The 3Q13 earnings season has largely been highlighted by disappointing results across the board in the restaurant industry.  The Casual Dining EPS Beat/Miss Index is currently running at 33% and the Quick Service EPS Beat/Miss index is running at 43%, both of which are very low percentages, historically.


  • The Hedgeye Casual Dining EPS Beat/Miss Index has only been below 50% in 1 of the past 26 quarters – 3Q08. 
  • The Hedgeye Quick Service EPS Beat/Miss Index has only been below 50% in 3 of the past 26 quarters – 1Q07, 2Q08 and 3Q08.







It is interesting to note that, despite poor earnings, the Bloomberg Full Service Casual Dining Index has outperformed the S&P 500 by +2.6%, +4.9% and +18.3% over the past week, past three months and year-to-date, respectively.  On the other hand, the Bloomberg QSR Index has underperformed the S&P 500 by -0.4% and -1.3% over the past week and past three months, respectively, and has outperformed by the S&P 500 by +11.8% year-to-date.


This outperformance has come amidst a sluggish top line environment.  Although sales trends continue to slow on a 2-year basis, we suspect they will begin to accelerate in 4Q13 and continue into 1Q14.  In our opinion, lower gas prices year-over-year will support this stronger sales environment.









As always, there will be winners and losers in each respective segment, as some companies are better positioned to benefit from an improving top line environment than others.


In the QSR space, we continue to like SBUX, YUM, KKD, CMG & JACK on the long side and PNRA & MCD on the short side.


In the Casual Dining space, we continue like EAT, CAKE & DRI on the long side and RRGBBLMN & RT on the short side.






Howard Penney

Managing Director


Top 10 Questions for Twitter Management during IPO Roadshow

In advance of our Twitter black book call on November 6th (details to follow), we thought we'd circulate our top questions for Twitter management on their IPO roadshow.


The TWTR Top 10:


1.  How are you going to use the IPO proceeds? Can you outline how we should expect the proceeds to accelerate your growth?


2.  More than 77% of Twitter users are from outside the United States, but only 26% of your consolidated revenue comes from outside the United States -  Why is the yield on international users so much lower, and how will this trend over time? Are there structural impediments to revenue internationally?


 3.  Timeline views per monthly average user (MAU) declined sequentially by 1% in Q3 2013? Is this an indication of engagement declining, or is there another dynamic at work?


4.  How should we think about the market size for the total number of global users? Especially, vis-à-vis Facebook’s 1.15 billion monthly users as of Q2 2013?


5.  Generally speaking, why have some advertisers been early adopters and others taken longer to begin advertising on your platform? How do you show ROI to advertisers?


6.  How will the financial model look longer term?  As an example, Facebook currently has costs of sales that are 26% of Q2 2013 revenue and Twitter is at 36%.  Longer term, is there any reason that Twitter can’t have operating margins comparable to Facebook?


7.  Acquisitions have been an important part of your strategy historically, are there any areas in particular that you are focused, like analytics as an example?


8.  How do you view the competitive landscape? In particular, Google, LinkedIn, and Facebook appear to have low barriers to entry given their high user bases and, as we all know, before Facebook there was MySpace.


9.  According to a recent Gallup poll of people that have joined Twitter 36% said they don’t use the service and 7% have admitted to shutting down their account.  Meanwhile, only 7% of Facebook users don’t use their account and only 5% admitted to shutting down their account. What do you make of this poll and the implication on user engagement?  Along that line, how much time per week, or month, does the average user spend per month on the site?


10.  What are the most important metrics for the health of your business?


11.  What keeps you up at night? 



Daryl G. Jones

Director of Research


$LULU Taps Tara Poseley. Huh?

Takeaway: Lululemon's decision here strikes us as odd.

Hedgeye Retail Sector Head Brian McGough is scratching his head over a recent hire at Lululemon.


$LULU Taps Tara Poseley. Huh? - lulu5

  • Lululemon Athletic on Tuesday named Tara Poseley chief product officer."
  • "Poseley, who most recently was president of the multichannel, multicategory Kmart apparel business, will be responsible for merchandising, inventory, allocation and strategic planning. In her new role, Poseley will oversee Lululemon’s global design strategy, working with the senior vice presidents of women’s and men’s design...In her 25-year career, Poseley has run men’s, women’s, accessories, kid’s and intimate apparel businesses as an executive at Bebe Stores, Disney Stores North America and Design Within Reach."

Takeaway: This definitely strikes us as odd. LULU has the luxury of hiring only the best people -- but the former head of K-Mart's apparel business??? That's a head-scratcher. Disney and DWR definitely lend a lot of credibility. I know it sounds like we're nit-picking here…but perhaps that's because we were hoping that the next executive announcement would be for a new CEO. After all, Christina Day (who we happen to be a fan of) was, in effect, pushed out back in June, but still sits at the helm nearly 5-months later. Very odd.


Related video: Why We're Bullish on Restoration Hardware

Today 1pm EST: Call With NJOY CEO On E-Cigs

Today at 1pm EST we are hosting an expert call on electronic cigarettes with Craig Weiss, CEO of NJOY, titled "NJOY and Developing Trends in the E-Cig Industry." 


Please send any questions for Craig to and he will answer them following his prepared remarks.


We also want to note that Craig and NJOY were featured in an NYTimes article over the weekend.




  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 959896#
  • Materials: CLICK HERE 



  • Industry trends and the developing landscape
  • NJOY's company profile and share of the category
  • The regulator outlook for e-cigs in the U.S. and internationally
  • What the future holds for e-cigs



Before joining NJOY in June 2010, Craig Weiss, a U.S. Registered Patent Attorney, practiced law, where he focused on the drafting and prosecution of patent applications for medical device, eCommerce and business method inventions. Weiss has three patents to his name, including two for medical devices. He was also the managing member of a hedge fund focused on intellectual property. Weiss earned his law degree from Arizona State University and his bachelor's degree from the University of Pennsylvania.




NJOY is a private e-cig manufacturer, founded in 2006 and headquartered in Scottsdale, Arizona, with online sales and retail distribution in over 60,000 locations nationwide. NJOY has carved out a leading position in the category, offering a variety of rechargeable and disposable products in traditional tobacco and menthol varieties.  


In April 2010 the company announced that it received a $20MM investment from the private equity company Catterton Partners. In June 2013, a collection of investors, including Sean Parker (formally at Facebook), announced a $75MM investment in the company.

[video] Keith's Macro Notebook 10/30: Japan, Spain, UST 10YR

Happy Dollar Debauchery Day!

Client Talking Points


Ahead of our central-planning Fed overlord doing his un-elected thing, in hopeful relief the U.S. Dollar rallied to another lower-high versus the Yen. Japanese stocks loved that. They closed up +1.2%, but just inside of 14571 Nikkei TRADE resistance as USD/YEN fails at 98.42 resistance. Keep your head up out there. This can all reverse within 24 hours. So just know where your mean reversion risks are.


Delivering alpha with a playbook Hedgeye GIP Model move triangulating Growth Inflation & Policy (Growth Stabilizing as Inflation Slows to -0.1% year-over-year CPI for October). This is the upside to a #StrongEuro. That’s why we call the Global Macro Theme for Q413 #EuroBulls.


We're Breaking Bad as interest rates front-run Ben Bernanke’s impact on U.S. #GrowthSlowing. The last three U.S. economic data points for September/October all slowed (see Pending Homes, Retail Sales, and Consumer Confidence). There's no support now for the 10-year to 2.40% then 2.27%. In the unlikely event that Bernanke whispers anything about being rational on monetary policy (read "tapering"), the breakout line is 2.60%.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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 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.


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


I'll probably take Commodities up from 0% after Bernanke speaks - need to hear from my overlord 1st @KeithMcCullough


“It’s imperative that the Fed begins to taper.” -BlackRock's Larry Fink (after Fink begs the Fed not to taper)


$17,000,000,000: Banks have agreed to fork over more than $17 billion in settlements with U.S. regulators so far in 2013. That's up from a little over $10 billion in 2012. And that doesn't include the $8 billion that JPMorgan Chase may get hit with soon.

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.