Takeaway: PBPB remains on the Hedgeye Best Ideas list as a SHORT


PBPB reported 4Q13 results yesterday after the close.  While adjusted EPS of $0.06 beat expectations of $0.04, it was well below last year’s adjusted EPS of $0.12 which included an extra operating week.  Total revenues of $74.761m came in 168 bps light of expectations as the company delivered meager year-over-year comp growth of 0.7% on an adjusted basis.




It was a disappointing 4Q13, due in part to circumstantial situations as the company was hampered by the two-week government shutdown in October and extraordinarily poor weather in December.  Typically, we would chalk these up as nothing but excuses, but the geographic profile of PBPB suggests we should give the company the benefit of the doubt.  After all, Potbelly has over 70% of its stores in the Northeast/Midwest.  This lack of geographical diversification is part of what makes us cautious on the name (significant exposure to external events, unproven in other markets), but we’ll save that for another time.


Considering this exposure and the inability to protect against it, management estimates that weather had a 310 bps impact on December comps and believes the negative impact to-date in 1Q is even worse.  All told, 1Q14 is shaping up to be a disaster and could pressure the full-year outlook.  Consensus is currently looking for 1.8% comp growth in 1Q14 – we suspect this will come down, a lot.  Management has not come off its original 2014 estimates, which means they are expecting the next ten months to overcompensate for the past two.  In reality, PBPB hasn’t grown traffic for at least the last four quarters (by our estimates) and is generating EPS growth primarily from unit growth.  Management’s comp guidance implies that they believe they have the ability to take price to drive average check higher, but relying on price to drive future profitability is a fool’s errand.  With declining traffic trends, this becomes an even riskier proposition.


PBPB LAYS AN EGG - pbpb sss




Management provided the following 2014 full-year guidance on the 4Q13 earnings call.



  • Adjusted net income growth between 25-35%
  • 35-40 new company shops including at least one new hub market
  • 5-8 new franchise shops
  • Low single-digit comparable sales growth driven by both check and traffic
  • Effective tax rate below 39.5%
  • Capex of $30-35m
  • Shares outstanding between 30-32m shares

Maintaining full-year guidance after a tumultuous start to the year seems a little aggressive to us and, if the current estimates stand, it could be difficult for PBPB to hit the numbers.  Aside from our issue with the low quality comp growth, from a growth (?) concept, we are also discouraged by a complete lack of consistent AUV growth.


PBPB LAYS AN EGG - pbpb auv


Maybe the underlying numbers will begin to improve with more reasonable weather, but the fact of the matter is, by our estimates, Potbelly hasn’t grown traffic for over a year.  Assuming the numbers begin to normalize, we still believe estimates are too aggressive.  The street is currently looking for total revenue growth of 11% on the back of a 1.9% comp.  For this to happen, Potbelly will likely need to see sustained traffic growth throughout the remainder of 2014.


Management reiterated the following long-term guidance on the 4Q13 earnings call. 



  • Total new shop growth of at least 10%
  • Low single-digit comparable sales growth
  • Annual adjusted EBITDA growth of 20% or more
  • Return on capital investments of at least 25%

Management’s long-term growth targets are respectable, but this doesn't make it the next CMG, PNRA, or even NDLS.  It’s a low-margin, low-return, single daypart sub shop with declining traffic and little competitive advantage over its peers.  Current consensus estimates are for -1% adjusted EPS growth in 2014, not exactly the type of growth we’d expect to see from a "growth" chain with a premium multiple.


The stock is currently trading at a P/E of 64.36x and 23.93x EV/EBITDA on a NTM basis, multiples substantially higher than the ones awarded to Chipotle.  To put that in perspective, a chain that delivered 1.5% comp growth in 2013 is trading at a premium multiple to one that delivered 5.6% comp growth in 2013 with a 5x larger store base.  Yet, people want to talk about how expensive CMG is?


Potbelly was merely the beneficiary of a hot IPO market and if the fundamentals don’t begin to align with expectations, we continue to see downside in the name.  We think PBPB can be a feasible, financially robust company over the long haul but the current fundamentals suggest the company is grossly overvalued.  



Howard Penney

Managing Director



TODAY’S S&P 500 SET-UP – February 19, 2014

As we look at today's setup for the S&P 500, the range is 41 points or 1.83% downside to 1807 and 0.39% upside to 1848.                                               










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.39 from 2.41
  • VIX closed at 13.87 1 day percent change of 2.21%

MACRO DATA POINTS (Bloomberg Estimates):


• 7am: MBA Mortgage Applications, Feb. 14, est. -2.0%

• 7:45/8:55am: ICSC/Redbook weekly retail sales

• 8:30am: Bureau of Labor Statistics issues redesigned PPI

• 8:30am: Housing Starts, Jan., est. 950k (prior 999k)

• 11am: Fed to purchase $1b-$1.25b in 2036-2044 sector

• 11:30am: U.S. to sell $32b 4W bills

• 12:15pm: Fed’s Lockhart speaks on economy in Macon, Ga.

• 1pm: Fed’s Bullard speaks in Washington

• 2pm: Fed releases minutes from Jan. 28-29 FOMC Meeting

• 4:30pm: API weekly oil inventories

• 7pm: Fed’s Williams speaks on economy in New York



    • President Barack Obama holds press conf. with Canadian Prime Minister Stephen Harper, Mexican President Enrique Pena Nieto


  • China cuts Treasury holdings by most since 2011 amid Fed taper
  • Canadian Natural buys some assets of Devon Canada for C$3.13b
  • BlackBerry CEO chides T-Mobile for promoting switch to iPhones
  • Blackstone buys stake in Senator as Hill targets hedge funds
  • Ranbaxy, Teva agree to settle New York antitrust drug Claims
  • Las Vegas Sands says hackers breached co.’s internal drives
  • EBay CEO Donahoe says PayPal is stronger as a unit
  • Fed foreign-bank capital rules positive for insurers: Seiberg
  • Credit Suisse waits for $11b answer in N.Y. fraud suit
  • Verizon Communications to issue 1.27b shrs to Vodafone holders
  • Buffett’s Coca-Cola complacency warning foretells troubled year
  • Mexico to push ahead on broadcast-TV rules after legal decision
  • Tribune sees $325m benefit in public publishing co.: L.A. Times
  • Netflix says Jan. speed dropped 14% on Verizon’s FIOS: WSJ
  • Investment Technology Group may buy Nyfix From ICE: WSJ


    • Cimarex Energy (XEC) 6am, $1.41
    • Devon Energy (DVN) 7am, $1.08 - Preview
    • Eaton Vance (EV) 8:35am, $0.59
    • Garmin (GRMN) 7am, $0.62
    • Health Care REIT (HCN) 7:30am, $0.16
    • Hecla Mining (HL) 8am, $0.00
    • Host Hotels & Resorts (HST) 6am, $0.31
    • Lumber Liquidators (LL) 7am, $0.72
    • Medicines Co (MDCO) 7am, $0.12
    • MGM Resorts Intl (MGM) 8am, $(0.01)
    • Navios Maritime (NM) 7:45am, $(0.09)
    • Omnicare (OCR) 7am, $0.90
    • Sherritt Intl (S CN) 7:42am, C$0.01 - Preview
    • Six Flags Entertainment (SIX) 8am, $(0.22)
    • SunEdison (SUNE) 6am, $0.17
    • Wabtec (WAB) 8:10am, $0.79


    • Allegion (ALLE) 5pm, $0.59
    • Arris Group (ARRS) 4pm, $0.46
    • Avis Budget Group (CAR) 4:15pm, $0.12
    • Coeur Mining (CDE) 5pm, $(0.18)
    • Concho Resources (CXO) 4:30pm, $0.95
    • Energy Transfer Equity (ETE) 5:10pm, $0.32
    • Energy Transfer Partners (ETP) 5:05pm, $0.58
    • Equinix (EQIX) 4:01pm, $0.79
    • Finning Intl (FTT CN) 4:30pm, C$0.54
    • Goodrich Petroleum (GDP) 4:44pm, $(0.47)
    • HealthSouth (HLS) 4:15pm, $0.42
    • Helix Energy Solutions (HLX) 5:30pm, $0.32
    • HomeAway (AWAY) 4pm, $0.13
    • HudBay Minerals (HBM CN) 5:09pm, C$0.02 - Preview
    • Iamgold (IMG CN) 5:04pm, $0.04
    • Jack in the Box (JACK) 4:01pm, $0.66
    • LifeLock (LOCK) 4:05pm, $0.21
    • Marriott (MAR) 4:30pm, $0.49
    • Millennial Media (MM) 4:05pm, $(0.01)
    • Penn Virginia (PVA) 4:03pm, $(0.03)
    • Questar (STR) 4:10pm, $0.37
    • Safeway (SWY) 4:05pm, $0.48 - Preview
    • Sunoco Logistics Partners (SXL) 4:02pm, $0.65
    • Synopsys (SNPS) 4:05pm, $0.52
    • Tesla Motors (TSLA) 4:01pm, $0.26 - Preview
    • Trinity Industries (TRN) 4:01pm, $1.42
    • Williams (WMB) 4:05pm, $0.21
    • Williams Partners (WPZ) 4:05pm, $0.40


  • Mercuria Said in Discussions With China’s SDIC to Sell Stake
  • WTI Oil Rises for Second Day as U.S. Chill Erodes Fuel Supplies
  • Sugar Crop Tumbling to Four-Year Low in India May Cut World Glut
  • Nickel Reaches Three-Week High on Buying to Close Bearish Bets
  • Gold Holds Below 3-Month High as Buying Slows Before Fed Minutes
  • Soybeans Near Two-Month High on U.S. Exports, Brazil Drought
  • Sugar, Coffee Decline After Rally on Brazil Dryness; Cocoa Falls
  • Rebar in Shanghai Advances on Spring Restocking Speculation
  • Commodities Revenue at Top 10 Banks Declined 18% Last Year
  • Rice Rout Seen Extending as Thai Sales Quicken: Southeast Asia
  • Arabica Coffee Climbs 2.8% in New York, Erasing Earlier Decline
  • EU Gas to Extend Bear Market on Mildest Month Since ’08: Energy
  • Australia Freight, Currency Advantage Delivers China’s Iron Ore
  • Natural Gas Rises to Four-Year High as Inventories Seen Falling


























The Hedgeye Macro Team














February 19, 2014

February 19, 2014 - Slide1 


February 19, 2014 - Slide2

February 19, 2014 - Slide3

February 19, 2014 - Slide4

February 19, 2014 - Slide5

February 19, 2014 - Slide6

February 19, 2014 - Slide7

February 19, 2014 - Slide8



February 19, 2014 - Slide9

February 19, 2014 - Slide10

February 19, 2014 - Slide11
February 19, 2014 - Slide12

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.






The 6 gambling license holders may not be granted a renewal period of 10 years or more.  According to authoritative sources, because 3 of those 6 licensed are US-owned, the central government will be more focused on Sino-US relations.  This could be a deciding factor in giving licenses with a shorter period (e.g. 5 years).  One source said each of the 6 concessionaries will have their licenses renewed in 2020 and in 2022, and no new licenses will be issued.

Do You Wish To Find Out?

This note was originally published at 8am on February 05, 2014 for Hedgeye subscribers.

“What we need is not the will to believe, but the wish to find out.”

-William Woodsworth


I know. I’m going all #behavioral on you this year. When combined with #history and #math, it gives me an edge. And god knows, I’m not the smartest player in this league – so I need one!


The aforementioned quote comes from the introduction in the latest #behavioral book we’ve been discussing in the office, Counterclockwise, by Harvard Applied Psych professor, Ellen Langer.


Langer’s research is unique in that she was really one of the first women (1st woman to ever get tenure in Psychology @Harvard) to break the ice on a lot of topics that make us think about how we think. Her most popular book was Mindfulness in 1989. She wrote Counterclockwise in 2009 and it’s relevant to how you think about your risk management day.


Back to the Global Macro Grind


Do you wish to find out why almost every major macro position that was working for you last year sucks for 2014 YTD? If I needed to believe that the Japanese-burning-currency thing was going to work, I could – but I’d be losing a lot of money on that.


Last night’s pathetic bounce in Japanese Equities (Nikkei +1.2% to -12.9% YTD) tells you all you need to know about Japanese consensus – all the locals (brokerage clients getting margin calls) were short Yen and long Mothers (as in the index Japanese dudes lever up on).


Most of Wall Street was in the same trade too. It was only 1 month ago today that the CFTC (futures and options) net short position in Japanese Yen hit all-time highs (-135,000 net short position in terms of contracts). This morning that net short position is -89,420 contracts.


Next to short Yen, what have been the other major consensus long/short positions in Global Macro options?

  1. LONG Oil – 3 month average = +363,977 net LONG contracts
  2. LONG SP500 (Index + E-mini) – 3 month average = +78,356 net LONG contracts
  3. SHORT US Treasuries – 3 month average = -115,078 net SHORT contracts

And how’s that going YTD?

  1. Brent Oil = DOWN -4.2% YTD (vs the CRB Commodities Index +2.5%)
  2. SP500 = DOWN -5.0% YTD
  3. 10YR US Treasuries = UP (with yields -13%, or 40 bps YTD)

Why? Do you want the answer that consensus needed to believe on December 31, 2013, or do you wish to believe what Mr. Macro Market is telling you about growth (hint: on the margin, with #InflationAccelerating, US growth is slowing)?


And it’s not just a USA thing. As you can see in our Chart of The Day (where we show “Hard Growth Comps” for countries versus “Easy Comps”), Japan and the United States were setting up to slow from their 2013 momentum peaks irrespective of this US weather.


Oh, and by the way, the weather on the Merritt in Connecticut this morning isn’t what the dude in Tokyo is dealing with via his margin calls. Japan actually just reported a 16 year low in wages. When his government has a Policy To Inflate the dude’s cost of living, that is not good!


How does the Burning Your Currency thing work again?

  1. Government prints lots and lots of moneys
  2. Currency goes down, and purchasing power of The People goes down
  3. Real (inflation adjusted) consumption growth slows

Then pop a “consumption tax” on your people (Japan’s is pending) and what people who need to believe about “Abenomics” (that it’s good because the stock market was going up) isn’t aligned with what politicians “wish to find out” about economic reality.


Back to the wage inflation (or deflation) thing, I’ll show you what’s going on in the USA on our US Economics Flash Call this morning at 11AM EST. After seeing big time pressure on wages throughout the 2008 crisis, aggregate private sector wages are actually tracking up +5% on a 2-yr comp basis. .  If you need dial in details for the call, email


I know your run of the mill academic doesn’t model the US economy how we do (we model it on a 1, 2, and 3 yr comparative basis so that we don’t get run-over by changes on the margin in trends), but that’s cool. It seems to work.


What seems to be a developing bearish to bullish reversal in a @Hedgeye TREND may not turn out to be a long-term reality. But can you afford to miss 3, 6, and 12 month accelerations and decelerations in big macro stuff like growth and inflation?


We can’t. And that’s all I have to say about that.


Our immediate-term Global Macro Risk Ranges are now (with intermediate-term TRENDs, bullish or bearish, in brackets):


SPX 1735-1782 (bearish)

Nikkei 14036-15004 (bearish)

VIX 15.49-21.63 (bullish)

USD 80.78-81.43 (neutral)

Gold 1239-1274 (bullish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Do You Wish To Find Out? - GDP Comps


Do You Wish To Find Out? - 556

EHTH: Thoughts into 2014 Guidance

Takeaway: We remain the bear on EHTH's 2014 prospects. If 2014 guidance isn't light on the initial release, we believe it will have to cut in 1Q14.


  • 4Q13 IFP application metrics are mostly churn
  • Attrition risk not being considered
  • 2014 to disappoint, 2015 setup is worse



We continue to expect 2014 guidance will disappoint on the release.  There are too many headwinds facing the company, and consensus has gotten ahead of themselves in terms of 2014 growth expectations.  We can send you our prior notes and our blackbook if you would like more detail.  


At a meeting with another sell-side firm in January, EHTH management suggested that guidance will include caveats, which we suspect means it will be issued in a wide range, with the top end potentially beating consensus estimates.  If that is the case, it could perpetuate the ACA growth narrative, and push the stock higher in the near term.  However, if management chooses to guide high on the 4Q13 release, we believe it will have to cut on the 1Q14 release.  




Management suggested that it is expecting another wave of applications before the March 31st Open Enrollment deadline, which is why we suspect EHTH could guide higher than it should.  While possible, we have yet to see any surge in demand three weeks into February.  Health Insurance search traffic has steadily waned ever since Open Enrollment began on 10/1/13, and is now at its lowest point since Open Enrollment began  


EHTH: Thoughts into 2014 Guidance - EHTH   Health Insurance Demand weekly 2 18 14 


Even if demand picks up into the final Open Enrollment deadline, it doesn't mean EHTH will see a proportionate share of applications.  EHTH is gradually losing whatever competitive edge it had over the public exchanges.  Three things to consider

  1. EHTH can't sell subsidized plans in the 15 states running their own exchange
  2. EHTH hasn't been able to sell subsidized plans in the states where it is allowed to do so, due to technical issues with the federal site according to an interview with EHTH's CEO on 2/11/14 (link).
  3. Functionality on the government exchanges has steadily improved; making them a more formidable competitor and the only option for subsidized plans

In summary, if guidance surprises to the upside, we suspect it would be more wishful thinking than anything else. We believe management would be setting themselves up for disappointment later.  We remain short into the 4Q13 earnings release this Thursday (2/20/13).



Hesham Shaaban, CFA


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.