MCD – The Coffee Ads – Part 1

The McDonald’s bulls are counting on the McDonald’s marketing machine to work its magic on premium coffee.  I don’t think anybody in Seattle is shaking at the early commercials. 


I have seen two commercials, one geared toward men and one toward women.  The one where two women in a coffee shop get so excited about new McDonald’s lattes goes like this;


Woman - 1: Now we don’t have to listen to jazz all day long!
Woman - 2:
I can start wearing heels again.
Woman - 1:
Read gossip magazines! (tosses book away)
Woman - 2:
Watch reality TV shows…
Woman - 1:
I like television!
Woman - 2:
I can’t really speak French.
Woman - 1:
I don’t know where Paraguay is!
Woman - 2:


This is how McDonald’s wants to portray a woman willing go to McDonald’s to buy a premium coffee - stupid!   Yes, the average woman to want stop pretending to be smart so they can go to McDonald’s and be stupid again!


MCD – The Coffee Ads – Part 1 - mcdads



Squeezy Is Resting: SP500 Levels, Refreshed

As of 2PM EST, I have re-run the math on Squeezy's appetite. He's had his fill and is done jumping (at least for 300 basis point moves higher).


I have outlined Squeezy The Short Squeeze Shark's resting zone in the green shaded waters below. Dear Depressionista, don't doubt that he's down there for one second. There is a meaningful level of intermediate TREND line support now between 815 and 851 in the SP500.


Above that shaded green buy/cover range you have a line that Squeezy will snap at - that's the green dotted line at 880.  I think this market will definitely find some volatility between where its currently trading and my refreshed top end of the immediate term TRADE range (dotted red line) at 920 in the SP500.


What are the catalysts for 920? More of the same. What are the catalysts for a selloff to 880? Selling on the news...


Between now and Friday's market open we will have 3 community's issue "news":


1. US Retailers (same store sales)
2. US Bankers (stress)
3. US Employment Report


All 3 of these constituencies will be spinning their wheels trying to tell you why Squeezy has been chomping on the shorts since March the 9th. Come Friday morning, all of this will be news that's in the rear view mirror.


Keith R. McCullough
Chief Executive Officer


Squeezy Is Resting: SP500 Levels, Refreshed - squeezy1

SBUX – Starbucks, Capitalism and Prosperity!



The Washington Post recently reported that a new Starbucks opened in Warsaw and there were lines around the inside the store, out the door, and up and down the street! 

So much for a company in trouble!  While some in the investment community might have the perception that the Starbucks brand is tarnished in the US, in Central Europe, the arrival of Starbucks has been greeted with “undiluted enthusiasm.” 

Globally, many US consumer companies with strong brands provide a certain status symbol to a particular county.  It’s interesting that the author of the article noted that “the arrival of McDonald's in Warsaw in the early 1990’s signified for many the arrival of capitalism in Poland.  The arrival of Starbucks in Warsaw signifies the entry of Central Europe not just into the capitalist world but also into the world of 21st-century-style prosperity.” 

Starbucks and prosperity!  Sounds good!  


Prosperity in Poland is a far cry from the dark days of communism and it appears that Starbucks is the brand Poles associate with prosperity!  The coffeehouse culture is a tradition in Europe, especially Central Europe; as coffeehouses became meeting places where people gather.  Has Starbucks brought the coffeehouse culture full circle in Central Europe? Seems like a strong bet to make.


SBUX has highlighted that one of its key initiatives going forward will be to "focus on disciplined global store expansion in key markets."  Note the mention of "disciplined" growth as management will unlikely forget the mistakes it made in the U.S.  Importantly, much of SBUX's growth internationally stems from licensed store and joint-venture growth (as is the case with the new store in Poland).  Licensed and joint venture stores make up about two-thirds of all SBUX's international stores versus less than 40% in the U.S.  This licensed growth strategy lessens the risk to SBUX as it allows the company to rely on its partners' capital while still benefiting from increased royalties and licensed fees.  The company's growth in other markets, like Poland, will also decrease SBUX's relative international exposure to Canada and the U.K., which currently make up about 77% of SBUX's international comparable sales growth and have been largely responsible for the slowdown in international same-store sales growth.   


Starbucks Coffee, Warsaw Poland

SBUX – Starbucks, Capitalism and Prosperity! - sbuxwarsaw


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Meet The New Boss: China

Brazilian exports to China surge ahead of those to the US


With Beijing's stimulus program kicking into gear it now feels as if the whole world has jumped on board the China-Bull bandwagon. The latest export data from Brazil will no doubt help convince even more buyers to pile in now AFTER a 42% YTD run.


Demand for Brazilian commodities helped total exports to the Ox exceed those to the US  for the first time in March. Data issued yesterday showed that Chinese exports topped those headed to the US again in April, with the gap almost doubling to just under $900 million.


Meet The New Boss: China  - braz1


Iron ore has led the charge -with China customs reporting a 46% Y/Y import increase to 52 million tons in March and Transport Ministry estimates for April coming in just under 54 million tons. For Brazilian producers, the convergence of Beijing's stimulus with decreasing capacity from exhausted domestic Chinese mines has been a bonanza.


From a currency perspective, the Real's performance on a Yuan basis has not diverged from the Australian dollar significantly enough to impact the near term competitive landscape; but  the way "O Cliente" is throwing money around suggest that, for now, there is plenty to go around. 


Meet The New Boss: China  - braz2


If you were reading our work in January you know that two of our primary themes for Q1 were the Chinese stimulus program driving their economy back into motion and commodity reflation as that momentum drove demand for basic materials to rebound. Now that "O Cliente" is firmly in the house, it seems that Brazilian exporters have provided indisputable confirmation of the second point.


One of the problems with predicting the stimulus impact going forward is the concentration factor: like a shot of adrenaline for a body without a pulse, the impact of stimulus needs to be massive and sudden to kick start the heart.  This sudden, jerky capital deployment could well lead to significant volatility in economic  data reports, making it dangerous to overreact to any single one.


We are long the Australian equity Market via the ETF EWA, and will look for opportunities to go long Brazilian equities via the ETF EWZ at a lower price. As the Chinese stimulus thesis is now consensus we will be taking risk management cues from price action, and will keep you posted on our thoughts.


Andrew Barber

DKS: Read Through From Golfsmith

Golfsmith printed one of those 'better than toxic' beats today. Still awful by nearly every metric, but "better than company plan" (whatever that means). Nonetheless, it suggests potential stabilization in the golf space, that has been one of the Achilles heels for DKS.


Check out the gaping hole between comp trajectories for each of the retailers below on a 1 and 2-year basis in the charts below. My usual cynical self would point to HIBB being unrealistic. But the reality is that I think HIBB numbers are not only doable, but beatable. That leads me to ask the question as to whether the gap between the two is justifiable.


DKS has Golf Galaxy, which has been dogging it. But that alone did not have enough juice to drag down the comp by 8-10%. Now with the potential for golf stabilization? I haven't been a fan of DKS in a long long time. In fact, I never have been. I still like HIBB better for many reasons. But as noted 6-weeks ago, I think DKS has finally set the bar low enough to start beating again.


DKS: Read Through From Golfsmith - dkschart


DKS: Read Through From Golfsmith - dkstable


Preliminary thoughts:


  • EPS of $0.15 beat our Street high estimate of $0.13 and the Street at $0.08
  • Solid top line and bottom line beat
  • Exceeded our EBITDA estimate at every property and region, except LV locals which was in-line
  • Numbers like this take the covenant issue out of play (BYD could still de-lever by buying back discounted bonds if they need to)
  • Forward commentary corroborates "less bad" thesis
  • "In our Las Vegas Locals region, we are beginning to see signs of stabilization" - cracks the last pole of the short thesis tent
  • Our FCF projection per share projection of $2.90 may go higher
  • Despite the huge run, a FCF yield of 25% suggests BYD's stock could still double from here

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