What's New Today in Retail (1/9)

Takeaway: Watershed moment for e-com. BBBY seems a bit overdone given retail carnage. JCP needs to hire Macy’s PR. Weather a $5bn factor? Prob more.



LULU: Consumers Challenge Our Bearish View - Friday 1/10 1:00pm EST


The results of our LULU survey are in, and we think we'll have some intriguing take-aways on both LULU and anyone that competes in the (primarily) female active market. Please ping us for details on the call.




What's New Today in Retail (1/9) - chart5 1 9


Takeaway: With all the companies putting up disappointing sales, we wanted to throw out a factor that we think is critical. Yes, weather was terrible as the month closed out (and got worse in January). But one thing we'll keep in mind is our view that this holiday will go down as a watershed year for the shift from bricks and mortar to The chart below shows that over the past 10 years there has been a steady increase in e-commerce's share of total spending, but we think that when this quarter's numbers are reported, it will show the greatest increase in the slope in the the history of the internet. Our belief is that shopping is behavorial, and an increase in will only feed upon itself and continue to gain share in 2014. 




BBBY - BBBY Reports Q313 Results


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Takeaway: BBBY's announcement was obviously a negative one. But in light of the horrendous results reported by retail overall, it really wasn't that bad. The reality is that for many retailers, it's the last two weeks that cleaned their clocks. I can count one, maybe two times in my career I've ever mentioned the weather excuse, but this is one where it at least needs to be considered as a factor. Maybe not THE factor, but it certainly mattered.


M - Macy’s, Inc. Outlines Cost Reduction Initiatives to Support Continued Profitable Sales Growth



  • "Macy’s, Inc. today announced it will implement focused cost reductions, including organizational changes, as it prepares to sustain profitable sales growth in the years ahead."
  • "Changes being announced today are estimated to generate savings of approximately $100 million per year, beginning in 2014. These savings are incorporated in the company’s 2014 earnings guidance (announced today in a separate news release)."
  • "In conjunction with the implementation of these cost reductions, as well as of store closings and asset impairment charges, an estimated $120 million to $135 million of charges, of which $50 million to $55 million is expected to be non-cash, will be booked in the fourth quarter of 2013. These charges were not previously included in earnings guidance provided by the company."
  • "Approximately 2,500 employees are expected to be laid off and are eligible for severance as a result of these organizational changes…In total, the Macy’s, Inc. workforce is expected to remain at a level of approximately 175,000 associates."
  • "The company is announcing today that it will close the following five Macy’s stores in early spring 2014. Final clearance sales will begin on Monday, Jan. 13 and run for between 10 and 11 weeks (except for Fashion Place Mall, which will close on Sunday, Jan. 12 with no final clearance sale."
  • "Eight new and replacement Macy’s and Bloomingdale’s stores are currently planned and/or under construction, as previously announced."


Takeaway: We're the first to give Macy's props for smoking the competition on the comp line, but we need to read in to the impetus for its cost-cutting plans as well. Usually businesses don't go into austerity-mode when business is beating plan.


AMZN - Amazon Enjoys Record-Setting Year for Marketplace Sellers



  • "Amazon today announced a record-setting year for Marketplace Sellers with businesses of all sizes selling on Amazon. In 2013, Marketplace Sellers on Amazon sold more than a billion units worldwide, cumulatively worth tens of billions of dollars. Marketplace Sellers around the world also continued rapid adoption of Fulfillment by Amazon (FBA), a service that Marketplace Sellers can choose to have Amazon ship their products directly to customers and offer Amazon Prime benefits…"
  • "Apparel is a fast growing category for Marketplace Sellers on Amazon. The number of FBA units shipped by Amazon doubled in size from 2012 to 2013."


Takeaway: We said it before and we'll say it again…2013 will prove in hindsight to be the watershed year for the shift


COLM - Inspired by Greatness: Columbia Unveils 2014 Olympic Uniforms for U.S., Canadian, and Russian Freestyle Ski Teams



  • "Columbia Sportswear Company a global leader in active outdoor apparel, footwear, accessories and equipment, unveiled today the 2014 Olympic uniforms for the U.S., Canadian and Russian Freestyle Ski teams."
  • "After a successful sponsorship of the powerhouse Canadian freestyle ski team during the 2010 Olympics in Vancouver, expanding Columbia's support to include the equally formidable U.S. and Russian teams  was a natural evolution for the global brand."
  • "Columbia's uniforms will be worn by national athletes competing in the following events:  United States: Moguls and Aerials; Canada: Moguls, Aerials, Slopestyle and Half Pipe; Russia: Moguls, Aerials, Slopestyle, Half Pipe, and Skicross"


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ADS - Adidas Appoints Eric Liedtke to Executive Board 



  • "The Supervisory Board of Adidas AG appointed Eric Liedtke to the Executive Board of Adidas AG effective Mar. 6, 2014. Liedtke, currently SVP Adidas Sport Performance, will assume responsibility for Global Brands on an Executive Board level. After 30 successful years at the Adidas Group, Erich Stamminger has decided not to extend his Board contract and to leave the Adidas AG Executive Board on March 5, 2014, for personal reasons."


BKS - Barnes & Noble Promotes Huseby to CEO Amid Digital Shift



  • "Barnes & Noble Inc. promoted Michael Huseby, who has served as its chief financial officer and president, to chief executive officer…"
  • "Huseby also has been elected to the board, the New York-based company said today in a statement."


JCP, M, WMT, TGT - Winter's Wrath Bears Down on U.S. Retailers



  • "Planalytics calculated $5 billion in lost business for Monday and Tuesday, noting that about 200 million people have been affected by the weather. "
  • “'We’ve had, over the last couple of days, 20 to 25 stores that opened late, closed early or were closed all day. Munsey, Ind., is the only store that is still closed,' said a Macy’s spokesman on Tuesday. 'We started closing stores on Sunday. We closed eight in St. Louis markets and 15 stores closed early that day, primarily in Indiana. Only a small number of stores were closed all day and they were in Indiana, Ohio and Mississippi.'”
  • “'We have just a few stores in Ohio that are currently closed, mostly due to access issues. Associates and customers can’t make it to the stores due to local or state travel advisories and mandates due to poor road conditions,' said a spokeswoman for Wal-Mart Stores Inc. 'We closed one store last night and two others this morning. At peak, we’ve had 50 stores closed. All but the three in Ohio have since reopened.'”
  • "Ten J.C. Penney Co. Inc. locations were closed as a result of winter weather Tuesday, with an additional seven closing early due to weather conditions, a spokesman said Tuesday afternoon. 'We began seeing a surge in cold-weather items during the holiday season, and demand continues in much of the country,' he said."
  • "Target Corp. on Sunday closed eight stores early due to the weather. All reopened the next morning."


Holiday Comp Updates


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COST - Costco Wholesale Corporation Reports December Sales Results



  • "Costco Wholesale Corporation today reported net sales of $11.53 billion for the month of December, the five weeks ended January 5, 2014, an increase of six percent from $10.87 billion during the similar five-week period last year."
  • "For the eighteen weeks ended January 5, 2014, the Company reported net sales of $38.33 billion, an increase of six percent from $36.26 billion during the similar period last year."


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URBN - Urban Outfitters Reports Record Holiday Sales



  • "Total Company net sales for the two months increased to $716 million or 8% over the same period last year. Comparable Retail segment net sales, which include our comparable direct-to-consumer channel, increased 3%. Comparable Retail segment net sales increased 21% at Free People and 11% at Anthropologie and decreased 6% at Urban Outfitters. Wholesale segment net sales increased 21%."


LB - L Brands Reports December 2013 Sales; Updates Fourth Quarter Earnings Guidance



  • "L Brands, Inc. reported net sales of $2.098 billion for the five weeks ended Jan. 4, 2014, compared to net sales of $1.947 billion for the five weeks ended Dec. 29, 2012.  The company reported a comparable store sales increase of 2 percent for the five weeks ended Jan. 4, 2014, compared to the five weeks ended Jan. 5, 2013."
  • "The company now expects fourth quarter earnings per share of approximately $1.60, compared to its previous forecast of$1.67 to $1.82.  The decrease versus its previous forecast is primarily the result of lower than forecasted merchandise margins due to incremental promotional activity."


M - Macy’s, Inc. Comparable Sales Including Licensed Departments Rose 4.3% in November/December Period; Comparable Sales Rose 3.6%



  • "Macy’s, Inc. today announced that its comparable sales, together with comparable sales from departments licensed to third parties, rose by 4.3 percent in the 2013 holiday shopping season – the months of November and December combined – compared with the same period last year. November/December 2013 comparable sales were up 3.6 percent."


  • "Macy’s, Inc. is narrowing the range of its guidance for comparable sales growth in the second half of 2013 to a range of 2.8 percent to 2.9 percent (from previous guidance of up between 2.5 percent and 4 percent) – which calculates to guidance for comparable sales in the fourth quarter to grow by approximately 2.3 percent to 2.5 percent, and for full-year 2013 sales to grow by 2.2 percent to 2.3 percent."
  • "The company also noted that it will forego an expected $150 million pension contribution in the fourth quarter of 2013 as a result of better-than-expected market returns."
  • "Macy’s, Inc. also provided initial guidance for fiscal 2014. Management currently expects comparable sales in 2014 to increase in the range of 2.5 percent to 3 percent compared with 2013 levels. Earnings per share are expected in the range of $4.40 to $4.50."


PIR - Pier 1 Imports, Inc. December Holiday Sales Update



  • "Pier 1 Imports, Inc. today reported that comparable store sales for the five-week period ended January 4, 2014 increased 1.3% compared to the five-week period ended January 5, 2013...Before adjusting for the calendar shift, comparable store sales for fiscal December 2014 decreased 5.7%, which compares to a comparable store sales increase of 8.2% for the five-week fiscal period ended December 29, 2012."


ZUMZ - Zumiez Inc. Reports December 2013 Sales Results



  • "Zumiez announced that total net sales for the five-week period ended January 4, 2014 increased 4.2% to $125.3 million, compared to $120.3 million for the five-week period ended December 29, 2012. The Company's comparable store sales decreased 2.4% for the five-week period ended January 4, 2014 compared to a comparable store sales decrease of 1.0% for the five-week period ended December 29, 2012."
  • "Based primarily on lower than planned sales quarter-to-date, and to a lesser extent lower than planned merchandise margins, the Company is revising guidance and now expects fiscal 2013 fourth quarter sales in the range of $226 to $229 million and net income per diluted share of approximately $0.56 to $0.59, a decrease from the previously issued guidance of sales in the range of $230 to $237 million and net income per diluted share of approximately $0.60 to $0.66."
  • "This guidance is now predicated on a low single digit comparable store sales decrease for the fourth quarter and includes a previously disclosed estimate of $1.7 million, or approximately$0.05 per diluted share, for charges associated with the acquisition of Blue Tomato."





  • "The Buckle, Inc. announced today that comparable store net sales, for stores open at least one year, for the 5-week period ended January 4, 2014 decreased 2.8 percent from comparable store net sales for the 5-week period ended January 5, 2013. Net sales for the 5-week fiscal month ended January 4, 2014 decreased 2.2 percent to $180.9 million from net sales of $185.0 million for the prior year 5-week fiscal month ended December 29, 2012."






Why I Like Krispy Kreme $KKD

Takeaway: This is an excerpt from a recent research report from Hedgeye restaurants analyst Howard Penney.

We like the Krispy Kreme story.  


Why I Like Krispy Kreme $KKD - kkd1


KKD is a small cap growth company with a growing global footprint and the potential to double in size over the coming years. 


It’s also a volatile stock that will see large swings in sentiment given the company’s checkered history.  That being said, we believe it’s very likely KKD will wind up in the hands of a bigger company.  The company’s aggressive growth plans and strong balance sheet make it an attractive acquisition target for a foreign company.


$18.16 is long term TAIL support KKD. I like it if that holds.


(Click here to watch Penney video, "Why You Should Short Casual Dining Stocks")

Join the Hedgeye Revolution. 

[video] Keith's Macro Notebook 1/9: ASIA #EUROBULLS RATES

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Dial-In and Materials: 1Q 2014 Macro Themes Call

Dial-In and Materials: 1Q 2014 Macro Themes Call - 1Q14Themes dial


  • Date: Thursday, January 9th at 11:00am EST
  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 897866#
  • Materials: CLICK HERE


#InflationAccelerating: Across the globe, reported inflation readings are poised to accelerate from post-crisis lows as easy comps, a commodity base effect and accelerating wage pressures all come to a head in the first quarter of 2014. Moreover, the reemergence of inflation as a core macro risk threatens to materially alter the investment landscape going forward.


#GrowthDivergences: Looking to the U.S., Europe, China and Japan, we see the heavyweights of the world economy diverging from an economic growth perspective as some countries and/or regions are much further along in the economic cycle than others. We highlight those divergences and identify which countries and/or regions you want to be allocating assets to at the start of the year.


#FlowShows: in Q1 we expect a continuation of fund flows out of fixed income and into equities: the "Queen Mary" has indeed turned, aided by the Fed's decision to begin tapering. 



Click Here to Watch the Video

Growth Divergences

Client Talking Points


One of our themes is already playing out in Asian versus European Equities. In other words... #GrowthDivergences. After another rough market ride last night, here’s the year-to-date score for Asian Equity majors: China -4.2%, KOSPI -3.3%, Nikkei -2.5%. Not pretty. Meanwhile Denmark and Austria +4.7%.


Eurozone sentiment just tagged the 100 line in December (that's a new high) versus 98.5 in November. At the same time, the EUR/USD held our Hedgeye TREND support of $1.35 like a champ. We will review our bullishness on European growth at 11am during our Q1 Macro Themes call. It's undeniable at this point that European economic data continues to accelerate. 


Right on time... the taper and bubble talk in the Fed Minutes (all hawkish on the margin) are driving the short end of the curve to new 3 month highs. We're seeing 0.42% 2-year Treasury yield this morning. Meanwhile, there's no resistance on the 10-year yield to 3.05% ahead of the jobs report.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hedgeye's detailed and constructive view on the improving fundamentals in the M&A market with a longer term perspective is a contrarian idea at odds with the rest of the Street which is overly focused on short-term results. From an intermediate term perspective, M&A is poised to break out in 2014. We are witnessing record amounts of cash on corporate balance sheets, continued low borrowing costs and the first positive fund raising round for Private Equity in four years. Moreover, a VIX in secular decline (this has historically benefited M&A), recent incrementally positive data points from leading M&A firms that dialogue has improved, and an improving deal tally from Greenhill & Company (GHL) themselves coming out of the summer all bode favorably for GHL. So is a budding European economic recovery that would assist a global M&A market that has been range bound over the past three years. GHL stands out as a leading beneficiary of these developments.


We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.


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.

Three for the Road


FX: textbook EUR/USD bounce right off the @Hedgeye $1.35 TREND line; #StrongPound too @KeithMcCullough


"Success or failure is caused more by mental attitude than by mental capacity." - Walter Scott


T-Mobile added 4.4 million customers in 2013 -- its biggest growth in eight years. The company says it's proof its "uncarrier" strategy -- aimed to upend the mobile industry -- is working after only 8 months. In Q4 T-Mobile added 1.6 million new subscribers, bringing its total customer base to nearly 47 million people. (CNN)

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks

Takeaway: The last week of '13 spelled continued solid money flow into equities at the expense of bonds; Net flow was $13 B, above the avg of $7.8 B.

Investment Company Institute Mutual Fund Data and ETF Money Flow:


Total equity mutual funds experienced solid inflows for the week ending December 31st with $6.0 billion flowing into stock funds. Within the total equity fund result, domestic equity mutual funds gained $3.3 billion, the most positive result in 7 weeks, with international equity funds posting a $2.6 billion inflow. Including these year ending trends, equity mutual funds averaged a solidly positive reversal in 2013 with an average weekly inflow of $3.0 billion for the year compared to 2012's weekly average outflow of $3.0 billion. 


Fixed income mutual funds continued persistent outflows during the most recent 5 day period and ended 2013 with another $2.8 billion withdrawal from bond funds. This week's draw down was a sequential improvement from the $3.4 billion lost the week prior but was still worse than the 2013 weekly average which finished at a $1.5 billion outflow for 2013. This year end average for 2013 compared to the strong weekly inflow of $5.8 billion for fixed income throughout 2012.


ETFs experienced broadly mixed trends in the most recent 5 day period, with equity products seeing heavy inflows and fixed income ETFs seeing slight outflows week-to-week. Passive equity products gained $4.5 billion for the 5 day period ending December 31st with bond ETFs experiencing a $224 million outflow. ETF products also reflect the 2013 asset allocation shift, with the weekly averages for equity products up year-over-year versus bond ETFs which are seeing weaker year-over-year results.


The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a $13.5 billion spread for the week ($10.5 billion of total equity inflows versus over $3.0 billion in fixed income outflows). This was almost double the 2013 weekly average of a $7.8 billion spread but was well off of the largest weekly spread of $30.9 billion and the smallest equity/debt weekly spread of -$9.2 billion (negative numbers imply a net inflow into bonds for the week).


ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 1



For the week ending December 31st, the Investment Company Institute reported solid equity inflows into mutual funds with $6.0 billion flowing into total stock funds. The breakout between domestic and world stock funds separated to a $3.3 billion inflow into domestic stock funds and a $2.6 billion inflow into international or world stock funds. These results for the most recent 5 day period compare to the year-to-date weekly averages of a $451 million inflow for U.S. funds and a running $2.6 billion weekly inflow for international funds. The aggregate inflow for all stock funds this year now sits at a $3.0 billion inflow, an average which has been getting progressively bigger each week and a complete reversal from the $3.0 billion outflow averaged per week in 2012.


On the fixed income side, bond funds continued their weak trends for the 5 day period ended December 31st with outflows staying persistent within the asset class. The aggregate of taxable and tax-free bond funds booked a $2.8 billion outflow, a sequential improvement from the $3.4 billion lost in the prior 5 day period but worse than the year-to-date weekly average outflow of just $1.5 billion for bond funds. Both categories of fixed income contributed to outflows with taxable bonds having redemptions of $404 million (although this outflow was the best result in 13 weeks), which joined the $2.4 billion outflow in tax-free or municipal bonds. Taxable bonds have now had outflows in 27 of the past 32 weeks and municipal bonds having had 32 consecutive weeks of outflow. These redemptions late in the year are likely tax loss selling related with the Barclay's Aggregate Bond index down nearly 2% in 2013, the first annual loss in 14 years. The 2013 weekly average for fixed income fund flows is now a $1.5 billion weekly outflow, a sharp reversal from the $5.8 billion weekly inflow averaged last year.


Hybrid mutual funds, products which combine both equity and fixed income allocations, continue to be the most stable category within the ICI survey with another $1.0 billion inflow in the most recent 5 day period, although the past 6 weeks have been below year-to-date averages. Hybrid funds have had inflow in 30 of the past 32 weeks with the 2013 weekly average inflow now at $1.5 billion, a strong advance versus the 2012 weekly average inflow of $911 million.



ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 2

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 3

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 4

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 5

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 6



Passive Products:



Exchange traded funds had mixed trends within the same 5 day period ending December 31st with equity ETFs posting a strong $4.5 billion inflow, the seventh consecutive week of positive equity ETF flow. The 2013 weekly average for stock ETFs is now a $3.5 billion weekly inflow, nearly a 50% improvement from last year's $2.2 billion weekly average inflow.


Bond ETFs experienced moderate outflows for the 5 day period ending December 31st with a $224 million redemption, an improvement from the week prior which lost $1.0 billion but well below the year-to-date average of a slight weekly inflow. Taking in consideration this most recent data however, 2013 averages for bond ETFs are flagging with just a $234 million average weekly inflow for bond ETFs, much lower than the $1.0 billion average weekly inflow for 2012.



ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 7

ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 8



Net Results:


The net spread of all equity products including mutual fund and ETF flow tallied a $10.5 billion total inflow into all equity products in the most recent 5 day period which compared to a total fund and ETF result for fixed income of a negative $3.0 billion outflow for the week ending December 31st. Thus the net of equity minus fixed income production totaled a $13.5 billion spread in favor of equity products. This compared to the 2013 weekly average of a positive $7.8 billion spread to equities but was well off of the weekly high during last year of $30.9 billion and the weekly low of -$9.2 billion (negative numbers favor fixed income products).


With net weekly spreads continuing to favor equity products with a rising 52 week linear trend line and a favorable setup for stocks versus bonds into the beginning of this year, our favorite long asset management idea remains T Rowe Price (TROW), the manager with industry leading stock fund performance to potentially gather outsized net new assets. 



ICI Fund Flow Survey - Best Domestic Equity Flow in 7 Weeks - ICI chart 9




Jonathan Casteleyn, CFA, CMT 




Joshua Steiner, CFA