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Replay: Podcast and Slides of E-Cig Call with Victory CEO

Today the Hedgeye Consumer Staples team hosted an expert call on electronic cigarettes featuring Brent Willis, a leading consumer products executive and Chairman and CEO of Victory Electronic Cigarettes. Below are links to a replay podcast and presentation slides. 

 

Podcast: CLICK HERE 

Presentation: CLICK HERE

 

We encourage you to listen as Brent provides insight into the rapidly evolving electronic cigarette story – perhaps the first truly new consumer category in over a decade.

 

With e-cigarettes currently only representing a 1% share of the entire tobacco market, Hedgeye sees a significant runway for large and small e-cigarette companies to meet growing demand for alternatives to traditional tobacco.  But we believe the implications of this technology go far beyond merely replacing tobacco with a product that is viewed as healthier and cleaner.  Some major firms recognize the e-cigarette phenomenon as a key part of societal change, one of a number of disruptive new technologies that are changing the way we live.

 

Hedgeye believes the e-cigarette category is poised to reach sales of $1-2 Billion this year – up from $500 Million in 2012 – and to show significant growth over the coming years.  Certainly there are many questions yet to be addressed, including how this new segment will be regulated?  Yet the pace of innovation, marketing, and distribution has already brought significant awareness to the category and the early data shows encouraging signs of strong repeat purchase behavior. We are excited about the developing investment opportunities as this category gains visibility.

 

DISCLOSURES : Victory (ECIG) is a newly-public company with limited trading history and liquidity. Hedgeye has no investment opinion on Victory and no current plans to publish research on the company.   Certain Hedgeye executives may at some point become involved in a transaction with Victory or related entities.   This presentation is for information purposes only.

 


CPI Data Marginally Better For Restaurants

The BLS released CPI data for the month of August this morning.  In aggregate, all measures continue to screen negatively for the restaurant industry.  On the margin, however, August marked a slight improvement in food price trends.

  • Core CPI ticked up 10 bps in August to +1.8%
  • Food at home remained flat at +1.0%
  • Food away from home fell 10 bps to +2.0%
  • The Restaurant Value Spread, which measures the difference between food at home and food away from home, fell 10 bps to -1.0%
  • The spread between food at home and core CPI widened by 10 bps to -0.8%
  • The spread between food away from home and core CPI narrowed by 20 bps to +0.2%

Despite the sequential moves that, on the margin, are positive for the restaurant industry, the overall environment is not exactly conducive to driving consumer demand.  The restaurant value spread is still -100 bps, suggesting that it is currently more affordable for consumers to eat at home than to eat out.

 

 

The charts below highlight these important food price trends.

 

 

CPI Data Marginally Better For Restaurants - chart11

 

CPI Data Marginally Better For Restaurants - chart222

 

CPI Data Marginally Better For Restaurants - chart3

 

CPI Data Marginally Better For Restaurants - chart44

 

CPI Data Marginally Better For Restaurants - chart55

 

 

 

Howard Penney

Managing Director

 


Jones: What's Weighing on Mr. Market Right Now?

Editor's note: What follows below is a brief complimentary excerpt from Hedgeye's "Morning Newsletter" which is sent out weekday mornings before 9:00am. While Hedgeye CEO Keith McCullough typically writes these newsletters, periodically another member of our team jumps in and offers up our latest thoughts. This morning's note was written by Daryl Jones, Director of Research. To learn how you can subscribe please click here.)

 

Jones: What's Weighing on Mr. Market Right Now? - wallstreet1

MACRO GRIND

Former Harvard President Larry Summers made a big decision late Sunday to withdraw his name from consideration to replace current Federal Reserve Chairman Ben Bernanke.  Now technically speaking, the fact that five Democrats intended to vote against him in committee kind of forced his hand, but nonetheless a decision was made.

 

In the short run, Mr. Market viewed this development as somewhat positive as stocks were up broadly with the SP500 up 0.57%.  (Strangely, the bell weather master limited partnership, Kinder Morgan Partner (KMP), underperformed and was down -1.50%.) President Obama then chose to come out and spoil the Wall Street party as Obama indicated he will not negotiate an extension of the U.S. debt ceiling as part of the budget fight. 

 

Slight digression, yes the debt ceiling debate is looming again.  As Yogi Berra said, this is déjà vu all over again.  You may recall, in 2011 Congress raised the debt ceiling to $16.7 trillion, an increase of over $2 trillion.  Currently, based on projections from the Treasury department, the federal government could hit the debt ceiling as soon as mid-October.

 

In the chart of the day, we highlight a chart from the Bipartisan Policy Center that shows that the debt ceiling is likely to be breached to between October 18th to November 5th.   Technically speaking, the United States hit its debt limit on May 19th, but as my colleague Christian Drake has written about, via a number of extraordinary measures, the ceiling has been extended, but these measures will run out at some point in the time frame noted above at which point the federal government will only have enough tax revenue to cover about 68% of its bills.

 

Incidentally, and for those that don’t have their calendars in front of them, the “X-date” is just over a month away.  And just think, most investors are worried about who is going to be the next Chairman / Chairperson of the Federal Reserve!  Given the uncertainty around the direction of policy, a looming fiscal crisis, and the fact that U.S. equities have performed quite well in the year-to-date, it should be no surprise that some savvy investors like Stan Druckenmiller are indicating they are largely underinvested.

 

We certainly get the risks, but one point that has and will continue to benefit equities, is bond outflows.  Since May we have seen $116 billion fixed income fund outflows, which is the largest absolute bond outflow in history.

 

Interestingly though, as our Financials team pointed out yesterday,  as a percentage of beginning fixed income assets-under-management, the current 2013 draw down is the smallest in history on a percentage basis. The 2013 running outflow has been just 2.9% of outstanding bond funds, well below the past outflows in 2003-2004 where 5.0% of outstanding bond funds were redeemed and the 14% of bond funds that were drawn down in the 1994-1995 outflow.  So while there are certainly risks looking for equities, the continuation of bond outflows will be a meaningful tailwind. 

 


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Morning Reads on Our Radar Screen

Takeaway: Here's a quick look at stories on Hedgeye's radar screen.

Keith McCullough – CEO

S&P 500 regains 1,700, nears record (via MarketWatch)

Veteran Diplomat Fond of Cigars, Whiskey and Outfoxing U.S. (via NYT)

Syria crisis: France and Russia admit attack differences (via BBC)

 

Morning Reads on Our Radar Screen - bullbear


Josh Steiner – Financials

$2,472,542,000,000: Record Taxation Through August; Deficit Still $755B (via CNS News)

 

Todd Jordan – Healthcare

Municipalities struggle with Affordable Care Act (via KFVS)

 

Kevin Kaiser – Energy

Investors Increase Pressure on Barrick for Board Change (via WSJ)

 

Darius Dale – Macro

VIDEO: What’s Next For Emerging Markets? (via Hedgeye)

 

Daryl Jones – Macro

Yellen Seen as Likely Fed Nominee in Survey After Summers Exit (via Bloomberg)


What's New Today in Retail (9/17)

Takeaway: As part of our morning routine, we scour the tape and trade rags for stories that we think might be relevant to our investment process.

As part of our morning routine, we scour the tape and trade rags for stories that we think might be relevant to our investment process. 

 


EVENTS TO WATCH OVER THE NEXT 24 HOURS

DKS - Wednesday 9/18/2013, 8:00am. At DKS HQ in Pittsburgh.

 

ECONOMIC DATA

The ICSC index, a compilation of 80 chain store retailers, came in weaker than expected this morning. While still relatively healthy at +3.2% ahead of last year, it turned down sequentially (as evidenced by the red line in the chart below). 

What's New Today in Retail (9/17) - icsc1

 

COMPANY NEWS

 

RH: Released its 10Q after the close last night. The biggest callout...

 

"Selling, general and administrative expenses for the three months ended August 3, 2013 included: (i) a $33.7 million non-cash compensation charge related to the one-time, fully vested option to Mr. Friedman upon his reappointment as Chairman and Co-Chief Executive Officer, (ii) a $26.1 million non-cash compensation charge related to the performance-based vesting of certain shares granted to Mr. Friedman in connection with the Reorganization and initial public offering, and (iii) $2.1 million of costs incurred in connection with our follow-on offerings in May 2013 and July 2013."

Translation = Good day for Gary Friedman

 

The Hut - The Hut prepares for IPO in early 201

The Hut Group, an online retailer selling apparel, beauty products and gifts, is considering an April or May 2014 IPO. The company is expected to be valued at 350m Pounds, about 25x EBITDA. First half 2013 profits reached 77m pounds a 30% increase YY.

 

JNY - More Bidders Emerge for The Jones Group
"The head of Sun Capital has joined the fray as a host of private-equity firms prepare bids for the New York-based shoe-and-apparel company, The Post has learned."
"It’s unclear which assets Sun is eyeing, but sources speculate the firm is interested in department-store staples such as Jones New York and Gloria Vanderbilt."
"As second-round bids for The Jones Group Inc. are expected to be forthcoming at the end of this month, more names of possible bidders have surfaced. According to dealReporter, Leonard Green & Partners and Golden Gate Capital are also interested in the assets of Jones Group."
"Last week, sources close to the process confirmed to WWD that KKR & Co. and Sycamore Partners are working together and had already submitted a first-round bid for Jones over the summer."

 

GPS -  Gap's TV Return
Gap Inc. returned to TV after a four year hiatus on Monday. The ad featured Billy Joel's daughter, Alexa Ray Joel, signing "Just the Way You Are," and George Harrison's son, Dhani Harrison, signing "For You Blue."
"Last year, Gap spent $653 million on advertising, a figure that should go up with television back in the retailer’s ad mix, although Gap has stressed its careful approach to the medium."
http://www.youtube.com/watch?v=KAPnSRqgpZE
http://www.youtube.com/watch?v=9kjC0N0P_v4

 

M - Bloomingdale’s Black Tags End Party for Next-Day Returns

"Instead of just tagging merchandise before it’s purchased to prevent theft, the Bloomingdale’s department-store chain is keeping some garments tagged after they’re sold, too. The three-inch black plastic devices are in visible places, like the front bottom hemline, so they’re hard to hide when the garment is worn. Once shoppers remove the tags, which can’t be reattached, they can’t return the item."

"Bloomingdale’s, owned by Macy’s Inc. (M), is using the tactic to combat a practice known as 'wardrobing' -- buying clothes and using them once -- a form of return fraud, which the National Retail Federation estimates cost the industry $8.8 billion last year."
"Nordstrom doesn’t use such tags, Colin Johnson, a spokesman for the Seattle-based company, said in an e-mail.

 

DKS - Dick's Revamps Jersey Report

"Dick's Sporting Goods announced an updated and upgraded 'Jersey Report,' with new advanced features to provide fans unparalleled insights into pro football jersey sales at Dick's Sporting Goods nationwide and online. Updated daily, the Jersey Report is the only destination offering fans a comprehensive breakdown of how the sales of their favorite players' jerseys are rising, falling and stacking up against the competition."

"In addition to football, this year's Jersey Report will also provide the same stats and analysis for hockey jersey popularity beginning in October."

What's New Today in Retail (9/17) - dks222

GIL - Gildan Named to Dow Jones Sustainability World Index 
Gildan Activewear Inc. has become one of only two North American companies to be included in the Dow Jones Sustainability World Index in the Textiles, Apparel and Luxury Goods sector, with effect from Sept. 23, 2013.
 

Pinterest Drives The 'Reverse Showrooming' Phenomenon, Where Shoppers Browse Online But Buy In-Store

"Recent data distributed by Vision Critical and highlighted in the Harvard Business Review found that 21% of Pinterest users had bought an item in a store after pinning, repinning, or liking the item on the site." 

"Vision Critical describes this as part of a wider phenomenon it calls 'reverse showrooming,' in which consumers search or browse products online and then enter the physical shop to make a final purchase."

What's New Today in Retail (9/17) - pinterest

 

INDUSTRY NEWS

US Government Looks to Boost Textile, Apparel Exports

"President Obama launched the National Export Initiative in 2010—the first government initiative of its kind—with the goal of doing more to support US companies by creating export opportunities, working to remove trade barriers and settling new trade agreements...As part of the initiative, the President plans to double US exports by the end of 2014. In the first half of 2013, US exports totaled a record-high $1.12 trillion while imports decreased by $13.1 billion over the same time, reducing the trade deficit by $36.1 billion over the last half year."
The Commerce Department’s Office of Textiles and Apparel (OTEXA) has also been working to increase domestic production and imports. 'The focus of our office has been two-pronged this year — the Made in USA database, as well as our [Trans-Pacific Partnership] and now European Union trade negotiations to help facilitate opening those markets,' Kim Glas, deputy assistant secretary for textiles and apparel at the Commerce Department told WWD."
 
Calendar Complicates Holiday Selling

"In its preliminary forecast for the season, Chicago-based retail traffic counter ShopperTrak projected that sales during November and December would increase 2.4 percent over 2012 levels, lower than the 3 percent increase registered during holiday 2012."
"Apparel and accessories sales are expected to come in slightly stronger for the season, rising 2.8 percent."
"ShopperTrak expects traffic to dip 1.4 percent from 2012 levels, which rose 2.5 percent from the prior year. For apparel and accessories, the traffic decrease is expected to come in at 1 percent. "
"Much of the pressure on retailers will come from an unforgiving calendar. Last year, the window between Black Friday and Christmas Day was a full 32 days, the maximum possible, and this year will swing in the opposite direction, shrinking to 25."

 

Turkish Industry Out to Boost U.S. Profile
The Istanbul Textile and Apparel Exporters Association, or ITKIB, is to hold its first trade mission to the U.S. on Sept. 24 and 25 at New York City’s Gotham Hall with the aim of bringing together Turkish apparel and textile manufacturers with U.S. sourcing and distribution executives.
Turkish ready-to-wear companies now operate some 3,000 stores internationally, compared with just 300 five years ago. By 2023, the goal is to have 20,000 — and the U.S. is a new priority.
Clothing and textiles are among Turkey’s biggest businesses, accounting for 6.8 percent of gross domestic product and $24 billion in exports last year. It is the world’s sixth largest apparel supplier and the second largest to the European Union after China.
According to the ITKIB chairman, the New York trade mission is but a first step. The goal is to enable Turkish firms to meet with top-tier executives in production and global sourcing of all major American brands, licensing groups and department stores. 




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