What's New Today in Retail (1/27)

Takeaway: Data breach #3. Why aren’t more security companies on this? Puma v. NKE. TNF v. Canada. Scovanner lands. WWW PVH URBN WMT Fast Retailing



MIK - Michaels Says It’s Found Possible Customer-Accounts Breach



  • "Michaels Stores Inc...said some of its customer payment-card data may have been used fraudulently, making it the third U.S. retailer to report such a breach since December."
  • "Michael Fox, a spokesman for Michaels, declined to say when the data-security attack may have occurred, when the company learned of it or how many customer accounts may be affected. He said the matter is being investigated and any new information will be posted on the company’s website."


Takeaway: Bad publicity at a bad time. This shouldn't affect its IPO plans, but it can't help valuation.  We're surprised that more data security firms aren't licking their chops and pouncing on the opportunity of a lifetime.


KER - Puma to Outfit Arsenal Football Club



  • "Puma AG said it would supply the uniforms and merchandise for English Premier League team Arsenal Football Club..."
  • "He wouldn't comment on the value of the deal beyond saying it represents the 'biggest deal in Puma and Arsenal's history.' British press reports suggest Arsenal will receive £30 million ($49.7 million) a year for the five years of the deal."


Takeaway: Puma beat out Nike for the right to spend $50mm to put their logo on Arsenal's jersey. Nike is in the midst of negotiations with Manchester United and most likely bowed out of the Arsenal talks after Puma inflated the price. Either that, or in typical Nike fashion it knew how badly its competitor wanted the deal, so it bid up the price knowing it would ultimately walk away.


9983 - Fast Retailing to List in Hong Kong



  • "Fast Retailing Co. Ltd. said Monday it has decided to pursue a secondary listing of its shares on the Hong Kong stock exchange to boost its profile in Asia and appeal to more international investors."
  • "The corporate parent of Uniqlo said it is not issuing new shares so it is not raising any capital in the operation. The company said it plans to list its Hong Kong depository receipts March 5 but it may decide to postpone the listing if business and market conditions change."


Takeaway: The really big move would have been to dual list in Hong Kong and New York. Hey, the NY/Hong Kong thing worked for COH.


VFC - Canadian Olympic Committee threatens North Face with trademark suit



  • "The Canadian Olympic Committee is threatening legal action against The North Face, claiming the outerwear brand associated itself with the upcoming Games in Sochi, Russia, without paying for an official sponsorship."
  • "The current dispute is over a line of clothing North Face launched in November called the 'International Collection.' Some of the clothing, labeled 'village' wear, is decorated with the Canadian flag (or other team colors in other countries), and sometimes featured a patch with the symbol 'RU 14' – a reference to the Winter Games in Sochi. Other merchandise showed a world map with a red star where Sochi is located. A T-shirt featured the date of the opening ceremonies: '07.02.2014.'"


What's New Today in Retail (1/27) - chart2 1 27


Takeaway: The amusing part of this whole story is that the COC is warning consumers that their North Face purchase won't help 'support' the Canadian Olympic Team. What probably happened is that Adidas threw a fit when it saw product that threatened its place in the market without paying one dime in endorsement money.


URBN - Wendy Wurtzburger Exits Anthropologie



  • "Wendy Wurtzburger, a 15-year veteran of Urban Outfitters, has left the company. Sources said the chief merchandising and design officer of Anthropologie North America’s last day was Thursday. Wurtzburger and executives of Urban Outfitters Inc. could not be reached for comment."


Takeaway: Anthropologie is the crown jewel in the URBN portfolio with the namesake brand comping down. We have to believe that Wurtzburger had a lot to do with the success of the brand. Her departure, regardless of circumstances, will be felt.


HBC - Hudson's Bay Company Taps Douglas Scovanner for Interim Finance Lead



  • "Hudson's Bay Company  has appointed Douglas Scovanner as Executive Vice President of Finance and Accounting, on an interim basis. This appointment gives Scovanner day-to-day responsibilities for the company's Financial Planning, Asset Protection, and Accounting functions. Prior to this appointment, Scovanner spent nearly two decades at Target Corporation, most recently as Executive Vice President and Chief Financial Officer."


Takeaway: Great move by HBC. Scovanner was money at Target, and we'd argue he is currently being sorely missed. If HBC could hang on to him it'll be a big win.


WMT - Wal-Mart to lay off 2,300 at Sam's Club



  • "Wal-Mart Stores Inc. plans to lay off 2,300 employees at Sam's Club, or about 2% of the warehouse club's workforce, according to published reports Friday. The move reportedly aims to reduce the ranks of the subsidiary's middle management. It is the biggest round of layoffs at Sam's Club in four years."


PVH - Zooey Deschanel Teams With Tommy Hilfiger



  • "To Tommy, From Zooey...the name of a new capsule collection designed by Tommy Hilfiger and Zooey Deschanel... which will mainly consist of flirty dresses, will make its debut at Macy’s this spring."
  • "The dresses will be priced at retail for between $98 and $199, and 14 of the 16 styles will launch at 200 Macy’s stores beginning April 14."




Russia customs rules hit online retailers



  • "Western online retailers are hitting a fresh roadblock in their push into Russia, one of the world’s fastest-growing ecommerce markets, as new customs regulations hinder courier deliveries to private customers in the country."
  • "DHL and FedEx said they had suspended express deliveries from abroad to individuals in Russia because of stricter customs procedures that require lots of extra paperwork on all parcels for personal use except for documents, regardless of the shipment value."
  • “'This impacts mostly shipments for business-to-consumer ecommerce for customers such as Amazon and Net-A-Porter,' said Daniel McGrath, spokesman for DHL Express. 'That is a minor part of our business, but it is a fast-growing market.'”
  • "UPS has not suspended services yet but said: 'We have told our customers that we’ve experienced significant delays in clearance and deliveries as a result of the change in customs procedures.'”


European Banking Monitor: Is It Time to Panic?

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 sharply higher across Europe's banks last week. UK banks fared equally poorly alongside their French, German, Spanish and Italian counterparts.


European Banking Monitor: Is It Time to Panic? - vv.banks


Sovereign CDS – Sovereign swaps widened almost across the board last week with the biggest moves occurring in Portugal and Italy (+25 and +19 bps). Meanwhile, the US and Germany were unchanged at 28 and 23 bps, respectively. 


European Banking Monitor: Is It Time to Panic? - vv.sov1


European Banking Monitor: Is It Time to Panic? - vv.sov2


European Banking Monitor: Is It Time to Panic? - vv. sov3


Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 11 bps. 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: Is It Time to Panic? - vv.euribor


Matthew Hedrick


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The magical HK$775 million average daily table revenue figure is back. 



As we’ve pointed out in the past, the HK$775 number may be a placeholder for incomplete data.  If the HK$775 million for the last 7 days is the true number, that would imply revenues have slowed more than we expected.  Our full month GGR forecast would fall to +13-19% YoY growth from +19-25%.  We are hearing anecdotally that VIP hold is low, particularly at Wynn Macau. 


However, we’ve seen the placeholder story before so next week’s data is likely to play catch up.   Here is what we wrote in our June 25th, 2013 post regarding the HK$775 million placeholder:



“…average daily table revenues for Macau came in at HK$775 million for last week.  Hmmm, where have we seen that number before?  Oh yeah, 14 times over the past 105 weeks.  If you’re saying to yourself, “that’s next to impossible”, well, it gets even more unlikely.  The weekly revenues released each of those 14x divides to a daily number of exactly HK$775,000,000 when carried out to the full decimals. So what is happening?  Clearly, HK$775 million is a placeholder, probably because not all the data came in to the government in time.  Statistically, that means that the following week’s data is likely to be volatile since it will be a catch up.  We calculate a standard deviation that is 40% higher for the week following a HK$775 million week than for the average week over the same period.”



So there you have it.  We’ll have to wait and see.  Here is the month to date data.






[video] McCullough: Inflation Is Coming Back From the Dead

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Consensus is (was) long Nikkei and short Yen. Why? Because it was working last year. Big time. Now it’s not as the Yen moves to +3% YTD versus the US Dollar and the Nikkei drops another -2.5% overnight to -7.9% YTD. I finally shorted the Yen on Friday on an overbought signal. The Nikkei should bounce tonight off the oversold signal, but its dicey. We have no position there as we think Japanese growth slows.


With global growth expectations getting rocked last week, the CRB Index (19 commodities) closed up +1.5% on the week. #InflationAccelerating perpetuates #GrowthSlowing in our model. That’s why we do not like Consumer stocks, especially US restaurants. There are plenty of ways to play our Q1 Macro Theme. 


For the last few years, the 10-year yield has tracked the rate of change of US growth as well as anything we model. Now, with US consumption #GrowthSlowing, the 10-year yield is snapping the Hedgeye TREND support of 2.79% last week makes sense to me. So does Gold going up on that (GLD loves rates down).

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Company Ticker Sector Duration

JPMorgan shares are currently trading with the most implied upside to fair value in our fair value model for money-center, super-regional and regional bank stocks. By our estimates, JPM shares have upside of 33% based on our regression of EVA (economic value added) – which looks at the spread between return on capital and cost of capital – and the current multiple to tangible book value. Over time, we have found that sizeable discounts and premiums mean revert toward fair value giving JPMorgan an embedded tailwind in 2014.


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.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road


TREASURIES: 2.74% 10yr yield is currently below @Hedgeye TREND support - that's new (good for Gold) @KeithMcCullough


"The stock market is never obvious. It is designed to fool most of the people, most of the time." - Jesse Livermore


The dollar has shed nearly 2% in the past three sessions as investors saw currencies like the yen and the Swiss franc as relatively safe while a sell off in emerging markets assets picked up pace late last week. (Reuters)

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