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Outside of the now ubiquitous ‘weather’ caveat, it’s hard to paint the January Retail Sales data with a panglossian brush. 


JANUARY WEAKNESS:  The weakness in auto sales was well telegraphed and drove the decline in the Headline reading for January, but December was revised lower as well and the softness was pervasive with the primary sub-aggregates (Ex-Auto’s, Ex-Auto’s & Gas, Control Group) declining across every rate of change measure – MoM, YoY, 2Y ave. 


With respect to calculated GDP, the Control Group decelerated 60bps and 70bps on a YoY and 2Y basis, respectively, while the -0.3% MoM decline was the largest since December 2011.


UPHILL BATTLE:  Labor market trends remain okay and the anniversary-ing of the ending of the payroll tax holiday in 2013 should serve as a modest support to retail sales growth this year.


However, with wage growth (at ~2%) running at a negative spread to consumption (at +3.6%) and the savings rate holding little incremental downside (ie. little upside for consumption) the outlook for a material acceleration in retail sales isn’t particularly strong. 


Further, If housing continues to decelerate and stocks fail to repeat last year’s performance, luxury and higher end durable sales, driven principally by the top income quintiles, may reverse the notable acceleration observed in 2013.   


PERFORMANCE RISK:  More broadly, a deceleration in sales alongside burgeoning inventory levels at the retail level does not generally augur rising profitability.  


Sequential deterioration in operating performance has already begun to manifest in consumer companies in 4q13 earnings and is likely to continue if #InflationAccelerating continues to play out.     


As we’ve been highlighting for 6 weeks now, growth isn’t falling apart (yet) but the slope of growth is definitely decelerating on the margin – and macro alpha is (still) typically a game of divining better/worse, not good/bad. 










Christian B. Drake





LO: Weighing in on Menthol – Expert View from Washington

We’ve retained a top Washington law firm involved in tobacco public policy to assess the details of the FDA's action on menthol.


This assessment is a comprehensive look at the key issues under the FDA microscope and is a must-read for current and prospective tobacco investors – particularly LO as the menthol leader. The work succinctly sizes up the regulatory environment and provides a roadmap and time frame for assessing the menthol-related risks.  


Key considerations in the report include:

  • Findings on scientific, economic and political considerations to influence the FDA
  • Status of the FDA’s consideration to regulate or ban menthol
  • Make-up of the public comments on menthol
  • Roadmap for timing potential regulatory action

Lorillard remains our preferred Big Tobacco company on the long side. We will present our updated thoughts on LO on March 4th.


If you would like a copy of the expert report or access to our upcoming call, please contact us at or .



Matt Hedrick


Tobacco, Alcohol, Food and Beverage

Short: SP500 Levels, Refreshed

Takeaway: Given US #InflationAccelerating and consumption #GrowthSlowing, I am not convinced my @Hedgeye TREND support of 1785 holds.

Editor's note: This complimentary market note from CEO Keith McCullough was originally published February 12, 2014 at 10:57 in Macro. Click here for more information on how you can subscribe to Hedgeye.



While being short into the tail-end of a market v-bottoming off the YTD lows was painful yesterday, that doesn’t mean our bearish call on consumption growth ends. If you want to be long, buy commodity inflation and/or slow-growth (bonds) assets.


That’s what’s working.


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

  1. Immediate-term TRADE overbought = 1837
  2. Intermediate-term TREND = 1785
  3. Immediate-term TRADE support = 1729

In other words, SPX is making lower-highs on lower-volume signals than we are seeing on the down days (Top 5 Volume Days of 2014 were all down days).


Given US #InflationAccelerating and consumption #GrowthSlowing, I am not convinced my @Hedgeye TREND support of 1785 holds. This is materializing into a very different setup vs. what our process signaled in 2013.


If they snap 1785 again, there’s no support to 1729. On a move like that, risk will most likely happen fast.



Keith R. McCullough
Chief Executive Officer


Short: SP500 Levels, Refreshed - keith

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The Yen is looking more bullish versus Janet Yellen’s Burning Buck by the day. It's up another +0.5% versus the US Dollar and is now a bullish TRADE and TREND signal developing @Hedgeye with USD/YEN resistance at $102.98. A stronger yen is bad news for the Nikkei which is down -1.8% to -10.8% year-to-date.


With the S&P 500 flat yesterday, the CRB Index powered forward again for another +0.5% gain to +4.3% year-to-date. A breakout in commodity inflation is easily the biggest risk to the US consumer. That's where most of our short ideas are right now.


Pretty simple one here. The Yellen Fed has 0% credibility on fighting inflation. Bonds trade with growth expectations, so we buy bonds as long as we see US #GrowthSlowing and 10-year yield TREND resistance of 2.80% still intact.

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.

Three for the Road


COMMODITIES: continue to inflate, outperforming US stocks by a widening margin (CRB Index +4.3% YTD) @KeithMcCullough


Failure happens all the time. It happens every day in practice. What makes you better is how you react to it. -Mia Hamm


Comcast agreed to acquire Time Warner Cable for $45.2 billion in stock, a surprise deal that combines the two largest U.S. cable companies and creates a bulwark against competition from phone and satellite providers.

[video] Keith's Macro Notebook 2/13: YEN COMMODITIES BONDS

Retail Callouts (2/13): JCP, RL, UA, WWW, SKX

Takeaway: UA GILTy as charged. JCP c-suite chg good - off by a letter. 1st glimpse of Polo women launch. WWW repo/Merrell apparel. Big print by..SKX?



  • CAB - Earnings Call: Thursday 2/13, 11:00am
  • VFC - Earnings Call: Friday 2/14, 8:30am







  • "J. C. Penney Company, Inc. today announced that Ed Record has been named executive vice president and chief financial officer, effective March 24, 2014.  He will succeed Ken Hannah, who will remain chief financial officer through that date to ensure a smooth transition."
  • "Record, 45, has nearly 25 years of experience managing the financial and operational performance of multiple retailers.  He spent over six years at Stage Stores...Before Stage, Record served as senior vice president of finance at Kohl's and as controller and senior vice president of finance at Belk."


Takeaway: Shaking up the C-Suite - definitely a good thing, but the position they chose was off by a letter.


UA - Under Armour gives Gilt Groupe a try


Retail Callouts (2/13): JCP, RL, UA, WWW, SKX - chart2 1 13


Takeaway: UA's premium product has virtually zero retail presence right now. It's not currently in Factory or Wholesale and rightly so. Through its two full-price retail doors (3 when NYC opens) and initiatives like this one with GILT, UA seems to be testing the market before going all in. This is particularly important for their push into Women's - under its current distribution there really isn't a place for the premium yoga line. As UA refines its channel strategy to more fully incorporate newer higher priced products it means more trouble for LULU.


SKX - SKX reports 4Q13 Earnings


Retail Callouts (2/13): JCP, RL, UA, WWW, SKX - chart1 2 13


Takeaway: The company crushed expectations -- at least at face value -- with EPS of $0.28 vs the Street at $0.17. Revenue was in-line, gross margins were up 200bp, and the tax rate was pretty much nonexistent (3% vs 40% last year). But inventories look good (note SIGMA in the right quadrant), and the company's outlook was better than most retail companies we see these days. The market's reaction says it all.


RL - Ralph Lauren Unveils Polo for Women



  • "Today, the designer will kick off his fall runway show by unveiling about 25 looks from the new women’s Polo Ralph Lauren brand, which is making its debut for fall."
  • "The move is part of Ralph Lauren Corp.’s larger global push to capitalize on the recognition and strength of the Polo name amid the group’s brand portfolio."


Retail Callouts (2/13): JCP, RL, UA, WWW, SKX - chart3 2 13

Retail Callouts (2/13): JCP, RL, UA, WWW, SKX - chart4 2 12


Takeaway: Polo is RL's most underutilized asset. This massive push to make the brand a stand-alone profit driver instead of just an add-on line of collared men's shirts makes all the sense in the world. And it has global appeal. Combined with the recently consolidated Chaps (from PVH license), these two horses will be the main drivers of RL's growth over the next three years.


WWW - Wolverine Worldwide Declares Quarterly Dividend; Announces Authorization Of $200 Million Share Repurchase Program



  • "The Company's Board of Directors also approved a new share repurchase program authorizing up to $200 million in share repurchases, which replaces the Company's 2010 Share Repurchase Authorization that just expired.  The share repurchases are authorized to be made over a four-year period at times and amounts deemed appropriate by the Company, based on factors including price, market conditions, and restrictions contained within the Company's credit agreements."


Takeaway:  Share repo announcement is a positive, but keep in mind that last one was a 4-yr deal on Fed 12. It's time for another. WWW only repurchased ~$114mm on the last one because of PLG deal. Now they refresh to have facility in place to support stock on the bad days.




PERY - Perry Ellis Names Michael Maccari Creative Director



  • "Michael Maccari has joined the label as creative director and will oversee design direction for all Perry Ellis product categories, including collection sportswear and licensed product." 
  • "Maccari, who was fashion director and senior vice president of design for Armani Exchange, has also worked with Polo Ralph Lauren, J. Crew, Calvin Klein and Donna Karan New York."


9983 - Uniqlo Confirms Southern California Store Openings



  • "Uniqlo has put an end to the speculation about its store openings in Southern California. The retailer confirmed late Wednesday that it is entering the region in the fall with units at South Coast Plaza in Costa Mesa, Calif., and Beverly Center in Los Angeles."


WWW - Merrell Appoints VP of Apparel & Accessories 



  • "Merrell appointed Sylvie D’Azemar as vice president of Merrell apparel and accessories."
  • "Prior to her new position at Merrell, D’Azemar was the vice president for Head sportswear, and the head of global apparel & gear for Salomon. Her career has also included leadership roles with Nike, where she was General Manager France for Hurley, and Business Director for Nike Apparel France."




NPD: Fashion Footwear Sales on the Rise



  • "U.S. retail sales of fashion footwear, which includes all footwear except athletics, generated revenue of $41.52 billion in 2013, a 4 percent increase over the flat growth experienced in 2012, according to new data released from The NPD Group."
  • "...outdoor and casual footwear experienced the largest dollar sales growth at 10 percent and 7 percent, respectively. With sales topping $23.8 billion in 2013, a 2 percent increase over 2012, the women’s category maintained its position as the largest driver in the fashion footwear industry, representing 57 percent of the total market. The men’s and children’s segments experienced sales of $12.5 billion, an increase of 7 percent over 2012, and $5.22 billion, an increase of 2 percent, respectively."
  • "Total unit sales for these segments were up 4 percent, with men’s fashion footwear experiencing the largest gain in total units at 9 percent, followed by children’s fashion footwear at 3 percent and women’s fashion footwear at 2 percent."