TBL: Numbers Look too High For ‘09

Fundamentally, I’m not comfortable with TBL here. I think ’09 es are high by 50%. Keith’s models suggest an 8-handle if I am close to right. If I’m off fundamentally, watch the 11.24 shark line.

Brian: I’m not thrilled w TBL right now. TBL’s share appears stable, and price points are relatively healthy. But TBL has had 3 quarters in a row where it meaningfully improved both its sales/inventory ratio as well as margins due to its efforts to close unprofitable stores and license out its apparel business. FX has been a 2-3% tailwind in the past 4 quarters, and that goes to -4% in 4Q and stays negative at current rates for the bulk on 2009. Also, with 45% of sales in Europe in 10% in Asia, TBL is disproportionately affected by declining consumer trends outside of the US. I like the long-term call that TBL has proactively invested in its own business over the past 3 years to make up for sins of the past and gain share in the new consumer landscape. But it simply cannot move as quickly as the current environment requires.

For the quarter, I’m at $0.25 vs. the Street at $0.29. The Street is looking for a down '09 -- $0.70 vs. $0.80 in '08. That’s not conservative enough. I’m at $0.45. Do I like the balance sheet? Yes. Do I think that either Nike or VFC ill own this name over 1-2 years? Yes. But I don’t know how much of that will matter right no if earnings come down by a third. On my numbers, this name is pushing 7x EBITDA. I need to be really wrong on the fundamentals in order to make this name reasonably cheap relative to peers.

Keith: TBL is broken and needs to take a good hard look at breaking $10 again… if it breaks 10.21, the 8 handle is in play… this one could see a massive squeeze however if it can find a reason to close above 11.24 and hold its gains.

[I know, the 'margin walk' below is tough to read -- even when enlarged. Check out the larger image in the pdf, or simply shoot me an email.]


The latest Export data from Korea and India seem to tell different stories…

Indian Export data for December was released today, registering at -1.05 % year-over-year. This is the third consecutive negative Y/Y figure for Indian exports, but a significant improvement from November’s number –both on a Y/Y and an absolute basis. The agony for Korean exports shows no in end sight with a January figure of -32.79% decline –the lowest Y/Y level recorded, worse even than the massive decline following the US withdrawal from South Vietnam and the later collapse of the Saigon government (South Korea was a primary hub for US equipment shipments then).

The divergence between India’s relative December resilience and Korea’s descent into the abyss is interesting but is ultimately somewhat misleading. The critical service industry component of the Indian growth story is ultimately more important than a rebound in exports of cheap motorbikes. This high tech service sector is sinking in lock step with the decline of financial services in the western economies and other major outsourcers with no hope of internal demand to offset the slump.

For the mature industrial block of the Korean economy, the picture is grim. Despite some pockets of strength in the heavy industrials that are still working through a healthy backlog (evidenced by shipbuilder Daewoo’s record numbers reported today), the export market for Korean goods, particularly automobiles and light trucks, continues to contract.

We have been negative on prospects for both India and Korea over the past year and are currently short the Indian equity market via IFN.

Andrew Barber

RT – Looking at the “Gap to Knapp”

An important way of measuring RT’s success in fixing its same-store sales problem will be the narrowing of the company’s “gap to Knapp.” Over the past year, RT same-store sales have been disastrous, but the “Gap to Knapp” has been narrowing recently. Sales trends in the current quarter support that this thesis will continue. At the core of RT’s sales issues is that the concept has been hardest hit in the rural areas of the Southeastern part of the US. This is due in part to high gas prices, but also the availability of gas in gas stations last summer. Both of which have self corrected.

Ironically, I attended a comedy show last night and have never laughed so hard at jokes about how bad the food, service and décor is at Applebee’s. I thought it may just have me laughing because I’m a restaurant analyst, but nope, the crowd really “got the joke.”

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SP500 Levels Into The Close...

Despite all of the intraday day noise… there is one macro factor that continues to dominate the US stock market – it’s inverse relationship with the US Dollar. At this point, all I think we need is the US$ Index to stop going up, and stocks can work, for an immediate term “Trade” to SPX 838 …

Interestingly, my models have chugged out a support level for the SP500 that is higher than what I had earlier this morning. There is a margin of safety building at the 808 line (see chart), and that’s only -1% lower from where the market is trading here at 3PM EST. This creates a tolerable risk/reward for me to start covering/buying.

Volatility as measured by the VIX, is up another +5% right now at 47.04, but will be overbought, from an immediate term perspective, at 49.88. So give me a US$ that stops going up, SPX 808, and VIX 50, and I cover/buy.

Keith R. McCullough
CEO & Chief Investment Officer

Chinese Yuan: The Chart That Hasn't Come Down...

Quite often in global macro, a picture can be more powerful than prose. This is one of those pictures.

Why am I calling it out right here and now? Well, the Chinese Yuan traded down overnight to 6.85, putting it down, yes DOWN, for the year to date. While a -0.4% YTD decline is nothing in the context of the currency volatility that we have seen across global macro, the point here is one that matters on the margin. On an annualized basis, this currency hasn’t depreciated since the peg was removed in 2005 (see chart).

This is one surefire way for the Chinese to stimulate export demand. It’s also a leading indicator for more Chinese interest rate cuts to come. Altogether is a new and emerging factor in our multi-factor macro model. We will be expanding upon the consequences of a weaker Yuan later in the week.

Keith R. McCullough
CEO & Chief Investment Officer

Chinese Propaganda Beating America's?

There was an article this weekend from Xinhua titled "Big Chinese firms squeeze payroll of top executives to cope with crisis." At least these guys are proactively managing the process of damage control! (see below)

Special Report: Global Financial Crisis
BEIJING, Feb. 1 (Xinhua) -- More Chinese firms are slashing executive pay and practicing tighter budgets to get through the economic crisis, the State-owned Assets Supervision and Administration Commission of Shanghai said Saturday.

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