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Not #BTDB Today: SP500 Levels, Refreshed

Takeaway: I’m not buying-the-damn-bubble #BTDB today. Maybe tomorrow. Maybe not.

POSITION: 9 LONGS, 9 SHORTS @Hedgeye

 

The 3 main issues for the US stock market in our model are as follows:

 

  1. US consumption #GrowthSlowing (rate of change vs Q313’s sequential top)
  2. US stocks are down YTD (consensus chases performance)
  3. SPY just broke one of my immediate-term TRADE lines of momentum support (1837)

 

So, I’m not buying-the-damn-bubble #BTDB today. Maybe tomorrow. Maybe not.

 

Across our core risk management durations here are the lines that matter to me most:

 

  1. Immediate-term TRADE resistance = 1848
  2. Immediate-term TRADE support = 1821
  3. Intermediate-term TREND support = 1779

 

In other words, for the 1st time in months the SP500 is signaling A) lower-highs vs the all-time closing high and B) a very immediate-term TRADE momentum line breakdown with C) fundamentals (#GrowthSlowing) hanging out in the background.

 

Sure, there are plenty of reasons to buyem. Flows in particular are tantalizing. But a stock market that goes down on Down Dollar and Down Rates (today), is a stock market that is worried about something I haven’t had to worry about for a year now = #GrowthSlowing.

 

Keep moving out there,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Not #BTDB Today: SP500 Levels, Refreshed - SPX

 


More Bad News for $TGT

Takeaway: Another bad news item bites Target.

TGT - Target eliminates 475 jobs, most at Minneapolis HQ

  • "Target Corp. laid off 475 employees Wednesday and said it will not fill 700 open positions…"
  • "The retailer declined to make an executive available for questions or say whether more layoffs are in the works. The company also wouldn’t say how many of the 700 open positions were based in the Twin Cities."
  • "The layoffs are Target’s largest since January 2009, when the nation’s second-largest retailer said it would cut 1,100 positions from its headquarters."

More Bad News for $TGT - target55

 

Takeaway: In the grand scheme of the over 360,000 people that Target employs, this is obviously a rounding error. We get that. However, symbolically, it kind of matters. Bottom line here is the company was already on a downward slope, and the recent data breach headlines plastered across TVs, mobile devices and computer screens across America delivered additional unwanted momentum. Look, Target has not been forced into cost cutting measures since January of '09 when the stock price was in the mid-30's. Not good.

 

Editor's note: This is an excerpt from Hedgeye Retail Analyst Brian McGough's morning research. In case you didn't already know about McGough, he's really good. Learn more about becoming a Hedgeye subscriber today.



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INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY

Takeaway: The upward momentum in long-term interest rates should resume shortly.

Two More Weeks Until the Market Gets What's Going On

The initial jobless claims data continues to paint a picture of a strengthening, though not overheating, recovery in the labor market. The most important takeaway that varies from consensus is that the data is sharply at odds with the very weak December NFP print that caused a rally in long bonds. We expect, based on this claims data, that dynamic to reverse when the January NFP print is released two weeks from tomorrow, on Friday, February 7th. 

 

Our preferred measure of looking at the claims data remains the year-over-year rate of change in the rolling non-seasonally adjusted initial claims. This week that measure was 469,817, which was down 7.9% from the 510,350 at the same time last year. This compares with the previous week's rate of improvement of 8.5%. On the margin, there was modest deceleration in the rate of improvement, but not enough to warrant emphasis. On a single week basis, an inherently more volatile series, the Y/Y change was 5.8% better, which was better than the previous week's 4.3% improvement. 

 

We continue to expect the 10-year treasury to re-test 3.00% on strengthening labor data that will become more apparent in ~2 weeks time. For more info on which stocks are best and worst positioned for a rise in rates, see our note from November 22 entitled "#Rates-Rising: A Current Look at Rate Sensitivity Across Financials", which can be found HERE.

 

The Numbers

Prior to revision, initial jobless claims were unchanged at 326k WoW, as the prior week's number was revised down by -1k to 325k.

 

The headline (unrevised) number shows claims were higher by 1k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3.75k WoW to 331k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.9% lower YoY, which is a modest sequential deterioration versus the previous week's YoY change of -8.5%

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 1

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 2

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 3

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 4

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 5

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 6

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 7

 

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 8

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 9

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 10

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 11

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 12

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 13

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 19

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 14

 

Yield Spreads

The 2-10 spread fell -2 basis points WoW to 247 bps. 1Q14TD, the 2-10 spread is averaging 251 bps, which is higher by 10 bps relative to 4Q13.

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 15

 

INITIAL CLAIMS: NFP CONFUSION BREEDS CONTEMPT ... TWO WEEKS TILL CLARITY - 16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


EARLY WAVE SEASON CRUISE SURVEY TAKEAWAYS

Survey was bullish for CCL on the margin, neutral for RCL, and slightly negative for NCLH

 

 

CCL:

  • Caribbean 
    • Carnival Brand pricing modestly improved sequentially
    • Pricing strength was particularly evident in F3Q, ahead of easy comps mid-Feb
    • Pricing remained modestly lower for the Western Caribbean/Mexico itineraries.
  • Europe
    • Costa pricing slipped sequentially; overall, Costa pricing is still up mid-single digits
    • AIDA pricing moved lower slightly.  Western Med and Western Europe were the laggards.
    • Princess saw some modest discounting – not surprising given its aggressive marketing for this Wave Season
    • Cunard pricing was slightly higher while Holland America pricing was flat
    • P&O Cruises UK saw good pricing gains in January
  • Alaska
    • Holland America sequential pricing was flat, though at modestly lower YoY prices
    • Princess discounted pretty heavily in the last month.

 

RCL:

  • Caribbean
    • RC brand pricing was flat sequentially and remain slightly lower YoY
    • Similar to FQ1, Celebrity discounted prices substantially  
    • Pullmantur pricing was unchanged since December
  • Europe
    • Rock solid pricing by the RC brand, up mid-to-high single digits.
    • Celebrity pricing was roughly unchanged sequentially, although significantly lower YoY
    • Azamara pricing was slightly lower
    • Pullmantur pricing showed decent growth considering very easy comps
  • Alaska
    • Both RC brand and Celebrity pricing were down close to double digits YoY with trend worsening
  • South America
    • Solid Galapagos pricing was the lone bright spot for the Celebrity brand

 

NCLH:

  • Caribbean
    • Pricing slightly fell sequentially in FQ1.  Summer YoY pricing was hovering near the flat line.
    • Getaway premium increased from 31% to 39% in Q1 and decreased to 37% from 56% in Q2.
  • Alaska
    • A big concern.  Pricing dropped significantly for FQ2 and FQ3. 
    • NCLH has 10% and 19% exposure to Alaska in FQ2 and FQ3.
  • Europe pricing looks outstanding in Q2
  • Hawaii summer pricing fell slightly 

 

EARLY WAVE SEASON CRUISE SURVEY TAKEAWAYS  - cc1

EARLY WAVE SEASON CRUISE SURVEY TAKEAWAYS  - cc2

EARLY WAVE SEASON CRUISE SURVEY TAKEAWAYS  - cc3

EARLY WAVE SEASON CRUISE SURVEY TAKEAWAYS  - cc4


What's New Today in Retail (1/23)

Takeaway: TGT layoffs first of many? ETH controls biz well in face of ugly rev miss. RL/Ryder Cup. Shott back at AEO – bad. Minimalist running fading?

COMPANY NEWS

 

TGT - Target eliminates 475 jobs, most at Minneapolis HQ

(http://www.startribune.com/business/241503611.html)

 

  • "Target Corp. laid off 475 employees Wednesday and said it will not fill 700 open positions…"
  • "The retailer declined to make an executive available for questions or say whether more layoffs are in the works. The company also wouldn’t say how many of the 700 open positions were based in the Twin Cities."
  • "The layoffs are Target’s largest since January 2009, when the nation’s second-largest retailer said it would cut 1,100 positions from its headquarters."

 

Takeaway: In the grand scheme of the 361,000 people that Target employs, this is a complete rounding error. But symbolically, it kind of matters. The company was already on a downward slope, and the data breach gave it some unwanted momentum. The company hasn’t been forced into cost cutting measures since January of '09 when the stock price was in the mid-30's.

 

AEO - American Eagle Outfitters Names Jay Schottenstein Interim CEO

(http://investors.ae.com/financial-news/financial-news-details/2014/American-Eagle-Outfitters-Names-Jay-Schottenstein-Interim-CEO/default.aspx)

 

  • "American Eagle Outfitters, Inc. today announced that Jay L. Schottenstein, Executive Chairman of the Board, has been appointed as the Company’s Interim Chief Executive Officer, effective immediately, succeeding Robert Hanson, who is leaving the Company. The Board will initiate a search for a permanent Chief Executive Officer. Roger S. Markfield has agreed to postpone his retirement and will continue in his current role as Vice Chairman and Executive Creative Director."
  • "The Company also said that it continues to expect to report fourth quarter 2013 EPS in line with the outlook provided on January 9, 2014."

 

Takeaway: Jay Shottenstein becoming CEO -- again -- is not something we'd want to see as an AEO shareholder. Good that Markfield will be sticking around until they land a permanent CEO. Still, we're happy we're not AEO stockholders.

 

WMT - Walmart: We Have Not Set Up a New Company in India

(http://www.fierceretail.com/story/walmart-we-have-not-set-new-company-india/2014-01-22)

 

  • "Reports that Walmart has set up a new company in India are false."
  • "A Walmart spokesperson who corresponded with FierceRetail exclusively denied claims that the company filed documents for a business called Walmart India Private Ltd. on Jan. 15."
  • "'Post the announcement in October 2013 by Walmart and Bharti Enterprises about running independent ventures, Walmart initiated the process of renaming the company in India. This is a process in any demerger and we have not set up a new company,' noted the spokesperson via email."
  • "It's unknown how or why reports of a new Indian venture surfaced earlier this week. Various sources cited the Ministry of Corporate Affairs in India as having documentation for Walmart's new company there."

 

Takeaway: Conflicting media reports aside, Indian expansion is inevitable for Walmart. It makes sense that they would proceed with caution after the Bharti debacle, and wait for precedent to be set by other retailers before they relaunch their expansion efforts.

 

RL - Ralph Lauren named official outfitter of US Ryder Cup Team

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=158683)

 

  • "The PGA of America is proud to announce Ralph Lauren Corporation will be the Official Outfitter for the 2014 United States Ryder Cup Team."
  • "Ralph Lauren...will design the official uniforms to be worn by Team USA during the week of the 40th Ryder Cup, Sept. 23–28, at Gleneagles in Perthshire, Scotland."
  • "This year marks the first in Ryder Cup history in which the Ryder Cup Collection will be available for purchase, allowing customers to shop the collection and share in the countdown to golf’s ultimate event."

 

Takeaway: No surprise that RL will try to monetize their sponsorship with the event by selling the collection in retail, much like they do with their Olympic uniforms. The surprising thing is that in 2012 the signature logo was no where to been seen - we wonder if that changes in 2014.

 

SHLD - Sears to close flagship Loop location in April

(http://www.chicagotribune.com/business/breaking/chi-sears-close-loop-flagship-20140121,0,6152367.story)

 

  • "The flagship Sears store in the heart of the Loop [district of Chicago] will soon be gone...Sears plans to start liquidating merchandise at the 2 N. State Street store on Sunday and close for good in April."

 

Takeaway: Sears continues to close underperforming stores - but really surprising that with 4,000 stores left, one of the best targets ended up being its Flagship. We'd think that the City of Chicago would lend some support in keeping this open -- for nostalgic purposes if nothing else.  Heck, maybe they have been for a number of years, and they're done funding a cost center.

 

ETH - Ethan Allen Q214 Earnings

 

Takeaway: While ETH beat by a penny, the quality of earnings was weak. Specifically, revenue missed by 4%, but on the flip side gross margins were good, and inventories were extremely well controlled. SG&A was also in check. Looks like management did a good job managing the business around a big revenue hiccup.

 

What's New Today in Retail (1/23) - chart1 1 23

 

ADS - Adidas by Stella McCartney Opens Store in Miami

(http://www.wwd.com/fashion-news/fashion-scoops/first-timer-7389279)

 

  • "Nearly a decade into their partnership, Adidas and Stella McCartney have opened their first stand-alone store in the U.S."
  • "McCartney and Adidas first partnered in 2004, and opened their first store in London in 2012."

 

What's New Today in Retail (1/23) - chart2 1 23

 

Takeaway: Adidas was the 6th most desired brand in the recent survey we did on the female athletic/yoga space. Everyone - from H&M to UnderArmour to AdiBok - is trying to expand their respective female athletic/yoga footprint to benefit from the strong secular growth story in Yoga and steal market share from LULU. As the space becomes more competitive (and it goes much deeper than AdiMcCartney), the serious organizational and product issues facing LULU couldn't come at a worse time.

 

BRK - Brooks Running Posts Double-Digit Growth in 2013 

(http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=8&id=49566)

 

  • "Brooks Running Company reported that it saw double-digit growth in 2013 while making several organizational changes to support its international growth."
  • "Brooks also reported that in 2013 it posted a 17 percent increase in revenue growth driven by a 16 percent increase in the U.S. and a 27 percent increase in Europe."
  • "Brooks grew its No. 1 market share position at specialty running account stores (SRAs) nationwide with 29 percent year-to-date running footwear retail dollar share. Additionally, the neutral running footwear category accounts for 46 percent of total running shoes sold at SRA year-to-date. The trend toward a more cushioned running experience was also evidenced by the success of the Ravenna, Glycerin, and Ghost, which grew by 72, 53, and 52 percent year-to-date, respectively, according to the company’s 2013 fiscal results. Brooks also reported strong growth in its apparel business which grew 16 percent year-over-year…"

 

Takeaway: The '#1 Market Share' in Specialty Running Shops is something we'll take issue with. We don't have the data, but we highly doubt that Brooks is ahead of Asics, New Balance, and perhaps even Saucony. All that aside, the key callout is the shift back to cushioned running from minimalist. That suggests a higher ASP for the whole industry.

 


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