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INITIAL CLAIMS: CALIFORNICATION

Takeaway: The number of adjustments needed to get to the center of the labor market tootsie pop is growing. We try our best to get there.

With the DC drama sideshow shelved for a few months, confused monetary policy positioning out of the Fed can again return as the attendant driver of investor angst.  Alongside the market re-shift in focus today, the dollar is down, rates are down, and stocks are struggling to mount a reversal of early weakness 

 

Essentially, we are back to where we were about a week and a half ago with both the dollar & the 10Y testing their breakdown lines.  Keith will be home from London and back in the PM seat tomorrow, but the levels that matter are still:

 

  • DXY ($USD):  TAIL Support = 79.21
  • 10Y Treasury:  TREND Support = 2.58%

We are currently running fairly low gross exposure with 6 longs, 3 shorts.  From here, we need to see the $USD and 10Y Treasury support lines hold alongside some fundamental confirmation with next week’s data deluge to take our gross & net exposure to domestic equities higher again. Conversely, if the dollar and 10Y breakdown alongside marginal weakness in the macro data and an overbought signal in equities, we’ll continue to tighten up/reverse our positioning.     

 

Meanwhile, on the labor front, the ongoing distortion in the only currently available government data series –  Initial Jobless Claims - continues to perpetuate uncertainty around both the underlying strength of the domestic labor market and the read through to probable, forward monetary policy adjustments. 

 

We work through this weeks claims numbers in detail below, but the bottom line is that, after adjusting for the impacts of the government shutdown and California catch-up, the Labor Market’s trend line of improvement remains intact.

 

Below is the detailed breakdown of this morning's claims data from the Hedgeye Financials team.  If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

-  Hedgeye Macro

 

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Lots of Needed Adjustments

The Golden State has been the source of considerable and ongoing distortion in the only currently-available government labor market data series, initial jobless claims. We thought that last week's sharp spike in claims reflected the full catch-up of California's temporary IT systems-related issues, but that was wrong. This morning's number is again distorted by California's ongoing catch-up. While we received data last week indicating that there were 33k additional claims from California due to the backlog catch-up, this week we received no such number. Comments in the media, however, have alluded to the impact being of comparable size.

 

In the first chart below we look at the distortion being created with California and then in the second chart we examine the impact this is having on the national data. The first chart shows weekly NSA initial claims for CA through 10/4. Unfortunately, state level data is only available on a 1-week lag. The blue line shows 2013 while the red line shows the corresponding period in 2012.  It's clear that the IT system effect occurred the week of Sep 6, when the spread between 2012 and 2013 jumped to -25k claims. The following week it remained wide at -21k. In the most recent week the spread reversed to +26k. However, it's the cumulative size of the distortion that now needs to be reversed. As such, we would expect next week's number to again be overstated. Thereafter, we would expect to see the series revert back to normal.

 

Separate from California's distortive effects, there is also the effect of the govt shutdown. While Federal employees file under a separate system (~70k of them filed the week of Oct 4), there are private workers who were laid off because they work in govt-related fields. These people were reported to have accounted for 15k additional claims in the week of Oct. 4. This past week no such similar disclosure was provided, but we did see reference from Reuters quoting a labor dept analyst saying "There had not been a perceptible increase in filings last week from non-federal workers furloughed because of the just-ended government shutdown."

 

The bottom line is that when making the adjustments for both California and the temporary distortions from the govt shutdown, the labor market's trend line rate of improvement remains intact.

 

INITIAL CLAIMS: CALIFORNICATION - JS 1

 

INITIAL CLAIMS: CALIFORNICATION - JS 2

 

Nuts & Bolts

Prior to revision, initial jobless claims fell 16k to 358k from 374k WoW, as the prior week's number was revised down by -1k to 373k. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 12k WoW to 336.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.5% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -11.8%, but again this is an unadjusted number.

 

INITIAL CLAIMS: CALIFORNICATION - JS 3

 

INITIAL CLAIMS: CALIFORNICATION - JS 4

 

INITIAL CLAIMS: CALIFORNICATION - JS 5

 

INITIAL CLAIMS: CALIFORNICATION - JS 6

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


HPPC Round-up Ahead of Earnings

The HPPC earnings season kicks off next week with Kimberly Clark reporting on 10/22 before the market open. Below, we offer a recap of recent trends in sentiment and valuation for the sector as well as a reiteration of our favorite names on the long and short sides.

 

 

Current Ideas

 

ENR (short side): The Company’s exposure to unfavorable categories and lack of exposure to growing categories is a concern for us as is the macro outlook. Over the past ten years, organic sales growth has been anemic as acquisitions have been the primary driver of top-line growth. Per our recent notes, we believe ENR is still a short.  

 

HPPC Round-up Ahead of Earnings - ENR organic growth

 

HPPC Round-up Ahead of Earnings - enr snapshot

 

 

KMB (short side): Of all the companies we follow, KMB carries the greatest risk of a guide-down in 2H13 after management reiterated its FY EPS guidance range on 2Q results that were disappointing due to weak sales and FX headwinds.

 

A difficult competitive and operating environment is pressuring volume growth and margins at KMB as input costs accelerate even as pricing growth in the U.S. remains flat-to-down. The company has underperformed the S&P 500 since we suggested shorting the stock as a pair versus long EL (see note). We expect investor sentiment to turn when organic sales growth inflects although recent strength in the stock suggests that some positive news is expected in next Tuesday’s press release.

 

 

EL (long side): Estée Lauder has been our favorite name on the long side since 8/27.

 

EL has performed less-well over the past week-to-ten days versus the prior two months but we remain positive on the company’s prospects as a high-double digit earnings growth rate is supported by mid-to-high single digit revenue growth and exposure to the high-end consumer.

 

With the stock up 5% since 4QFY13 EPS on 8/15, investors will need to see impressive figures for the stock to maintain momentum. We have confidence in the long-term benefits of SMI, particularly cost savings which, unlike where ENR and KMB are concerned, we expect investors to pay up for as strong sales growth enhances the impact of efficiency gains.

 

 

CL (long side): Colgate Palmolive is another stock we have a favorable view of ahead of earnings (last quarter’s recap note). The company’s strength in the growing oral care category and resilience in emerging markets have been strong positives for the company. We expect continuing EBIT margin expansion when the company reports 3Q13 results before the market open on 10/24.

 

The company was prudent in lowering its FY EPS guidance based on FX headwinds when releasing 2Q EPS and we expect the stock to outperform over the remainder of the year.

 

 

Sentiment

 

From a sentiment perspective, CLX (downgraded this morning to Underweight from Equalweight at Morgan Stanley) is the least liked stock in the sector. Generally, the most liked names in the sector have seen a retracement in sentiment (NWL, PG, EL, REV).

 

ENR has been a standout in that it is middle-of-the-pack in terms of sentiment (below) but the most recent two week period saw sharp decline in sentiment as one sell-side downgrade and an uptick in short interest pressured the stock.

 

Per our comments, above, we remain bearish on the name. We include a sentiment table encompassing all of staples, for reference.

 

HPPC Round-up Ahead of Earnings - HPPC sentiment scorecard 10.17.13

 

HPPC Round-up Ahead of Earnings - Staples sentiment scorecard 10.17

 

 

Price Action & Valuation

 

As we can see in the table below, recently there has been plenty of variance in the price action of the sector, independent of categories/geographical exposure. Note that the starting points for the respective companies’ price and multiple changes vary depending on the date of each company’s most recent earnings release. KMB was the first of these companies to report 2QCY13 earnings, on 7/22, with COTY the latest on 9/17. Please see the table to the right of the chart for reference.

 

HPPC Round-up Ahead of Earnings - cpg multiple and stock turn since earnings 1

 

HPPC Round-up Ahead of Earnings - hppc pe multiples

 

 

 

Rory Green

Senior Analyst


INITIAL CLAIMS: CALIFORNICATION

Takeaway: The number of adjustments needed to get to the center of the labor market tootsie pop is growing. We try our best to get there.

Lots of Needed Adjustments

The Golden State has been the source of considerable and ongoing distortion in the only currently-available government labor market data series, initial jobless claims. We thought that last week's sharp spike in claims reflected the full catch-up of California's temporary IT systems-related issues, but that was wrong. This morning's number is again distorted by California's ongoing catch-up. While we received data last week indicating that there were 33k additional claims from California due to the backlog catch-up, this week we received no such number. Comments in the media, however, have alluded to the impact being of comparable size.

 

In the first chart below we look at the distortion being created with California and then in the second chart we examine the impact this is having on the national data. The first chart shows weekly NSA initial claims for CA through 10/4. Unfortunately, state level data is only available on a 1-week lag. The blue line shows 2013 while the red line shows the corresponding period in 2012.  It's clear that the IT system effect occurred the week of Sep 6, when the spread between 2012 and 2013 jumped to -25k claims. The following week it remained wide at -21k. In the most recent week the spread reversed to +26k. However, it's the cumulative size of the distortion that now needs to be reversed. As such, we would expect next week's number to again be overstated. Thereafter, we would expect to see the series revert back to normal.

 

Separate from California's distortive effects, there is also the effect of the govt shutdown. While Federal employees file under a separate system (~70k of them filed the week of Oct 4), there are private workers who were laid off because they work in govt-related fields. These people were reported to have accounted for 15k additional claims in the week of Oct. 4. This past week no such similar disclosure was provided, but we did see reference from Reuters quoting a labor dept analyst saying "There had not been a perceptible increase in filings last week from non-federal workers furloughed because of the just-ended government shutdown."

 

The bottom line is that when making the adjustments for both California and the temporary distortions from the govt shutdown, the labor market's trend line rate of improvement remains intact.

 

INITIAL CLAIMS: CALIFORNICATION - Cali Chart

 

INITIAL CLAIMS: CALIFORNICATION - 20   Gray Chart

 

Nuts & Bolts

Prior to revision, initial jobless claims fell 16k to 358k from 374k WoW, as the prior week's number was revised down by -1k to 373k. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 12k WoW to 336.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.5% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -11.8%, but again this is an unadjusted number.

 

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INITIAL CLAIMS: CALIFORNICATION - 2

 

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INITIAL CLAIMS: CALIFORNICATION - 4

 

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INITIAL CLAIMS: CALIFORNICATION - 9

 

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INITIAL CLAIMS: CALIFORNICATION - 12

 

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INITIAL CLAIMS: CALIFORNICATION - 14

 

Yield Spreads

The 2-10 spread rose 4 basis points WoW to 234 bps. 4Q13TD, the 2-10 spread is averaging 231 bps, which is 3 bps lower relative to 3Q13. 

 

INITIAL CLAIMS: CALIFORNICATION - 15

 

INITIAL CLAIMS: CALIFORNICATION - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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%

Kaiser Questions Kinder Morgan

If you‘ve been paying any attention to what’s going on in the Master Limited Partnership (MLP) space recently, you’ve undoubtedly come across Kevin Kaiser’s name. Kaiser is the Senior Energy Analyst at Hedgeye Risk Management and the guy who’s ruffling more than a few feathers questioning certain energy companies’ accounting practices. Here are some recent noteworthy headlines about his research:

  • Young analyst draws Wall Street ire taking on Kinder Morgan (via Reuters)
  • Why a 26-year-old analyst has managed to rattle Wall Street (via Quartz)
  • Research firm rebuts Kinder Morgan’s rebuttal (via MarketWatch)
  • Is Kinder Morgan Scrimping on its Pipelines? (via Wall Street Journal)

Kaiser Questions Kinder Morgan - kindm

 

Kinder Morgan, the current target of Kaiser’s attention, (finally) allowed him to ask a few questions in their quarterly conference call yesterday. One of Kaiser’s key contentions all along is that Kinder Morgan is understating it maintenance capex. As you’ll see in the transcript below, Kaiser was trying to get some color on the management team’s philosophy regarding the calculation of their distributable cash flow.

 

Analyst: Kevin Kaiser, Hedgeye Risk Management - Analyst

 

Question – Kevin Kaiser: A question on CapEx for gathering and processing. What is CapEx budget for gathering and processing on a quarterly basis including Copano?

 

Answer – Steve Kean (President and Chief Operating Officer): I don't know if we have that number broken down.

 

Answer – Rich Kinder (Chairman & CEO): We don't break it out separately. It's part of our natural gas CapEx.

 

Answer – Steve Kean: We have CapEx on Copano and Altamont and some in Texas, some in other -- in Texas as well but we don't have a break out of that.

 

Question – Kevin Kaiser: Okay so no break out for GNP by sustaining CapEx versus expansion CapEx either?

 

Answer – Steve Kean: No, I think that's just aggregated in our total Gas Group.

 

Answer – Rich Kinder: Total Natural Gas segment aggregates all of the -- whether sustaining CapEx or the expansion CapEx is all aggregated.

 

Question – Kevin Kaiser: Okay, and then on the Company wide -- so the budget for this year for sustaining CapEx will be $339 million. That's before Copano. If KMP only spent that on an annual basis, so no organic expansion CapEx, how would the segments perform over the long term? Would the Company be able to keep cash flow flat?

 

Answer – Rich Kinder: I'm sorry, I don't--

 

Answer – Kim Dang (CFO): Well, I think that we have growth -- are you asking if there's growth absent spending CapEx in KMP?

 

Question – Kevin Kaiser: The question is really if the budget was only limited to the sustaining CapEx, would the additional asset base be able to -- would it be maintained -- would the cash flows be maintained over the long term $339 million?

 

Answer – Rich Kinder: Oh, I see your question. Yes, we've said this several times and these are ballpark numbers, of course, but generally speaking that 5% or 6% this year happens to be 7% growth in distributions. We think probably 1.5% to 2% is organic growth, in other words, if you didn't spend any capital you would get that. At KMP that comes from a number of things. One is, of course, the inflation escalator that we have on our FERC-regulated products pipelines. The second is on automatic escalators that we have on some of our terminal assets. So you'd probably have we estimate 1.5% to 2% growth if you didn't spend any capital. And then the rest of that growth comes from -- primarily from new projects that come on line.

 

Answer – Steve Kean: That's obviously subject to market conditions. Market conditions determine the growth on just the existing asset base on a stand-alone basis.

 

Question – Kevin Kaiser: Right and how would 1% to 2% organic growth be possible with just $339 million if you spend about $400 million in ENP alone and that's not in the sustaining CapEx budget?

 

Answer – Rich Kinder: As I just said, I'm not following your question I guess. You ask how much organic growth you had without expansion CapEx and that's the kind of number that we use, about 1.5% to 2%. Kim?

 

Answer – Kim Dang: Kevin, is your question if CO2 production would stay flat if we weren't spending expansion capital?

 

Question – Kevin Kaiser: No, the question is really if you -- on the business, the entire KMP business how would cash flows trend over the long term if we only spend $339 million a year in Capital Expenditures.

 

Answer – Kim Dang: I think Rich just answered it.

 

Question – Kevin Kaiser: Okay and then the last question I have is do you consider distributable cash flow to be synonymous with free cash flow?

 

Answer – Kim Dang: Kevin, look, what we're looking at is how much cash flow that the MLP generates before expansion capital. Because our partnership agreement requires us to finance expansion capital, to distribute everything that we generate and to finance our expansion capital. So what we are comparing, distributable cash flow is to the cash flow that we have available for distributions to our unit holders before we factor in expansion CapEx.

 

Question – Kevin Kaiser: Okay, so you would say it's not -- you would not say that free cash flow and distributable cash flow are the same thing?

 

Answer – Kim Dang: If you're defining free cash flow as cash flow after expansion CapEx, then I would say that distributable cash flow and free cash flow are not the same thing but it depends on how you're defining free cash flow.

 

Question – Kevin Kaiser: I would define free cash flow as cash flow from operations minus the capital expenditures needed on an annual basis to maintain those cash flows from operations?

 

Answer – Kim Dang: Well that is not, unfortunately, that is nice that you would interpret it that way but that's not the way that our partnership agreement defines it and therefore, that's not the way we are allowed to segregate it.

 

(Source: AlphaSense transcripts)


What's New Today in Retail (10/17)

Takeaway: NKE crushing apparel, UA lagging. Wexner lets loose at mtg. WMT divorces Bharti. 18k ft TUMI store??? TRU priming for failure. MW Uniqlo

ECONOMIC DATA

 

Athletic Apparel Data -

 

Takeaway: Weekly athletic apparel numbers continue to be strong, though they decelerated slightly. Nike continues to power those numbers. 33% growth for a company with 20% share of the market is nothing to shake a stick at. UnderArmour put up one of the weakest numbers we've seen all year.

 

What's New Today in Retail (10/17) - chart1 10 17

What's New Today in Retail (10/17) - chart2 10 17

What's New Today in Retail (10/17) - chart3 10 17

What's New Today in Retail (10/17) - chart4 10 17

 

Online sales surge and demand for new furniture boost UK retailers

(http://www.theguardian.com/business/2013/oct/17/online-sales-surge-uk-retailers)

 

  • "Britain's retailers returned to health last month on the back of strong demand for new furniture and a 20% year-on-year surge in online sales, according to official figures."
  • "After a 2.1% fall in August, the Office for National Statistics said retail sales rose by 0.7% month on month in September, excluding petrol sales, following a 3% surge in the purchase of household goods."
  • "The ONS said a look back over the previous three months revealed a period of growth, with retail sales up 1.5% quarter on quarter. 'This is the largest quarter-on-quarter rise since March 2008 when the economy as a whole was at its peak, before the economic downturn,' it said."

 

Takeaway: Similar trends to what were seeing in the US. We'd say something cute like 'long live housing' but the survey we launched yesterday shows that housing activity is one of the least important drivers of new furniture purchased. That came as a surprise to us.

 

COMPANY NEWS

 

CA - Carrefour Sees Growth in All Major Markets

(http://online.wsj.com/news/articles/SB10001424052702303680404579140872709644590?mod=WSJ_business_whatsNews)

 

  • "French retail giant Carrefour...registered growth in all its major markets in the third quarter, saying its low-price strategy had allowed it to buck slow economic growth and partly offset adverse currency fluctuations."
  • "Sales in the three months through September fell 1.3% to €21.1 billion ($28.55 billion) because of a drop in Latin American currencies.
  • In the same period last year, sales came in at €21.4 billion, excluding businesses that Carrefour has exited since, such as Greece and Malaysia."
  • "Excluding currency effects, disposals and fuel sales, underlying growth rose 3.1%."
  • "The performance of hypermarkets in France was particularly in the spotlight, with sales rising 3% in the third quarter after a long slump."
  • "Other key markets also showed progress, with Brazil, China and Spain all growing in the third quarter."

 

Takeaway: Emerging markets fueled what little growth CA saw in its business. Sad statement about the state of its mature markets.

 

WMT - India Clears Wal-Mart in Probe of 2010 Purchase

(http://online.wsj.com/news/articles/SB10001424052702304410204579140871001032150?mod=WSJ_business_whatsNews)

 

  • "An Indian finance ministry investigation has cleared Wal-Mart Stores...of allegations that the American retailer illegally put money into a local supermarket chain despite a ban on foreign direct investment in the sector, two senior officials familiar with the matter said."
  • "The ministry was investigating a purchase by Wal-Mart of $100 million in convertible debentures from a retailing arm of Indian conglomerate Bharti Enterprises in 2010."

 

Takeaway: With this ruling, WMT has officially ended its ties with Bharti in India. The question that needs to be answered now is how will it pursue its growth objectives in Asia?

 

JOSB, MW - Jos. A. Bank Won’t Rule Out Hostile Bid for Men’s Wearhouse

(http://www.bloomberg.com/news/2013-10-16/jos-a-bank-won-t-rule-out-hostile-bid-for-men-s-wearhouse-1-.html)

 

  • "... [JOSB] Chairman Robert Wildrick said he wouldn’t rule out making a hostile bid for Men’s Wearhouse Inc., which turned down his company’s offer last week. 'We want this to happen on a friendly basis,' Wildrick said today in an interview. 'But at this point we have not ruled anything out.'”
  • "Wildrick said he won’t make a new, higher bid without looking at the company’s books. He said he prefers to acquire...[MW] with a friendly offer that’s best for the shareholders of both companies."

 

Takeaway: We don't know what the outcome here will be, but hostile bids almost never end well.

 

LTD - L Brands' Leslie Wexner Lets Loose at Investor Conference

(http://www.wwd.com/business-news/business-features/l-brands-leslie-wexner-lets-loose-at-investor-conference-7230208?module=hp-topstories)

 

  • "At the firm’s investor conference Wednesday, Wexner was as provocative as ever, stating he can double L Brands’ business in North America and generate 'sustained and significant international growth.' He also said that department stores are irrelevant and that there’s virtually no room for outlets in his retail empire."
  • "Globally, the goal is to bring L Brands (formerly Limited Brands Inc.) to $20 billion in revenues within the next five to six years, though no specific time frame was cited. Another big goal: elevating the operating margin a few points to the high teens."
  • "With L Brands’ domestic growth, Wexner sees La Senza coming to the U.S. from Canada, and additional square footage for Victoria’s Secret, Bath and Body Works and Pink in the pipeline. La Senza plans to open five or six stores in the U.S. next spring, at about 2,500 square feet each, in Midwest malls…"

 

Takeaway: Wexner gives department stores a kick in the jaw. It wasn’t the first time, and it won't be the last.

 

JNY - Stuart Weitzman Launching Digital Pop-Up With Gilt

(http://www.wwd.com/fashion-news/fashion-scoops/stuart-weitzman-launching-digital-pop-up-with-gilt-groupe-7230517?module=latest-articles)

 

  • "Stuart Weitzman has partnered with Gilt on a pop-up digital shop that goes live at noon Thursday, dedicated solely to its signature over-the-knee 5050 boot. For the first time, Gilt has created a separate URL at 5050bootcamp.com that will offer 20 different styles of the boot…"

 

Takeaway: This could be an interesting opportunity for brands in the future to leverage Gilt Groupe's retail strategy and user base.

 

9983 - Uniqlo opens store in NYC subway station

(http://www.chainstoreage.com/article/uniqlo-opens-store-nyc-subway-station)

 

  • "Uniqlo has opened a pop-up store in the 14th Street-Union Square subway station in Manhattan. The store, which will be open through the holidays, will offer shoppers will get a $5 Metro Card in a limited-edition sleeve with any purchase."

 

Takeaway: Unique strategy for Uniqlo as they try to establish their footprint in North America. This is a rather common strategy in Japan.

 

TUMI - Tumi Opens New York Flagship

(http://www.wwd.com/retail-news/specialty-stores/tumi-opens-on-madison-ave-7230502?module=hp-accessories)

 

  • "The accessories brand will unveil a new concept for all of the company’s stores and shops-in-shop when it opens a flagship here today."
  • "Located at 610 Madison Avenue, the 18,000-square-foot store will be considered Tumi’s main New York location, as its current flagship on 520 Madison Avenue will shutter early next year."

 

What's New Today in Retail (10/17) - chart5 10 17

 

Takeaway: 18,000 sq ft to sell luggage and handbags? The store looks surprisingly good. But can it possibly be profitable.
 

Toys"R"Us - TOYS“R”US, INC. APPOINTS CEO; NAMES PRESIDENT OF U.S. BUSINESS

(http://www.toysrusinc.com/press-room/releases/general/2013/toysrus-inc.-appoints-ceo-names-president-of-u.s.-business/)

 

  • "Antonio Urcelay has been named Chief Executive Officer, Toys“R”Us, Inc., effective immediately, after serving as the company’s interim CEO since May of this year."
  • "Hank Mullany, an experienced retail executive with a strong background in operations, finance, customer service and strategic planning, has been named President, Toys“R”Us, U.S., effective November 5."

 

Takeaway: This is in the top three jobs that you could not pay me enough money to take.

 

JCrew, M, COH, JWN, LULU, etc. -  Stella Monthly Benchmarks: JCrew.com Tops All Retailers for Third Consecutive Month

(http://happycustomer.stellaservice.com/2013/10/16/stella-monthly-benchmarks-jcrew-com-hits-a-triple-tops-all-retailers-for-the-third-consecutive-month/)

 

  • "Each month, StellaService sheds light on the service performance of online retailers within their respective retail categories. The companies are measured across four service areas: Phone, Email, Shipping and Returns. Phone and Email are measured daily, while shipping and returns are measured across multiple orders. StellaService Monthly Benchmarks are designed to provide consumers with guidance for smarter shopping and retailers with an independent, reliable benchmark for measuring and improving their customer service."
  • "Looking at combined scores for all four service areas in Benchmarks, the following companies were strongest overall (in alphabetical order):"
    • Aeropostale.com
    • Bloomingdales.com
    • Coach.com
    • JCrew.com
    • LLBean.com
    • Net-A-Porter.com
    • Nordstrom.com
    • SierraTradingPost.com
    • Shopbop.com
    • ToryBurch.com

 

INDUSTRY NEWS

 

Retail Rents Continue to Rise in New York

(http://www.wwd.com/business-news/real-estate/retail-rents-continue-to-rise-7230321?module=hp-business)

 

  • "Retail rents along the Fifth Avenue corridor between 49th and 59th Streets have surpassed $3,000 a square foot, according to the CBRE Fall 2013 report, 'Manhattan Retail Market.'”
  • "The average asking rent for the Fifth Avenue stretch between 42nd and 49th Streets is $1,082 a square foot, which CBRE noted is up 146 percent from 2009…"
  • "Over at what is known as Herald Square, the space along 34th Street from Fifth Avenue to Seventh Avenue, average asking rents are $738 a square feet, compared with $500 two years ago. The report said a few opportunities have asking rents of $1,000 a square foot, suggesting that average rent for the area is likely to continue to rise."


NPD Group releases holiday spending survey results

(http://www.retailingtoday.com/article/npd-group-releases-holiday-spending-survey-results)

 

  • "This year’s results found that 12% of U.S. consumers who were surveyed plan to spend more, while 67% said they plan to spend about the same and 21% said they plan to spend less."
  • "Overall, the holiday shopping season will get off to an earlier start compared to last year. According to the NPD Annual Holiday Spending Survey, this year more consumers have already started, or will start shopping before Thanksgiving...The survey found that 17% of U.S. shoppers have already started their holiday shopping and 22% plan to start before Thanksgiving."
  • "More than half (52%) of consumers surveyed said they plan on hitting discount stores, while 43% plan on shopping online. Twenty-nine percent of consumers plan to shop at national chains, 22% at department stores, 19% at toy stores, 18% at warehouse clubs, 17% at outlet stores, 17% at electronics stores, 15% at clothing specialty stores and 15% at off-price retailers."

 

Takeaway: With these sureveys, you want to look at one tail of the distribution vs the other -- does not bode well for shopping intent.


Where's the Party?

Client Talking Points

U.S.

Well the U.S. government is back to work and the debt ceiling is averted. For the time being at least. So now global equity markets should be rallying hard right?  That’s not quite how it is working out this morning.  U.S. futures are down, Europe is off 25 – 80 basis points, and Asia is up, albeit small.  So much for the party! Our immediate risk range for SPX is 1685-1725. Now we have to focus on the Fed.  The key question there is, of course, will they taper or not taper?

EUROPE

As global asset allocators, we have the choice to be underweight the U.S. and our view on Europe is looking very compelling on a comparative basis as we highlighted in our recent Q4 theme - #EuroBulls. The euro, a currency we do have longer term issues with, is breaking out on our quant models and is up another 70 basis points this morning to $1.3629 versus the U.S. dollar. Some interesting recent items of note include the Greek 10-year yield down 206 basis points month-over-month to 8.4% and European new passenger car registrations up the most in two years at +5.4% year-over-year in September.

Asset Allocation

CASH 42% US EQUITIES 18%
INTL EQUITIES 22% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 18%

Top Long Ideas

Company Ticker Sector Duration
DAX

In line with our #EuroBulls Q4 theme, we’re long the German DAX via the etf EWG. With European fundamentals showing improvement off low levels, we expect outperformance from Germany, and in turn for the region’s largest economy to pull the rest of the region higher. ECB policy remains highly accommodative and prepared to aid any of its sovereign members to preserve the Union. Inflation remains moderate and fundamentals are positive: confidence readings and PMIs are up since June, with factory orders trending higher and retail sales inflecting to push the trade balance higher. Finally, the unemployment rate has held steady at the low level of 6.9%, all of which signals to us that Germany’s economic climate is ramping up. 

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

Street isn't bearish enough on $WTW pic.twitter.com/Fs9zfCwwCX

@HedgeyeHC2

QUOTE OF THE DAY

This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer. -Will Rogers 

STAT OF THE DAY

U.S. National Debt: $16,964,507,500,000 (USDebtClock.org)


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