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CASUAL DINING ANOMALY

Despite the S&P 500 rising approximately 27.1% over the past year, casual dining stocks have meaningfully outperformed this index.  Around a month ago, we published a note titled “The Casual Dining Bubble.”  In this note we highlighted the rich valuations across the casual dining sector and questioned the quality of these multiples.  Since then, casual dining companies in aggregate have begun to underperform the S&P 500 and same-store sales estimates for 4Q have come down.  Needless to say, valuations are still at very high levels which we cannot support or explain within the context of a legitimate fundamental backdrop.  We are convinced casual dining stocks are in a bubble, but we do not know when this bubble will pop.

 

CASUAL DINING ANOMALY - CD Perform

 

CASUAL DINING ANOMALY - casual dining ebitda

 

CASUAL DINING ANOMALY - casual dining pe

 

CASUAL DINING ANOMALY - price to cf

 

 

Highlighted in the two charts below, casual dining sales and traffic trends have been anemic for over a year and a half.  Industry traffic has not had a positive month since February 2012.  These statistics suggest that such strong outpeformance of casual dining stocks over the last year is unwarranted.

 

CASUAL DINING ANOMALY - Black Box Sales

 

CASUAL DINING ANOMALY - Black Box Traffic

 

 

In the following chart, we compare the aggregate price performance and short interest of the stocks in our casual dining index.  Despite very weak fundamentals, short interest has been falling since late 2011.  The continuation of this trend suggests that investors don’t want to get in the way of the sectors positive momentum.  Being on the wrong side of a bubble can be costly, to say the least.

 

CASUAL DINING ANOMALY - Short Interest

 

 

Although 4Q same-store sales estimates have been revised down over the past month or so, we still believe they are too high.  4Q was supposed to be the bounceback quarter for the industry.  While it will be a stronger quarter sequentially, compared to 3Q, it will still be relatively weak on a historical basis.

 

CASUAL DINING ANOMALY - Casual Dining SSS

 

 

Despite the consensus expected recovery in 4Q, casual dining stocks have underperformed the S&P 500 over the past month and have meaningfully underperformed the index over the past week.  This could signal that investors are coming to their senses.  The majority of valuations across the sector are excessively high and unwarranted.  That being said, we expect to see significant downward multiple revisions in the space but, alas, we don’t know when this will happen.  Perhaps the last month has signalled the beginning. 

 

CASUAL DINING ANOMALY - outperformance changing

 

 

 

Howard Penney

Managing Director

 


JCP: Round 2 -- JCP/Dept Store Consumer Survey

Takeaway: Please join Hedgeye Retail Monday Dec. 9th at 1:00pm EST for the 2nd installment of our Consumer Survey on JCP and the department stores.

As a reminder, the first iteration of this 1,000 consumer survey was a critical component of our call to be long JCP over the past three months, and to be short KSS into 3Q earnings (which it missed). We already know JCP's 10% November comp, but the purpose of this survey is to go much deeper in order to flush out key fundamental issues around the JCP story and store experience.  

 

JCP: Round 2 -- JCP/Dept Store Consumer Survey - Screen Shot 2013 12 05 at 6.06.23 PM

 *dial-in info and materials link will be available before the end of the week

 

EXPECT TO HEAR UPDATES ON THE FOLLOWING TOPICS:

  1. First off, better than half of the questions will be identical to what we asked just three months ago, so not only will we see what consumers are thinking, but we'll be comparing to what they said last time to gauge incremental change.
  2. We'll provide an update on market share. We already think we know where it went (per our last survey), but now we'll verify (or challenge) our prior findings by re-polling Consumers.
  3. More importantly we'll now have a sense as to where JCP is stealing back market share from KSS, M, TJX, TGT, SHLD, others?
  4. We'll look at Private brands, which we think are critical to 600bp Gross Margin rebound, and the extent to which JCP is having success reintroducing these brands to consumers. Do people want them as much now as they did pre RonJon?
  5. In this survey, we placed a greater emphasis on JCP's online business. The company's results already show that it's rebounding, but we dive into what and who the specific drivers are.
  6. The company has introduced several new brands over the past three months. Do people care? Are they attracting incremental shoppers?

 

 

CONTACT

For question please email 

        


Keith on Forbes: U.S. Remains Hostage

Takeaway: We remain hostage to a bunch of un-elected NYC banking group-thinkers.

“In my career, the Fed has a 100% error rate in predicting and reacting to important economic turns… because it is trying to arbitrarily set the single most important price of the economy – the price of money… setting wage and price controls from the time of Diocletian to Nixon, has proven in every case a disaster for economies and the people entrapped by them.” 

-John Allison

 

Keith on Forbes: U.S. Remains Hostage - benmoney

 

Former BB&T CEO John Allison retired from finance in 2010 after building, brick-by-brick, one of the best run banks in American history. As author George Gilder observes in his excellent book, “Knowledge and Power,” Allison steered BB&T through the entire sub-prime crisis without suffering a single quarterly loss. Not one penny. During his almost two-decades at the helm, BB&T blossomed from a small, relatively inconsequential local bank to a $152 billion regional powerhouse successfully operating in 11 southern states and the District of Columbia. Simply put, John Allison knows how to lead.

 

“[BB&T] had really strong presidents,” according to Allison, redirecting credit to his underlings. “They had a much higher level of authority than our competitors… they were held responsible – they owned the process.”

 

Now shift your focus from John Allison, visionary business leader, to the Fed Crony Boys over in the “Land of Mediocrity.”

 

Click here to continue reading Hedgeye CEO Keith McCullough's latest op-ed on Forbes.


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Short BWP – Report and Dial-In

We added SHORT Boardwalk Pipeline Partners (BWP) to our Best Ideas list on 12/2/2013.

 

Click the link for our FULL REPORT ON BWP: http://docs.hedgeye.com/BestIdeaBWP_DEC2013.pdf

 

We will host a quick call TODAY at 11am EST to hit the key points of the thesis and field questions.  If you have any questions, send them over to .

 

Dial-in Info:

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 855488# 

 

Kevin Kaiser

Managing Director

Twitter: @HedgeyeEnergy

 


THE M3: JAPAN

THE MACAU METRO MONITOR, DECEMBER 5, 2013

 

 

JAPAN'S LDP LEGISLATORS SUBMIT BILL IN DIET TO LEGALIZE CASINOS Strait Times

Japanese lawmakers from the ruling Liberal Democratic Party submitted a bill to legalize casinos to parliament.   The bill was also jointly submitted by the members of the Japan Restoration Party and other groups, Hiroyuki Hosoda, the chairman of a cross-party group of pro-casino lawmakers.  LDP’s junior coalition partner New Komeito has approved the submission, LDP’s policy chief Sanae Takaichi said.

 

The parties aim to pass the bill in the next session beginning January, said Hosoda, who is also an executive acting LDP secretary-general.  The bill, which was drafted by a group of pro-casino lawmakers across parties, was approved by the LDP’s General Council last month.

 

The LDP has a single-party majority in the lower house and would probably gain enough opposition support to pass the bill in the upper house and enact the law even without New Komeito’s backing.


Christmas Bear Scraps

Client Talking Points

JAPAN

If you wanted to short a major equity market for a real correction, you should have tried a whirl on the Nikkei for 48 hours. Japan was down -1.5% overnight. It's down -3.7% in 2-days after the YEN stopped going down versus the US Dollar. Global macro matters.

EURO

So in spite of that European Central Bank cut, the Eurocrats just can’t seem to keep the Euro down versus the US Dollar. Why? Because Ben Bernanke is prepping his academic turkeys for more no-taper basting. Who cares what the economic data says? That scent in the air is the smell of #BurningBucks.

UST 10YR

What's that? #RatesRisingagain? Yes.. to 2.83% (Gold down -0.8% this morning, it no likey rising rates). So, Bill Gross and the bond guys over at PIMCO and the New York Fed better intervene soon. After all, our unelected central planners at the Federal Reserve must never let economic gravity get in the way of good dogmatic storytelling. #Sad. On a related note, SPX risk range is now 1788-1815. Time to buy and cover (again).

Asset Allocation

CASH 42% US EQUITIES 10%
INTL EQUITIES 12% COMMODITIES 4%
FIXED INCOME 6% 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

Devalue The Dollar and crush seniors starving on fixed savings w/ 0% rates (and talk "income disparity") @BarackObama

QUOTE OF THE DAY

"Great minds talk about ideas, average minds talk about events, and small minds talk about people." - Eleanor Roosevelt

STAT OF THE DAY

Bond prices fell yesterday, sending the 10-year note's yield to as high as 2.852%, nearing the 3% mark touched this past summer when investors bet the Fed would retreat from buying Treasury and mortgage bonds at its September policy meeting. (WSJ)


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