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Athletic FW Trends Improve

 

Weekly footwear data improved on the margin last week stemming a run of three straight weeks of sequential deterioration. While still reflecting negative year-over-year growth, recall that the athletic specialty channel has been running at least 400bps ahead of this consolidated index suggesting LSD-MSD sales in the channel - better for FL and FINL on the margin. In addition, sales improvement wasn’t driven by promotional activity as ASPs remained stable reflecting what is likely initial BTS demand. Meanwhile, athletic apparel continues to post solid HSD sales driven primarily by higher unit volumes with pricing remaining stable up LSD.

 

Athletic FW Trends Improve - FW Agg Table 8 10 11

 

Athletic FW Trends Improve - FW App App 1Yr 8 10 11

 

Athletic FW Trends Improve - FW App App 2Yr 8 10 11

 

Casey Flavin

Director


Shorting the UK (EWU)

Positions in Europe: Short UK (EWU); Short EUR-USD (FXE)


Keith shorted the UK via the etf EWU in the Hedgeye Virtual Portfolio yesterday. Our thesis remains intact: the UK economy is in stagflation that should persist for at least the next two quarters in an optimistic scenario. Real growth should remain impaired from domestic austerity programs that weigh on confidence and spending, and sovereign debt contagion across continental Europe that enhances banking counterparty risks (think French and German banks as well) and a reduced appetite for UK goods and services considering Europe is its largest export partner.  Further, we’ve yet to see any meaningful improvement from the housing sector or elevated unemployment picture.

 

More specifically to our point on stagflation, GDP grew a mere +0.2% in Q2 quarter-over-quarter with Services sector growth at +0.5% slightly offsetting the -0.3% drag in Manufacturing. [July data also showed a notable inflection in the Manufacturing PMI to 49.1, or below the 50 line indicating contraction].  GDP grew +0.7% on a year-over-year basis, and we think 2011 growth could come in lower than +1.2% consensus.

 

While today’s Inflation Report from the BoE recognized growth challenges over the intermediate term, it stated that inflation, as measured by the CPI, should meet the BoE’s 2% target in 2012 and 2013. We’ll take the other side of this trade, and note there’s still just under five months left in 2011 and CPI has remained sticky above 4% year-to-date (currently at 4.2%), which will remain an added tax.  

 

The inflationary effect of energy costs give us pause, especially considering the country’s dependence on foreign sources. Further, looking at UK PPI as an indicator, we expect to see the pass-on effect of higher consumer prices (output costs) as input costs (materials and fuels) remain elevated (see chart below).  

 

In short, we see elevated inflation pressures and weak to negative growth prospects into year-end. We’ll short into that view. 

 

Shorting the UK (EWU) - 1. UKK

 

 

EUR-USD


As another piece of ammo to fight sovereign debt contagion across the region, the ECB announced today it will lend Eurozone banks €49.75 billion in emergency 6 month cash. While we don’t agree that concurrent bailout packages will stem all the fiscal imbalances across the region, we do think that these “band-aids” help give the common currency support. Additionally, bond yields have come in across the periphery since this weekend’s announcement of the resumption of the ECB’s SMP bond purchasing program.  While it’s by no means a foregone conclusion that yields will “normalize” over the near to intermediate term, especially given the uncertainty on the size and scope of the EFSF facility to be voted on in mid to late September, such measures could help give support to the EUR versus major currencies over the near term.  

 

Over the last four months we’ve outlined an immediate term TRADE range of $1.40 to $1.45 versus the USD, which has held strong. The pair continues to dance around our immediate term TREND of $1.43. Should both TRADE and TREND be violated to the downside, our quantitative models suggest the next line of support doesn’t come until $1.38.

 

Matthew Hedrick

Senior Analyst


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 80.28%
  • SHORT SIGNALS 78.51%

HEDGEYE MACRO CONFERENCE CALL: IS THIS A SHORT COVERING OPPORTUNITY? - REPLAY & PODCAST

IS THIS A SHORT COVERING OPPORTUNITY? 

AN ANALYSIS OF RECENT MARKET ACTION AND UPDATE ON OUR KEY THEMES

REPLAY & PODCAST

 

Valued Client,

 

Today, our Macro team led by CEO Keith McCullough and DOR Daryl Jones hosted a conference call to walk through our updated global macro thoughts and how to play them. Additionally, we had Managing Director Josh Steiner on to walk through his outlook for the global financial sector.

 

Key topics we addressed included:

  • Does the SP500 off over 15% from its YTD highs present a short covering opportunity?
  • Given our outlook for the global economy, what are the key drivers over the intermediate term?
  • Sovereign debt issues and the likelihood of resolution, both in the United States and Europe.
  • Update of Hedgeye's quantitative and fundamental view of key assets classes - e.g. U.S. dollar, oil, gold, treasuries and copper.
  • Hedgeye's top macro and asset allocation ideas. 

To access the replay materials please use the links below.

 

Podcast: https://app.hedgeye.com/feed_items/15100 (you may need to copy/paste the link into the URL of your browser)

Slides: "IS THIS A SHORT COVERING OPPORTUNITY?"

                 
If you have any follow-up questions, please email us at .

Best regards,

 

The Hedgeye Macro Team


WEEKLY COMMODITY MONITOR: RRGB, JACK, WEN, MRT, AFCE, PEET, SBUX, GMCR

Global growth is slowing, commodity prices are coming down, and this should bring some relief to restaurant margins, all else held equal.

 

Summary

 

The dollar gained, week-over-week, and commodities generally declined over the same period.  Beef prices gained 1.3% week-over-week as demand, globally, continues to be strong.  The United Nations’ meat price index has gained 18% in the past year, according to a Food and Agriculture Organization report in July.  Increasing demand in China and other emerging markets is constraining supply and supporting global beef prices.  Coffee, Corn, Cheese, Chicken, Soybeans, and Hogs all declined meaningfully week-over-week.  Importantly for U.S.-centric restaurant companies, gas prices came down -1.8% in the last week which is a positive for consumers.

 

WEEKLY COMMODITY MONITOR: RRGB, JACK, WEN, MRT, AFCE, PEET, SBUX, GMCR - commod 810

 

 

Commodities

 

Live Cattle

 

Beef prices were up 1.3% over the last week as most other commodities declined.  Demand for beef, within the US and in international markets is strong; consumption of hamburgers in the U.S., for instance, is significantly higher in 2011 than in 2009.  48% of consumers surveyed by Technomic say they eat a burger at least once per week versus 38% in 2009.  In terms of international demand, we expect inflation in China and concerns about radioactivity in Japan to keep meat exports from the US strong. 

 

WEEKLY COMMODITY MONITOR: RRGB, JACK, WEN, MRT, AFCE, PEET, SBUX, GMCR - live cattle 810

 

 

Below is a selection of comments from management teams pertaining to coffee prices from recent earnings calls.

 

RRGB (5/20/11): “Ground beef could be higher by as much as 20% year-over-year, which has a meaningful negative impact to our margins.”

 

HEDGEYE: Live cattle prices are up +22.7% y/y.  See the price chart above.

 

 

JACK (5/19/11): Beef accounts for more than 20% of our spend and is the biggest factor driving the change in our guidance. For the full year, we are now anticipating beef cost to be up nearly 14% versus our previous expectation of 9% inflation. We expect beef cost to be up approximately 14% to 15% in the third quarter.

 

HEDGEYE: Live cattle prices are up +22.7% y/y.  See the price chart above.

 

 

WEN (5/10/11): We communicated to you back in March that we expected beef cost to rise approximately 10% to 15% and that we expected our total commodity costs to rise 2% to 3% in 2011. We are now forecasting that our beef cost will rise 20%.

 

HEDGEYE: There is moderate upside risk to beef price guidance for WEN.

 

 

EAT (4/27/11):  Well, consistent with what we've talked about in the last month or so as we visited many of you, beef continues to present the most significant inflationary pressure in our commodity basket.

 

 

MRT (5/4/11): Q: I wanted to revisit the overall expectations for your commodities basket, and I missed the part about beef, just wanted to verify that it was up in the 20% range.  A: no, no, no.  I said in the low double-digits.

 

HEDGEYE: This is possible, even probable, for the year looking at average 2010 versus average YTD 2011 prices, and given the easier compares in the fourth quarter, but will require no sustained upturns from here.

 

 

Corn

 

Corn declined week-over-week as concern about the weakening of the U.S. recovery eroding demand impacted demand.  Nevertheless, conditions in the U.S., the world’s largest producer of corn, continue to deteriorate and food processor companies are concerned.  The possibility of crop yield estimates coming down due to continuing hot and dry conditions throughout much of the corn-growing regions of North America is driving prices higher over the past couple of days.  We see the tightening supply of corn as bullish for protein prices and negative for food processor margins.

 

WEEKLY COMMODITY MONITOR: RRGB, JACK, WEN, MRT, AFCE, PEET, SBUX, GMCR - corn 810

 

 

Below is a comment from AFCE pertaining to corn prices from a recent earnings call.

 

AFCE (5/26/11):  On a full year basis, we now expect the Popeye’s system will experience an increase of 4% to 5% in food costs. This is up from our previous guidance of a 2% to 3% increase, primarily due to higher commodity costs in corn and soy, which impacts our bone-in chicken, as well as increases in the cost of flour and cooking oil.

 

HEDGEYE: Corn costs going higher are going to squeeze margins for food processors and, in turn, their clients.

 

 

Coffee

 

Coffee prices have been trending lower since early in the second quarter as supply concerns have eased and global growth slowing crept into consensus expectations.  Concerns about weather conditions in Brazil have boosted prices today but, overall, the trend has been lower as the chart below illustrates.

 

WEEKLY COMMODITY MONITOR: RRGB, JACK, WEN, MRT, AFCE, PEET, SBUX, GMCR - coffee 810

 

 

Below is a selection of comments from management teams pertaining to coffee prices from recent earnings calls.

 

 

PEET (8/2/11): “As we indicated, in our first quarter call, we had to buy a small amount of our calendar 2011 coffee beans at significantly higher prices and this coffee will roll into our P&L during the third and fourth quarter.”

 

“Higher priced coffee resulted in gross margins this quarter being 290 basis points below prior year. In our first quarter conference call, we indicated that in addition to the overall higher price coffee market, we had to buy a small amount of coffee this year at significantly higher prices. And as a result, we expected our coffee cost to be 40% higher in fiscal 2011.”

 

HEDGEYE:  Peet’s is a company with a very competent management team that manages coffee costs extremely well.  Its higher-end, loyal customer base makes the price elasticity of demand more inelastic than for other coffee concepts’ products.

 

 

SBUX (7/28/11):  “As I mentioned earlier, are absolutely a headwind for us in the full business and that's most acutely impactful on margins in CPG as it's a much more coffee intensive cost structure, as you know. I can tell you that the decline as I spoke about it earlier from about 30% operating margin in CPG this year down to the target 25% next year is really all explained by commodities. Absent commodity inflation we'd be at or improving our margin in the coming year.”

 

“As we had anticipated, in recent weeks, coffee prices have retreated significantly from a high of more than $3 per pound just a couple of months ago to levels now near $2.40 per pound. As prices have been falling we continue locking up our needs for fiscal '12 and now have virtually the full year price protected.”

 

HEDGEYE: Starbucks is aligning itself with the right partners to gain more control of its coffee costs to provide investors with more certainty going forward and to protect its margins as global coffee demand continues to rise.

 

 

GMCR (7/27/2011): “However, what we've said is that should coffee prices or other material costs spike, we will certainly consider price increases as necessary. We certainly hope that we do not have to cover one again next year. But our objective long-term is attempting to maintain our gross margin as we would see input costs come along.”

 

HEDGEYE:  GMCR hedges out 6-9 months in advance.  Without a rising dollar and some stronger supply growth to counteract growing global demand, we expect sustained elevated prices.

 

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


HEDGEYE MACRO CONFERENCE CALL: IS THIS A SHORT COVERING OPPORTUNITY? - DIAL IN & MATERIALS

HEDGEYE MACRO: IS THIS A SHORT COVERING OPPORTUNITY? 

AN ANALYSIS OF RECENT MARKET ACTION AND UPDATE ON OUR KEY THEMES

DIAL IN & MATERIALS

TODAY, AUGUST 10, 2011, 11AM EDT

 

Valued Client,
 
5-10 minutes prior to the 11 AM EDT start time please dial:

(Toll Free) or (Direct)
Conference Code: 733479#
  

Materials: "IS THIS A SHORT COVERING OPPORTUNITY?"

                 
To submit questions for the Q&A, please email .

****************************************************************************** 

 

"IS THIS A SHORT COVERING OPPORTUNITY?"    

 

 Key topics we will be addressing: 

  • Does the SP500 off over 15% from its YTD highs present a short covering opportunity?
  • Given our outlook for the global economy, what are the key drivers over the intermediate term?
  • Sovereign debt issues and the likelihood of resolution, both in the United States and Europe.
  • Update of Hedgeye's quantitative and fundamental view of key assets classes - e.g. U.S. dollar, oil, gold, treasuries and copper.
  • Hedgeye's top macro and asset allocation ideas. 

Please contact if you have any questions.  

Regards,

 

The Hedgeye Macro Team


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