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

Takeaway: Reminder - 2nd installment of the Hedgeye Retail Consumer Survey on JCP & the Department stores. Monday 12/9 at 1pm ET ***DIAL-IN INCLUDED

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 - jcp call



  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?




For question please email 

Employment, Income & Spending: The debate is basically this...

SUMMARY:  Employment growth was solid in November and seasonality will continue to build as a positive support through 1Q14.  The preponderance of under-the-hood dynamics in today's payroll report were positive as well.   


Meanwhile, Core PCE inflation remains at half of target and October Personal Income data was soft (although it carries the government shutdown asterisk) with personal income, disposable personal income and private sector salaries & wages all decelerating to start 4Q.  The rise in payrolls and average earnings in the more real-time employment report, however, are all supportive of forward income growth.



So, from a macro fundamental perspective, the policy adjustment debate is/remains basically this:  Strong GDP, Strong Manufacturing Activity, a Strong Labor Market (that will, optically at least, continue to strengthen) and recovering Confidence vs. below target Inflation, middling Income Growth, depressed Labor Participation, a recent Deceleration in Household Consumption and ongoing Fiscal Policy uncertainty.   


We don't think the Fed begins tapering in December but we don't have any particular conviction in that.  From a portfolio management perspective, we've continued to Buy the Bubble on pullbacks, managing our gross and net exposure within the immediate term risk range. 


A summary review of this morning’s employment and personal Income and spending data below:



EMPLOYMENT:  Summary Takeaways

  • NFP:  November saw a continuation of steady growth (on a 2Y basis) in NonFarm payrolls and the second consecutive month >200K
  • Seasonality Reminder:  Positive Seasonal impacts build from September through March then reverse to a headwind that builds over the April to September timeframe.   Seasonality should manifest via strengthening improvement in the employment (NFP and Initial Claims) data through 1Q14 (see chart below)
  • Unemployment rate:  Unemployment rate dropped from 7.3% to 7.0% and U-6 Unemployment dropped to 13.2% from 13.8%.  We didn’t recoup the big drop in the labor force observed in October but, on balance, the 0.3% decline in the unemployment rate was positive as the number of people employed increased and the number of people unemployed decreased alongside and increase in the total labor force
  • Industry Employment: Employment growth was solid across industries with the exception of Finance & Information.  Manufacturing saw its largest gain since March of 2012 – confirming the positive IP & ISM mfg activity data over the last few months.
  • State & local government employment growth was positive for the 5th straight month, accelerating sequentially in November.  Job loss at the Federal level remains ongoing with another 7K (-3.3% YoY) lost in the latest month.
  • Labor Force participation and the employment-to-population ratio both increased
  • Incomes grew as wage growth and hours worked both ticked up small.

 Employment, Income & Spending: The debate is basically this... - Employment Summary Table NOV


Employment, Income & Spending: The debate is basically this... - Industry Share   Earnings Nov


Employment, Income & Spending: The debate is basically this... - NFP Seasonality Nov


Employment, Income & Spending: The debate is basically this... - Unemployment Rate


Employment, Income & Spending: The debate is basically this... - LFPR by Age


Employment, Income & Spending: The debate is basically this... - State   Local Gov t




October saw a reversal of September’s income and spending dynamics where incomes grew at a positive spread to spending and the savings rate hit a YTD high.


Personal income declined -0.1% MoM and real disposable personal income declined -0.2% in October while spending increased 0.3% MoM  and the savings rate dropped to 4.8% from 5.2%.  Impacts from the government shutdown, however, complicate gleaning a clean read on the Trend.  


While private sector salaries a wages decelerated in the latest month, the drag from government sourced income (federal/state/local) continues to ebb.  As we’ve highlighted, if negative growth in government employment bases and government sourced personal income growth turns positive alongside a spending friendly, sequestration alternative budget deal, consumption growth could see some meaningful upside in 2014.


In the more immediate term, and from a GDP accounting perspective, a consumer still constrained by middling income growth will have some heavy lifting to do to expeditiously draw down rising private inventory levels.   


Employment, Income & Spending: The debate is basically this... - Income   Spending 


Christian B. Drake



November’s jobs report was strong as employers added 203,000 jobs during the month, well above the 180,000 that economists expected.  Following suit, the narrower data sets released were, across the board, bullish for the restaurant industry.  Employment growth across all cohorts improved on a sequential basis, suggesting that sales at QSR, fast casual and casual dining companies could pick up in the coming months.


Below, we discuss employment by age and restaurant industry employment.  These serve as proxies for demand and operator confidence, respectively, in our models.



Employment by Age (demand)


Employment growth by age skewed positively across the board in November as the 20-24 YOA cohort saw growth accelerate to +85 bps from +77 bps in October, the 25-34 YOA cohort saw growth accelerate to +140 bps from +78 bps in October, the 35-44 YOA cohort saw growth accelerate to +58 bps from -40 bps in October, the 45-54 YOA cohort saw growth slowing decelerate to -49 bps from -167 bps in October, and the 55-64 YOA cohort saw growth accelerate to +115 bps from +95 bps in October.


Employment by age is an important metric for the restaurant industry.  Given the discretionary nature of casual dining expenditure, and the highly competitive nature of the industry, we infer that sustained employment growth in core demographics is necessary for continued comp growth in the absence of new unit growth or income per capita growth.  The sequential deceleration in growth slowing in the 45-54 YOA cohort and the acceleration in the 55-64 YOA cohort reflect positively upon casual dining companies, indicating that we could begin to see demand pick up within the sector.


Within the QSR segment, we continue to find that the majority of management teams we track consistently highlight the importance of employment growth to the success of their business.  The sequential acceleration in the 20-24, 25-34, and 35-44 YOA cohorts, suggests that demand for quick-service and fast casual restaurants could also pick up.





Restaurant Industry Employment (confidence)


The Leisure & Hospitality employment data, which leads the narrower food service by one month, suggests that employment growth in the food service industry decelerated sequentially in November.  That being said, the Leisure & Hospitality data registered a month-over-month increase of +17k (second chart below), a deceleration from October’s +49k month-over-month gain.


The more narrow restaurant-focused data sets are positive for their respective categories.  Both limited-service employment growth and full-service employment growth accelerated sequentially in October.



Sequential Moves


Leisure & Hospitality: Y/Y employment growth at +3.04% in November, down -3 bps versus October


Limited-Service: Y/Y employment growth at +4.47% in October, up +1 bps versus September


Full-Service: Y/Y employment growth at +2.68%, up +11 bps versus September










Howard Penney

Managing Director


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Just Charts: #EuroBulls

This note was originally published December 03, 2013 at 15:21 in Macro

Editor's note: If a picture is worth 1,000 words, then you're looking at north of 20,000 words below. This is a complimentary, unlocked research commentary from Hedgeye analyst Matt Hedrick. If you are looking to turbocharge your research and portfolio click here.


Our Top Q413 Global Macro Theme remains #EuroBulls.


Just Charts: #EuroBulls  - bulls1 


The heart our #EuroBulls call is a bullish position on the GBP and EUR versus the USD and a bullish position on UK and German equities, built on a few central factors:

  • Central Bank Intervention: we expect Janet Yellen to remain the ueber dove on policy and push out any QE taper expectations to at least late in Q1 2014, which should burn the Greenback lower (etf UUP). 
  • BOE “Hawks”: we expect Mark Carney and the BOE to remain on hold with interest rates and the asset purchase target, built on improving UK fundamentals, which should encourage the British Pound higher (etf FXB).
  • Draghi’s Back Pocket: we were surprised (and off-sides) with the ECB’s decision to cut the interest rate 25bps on 11/7. The cross has since corrected and we like the set-up on the long side. Twisting an expression, we don’t think it pays to ‘Fight the ECB’: Draghi has balance sheet flexibility with LTRO repayments to unlock additional sovereign and banking bailouts, if needed (etf FXE).
  • Island Insulation: the UK was the first country to issue austerity in Europe -- we’re seeing the threw-put of that decision with fundamentals improving ahead of its European peers. We maintain a bullish bias on UK equities (etf EWU).
  • German Leadership: Chancellor Merkel is formalizing coalition talks with the SPD; alongside her Finance Minister Schaeuble we see strong continuity of policy vis-à-vis the EU with the new coalition. We’re seeing strong domestic economic health from Eurozone’s largest economy and we expect the country to benefit as the region recovers off a low base. We’re buyers of Germany’s stability (etf EWG).

Just Charts - Below we show the data we’re seeing that is supportive of our #EuroBulls call:

  • GDP Taking the Turn: before we highlight the economies of Germany and the UK, we’ll note that we’re seeing a broader improvement from the Eurozone region. In the next charts, the turn (to the positive) is underway!

Just Charts: #EuroBulls  - hed1


Just Charts: #EuroBulls  - zz. eurozone IP and REtail

  • Confidence Ramping: From economic to business and consumer, the improvement in confidence readings is hard to ignore.

Just Charts: #EuroBulls  - zzz. .eurozone business conf

  • Even Autos are getting a bounce: Any increase in big ticket items is a signal of confidence to us.

Just Charts: #EuroBulls  - zz. EU clunkers

  • PMIs Popping: the improvement in confidence is backed by stronger Services and Manufacturing PMIs.  Despite underperformance from France, we expect the Eurozone aggregate to cruise about the 50 line (expansionary), and the UK and Germany to outperform.

Just Charts: #EuroBulls  - zz. pmis

  • Risks Abates: an additional positive signal comes from tightening credit spreads, approaching levels last seen when Europe’s sovereign ‘crisis’ began.  While risk is not completely off the table, either on the sovereign or banking sides, we’re seeing compelling improvements. All European sovereign CDS are down on the month and, on average, European Financials have tightened by 46 bps or roughly 21% on the month. 

 Just Charts: #EuroBulls  - zzz. credit spreads

  • Deflating the Inflation: we view deflation of the inflation as a lower consumption tax that will boost real inflation adjusted growth. Clearly the ECB has failed to meet its mandate of CPI at or below 2%, however CPI at its current 0.9% is not a “threat” of deflation in our opinion.  Despite the ECB’s surprise cut to the interest rate on 11/7, we see no need for the central bank to cut further as fundamentals are showing improvements.       

Just Charts: #EuroBulls  - zz. Eurozone inflation

  • Draghi’s Back Pocket: Our new mantra is don’t ‘Fight the ECB’ because 1). Time and time again it has not paid to, and 2). Draghi has even more balance sheet flexibility now with LTRO repayments coming in. Don’t forget our central position has been that Eurocrats want to keep the Eurozone experiment alive – this includes at all costs, be it for additional sovereign and/or banking support. 

Just Charts: #EuroBulls  - zz. ECB and LTRO

  • Credit Thin: This chart remains a thorn in Draghi’s side. Getting credit to flow into the system to households and non-financial corporations has been a great challenge. We don’t expect the ECB to issue another round of LTRO, given its shortcomings in this respect, but we could foresee an alternative to the LTRO with more outlined lending requirements. 

 Just Charts: #EuroBulls  - zz. ecb loans to households

  • The TREND is Your Friend: our quantitative lines in the sand on the EUR/USD have not moved much in Q4. The currency crashed on Draghi’s unexpected rate cut on 11/7. It has since rebalanced and we like it on the long side as fundamentals improve and the EUR marginally wins out versus the USD in the #CurrencyWars (etf FXE). 

Just Charts: #EuroBulls  - zzz. eur usd levels

  • UK GDP: we expect outperformance versus most of its European peers, built largely on it choking down austerity first during the great recession.  The European Commission in its autumn report recently raised UK GDP expectations, to +1.3% in 2013 from +0.6% and to +2.2% in 2014 versus a previous estimate of +1.7%. We’re buyers of UK equities (etf EWU).

Just Charts: #EuroBulls  - zzz. uk gdp

  • UK CPI Eases: Inflation has moderated to 2.2%. We think this is an added benefit to consumers and expect a #StrongCurrency to increase purchasing power by deflating imported inflation.

Just Charts: #EuroBulls  - zz. uk cpi

  • UK Confidence Confirms the Data, or visa-versa: We see confidence rising alongside high frequency data: Manufacturing PMI for November was the best in in Europe (58.4 versus 56 in October). And Construction PMI shot up to 62.6 vs 59.3 in October.

Just Charts: #EuroBulls  - zz. uk confidence

  • UK Manufacturing and Retail Sales: confidence is a huge piece of the consumption puzzle; we see the trend in manufacturing and retail sales moving positively over the intermediate term. Household spending accounts for 62% of GDP in the UK. 

Just Charts: #EuroBulls  - zz. uk IP vs RETAIL

  • UK Housing May Ease: After taking off like a rocket ship for the balance of the year, the BOE announced on November 28th that it would curtail mortgage lending in its “funding for lending” scheme. 

 Just Charts: #EuroBulls  - zz. uk housing

  • GBP/USD: the cross is trading comfortably above over our intermediate term TREND level of support of $1.59 and long term TAIL line of $1.57 (etf FXB).

Just Charts: #EuroBulls  - zzz. gbp usd

  • Strong Germany: we continue to like the DAX, on a positive correlation to the EUR/USD. Fundamentals remain grounded with a low unemployment rate (6.9% vs 12.1% in the Eurozone), CPI at 1.6% Y/Y, expanding exports, strong PMIs and consumer and business confidence, and an inflection in factory orders to the upside (etf EWG). 

Just Charts: #EuroBulls  - zz. germany factory orders


Just Charts: #EuroBulls  - zz. germany ifo


Just Charts: #EuroBulls  - zz. germany zew





Matthew Hedrick





What's New Today in Retail (12/6)

Takeaway: More JCP drama. ESL seeing redemptions? JWN tops shopper poll. LeBron spanks NKE. GPS shines with a scant 2% comp. SHLD selling Land’s End.



Hedgeye Black Friday Consumer Survey: Focus on JCP.  We'll be conducting Round 2 of our JCP/Department Store consumer survey on Monday December 9th at 1pm.  If you are interested in our results, please email , or .




J.C. Penney Slides for Second Day as Bass Says Sold Stake



Takeaway: It's more than just a stock sale… 1) Bass, 2) SEC Inquiry, 3) Board backing Ullman 'until turnaround is done'. We delve into all of them. See our note "JCP: Fundamentals vs Newsflow vs The Stock"


ULTA - Q3 Earnings


What's New Today in Retail (12/6) - chart2 12 6


Takeaway: The amazing thing is that the quarter wasn't a complete disaster, and the SIGMA trajectory is better than bad. But when a hyper-momentum stock that everyone is afraid to short misses a quarter….watch out below. We turned bearish on this name in early Oct and shorted it at $124.56 while we continued our deep dive research on the name. One rule of thumb that we've picked up over the past 20 years is that the first miss is rarely the last.


SHLD - Sears Holdings Corporation Announces Filing Of Registration Statement For Spin-Off Of Lands' End Business



  • "Sears Holdings Corporation announced that, in connection with its previously announced consideration of a separation of its Lands' End business, Lands' End, Inc. filed today a registration statement on Form 10 with the Securities and Exchange Commission. Sears Holdings intends to spin off its Lands' End business through the pro rata distribution of all of the shares of common stock of Lands' End, Inc...The spin-off is subject to the approval of the Board of Directors of Sears Holdings and the satisfaction of certain other conditions."


Takeaway: Land's End is a good brand, but one that SHLD should never have acquired in the first place. It was targeted to spearhead the 'softer side of Sears' initiative. But needless to say, it failed.


SHLD - Lampert Sees Fund Investors Check Out



  • "Edward S. Lampert, struggling to stem heavy losses at Sears Holdings Corp., is facing an exodus of money from his hedge fund. Mr. Lampert's hedge fund is returning billions to clients of Goldman Sachs Group Inc. who had invested with ESL Investments Inc. in 2007, according to people with knowledge of the matter. Under that deal, Goldman's clients, such as corporate pension plans, put roughly $3.5 billion with Mr. Lampert, and they have asked for it back."
  • "The investors are receiving part of their funds in stock rather than all-cash, a redemption technique Mr. Lampert has used before."


Takeaway: This one speaks for itself. Let's hope Mr Lampert is not forced to sell any of his core positions -- SHLD, AN, and GPS.


NKE - LeBron Can't Let His Old Shoes Go



  • "In the 18 games played since the season opened, the four-time league MVP has worn the 11s for only two full games, spending most of his time on court wearing last year's LeBron X model."
  • "Mr. James's manager, Maverick Carter, said it isn't that the star doesn't like the latest edition of his shoes. Instead, he has been making tweaks to the shoe and expects to return to wearing the 11s full time in a matter of weeks, Mr. Carter said."


Takeaway: Nike doesn't get spanked by its athletes too often. This one is a rarity. That said, you can bet that the LeBron 11 will set new sales records.


GPS - Gap Inc. Reports November Sales



  • "Gap Inc. today reported that November 2013 net sales increased 8 percent compared with last year. Net sales for the four-week period ended November 30, 2013 were $1.63 billion compared with net sales of $1.52 billion for the four-week period ended November 24, 2012."
  • "Gap Inc.’s comparable sales for November 2013 were up 2 percent versus a 3 percent increase for November 2012. Due to the 53rd week in fiscal year 2012, comparable sales for November 2013 are compared to the four-week period ended December 1, 2012."


November Comparable Sales Results

  • Gap Global: positive 2 percent versus positive 4 percent last year
  • Banana Republic Global: negative 1 percent versus positive 3 percent last year
  • Old Navy Global: positive 3 percent versus positive 1 percent last year


Takeaway: Sadly, a mere 2% comp out of GPS actually puts it in the top quartile of retailers for the month of November.


JWN, KSS, DSW, DKS, M, JCP - Study: Nordstrom is consumers’ favorite fashion retailer



  • "Nordstrom is North America’s overall favorite fashion retailer for the second consecutive time, according to a new study of more than 6,800 consumers conducted by Market Force Information (Market Force), a provider of customer intelligence solutions."
  • "Kohl’s is the most visited for casual clothing, business attire and children’s clothing, while Dick’s Sporting Goods won out for sports apparel and DSW for footwear."
  • "When Market Force asked consumers to name their overall favorite retailer, Nordstrom ranked No. 1, earning significantly more votes than all of the other chains. Kohl’s ranked second, Macy’s was third, J.C. Penney was fourth and T.J.Maxx was fifth."


Takeaway: Not a shocker about JWN, with the exception of Bloomies, no one can really touch it.  What would be interesting to know is the difference between people that said JWN is their favorite place to shop vs those that said it is the place where they actually spend money (ie can afford to shop). No surprise that JCP remains in the toilet. At $100/square foot, it's running half the rate of its relevant peer group.


CFR - Cartier Exhibition Opens in Paris



  • "Kate Middleton’s wedding tiara and Grace Kelly’s engagement ring are among the star pieces of an exhibition on Cartier opening in Paris today."
  • "Billed as the most extensive show to date dedicated to the French jeweler, famed for its panther-themed jewelry and Tank watches, 'Cartier — Style and History' is set to run at the Grand Palais until Feb. 16. It showcases more than 600 items ranging from fine jewelry and watches to decorative objects, many reflecting the influence of exotic locations like China and India. Most are drawn from Cartier’s extensive archives, but about 100 items are on loan from private collections."


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