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UA: Numbers Are Not What They Seem

Takeaway: Lower rev guidance plus lower SG&A on top of leadership chg does not fill us with confidence that UA will be smoking top line net yr.

Overall, a good print from UA with top line (+25%) and EBIT (+47.5%) both accelerating and beating expectations and EPS a penny ahead of consensus. The top line came in robust at face value – there’s no denying that. But after adjusting for retail gross-up it was slightly less impressive. That said, Gross Margins were weak – coming in -132bp vs last year, compared to guidance that they could be down at a rate nearing -100bp.

 

As an offset, SG&A grew at 13%, the slowest rate since 2Q09.  The reality is that guidance for the upcoming year is a tad light at +20-21% top line, and there was zero mention in the press release of the strategic issues that we think are looming in the footwear organization (evidenced by UA’s FW czar Gene McCarthy departing last week). If the company would have had a mor normalized SG&A rate, it would have missed by about a nickel. Perhaps there’s a great reason for that, which we’ll hear about on the 8:30 call. But given the lack of traction in FW, we’d rather see the company keep SG&A in the business in order to stimulate continued share gains.

 

Lower revenue guidance plus lower SG&A on top of leadership changes does not fill us with confidence that the company will be smoking top line estimates next year – something it will need to support its multiple.

 

Also, a little factoid to keep in mind as it relates to UA’s revenue… Given a $59mm sequential positive pop in direct-to-consumer revenue, we should juxtapose that against the -$69mm decline in aggregate revenue. We won’t penalize the company for going more direct. That’s the wave of the future. But booking retail revenue is optically more attractive than going wholesale. The way we look at it, if you ex out the retail gross up, there was no sequential uptick in revenue. In fact, it was down slightly.

 

One of the biggest positives was the improvement in inventories, which clocked in $5mm below last year despite a $100mm boost in revenue. A clean balance sheet is something UA needs right now. 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 31, 2013


As we look at today's setup for the S&P 500, the range is 16 points or 0.46% downside to 1495 and 0.60% upside to 1511.    

                                                                                                                           

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 - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.71 from 1.73
  • VIX  closed at 14.32 1 day percent change of 7.59%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7:30am: Challenger Job Cuts Y/y, Jan. (prior -22.1%)
  • 8:30am: Employment Cost Index, 4Q, est. 0.5% (prior 0.4%)
  • 8:30am: Personal Income, Dec., est. 0.8% (prior 0.6%)
  • 8:30am: Personal Spending, Dec., est. 0.3% (prior 0.4%)
  • 8:30am: Initial Jobless Claims, Jan. 26, est. 350k (prior 330k)
  • 9:00am: NAPM-Milwaukee, Jan., est. 52.0 (prior 52.2)
  • 9:45am: Chicago Purchasing, Jan., est. 50.5 (prior 50.0)
  • 9:45am: Bloomberg Consumer Comfort, Jan. 27 (prior -36.4)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas
  • 11am: Fed to purchase $1.25b-$1.75b in 2036-2042 range

GOVERNMENT:

    • Senate in session
    • CFTC holds public roundtable on “futurization” of swaps market, 9:30am
    • SEC meets on federal securities rules, regulations affecting small businesses, 9:30am
    • FCC holds open commission meeting, 10:30am
    • Energy Secretary Steven Chu delivers keynote remarks on electric vehicles, Convention Center

WHAT TO WATCH

  • Facebook profit declines 79% on spending to lure advertisers
  • KKR, Apax said to team up for Vivendi’s GVT against DirecTV
  • Apollo chosen with Metropoulos as lead bidder for Hostess cakes
  • Paulson added to ACA Financial abacus suit against Goldman
  • Qualcomm forecasts profit, sales that top analysts’ ests.
  • Honda Motor cuts profit forecast on China, Europe sales drop
  • Shell misses profit ests., says investment costs to rise
  • Deutsche Bank posts $3b 4Q loss on costs
  • STMicroelectronics sees funding costs in chip venture exit
  • J&J’s Ekdahl says hips recalled because of unmet clinical needs
  • German Jan. unemployment unexpectedly declines
  • BOJ could add further easing if needed, Yamaguchi says
  • U.S. revisits AB InBev’s Modelo takeover plan, N.Y. Post says

EARNINGS:

    • Potash of Saskatchewan (POT CN) 6am, $0.57, preview
    • Enterprise Products Partners (EPD) 6am, $0.65
    • Time Warner Cable (TWC) 6am, $1.55, preview
    • Whirlpool (WHR) 6am, $2
    • Dunkin’ Brands Group (DNKN) 6am, $0.33
    • Aetna (AET) 6am, $0.94
    • Ball (BLL) 6am, $0.66
    • Thermo Fisher (TMO) 6am, $1.28, preview
    • Helmerich & Payne (HP) 6am, $1.29
    • PulteGroup (PHM) 6:30am, $0.31, preview
    • AutoNation (AN) 6:45am, $0.64
    • Dow Chemical Co/The (DOW) 6:55am, $0.34
    • Xcel Energy (XEL) 7am, $0.28
    • Viacom (VIAB) 7am, $0.90, preview
    • Zimmer Holdings (ZMH) 7am, $1.49, preview
    • Colgate-Palmolive Co (CL) 7am, $1.40, preview
    • Elizabeth Arden (RDEN) 7am, $1.64
    • Hershey Co/The (HSY) 7am, $0.76
    • Altria Group (MO) 7am, $0.55, preview
    • Nasdaq OMX Group (NDAQ) 7am, $0.61
    • Consol Energy (CNX) 7am, $0.23
    • Energizer Holdings (ENR) 7am, $2.15
    • Alliance Data Systems (ADS) 7am, $1.80
    • Pitney Bowes (PBI) 7am, $0.51
    • Hillshire Brands (HSH) 7am, $0.47
    • Penn National Gaming (PENN) 7am, $0.50
    • Under Armour (UA) 7am, $0.46
    • Occidental Petroleum (OXY) 7:30am, $1.66
    • Cameron International (CAM) 7:30am, $0.95
    • Mead Johnson Nutrition Co (MJN) 7:30am, $0.68
    • Invesco Ltd (IVZ) 7:30am, $0.47
    • Dominion Resources /VA (D) 7:30am, $0.69
    • AmeriGas Partners (APU) 7:30am, $1.01
    • Bemis Co (BMS) 7:30am, $0.50
    • United Parcel Service (UPS) 7:45am, $1.38, preview
    • Ryder System (R) 7:55am, $1.10
    • Royal Gold (RGLD) 8am, $0.43
    • Paccar (PCAR) 8am, $0.68
    • Blackstone Group (BX) 8am, $0.47
    • Sherwin-Williams (SHW) 8am, $1.16
    • Mastercard (MA) 8am, $4.80
    • Chubb (CB) 4pm, $(0.46)
    • Principal Financial Group (PFG) 4pm, $0.74
    • Fortune Brands Home & Security (FBHS) 4:01pm, $0.22
    • Wynn Resorts Ltd (WYNN) 4:01pm, $1.27
    • Bally Technologies (BYI) 4:01pm, $0.76
    • PMC - Sierra (PMCS) 4:04pm, $0.10
    • CR Bard (BCR) 4:05pm, $1.67
    • NetSuite (N) 4:05pm, $0.04
    • PerkinElmer (PKI) 4:05pm, $0.65
    • McKesson (MCK) 4:10pm, $1.63
    • Essex Property Trust (ESS) 4:12pm, $1.73
    • Validus Holdings Ltd (VR) 4:15pm, $(1.70)
    • Camden Property Trust (CPT) 4:15pm, $0.96
    • Manitowoc (MTW) 4:30pm, $0.24
    • Eastman Chemical (EMN) 5:01pm, $1.19

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Oil Trades Near Four-Month High as Fed Maintains Asset Buying
  • Rubber Extending Bull Market With Record Car Sales: Commodities
  • Soybeans Drop as Brazil’s Harvest Seen Proceeding Amid Rainfall
  • Copper Reaches Three-Month High as Fed Maintains Asset Purchases
  • Cotton Futures Decline in N.Y., Head for First Drop This Week
  • Gold Drops in New York as Metal Subject to ‘Opportunistic’ Sales
  • Palm Oil Surges to Three-Month High as Stockpiles Seen Falling
  • CME Retreat on Grain Hours Welcomed by Traders Who Need to Sleep
  • Rebar Gains for Second Month on Optimism for China Growth
  • India May Consider Ending Four-Decade Old Curbs on Sugar Mills
  • Silver Wheaton Attracts Capital-Hungry Miners: Corporate Canada
  • Polysilicon Seen Rebounding as China Plans Import Duties: Energy
  • U.K. Gas Stations Fairly Reflect Crude Prices: Chart of the Day
  • Robusta Coffee Gains to One-Week High on Stockpiles; Cocoa Rises

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

THE M3: CHANGI VISITATION; S'PORE JOBLESS RATE; JUNKET #S; FERRIES

The Macau Metro Monitor, January 31, 2013

 

 

MONTHLY BREAKDOWN OF PASSENGER MOVEMENTS Changi Airport Group

Singapore's Changi Airport Group reported 51.2 million passengers in 2012, up 10% YoY.  For December, passengers totaled 4,916,197, up 8.6% YoY.

 

THE M3: CHANGI VISITATION; S'PORE JOBLESS RATE; JUNKET #S; FERRIES - g

 

SINGAPORE JOBLESS RATE AT 5-YEAR LOW AMID FOREIGN WORKER CURBS Bloomberg

Singapore’s jobless rate fell to a five-year low last quarter as companies hired more local workers after the government tightened the inflow of foreign labor.  The seasonally adjusted jobless rate fell to 1.8% from 1.9% in 3Q, the Ministry of Manpower said in a statement today. The median estimate of nine economists surveyed by Bloomberg News was for 1.9%. 

 

Prime Minister Lee Hsien Loong has raised foreign-worker levies and salary thresholds as part of measures to reduce the economy’s reliance on overseas labor after the island’s population jumped by more than 1.1 million since mid-2004. The clampdown has led to manpower shortages and rising job vacancies, damping economic growth as companies seeking to expand faced difficulty in hiring.

 

JUNKET NUMBERS HIT NEW RECORD Macau Business

Official data shows that the number of VIP gaming promoters operating legally in Macau is the highest ever.  There are 235 licensed companies and individuals, up 7.3% YoY.  That is an average of seven licensed junket operators per casino.

 

FEWER MACAU-HONG KONG FERRY TRIPS IN 2012 Macau Business

Passenger ferry trips between Macau and Hong Kong went down by 7% YoY in 2012.  The number of ferry trips between Macau and Hong Kong totaled 112,691 last year.  On the other hand, passenger ferry trips between Macau and the mainland increased by 9% YoY to 27,264 ferry trips.



Practioner Pants

“Only practitioners (or people who do things) tend to spontaneously get the point.”

-Nassim Taleb

 

On a flight to Denver last night I had round 2 with Taleb’s new book, Antifragility. It wasn’t painful, but I definitely feel like the guy has something brewing inside of him. Transitioning from a market practitioner to a philosopher can’t be easy.

 

“I am re-connected to my practical self, my soul of a practitioner, as this is a merger of my entire history as practitioner and volatility specialist combined with my intellectual and philosophical interests in randomness and uncertainty…” (page 13)

 

People can go a little squirelly when they over-think the complex.

 

Back to the Global Macro Grind

 

Buy or sell? Or, as my 2-year old daughter Callie has figured out (when asking me for something when she senses I am pre-occupied), “yes or no?”. If you are playing this Game of Risk in real-time, you don’t have time to philosophize. Save that for the weekends.

 

On Monday and Tuesday, we bought the US Equity market open (on red). Yesterday, we sold it (on green). It doesn’t always work out that way - but when it does, at least you know that you did it for a reason.


In yesterday’s rant, I outlined the reasons to make some risk adjusted sales (SP500 and US Treasury 10yr Yields immediate-term TRADE overbought) pre-game. And that’s really why I do what I do. I need a repeatable process so that I can have a plan.

 

Oh, and the plan is that the plans are always changing …

 

Some people don’t like that. It doesn’t sound sophisticated, I guess. But on that point, I agree with Taleb: “Simplicity has been difficult to implement in modern life because it is against the spirit of a certain brand of people who seek sophistications…”

 

Less is more and usually more effective.” –Nassim Taleb

 

So, let’s slap on the Practitioner Pants and go down that path this morning (just bullet points from my notebook).

 

USA:

  1. Russell2000 reversed from its all-time high yesterday, closing down -1.2% at 896
  2. SP500 was down for the 2nd day in 3, finally making a lower high vs the YTD closing high of 1507
  3. US Equity Volatility (VIX) continues to signal a Risk Range with lower-highs and lower lows (11.94-14.62)
  4. US Equity market Volume is finally starting to show some flickers of light (+8% versus the TREND avg)
  5. All 9 S&P Sectors in our model are bullish on both our TRADE and TREND durations (19 of the last 20 days)
  6. US Dollar Index signaled immediate-term TRADE oversold at $79.24 yesterday
  7. US Treasury Yields (10yr) signaled immediate-term TRADE overbought at 2.04%; next support 1.93%
  8. Apple (AAPL) failed at immediate-term resistance yesterday; Risk Range = $420-461 

EUROPE

  1. Eurostoxx50 and Eurostoxx600 both signaled immediate-term TRADE overbought yesterday
  2. DAX immediate-term TRADE support line of 7771 needs to hold for price momentum to continue
  3. Spain’s IBEX is snapping its immediate-term TRADE support of 8494 this morning (-1.6%)
  4. Italy’s MIB Index is breaking its immediate-term TRADE support of 17189 this morning (-1.1%)
  5. Greece’s squeezage finally stopped for a day (Athex index -1.5%)
  6. Euro (vs USD) = immediate-term TRADE overbought at $1.35 (support = $1.33)

ASIA/Brazil

  1. China’s stock market (Shanghai Comp) is signaling immediate-term TRADE overbought at 2384
  2. Japan’s Nikkei (up +28.6% as the Yen gets Taro Aso’d) has immediate-term TRADE resistance at 11159
  3. South Korea’s KOSPI remains bearish TRADE (1976 resistance) and bullish TREND (1959 support)
  4. India’s BSE Sensex is down (net) since being the first major country to cut rates in 2013
  5. Thailand and Vietnam (momentum markets in Asian Equities) corrected -1.1% and -1.6% overnight
  6. Brazil’s BOVESPA Index snapped immediate-term TRADE support of 60889, -1.8% yesterday

What’s new? We have 4 major countries (Brazil, South Korea, Spain, and Italy) showing initial chinks in the Global Equity market armor. It’s only an immediate-term TRADE signal (all remain bullish intermediate-term TRENDs), so do with it what you decide to do. I did.

 

Catalysts? It’s month-end today. Tomorrow you probably get another confirmation on why stocks are crushing US Treasuries and Gold for 2013 YTD (employment #GrowthStabilizing). But, at the same time, Oil prices up here are a new headwind to global consumption.

 

Buy or sell? Yes or no? These are simple questions requiring simple answers. No one has a Ph.d in playing a game that’s always changing. Stick with the practitioners. We can win this game together.

 

Our newly minted Senior Sector Head of Consumer Staples, Rob Campagnino, will be hosting an expert call on pyramid schemes ("An Expert's Opinion on Multi-Level Marketing, Pyramid Schemes and Herbalife” featuring multi-level marketing expert Dr. Jon M. Taylor) at 1030AM EST today. Ping if you are interested.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, EUR/USD, USD/YEN, 10yr UST Yield, and the SP500 are now $1, $113.02-115.22, $79.24-79.81, $1.33-1.35, 89.98-91.68, 1.93-2.04%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Practioner Pants - Chart of the Day

 

Practioner Pants - Virtual Portfolio


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