Athletic is Better than SCVL and DSW Suggest

I was initially surprised by the headlines out of Shoe Carnival and DSW this morning. While both hit lowered guidance, the triangulation between sales/inventories and margins were both disproportionately weak relative to what I think is happening out there as it relates to the positive Foot Locker comment yesterday.

DSW: Sales up 2.6% (on a -5.4% comp) with 3.6% inventory growth. Not terrible, until you consider that gross margins were down 4 points vs. last year. It's no wonder the CEO resigned to go to Limited.

Shoe Carnival : Sales down 2% (on a -4.9% comp) with 5% growth in inventory. Gross margin decline is less severe here - only a point vs. last year.

By my math, trading off the inventory build vs. margin puts both these guys on about the same trendline. Any way you cut it, the trendline is still bad.

Read-through considerations. SCVL's athletic business appears healthy, as the excess inventory position is driven by seasonal product like Sandals and Dress Shoes. That's good news. Similarly, the overwhelming majority of DSW's business is dress/casual shoes (i.e. non-athletic). Also, I happen to be of the view that DSW's model is structurally flawed. Big box footwear retail simply does not work. The low asset turns and weak margins associated with the underlying business have bankrupted most of DSW's predecessors. It's no surprise to me that everyone on Wall Street loves this concept and yet margins continue to fall faster than the company can lower its own standards. When doing the deep dive into DSW's lease structure - it looks spot on with Dick's (i.e., that's bad).

My point here is that despite the headlines, I'm sticking with my view on the incremental positive change in the athletic space.

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more

McCullough: ‘My 1-Minute Summary of My Institutional Meetings in NYC Yesterday’

What are even some of the smartest investors in the world missing right now?

read more

Cartoon of the Day: Political Portfolio Positioning

Leave your politics out of your portfolio.

read more

Jim Rickards Answers the Hedgeye 21

Bestselling author Jim Rickards says if he could be any animal he’d be a T-Rex. He also loves bonds and hates equities. Check out all of his answers to the Hedgeye 21.

read more

Amazon's New 'Big Idea': Ignore It At Your Own Peril

"We all see another ‘big idea’ out of Amazon (or the press making one up) just about every day," writes Retail Sector Head Brian McGough. "But whatever you do, DON’T ignore this one!"

read more