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Retail Callouts (2/11): NKE, URBN, AMZN/EBAY/Alibaba, COH, SHLD

Takeaway: New competition for AMZN & EBAY from Alibaba. Finally good week for Sales. Tory jabs COH. GILT & Goldman. URBN NKE/Adi ARO HD BKS DSW SHLD

EVENTS TO WATCH

 

FOSL - Earnings Call: Tuesday 2/11, 4:30pm

 

ECONOMIC DATA

 

ICSC - Chain Store Sales Index

 

Takeaway: In what should have been a seasonally  slow weak, retail sales actually chugged along at a pretty good pace. That was the first positive dose of news we got all year. We need several more of them, however, to undo the damage that's been done.

 

Retail Callouts (2/11): NKE, URBN, AMZN/EBAY/Alibaba, COH, SHLD - chart1 2 11

Retail Callouts (2/11): NKE, URBN, AMZN/EBAY/Alibaba, COH, SHLD - chart2 2 11

 

COMPANY NEWS

 

URBN - Urban Outfitters Reports Record Q4 Sales

(http://investor.urbn.com/phoenix.zhtml?c=115825&p=irol-newsArticle&ID=1898613&highlight=)

 

  • "Comparable Retail segment net sales, which include our comparable direct-to-consumer channel, increased 1%. Comparable Retail segment net sales increased 20% at Free People and 10% at Anthropologie and decreased 9% at Urban Outfitters. Wholesale segment net sales rose 24%."

 

Takeaway: Weakness at the flagship brand was worse than expected. We give the company credit for not blaming the elements and admitting that the weakness at Urban was primarily self-inflicted, but that doesn't change the fact that a lot needs to be done in order to fix the business. We think highly of the URBN management team and approach to growing the brands. If anyone can fix it, they can.

 

AMZN, EBAY, Alibaba - Alibaba Close to Launching eBay-Style Marketplace in US

(http://www.ecommercebytes.com/cab/abn/y14/m02/i10/s01)

 

  • "A new Alibaba subsidiary is close to launching a marketplace in the U.S. and has been on-boarding third-party sellers since late last year, EcommerceBytes has learned. 11Main.com has hand-picked eBay sellers to participate in the pre-launch phase."
  • "The marketplace is called 11 Main to connote 'Main Street' shopping from friendly mom and pop retailers. The plan is to charge charges sellers a 3.5% commission fee when an item sells with a $50 cap. There is no charge for selling printed books, DVDs and music. 11 Main is also actively encouraging sellers to consider lowering their prices since its selling fees are lower than eBay's. While 11 Main does have a 5-cent listing fee per month in certain categories, those fees are waived for sellers who use its selling tools."
  • "Chinese ecommerce company Alibaba had acquired eBay listing tools Auctiva and Vendio in 2010. The companies, both headquartered in California, gave it instant access to over 250,000 eBay sellers who at the time processed over $7 billion in GMV annually and were responsible for an estimated 5 - 10 percent of eBay's listings. 11 Main is leveraging the companies both for their technology and their seller base as it builds out the new marketplace."

 

Retail Callouts (2/11): NKE, URBN, AMZN/EBAY/Alibaba, COH, SHLD - chart4 2 11

 

Takeaway: Ebay has to be kicking themselves for that transaction. It'd be extremely difficult for Alibaba to compete for 3rd- party sellers without these US subsidiaries. That being said - the only way 11Main works is if its fees are more competitive than Ebay or Amazon. In the end, make no mistake, this is a BIG idea.

 

ARO - Aeropostale mulls raising capital from private equity -sources

(http://www.reuters.com/article/2014/02/10/aeropostale-pipe-idUSL2N0LF0SQ20140210)

 

  • "Aeropostale Inc is considering raising capital from private equity firms as the struggling teen retailer evaluates various ways to shore up both its balance sheet and its share price, four people familiar with the matter said on Monday."
  • "Aeropostale...faces pressure from investors to sell itself and is working with investment bank Barclays Plc to study its options, the sources said."

 

Takeaway: Let's set this record straight…'considering' raising capital means 'we've been trying to raise capital or attract a buyer'. ARO is one of those companies that probably shouldn't be public.

 

COH - Tory Burch Said Planning Move Into Men's

(http://www.wwd.com/markets-news/designer-luxury/tory-burch-said-planning-move-into-mens-7437649)

 

  • "Burch has lured Jeffrey Uhl away from Coach Inc., where he was a key member of the team that grew the brand’s men’s business to sales that are currently approaching $700 million. Once on board at Burch, Uhl is said to be taking on both women’s and men’s accessories. He is expected to start in a few weeks."
  • "A spokeswoman for Burch declined comment Monday, as did Uhl. But sources said Burch could launch men’s accessories as soon as next year."

 

Takeaway: Uhl may have become expendable when Vevers brought in Keith Warren from Louis Vuitton, but shaking up the leadership in a key growth category at a time when COH needs a good story doesn't look good to outside eyes. Men's is a point of emphasis for a number of companies in this space and adding Tory Burch to the fold makes it only more competitive. We wouldn't want to have to compete against her…she gets it.

 

Gilt Groupe - Gilt Groupe Said to Choose Goldman to Manage Web Retailer’s IPO

(http://www.bloomberg.com/news/2014-02-10/gilt-groupe-said-to-choose-goldman-to-manage-web-retailer-s-ipo.html)

 

  • "Gilt Groupe Inc., an online retailer of discounted luxury goods, picked Goldman Sachs Group Inc. to manage its initial public offering, according to people with knowledge of the deal. Timing for the IPO has still not been decided, said the people, who asked not to be identified because the announcement hasn’t been made public."
  • "Goldman Sachs is an investor in Gilt and was part of a $138 million financing round in 2011, valuing the company at about $1 billion, that included Japan’s Softbank Corp. and venture investors General Atlantic and Matrix Partners. The company has raised a total of at least $240 million."
  • "In 2012, Gilt generated $550 million in revenue, excluding businesses it discontinued, up from $450 million the prior year. The company was expected to generate cash from operations by the end of last year, Peluso said in September."

 

Takeaway: Gilt may have missed its peak valuation window but there will be significant interest in this offering. We'll certainly have it on our radar.

 

SHLD - Sears rolls out new pickup service for online purchases

(http://www.chainstoreage.com/article/sears-rolls-out-new-pickup-service-online-purchases)

 

  • Sears has debuted In-Vehicle Pickup, a new service powered by the chain’s Shop Your Way mobile app that enables customers to pick up their online purchases at any Sears store within five minutes of arrival, without ever leaving the car.
  • "'The In-Vehicle Pickup option takes our 'Free Store Pickup - Ready in 5' guarantee even further and out to the parking lot,' said Leena Munjal, senior VP, member experience and integrated retail, Sears Holdings. 'In-Vehicle Pickup on this scale is an industry first and another example of how we are constantly innovating and adding benefits that make shopping a more convenient experience for our members.'"

 

Takeaway: No doubt its convenient for the consumer - but when you operate 135,000 sq. ft. stores it's probably not the right move to encourage shoppers not to enter your store. We get that Sears is trying to embrace e-commerce, but its current real estate portfolio doesn't jibe with that strategy.

 

ADDYY - Shop Talk: Adidas in New Orleans... RSG Buys in VA

(http://www.wwd.com/footwear-news/retail/shop-talk-7434892)

 

  • "Adidas opened a pop-up shop, Adidas in the Quarter, in New Orleans as a part of the upcoming 63rd annual NBA All-Star Game. Located in the French Quarter of New Orleans, the store will feature official merchandise for the Feb. 16 game including men’s and women’s jerseys, apparel and accessories."
  • "The brand will also offer limited-edition shoes from Adidas Originals and basketball collections, including the D Howard 4, Crazy 8, Crazy 1 and new Crazyquick 2. In addition to player appearances and other in-store events, Adidas also launched a social media campaign centering on the store. The 2,400-sq.-ft. space is slated to stay open until Feb. 23."

 

Retail Callouts (2/11): NKE, URBN, AMZN/EBAY/Alibaba, COH, SHLD - chart3 2 11

 

Takeaway: Adidas may have its name on NBA jerseys but it’s no question that Nike owns the NBA. Player sponsorships as of the end of Dec. 13. = Nike-278, Adidas-71, Jordan-32. Good try by AdiBok to capitalize on the event. I think we know who would win if Nike opened a pop-up shop down the street.

 

OTHER NEWS

 

HD - Home Depot bolsters online business with new direct fulfillment center

(http://www.retailingtoday.com/article/home-depot-bolsters-online-business-new-direct-fulfillment-center)

 

  • "The Home Depot has opened a new direct fulfillment center (DFC) in the Locust Grove suburb of Atlanta."
  • "It is the first of three new DFCs the company will open across the U.S. in the next two years, adding more than 3 million sq. ft…"

 

BKS - Barnes & Noble Fired Its Nook Hardware Engineering Staff

(http://www.businessinsider.com/barnes-and-noble-hardware-engineering-staff-2014-2)

 

  • "Barnes & Noble laid off its Nook hardware engineers, according to a source that tipped Business Insider."
  • "The engineers were let go last Thursday, according to our source. This follows Barnes & Noble dismissing the VP of Hardware, Bill Saperstein in January."
  • "Barnes & Noble confirmed that it laid people off when we asked. A spokesperson told us:
  • 'We’ve been very clear about our focus on rationalizing the NOOK business and positioning it for future success and value creation. As we’ve aligned NOOK’s cost structure with business realities, staffing levels in certain areas of our organization have changed, leading to some job eliminations. We’re not going to comment specifically on those eliminations.'"

 

HBC - HBC Announces Resignation of CFO

(http://investor.hbc.com/releasedetail.cfm?ReleaseID=824443)

 

  • "Hudson's Bay Company today announced that Michael Culhane has resigned as CFO of the Company effective February 7, 2014."
  • "As previously announced, Donald Watros, President of HBC, has assumed the role of acting CFO, and the Company has appointed Douglas Scovanner as Executive Vice President of Finance and Accounting, on an interim basis to support the acting CFO."
  • "HBC has engaged a leading executive search firm to assist in recruiting a new CFO."

 

DSW - DSW Inc. Announces Fourth Quarter Sales Results; Updates 2013 Guidance

(http://investors.dswshoe.com/index.php?s=43&item=250)

 

  • "DSW Inc...announced that fourth quarter 2013 comparable sales for the thirteen-week period ended February 1, 2014 were flat compared to a 3.6% increase for the same period last year."
  • "Excluding luxury sales of $1 million, total Adjusted revenues decreased by 3.9% to$571 million, for the thirteen week period ended February 1, 2014 versus $594 million for the fourteen week period ended February 2, 2013. Excluding the impact of the fifty-third week last year, total Adjusted revenues increased by 1.6%."
  • "The Company narrowed its 2013 Adjusted EPS guidance to a range of $1.85 to $1.87 per share. Adjusted EPS excludes a $0.13 per share impact from the Company's luxury test and $0.10 per share of legacy charges related to RVI. The new guidance range compares to the previous guidance of $1.80 to $1.90 per share and represents approximately 11% earnings growth."
  • "The Company also announced Douglas Probst, Executive Vice President and Chief Financial Officer will be retiring effective May 1, 2014, after nine years of service."

 

 

 

 



Beware of Yellen

Client Talking Points

US DOLLAR

Time for Janet Yellen to abandon the Fed’s Constitutional dual mandate and just target rates? The Dollar definitely thinks so. It's down again this week after losing -0.8% of its value last week. Meanwhile, commodity #InflationAcclerating continues to front-run the probability of a Yellen devaluation. Sure, it might be good for a low-volume pop in stocks, but it's horrible news for US consumption growth.

GOLD

Here's a simple formula: Dollar Down + Rates Down = heaven for Gold. That’s why we are bullish on Gold (see our full research note recapping why from yesterday). What was Hedgeye TREND resistance of $1272 for Gold is now support.

UST 10YR

I’ll keep adding to the "Gold-Bond" asset allocation move if Janet Yellen targets rates. You know who else got away with targeting rates? #Japan. 2013’s Hedgeye TREND support for the 10-year US Treasury yield is now resistance at 2.80%. Maybe she wants a 0.6% JGB-style 10-year?

Asset Allocation

CASH 50% US EQUITIES 2%
INTL EQUITIES 4% COMMODITIES 18%
FIXED INCOME 12% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
FXB

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.

DRI

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

TWEET OF THE DAY

GOLD: up another +0.7% to $1283 = +6.7% YTD as #Yellen threatens to target rates and Burn The Buck @KeithMcCullough

QUOTE OF THE DAY

"The hardest thing to see is what is in front of your eyes." - Johann Wolfgang von Goethe

STAT OF THE DAY

Crude-oil prices moved higher for a sixth day, with futures finding continued support in a weaker dollar as the market waits for Janet Yellen’s first monetary-policy testimony. March crude oil rose 32 cents, or 0.3%, to $100.37 a barrel, setting it on track for a sixth-session climb in a row.


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


The Buffalo Jump

“If I had a mind to rent pigs, I’d be mighty upset.  A man that likes to rent pigs won’t be stopped.”

-Larry McMurtry, Lonesome Dove

 

Lately I’ve been watching the famed late 1980s mini-series, “Lonesome Dove”, on Netflix.  It is based off of the Pulitzer Prize winning novel by Larry McMurtry of the same name.  The novel tells the story of two former Texas Rangers, Captain Augustus “Gus” McCrae and Captain Woodrow F. Call, who run a livery called the Hat Creek Cattle Company in the desolate Texas border town of Lonesome Dove.

 

The bulk of the plot involves the decision by McCrae and Call to leave the relative complacency of Lonesome Dove and drive a massive herd of cattle north to the Montana Territory.   On the way north, they encounter a plethora of adventures, including proverbial dust ups with the army, bandits, and Indians.

 

By far, the savvy plains Indians (Native Americans) are the most formidable challenge McCrae and Call face on their journey.   In reality, this is no surprise since the Natives occupied the land for thousands of years before the European settlers arrived and developed many proprietary ways of surviving off the land without the benefit of modern technology.

  

One such proprietary method of hunting was the Buffalo Jump.  

 

The Buffalo Jump - buffjump

 

It was a simple, but very effective method of collecting a massive amount of buffalo meat.   On horses or foot, the Natives would chase buffalo herds towards, and eventually over, a sharp cliff.  Tribesmen waiting below would finish off the buffalo and butcher the meat.   The key of course was that buffalo had no idea they were running towards, and eventually over, a cliff.

 

Back to the global macro grind . . .

 

While it is an apt analogy, we are not yet ready to say that the global economy is going over the cliff, but the fact remains that much of the data we’ve been collecting and watching is getting incrementally more negative.   Yesterday in our morning meeting, Hedgeye’s Asian Analyst Darius Dale emphasized that he is getting a little more cautious on China.

 

They key reason for his shift is that money market rates continue to back up.  This is a point that is emphasized in the Chart of the Day.   Further, while the government could choose to intervene, the People’s Bank of China is instead opting to let the markets settle on their own.  According to a February 8th PBOC report:       

   

“When the valve of liquidity starts to tame and curb excessive credit expansion, money-market rates, or the cost of liquidity, will reflect that.  The market needs to tolerate reasonable rate changes so that rates can be effective in allocating resources and modifying the behavior of market players.”

 

In the long run, this is likely a positive for the Chinese economy.  In the short run, of course, higher money-market interest rate volatility is likely a headwind.   

 

The caveat on getting aggressively negative on China is that GDP comps are relative easy for China and seasonality should also be a positive in the reported numbers this quarter and next.  In part, this is likely why the Shanghai Composite is up +0.85% this morning and +3.5% this month – a move that may have some legs if the PBOC decides to cut the Reserve Rate Ratio (RRR) as is rumored this morning.

 

The novel Lonesome Dove is also somewhat apropos as newly minted Federal Reserve Chair Janet Yellen is scheduled for her debut in front of the House Financial Services Committee this morning, which will include Q&A.   Interestingly, there will be a second panel of witnesses that will react to Dr. Yellen’s testimony and will include:

  • Dr. John Taylor, Professor of Economics, Stanford University;
  • Dr. Mark Calabria, Cato Institute;
  • Abby McCloskey, American Enterprise Institute; and
  • Dr. Donald Kohn, Brookings Institution.

So, we will see soon enough if Dr. Yellen is a Lonesome Dove or as my colleague Keith McCullough called her in this video the "Mother of All Doves."   Either way, her commentary this morning is likely to have some impact on a stock and bond market that continues to be myopically focused on interest rates and Federal Reserve policy.

 

Speaking of headwinds, one of our Best Idea short positions Boardwalk Pipeline Partners (BWP) faced a few of them yesterday as the stock closed down -46%.  We obviously don’t get them all right, but our Energy Sector Head Kevin Kaiser nailed this one.  Interestingly, BWP didn’t miss its EBITDA estimate by all that much, but did cut its distribution by more than 80%.

 

A key tenet of our short call on MLPs in general is that their distributions are quite often an illusion as MLPs borrow money, issue equity and buy companies to maintain the distribution.   Investment bankers then “value” MLPs based on the yield, rather than the actual intrinsic value of the assets, and sell these financial products to unsuspecting retails investors.   This whole scheme works fine until the proverbial company goes over the Buffalo Jump and distributions get cut.

 

If you are invested in MLPs and / or looking for good shorts, I’d highlight recommend you subscribe to our Energy Sector research.  Anyone on our sales desk, , can help get you signed up.  The best risk management is to avoid blow ups like BWP and we seem more MLPs on the horizon that are headed for the cliff.

 

Our immediate-term Global Macro Risk Ranges are now: 

 

UST 10yr Yield 2.60-2.76%

SPX 1 

VIX 14.06-20.41 

USD 80.33-88.08 

Gold 1

 

Keep your head up and stock on the ice,

 

Daryl G. Jones

Director of Research

 

The Buffalo Jump - Chart of the Day

 

The Buffalo Jump - Virtual Portfolio


THE M3: SO COMMENTS ON JAN; JOCKEY CLUB CASINO; SOLAIRE

THE MACAU METRO MONITOR, FEBRUARY 11, 2014

 

 

SO 'NOT WORRIED' ABOUT 7% JAN GROWTH Macau News

“There were a lot of people but business is not as good,” So said of SJM's revenue in January.  So said that the slowed-down growth was “nothing to worry about” as there was no drop in the amount of gaming chips bought by customers, pointing out that casinos look at the win percentage to determine their revenue.  Last month's slowed-down growth rate, So said, was nothing to worry about as he believed it won’t be a trend.

 

JOCKEY CLUB AWAITS APPROVAL TO REOPEN CASINO Macau Daily Times 

Macau Jockey Club (MJC) is planning to reopen its casino following a ten-year absence.  Jockey Club CEO Thomas Li Chu Kwan confirmed that the casino is now being redecorated and will be reopened as soon as government approval arrives.  There is currently no timetable for the casino’s reopening, and neither are there specific numbers on gambling tables and slot machines to be set up.

 

BLOOMBERRY RAISES US$253 MLN TO EXPAND SOLAIRE Macau Business

Bloomberry Resorts Corp has raised privately US$253.4 million (MOP2.03 billion) to expand its Solaire Resort and Casino in Manila’s Entertainment City.  The casino-resort operator had sold corporate notes to BDO Unibank Inc, China Banking Corp, Robinsons Bank Corp and United Coconut Planters Bank, among others.  The Phase 1-A expansion of Solaire will include 200 more slot machines and 65 gaming tables, a 300-room hotel, mixed-use space, a 1,800-seat theatre and a nightclub.


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