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JCP: COVERING

 

Keith’s booking his eight gain covering JCP in the virtual portfolio since May with the sock holding its TRADE line of support at $26.13 for the first time in a while. Our thesis remains unchanged.

 

Ackman’s comments this morning reaffirm our bearish position over the immediate term. He’s betting on Ron Johnson to improve the retail experience, which may well play out – in 2015. In the meantime, it’s going to take both capital and time – not good for the stock over the immediate-term TRADE or intermediate-term TREND.

 

For more info on our thesis, see our Black Book, “JCP: What Ackmanists Are Missing.”

 

JCP: COVERING  - JCP VP 9 15 11

 

 


GROCERY BILLS STILL GROWING FASTER THAN RESTAURANT CHECKS

On a sequential basis, YoY food at home CPI inflation increased by 60 basis points to 6% versus the 10 basis point gain in food away from home CPI inflation increasing 10 basis points to 2.7%.

 

Food inflation is now the most important household expense, according to WMT’s commentary during its 8/16 earnings call. Food prices, according to the Bureau of Labor Statistics’ CPI data released this morning continues to accelerate higher.  In August, food at home CPI increased to 6% on a year-over-year basis from 5.4% in July.  We are including two charts to illustrate food costs trends and food cost trends versus core inflation.  One callout we would make is that, the spread between food at home inflation and core inflation widened month-over-month while the spread between food away from home and core inflation narrowed.

 

Grocers like Whole Foods, where the customer is more loyal and willing to pay higher prices, are reporting no problems passing price through but other concepts where the price elasticity of demand may be higher will likely see more attrition as they look to protect margin.  To the extent that grocery inflation continues to outstrip price increases in restaurants, it should be a positive for comparable sales trends at restaurant chains.  Whether or not restaurant margins can withstand the pressure or not, however, remains to be seen.

 

GROCERY BILLS STILL GROWING FASTER THAN RESTAURANT CHECKS - food at home vs food away from home

 

GROCERY BILLS STILL GROWING FASTER THAN RESTAURANT CHECKS - food at home spread vs food away spread

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 

 


The Posse Catches Cowboy Perry

Conclusion: Romney has caught Perry in the race for the Republican nomination making it a true two horse race with the support of other front runners eventually being critical.  In the recent special races, the bad news builds for Democrats suggesting Republicans could gain the Presidency and Senate.

 

Two nights ago, the Republican candidates for President held their second debate.  The message from this debate was clear: the Republican posse is not going to let the cowboy from Texas remain at the front of the pack without a fight. Indeed, Texas Governor Perry suffered shots from all of his fellow nominees and while he handled himself reasonably well, former Massachusetts Governor Mitt Romney was the clear beneficiary after the debate.

 

In fact, according to the most recent contracts on InTrade, Romney’s probability of becoming the Republican nominee for President now surpasses Perry’s probability.  Based on the futures contracts on InTrade, Perry now has 35.4% probability of becoming President, while Romney is at 39.7%.  Perry’s probability is not off dramatically from its highs, but Romeny’s, on the other hand and as shown in the chart below, has skyrocketed. 

 

The Posse Catches Cowboy Perry - 9 15 2011 10 23 34 AM

 

The other key take away from these InTrade contracts, and most national polls, is that this race is most definitely a two candidate race.  On a combined basis, the probability of either Romney or Perry becoming the nominee is north of 75%.  Interestingly, the key for either getting nomination could very likely be the endorsement of one of the other front runners, namely Gingrich, Bachmann, or Paul. 

 

In that vein, Tim Pawlenty, who admittedly knows both candidates well, opted to publically come out and support Romney (and Romney supporters purportedly have agreed to help retire Pawlenty’s campaign debt).  Since Pawlenty was a marginal national candidate at best, he likely only had a marginal impact on Romney’s standing.  The next endorsements will be much more critical and will likely come much closer to Presidential primary season.  

 

The tentative primary dates to be focused on are as follows:

  • Iowa, December 5th, 2011;
  • New Hampshire, December 13th, 2011;
  • Nevada, December 13th, 2011; and
  • South Carolina, December 17th, 2011

These dates are subject to change, but it is in this general time frame that the Republican nominee should be crowned and if the race between Perry and Romney stays tight, it will likely be determined by endorsements from the other front runners.  Then, after the Republican nominee is named, the real political race begins.  Or does it?

 

There can be no doubt that President Obama will face a tough race given the state of the economy and his own approval rating.  Interestingly, many polls suggest that the race will be close and the President Obama is still the odds on favorite.  In fact, a poll released by Public Policy Polling yesterday shows Obama beating Romney by 4 points, Perry by 11 points, and Bachmann by 14. 

 

Polls, of course, are notoriously inaccurate when analyzed on a standalone basis.  The recent results from Congressman Anthony Weiner’s former district, the 9thCongressional District, and other special races, are perhaps more telling than recent polls.  Specifically, New York-9 has not elected a Republican in over a hundred years and has 3:1 registered Democrats versus Republicans.  Not only did presumptive Congressman Bob Turner (R-NY) win the seat, he crushed the presumptive Weiner heir by a margin of almost 9 percent. 

 

The other two recent special elections, though not as newsworthy, have had similar results.   In Nevada-2 on September 13th, the Republican candidate won by 22 points and in California-36 on July 12th, the Republican only lost by 10 points.  In both of these races, the Republican candidates dramatically outperformed their Partisan Voting Index (PVI), a measure of how the district voted based on the past two presidential elections, by a margin of +12 and +14 respectively.  Collectively, in California-36, Nevada-2, and New York-9, the Republicans outperformed versus the PVI-expected outcome by a staggering 15 points on average.

 

Clearly, these are only a few races, but certainly telling.  As one Queens voter told the New York Times:

 

“I am a registered Democrat, I have always been a registered Democrat, I come from a family of Democrats — and I hate to say this, I voted Republican. I need to send a message to the president that he’s not doing a very good job. Our economy is horrible. People are scared.”

 

To that end, we will be releasing our Hedgeye Election Index in coming months that takes real time economic data and provides insight into future election results.  In part, the Hedgeye Election Index will be based on Yale Professor Ray Fair’s work.  Professor Fair looked at more than one hundred years of national elections and found that the most consistent and relevant factors that predict elections are recent economic performance, specifically growth.  Currently, based on our financial estimates, Fair’s model shows that Obama will only get 49.7%, so lose in a squeaker, but the Republicans will also gain control of the Senate.

 

Daryl G. Jones

Director of Research


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THE HBM: YUM, PNRA, CMG, CHUX, EAT

THE HEDGEYE BREAKFAST MENU

 

Notable macro data points, news items, and price action pertaining to the restaurant space.

 

MACRO

 

Consumer

 

CPI ex-food and energy came in at 0.2%, in line with expectations.  CPI grew 3.8% year-over-year, versus expectations of 3.6%.

 

Initial jobless claims came in at 428k versus expectations of 411k and 417k (revised) the prior week.

 

THE HBM: YUM, PNRA, CMG, CHUX, EAT - initial claims

 

 

Subsectors

 

Restaurant significantly outperformed yesterday, but on low volume.  The more cyclical FSR name were higher on accelerating volume 

 

THE HBM: YUM, PNRA, CMG, CHUX, EAT - subsectors fbr

 

 

QUICK SERVICE

  • YUM announced a 14% increase in its quarterly dividend.  The increase raises the annual dividend rate to $1.14 a share, 2.1% yield.
  • PNRA is changing its menu for the fall season, with a new Roasted Turkey Artichoke Panini one of the offerings.  (link here)
  • CMG’s new concept, ShopHouse Southeast Asian Kitchen will open to the public today in Washington D.C.’s DuPont Circle.  Some images of the menu are below, courtesy of dcist.com

THE HBM: YUM, PNRA, CMG, CHUX, EAT - CMG shophouse

 

 

FULL SERVICE

  • CHUX has appointed former KONA CEO Marc Buehler as the O’Charley’s Concept President, effective tomorrow.  Given how “on trend” Kona has been of late, this is a perplexing move. 
  • EAT traded higher on accelerating volume yesterday, while RRGB was notable on the decliners side, also trading on strong volume.

 

THE HBM: YUM, PNRA, CMG, CHUX, EAT - stocks 915

 

 

Howard Penney

Managing Director

            

 

Rory Green

Analyst

 


INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE

Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser.

 

Initial Claims Rise 14k WoW

Initial claims rose 14k WoW last week (11k net of the revision to the prior week).  This brings the level to 428k, the highest level since late June.  On a 4-week rolling basis, claims are up 4k WoW to 419k. As a reminder, in looking at the spread between the S&P and 4-wk claims, the current S&P level would equate to a rolling claims level of 452k.  

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims rolling

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims raw

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims and sp

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - claims nsa

 

2-10 Spread Not Letting Up 

Acute margin pressure remains in force, looking at the 10-year yield and the 2-10 spread.  The 10-year yield is now 120 bps lower than it was at the end of 2Q. 

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - SPREADS

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - SPREADS QOQ

 

Subsector Performance

The chart below shows the performance of financial stocks by subsector.

 

INITIAL CLAIMS BACK UP TO 3-MONTH HIGH, SHOULD CONTINUE TO RISE - PERF

 

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Having trouble viewing the charts in this email?  Please click the link below to view in your browser.  


THE M3: OCEANUS, MACAO DRAGON, S'PORE HOME SALES; JACOBS CASE

The Macau Metro Monitor, September 15, 2011

 

 

UPWARDLY MOBILE Inside Asian Gaming

Casino Oceanus has acquired its 1st VIP room partner, CCUE VIP.  CCUE is chaired by U lo Hung, who was involved in developing AMA.  CCUE currently has 6 VIP tables on the 2nd floor at Oceanus and has plans to expand to 12 tables.  CCUE also has 6 VIP tables at L'Arc and at Altira Macau.  In early August, it opened 6 VIP tables at MGM Macau.  A financial advisor to CCUE mentioned that the VIP room at Oceanus will operate on a profit-share basis with its agents and host property rather than on a commission basis. 

 

MACAO DRAGON FERRY GOES BUST AFTER JUST 14 MONTHS OF SERVICE Macau News, SCMP

Macao Dragon Company Limited has filed for bankruptcy and ceased all operations.  According to a company statement, it is no longer able to run its service due to a government passenger capacity cap that shrunk the ferry company’s passenger capacity from 1,152 to 750 on each sailing from Hong Kong to Macau, and 600 from Macau to Hong Kong.  The company was the only one of the four ferry operators that had not been issued a permit to operate night sailings.

 
Maritime Administration said that Macao Dragon had not officially informed the local authorities about its bankruptcy, adding that the cap on passenger capacity was a decision made based on the safety of the passengers and the capacity of the ferry terminal in Taipa.  Macao Dragon is also being pursued by the Hong Kong Marine Department for HK$1.88MM in unpaid berthing fees and passenger embarking fees.

 

PRIVATE HOME SALES DIP 3.6% IN AUGUST Channel News Asia

Private home sales in Singapore fell 3.6% MoM in August, compared with a rise of 17% MoM in July.  Some 1,348 units were sold in August, excluding executive condos (ECs).  The dip comes after the government increased the income ceiling for public flats and executive condominiums in August.

 

LAS VEGAS SANDS ACCUSES FORMER MACAU CEO OF STEALING INFORMATION VEGAS INC

LVS has accused Steve Jacobs of stealing sensitive and/or privileged documents and refusing to return it.  Justin Jones, one of the Las Vegas Sands attorneys, said in a court declaration he discussed the issue with Jacobs’ attorneys on Aug. 1 of this year and Jacobs’ counsel related that:  "Jacobs does not believe that he is bound to keep confidential those documents obtained during the course of his employment because he asserts that he did not sign any confidentiality policy or other document containing a confidentially provision. Jacobs believes that Macau data privacy laws do not prohibit him from disclosing documents in this matter and that Macau data privacy laws are being used by defendants as a 'farcical canard' to avoid disclosure of documents."  Jacobs and his defense team have previously argued against such claims. 


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