were not driven by promotional activity /discounts – a positive for margins.



Athletic Apparel Posts Solid Week - FW App App Table 4 27 11


Athletic Apparel Posts Solid Week - FW App Reg 4 27 11


Casey Flavin


PSS/BWS/DSW: BWS Read Through


BWS preannounced Q1 due to weak comps at Famous (-2-4% from its prior a outlook for +LSD). We’re not worried about it as it relates to other names in the space. Here’s why.

  • A miss is a miss – and we won’t ignore that, but not all percentages are created equal. BWS’ results do not include the critical sales weeks preceding Easter. In the Family footwear channel, Easter is one of the most important selling periods of the year. The -7% decline reported quarter-to-date captures only the first nine-weeks through April 2.
  • We know that March came in soft and we’ve sized the Easter shift (see our 4/15 post “Athletic Footwear & Apparel – The Egg Effect”), which accounts for a +12-16% shift in sales growth from March into April this year.
  • With at least 40% of Q1 sales coming in April this year, BWS’ guidance of down -2%-4% implies April comp expectations of flat to up +6%.
  • If we assume the low-end of the range accounting for the shift in holiday sales and normalize it over the March-April months comps should come in up approximately +2-3%. There’s clearly a disconnect here between BWS’ performance and what we’re seeing across the rest of the channel from peers.

According to industry trends through March, family channel sales are down -4.2% quarter-to-date, which suggests other retailers reporting into the monthly NPD data (i.e. DSW and SCVL) are outperforming. In addition, as we’ve noted since year-end results came out, we expect the comp diversion that has been present between PSS and the rest of its peers to continue to converge again here over the next 2-3 quarters – turning a headwind into a tailwind.


PSS/BWS/DSW: BWS Read Through   - MonthlyFW SalesByChanl 4 11


PSS/BWS/DSW: BWS Read Through   - FamFWComp Chart 4 11


Casey Flavin



Notable news items and price action from the past twenty-four hours along with our fundamental view on select names.

  • PNRA shares declined 2% on accelerating volume ahead of last night’s earnings.  The company missed top-line expectations.  The earnings call takes place at 08:30 am EST.
  • BWLD posted a strong quarter last night; see my post from earlier this morning for details.  Solid top-line performance coupled with favorable chicken wing prices and operational efficiencies during the quarter helped the company beat by 8 cents on EPS.
  • PFCB reported poor earnings results this morning, missing top-line expectations at the Bistro and at Pei Wei.  EPS came in at $0.46 vs $0.53.  Despite the miss, PFCB is pulling a CAKE-like "extend and pretend": maintaining EPS guidance for the year.
  • EAT declined on accelerating volume yesterday.  EAT reported a good quarter this morning.  3QFY11 EPS came in at $0.47 versus $0.45 and comps were -0.2% for company blended same-store sales versus -0.6% consensus.  Chili’s comps were down -0.3% versus consensus at -1.2%.  Maggiano’s posted +3.4% 3QFY11 comps versus consensus at +3%.  Restaurant operating margin was 18.3% versus consensus at 17.1%.  Chili's same-store sales were positive in February and March.
  • SBUX reports after the close today.
  • MCD Japan President Eikoh Harada said today that same-store sales will probably rise in April.
  • SONC gained 2.5% on accelerating volume - today it announced a refinancing.
  • MSSR management sent out a letter to shareholders urging them to vote for the current board of directors, stating that Tilman Fertitta, the Chairman of the Board and CEO of Landryr's, is attempting to interfere with MSSR's legitimate and important corporate governance procedure.




Howard Penney

Managing Director

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The year-over-year column of our commodity monitor remains green for all items with the exception of chicken (broilers and wings).


Earnings over the past few days, and investors’ reaction to those earnings, have anchored heavily on the commodity outlook of the respective companies.  For the most part, the outlook is bearish which explains much of the negative price action in MCD and CAKE last week.  How commodity costs will be absorbed and/or passed on to the consumer is a key question at present.  BWLD is in the extraordinary position, for a restaurant company today, of having commodity favorability of the order of 36% year-over-year for the just-reported first quarter.   One thing that stands out, below, is that grains continue their march higher.  This is likely to support protein prices over the longer term but, as is evident below, chicken, beef, and pork prices all declined week-over-week.





Below, I call out a select few commodities and the respective week-over-week moves, alongside some additional company-specific commentary.





Wheat is a commodity that is widely used in the restaurant space but generally does not take up a large percentage share of any one company’s basket, with the exception of PNRA.  The pizza concepts generally play down the significance of wheat prices for their overall basket (DPZ have it hedged out for the year) but, clearly, for PNRA wheat is a big driver of margin.  For 2011 at least, PNRA is locked on its wheat exposure but – pending an update during this morning’s earnings call, any renewal of that contract will likely result in a step up in the company’s overall cost of sales.  The chart below shows the trend in wheat prices over the past year.







Coffee is unrelenting in its weekly gains of late and will surely pressure many coffee producers into raising prices once more.  Consumers have seen coffee prices increase in grocery aisles and coffee shops of late but, I suspect, another price increase may be on the cards.







Cheese is an important cost for pizza concepts and it will be fascinating to see how DPZ and PZZA fared during an extremely volatile quarter for cheese prices.  Both companies are due to report earnings for 1Q11 on May 4th.  CAKE, CMG, and DPZ have significant exposure to the spot cheese market.  In the case of Domino’s, the company has a contract in place that reduces the volatility by a third. 





Howard Penney

Managing Director

Monkey Movement

“The main question is where this movement will lead us.”

-F.A. Hayek


Today is his big day. Today is the 1st day in US economic history that the Almighty Central Planner of US Monetary Policy will hold a press conference with the media immediately following his decision to pander to the political wind. Currency Crashers and Yield Chasers, unite!


As Hayek predicted 70 years ago in “The Road To Serfdom” (which Keynes himself called “a grand book” that he agreed “morally” with), this is the long hard road towards socialism that traverses many political conflicts and compromises. Before you watch The Bernank today, take a step back and really think about how Big Government Intervention in our markets has become; you’ll see this certified gong show of Gaming Policy for what it is.


“Where these common beliefs of our generation will lead us is a problem not for one party, but for every one of us – a problem of the most momentous significance… Is there a greater tragedy imaginable than that? In our endeavor consciously to shape our future in accordance with high ideals, we should in fact unwittingly produce the very opposite of what we have been striving for?” (Hayek, “The Road to Serfdom”, page 60)


As the Monkey Movement hustles us toward prime time advertising dollars, please don’t listen to what storytellers of the Keynesian Kingdom say – watch how they get paid. If there’s any lesson we’ve learned from the Greeks by now it’s that markets don’t lie – politicians do (Greece’s stock market is down another -1.6% this morning, taking its straight down decline since February 18th to -18.3% as Greek bond yields hit record highs).


So what do you do with that today?


My risk management strategy into the Fed presser is very simple – don’t chase returns; take down your net long exposure; sell high.


I made this call in April of 2010 (SP500 dropped -15% to its August low). I made this call again in November of 2010 (November was down, and I got crushed in December). And again in February of 2011 (another -6.5% correction to mid-March where I covered at the YTD low)… again!


Two for three in calling for corrections from blow-off US Dollar Debauchery driven tops isn’t good enough. So I am looking at improving upon that … with my longest of long-term risk management calls not changing – BURNING YOUR CURRENCY AT THE STAKE will not end well.


If you want to get the US Dollar right, you need to get policy right – and The Bernank, sadly, will remain Indefinitely Dovish.


So what do you do with that? I usually start with the what not to do’s:

  1. Don’t go ideological in your portfolio (I’m leaning long ahead of the Fed today – 15 LONGS, 9 SHORTS in the Hedgeye Portfolio)
  2. Don’t sell The Inflation trade (it’s outperforming every global equity market other than maybe Russia for the YTD)
  3. Don’t be a monkey

What are the intermediate to long-term TREND and TAIL implications of the Monkey Movement perpetuating a US Currency Crash?

  1. It perpetuates The Inflation priced in US Dollars
  2. It structurally impairs the sustainability of long-term economic growth
  3. It dares institutional investors to chase “yield”

What am I seeing in the Global Macro Grind this morning that confirms any or all of these realities related to inflation and/or growth?

  1. Chinese stocks closed down for their 4th consecutive day (we’re long them) as the USD hits new lows, inspiring global inflation risk
  2. Brazilian stocks remain down -3.1% for the YTD and bearish from an intermediate-term TREND perspective = inflation risk
  3. Copper continues to breakdown (bearish TRADE and TREND) as global growth slows in the face of USD perpetuated inflation
  4. US Equities are rallying to lower-long-term highs (like Japan’s have for 20 years) on anemic volume and very concerning skew signals
  5. US Financials (XLF) are bearish TRADE and TREND (worst S&P Sector YTD) as a Currency Crash will enforce counterparty and haircut risks
  6. US Treasury Yield Spread continues to narrow (we are long a UST Flattener – FLAT) as US Growth Slows and long-term yields decline

All the while, US Housing is turning into the train wreck (double dip) that we have been calling for in the last year (Case Shiller Home Price Index saw prices drop on a year-over-year basis in 19 of the top 20 US markets yesterday - Washington, DC was the only bull market in housing – long live Julius Caesar’s Roman Empire that plunders its citizenry by clipping their coins).


US Housing Demand? The MBA mortgage applications index (our best high-frequency data gauge for demand) plummeted by -13.7% week-over-week this week. Apparently Americans aren’t dumb enough to take on The Bernank’s dare to lever themselves up with a “cheap” long-term liability. Short-term Central Planning, press conferences, and marketing events be damned!


My immediate-term support and resistance levels for Oil are now $109.98 and $114.11, respectively (we are long). My immediate-term support and resistance levels for Gold are now 1491 and 1524, respectively (we are long). My immediate-term support and resistance levels for the SP500 are now 1324 and 1350, respectively (we are short).


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Monkey Movement - Chart of the Day


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