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DKS: Trumping Expectations


Solid results out of DKS this morning ($0.32 vs. $0.27E) reflect accelerating sales strength we’re seeing in the athletic specialty channel – good for NKE & UA and FL & FINL. Following two quarters in a row where the company came in below its comp guidance it trumped both guidance (+1%-2%) and expectations (+2%) in Q3.


Here a few callouts from Q3:

  • In addition to a reacceleration in sales on both a 1yr and 2yr, the company’s comp (+4.1%) came in above guidance is notable given its missed expectations in each of the last two quarters.
  • The composition of DKS’ comp was also impressive with Golf Galaxy up +2.4% despite others citing weakness in the category and e-commerce up +17% on a +82% comp reflecting solid acceleration in underlying 2yr trend
  • The company has posted a positive sales/inventory spread and operating margin growth for seven consecutive quarters – one of the more stable recent records of note in retail
  • Inventories up +7%, up only 0.1% per sq ft. with 19 stores opened in the qtr reflecting a healthy athletic channel – good for NKE and UA.
  • Gross margins were up +126bps reflecting continued mix improvement and strength in the channel i.e. lack of promotional activity.
  • SG&A up +7.1% was leveraged on higher sales – we expect continued leverage in Q4
  • Company raising Q4 outlook by a penny on comp guidance that looks acheivable.


Call at 10am at


Casey Flavin



DKS: Trumping Expectations - DKS CompGuid


DKS: Trumping Expectations - DKS SIGMA




TODAY’S S&P 500 SET-UP - November 15, 2011


How people get longer w/ Italy and France trading like this defies logic.  As we look at today’s set up for the S&P 500, the range is 36 points or -1.50% downside to 1233 and 1.38% upside to 1269. 




The SP500’s TAIL remains bearish (1269 resistance). With stocks down for both November and 2011 YTD again, this should not surprise anyone. Since 2007, despite the fanfare, the SP500 has been making a series of lower long-term highs as volatility makes a series of higher long-term lows.


That’s the message for long-term investors. In the shorter-term, the best October ever continues to provide a hope that another bottom is in. Our S&P Sector Studies confirm that view (for now), with 7 of 9 Sectors remaining bullish from an intermediate-term TREND perspective.


The 2 of 9 that remain in Bearish Formations (bearish TRADE, TREND, and TAIL) are the two that auger most poorly in our King Dollar Global Macro Theme  - Financials (XLF – down -18.8% YTD) and Basic Materials (XLB – down -9.4% YTD).




THE HEDGEYE DAILY OUTLOOK - daily sector view


THE HEDGEYE DAILY OUTLOOK - global performance



  • ADVANCE/DECLINE LINE: -1585 (-3762) 
  • VOLUME: NYSE 709.97 (-6.86%)
  • VIX:  +31.13 +3.36% YTD PERFORMANCE: +75.38%
  • SPX PUT/CALL RATIO: 1.20 from 1.48 (-19.23%)


  • TED SPREAD: 45.55
  • 3-MONTH T-BILL YIELD: 0.01%
  • 10-Year: 2.04 from 2.04    
  • YIELD CURVE: 1.80 from 1.80


MACRO DATA POINTS (Bloomberg Estimates):

  • US ICSC-Goldman Chain Store (12-Nov);
  • US Empire Manufacturing (Nov); consensus (1.8)
  • US PPI (Oct); consensus (0.1%)
  • US PPI ex Food & Energy (Oct); consensus +0.1%
  • US Retail Sales (Oct); consensus +0.4%
  • US Retail Sales ex Autos (Oct); consensus +0.2%
  • US Redbook Chain Store (12-Nov);
  • US Business Inventories (Sep); consensus +0.2%
  • US API Crude Inventories (11-Nov);


  • Fed's Evans speaks on dual mandate
  • Fed's Bullard speaks on economic outlook and monetary policy
  • Money may have started disappearing from MF Global customer accounts four days before company filed for bankruptcy - WSJ,




  • Sino-Forest Says Probe Refutes Muddy Waters Allegations
  • Speculators Boost Bullish Bets to Seven-Week High: Commodities
  • Hedge Funds Raise Oil Bets to Highest Since May: Energy Markets
  • Gold Declines for Second Day as Paulson Cuts Bet, Euro Weakens
  • Aussie Resisting Iron Ore Drop to Spur RBA Cut: Chart of the Day
  • China Shuts 90% of Lead-Acid Battery Plants as Prices Drop
  • Oil Falls as Europe Debt Concern Counters Shrinking U.S. Supply
  • Paulson Cuts Holding in SPDR Gold Trust; Soros Fund Has Increase
  • Sumitomo Metal’s Nickel Project in Philippines May See Delay
  • Rusal Says Up to 15% of Global Aluminum Capacity May Be Shut
  • Copper Falls for First Day in Three Amid Europe Debt Concerns
  • MF Global Overseer Has ‘Multiple’ Possible Buyers in LME Shares
  • Crude Trades Near Two-Day Low in New York; Brent Futures Gain
  • Nippon Metal, Nisshin Steel Seek to Merge Within a Year
  • Cameco Raises Hathor Bid to C$625 Million to Trump Rio Offer
  • Copper Falls in London as Traders Get More Negative: LME Preview
  • Andrew Hall’s Astenbeck Buys Uranium, Rare Earth Companies
  • Gold Declines as Dollar’s Gains Curb Demand; Paulson Cuts Bet

THE HEDGEYE DAILY OUTLOOK - daily commodity view




EURO – The only line of support of consequence that remained in our model was 1.37 and now that’s gone. Plenty of weak hands were forced to cover in the last 6 weeks. It’s a better short today than it was yesterday.


THE HEDGEYE DAILY OUTLOOK - daily currency view





FRANCE – I’ll write and say this every day until its headline news – France is a bigger problem (from here) than Italy. French banks have not marked their pig paper yet and that paper (Spain’s 12-month fiat priced at 5.02% this morning vs 3.61% last) is a Lehman-like problem. We remain short French Equities, which remain in a Bearish Formation (bearish TRADE, TREND, and TAIL).


THE HEDGEYE DAILY OUTLOOK - euro performance





INDIA – one of the big places in this world (with a lot of people) that does not cease to exist amidst the European headlines has once again snapped its last line of support (17,169 on the Sensex), leading Asian stocks lower overnight after an awful inflation report (+9.73% OCT).


THE HEDGEYE DAILY OUTLOOK - asia performance









  • Qatar Air CEO Ridicules Airbus After Shelving Aircraft Order
  • Obama Microphone Slip Shows Scary Israel Rift: Jeffrey Goldberg
  • Bahraini Body Endorses Malaysian Derivatives: Islamic Finance
  • Syria Under Pressure After Suspension by Arab League
  • Taqa Third-Quarter Net More Than Doubles on Higher Oil, Gas
  • Union Properties Reports Record Quarterly Loss as Costs Jump
  • Commercial Bank of Qatar Removed From Goldman CEEMEA Focus List
  • Saudi Arabia Said to Boost Indian Oil Exports in 2012 Contracts
  • Oil Above $200 Possible in Event of Iran Conflict, SEB Says
  • Kuwait Finance Says Management Unaware of Rajhi Stake Buy Plan
  • Premier Oil Sells U.K.’s Cladhan to Taqa, Buys Fields From Nexen
  • Gas Exporters Seek Cooperation to Raise Supply, Boost Prices
  • Qatar Shares Decline on Bets Gains Overdone, Europe Debt Concern
  • Israel Behind Deadly Iranian Blast, Source Says: Time Link
  • Airbus Postpones Qatar Accord as Al Baker Leaves Deal Dangling
  • Boeing Wins Order From Qatar Airways for Two 777 Freighters
  • Abu Dhabi Commercial Bank Said to Plan U.S. Dollar Sukuk Sale
  • Iranian Parliament to Investigate Blast at Military Base


The Hedgeye Macro Team

Howard Penney

Managing Director



While it appears this morning’s meeting is well-attended, I think others may be underestimating the importance of today’s meeting.


Today in Raleigh, N.C., senior management is showcasing a converted Chili’s.  14 of the 15 restaurants in the market have been converted.  It appears that management is very happy with the results they are seeing.  My feeling is that some members of the investment community could be underestimating the importance of this meeting; the entire Brinker management team is here including Chief Executive Officer, Doug Brooks.


Having spent the better part of yesterday evening in the remodeled Chili’s talking to regional managers and other employees, I get the sense that there is a lot of positive momentum at the Chili’s brand.  I understand that management has a lot riding on the turnaround but it seems that their enthusiasm is matched by the positive energy among rank-and-file employees.  It is one of those intangibles that are impossible to quantify but the turnaround initiatives would fail without it.


I estimate that October’s Knapp Track Comparable Sales two-year average slowed by 75 basis points from September to 0.85%.  I think that a greater proportion of this decline is attributable to Applebee’s than Chili’s.  Next to PFCB, EAT remains one of the more controversial names in the restaurant space as the sell-side remains polarized over the company’s ability to sustain current trends.  I believe that the company could be in the early stages of a sustained recovery.


Two net positives that could help the stock in the short run are:


(1)    The operating performance put it in “nirvana” which should allow for a multiple expansion over time.

(2)    The sell-side is very bearish on the name, despite the company taking market share from Applebee’s.


The meeting starts shortly.


EAT MEETING - eat quadrant


EAT MEETING - sentiment eat



Howard Penney

Managing Director


Rory Green







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Forgetting Memories

This note was originally published at 8am on November 10, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Nothing stands out so conspicuously, or remains so firmly fixed in the memory, as something you have blundered.”

-Marcus Tullius Cicero


I didn’t have a chance to watch the Republican Debate last night, but woke up to an email from a Republican operative contact intimating that Gingrich will benefit from Perry leaving the race.  This particular contact has been a vociferous supporter of Perry, so I was surprised by his comment.  After reviewing the transcript and key highlights this morning, I understand his point quite clearly. 


In an exchange in which he was asked which three federal agencies he would do away with, Perry confidently indicated that he would do away with the Department of Education, the Department of Commerce, and a third one which he couldn’t remember.   In the first attempt at trying to remember the third agency, he simply ended with “oops”.  In the second attempt, he ended with this statement:


                “I would do away with Education, the – Commerce and, let’s see, I can’t.  The third one, I can’t”


To Cicero’s point in the quote above, Perry will certainly remember his blunder, even as he couldn’t remember the three agencies. 


Normally, one bad exchange in a debate wouldn’t ring the death knoll for a candidate’s campaign.  In the case of Perry, his campaign was already on life support.  As we highlight in the Chart of the Day, the InTrade contract for his gaining the Republican nomination is now at 4.1%.  Not only is this the worst rating since he fully launched his campaign, but Perry is now trailing the embattled Herman Cain who is at 5.6%.


In general, last night’s debate likely will not alter the overall makeup of the race for the Republican nomination.  This is still Romney’s race to lose, and in a big way.  On InTrade, Romney is at 71%, while his second closest rival, Newt Gingrich, is at 9.1%.  In head-to-head polls amongst all the leading Republican candidates, Cain has led in some recent polls, but in aggregate since early October, Romney has either been first or second in every poll.  Finally, Romney has the money and team to stay deep in the war of attrition that is the Republican primary season.


Assuming Romney does get the nomination, the question is whether he can beat President Obama in a head-to-head matchup.  So far, at least, the numbers suggest that Romney will be the underdog in that matchup.  Currently, according to the Real Clear Politics poll aggregate, Obama, on average, beats Romney by +1.7 points.  To be sure, this is within the margin of error, though much closer than one would expect given Obama has an approval rating in the mid-40s and unemployment has a 9-handle.  Ultimately, as usual, turnout and motivation will be key and if the midterms were any indication, Republican turnout could be huge.


Flipping back to the market, undoubtedly yesterday was a day most investing minds would prefer to forget.  The SP500 was down -3.7% yesterday.  In particular, breadth was notably negative with one stock up on the day.  That stock was Bed, Bath and Beyond and the catalyst was a positive call from Cleveland Research.  If Cleveland Research is moving a stock, this is probably a decent flag for another important risk factor: light volume.  No surprise, to Hedgeye at least, financials were the weakest sector with the XLF down -5.4% on the day. 


Coincidentally, or not, our Financials Sector Head Josh Steiner held a call with Peter Atwater (former Treasurer of Bank One) yesterday to discuss the key new risks for financials.  Both Steiner and this industry veteran continue to believe that investors are underestimating the long term risks to financials, with Jeffries and MF Global potentially being canaries in the coal mine related to bank hedging.  If you’d like access to our Financials sector and a replay of the call, email sales@hedgeye.com.


In Europe, the news and data flow appears to be going from bad to worse.  Front and center is the Italian bond market.  Italy sold €5 billion of 12-month bills this morning with average yield of 6.087%.  This compares to Italy’s last auction October when it sold the same duration of bills at 3.57%.  Further, Italian 10-year yields remain above the 7% line.  The Italian Senate is purportedly “rushing” to pass austerity measures with a vote tomorrow.  The likely outcome of incremental Italian action is accelerating stagflation in Europe.


On the last point, the EU lowered its Euro-region growth forecast due to the worsening debt crisis from +1.8% growth in 2012 to 0.5% growth.  Our view continues to be that European growth will likely be negative as inflation begins to accelerate alongside the eventual hum of the ECB printing presses.  Our view of Europe underscores one of our top macro ideas heading into 2012, which is to be long the U.S. dollar.


We will be holding our annual best ideas call tomorrow at 11am eastern.  This call will represents the best ideas, both long and short, across all seven of our coverage sectors.  We will be circulating all the materials to institutional subscribers later today.  For those that aren’t current Hedgeye institutional subscribers, please email sales@hedgeye.com for details around gaining access to the call.


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Forgetting Memories - Chart of the Day


Forgetting Memories - Virtual Portfolio


The Macau Metro Monitor, November 15, 2011




The number of Singapore private homes sold in October went down by 14.9%.  The Urban Redevelopment Authority showed 1,387 private units were sold in October, 244 units lower than September's. 



Visitor arrivals in package tours soared by 60.6% YoY to 597,903 in September 2011.  Visitors from Mainland China (422,292); Taiwan (45,138); Hong Kong (32,106) and the Republic of Korea (26,206) surged by 88.9%, 54.7%, 38.7% and 78.7% respectively.  On the contrary, visitors from Japan (19,085) decreased by 31.7%. 


At the end of September 2011, number of available guest rooms of hotels and guest-houses totaled 22,407, up by 2,561 rooms (+12.9%) YoY, with that of 5-star hotels accounting for 63.8% of the total.  The average length of stay decreased by 0.04 nights to 1.5 nights.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.