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China Quake Impact on Footwear

We've had a lot of queries about the extent to which the earthquake in China has impacted product flow in the footwear space (i.e. 85% of our footwear consumption comes from China).
The bottom line is that the answer is 'No' as it relates to finished goods, but we're less certain about the availability of raw materials for future product.

With the epicenter in the Si Chuan province, the area around Chengdu is the focus as it relates to the footwear industry. There are not many athletic factories in the area, as it is rural and in most cases cost ineffective from an infrastructure standpoint. But there are several factories in the women's dress shoe segment that have been mildly impacted. These represents moderate price points that would sell into retailers like Target, Wall Mart, and Payless.

What might be of greater consequence is that there is a greater number of materials suppliers in the area, including leather and cotton, which is used by factories outside of the immediate region. While finished product appears to be moving, we'll keep an eye on the draw down of raw materials and subsequent product flows in the future.

CMG - Signs of Slowing....

I love going to Chipotle! Every time I go, the stores are clean, the food is tasty and there is usually a line of people waiting. But is that enough?
  • Valuation - CMG is the most expensive restaurant stock on the planet.
  • Peak Margins Right now CMG is the only restaurant company with double digit EBIT margins. In the world before rampant food inflation, labor inflation and consumer distress the best run restaurant companies barely achieved double-digit EBIT margins. To be clear, we are not talking about those companies that generate most of their revenues from a royalty stream. In the heyday when P.F. Chang's and The Cheesecake Factory were trading at 40x EPS, they generated EBIT margins around 10%.
  • Same-Store SalesGiven the current economic environment, CMG's same-store sales are in a class of their own. Over the past two quarters the company has posted same-store sales of 10.6% and 10.2%, respectively. Looking out over the balance of 2008, CMG's same-store sales are likely to slow to mid-single digit growth. In 1Q08, CMG did benefit from an easy 8.3% comparison due to a tough winter last year. For the next two quarters comparisons get more difficult at 11.6% and 12.4%, respectively.
  • Current TrendsCurrent Trends

Rebate Check Spending Survey

The following press release is from BIGresearch. Over the past four year we have found the BIGresearch surveys to very good insight in consumer spending trends.

NRF Survey Confirms Consumers Plan to Spend Much of Rebate Checks on Necessities

--Spending on Gas and Groceries Top Consumers' Lists--

Washington, May 13, 2008

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MCD - Specialty coffee - It was never going to be easy!

We know MCD can sell lots of coffee!

For 12-months now I have been skeptical about the company's ability to sell significant amounts of specialty coffee. An article in Crain's suggests that MCD specialty coffee sales remain soft in the two initial test markets

MCD - Asia Slowing?

As noted in HedgEye's early look today - the prime investment focus should be moving away from the credit crisis and towards Asia's double edged sword of accelerating inflation and decelerating growth."

A data point from MCD Japan supports this thesis. MCD Japan reported that same-store sales fell 0.5% in April, the first decline in 27 months. One-time issues like difficult comparisons and one fewer Sunday should be noted, but even after adjustments the trends are slowing from 1Q08 same-store sales of 4.4%.

WEN/TRY - On Saving $60 Million...

On May 12, 2008, a letter from Roland Smith was distributed to all Wendy's employees and franchisees and posted on Wendy's internal portal.

The $60 million in synergy saving was not mentioned but, he did say: There will be job cuts at Wendy's. I don't know how to put it any other way and say that I am acting with integrity. We will continue to be truthful with you about these as they come up and as we look at the plan for organizing our company as we go forward.

This is the hard part about trying to not look like the bad guy from the south.....

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