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June 12, 2013

June 12, 2013 - dtr

 

BULLISH TRENDS

June 12, 2013 - 10yr

June 12, 2013 - spx

June 12, 2013 - dax

June 12, 2013 - dxy

June 12, 2013 - euro

 

BEARISH TRENDS

June 12, 2013 - VIX

June 12, 2013 - yen

June 12, 2013 - oil

June 12, 2013 - natgas

June 12, 2013 - gold

June 12, 2013 - copper


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – June 12, 2013


As we look at today's setup for the S&P 500, the range is 51 points or 1.18% downside to 1607 and 1.96% upside to 1658.  

                                                                                                                             

SECTOR PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1A

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.87 from 1.86
  • VIX closed at 17.07 1 day percent change of 10.56%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, June 7 (prior -11.5%)
  • 10:30am: DOE Energy Inventories
  • 11am: Fed to purchase $750k-$1b notes in 2023-2031 sector
  • 1pm: U.S. to sell $21b 10Y notes in reopening
  • 2pm: Monthly Budget Statement, May, est. -$136.5b (prior -$124.6b, May 2012)

GOVERNMENT:

    • 10:30am: Senate Budget Cmte hears from Defense Sec. Chuck Hagel, Dempsey on dept’s budget request, effects of spending cuts, sexual assaults in the military
    • 12pm: Agriculture Dept releases supply, demand forecasts for 2013-2014 domestic, global grain and oilseeds seasons
    • 2pm: NSA Director Keith Alexander testifies before Senate Appropriations Cmte about U.S. cyber preparedness
    • 2:30pm: Senate Armed Svcs Cmte begins several days of closed meetings to write measure authorizing defense programs for FY14, beginning Oct. 1. Pentagon seeking $526.6b, not including $79.4b for fighting wars

WHAT TO WATCH

  • Dish faces June 18 deadline after Sprint deal talks falter
  • Vodafone approaches Kabel Deutschland to discuss takeoverbid
  • Liberty starts $3.5b buyback after Virgin Media purchase
  • ANA scraps 787 Dreamliner flight after engine fails to start
  • Airbus sets A350 flight date as Boeing rivalry intensifies
  • Glencore Xstrata appoints former Morgan Stanley CEO to board
  • Glenview asks Health Management to remove or boost poison pill
  • Traders said to manipulate currency rates to profit
  • Greece first developed market cut to emerging; U.A.E. raised
  • Freeport reschedules concentrate shipments after mine shutdown
  • Time Warner Cable said to offer incentives thwarting online TV
  • Toyota to meet U.S. Prius goal as economy gains, Lentz says
  • Pandora buys South Dakota station to get radio-like rates
  • U.K. unemployment falls as economic recovery gains momentum
  • Massive line of storms across U.S. may hit Iowa to Maryland
  • Flights to France cut, last day of air traffic control strike

EARNINGS

    • Dollarama (DOL CN) 7:30am, C$0.67
    • Evertz Technologies (ET CN) 4:01pm, C$0.17
    • Five Below (FIVE) 4:01pm, $0.04
    • H&R Block (HRB) 4:02pm, $2.61
    • PVH Corp  (PVH) 4:02pm, $1.37
    • Men’s Wearhouse (MW) 5:30pm, $0.55

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Gold Premium in Vietnam Seen Dropping From Record on Bank Sales
  • Smithfield Embodies China’s Record Hunger for Farms: Commodities
  • WTI Crude Halts Two-Day Decline; IEA Trims OPEC Demand Forecast
  • Cotton Planting in India Seen Increasing on Early Monsoon Rains
  • Copper Gains Most in a Week on Supply Concern as Nickel Declines
  • Wheat Declines as Australia Raises Production Outlook on Weather
  • Thailand Sets ‘Ambitious’ 13mt Sugar Production Target: Official
  • Gold Swings Near 2-Week Low as Investors Weigh Stimulus, Dollar
  • IEA Cuts Demand Forecast for OPEC Crude as China Growth Cools
  • Freeport Reschedules Concentrate Shipments After Mine Shutdown
  • Copper MACD Measure Signals Drop to 2010 Low: Technical Analysis
  • Tougher Regulations Seen From Obama Change in Carbon Calculation
  • South Korean Crude Oil-Shipping Rebate Seen Extended by IEA
  • Australian Wheat Crop Increasing Boosts Pressure on Bear Market

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

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

 

 

 

 

 

 

 

 

 

 

 

 


CORRECTED: RRGB HAS TOO MANY BALLS IN THE AIR

***CORRECTION: In the original version of this post, the title of the penultimate section was "3Q12 is RRGB's Waterloo". Of course, that should have read "3Q13 is RRGB's Waterloo". This version includes the correction.***

 

 

“One of our strategies moving forward is to shift to a balance between our legacy of being family-friendly and adult-focused guest experiences, referencing our legacy. There is no assurance that this shift will be successful or that it will not negatively affect our family guest experience.”

-          RRGB 2012 10-K, Risk Factors section

 

 

We are adding Red Robin Gourmet Burger to our Best Ideas on the short side.  The stock has gotten ahead of the company’s fundamentals and future growth prospects.

 

Company Overview

  • 468 full-service casual dining restaurants – 335 co-op and 133 franchised
  • 5 limited service Red Robin Burger Works concepts
  • Core concept is “family-focused”
  • Seeking to strike balance between family legacy and “adult-focused experiences”
  • FY13 estimated revenue growth of 4% to over $1 billion
  • Operating margins, ROE, ROA, some of the lowest in casual dining
  • 2.99x Debt/EBITDA
  • 22% debt/Total Assets

 

 

PERFORMANCE VS THE S&P 500

The stock has outperformed by almost 60% over the past year and its strong performance versus peers has continued as earnings growth estimates have stagnated. 

 

CORRECTED: RRGB HAS TOO MANY BALLS IN THE AIR - casual dining vs XLY

 

CORRECTED: RRGB HAS TOO MANY BALLS IN THE AIR - price vs EEG 

 

 

Current Setup

  • Stock surging on increased expectations for a successful Red Robin “brand transformation”
  • Additional investment will be required to secure brand transformation
  • Capital spending unit growth is being accelerated in 2013
  • Industry is still experiencing a secular declining traffic trends
  • Guidance is for EPS an EPS recovery in 2013 and 2014
  • Traffic negative in 1Q13 and comparisons get difficult for the balance of 2013
  • Restaurant margins have improved 290bps over the last 2 years

 

 

Traffic Problem is Biggest Fundamental Red Flag

The company is in desperate need of a “brand transformation” to stem the decline in traffic

 

CORRECTED: RRGB HAS TOO MANY BALLS IN THE AIR - RRGB traffic

 

 

Capital Allocation

 

Capital allocation is one of the most important metrics for casual dining companies. In terms of RRGB’s capital spending, the following bullets and charts offer insight into the effectiveness of the company’s capital allocation decisions.

  • Capex has been growing for three years
  • Expected to increase 17% in 2013
  • ROIIC likely to decelerate in 2013
  • Unit growth accelerating with Red Robin, mid-size, and new Burger Works concepts

 

CORRECTED: RRGB HAS TOO MANY BALLS IN THE AIR - rrgb roiic ttm

 

CORRECTED: RRGB HAS TOO MANY BALLS IN THE AIR - rrgb ebitda vs capex growth

 

 

Repeating Others’ Mistakes

 

The foot print expansion is leading to declining returns for the company. The question that we, and others, have about the strategy is why so many different initiatives need to be pursued at once. Specifically, the company is growing Red Robin in two different sizes, expanding its Burger Works QSR concept which seems to be producing mixed results, and trying to transform the consumer’s perception of Red Robin as a brand. In our view, this amounts to the company taking on more tasks than it can complete effectively while managing its capital prudently.

 

Brand transformation is difficult to achieve, for several reasons. Below are some of the concerns we have about RRGB’s particular strategy.

  • Moving away from core customers carries risk
  • Bar remodel had limited impact
  • Guiding to strong returns in “full transformed” units (only?)
  • Red Robin brand perception is entrenched, significant messaging required to adjust
  • Bar Works off to a difficult start as real estate and financial performance refinements ongoing

 

3Q13 is RRGB's Waterloo

  • Difficult SRS comparisons
  • Lowest revenue quarter of the year as incremental expense continues to build
  • Expenses in 4Q likely to grow significantly thanks to new costs
    • Brand transformation expenses
    • Incremental pre-opening expenses for new units
    • Beef prices post a risk to margins, particularly in 3Q
    • Industry sales benchmarks continue to be sluggish

 

Valuation and Sentiment

 

Short interest in RRGB has been coming down since 2008 but remains the fourth highest in casual dining at 10.5%. The valuation that consensus is awarding the stock has risen sharply in recent months. The sell-side is fairly cautious on the name with 37.5% of analysts rating the stock a “buy”, 50% “hold”, and 12.5% “sell”.

 

CORRECTED: RRGB HAS TOO MANY BALLS IN THE AIR - rrgb valuation over time

 

CORRECTED: RRGB HAS TOO MANY BALLS IN THE AIR - rrgb SHORT interest

 

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst


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Top-7 Tweets to Keith Today

Takeaway: A quick look at today's top tweets to Keith.

First the shorts hated you-now the longs will hate you. The only friends you'll have left will be your clients.

@traderblast 4:01 PM

Top-7 Tweets to Keith Today - tweet

 

ur team has been crushing it, soon to be a subscriber. Thanks for being genuine

@dasworldlydas 12:25 PM

 

For fear of making you more popular I have to reluctantly say that I have subscribed to your service. Don't you sleep?

@kinghitesh 11:25 AM

 

4 stars 4 Global Macro podcast!Another reason to anticipate HedgeyeTV: jam-packed w.usable info, delivered w. punch & wit.

@Jeanette607 11:06 AM

 

Can't thank you enough for releasing the last two @Hedgeye podcasts - most informative 10 mins over any medium anywhere

@PetersenRChris 10:34 AM

 

The money I'm not losing today spends just as well as last week's gains. thx.

@SharonSharalike 9:52 AM

 

nice call unloading your longs yesterday, as much as I hate stroking your ego, your killing it

@sctrader3 7:41 AM


Trade of the Day: MPEL

Takeaway: We sold Melco Crown Entertainment Ltd (MPEL) at 9:33AM at $23.54.

Book the +3.93% gain. We’re just risk managing the range with a very cautious view of Asian macro risks that are developing, particularly in China. Hedgeye Gaming Analyst Todd Jordan remains bullish on MPEL longer-term.

 

Trade of the Day: MPEL - mpel2
 


HEARD ON THE AM CALL: #RIPPING

Takeaway: As we’ve said all along, one of the big risks is that we are right too fast.

(Excerpted from this morning's Hedgeye conference call)

 

So, last week we had better numbers on jobless claims and the employment report. That’s what’s really causing consternation and constipation in global markets now. It’s that we’re too right on #Growth Accelerating here in the U.S.

 

If you disagree with that, go ahead and take a look at the chart below of 10-year Treasury yields. This thing is just ripping right now. It's up 55 basis points since the beginning of May.

 

As we’ve said all along, one of the big risks is that we are right too fast. It’s one thing to be right on growth, it’s another thing altogether to be right too fast. You have to stay aware of the fact that we have a Central Planner still lurking in the weeds. He doesn’t fundamentally believe that the bond market is going to do exactly what it’s doing right now.

 

Look, you cannot have a Central Planner promise that he will smooth economic gravity and the market expectations embedded therein. You can’t have that in Japan, you can’t have it here in the U.S., and you can’t have it in Uzbekistan. You can’t have it.

 

Have we forgotten? Free markets exist for a reason. 

 

HEARD ON THE AM CALL: #RIPPING - Ripping 10Y Treasury


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