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Sectors Outperforming The S&P 500

The S&P 500 hit an all-time high yesterday of 1596 and is up +11.7% year-to-date. But several individual sectors that are part of the S&P 500 are killing it with their performance during the same time period. The Top 3 performers are as follows:

 

  1. US Healthcare Stocks (XLV) = +18.68% 
  2. US Consumer Staples Stocks (XLP) = +17.31% 
  3. US Consumer Discretionary Stocks (XLY) = +15.12% 

As consumption continues to grow, Consumer Staples and Consumer Discretionary stocks stand to benefit the most from a stronger US dollar and weaker commodity prices.

 

Sectors Outperforming The S&P 500 - SPDRsectorperf


BLMN TICKING ALONG

Last night, Bloomin’ Brands reported 1Q13 EPS of $0.50, surpassing consensus of $0.44 on 1.6% blended domestic company comparable restaurant sales growth (negatively impacted by 80bps due to Leap Year).

 

 

Noise in the Quarter

 

The bottom-line beat was driven by a lower tax rate, which added ~$0.03 to EPS. Looking forward, management guided to 2Q13 EPS of $0.21, below the consensus estimate of $0.27.  These discrepancies are largely due to noise on the tax line related non-operating items (deferred tax allowance). For the year, BLMN updated EPS guidance to at least $1.10 (from $1.06 prior) which is below consensus expectations of $1.11. While traffic (adjusted for trading day impact) was +3.2% at Outback, the FY13 guidance raise being smaller than the 1Q beat was a disappointment.

 

The highlight was the impressive same-restaurant sales performance at Outback. 1Q13 comps grew +2.5% versus consensus of 1.1%. In addition, there was one less week of advertising in the quarter. When adjusted for the trading day impact, comps were 3.5% at Outback. This was the 12th consecutive positive comp growth quarter for Outback, supported by continued growth at lunch and new menu initiatives. Fleming’s comps were well above the consensus 2%, and up sequentially, while Bonefish was in line with the Street as it laps very difficult 1H compares. Carrabba's continues to be a laggard.

 

Sales leverage, labor cost savings, and other cost cutting measures could not help mitigate food inflation as restaurant level margins were down 40 basis points.

 

BLMN TICKING ALONG - outback pod1

 

 

Conclusion


We are staying on the sidelines for now as earnings expectations seem to have limited upside.  Management has demonstrated its capability to grow same-restaurant sales but we believe that the stock is fairly valued at these levels.

 

BLMN TICKING ALONG - blmn eeg1

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst

 

 


CLX - Expensive Stocks that Miss are Supposed to go Down, Right?

CLX reported Q3 ’13 EPS $0.05 below consensus along with “meh” constant currency sales growth of 1.6%.  Despite the miss, the company maintained full-year EPS guidance of $4.25 to $4.30 while shaving 1 pt off its sales growth forecast.  The company also provided an initial look at 2014 – EPS of $4.55 to $4.70 (consensus is already at $4.69, so 7.5% EPS growth at the midpoint of both guidance ranges).



With the stock down just 64 bps on this news, it feels as if we are taking crazy pills.

 

CLX - Expensive Stocks that Miss are Supposed to go Down, Right? - mugatu



We have a 2% top line growth asset that just told investors that it is an 8% EPS grower trading at 18.2x calendar ’14 numbers.  We just don’t get it.  We understand low volatility and the continued yield chase that we are seeing in the market, but CLX is fast becoming Exhibit A in the absurdity of staples valuations.



What we liked:

  • ’13 continues to be a very good year for FCF - $2.66 per year in FCF versus $1.62 per share in the same 9 month period in ‘12
  • Balance sheet remains tight – accounts receivable and inventories +0.9% and 0.0% year over year, respectively
  • Increased advertising as a % of sales 35 bps versus 2012
  • Costs are well controlled – SG&A as a percent of sales declined 119 bps year over year

What we didn’t like:

  • Missed consensus (EPS of $1.00 versus consensus of $1.05)
  • +1.6% constant currency organic sales growth (against admittedly the most difficult comparison of fiscal 2012).  However, the 1.6% print is likely within the company’s long-term sustainable growth profile.
  • EBIT declined in every segment in the quarter
  • Gross margin declined 50 bps
  • Valuation is absurd

Bottom line, god speed to the machines and whomever else thinks it’s worth adding to CLX at these levels – at some point, you are going to need all the luck you can get.

 

Call with questions,

 

Rob


Robert  Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

E:

P:


Matt Hedrick

Senior Analyst




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Retail Sentiment Outliers

Takeaway: Sentiment outliers: COH, COLM, FINL, FL, FNP, JCP, GES, LULU, M, NKE, PVH, RL, ROST, SKX, WWW. Email us for our book of 100 retailers/brands

We assembled a book of individual Sentiment Monitor charts for each of about 100 retailers and brands. We include some of the more notable outliers below. For the full book, send an email to .

 

As a frame of reference, our sentiment monitor triangulates buy-side (short interest), sell-side (ratings) and insider trading activity. It then assigns a quantitative score for each company – and the incremental changes are tracked over time. There is strong evidence that these quantitative scores serve as a contra indicator for stock performance (i.e. overly bullish sentiment = subsequent negative returns, and vice versa).

 

DETAILS

Here's the aggregated Sentiment Score for the Retail Sector vs the MVR (Retail Stock Index). Sentiment continues to detiorate while prices grind higher. More proof of the most hated rally of this generation. 

Retail Sentiment Outliers - s1

 

HERE ARE SOME STOCK-SPECIFIC CALLOUTS

Retail Sentiment Outliers - s2aeo

 

Retail Sentiment Outliers - s2bby

 

Retail Sentiment Outliers - d3coh

 

Retail Sentiment Outliers - s4colm

 

Retail Sentiment Outliers - s5deck

 

Retail Sentiment Outliers - s6dks

 

Retail Sentiment Outliers - s7finl

 

Retail Sentiment Outliers - s8fl

 

Retail Sentiment Outliers - s9ges

 

Retail Sentiment Outliers - s120jcp

 

Retail Sentiment Outliers - s11jny

 

Retail Sentiment Outliers - s13lulu

 

Retail Sentiment Outliers - s14m

 

Retail Sentiment Outliers - s15nke

 

Retail Sentiment Outliers - s16pvh

 

Retail Sentiment Outliers - s17rl

 

Retail Sentiment Outliers - s18rost

 

Retail Sentiment Outliers - s19skx

 

Retail Sentiment Outliers - s21www

 

 

 

 

 


FTSE In Bullish Formation

The FTSE 100 Index, which is essentially London's version of the Dow Jones Industrial Average, is doing quite well for the year-to-date. The index is up +11% compared with the Dow, which is up +12.7% year-to-date. This morning's economic data in the UK was the manufacturing Purchasing Managers Index (PMI), which came in at 49.8 for April versus 48.3 in March. That positive news has kept the FTSE in bullish formation and we expect the index to rise higher over the next month.

 

FTSE In Bullish Formation - ftse100


TWO CHINAS?

Takeaway: Financial system headwinds continue to outweigh consumption tailwinds within the Chinese economy.

SUMMARY BULLETS:

 

  • All told, financial system headwinds continue to outweigh consumption tailwinds within the Chinese economy. This morning produced tons of dovish inflation readings out of Asia for the month of APR, which is very consistent with the formerly counter-consensus call we have been making since the start of the year (i.e. global disinflation). This morning’s incremental confirmation was headlined by China’s Input Prices PMI, which ticked down to the lowest level since DEC ’08. It’s too bad that financial system risks and regulation are what they’ve become in China – a headwind to economic growth, at the margins. We’re seeing that manifest to a small degree in the headline Manufacturing PMI and to a much larger degree in very crucial subcomponents of the Manufacturing PMI release: New Orders, Backlogs of Orders, and Purchasing of Inputs all ticked down MoM.
  • Over the immediate-to-intermediate term, the recent regulatory crackdowns on the credit instruments most responsible for perpetuating China’s buoyant property market and unsustainable fixed assets investment will weigh on Chinese growth. Over the long term, however, these macroprudential measures are quite necessary if the Chinese Communist Party is to accomplish its goals for economic rebalancing – a task so critical that the failure of which would undermine social stability and, with it, the Party’s claim to power.
  • Given the offsetting consumption tailwinds highlighted above, it’s tough for us to pound the table on shorting China here. That being said, we remain very negative on industrial commodities and the currencies and equity markets of the Latin American and African commodity producers. For more details, please refer to our recent EM Crises Black Book where we outlined this view in great detail.

 

This morning produced tons of dovish inflation readings out of Asia for the month of APR, which is very consistent with the formerly counter-consensus call we have been making since the start of the year (i.e. global disinflation). This morning’s incremental confirmation was headlined by China’s Input Prices PMI, which ticked down to the lowest level since DEC ’08. Needless to say, our thesis on the Chinese consumer economy continues to play out in spades.

 

TWO CHINAS? - 1

 

It’s too bad that financial system risks and regulation are what they’ve become in China – a headwind to economic growth, at the margins. We’re seeing that manifest to a small degree in the headline Manufacturing PMI and to a much larger degree in very crucial subcomponents of the Manufacturing PMI release: New Orders, Backlogs of Orders, and Purchasing of Inputs all ticked down MoM.

 

TWO CHINAS? - 2

 

TWO CHINAS? - 3

 

The -2.3ppt MoM decline in New Export Orders to 48.6 is a stark reminder that sluggish global growth remains a headwind to incremental liquidity flow into the Chinese banking system from abroad. That, coupled with an not-yet-quantifiable amount of NPLs associated with the 2009-10 stimulus package and a high volume of existing long-term loans, will weigh on monetary expansion in China for the foreseeable future.

 

TWO CHINAS? - 4

 

TWO CHINAS? - 5

 

That’s a direct negative for those sectors that rely most on said monetary expansion to drive performance – banks, property developers and raw materials producers (69.1% of the SHCOMP if you include the Financials at 44.2%, Energy at 16.7% and Materials at 8.2%). Moreover, there are some notable industries within these sectors that are rife with excess capacity (particular producers of raw materials that feed into fixed assets investment), especially in the context of a Chinese economic rebalancing.

 

TWO CHINAS? - 6

 

TWO CHINAS? - 7

 

The latest data point we came across with respect to the topic of industrial overcapacity in China came from the China Iron and Steel Association (CISA), which recently reported: A) slowing industry-wide profit trends (CNY 1.34 billion in JAN, CNY 998 million in FEB, and CNY 267 million in MAR); B) an accelerating number of loss-making enterprises (34.9% of the total in 1Q13, which trended higher throughout the quarter to 45.3% of the total in MAR); and C) record levels of output amid slowing economic growth (average daily crude steel output for 1Q13 reached a record 2.13 million metric tons). These figures rhyme with the latest Industrial Profits data, which slowed from a run rate of +17.2% YoY in JAN-FEB to +5.3% YoY in MAR.

 

All told, financial system headwinds continue to outweigh consumption tailwinds within the Chinese economy. Over the immediate-to-intermediate term, the recent regulatory crackdowns on the credit instruments most responsible for perpetuating China’s buoyant property market and unsustainable fixed assets investment will weigh on Chinese growth. Over the long term, however, these macroprudential measures are quite necessary if the Chinese Communist Party is to accomplish its goals for economic rebalancing – a task so critical that the failure of which would undermine social stability and, with it, the Party’s claim to power.

 

Given the offsetting consumption tailwinds highlighted above, it’s tough for us to pound the table on shorting China here. That being said, we remain very negative on industrial commodities and the currencies and equity markets of the Latin American and African commodity producers. For more details, please refer to our recent EM Crises Black Book where we outlined this view in great detail.

 

Darius Dale

Senior Analyst


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