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$AMZN Drone Delivery: One Big Liability?

Takeaway: This thing smells like one big liability.

Editor's note: Hedgeye Retail Sector Head Brian McGough says caution is in order on this Amazon headline.

 

Amazon Testing Drones for Same-Day Package Delivery, Bezos Says

 

$AMZN Drone Delivery: One Big Liability? - amzndrone

  • "Amazon.com Inc. is testing drones to deliver goods as the world’s largest e-commerce company works to improve efficiency and speed in getting products to consumers."
  • "Chief Executive Officer Jeff Bezos unveiled the plan on CBS’s '60 Minutes' news program in the U.S., showing interviewer Charlie Rose the flying machines that can serve as delivery vehicles. The CEO said the gadgets, called octocopters, can carry as much as five pounds within a 10-mile radius of an Amazon fulfillment center. Amazon may start using the drones, which can make a delivery within 30 minutes, within five years pending Federal Aviation Administration approval, Bezos said."

Takeaway: This is as big an idea as we've ever heard in retail. We'll assume that AMZN's logistics team fully vetted this one before they let Bezos get on TV and talk about it. But the risks inherent to the initiative -- thousands of unmanned propeller-driven machines whizzing around the country? We're sure the FAA is thrilled with this one --- and probably the Department of Defense as well. Something tells us that AMZN's capex budget is heading higher. This thing smells like one big liability. 

 

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What's New Today in Retail (12/2)

Takeaway: Black Friday focused on share not profits. AMZN sidestepping USPS w drones. World Cup/Olympic headache for Brazil. LVMH FDO H&M Labor unrest

EVENTS TO WATCH OVER THE NEXT 24 HOURS

 

Hedgeye Holiday Consumer Survey: Focus on JCP.  We'll be conducting a follow-up to our prior consumer survey (which helped us call a JCP beat and KSS miss) following Black Friday weekend and Cyber Monday. We'll have results next week, and will have an updated presentation accordingly. If you are interested in our results, please email sales@hedgeye.com, or .

 

ECONOMIC DATA

 

Shoppers' Black Friday Weekend Spending Falls 3%

(http://online.wsj.com/news/articles/SB10001424052702304355104579232132207017004?mod=WSJ_hp_LEFTWhatsNewsCollection)

 

  • "Total spending from Thursday through Sunday fell 3% from a year earlier to $57.4 billion, with shoppers spending an average $407.02, down 4% from $423.55 a year earlier, according to the National Retail Federation."
  • "The retail trade group said the number of people who went shopping over the four-day weekend that kicked off with Thanksgiving rose slightly to 141 million, up from 139 million last year."
  • "As retailers offered some of their biggest promotions a day earlier, store traffic on Thanksgiving Day jumped 27% to 45 million shoppers. As a result, traffic on Black Friday rose just 3.4% to 92 million shoppers."
  • "Online shopping continued its steady rise over the Black Friday weekend, accounting for 42% of sales racked up over the four-day period, up from 40% last year and 26% in 2006, the trade group said."

 

Takeaway:  The problem here is that the retailers are in this massive fight for Black Friday market share -- instead of 4Q profitability. The fact that sales were up over 2% on Friday when every sell-side analyst was out there declaring victory based on their one mall visit (out of 1,100) is laughable. The reality is that the retailers drove traffic by offering ridiculous deals that in effect borrowed from full price sales that would have happened later in the month. These guys will never learn.

 

Online Thanksgiving sales top $1 billion for the first time

(http://blogs.marketwatch.com/behindthestorefront/2013/11/29/online-thanksgiving-sales-top-1-billion-for-the-first-time/)

 

  • "Retailers’ extra push for online Thanksgiving sales this year...have managed to send online sales on Turkey Day to a record…"
  • "For the first time ever, Thanksgiving itself generated $1.06 billion in online sales, an 18% increase from last year, and the first time the day topped $1 billion online. That’s according to Adobe, which says nine out of the top 10 U.S. retailers are its clients and that more than 70% of online spending at the top 500 U.S. retailers goes through its Adobe Marketing Cloud system."
  • "Adobe’s data showed a record 20.9% of online spending was made through mobile devices, with $152 million spent via tablets and $70 million via smartphones. Apple Inc.’s iPad alone accounted for $130 million of online sales, it said."

 

Takeaway: Not a surprise whatsoever. Though 18% growth is big, it's not huge when talking about online. We're going to see a step up in online sales with six fewer days people can spend in the physical stores. Bullish for AMZN.

 

COMPANY NEWS

 

World Cup Stadium Collapses In Brazil, Killing At Least 2 People

(http://www.buzzfeed.com/mikehayes/world-cup-stadium-collapses-in-brazil-killing-multiple-peopl)

 

  • "A horrific accident occurred Wednesday afternoon at the Corinthians stadium in São Paulo, Brazil, as a support crane fell and took out a section of bleachers. Two people are confirmed dead, stadium president Andres Sanchez said Wednesday at a news conference. Rescue crews believe more are trapped in the wreckage."
  • "Local media reports that a third person was pulled from the rubble and is hospitalized in serious condition. A fire department official has said earlier that three people had died."
  • Corinthians stadium was slated to be turned over to FIFA next month, fully completed. The stadium was also set to host the opening game for the 2014 World Cup next summer."

 

What's New Today in Retail (12/2) - chart1 12 2

 

Takeaway: Brazil was already behind schedule with this stadium (as well as others). And with just eight months to go until the World Cup, this tragedy -- at the most important football stadium -- is the last thing that Brazil needs, especially with the IOC breathing down its neck as it relates to being ready for the 2016 Summer Games.

 

AMZN - Amazon Testing Drones for Same-Day Package Delivery, Bezos Says

(http://www.bloomberg.com/news/2013-12-02/amazon-testing-octocopters-for-delivery-ceo-tells-60-minutes-.html)

 

  • "Amazon.com Inc. is testing drones to deliver goods as the world’s largest e-commerce company works to improve efficiency and speed in getting products to consumers."
  • "Chief Executive Officer Jeff Bezos unveiled the plan on CBS’s '60 Minutes' news program in the U.S., showing interviewer Charlie Rose the flying machines that can serve as delivery vehicles. The CEO said the gadgets, called octocopters, can carry as much as five pounds within a 10-mile radius of an Amazon fulfillment center. Amazon may start using the drones, which can make a delivery within 30 minutes, within five years pending Federal Aviation Administration approval, Bezos said."

 

Takeaway: This is as big an idea as we've ever heard in retail. We'll assume that AMZN's logistics team fully vetted this one before they let Bezos get on TV and talk about it. But the risks inherent to the initiative -- thousands of unmanned propeller-driven machines whizzing around the country? We're sure the FAA is thrilled with this one --- and probably the Department of Defense as well. Something tells us that AMZN's capex budget is heading higher. This thing smells like one big liability.

 

AMZN - Amazon U.K. Ramps Up Fashion Offer

(http://www.wwd.com/retail-news/direct-internet-catalogue/amazon-uk-ramps-up-fashion-offer-7295578?module=hp-retail)

 

  • "Amazon.com in the U.K. is staking its claim on the country’s apparel market. The Internet retailer said Sunday that in the week of Nov. 24 to 30, customers ordered more than 1 million items of apparel from amazon.co.uk, making it the site’s biggest week to date for fashion sales."
  • "The disclosure comes one year after the launch of the retailer’s premium fashion store, at amazon.co.uk/premium."

 

Takeaway: Sorry Bezos, Amazon is simply not relevant in apparel yet. Once the company figures out the magic formula it will be the nail in the coffin for countless apparel retailers and big box retailers alike.

 

HMB - H&M to open first store in Philippines

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=156534)

 

  • "Hennes & Mauritz AB has signed contract for the first store opening in Manila, Philippines. The flagship store is planned to open during 2014 in the shopping centre SM Megamall, Manila."

 

FDO - Supply chain Head at Family Dollar steps down

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=156512)

 

  • "Family Dollar Stores, Inc. announced that Jeffrey W. Macak, Executive Vice President–Supply Chain, has resigned from the Company for personal reasons, effective November 27, 2013. The Company intends to conduct a search for Mr. Macak’s replacement."

 

LVMH - L Capital Buys 40% of Australia's 2XU

(http://www.wwd.com/business-news/mergers-acquisitions/l-capital-asia-buys-40-of-australias-2xu-7295831)

 

  • "LVMH Moët Hennessy Louis Vuitton-backed L Capital Asia has bought 40 percent of Melbourne-based technical sportswear manufacturer 2XU…"
  • "The Australian company and its existing equity partner Lazard Australia Private Equity announced the news Monday. They did not dispose a price for the deal but sources said the stake is worth approximately 75 million Australian dollars, or $68.3 million at current exchange."
  • "Founded in 2005 by former Australian advertising executive turned mens underwear manufacturer Clyde Davenport and two New Zealanders, Aiden Clarke and former professional triathlete Jamie Hunt, 2XU (pronounced 'Two Times You') operates 12 standalone stores within Australia, two in the US and wholesales to 50 markets. The company claims to have achieved revenue growth in excess of 40 percent per annum over the past five years."

 

INDUSTRY NEWS

 

Bangladesh on Fire: Angry Workers Torch One of Nation’s Largest Factories

(https://www.sourcingjournalonline.com/bangladesh-fire-angry-workers-torch-one-nations-largest-factories/)

 

  • "Violence continues to consume Bangladesh as another fire engulfed a garments factory on November 29, reportedly started by workers enraged over rumors that a fellow colleague was killed by police."
  • "The inferno consumed the Standards Group factory in Gazipur, approximately twenty-five miles from Dhaka, the nation’s capital. The fire quickly spread to four adjacent buildings…"
  • "...there has been no official confirmation of which retailers contract with the factory, there is allegedly some photographic evidence that Li and Fung Ltd., Marks and Spencer Group PLC, Sears Canada Inc., Uniqlo, Zara, Wal-Mart, Gap Inc. and American Eagle Outfitters all sourced their apparel at the factory."

European Banking Monitor: The Great Moderation

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

 

---

 

European Financial CDS - Swaps were almost universally tighter across European Financials last week with the sole exception of Greece, where swaps rose across the board. While the most recent week of tightening was somewhat modest, the past month of change has been remarkable. On average, European Financials have tightened up by 46 bps or roughly 21%. #EuroBulls

 

European Banking Monitor: The Great Moderation - vv.banks

 

Sovereign CDS – Sovereign swaps were mixed last week with notable improvements coming from Europe while the ROW was modestly wider. Portugal and Italy tightened by 8 and 9 bps, respectively. This trend of ongoing tightening among the PIIGS countries is reflective of our 4Q13 macro theme #EuroBulls. On a month-over-month basis, the only country in our monitor not to show improvement is the US.

 

European Banking Monitor: The Great Moderation - vv.cds1

 

European Banking Monitor: The Great Moderation - vv. cds2

 

European Banking Monitor: The Great Moderation - vv.cds3

 

Euribor-OIS Spread – The Euribor-OIS spread widened by 2 bps to 11 bps. As the chart below shows, however, the increase put the measure back in-line with its past month average and is not an indication of rising risk in Europe's banking system. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

European Banking Monitor: The Great Moderation - vv.euribor

 

Matthew Hedrick

Associate


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DAILY TRADING RANGES 12/2, REFRESHED

This note was originally published December 02, 2013 at 07:13 in Daily Trading Ranges

 

Editor's note: This is a complimentary look at Hedgeye's Daily Trading Ranges product. Every weekday morning before market open, subscribers receive our proprietary buy and sell levels on major markets, commodities and currencies. It's the ultimate edge for the smart, savvy trader. Click here to subscribe.

 

DAILY TRADING RANGES 12/2, REFRESHED - ja44

 

BULLISH TRENDS

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DAILY TRADING RANGES 12/2, REFRESHED - Slide7

DAILY TRADING RANGES 12/2, REFRESHED - Slide8

DAILY TRADING RANGES 12/2, REFRESHED - Slide9

 

BEARISH TRENDS

DAILY TRADING RANGES 12/2, REFRESHED - Slide10

DAILY TRADING RANGES 12/2, REFRESHED - Slide11
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DAILY TRADING RANGES 12/2, REFRESHED - Slide13


NOVEMBER MARKET SHARE ANALYSIS

LVS rebounds but the details should look even better

 

  • Macau GGR grew over 21%, beating expectations once again
  • Hold likely held back LVS share.  Despite what we think was a low VIP hold month, LVS still maintained share trend due to a strong event calendar.  We expect that volume share increased and Mass revenue growth likely led the market in November.
  • Two Alicia Keys concerts and of course the Manny Pacquiao fight likely drove significant Mass gaming and non-gaming revenue growth.  Restaurants and retail was packed the last weekend of the month with some reports indicating 40% retail growth above a normal weekend.
  • A strong events push is proving to be a successful model for Venetian Macau and all of Sands China.  The Rolling Stones will perform in early March 2014 at the Venetian.
  • Wynn’s share uptick may be a result of an initial marketing push but it’s too early to know. We do expect some Mass market share gains at the property in the coming months.

NOVEMBER MARKET SHARE ANALYSIS - smm


Keep An Eye on Volatility

Client Talking Points

VIX

What we're witnessing right now is front-month volatility continuing to make a series of higher-lows as the U.S. stock market year end performance chase delivers higher-highs on lower-volumes. This rarely ends well for those forced to buy and cover high. Don’t do that.

POUND

After another +0.9% week versus the US Dollar last week, the British Pound powers forward again this morning as the UK printed the best sequential PMI print for November in Europe (see 58.4 versus 56 in November). We like the Euro, but we like the Pound even more.

UST 10YR

The 10-Year Treasury Yield is up +5 basis points to 2.79% and Gold (still) does not like #RatesRising. The 10-year continues to frustrate people looking for a big breakout or breakdown as it simply trades in a 30 basis point range. This week should mark the high on US Growth consensus expectations. Incidentally, Q313 should be the top in GDP, and that’s reported on Thursday.

Asset Allocation

CASH 58% US EQUITIES 4%
INTL EQUITIES 4% COMMODITIES 4%
FIXED INCOME 4% INTL CURRENCIES 26%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

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

Show me a strong currency running over Keynesian policy makers, and I'll show you a country I like @KeithMcCullough

QUOTE OF THE DAY

"The dictionary is the only place where success comes before work." - Mark Twain

STAT OF THE DAY

Heavy discounting took a toll on U.S. retail sales during the Thanksgiving weekend as shoppers spent almost 3% less than they did a year earlier. The National Retail Federation estimated the average shopper spent $407.02 over the weekend, or 3.9% less than during the same weekend last year, because of lower prices it said would persist through the rest of the season.


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