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Smoking Dollar Implications

Client Talking Points


While U.S. stocks had their low-volume bounce to lower-highs on Friday, the real read-through on the jobs report was the US Dollar getting smoked. The greenback has moved back to bearish TREND in our model and was down -0.8% on the week. No bid again this morning. Meanwhile, the Euro and Pound continue to look stronger, as does European growth data, on the margin. We have been bullish on both, in particular the Pound.


A big rip in Oil inflation on the payroll miss. Brent was up +3% on the week and, more importantly, back to bullish TREND in our Hedgeye model. This is occurring alongside a commodity complex (CRB Index) that continues to crush any US stock index year-to-date (CRB up another +2.3% last week – CRB Food Index = +4.5% YTD). Inflation? It's a tax.


It was fun to watch the SPX bounce +0.5% to -2.8% year-to-date last week, but the Russell had zero fun. It was down another -1.3% to -4% year-to-date as #InflationAcclerating slows US growth expectations. The 10-year yield of 2.66% this morning continues to signal the same on growth.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


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.

Three for the Road


GOLD: up another +0.5% to +5.5% YTD - Down Rates, Down Dollar = Inflation Slowing growth @KeithMcCullough


"If you deliberately set out to be less than you are capable, you'll be unhappy for the rest of your life." - Abraham Maslow


For the first time in over 20 years, rates on jumbo mortgages -- loans of more than $417,000, or $625,500 in pricier areas -- are at or below rates on conventional mortgages. Jumbo rates usually run one-quarter to one-half of a percentage point higher, but lenders eager for wealthier customers are making deals. (CNN)

Retail Callouts (2/10): DKS, AMZN, NKE, WWW, JCP,

Takeaway: DKS tells what we already know. Killer new AMZN app-think Shazam for retail products. Retailers whine about too much NKE product. WWW JCP



CVS - Earnings Call: Tuesday 2/11, 8:30am




DKS - DICK'S Sporting Goods Announces Better Than Expected Fourth Quarter Same Store Sales; Increases Fourth Quarter and Full Year 2013 Earnings Guidance



  • "The Company now expects consolidated earnings per diluted share of approximately $1.10 to 1.11 for the fourth quarter of 2013, compared to guidance of $1.04 to 1.07 provided on November 19, 2013. For the fourth quarter of 2012, consolidated earnings per diluted share were $1.03."
  • "Consolidated same store sales, adjusted for the shifted calendar, due to the 53rd week in fiscal 2012, increased approximately 7%, or approximately 6% on an unshifted basis, in the fourth quarter of 2013. The same store sales results compare to guidance provided on November 19, 2013 for a 3 to 4% increase, or a 2 to 3% increase on an unshifted basis."
  • "The improved outlook is due to better than anticipated fourth quarter same store sales and merchandise margin, partially offset by higher incentive compensation. The fourth quarter earnings guidance includes approximately $0.01 per diluted share benefit attributable to share repurchases in the fourth quarter of 2013 totaling $150 million."


Takeaway: One word…weather. Not many retailers and brands actually felt a positive impact from the extreme weather over the past two months. UnderArmour was one -- and DKS traded up in sympathy by up to 7% on that report. In the end, while this is good news for Dick's, it was largely expected.   


AMZN - Point Your iPhone at Something You Like, and Amazon’s New App Buys It



  • "Today, Amazon is announcing a new feature inside its mobile shopping app that lets you scan items in your home using your smartphone’s camera and quickly order all of your packaged goods online. The new feature, called Flow, will be available inside Amazon’s shopping app for iOS. It’s iPhone-only for now, and the company isn’t saying when it will arrive on other smartphone platforms, or on the Kindle Fire."
  • "Instead of taking a photo of an item or scanning a barcode, Flow recognizes items via their shape, size, color, box text, and general appearance. Hold your iPhone up to a row of items on your shelf or counter, and within seconds of “seeing” it with the iPhone’s camera, every recognizable item is placed in queue that can be added to your Amazon cart."


Retail Callouts (2/10): DKS, AMZN, NKE, WWW, JCP, - chart2 2 10


Takeaway: Seriously, whether you're a fan of Amazon or not, you can help but admit that they are technologically leaps and bounds above anyone else out there. All the innovations that they cook up might not stick, but we want a company we invest in to be innovating in every way imaginable. No one does it better than AMZN. And as it relates to this innovation…#nobrainer.


WWW - Buzz: Hush Puppies, SeaVees & More



  • "St. Louis-based Elan Polo has inked a licensing agreement with Rockford, Mich.-based Wolverine World Wide Inc. for a fall line of men’s and women’s slippers under its Hush Puppies label. Grandoe Corp. most recently held the license, with last delivery for fall ’13."
  • "The new collection will include ballet flats and smoking slippers for women, as well as moccasins and booties for men...Set to deliver in August, the line will retail for $40 to $70. Distribution is targeted to department stores, e-tailers and independents."


Retail Callouts (2/10): DKS, AMZN, NKE, WWW, JCP, - chart3 2 10

Source: Wolverine Worldwide


Takeaway: WWW is one of our favorite names -- but the reality is that this is a non-event. Hush Puppies definitely matters, as it is in the top quartile of EBIT contributors out of all of WWW's brands. Furthermore, if it were a new license maybe there'd be something for us to sink our teeth into. But a replacement license for a category like slippers? It'll be accretive, but probably nothing to write home about. 





  • "JCPenney announced today that it has entered into a new partnership to develop the vacant land around its Plano, Texas home office in the Legacy Business Park.  The new partnership will be managed by Team Legacy, a venture of the Karahan Companies, Columbus Realty, and KDC."
  • "The new project, Legacy West, consists of 240 acres at the southwest corner of the Dallas North Tollway and State Highway 121, and is considered a prime office and mixed-use development site in the heart of Legacy Business Park, one of the premier business parks in the country.  Legacy West will be a natural extension of Legacy Town Center, a mixed-use development presently located only on the east side of Dallas North Tollway."


Takeaway: As long as it is not costing JCP any capital, which it isn't, we're generally OK with it. If the development gives JCP a call option on monetizing assets (that are not restricted by way of the Goldman agreement) then it's an added plus.


BEBE - Exclusive: Bebe stores hires adviser for potential sale - sources



  • "Contemporary women's retailer Bebe Stores Inc is exploring a potential sale and is reaching out to private equity firms, according to people familiar with the matter on Friday."
  • "The Brisbane, California-based company...has hired Guggenheim Securities to help with the process, the people said, asking not be identified because the matter is not public."


Takeaway: Speaking of 'not public', we'd argue that BEBE should never have come public. After all, it's trading today at the same level it was during the summer it went public 16 years ago. Not exactly our definition of value-creation.


SKX - EXCLUSIVE-At hip Skechers, activist wants shakeup of stodgy board



  • "Footwear maker Skechers USA Inc...all-male board of directors is insular and needs a 'complete and immediate overhaul' to avoid potential missteps, according to shareholder CtW Investment Group."
  • "In a letter to the board of California-based Skechers on Wednesday, CtW said the company's nine-member board 'suffers from lengthy tenures and a lack of gender diversity' and that some directors may have conflicts of interest that raise questions about their independence."
  • "'The CtW Investment Group urges a complete and immediate overhaul of Skechers U.S.A., Inc's board of directors in light of several serious governance risks,' it said, calling for changes ahead of its annual meeting later this spring."


Takeaway: We're not going to get into the gender debate here, but we agree fully that the SKX Board is the poster child for a 'good ol boys club'. Not a surprise then that SKX's value creation is only a hair better than BEBE's.


NKE - Got Sneaker Release Overload?



  • "Limited-edition kicks create huge hype and bring shoppers in the door, but retailers are asking themselves whether the crowded sneaker release calendar might be too much of a good thing."
  • "Take this month: With the NBA All-Star Game, Black History Month, Valentine’s Day and the Chinese Year of the Horse all getting the special makeup treatment from brands — on top of the regular releases — there are dozens of launches in the works."
  • “'There are too many shoes and there are too many stories,' added Lester Wasserman, owner of sneaker shop West NYC in Manhattan. 'The more special shoes there are, the less special they each become.'” 
  • "It...means that strong product that doesn’t have the limited tag gets overlooked, to the detriment of the brands’ core lines."
  • “'Right now, we have a full-court press offense on the customer, with more shoes than they can shake a stick at,' he said. 'I just don’t see how that’s ultimately a sustainable model, at the current rate.'”


Retail Callouts (2/10): DKS, AMZN, NKE, WWW, JCP, - chart1 2 10


Takeaway: Note from HedgeyeRetail….Retailers, stop whining. You have a multitude of brands that are churning out better product than you have seen in your lifetime. Find a way to merchandise it, assort it, and sell it. Seriously, would you rather not have any product to sell?


GoPro - GoPro Files for IPO Confidentially



  • "GoPro Inc., a maker of wearable cameras that have fed a flood of YouTube videos, is laying the groundwork to go public. The San Mateo, Calif., company said Friday it had submitted a confidential filing for an initial public offering with the Securities and Exchange Commission."
  • "GoPro and its bankers are expected to begin pitching the deal to investors in the first half of this year, people familiar with the company's plans said. The deal will seek to raise roughly $400 million, though the final amount has yet to be decided, they said."
  • "The deal's pricing also is in flux, but the company will aim for a stock-market valuation well above the $2.3 billion it was pegged at in a 2012 fundraising round, these people said."


Takeaway: Cool technology, but not sure how defendable it is. The company is probably getting the right advice to strike while the iron is hot before patents expire and every other (better capitalized) electronics brand on the planet is producing knock offs. Seems kind of Skull Candy-ish to us.


Marc Jacobs - The New Marc by Marc (by Katie and Luella)



  • "Marc Jacobs, the man as well as the company, is living in a post-Louis Vuitton world. It’s a pre-IPO world, if all goes according to plan for Jacobs and his business partner, Robert Duffy."
  • "The first means to that end is revamping Marc by Marc Jacobs, the revenue engine of the brand. According to Duffy, Marc by Marc Jacobs accounts for 70 percent of the entire business, which stood at $750 million in net sales last year and is on track to hit the billion-dollar mark 'soon,' said Duffy."
  • “'In the big picture of this new Marc Jacobs company, Marc by Marc Jacobs probably plays the biggest role,' said Duffy earlier this week. 'It’s the most profitable part of our business. The sky’s the limit. We’re really going to pull out all the stops for Marc by Marc Jacobs, which we haven’t in the past.' By Duffy’s own admission, he and Jacobs had “dropped the ball” when it came to the contemporary line, losing market share to the stiff competition in a category they once owned."


Takeaway: A Marc Jacobs IPO wouldn't be in the same league as Michael Kors, and probably not Tory Burch. But it would definitely be a legitimate deal that would attract our attention.


RH: MANAGING RISK BY DURATION ***Reminder - Today (1 pm EST)

Takeaway: Today we’ll host a Flash Call on RH to review key issues impacting RH. More importantly, we’ll address puts/takes across 3 key durations.

Please join us on Today, February 10th at 1:00pm EST for a Flash Call on Restoration Hardware (RH) titled RH: Managing Risk By Duration. On the call we will revisit our bullish thesis on RH and address current challenges in the market - real and perceived. 


RH: MANAGING RISK BY DURATION ***Reminder - Today (1 pm EST) - RHclient


Given all the noise out there in the market, we want to be clear about delineating risk/reward around each of the following three durations:

  • TRADE (3 weeks or less)
    • Sentiment - and the key issues we hear from investors
    • Risk scenarios based on how RH likely fared operationally and financially in 4Q while retailers were dropping like flies
    • Is the Company's guidance at risk, and if so, how much?
    • 'Deferred Revenue' has gotten a lot of attention year-to-date. Is the concern justified, or overblown?
    • How is e-commerce trending?

 TREND (3 months or more)

    • Catalyst calendar throughout CY2014
      • Store opening cadence
      • Category launch
      • Catalog drops, or lack thereof
    • Management transition - life after Carlos

 TAIL (3 years or less)

    • Inflection point(s) in square footage model
    • Impact of larger format stores on the comp
    • Trade-off between in-store vs. direct revenue
    • Gross Margin Opportunity, real or perceived
    • SG&A leverage - or lack thereof?
    • Capital intensity (something no one asks about)

 Call Details

    • Toll Free Number:
    • Direct Dial Number:
    • Conference Code: 367968#
    • Materials: CLICK HERE  (slides will download one hour prior to the start of the call)


Please email  for more information.


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Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.


January’s jobs report was disappointing as employers only managed to add 113,000 jobs in the month despite expectations of 185,000.  Following suit, the narrower data sets released were largely bearish for the restaurant industry.  Employment growth across the youngest two cohorts slowed on a sequential basis, suggesting that sales at QSR chains could remain light in the coming months.  Furthermore, employment growth in the Full-Service, Limited-Service, and Leisure & Hospitality categories continues to decelerate from its mid-2013 highs.


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 came in mixed in January as the 20-24 YOA cohort saw growth decelerate to +242 bps from +277 bps in December, the 25-34 YOA cohort saw growth decelerate to +19 bps from +149 bps in December, the 35-44 YOA cohort saw growth accelerate to +184 bps from +73 bps in December, the 45-54 YOA cohort saw growth slowing decelerate to -52 bps from -87 bps in December, and the 55-64 YOA cohort saw growth accelerate to +76 bps from +52 bps in December. 


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 improvement in the 35-44, 45-54, and 55-64 YOA cohorts is, on the margin, bullish for the casual dining industry.


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 – particularly growth in the younger cohorts.  The sequential deceleration in the 20-24 and 25-34 YOA cohorts suggests that demand for quick-service and fast casual restaurants could be waning. 




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 -17 bps sequentially in January.  That being said, this category registered a month-over-month increase of +24K jobs (second chart below).  


The narrower restaurant-focused data sets are also bearish for the restaurant industry.  Both Full-Service and Limited-Service employment growth decelerated sequentially in December.  Growth across all three categories has been decelerating since mid-2013. 


Sequential Moves


Leisure & Hospitality: Y/Y employment growth at +3.09% in January, down -17 bps versus October


Full-Service: Y/Y employment growth at +3.17% in December, down -47 bps versus November 


Limited-Service: Y/Y employment growth at +4.05% in December, down -37 bps versus September







Howard Penney

Managing Director




The Economic Data calendar for the week of the 10th of February through the 14th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.48%
  • SHORT SIGNALS 78.35%