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Athletic Apparel & FW: Easter Headwind Nearing

Underlying Trends in Athletic Apparel & Footwear appear healthy, though the 1-year comp will suggest otherwise in the coming weeks.  NKE continues to gain share across several major categories in both FW & Apparel. FINL and NKE both remain among our favorites. 

 

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Footwear:

Footwear sales were up ~22% last week driven almost entirely by volume; units were +21% with ASP +1%. Last week’s outperformance does reflect the tailwind from the Easter shift however the acceleration on the margin from the prior week is notable. Sales were up 4% prior to last week and grew ~18 points sequentially (to +22%) despite the industry comp increasing from (-13%) to +12%.

Beginning next week, the Easter tailwind will fade into a headwind as the industry starts to comp the weeks last year that led up to Easter weekend (4/24/11). If we assume underlying 2 yr trends remain flat, we would expect a sharp deceleration in sales down to flat to +LSD. In addition, next week’s results will include Easter (little to no spending) compared with last year which excluded the Holiday and should begin to show the seasonal spend leading up to the holiday weekend. The Footwear market has remained healthy through March and started April strong but is now approaching the Easter shift headwind. NKE (inc Brand Jordan & Converse) as well as ADIBok have been gaining share from the rest of the industry. UA lost 9bps of share last week preventing its market share from breaching the 1.1% threshold.

 

Apparel:

Unlike Footwear, Athletic apparel sales slowed last week reflecting less favorable comps which won’t fade until after Easter. Beginning next week, we expect to see a more pronounced negative impact in athletic apparel top line results from the 2012 Easter shift (4/8 this year vs. 4/24 last year). As such, we will continue to assess the health of the athletic apparel industry using underlying trailing 3 week and 2 yr growth rates. Over the past 4 weeks, we’ve seen sequential improvements in these trends within the athletic specialty channel. Should these rates remain flat as the industry laps the holiday shift, we expect year over year growth within the athletic specialty channel to be down LSD-MSD next week which will not accurately reflect top line momentum.

 

Over the past 2 months, strength in apparel within the athletic specialty channel has been consistently driven by NKE who has gained ~1pt+ of share per week. Alternatively, Under Armour has been losing market share. In order to identify where NKE has been gaining share, we analyzed four key categories below within the athletic specialty channel where NKE & UA combined account for ~60%+ of the domestic market.  

 

  • Both NKE and Adidas have consistently gained share across the 5 durations below. UA has started losing share over the past 3 months - at the same time NKE’s gains have accelerated meaningfully.
  • In the Shirts/Tops Category, NKE’s share is 43% vs. UA’s 29%. In this category, NKE has been gaining share over the past 2 years while UA has been losing. Based on the graph below, while the 28% of the industry classified as “other” has had an impact on changes in share with sales up +7%, UA’s losses over the past 5-months reflect NKE’s sales growth up +11% outpacing UA, which has been essentially flat.
  • Nike has 47% share of the bottoms category while UA only has ~11% share. The tradeoff in share is less pronounced here - while NKE has gained share over the past couple of weeks, it seems to be primarily from the “other” companies, though UA’s gains have decelerated.
  • Under Armour’s “Storm Fleece” platform is classified primarily as “sweats;” UA holds 28% share of the category vs. NKE at 47%. UA has been losing share here, down ~350 bps over the past couple of weeks, however the 27% of the industry classified as “other” has lost significantly more share. NKE has gained over 6 pts of share YTD with sales up +48% over the past 5 months, outpacing UA (+42%), and Other (+27%).
  • NKE and UA account for 95% of the compression category (27% & 68% respectively). In this category, (see chart below), major gains and losses in share do indeed come at the loss of either UA or NKE as a result. Note that NKE has been gaining 200bps+ in share over the past 2 years while UA has been losing that amount. Category sales are up +3% with NKE up +19% and UA down 1%.

 

It appears that the categories where NKE is in fact taking direct share from Under Armour are the shirts/tops & compression categories.

 

A key consideration here is that with the mid-teens US Futures growth we’ve seen out of Nike over the past quarters, we NEED to see these levels of share gains. We KNOW the product was ordered, and we KNOW the product is hitting shelves and needs to be sold. That’s why we pay particular attention to the ASP – a weak ASP would indicate that the goods needs to be heavily discounted to move off the floor. But that’s not the case. In fact, Nike’s trailing 3-week change in average price point is better than 10%. Trends appear on track here.

 

Matthew Darula

Analyst

 

Athletic Apparel & FW: Easter Headwind Nearing - market share summary

 

Athletic Apparel & FW: Easter Headwind Nearing - shirts tops

 

Athletic Apparel & FW: Easter Headwind Nearing - shorts bottoms

 

Athletic Apparel & FW: Easter Headwind Nearing - nke ua sweats

 

Athletic Apparel & FW: Easter Headwind Nearing - compression

 

Athletic Apparel & FW: Easter Headwind Nearing - apparel table

 

Athletic Apparel & FW: Easter Headwind Nearing - FW market share gaines

 

Athletic Apparel & FW: Easter Headwind Nearing - trends 1 yr

 

Athletic Apparel & FW: Easter Headwind Nearing - trends 2 yr

 


EAT - TRADE UPDATE

Recent data points from and pertaining to the casual dining space are cautious at best.  Keith sold Brinker today in the Hedgeye Virtual Portfolio.  His quantitative analysis corroborates our fundamental view of the stock.  Being Brinker Bulls has been kind to us since 2010, and those of our clients that got on board, but the stocks in this space trade in unison and due to our concerns about casual dining here and now, we must change with the facts.

 

Again, we have been positive on Brinker on all three durations (TRADE, TREND, TAIL) since mid-2010.  Following the company reporting 2QFY12 earnings, the stock sold off on concerns that top-line trends were suggesting that the company may not hit comparable restaurant sales targets for the full year.  While the stock has more than recovered from those concerns, we believe that the recent industry trends are likely to revive investor anxiety as the next catalyst, 3QFY12 EPS on 4/27. 

 

This upcoming quarter is the litmus test for Brinker.  At the outset of the quarter, we could see a plan that could bring Chili’s sales to the 3-4% (2% price, 1% mix, positive traffic) that will get the company back on track to meet 2% FY12 comparable restaurant sales guidance.  The most variable of the aforementioned components of the 3-4% comp is traffic.  Consistent with broader industry trends slowing into March and remaining soft in early April, our confidence in Chili’s traffic meeting our prior expectations has decreased.  Chili’s is not immune to the broader industry trends.

 

While Brinker’s balance sheet, generation of free cash flow, and operating margins are among the best in the industry and a testament to the fine job management has done over the last couple of years, comparable restaurant sales is the most important chapter of the turnaround story.  The street has been very unforgiving of the management team and we don’t expect investors to shrug off any top-line softness.

 

From a tail perspective, we believe that the improved operating platform at Chili’s will allow the chain to continue to take share.  Over the TRADE and TREND, however, we’d be selling here.

 

EAT - TRADE UPDATE   - eat levels

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 

 

 

 


2012 MARCH CRUISE PRICING MATRIX

The slow road to recovery

 

 

The cruise industry remains on the road to recovery from all the freak incidents this year.  And their not exactly driving in the fast lane.  As CCL CEO Micky Arison reported yesterday in their annual shareholder meeting, March bookings ex Costa were up 3% in the five weeks to April 1 but pricing dropped 5% in the same period.  Meanwhile, Costa bookings in Europe were down "not as deeply" in the past few weeks as the face-ripping 75-80% drop after the Concordia incident.  Costa European pricing was still down by double-digits in the five-week period.    

 

Our March cruise pricing matrix below confirms these trends as cruise pricing continues to slack in 2012. 

  

Pricing Trends

  • Watch out for a double-whammy this summer.  While the Street continues to focus on lower prices in Europe, we are concerned of further pricing weakness in Alaska.  Alaska will have a particularly tough year given difficult comps.  Early April data shows deterioration in pricing for Alaska summer itineraries, which will hurt CCL more than RCL as CCL is more exposed to the region.  
  • The consumer wins.  Remember when Carnival CEO Arison said during the March conference call that consumers should quit waiting for lower prices in the Mediterranean?  Well, Costa finally relented on its fixed pricing and slashed prices 20-40% across the fleet.  RCL’s European fleet followed suit with +30% cuts across most of its ships.
  • Luxury continues to struggle.  Celebrity and Princess haven’t stopped dropping prices. Princess has been more aggressive in its pricing strategy.
  • Any good news? CCL’s Caribbean FQ2 bookings were solid.  South America/South Pacific FQ4 pricing was strong for RCL, which is a good sign since that region has the biggest presence during that quarter.

 

PRICE CHANGE

 

+/-           1-5%

++/--      5-10%

+++/---    >10%

 

(Prices are tracked relative to those on most recent company guidance)

 

2012 MARCH CRUISE PRICING MATRIX  - cruise1

 

2012 MARCH CRUISE PRICING MATRIX  - cruise2

 

2012 MARCH CRUISE PRICING MATRIX  - cruise3

 

2012 MARCH CRUISE PRICING MATRIX  - cruise5


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Bearish TRADE: SP500 Levels, Refreshed

POSITIONS: Long Financials (XLF) and Utilities (XLU), Short Industrials (XLI)

 

Day 2 of the bounce doesn’t matter so much as the price level does. The SP500 needs to recapture its immediate-term TRADE line of 1391, and soon, or this market’s immediate-term price momentum is broken.

 

Volume is already broken, across durations, as fund flows are nowhere to be found. Volatility (VIX) just reminded people of the 2008, 2010, and 2011 moves from the Q1 VIX lows to the Q3 VIX highs.

 

Across my core risk management durations, here are the lines that matter most: 

  1. Immediate-term TRADE resistance = 1391
  2. Immediate-term TRADE support = 1352
  3. Intermediate-term TRADE support = 1331 

In other words, correcting to 1331 would be proactively predictable from this price since Growth Slowing has gone global.

 

Meanwhile, a close > 1391 = very bullish, and a close < 1331 = very bearish.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Bearish TRADE: SP500 Levels, Refreshed - SPX


THE HBM: BK, BJRI, BNHNA, BWLD

THE HEDGEYE BREAKFAST MONITOR

 

HEDGEYE VIRTUAL PORTFOLIO POSITIONS

 

LONGS: EAT, JACK, SBUX

 

SHORTS: BWLD, DNKN, MCD

 

MACRO NOTES

 

Jobless Claims – Bad News for Casual Dining

 

Initial jobless claims came in at 380k versus 355k consensus for the week ended April 7.  The prior week’s tally came in at a revised 367k versus 357k prior.  Our view on casual dining is getting incrementally more bearish and we will be posting further thoughts on this soon. 

 

THE HBM: BK, BJRI, BNHNA, BWLD - initial claims

 

 

Commentary from CEO Keith McCullough

 

Japan is slowly, but surely, winding its way up the Keynesian pole to Most Read news (Bloomberg) next to Fed begging:

  1. JAPAN – the BOJ’s Shirakawa said exactly what we have been saying he’s ultimately going to have to say “The BOJ WILL PURSUE POWERFUL EASING” – that’s the go to Bernanke move (Policy to Inflate), and it stopped Japanese Equities from going down for the 1st day in 9 (+0.7%); Yen down on that obviously, but can go down a lot more
  2. EUROPE – certified train wreck in motion in Spain and Italy again with both stock markets following their respective bond markets (lower); Italian bond auction yielding 3.89% (vs 2.76% last) on 2015 notes – and get this, the Japanese say, hey, we have our own issues, we aren’t buying pig paper.
  3. US DOLLAR – sheepishly, the Fed’s Janet Yellen gave a speech in NYC last night that said what she always says – she’s all for devaluing the US Dollar until she’s told to retire. USD not moving much anymore on these comments; maybe because it hasn’t worked; maybe because political change is coming – we will see. Currency War is on.

SP500 needs to close > 1391 for any no volume rally to matter. 1 up day in the last 6 doesn’t a bull market make.

KM

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: BK, BJRI, BNHNA, BWLD - subsectors

 

 

QUICK SERVICE

 

BK: Burger King got a write-up today in the WSJ, in an article focusing on the franchising trend in QSR.  John Gordon, a restaurant analyst, said that the problem with Burger King is that “the unit economics are so bad” … “because of bad store management over the past 40 or 50 years, you got all these beat up stores”.

 

NOTABLE PERFORMANCE ON ACCELERATING VOLUME:

 

SBUX: Starbucks gained 4.4% on accelerating volume.

 

MCD: McDonald’s underperformed after trading well, on a relative basis, over the two prior days’ down tapes.

 

 

CASUAL DINING

 

BWLD: Buffalo Wild Wing’s will print comps in line with consensus, if Wingstop’s 1Q results are anything to go by (and the chart below suggests they are).  Consensus Metrix is indicating that consensus company-owned same-store sales for BWLD is 10.74%.

 

THE HBM: BK, BJRI, BNHNA, BWLD - BWLD wingstop

 

 

BJRI: BJ’s rated new “Overweight” at Barclays Capital.  The PT is $57 per share.

 

BNHNA: Benihana comps increased 6% in 1Q.  Increased traffic was credited with lifting the top line. 

 

THE HBM: BK, BJRI, BNHNA, BWLD - stocks

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


CLAIMS RISE SHARPLY - THE FACT AND THE FICTION

Lots of Takeaways from this Morning's Claims Number

There are two important dynamics affecting this week's claims number. First, this week's jobless claims number was affected by the Spring break week, in which school bus drivers and cafeteria workers are eligible to collect claims. Normally, the seasonal adjustment factor captures that dynamic, but this year it was off by a week. That means that this should reverse next week. Second, the prior week was upwardly revised by 10k and that had nothing to do with the Spring break dynamic. Overall, the headline initial claims number rose 23k to 380k (13k after the 10k upward revision to last week's data). Rolling claims increased 4.25k to 369k. On a non-seasonally adjusted basis, claims rose 63k to 382k.

 

Overall, claims are rising, which is consistent with our outlook for the seasonality dynamics as we've published recently. 

 

CLAIMS RISE SHARPLY - THE FACT AND THE FICTION - Raw update

 

CLAIMS RISE SHARPLY - THE FACT AND THE FICTION - Rolling

 

CLAIMS RISE SHARPLY - THE FACT AND THE FICTION - NSA

 

CLAIMS RISE SHARPLY - THE FACT AND THE FICTION - Rolling NSA

 

CLAIMS RISE SHARPLY - THE FACT AND THE FICTION - S P

 

CLAIMS RISE SHARPLY - THE FACT AND THE FICTION - fed

 

2-10 Spread

The 2-10 spread tightened 14 bps versus last week to 174 bps as of yesterday.  The ten-year bond yield decreased 19 bps to 203 bps.

 

CLAIMS RISE SHARPLY - THE FACT AND THE FICTION - 2 10

 

CLAIMS RISE SHARPLY - THE FACT AND THE FICTION - 2 10 QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 

 

CLAIMS RISE SHARPLY - THE FACT AND THE FICTION - Subsector performance

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

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