Ralph Lauren Gets A New CFO

Takeaway: The new CFO of $RL is ready to play ball, but can he smoothly transition from one industry to the next without a hiccup?

Ralph Lauren (RL) has just announced it has hired Chris Peterson, formerly of Procter & Gamble, as the company’s new CFO. Analysts on the Street see the hire as a positive for RL as does Hedgeye Retail Sector Head Brian McGough. Peterson winning the top finance position over a pool of thousands of prospects is a big deal considering that RL President Roger Farah runs an extremely tight ship. Consider it a vote of confidence.


Though the outlook for Peterson is bright, one concern we’d like to point out is the track record of executives moving from one industry to another – in this case, packaged goods to fashion. The businesses are fundamentally different as is capital allocation and meeting/beating Street expectations on various metrics. Here are three examples of other executives making the switch worth noting:


A)      Glenn Murphy: From Shoppers Drug Mart to Gap. Lately credited with the stock’s rebound. But financial engineering has been the main driver, until JCP ceded share six months ago at a time when, by chance, GPS got colors right.


B)      Ron Johnson: JCP from Apple. ‘Nuff said


C)      Paul Charron: Everyone loved the guy (Campell Soup), but in reality he destroyed LIZ.


We believe Peterson can buck the negative trend but will have to put in solid work. He has many challenges that lie ahead and if he can cut the mustard, Ralph Lauren will have a valuable executive on its hands that can help the company grow and move forward.

Idea Alert: UA

Takeaway: We’re 8% ahead of the Street in the upcoming quarter reflecting strong top-line sales trends quarter-to-date.

Keith added UA again into the Hedgeye Virtual Portfolio. Again, true to our process, we (the analyst team) will have key ideas over long durations, and he will manage near-term risk by trading around the position. We recognize two different calls here at Hedgeye…1) the research call, and 2) the risk management call. A portfolio action usually occurs when those two calls match up, or change meaningfully on the margin. In this instance, there is no change to the research call.

TAIL (3-Years or Less): UA should put up $3bn in revenue by ‘14 – impressive given a $1.5bn print in 2011. That incremental top line breaks out as follows. a) $500mm in men’s, b) $300mm in footwear, c) $300mm in int’l, d) $250mm in women’s, e) $125mm in accessories.  It’s tough to find any name out there growing EBIT in the 25-30% range. This translates to over $2 per share in earnings at UA’s current margin structure (which we think is sustainable). Simply put, UA was built to be expensive.

A few more considerations on the TAIL call. There’s no fundamental reason why footwear should not attain share at least in line with lesser brands like New Balance, Reebok, Brooks, Saucony…Admittedly it has not happened yet, but will – the big risk is that it costs them more to do it.  When this accelerates, we pity anyone short this stock.

International is also next on the docket with the hire of Charlie Maurath.

All in, it’s true that it faces a stiff competitor in Nike, but barriers to entry here are immense, and UA has already invested to jump that hurdle. Few others have. In addition, UA has ~2x the Direct-to-Consumer exposure as Nike – that’s one of the benefits of building a business without a legacy wholesale model that’s dependant on dinosaur retailers to conform to its marketing plan.

TREND (3-Months or More): With sales in both apparel and footwear accelerating into 2H driving solid top-line growth, UA also has a bullish gross margin setup over the next four quarters. Headed into 2H, gross margins will face margin pressure from mix as DTC (-50bps) and footwear (-25bps) continue to grow offset by less promotional activity due to lower excess inventory levels compared to last year. In addition, the sales/inventory spread turning positive for the first time in eight quarters coming out of Q2 is very gross margin bullish.


The fact that UA has ~5% of sales coming from outside the U.S. actually plays into its favor with the strengthening USD. UA’s failure overseas has actually turned into a near-term benefit relative to competitors that operate globally and need to translate profits to US$.

TRADE (3-Weeks or Less): Near-term factors are mixed for UA. Our estimate is 8% ahead of the Street in the upcoming quarter reflecting strong sales trends reflecting share gains in both apparel and footwear. Apparel sales have continued to outpace the broader industry posting greater than 2pts of share gain quarter-to-date. Meanwhile, footwear sales have reaccelerated since early June reflecting the early success of the new Spine platform and launch of UA’s new basketball line.


On the flip side, UA just lost its SVP/Sourcing, which is not good. Also, DKS writing off its investment in UK’s JJB is not great for UA’s int’l growth given the relationship between the two.  We’re more concerned with perception than reality, but the facts can’t be ignored. When concerns are high, we’re buyers.

Idea Alert: UA - UA TTT


Idea Alert: UA - UA mkt sh




Is Singapore really as bad as the shorts say?



There has been some concern in the investment community recently surrounding next year’s performance by MBS.  Management has apparently been conservative, telling some that EBITDA may be flattish in 2013.  To this we say the following:  1) current Street consensus already reflects that assumption and 2) EBITDA will likely grow in 2013 despite management’s assertions.


It looks like Street consensus for MBS EBITDA is below $1.7 billion for 2013 on top of an estimated $1.6 billion for 2012.  That looks pretty flattish to us.  Following a disappointing Q2 in Singapore, Street expectations have come down.


It’s probably prudent for management to rein in the aggressive analysts.  The new IR function at LVS seems to be more conservative overall:  a longer and formal quiet period, limited access to property level managers, and a less aggressive tone.  The truth is, management probably has limited precision when it comes to projecting 2013 EBITDA.


We may not have perfect precision either but here is why we think EBITDA will grow next year.  Given the valuation and investor concerns, we think EBITDA growth at MBS will be a positive catalyst on the margin:

  • The locals business may indeed be flat or slightly down in 2013 but that represents 30% of visitation and likely less of revenues.  We’d be shocked if international visitors do not more than make up the slack.  It would likely take an Asian recession for that to happen.
  • Even if the market is flat next year, MBS should gain share.  Genting has greater exposure to the locals business.
  • MBS retail and room rates should be up significantly next year.
  • MBS should also continue to benefit from increased visitation to their Marina Bay area, resulting from:
    • MRT station: Opened in January right by the property (should benefit MICE)
    • Gardens By The Bay in Marina Bay: A $1 billion project that ppened 6/29/12
    • Deep water cruise terminal: Opened in early June of 2012

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Down With Gold!







Gold sold off hard late yesterday and is continuing to fall this morning. When news hit the wire that Draghi wouldn’t be attending the Federal Reserve meeting at Jackson Hole, people got scared. Keith is bullish on the dollar and is of the belief that if you get the dollar right, you get a lot of other things right. That appears to be the case right now: dollar up, gold down. And if the Fed doesn’t save the world like Bruce Willis in the movie Armageddon, then gold is poised to fall a lot lower. That last point will be emphasized should Romney pick up some momentum at the Republican National Convention this week.




Sometimes, people get confused. It happens to the best and the worst of us and it can’t be helped at times. In the world of central planning, however, clarity is needed. It appears that some of them are of the belief that inflation is equal to growth. Nope. That’s simply not true. Take Venezuela’s intrepid leader Hugo Chavez for example. The stock market is up +153% year-to-date! That being said, their currency has been devalued to hell and back – that’s no fun for anyone, is it? Asset price inflation is not growth. Your head of lettuce going for $10.50 a pop and $50 a gallon gas is not growth.




Courtesy of Keith, we’d like to point out the effects of beating up on the US dollar and how that’s affected stocks and commodities. See below:


“Here’s the update on what US Dollar Debauchery has done for this 30-day bull run in stocks and commodities (inverse correlations between USD Dollar Index and the big stuff people are speculating on)”


1.                    Gold = -0.85

2.                    Silver = -0.87

3.                    Oil (WTIC) = -0.81

4.                    CRB Index = -0.74

5.                    CRB Raw Industrials Index = -0.79

6.                    SP500 = -0.83






Cash:               Flat


U.S. Equities:   DOWN


Int'l Equities:   Flat   


Commodities: Flat


Fixed Income:  Flat


Int'l Currencies: UP  








Nike’s challenges are well-telegraphed. But the reality is that its top line is extremely strong, and the Olympics has just given Nike all the ammo it needs to marry product with marketing and grow in the 10% range for the next 2 years. With margin pressures easing, and Cole Haan and Umbro soon to be divested, the model is getting more focused and profitable.

  • TAIL:      LONG            



The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

  • TAIL:      LONG



LVS finally reached and has maintained its 20% Macau gaming share, thanks to Sands Cotai Central (SCC). With SCC continuing to ramp up, we expect that level to hold and maybe, even improve. Macau sentiment has reached a yearly low but we see improvement ahead.

  • TAIL:      NEUTRAL







“Look at those long term charts today, what do you see? Read some interesting metrics about Cyclically Adjusted Price/Earnings ratios (CAPE)” -@jackstone104




“If at first you don't succeed, failure may be your style.”–Quentin Crisp




Credit Agricole’s quarterly profit dropped 67% year-over-year thanks to troubles in its (drum roll, please) Greek and Italian businesses. It posted second-quarter net profit of €111 million compared with €339 million a year earlier.


President Obama’s Reelection Chances

With the Republican National Convention underway, President Obama’s chances of being reelected continue to climb which has been the trend for several weeks now. His odds increased 0.2% to 60%, the highest his odds have been since our readings in late April and fast approaching the all time high of 62.3%, which was achieved back on March 23rd, 2012.


It appears President Obama is on the fast track to another four years in the White House according to the latest results from the Hedgeye Election Indicator (HEI). President Obama’s reelection chances jumped 80 basis points (0.8%) to 59.8% and is fast approaching his peak of 62.3% that occurred back in March. No one knows what the catalyst is, but several weeks of consecutive gains indicate Mitt Romney has his work cut out for him going into September.


Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.


Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.


President Obama’s reelection chances reached a peak of 62.3% on March 26, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.



President Obama’s Reelection Chances  - HEI

2007 Redo

This note was originally published at 8am on August 14, 2012 for Hedgeye subscribers.

“This book isn’t based on academic theories. It’s based on our experience.”

-David Heinemeir Hansson


What a difference the last 5 years makes. Or did it? The aforementioned quote comes from the introduction of one of my favorite leadership and innovation books. Some of you already have it on your bookshelf. I’ve cited it often since founding the firm – REWORK, by Jason Fried and Victor Heinemeier Hansson.


If you are jammed for time into summer’s end, I read this book in 12 minutes to our team at a workshop meeting – lots of pictures. We like pictures. We’ll show you one of our risk management favorites in today’s Chart of The Day.


Re-work, Re-think, Re-do. Sadly, when it comes to Old Wall Street’s forecasting and risk management processes, there hasn’t been much of that going on in the last 5 years. Instead, broken sources keep re-cycling the same old stuff that sucked people in during Q3 of 2007.


Back to the Global Macro Grind


2007? Pardon? Weren’t we talking about Q308 similarities? Or was it the 1930s? 1987?


Here are 3 Big Macro things that are precisely like 2007:

  1. SALES: GDP Growth led Corporate Revenue Growth Slowing; by Q307, companies were right confused
  2. MARGINS/EARNINGS: stocks were “cheap” if you used peak margins and peak earnings assumptions for 2008
  3. VOLATILITY: US Equity market Volatility got slammed by “rumors” of Bernanke bailouts, rate cuts, etc.

Fast forward to Q3 of 2012:

  1. SALES: Same pattern – but Global GDP growth slowing faster now than it did then (China especially)
  2. MARGINS/EARNINGS: perma-bulls are still using peak margins and prior 2007 all-time high in EPS to justify “cheap”
  3. VOLATILITY: yesterday marked the 1st time since 2007 since the VIX dropped below 14

Since the VIX dropped below 14 eighty nine (89) times throughout 2007, the good news is that you probably have plenty of time to get out of stocks before everyone else has to. There are only 30,000 funds chasing beta at this point.


One question on that: after the shorts have all covered how, precisely, is that going to happen without volume? Probably just a silly risk management question; NYSE volume was only down -42% versus my intermediate-term TREND duration average yesterday. That’s gotta be bullish for someone. Just not Tommy Joyce.


Enough about price, volume, and volatility already – who cares about 3-factor risk when simple 1-factor Fisher Price point and click 50-day moving averages tell us all we need to know in the rear-view mirror?


Let’s deal with my personal baggage instead…


Not that I took it personally, but since I got fired for being “too bearish” in October 2007, I do remember the proceeding birth of my 1st son and the vision for Hedgeye quite vividly. So do the perma-bulls. The SP500 dropped -4.4% in November 2007.


And, that was it.


That was it for the storytelling. That was it for the “world is awash with liquidity” thing. That was it for the academic theory that “shock and awe” rate cuts to zero were going to free we centrally planned beasts from the shackles of our own thoughts.


Where to next?


The only thing I can predict, with 100% certainty, from here is that this is not 2007. This is 2012. And next year will be 2013.


What will get #GrowthSlowing to stop slowing? Will it be a bird or a plane? Or will Keynesian Economics finally provide the long lasting elixir of life that its group-thinkers have so often promised (growth) but never delivered?


I don’t know.


What I do know is that if you are buying US stocks at lower long-term highs (-10.3% versus October 2007 and -1.1% versus April 2012) at anything < 14 VIX, you either think 1990s growth is coming back and/or that this all ends well.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar, EUR/USD, Spain’s IBEX, and the SP500 are now $1601-1624, $110.36-115.42, $81.76-82.59, $1.23-1.24, 6943-7199, and 1393-1406, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


2007 Redo - Chart of the Day


2007 Redo - Virtual Portfolio

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