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HedgeyeRetail: SSS & ICR Pre-announcement Scoreboard

With the turn of the New Year so to comes ‘Pre-announcement Season’ with Sales Day and the annual ICR XChange conference set to take place over the next two-weeks – tomorrow and January 16-17th respectively. Historical context provides an interesting picture and precedent of pre-announcements over this period. As such, we’ve updated our pre-announcement scoreboard reflecting the more notable retail companies that will be present in Miami.


Companies that have issued positive releases are highlighted in green while those with less positive news are highlighted in red and reaffirmations of prior outlooks in grey. It’s worth noting that last year marked a significant increase in the number of pre-announcements from the sample set below jumping to 26 compared to a typical range of 12-18 between 2008-2011. The incremental delta came primarily from companies not participating in Sales Day more than doubling to 16 compared to ~7.5 on average during the prior four years. We expect this year’s pre-announcement activity like last year to be at least as active as we’ve seen in recent years.


If history is any indication, PVH, GCO, NWY, BGFV, and ASNA are most likely to pre-announce results over the next two weeks. The following are the only companies to never issue guidance: CAB, OXM, SHOO.


Other notable new additions and departures relative to last year’s ICR schedule include the additions of KORS, TUMI, TJX, and exclusions of FINL, BWS, SKX, MW.

 

 

HedgeyeRetail: SSS & ICR Pre-announcement Scoreboard   - ICR Preann 1 2 13

 

 


KEY IDEAS AND LEVELS

As we head into 2013, our perspective on casual dining versus quick service remains unchanged; we continue to favor QSR as over-supply, higher fixed-cost structures, waning consumer perceptions, and changing competitive dynamics hamper the performance of casual dining.  Add to these original components of our thesis the fact that Darden has signaled its intention to begin a price war, and we believe that investors should be highly selective when taking long positions in casual dining.

 

Below we go through some of the calls we made in 2012 and what our view is on those stocks from here. 

 

 

SHORT SIDE

 

Buffalo Wild Wings was the first call we made in 2012.  Our timing left a lot to be desired but, as the chart below illustrates, the stock underperformed over the course of the year.   Our thesis ultimately played out and, while we would wait for a higher entry point, we still believe there is more downside to this name.  The current price target being forecast by the street seems overly optimistic and we expect more opportunities in this name, on the short side, down the road.

 

Quantitative View: The second chart, below, highlights our macro team’s quantitative view of the stock.  BWLD is in a bearish formation with near-term TRADE and intermediate-term TREND resistance at $73.66 and $76.64, respectively. 

 

KEY IDEAS AND LEVELS - bwld index vs cd

 

KEY IDEAS AND LEVELS - bwld share price

 

 

Darden Restaurants is a great company but we identified its shares as being overvalued in July when we published our highly-contrarian blackbook, “DRI: THE UNTHINKABLE SHORT CASE”.  While management has highlighted one possible solution that we highlighted in our blackbook, the company’s heretofore-over-protected margins, it will likely take several quarters for the turnaround to take hold.  The rate of unit growth, specifically, is counter-productive to delivering strong returns on incremental invested capital.  We remain bearish on DRI although the easy money has been made with the dividend yield now at 4.44%.

 

Quantitative View: The second chart, below, highlights our macro team’s quantitative view of the stock.  DRI is in a bearish formation with near-term TRADE and intermediate-term TREND resistance at $47.54 and $51.17, respectively. 

 

KEY IDEAS AND LEVELS - dri index vs cd

 

KEY IDEAS AND LEVELS - DRI levels

 

 

LONG SIDE

 

Yum! Brands is our most recent long idea in the restaurant space.  We held a conference call on 11/29 which outlined our bullish stance.  We continue to see YUM as an attractive opportunity on the long side in 2013.  The company is better-diversified than SBUX and MCD, in our view, and the recent sell off provides a compelling entry-point for investors looking for an intermediate-to-long-term position in global retail.  An improving US business should continue to complement strong international unit growth in 2013.  Recent news related to a KFC China chicken supplier and its excessive use of antibiotics in its feed has pushed YUM shares lower but we see the most important fundamentals related to the stock as positive from here.

 

Quantitative View: The second chart, below, highlights our macro team’s quantitative view of the stock.  YUM is in a bearish formation with near-term TRADE and intermediate-term TREND resistance at $67.45 and $68.81, respectively. 

 

KEY IDEAS AND LEVELS - yum index vs cd

 

KEY IDEAS AND LEVELS - yum levels

 

 

Jack In The Box was our favorite quick service stock this year.  From May, we were highlighting what we saw as an asymmetric setup for JACK shares over the next three years.  We still believe that the core components of that thesis are firmly intact and, as a bonus, skepticism of our thesis is as high as ever.  After the most recent earnings call, we published on 11/20 that we believe there is upside in the stock to $40 over the next three years, by our fundamental analysis.   

 

Quantitative View: The second chart, below, highlights our macro team’s quantitative view of the stock.  JACK is in a bullish formation with near-term TRADE and intermediate-term TREND support at $27.88 and $27.11, respectively. 

 

KEY IDEAS AND LEVELS - jack index vs cd

 

KEY IDEAS AND LEVELS - jack levels

 

 

Brinker has been one of our best ideas over the last couple of years but, of late, it has not been working as well as we would like.  EAT remains our favorite stock in casual dining but, given industry-wide factors, we would advise patience on the long side as the full impact of Darden’s price war and other factors are felt across the group. 

 

Quantitative View: The second chart, below, highlights our macro team’s quantitative view of the stock.  EAT is in a mixed formation with near-term TRADE support at $30.21 and intermediate-term TREND resistance at $31.93. 

 

KEY IDEAS AND LEVELS - eat index vs cs

 

KEY IDEAS AND LEVELS - eat levels

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst

 

 

 


MACAU FINISHES WITH A BANG

As you probably know, Macau set a record for monthly GGR:  HK$27.4 billion, up almost 20% YoY.  You may recall that we thought December would be up a still strong 12% before the month started and that estimate proved conservative.  We should have the detail in the next day or two but we’ve heard consistently that VIP hold was likely higher than normal which may have contributed significantly to the YoY growth.

 

Market shares were mostly unchanged from last week with the exception of Wynn gaining some share back, mostly at the expense of MPEL.  For the full month, LVS and MGM were the winners relative to trend while Wynn and SJM were the losers.

 

We’ve got some initial feedback on the smoking restrictions that went into effect on 1/1/12.  The Macau government is taking the restrictions seriously and had some Dep’t of Health officials on hand.  It’s only been 2 days but our sources on the ground have indicated that traffic remains strong and while there have been some fines issued to players, the implementations have gone fairly smoothly.  It is very early and we suspect the real impact will be seen in the productivity and efficiencies and hold percentage.

 

MACAU FINISHES WITH A BANG  - 1

 

MACAU FINISHES WITH A BANG  - 2


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A New Year

Client Talking Points

Over And Out

Now that the fiscal cliff has narrowly been avoided, we can get back to what really matters. It’s truly a shame that the political class held Americans hostage with their absurd demands instead of serving the people who elected them to office in the first place. But such is life. 2013 is a new year and a time for new beginnings. We can now put our focus back on trading the markets using our process: fundamental research combined with quantitative risk management. We stick to this process and in return, we move forward. 

The Growth Game

Growth has stopped slowing and is now stabilizing. That’s just a matter of fact. The great commodity bubble that the Federal Reserve helped create is now deflating. Things like gold, oil and corn can go a lot lower and that’s good for the American consumer when they visit the pump or go grocery shopping. We’re long consumption growth, short commodities. That’s the name of the game and how you play it right now.

Asset Allocation

CASH 58% US EQUITIES 18%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
NKE

Our competitors are neutral to bearish on the name ahead of earnings, but we think they’re missing the bigger picture. We think concerns over the shoe cycle rolling over are overdone. With R&D in the mid-teens, NKE has the ability to drive the ‘sneaker cycle’ in a case of “the tail wagging the dog”. We also think $NKE is a candidate for releasing a special dividend when they report EPS next week.

SBUX

Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.

FDX

Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road

TWEET OF THE DAY

“mkts ignoring tee-up for what will be worse fight 2 mos from now on debt ceiling.” -@ianrosen

QUOTE OF THE DAY

“By the time we've made it, we've had it.” -Malcolm Forbes

STAT OF THE DAY

In the 257-167 vote to avoid the fiscal cliff, 172 Democrats and 85 Republicans favored the bill; 16 Democrats and 151 Republicans opposed it.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 2, 2013


As we look at today's setup for the S&P 500, the range is 34 points or 0.50% downside to 1419 and 1.88% upside to 1453.        

                                                                                                                                                       

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10a


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.57 from 1.51
  • VIX closed at 18.02 1 day percent change of -20.69%
  • #GrowthStabilizing – it’s not uniformly obvious in the data yet that global growth is accelerating, but it’s definitely been stabilizing in our models now for over a month. British PMI for DEC climbs back above the 50 line to 51.4 (vs 49.1 NOV); Italy’s PMI stopped going down; India’s PMI for DEC 54.7 vs 53.7 NOV; higher highs in Asian and European stocks.
  • BONDS – the most important risk management signal on Friday was the 10yr UST yield holding our TREND line of 1.70% support; this morn yields rip to 1.82% and that’s good for a 10bps widening of the Yield Spread, which is plenty bullish for what’s been leading the US equity market higher (the Financials).

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:45am/8:55am: ICSC/Redbook weekly retail sales
  • 8:58am: Markit US PMI Final, Dec., est. 53.6 (prior 52.8)
  • 10am: Construction Spend, M/m, Nov., est. 0.6% (prior 1.4%)
  • 10am: ISM Manufacturing, Dec., est. 50.4 (prior 49.5)
  • 10am: ISM Prices Paid, Dec., est. 50.8 (prior 52.5)
  • 11:30am: U.S. to sell 4-wk. bills
  • 1pm: U.S. to sell $32b 3-mo., $28b 6-mo. bills

GOVERNMENT:

    • Obama says he’ll sign fiscal cliff bill passed by Congress

WHAT TO WATCH

  • Obama says he’ll sign fiscal cliff deal passed by Congress
  • House passes budget bill, averts most tax increases
  • Manufacturing in U.S. probably expanded after 3-yr low
  • Samsung loses bid to seal sales data in U.S. Apple dispute
  • U.S. new-auto registrations to grow 6.6% in 2013, Polk estimates
  • KKR’s Energy Future bolsters unregulated unit
  • Faster Northeast trains require safety changes, Amtrak CEO says
  • Euro-Area December manufacturing shrinks more than estimated
  • Singapore growth beats ests. last quarter to avert recession
  • Grain exports along with crude seen mired as Mississippi shrinks

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Oil Climbs to Three-Month High as U.S. House Passes Budget Bill
  • India Losing Iron Ore Market as Courts Shut Mines: Commodities
  • Gold Rallies to Two-Week High as U.S. House Passes Budget Bill
  • India Considers Higher Gold Taxes for Biggest Bullion-Buyers
  • Copper Advances in New York Following U.S. Budget Accord
  • Wheat Advances in Paris as U.S. Legislators Reach Budget Accord
  • Sugar Climbs in London on Economic Outlook; Coffee Also Advances
  • Copper May Extend Rally to $8,765 a Ton: Technical Analysis
  • Palm Oil Rallies as Heavy Rain in Malaysia May Disrupt Supplies
  • EU Power to Extend Slump in 2013 on Weak Demand: Energy Markets
  • Egypt Has Enough Wheat to Last 5 1/2 Months, GASC’s Nomani Says
  • RS Platou Sees Dry-Bulk Fleet’s Expansion Slowing to 7% in 2013
  • Shipping Loses as Faster Trade Means Record Fuel Costs: Freight
  • China Iron-Ore Imports Seen Rising on Lowest Stocks Since 2010

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


KOSPI – We’re not going to give you a bearish #GrowthSlowing signal on the way down (KOSPI in March-July 2012) and not signal the other side of it on the way up – that wouldn’t be an objective process. The KOSPI is a leading indicator in our model and post this +1.7% move this morning shoots it to a higher-high vs the SEP highs #bullish.

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

The Hedgeye Macro Team

 

 

 


THE M3: NEW GGR RECORDS; SMOKERS FINED; MACAU LEGEND IPO; S'PORE 4Q GDP & HOME SALES

The Macau Metro Monitor, January 2, 2013

 

 

MONTHLY GROSS REVENUE FROM GAMES OF FORTUNE DSEC

Macau gross gaming revenue grew 19.6% YoY in December to MOP 28.25 billion (HKD 27.42, USD 3.54), a new monthly record (previous record: MOP 27.7 billion in October 2012).  For 2012, GGR was MOP 304.14 billion (HKD 295.28, USD 38.10), up 13.5% YoY.

 

OVER 40 CASINO SMOKERS FINED ON FIRST Macau Business

According to the Health Bureau, a total of 42 casino visitors were fined MOP400 (US$50) each, for smoking in non-designated areas in the first 19 hours after the new partial ban on smoking inside casinos was enacted.  

 

All of Macau’s 44 gaming venues, including casinos and slot machine parlours, have obtained permission to set up smoking areas from January 1.  However, parts of the smoking areas in seven casinos – Lisboa, Kam Pek, Casa Real, The Legend Club, Grand Lisboa, Sands Cotai Central and MGM Macau – were not ready when the ban on smoking was enacted.

 

The Health Bureau says that some of the larger casinos have more than one smoking area.

 

MACAU LEGEND PLANS HK$800 MILLION IPO: REPORT Macau Business

Macau Legend Development Ltd is planning an IPO in Hong Kong in the 2Q of 2013.  The news was broken by Hong Kong newspaper Apple Daily, which cited an unidentified person as saying the company is planning to soon submit its listing documents.


Macau Legend reportedly hired brokerage firm CLSA to arrange the offering of HK$800 million (US$103 million).  The company is controlled by businessman David Chow Kam Fai and is a result of a merger between Landmark Macau, Pharaoh’s Palace Casino and Macau Fisherman’s Wharf.

 

SINGAPORE AVOIDS RECESSION WITH Q4 GROWTH Channel News Asia

S'pore 4Q GDP grew a seasonally adjusted annualized 1.8% (+1.1% YoY), surprising economists who were expecting a decline following PM Lee's comments on Monday. 2012 GDP came in 1.2% higher QoQ and YoY. Weakness in the manufacturing sector was a major drag for the economy, but a resilient services sector took up some of the slack.

 

PRIVATE HOME PRICES UP 1.8% ON-QUARTER IN Q4 2012 Channel News Asia

Prices of private homes in Singapore rose to new record highs in the fourth quarter, mainly because of strong demand in the suburban areas.

 

Preliminary data released by the Urban Redevelopment Authority showed the private residential property price index rose 1.8% to a record 211.9 points in the October-to-December period from the previous three months.


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