Danger Zone

With earnings season about halfway done (brands reported, but retailers have not) we've got a pretty good sense as to where the industry stands. It's not pretty. Sales are off, inventories and high, and margins are down. (Thanks McGough, tell me something I don't know). We know this is painfully obvious to just about everyone that watches the tape, but what might not be as obvious is how bad the industry is on top of increasingly easy compares.

The chart below show shows the spread between sales growth and inventory growth on the vertical axis, and the yy change in Gross Margin on the horizontal axis. The sample includes every publicly-traded company that makes, designs or sells apparel. The place to be is in the upper right-hand quadrant, where sales are growing faster than inventories, and margins are up. On the flip side, retailers never want to be in the lower left quadrant -- inventories growing too fast relative to sales and Gross Margins down.

Unfortunately, we're in that lower left quadrant today. Even more unfortunate is that 1Q is the first quarter of easy compares vs last year in the current cycle. Bulls might argue (correctly) that any move out of the lower left quadrant is a positive stock move. We'd note that K Mart was there in almost every quarter for the 5 years before it went under. Sears and Foot Locker are there perennially.

Importantly, over the past 5 years, the apparel industry was to the right of the vertical line (margins up) almost 90% of the time. This was the tail end of the multi-year margin tailwind we think is going away. We have no reason to think that the current quarter is an aberration in any way vis/vis what is yet to come in this industry.

Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more