Wingstop comps are pointing to an upside surprise for Buffalo Wild Wings’ 2Q12 same-restaurant sales.


Buffalo Wild Wings has been a name we have liked on the short side for some time. Our call to stay short into the most recent earnings report, on April 24th, was correct as comps came in below expectations and the stock traded lower on the news.  We were wrong on 4Q11 earnings, however, and don't want to make the same mistake twice.  Heading into 2Q12 earnings on 7/20, we would advise not to be short heading into the quarter.  Keith has traded this name very well in the Hedgeye Virtual Portfolio, covering for a gain yesterday, but we will not be advising him to revisit on the short side until this earnings report is out of the way.


Wingstop, a concept similar to Buffalo Wild Wings with 600 units in 31 states, posted strong same-restaurant sales of +12.6% for the second quarter.  This is important because of the strong correlation between the two year averages of these concepts’ same-restaurant sales.  If the relationship holds or – merely – doesn’t reverse, BWLD could print comps as high as 12% for the second quarter when it reports on 7/20.  This would obviously negate our short thesis on the stock, which is predicated on cost pressures lowering EPS expectations and/or guidance over the remainder of 2012.  With short interest at 12.4% of the float and the heightened likelihood of a substantial upside surprise in same-restaurant sales, we think a squeeze between now and when earnings is released has become a distinct possibility.





Howard Penney

Managing Director


Rory Green




HedgeyeRetail Visual: Discretionary Accelerating

Consumption slowed in May, and yet discretionary categories accelerated on the margin. Energy is beginning to help, which people will probably point to as the root cause. But keep in mind that we just saw the biggest sequential jump in credit card debt in 5-yrs. 


HedgeyeRetail Visual: Discretionary Accelerating - essential vs disc


HedgeyeRetail Visual: Discretionary Accelerating - consumption vs income


HedgeyeRetail Visual: Discretionary Accelerating - CIS

M: Trade Idea Alert

Keith shorted M in the virtual portfolio on the heels of weak June results and a low volume rally setting lower highs. We remain negative on the intermediate term TREND and long term TAIL.  


Macys’ localization & omni-channel initiatives could create margin upside and improved asset turns long term but anyone who owns M needs to understand that it is a zero growth retailer at peak margins. This is all about trusting management to leverage technology and take its existing industry-leading productivity levels even higher. We’re now entering 2H where the expectation for margin upside is predicated on pricing which is all but guaranteed. Department stores have been great plays in economic recoveries of years past. We’re two years in, and are not holding our breath for number three.


Over the past two years, Macy’s has increased its focus on the localization of the business and omni-channel shopping experience. The integration of mobile & online (~7% of sales growing ~40%/year) remains a priority with the e-commerce biz aiming to exceed $2bn in 2012. Macy’s is one of the few retailers that we think ‘gets it’ in this regard.  As a result, M has consistently delivered 4%+ comps over the past 8 quarters; comparable growth not seen since 2007. Despite these initiatives driving the top line over the past 24 months, the recent tailwind from JCP/KSS share gains will become incrementally more difficult over the intermediate term which will cost margin dollars, working capital, or both.


Here are some additional factors that we expect will continue to weigh on performance:

  • June comps came in +1.2% vs +2.5E (and guidance of slightly below the quarterly +3.5%). This following management reaffirming that Macy’s is gaining share directly from JCP’s inability to execute on its pricing strategy. With June accounting for ~40% of the quarter, July comps need to come in +6% to reach the quarterly guidance of +3.5% and +4.5% to reach the consensus estimate of +3.1%. Each requirement suggests an acceleration in the underlying 2 yr comp trend of 80bps and 150bps respectively. Given a 180bps sequential deterioration sequentially from May to June, this is no slam dunk.
  • Sell side sentiment improved on the margin relative to June following the light top line results while short interest remains at a 10 year low creating an opportunity on the short side.
  • F12 comp guidance of 3.7% (increased following Q1 from 3.5%) is assuming continued AUR expansion. 2H12 costs may be set at this point however pricing is not guaranteed. While JCP has been unable to properly communicate its pricing strategy, it has yet to roll out its shops in 2H which are arguably the larger piece of the transformation. Additionally, the off price space continues to accelerate its top line momentum as KSS remains unable to capitalize on the JCP attrition. Both the potential for traction at JCP as well as the off price value proposition and now the recently announced EDLP program at KSS will weigh on M’s pricing power in 2H.
  • M is currently at peak gross margins with EBITDA margin targets predicated on further expansion. Revitalized competition (mentioned above) creates “strategy audibles”- Macy’s won’t be an exception here.  
  • Finally, with the M trade range at $32.69-$35.29, it’s bumping up against Keith’s TRADE Resistance and sitting at a point where the fundamentals and price mesh well within Hedgeye’s Risk Management framework


M: Trade Idea Alert - M TTT

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Singapore local mass business not growing


  • Local Singaporeans represent 30% of the visitors to Singapore’s two casinos
  • The unexpected strength of that business was primarily responsible for the blow out gaming revenues generated out of the block
  • As indicated by the total amount of visitation levies collected from locals (S$100 per visit or S$2,000 per year), local visitation is roughly flat – likely to continue to be a governor on growth


#BailoutBull: SP500 Levels, Refreshed

POSITIONS: Long Utilities (XLU), Short Industrials (XLI) and Energy (XLE)


This morning’s pre 4AM futures weakness was more reflective of fundamental realities (#GrowthSlowing and Earnings Expectations at risk) than the post 5AM Spanish Bailout pop was.


I’m saying that because the market just did. It’s also important to contextualize this turn from red to green to red again within the framework of the intermediate-term TREND (bearish).


Across risk management durations, here are the risk management lines that matter to me most: 

  1. Intermediate-term TREND resistance = 1365
  2. Immediate-term TRADE resistance = 1359
  3. Immediate-term TRADE support = 1330 

In other words, provided that top line growth and bottom line earnings expectations continue to be a market liability, I think 1330 is in play – and fast.


#BailoutBull can only take this no-volume rally so much further.




Keith R. McCullough
Chief Executive Officer


#BailoutBull: SP500 Levels, Refreshed  - SPX

Looking Deeper Into The Rabbit Hole







You get fed news flow and you have to digest it in a rapid manner that gets to the point right away. This morning, before 4AM, the futures were down due to a bad start to the US earnings season. Then, after 5AM, we were up on news of Spain getting a re-do on the timing of its bank bailout. It’s all part of the game.


Basically, keep this in mind: The Barclays debacle is far from over. Bob Diamond will be paid handsomely on his way out, Barclays will separate its retail and investment banking operations and the world will continue on despite the massive manipulation going on in the market. Life is grand.



As we move into the earnings season, every week is going to have a slew of new numbers to watch. Right now, the real question is whether or not the slowing growth (and we know slowing growth), is priced into corporate earnings. If this continues, the longest of long-term corporate profit margin cycle peak is probably in. “Cheap stocks” will become a lot cheaper.     



Barclays has a serious problem on its hands on with this LIBOR scandal. People are realizing that they screwed up big time. An interesting note is that Barclays current has a market capitalization of around $20 billion. Were Barclays Capital to separate from the parent division, it would need an additional $20 billion in recapitalization post-split. Diamond and Aegis aren’t going to take their bonuses – that’s given. The question is can this legendary institution survive, given all that’s happened and the worst is yet to come? We shall see.




Cash: Down              U.S. Equities: Flat


Int'l Equities: Down    Commodities: Down


Fixed Income: Down            Int'l Currencies: Down





The bulk of the bad news is on the table following disappointing F2012. Rebased F2013 estimates far more reasonable, and revenues should be supported by our expectations for rising physician utilization, and in the near-term, a flu season that is shaping up as a considerable tailwind.







SS volume accelerated in 1Q12 and employment remains a tailwind to both admissions & mix. We expect acuity to stabilize and births and outpatient utilization to accelerate out of 1Q12, while supply cost management continues as a margin driver and acquisition opportunities remain a source for upside.







The company continues to control its own destiny through investments in all the right areas. We think 30%+ top line and EPS growth for 5+ years. One of its failures, however, has been in penetrating markets outside the US. That will happen. But for now, its failure is a competitive advantage in the face of a strengthening dollar. We like it in sympathy with a LULU sell-off.








Tweet of the Day: “PFG=People’s Funds Gone #PFGBest” -@ilkandcookies         


Quote of the Day: “That is the saving grace of humor, if you fail no one is laughing at you.” –A. Whitney Brown


Stat of the Day:  $200 million in missing funds from Iowa-based futures brokerage PFGBest.



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