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R3: GPS, UA, FDO, & Newton



June 10, 2011



Between a capital infusion at a private player (Newton) and UA stepping up its game, expect continued innovation out of the running category.





  • While management at GPS reiterated that cost increases at Banana would be up MSD at most, they were considerably less specific regarding the increases at Old Navy and the outlet business. As the primary drivers of average AURs up over 20% in the 2H, it is concerning to hear that management is still ‘working over the business’ to  manage cost.
  • Among the new products showcased at UA’s investment day, one of the highlights was the company’s new ChargeRC lightweight running shoe. Not only is UA entering this booming sub-category, but more importantly this shoe is a solid effort in establishing the brand as a technical player instead of simply a big box discount offering. At a project $120 ASP, the ChargeRC is also likely to provide a healthy boost to gross margins. (take a look)
  • On the heels of opening its second stand alone men’s store in Boston last week, COH attempted to frame the men’s opportunity by region. In China, men’s represents 40% of the luxury spend on accessories, Japan 15%-20%, and in the U.S. only 10%-15%. By contrast, men’s accounted for only 3% of COH’s total global sales in 2010. As such, we can expect to see an increase in ‘dual gender’ stores from Coach as well as additional stand alone stores – viva la manbag!
  • Here’s a calendar shift worth noting, unique wedding dates driven demand in Q3. Management of MW noted that in years past, wedding dates such as 7/7/7 and 10/10/10 have driven a surge in wedding demand and it expects a similar effect on 9/10/11 to the tune of $0.03-$0.04 in EPS.  Who would have thought that unique/novelty wedding dates could have such an impact?





Paul Fireman Invests in Newton Running - Five years after selling Reebok to Adidas for $3.8 billion, Paul Fireman's private-equity firm is backing Newton Running Co., the Boulder, CO. maker of "natural" running shoes. Boston-based Fireman Capital Partners has invested between $10 million and $20 million in the 4-year-old company, managing general partner Dan Fireman told the Boston Herald. It's the sixth investment by the firm, whose portfolio also includes Hudson Jeans, Evolution Fresh, Serena & Lily, IdeaPaint and Pilla. "We're going to have a significant stake," Fireman told the newspaper, adding that both he and his father will be very active in Newton Running. "We'll have influence over the company, its direction and operations. It's great when you can take those skill sets that you've learned and done for years and apply them to a company that you really understand." <SportsOneSource>

Hedgeye Retail’s Take: Fireman may have been a lousy CEO – a REALLY lousy one… But he’s a much more astute investor. Remember that he’s the one who bought rights for the Reebok Brand in the US back in the 1980s in conjunction with the ‘Flashdance’ phenom as well as the NYC transit strike during which women walked to work.  The most recent investment in Newton Running is a superb investment (McGough’s opinion). Check out the product. It is revolutionary. High priced and worth it.


Old Navy Goes After Men in New Ad Push - Old Navy is looking to enlist a few good men. The retailer is launching its first campaign specifically targeting men this Thursday. It has appealed to guys in the past through its broad family-focused advertising, said Amy Curtis-McIntyre, senior-VP marketing. But now Old Navy is intent on speaking directly to "Mike," it's 25- to 35-year-old target. "We've made a lot of changes to our assortment, and we really want to ignite a conversation with that male target," Ms. Curtis-McIntyre said. "It's a big piece of business, and it's time to speak directly to Mike and not just through his girlfriend, wife or sister." Ms. Curtis-McIntyre said the men's product has gone through significant changes in recent seasons, with the addition of new denim washes and styles, as well as the addition of more tailored shirts and pants. <AdAge>

Hedgeye Retail’s Take:  Hey, you can’t blame them. The only downside for Old Navy is that they do nothing and continue to underperform the industry. They need to take more risk – or at least as much risk as the company’s sheer size can stomach.


Ackman becomes Family Dollar's Biggest Holder - Hedge fund manager William Ackman disclosed Thursday that he recently boosted his ownership of Family Dollar Stores Inc. by about 5 million shares, making his Pershing Square Capital Management the largest shareholder of the discount retailer. The move takes his stake to 10.9 million shares, or 8.9% of Family Dollar, and comes on top of a disclosure last month, when he reported the 5.8-million-share position he built during the first quarter. He made that disclosure— a day after publicly praising the stock at a hedge-fund conference—in an amended Securities and Exchange Commission filing for which he had previously requested and received permission to keep some holdings confidential. Billionaire Nelson Peltz and his Trian Fund Management LP had been the largest holder of Family Dollar, with a roughly 6.5% stake. Trian in February offered to buy the rest of Family Dollar for $55 to $60 a share. The company rejected the offer. <WallstreetJournal>

Hedgeye Retail’s Take:  Billy’s stake in FDO stands at about $571mm. A huge number in itself. But it’s still half of the $1.2bn he owns of JC Penney. Both companies would be better off without him.


Tory Burch Wins $164M in Cybersquatting Suit - Tory Burch LLC has scored another major designer victory against online counterfeiters — a $164 million one at that.  A New York federal court has awarded the fashion firm damages in that amount against hundreds of operators of Web sites selling fake Tory Burch Reva ballet flats and other footwear, handbags and accessories. While Burch has almost no chance of getting the money from the sites, the award is believed to be the largest sum of damages ever issued to a fashion firm in the ongoing battle against online counterfeiters. In addition to monetary damages, the court ordered that 232 domain names used to sell Tory Burch fakes be permanently disabled and turned over to the New York-based fashion label. The ruling, delivered last month, also allows the brand to disable any additional offending sites created by the defendants in the future without needing a new lawsuit. <WWD>

Hedgeye Retail’s Take: Even though most Wall Streeters could care less about Tory Burch (even though it is a solid brand that will be bought by a bigger company at some point), this ruling is substantive. The monetary reward, as the article points out, is immaterial. It may as well be $1trillion. Tory won’t see a dime. But the closure of distribution for knock-offs is a solid precedent for all.


LIDS Sports Group Buys Buckeye Corner Stores - LIDS Sports Group has acquired Buckeye Corner stores, which operate in the Columbus, OH area. The acquisition is made up of four store locations, the e-commerce website www.buckeyecorner.com, and a catalog business. Terms of the acquisition were not disclosed. A retailer specializing in the sale of officially licensed sports headwear, apparel, accessories, and novelties since 1980, Buckeye Corner has been the official retail partner of The Ohio State University Alumni Association, Inc. since 2004. Buckeye Corner now operates within the LIDS Clubhouse division of LIDS Sports Group. LIDS Clubhouse operates more than 20 team-specific professional sports and university athletics retail stores and e-commerce websites. "Buckeye Corner, serving one of the largest and most passionate fan bases in all of college athletics, is a marvelous addition to the LIDS Clubhouse team, and represents the latest example of LIDS Sports Group's commitment to sports fans to be the premier specialty sports retailer in the country," said Ken Kocher, president of LIDS Sports Group. Buckeye Corner store locations include Easton Town Center, Polaris Lifestyle Center and Northwest Square in Columbus, and Lane Center in Upper Arlington, Ohio. LIDS also currently operates five headwear specialty retail stores around Columbus, 32 stores across Ohio, and more than 975 stores across North America. <SportsOneSource>

Hedgeye Retail’s Take: This is the ultimate specialty specialty concept.  Not material at all. But interesting that they’d go to such a niche market.


Customs Seizes Chinese Shipment of Fake Designer Gear - Federal authorities recently seized three Chinese shipments of fake designer clothes that could have sold for $14.3 million, U.S. Customs and Border Protection officials said Wednesday.  More than 47,000 pieces of clothing violating trademark labels of designers Chanel, Polo, Gucci, Coogi and Dior were discovered inside cargo containers shipped in March, April and May to the Los Angeles/Long Beach seaports, said CBP spokesman Jaime Ruiz. <MercuryNews>

Hedgeye Retail’s Take:  Not all lbrands are as fortunate as Tory Burch.



To Be Bearish: SP500 Levels, Refreshed



To be, or not to be bearish – remains the question.


Clearly, with Growth Slowing As Reported Inflation Remains Sticky, Global Equity markets are putting a lower-multiple on The Stagflation; particularly US style Jobless Stagflation – and this morning’s y/y rise in US Import Prices is simply just another reminder of that.


In the chart below we show lower-lows of immediate-term TRADE support (1257), and no long-term support  all the way down to 1219 (our long-term TAIL of support), which would be a -10.6% drawdown from the April YTD high (1363).


While some are hoping that the 200-day moving average saves this selloff from moving to 7 consecutive weeks, we’d remind Risk Managers that hope is not a risk management process.


I remain very optimistic about the future of America – particularly as this failure of Keynesian common sense gives way to changes in leadership and economic resolve.



Keith R. McCullough
Chief Executive Officer


To Be Bearish: SP500 Levels, Refreshed - 1


Notable news items and price action from the restaurant space as well as our fundamental view on select names.

  • CBRL has been cut to “Market Perform” from “Outperform” at Morgan Keegan.  The twelve month price target is $48 per share.
  • GMCR have entered into an amendment of their credit agreement that extends the maturity of its term loan facility, U.S. revolving credit facility, and alternative currency revolving credit facility to five years from June 9th, 2011.  Additionally, the amended agreement boosts the company’s revolver by $500 million.
  • PEET management said yesterday that coffee prices are “caught in a speculative bubble”.  The company also said that increasing packaged coffee sales will help margin.
  • KONA and CAKE traded higher on accelerating volume yesterday.
  • SONC underperformed QSR on accelerating volume.




Howard Penney

Managing Director

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 80.46%
  • SHORT SIGNALS 78.35%


The Macau Metro Monitor, June 10, 2011




Clark County District Court Judge Elizabeth Gonzalez has dismissed the defamation claim filed by former Sands China CEO Steven Jacobs against Sands China and chairman Adelson. However, she declined to immediately dismiss a breach of contract claim against Sands China and will consider that issue later on a motion for summary judgment.  That claim involves stock options Jacobs says he's been wrongly deprived of.


Regarding the defamation claim, Judge Gonzalez concluded that Adelson was protected by the litigation privilege when he told media that Jacobs' allegations were outright lies and fabrications.  Jacobs’ lawyers have already announced they will appeal the decision.



LVS COO Michael Leven said in an interview, "We are basically told that as long as only about 30% of the people coming in are Singaporean, then it shouldn't be a problem. If the amount of Singaporean attendance gets much higher than that, there may be some cause for concern.  To this day, only about 3% of Singapore's population has ever played in a casino."  But a spokesman with the Ministry of Community Development did not confirm the 30% cap, saying only that the IR operators have been told very clearly that the casinos are tourist products and they are not to target the domestic market.


Leven added, "We have to have some local play in order to be consistent when we don't have conventions and we don't have tourists. Otherwise, you've got an awful lot of overhead sitting there not generating any revenue....In the early days, Genting won both the market share game in VIP gaming as well as mass market. We are now winning the mass market game and they continue to lead in the VIP game for a variety of reasons....On the VIP end, they're more aggressive than we've been and doing a better job. But they had a headstart on us because of all their contacts in Malaysia. And we'll eventually catch up and probably that market will be split, but I think we'll continue to dominate the mass market."


TODAY’S S&P 500 SET-UP - June 10, 2011


This morning’s early look on the data will look “quiet” to US centric investors, but the rest of the world doesn’t cease to exist. Asian Equities (and currencies) look flat out ugly right now as the data continues to support Growth Slowing.

  1. India’s Industrial Production dropped again in April to +6.3% y/y vs +8.8% last month (we’re short INP)
  2. Chinese imports were fine (internal demand) but Exports were another miss (external demand) at +19%
  3. KOSPI finally broke its intermediate term TREND line of support (2077), down -1.2% overnight

Oil and Russia both rallied yesterday to lower-highs but remain broken on intermediate-term TREND (WTIC Oil TREND resist = $102.96), so we’ll be looking to short Russian and Energy stocks today.  As we look at today’s set up for the S&P 500, the range is 43 points or -2.17% downside to 1261 and 1.16% upside to 1304.






THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance




  • ADVANCE/DECLINE LINE: +835 (+2272)  
  • VOLUME: NYSE 909.51 (-10.21%)
  • VIX:  17.77 -5.43% YTD PERFORMANCE: +0.11%
  • SPX PUT/CALL RATIO: 1.43 from 1.77 (-19.53%)



  • TED SPREAD: 21.39
  • 3-MONTH T-BILL YIELD: 0.05%
  • 10-Year: 3.01 from 2.98
  • YIELD CURVE: 2.58 from 2.59 



  • 8:30 a.m.: U.S. Import Price, est. (-0.7%), prior 2.2%
  • 9 a.m.: Fed’s Dudley to speak in Brooklyn
  • 1 p.m.: Baker Hughes rig count
  • 2 p.m.: Monthly budget statement, est. (-$136.0b), prior (-$135.9b) 


  • Bundesbank sees German 2011 GDP +3.1% and 2012 GDP +1.8%
  • German Bundestag votes in favour of motion to approve new aid for Greece -- wires
  • UK Apr Manufacturing output +1.3% y/y vs consensus +3.3% and prior revised +2.2 from +2.7%
  • Ally Financial delayed plans to start marketing an IPO until equity markets improve
  • Obama may name Thomas J. Curry head of the Office of the Comptroller of the Currency, the New York Times said
  • Samsonite sold shares at the bottom end of a revised price range in its Hong Kong IPO, raising $1.25b
  • The California Public Utilities Commission opened an investigation of AT&T Inc.’s proposed purchase of T-Mobile USA



THE HEDGEYE DAILY OUTLOOK - daily commodity view




  • Crop Weather Mayhem Delays U.S. Corn, Rice Planting as Prices Extend Gains
  • Oil Near Highest This Month Heads for Weekly Gain on U.S. Economy, OPEC
  • Copper Declines on Reduced Imports Into China, World’s Biggest Consumer
  • Soybeans Fall for Second Day as Stocks Estimate May Signal Weaker Demand
  • Soybean Imports Climbing in China Poised to Increase Domestic Inventories
  • Gold May Advance on Concern About Europe’s Debt Crisis, Weakening Growth
  • Copper Imports by China Drop in May as Consumers Run Down Local Stockpiles
  • Cocoa Output From Indonesia May Slump 13% as Black Pod Spreads, Group Says
  • U.S.-South Korea Trade-Accord Delay to Hurt Pork Exports, Official Says
  • Oil May Decline Next Week on Signals Economic Growth to Slow, Survey Shows




THE HEDGEYE DAILY OUTLOOK - daily currency view




  • EUROPE: an ugly day away from DAX (up small on better CPI), Spain/Italy/Greece remain broken and now Russia failing at the TREND line 1,959.
  • Germany: May final CPI +2.3% y/y vs prelim +2.3%; May wholesale price index +8.9% y/y vs consensus +8.6%
  • France Apr Industrial Output (0.3%) m/m vs consensus +0.4%
  • UK Apr Manufacturing output +1.3% y/y vs consensus +3.3%; Industrial output y/y (1.2%) y/y vs consensus +1.3%
  • UK May PPI Core +3.4% y/y vs consensus +3.4%, prior revised +3.6% from +3.4%


THE HEDGEYE DAILY OUTLOOK - euro performance




  • ASIA: mixed except Japan; KOSPI down -1.2% breaking its TREND line of 2077; India down another -1% to -11.2% YTD (were short); China no bounce; HK broken

THE HEDGEYE DAILY OUTLOOK - asia performance








Howard Penney

Managing Director

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