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R3: M, Puma, China, Deals…



June 17, 2011






  • Confirming that product costs are flowing through on average up 15% in the 2H as expected thus far, management at PVH highlighted that it is planning to increase ticket prices between 12-15% on average banking on half of the increase from AURs with the balance driven by unit increases rather than simply pricing alone.
  • In the latest retail concept designed to drive store traffic, Pier 1 Imports has announced that it’s launching its Pier 1 To-Go after a successful test. The new concept enables consumers to see what items are in stock online and then reserve them to be picked up at a store eliminating much of the hassle associated with today’s shopping experience. Not surprisingly, the company has seen an increase in both ticket and units per transaction compared to the company average. For shoppers that prefer to avoid the crowds altogether, but wants to save S&H costs this is a great alternative and one that we’d expect other home furnishing retailers to consider testing as well.
  • At a recent conference, management of DKS noted that Academy has proven to be a good competitor in TX in recent years, but there is increased uncertainty with KKR now at the helm. It’s important to note that TX has been comping at a faster rate than the company average of late – something to keep in mind if Academy gets more disruptive with 5% of the company’s store base located in this market.



LF USA Adds Ellen Tracy License - LF USA has added another license to its growing collection — Ellen Tracy. Since 2009, Brand Matter LLC, the owner of Ellen Tracy, has licensed RVC Enterprises to produce a women’s better sportswear line. Together they forged a strategic alliance with Macy’s Inc. as the exclusive department store retailer, which will continue. The transition of the license to LF USA is effective with the August shipments of the Ellen Tracy women’s better sportswear line. Mark Mendelson, president of Ellen Tracy, has moved to LF USA, along with his entire design team. Susanne Klevorick remains creative director and senior vice president of design. <WWD>

Hedgeye Retail’s Take: Funny…It’s getting some life pumped into it now that it is no longer owned by LIZ.


Macy’s Reaches Tentative Deal With Union - Macy’s Inc. and the Retail, Wholesale and Department Store Union have reached a tentative agreement that will avoid a walkout of more than 4,000 workers at four of the retailer’s New York-area stores, including the Herald Square flagship.The two groups negotiated around the clock to avert a strike that union members had authorized earlier this week. “This is a solid contract and it reflects the fact that our workers are the true magic of Macy’s,” said Ken Bordieri, President of Local 1-S of the RWDSU. <WWD>

Hedgeye Retail’s Take: We don’t know the specs. Near term this is a positive for M as a NYC strike would be damaging – in perception if not reality. Longer term this likely included wage increases/work rules that won’t go unnoticed by the other 160,000 employees at Macy’s.


Milan Models Eclipsed by M&A Chatter - Men’s spring-summer 2012 in Milan may be the first fashion season where clothing and accessories are the last things on people’s minds.  As PPR SA hunts assets, Prada SpA and Salvatore Ferragamo SpA court investors for initial public offerings and a French investment firm snaps up Moncler SpA, the chatter in Milan is of who’ll be next to list or get bought. Suitmaker Corneliani kicks off four days of shows in the Italian city tomorrow. Potential targets may include Burberry Group Plc (BRBY), Mulberry Group Plc (MUL) and Tiffany & Co. in the medium term, according to John Guy, an analyst at Royal Bank of Scotland Group Plc in London. LVMH Moet Hennessy Louis Vuitton SA (MC)’s 4.3 billion-euro ($6.1 billion) purchase of Rome-based jeweler Bulgari SpA (BUL) may spark a wave of consolidation as some companies seek to narrow the gap with their larger peers. “Expect more mergers and acquisitions and IPOs,” said Armando Branchini, vice chairman of Intercorporate, a Milan- based consulting firm specializing in luxury goods. “When the favorable winds blow, all the sailors hoist their sails.” <Bloomberg>

Hedgeye Retail’s Take: What’s funny is that this shows how this is really a relationship business. Such a big number of strategic acquisitions in the consumer non-durables/durables spaces happen around these trade shows. It’s where the key players assemble and think big.  Remember, Paul Fireman (Reebok) and Herbert Hainer (Adidas) happened to be at the same sporting event back in 2006. They casually got together, and by the end of the night decided that a merger was the best way to crush Nike. Whoops… (except for Fireman and Reebok shareholders, who made out like bandits relative to what they’d have done on their own in the ensuing 12 months).


Belle to Launch B2C Shoe Site with Baidu - Shenzhen-based footwear company Belle International will work with Chinese search engine Baidu to establish a business-to-consumer site which will be led by the former vice president of business-to-consumer site 360buy.com, Xu Lei. Industry experts said that Belle’s new e-commerce plan would block other shoe B2Cs from shoe supply.  Belle has planned its online business as early as 2008, and launched its e-commerce website topshoes.cn. However, according to Belle's financial report released in March, its turnover in 2010 hit CNY 23.706 billion, of which topshoes.cn earned only CNY 100 million. <FashionNetAsia>

Hedgeye Retail’s Take: Most people don’t know Belle, but this might be the top story of the day. One of Belle’s strengths is that it was the first casual footwear brand that built physical infrastructure beyond the East coast of China. It even outpaced Nike. Now to pair up with Baidu as they go heavy online is a statement in itself.


Spanish Court Strikes Down EUR 98M Award to Puma Licensee - A district court in Madrid has overturned a Spanish arbitration panel's ruling that Puma Ag pay its Spanish licensee EUR 98 million Euros, Puma announced. PUMA is therefore no longer obliged to pay the sum. The verdict was reached on June 14. Puma appealed the arbitration ruling, which required it pay its former Spanish licensee and holder Estudio 2000 S.A. for its  remaining trademark rights in Spain. “The ruling by the District Court of Madrid is totally in line with what we had anticipated and frees us from the payment of 98 million Euros for the vesting of PUMA trademark rights,” said Jochen Zeitz, Chairman and CEO of PUMA AG. “We will now make full use of all the options available to us to secure all PUMA trademark rights in Spain.” PUMA will continue its efforts in uniting all Spanish PUMA trademarks. <SportsOneSource>

Hedgeye Retail’s Take: A rather big win for Puma, considering that it is hardly a Spanish brand. That said, the PPR capital infusion that PUMA Spain is seeing is an influence that we should probably not overlook.


China’s Alibaba will Split Taobao into Three e-Commerce Units - China-based e-commerce operator Alibaba Group Holding Ltd. said today it would split its Taobao online retail arm into three units. Alibaba says the Taobao Mall will serve consumers making purchases from retailers; eTao will focus on searches related to shopping; and Taobao Marketplace will enable consumers to buy and sell goods from each other. Alibaba also is considering going public, according to a letter that CEO Jack Ma sent to employees. The letter said the split will help the e-commerce operator compete better amid what Ma called dramatic changes in online retailing. In 2005, Yahoo Inc. bought a 40% stake in Alibaba.com. The company, which was founded in 1999 and had its initial public offering in 2007, has often been called the eBay of China.  <InternetRetailer>

Hedgeye Retail’s Take: Prepping for the deal… This makes perfect sense – public or not. It gives a glimpse as to how consumers think. Some like physical shopping. Some like to do it on a keyboard – but getting new goods at the best price. And others want used items that are presently in the hands of other consumers.



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Unless, Sardar Biglari makes an offer the take CBRL private, I don’t think the stock goes much above $50.  Today, CBRL was sold short today in the Hedgeye Virtual Portfolio.


In the 2006/2007, when CBRL faced Nelson Peltz, the stock peaked at $50.74 and in 2007, CBRL generated $225 million in EBITDA versus $228 million in fiscal 2010.


Given the secular decline I see in the concept’s business, I don’t see much value past the $50 level, because the cost of fixing declining traffic trends is both time- and capital-intensive.  One of the biggest issues is that the company is consistently raises prices in an attempt to protect margins and driving the core customer away in the process.  The core Cracker Barrel customer skews older with little disposable income and has suffered from the economic malaise of the past few years.


As I said in my CBRL note on 6/16 “I let you be the judge of the company’s performance since the beginning of fiscal 2007 (the last time the company faced an activist investor).  The store base has grown by 11%, sales by 2.3%, EBITDA by $3.4 million, EBIT has declined by $68,000 and the share price has gone nowhere. 


The questions investors need to ponder are: can Mr. Woodhouse fend off Mr. Biglari and what will he do to create value?  Will he pursue the same path he did against Nelson Peltz?  A transaction we know created ZERO value for shareholders.


While we wait the pressure on the core business will persist. 






Howard Penney

Managing Director

Squeezy The Shark: SP500 Levels, Refreshed

POSITION: No position SPY


He’s back!


Back by popular demand is our old behavioral market reality - Squeezy The Shark. She dwells in the depths of the hedge fund community. She bites you when you don’t have it in you to Cover Low. She wants a look at the 1293 line.


There were 2 economic data points left this morning to get the shorts paid: 

  1. Michigan Consumer Confidence = DOWN 2.5 points m/m to 71.8 (reversing all of May’s gains)
  2. US Leading Indicators = +0.8% sequentially (but it’s an April # and basically irrelevant) 

Neither of these data points matter. If you didn’t know consumer confidence was falling as home and stock prices have, now you know. Markets discount.


What matters is the USD/Euro cross. And for now, the market morons (Greek politicians) in Europe have the career risk management trade on into the weekend. Euro UP = USD DOWN = Stocks UP.


This is very immediate-term analysis but, like driving a car, risk management occurs all of the time. Provided that 1277 in the SP500 holds, there’s a heightening probability that the SP500 rallies to a lower-high at 1293 – and nothing “fundamental” from an intermediate-term perspective will have changed.


The masses shorted the lows, and now Squeezy is hungry.



Keith R. McCullough
Chief Executive Officer


Squeezy The Shark: SP500 Levels, Refreshed - 1


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



  • Corn for July delivery, the most actively traded contract dropped $0.24 cents, or 3.3%, to a one-month low of $7.01 1/2 a bushel; wheat and soybean futures also tumbled at the Chicago Board of Trade. Driving prices lower was heavy selling fueled by jitters about the global economy and improving weather forecasts.
  • The Obama administration intensified a crackdown on employers of illegal immigrants, notifying another 1,000 companies in all 50 states Wednesday the government plans to inspect their hiring records, according The Wall Street Journal.


  • SBUX is hoping that new menu initiatives help to turn around the company’s UK business, which made a loss in 2010.
  • SBUX is scrambling to deal with a PR fallout after a manager of a Long Island store allegedly harassed a gay employee.  Also, the controversy surrounding the company’s switching of milk suppliers for the NYC stores is being opposed by further demonstrations at City Hall today.
  • COSI and CMG are the only two QSR names to underperform the S&P 500 over the past week.
  • On average, the QSR sector outperformed the S&P 500 by 4% this week.



  • KONA, RRGB, MRT and MSSR are the only two FSR name to underperform the S&P 500 over the past week.
  • On average the FSR sector outperformed the S&P 500 by 2.4% this week.




Howard Penney

Managing Director

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