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RT - Comments from Investor Conference

We just heard from RT last week when the company reported its 4Q earnings so today we heard more of the same as it relates specifically to RT. RT's CEO Sandy Beall did say, however, that he is seeing more discounting within casual dining now than in the spring. We will be learning more about calendar 2Q results in the coming weeks and how casual dining margins fared overall, but this statement could point to increased margin pressure in the current quarter. A large number of companies, including RT, have been able to cut costs to partially offset the significant level of discounting, but a second round of cuts will be more difficult without impacting the customer experience.

RT said it will begin in January to execute against its goal of increasing average check to $12.50 to $14.50 from about $11.50. That being said, the company has not increased its prices in about 3 years. Although RT has been successful in driving increased traffic as of late, it has done so by better marketing its value offerings. It will become increasingly difficult for the company to raise its prices as it has trained its customers for the last 3 years to expect a lower average check. We will have to wait and see...

Retail First Look: CIT Implications


14 JULY 2009 


I didn't want to jump on the CIT bandwagon here, but I received about a dozen emails yesterday talking about the gloom and doom associated with  a Ch 11 filing.  Make no mistake, this is bad near-term. In doing the math, about 9% of CIT's $65bn portfolio are related to Retail, but it is one of the profit centers. In fact, last year CIT generated $100mm in net income in Retail, despite a $633mm loss in the overall portfolio. What does this mean? There are hundreds (if not thousands) of brands and retailers across sub-industries of Consumer that have existed simply because of the crutches in the system that allowed them to deliver sub-par product to a marginal consumer. There is definitely life beyond CIT. There are other factoring firms that will pick up the share as the economic balance finds equilibrium once again. But think about it this way... Does Ralph Lauren need CIT? No way. Does Kellwood? Jones Apparel Group? Perry Ellis? Warnaco? Yes, yes, yes and yes.  If the big guys are smart (let's assume that  they are big because they are at least reasonably smart), then this is a time when they flex muscle and gain share at retail and in both the mind and wallet of the Consumer. This event should help flush away the dregs of retail. I know I am still too early in suggesting this, but in hindsight I think that CIT Ch 11 proceeding will be viewed as part of the bottoming process for US Retail. 

In case anyone missed it, TBL snuck in an 8K after the close yesterday noting that Gene McCarthy is leaving the company effective on Friday. Terms will be disclosed as soon as they are finalized. In other words, there was a major shake-up, and he's out the door. There is no good that can come from this. Gene is the guy that TBL brought in to build a team to breathe life into the Timberland Brand. Gene 'gets' branding. He certainly did while VP Marketing of the Jordan brand during its rise to glory at Nike. He has been the architect of TBL's effort to clean up distribution, and take the brand upstream. Has it been a home run? No, but there is no absence of doubles and triples. My sense is that the 'penny pinching, tree-hugger' nature of the company is holding back on resources to grow the business at a time when it is deserving of the most capital.  I'd pit Gene up there as being on Matt Rubell's (PSS) career path - only 5-10 years down the line.  In fact, I think it'd be huge for PSS to hire the guy. As for TBL, this is a major blow. I had been a fan of the story up until earlier this year when I realized that numbers were too high. Now they REALLY look too high, and the talent to help TBL climb out of its miserable hole is fading. There's not much to hang your hat on with this story, except an acquisition. And as far as I'm concerned, the pool of buyers is half of what it was just three months ago, and the multiple has doubled.  Not good, TBL. Not good at all...



Some Notable Call Outs

- A last ditch effort is underway to save Ritz Camera from liquidation. After closing hundreds of stores but failing to hold off Chapter 11, the retailer is now pinning hopes on an auction for the whole company slated for July 23rd. If unsuccessful, it is expected that a complete liquidation will begin the next day.

- After 5 years of operating high-end outdoor retailer Smith and Hawken, Scott's threw in the towel on the chain and announced all 56 stores will close by year end. I wouldn't be surprised to see the brand reemerge, either in the form of further licensing deals (TGT already sells a line under the Smith and Hawken name) or an outright sale of the brand.

- Local marketing is in full force in advance of ANF's Hollister flagship opening this Thursday in SOHO, NY. The early marketing push includes two shirtless male models dressed in lifeguard shorts hanging out in front of the store's main entrance. Despite persistent same store sales weakness across all of the company's main brands, we expect the fanfare surrounding the store to be positive. After all, the store itself is likely to be very dramatic with an interior that supposedly sports a real pier and 77 flat screen tv's broadcasting a live feed of the ocean in Huntington Beach, CA.



- Ho Chi Minh City, Vietnam  is aiming to further develop its retail and wholesale industry - Ho Chi Minh City has plans for an extra 95 supermarkets and 140 "trade centres" planning to be built in the period until 2015. They will be built mainly in the Vietnamese city's downtown, the Nam Sai Gon and Thu Thiem urban areas, as well as at stops along its planned Metro rail line. The government's goal is to expand the share of modern retail distribution to 40% of the total retail value by 2015, with the new developments also expected to encourage more convenience and food stores in residential areas. Ho Chi Minh City is also planning to upgrade a total of 64 traditional markets in 2009-10 and another 31 markets in the next five years. <fashionnetasia.com/industryupdate>

- Global cotton consumption expected to slow down - The US Department of Agriculture has reduced forecasts for global cotton consumption in 2009/10 due to expected slowdown in Pakistan, China and Thailand. The USDA said global consumption would be 112.62 million bales, down from last month's estimate of 113.42 million bales. However, the consumption prediction is still above last year's estimated demand of 110.34 million. The USDA also set the world production figure at 105.95 million bales for the year, down from its earlier estimate of 106.26 million bales. Global cotton consumption in 2008/09 was 106.93 million bales. <fashionnetasia.com/industryupdate>

- More hypermarkets are expected to be built in India by 2011 - Around 315 hypermarkets are expected to come up in tier I and II cities of India by 2011 to sell off all articles from automobiles to needles under one roof as by then recovery from current downturn would have firmly established, according to a joint study by industry body Assocham and KPMG. The study entitled 'Reinventing India's Retail Sector' in its analysis of Feasibility of Hypermarkets in tier I and II towns between 2008-11 points out that even in year 2008, 212 towns had sufficient market potential for hypermarkets for break even existence. However, the study pointed out that the potential of those markets are yet to be realized by the industry. "That is a different matter that this potential has yet to be realized," stated the report. The report further stated that organized retail, which is growing at 20 per cent annually, is encouraging mall building activities at phenomenal rate, which would ultimately amount to creation of chains of hypermarkets.  Sajjan Jindal, president, Assocham, said that given the expected growth in number of households as well as in income and consumption per household in urban India, particularly in its leading 25 towns, 5 or more hypermarkets per city are feasible even in 2009. <indiaretailing.com/News>

- UK retail sales rise - UK Like-for-like retail sales rose 1.4% in June when fashion sales were boosted by the hot sunny weather and high street discounting. <drapersonline.com

- Primark founder steps down - Primark founder Arthur Ryan is to step down as managing director of the fashion retailer in September, when chief operating officer Paul Marchant will become chief executive.  <retail-week.com>

- CHRS holds off on selling food business, more executive changes - Charming Shoppes pulled its Figi's food business off the selling block and made several executive appointments. The retailer initiated the sale of its Wisconsin-based Figi's Gifts in Good Taste catalogue business in August to refocus its energies on core brands. But Charming Shoppes said it has halted the sale process because it was unable to find an "acceptable valuation" to complete the transaction. The company also announced the appointment of Anthony Romano to executive vice president of global sourcing and business transformation.  Lisa Batra was named director of e-commerce for the Fashion Bug Brand, and Kimberly Aylward was appointed director of e-commerce for its Catherines brand. The firm hired Michele Pascoe as vice president of finance and chief financial officer of the Fashion Bug unit, and Brett Schneider to the same post at Catherines. <wwd.com/business-news>

- Kellwood works to secure financing - Kellwood Co. raced the clock Monday, exploring its financial options and negotiating with key bondholder Deutsche Bank to avert bankruptcy by restructuring $140 million in obligations, which comes due midnight Wednesday. Michael Kramer, president and chief executive officer of Kellwood, said the process could take up to a month. "We are surprised and disappointed by Deutsche Bank's current position as they were on our bondholder steering committee, helped structure the deal and told us all along that they supported it," said Kramer. <wwd.com/business-news>

- Industry retailers are jumping on the mobile commerce bandwagon - By Christmas 2010, shopping on the road, while waiting on line at the supermarket, traveling in China or backpacking through France - wherever there is cell phone service - just might be as normal as shopping online. The latest entry: London-based luxury e-tailer Net-a-porter on Monday launched a shopping application for the iPhone. Users who download the free application can see what's new in the store, shop and update their wish lists, among other things. At least 11 major companies, from Polo Ralph Lauren to Sears and CVS to Galeries Lafayette are raising their profiles by offering shopping on Web-enabled cell phones. Dozens more launches are expected in the next year. Just under 20% of customers have an iPhone or iPod Touch.  <wwd.com/retail-news>

- Ranking of the top 10 Vacation Destinations in the US - Even in a down economy, some people are still willing to pay for an escape from the daily grind. But many vacationers have decided to stay a little closer to home this year, favoring a jaunt within the U.S. over trips abroad. And according to a survey of almost 550 travel agents nationwide, big cities, relaxing atmospheres and star power reign supreme in 2009. 1) Las Vegas, 2) Orlando, 3) Kahului HI, 4) Honolulu HI, 5) New York City, 6) Phoenix/Scottsdale AZ, 7) Anchorage, 8) Washington DC, 9) San Francisco, 10) Chicago <wwd.com/footwear-news>

- Eddie Bauer looking for bids - Eddie Bauer Holdings Inc. may draw bids from Iconix Brand Group Inc. as well as Golden Gate Capital. <sportsonesource.com>

- Nike merging websites - Nike has merged the popular nikeplus.com website and its close to 2 million members with www.nikerunning.com to give users a one-stop running destination online. Nikeplus.com has added many new features and social media opportunities. <sportsonesource.com>

- Sears teams up with the NBA and WNBA - Sears Holdings and the National Basketball Association (NBA), the Women's National Basketball Association (WNBA), and the NBA Development League (NBA D-League) announced a new promotional partnership in support of the Protege brand's line of basketball footwear, sold exclusively at Kmart and Sears. sportsonesource.com>

- K-Swiss lawsuit dismissed - The Los Angeles District Court has dismissed a lawsuit filed by K-Swiss against Puma over. Puma filed its own trademark infringement lawsuit in the District of Massachusetts and the case will continue to be heard there. <sportsonesource.com>

- SUBOI and Timex apparel license agreement - SUGOI Performance Apparel, a division of Dorel Industries Inc., and Timex Group, have entered into a license agreement for the design, manufacture and distribution of sports apparel under the Timex brand name. Sugoi will launch a line of Timex performance apparel designed for everyday athletes nationwide. <sportsonesource.com>

- Wal-Mart's magazine relaunching - Since its inception in 2004, Time Inc.'s All You magazine has been distributed at Wal-Mart stores and via subscription, offering consumers money-saving tips. This week, the magazine is relaunching its site to better serve its audience during a recession. Consumers visiting the site will get exclusive coupon offers, a Web video series and "Style for Less" tips.  With more Americans moving to budget-friendly shopping, this was the right time for a relaunch, said All You associate publisher Suzanne Quint. Brands such as Carvel Ice Cream, Arm & Hammer and Snapple have signed on as sponsors, offering the exclusive coupons on the site. Heinz's Smart Ones is the site's launch sponsor. <brandweek.com>

- Swank Inc. teams up with women's belt business - Swank Inc., the men's accessories supplier, thinks it has found the platform to get into the women's belt business - a strategic alliance with Style 365 LLC, a women's belt resource. Swank, which designs, sources and distributes men's belts and other accessories to a range of retailers under a sizable portfolio of licensed and owned brands, will assume responsibility for sourcing, logistics, financing and other backroom functions for Style 365. John Tulin, chairman and chief executive officer of Swank, said his firm had made an investment in the women's firm but declined to specify its size. <wwd.com/business-news>

Puma is keeping it sleek and colorful for spring '10 - Streamlined shapes, bright colors and sculptural accents characterize the looks - both performance-athletic and athletic-leisure - brought to the market by the Herzogenaurach, Germany-based brand (a division of French luxury house PPR). Puma styles are available at Puma retail shops, Puma.com and department stores and independent retailers, and sell for $60 to $295. <wwd.com/footwear-news>

 Retail First Look: CIT Implications - Puma shoes

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): TGT 

07/13/2009 10:20 AM


We're expanding our short position in US Consumer. Being short Ackman's concentration factor (illiquidity) is also attractive here. KM



Retail First Look: CIT Implications - SV 7 14 09



The Morning After

"What lies behind us, and what lies before us are small matters compared to what lies within us."
- Ralph Waldo Emerson
I was on a flight to Los Angeles last night and I could not stop thinking about the manic groupthink that has become the US stock market. Being on a Virgin America flight where I was hostage to getting the market's post close news from CNBC didn't help. I wonder if Larry Kudlow knows about You Tube's archiving process.
The morning after another squeeze, what lies behind us is another higher-low. What lies within us is a prejudice to follow the herd. What lies before us is  a small matter of perceived institutional job security in managing risk based on what lies behind us.
AFTER we crashed, how is it that everyone is a professional prognosticator of crashes to come? At a price, are people allowed to be bullish? Or do we need Meredith Whitney to remind us that the sun rises in the East and Goldman is going to crush the quarter?
AFTER the US stock market locked in 4 consecutive down weeks, Dennis Gartman is the latest to come out calling for new market lows. Yesterday, Fast Money's czar of British hedging philosophy stated "we've no choice then to conclude that the recent bull run from the March lows was nothing more than a bear market correction, and that new lows lay yet ahead." No choice? I have no other than to call that out. Garty, the math implies you are looking for a -34% crash in the SP500 from here - just fyi.
AFTER the US stock market closed above its 200-day moving average (878), the one-factor model monkeys now have themselves quite a trapeze act to explain. Or do they? Who holds those who are flinging your moneys around like bananas accountable? When it comes to their investment process, what is it, exactly, that they are getting paid to do?
In the last few Early Looks I have been focused on China and Japan. China hit another new YTD high last night, closing up another +2.1% at +72.8% for 2009. Meanwhile the Japanese stock market finally had an up day after 7 consecutive down ones. This morning, let me shift gears back to the US and be crystal clear on my US stock market stance for Q3 of 2009. I think this market has a high probability of trading in a proactively predictable range - on our Q3 Macro Theme conference call we called this Range Rover.
My intermediate term TREND of downside support for the SP500 remains 871, and my long term TAIL or upside resistance remains 954. The Volatility Index (VIX) broke it's immediate term TRADE momentum line yesterday ($28.92) and remains broken across our three key durations (TRADE, TREND, and TAIL). Credit  spreads are healthy, and the yield curve (247 basis points wide this morning) looks as good as any socialized banking curve you can find.
What lies before us this morning is another day of risk management. Having "no choice" is not what we do. If the SP500 breaks down and closes below the 871 line, I have a choice to call the next level of support whatever it is. I also had a choice to sleep in this morning, but I didn't. Not being able to "trade" or manage risk is a choice. So is selling low and buying high. I make a lot of mistakes, but I don't have to subscribe to the arbitrary Wall Street rules of technical "200-day" alchemy.
As the US government sponsors a Burning of The Buck, don't underestimate the power of the math. When the US Dollar goes down like it did yesterday, everything priced in dollars goes up. Another government stimulus plan will only erode America's balance sheet and her currency further. My new trading range for the US Dollar Index is $79.57-$82.46.
Today is the morning after. Manage risk around the game that's in front of you - what lies behind us is yesterday's news. Markets look forward.
Best of luck out there today,


USO - Oil Fund-We bought USO on 7/6 and 7/8 on a pullback in oil. With the USD breaking down, oil should get a bid.  

EWZ - iShares Brazil-President Lula da Silva is the most economically effective of the populist Latin American leaders; on his watch policy makers have kept inflation at bay with a high rate policy and serviced debt -leading to an investment grade credit rating. Brazil has managed its interest rate to promote stimulus. Brazil is a major producer of commodities. We believe the country's profile matches up well with our re-flation theme.

QQQQ - PowerShares NASDAQ 100 - We bought Qs on 6/10 and added to the position on 7/7 to be long the US market. The index includes companies with better balance sheets that don't need as much financial leverage.

CAF - Morgan Stanley China Fund - A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the wave of returning confidence among domestic Chinese investors fed by the stimulus package. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth.

TIP- iShares TIPS - The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield on TTM basis of 5.89%. We believe that future inflation expectations are currently mispriced and that TIPS are a compelling way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.

XLV- SPDR Healthcare - We re-initiated our long position in healthcare on 6/29.  Our healthcare sector head, Tom Tobin, wants to fade the public plan, and he's been right on this one all year.

GLD - SPDR Gold - Buying back the GLD that we sold higher earlier in June on 6/30. In an equity market that is losing its bullish momentum, we expect the masses to rotate back to Gold.  We also think the glittery metal will benefit in the intermediate term as inflation concerns accelerate into Q4.

XLI - SPDR Industrials - We don't want to be long financial leverage, which is baked into Industrials.

EWI - iShares Italy - Italian Prime Minister Silvio Berlusconi has made headlines for his private escapades, and not for his leadership in turning around the struggling economy. Like its European peers, Italian unemployment is on the rise and despite improved confidence indices, industrial production is depressed and there are faint signs, at best, that the consumer is spending. From a quantitative set-up, the Italian ETF holds a substantial amount of Financials (43.10%), leverage we don't want to be long of.

DIA  - Diamonds Trust- We shorted the financial geared Dow on 7/10, which is breaking down across durations. We are long the NASDAQ via Qs, which is long liquidity and economic leverage.  

EWJ - iShares Japan -We're short the Japanese equity market via EWJ on 5/20. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

XLY - SPDR Consumer Discretionary - We shorted XLY on 7/9 on a rip as our team has turned negative on consumer.  

UUP - U.S. Dollar Index - We believe that the US Dollar is the leading indicator for the US stock market. In the immediate term, what is bad for the US Dollar should be good for the stock market. Longer term, the burgeoning U.S. government debt balance will be negative for the greenback.

XLP - SPDR Consumer Staples - We shorted XLP on the bounce on 6/17.   Added to the position on 7/1, as our stance on the consumer is no longer bullish like it was in Q2, when gas prices and mortgage rates were dramatically lower.

SHY - iShares 1-3 Year Treasury Bonds - If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.

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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.

TGT: Notable TREND/TRADE Resistance

Here's one of those examples where our research process churns out a name that synchs with both our fundamental models and Keith's timing/sizing process.  Yes, I'm referring to none other than Target. Earlier today, Keith flagged us with TRADE and TREND resistance levels of $39.18 and $38.74, respectively.


Of course, this action warrants a deeper look into the fundamentals to see what is really going on out there with sales, earnings, and sentiment.  Looking at the near term, expectations are now reasonably high given the EPS update we received on Thursday along with sales last week.  We all know the compares become extremely easy once we get past 2Q -- a fact that is pretty much universal for the entire sector.  The CFO blessed 2Q EPS of $0.64 by saying they'll "meet or exceed it", driven by expense control and gross margin upside.


We're now near real-time with sentiment and reality given the sales report was given only two trading days ago.  With news already out there, the Street responded by moving up estimates to $0.66.  Additionally, there is now an expectation that they'll beat the new number by another couple of cents.  This is a similar chain of events to the one that unfolded last quarter and is nothing new with how the Street resets expectations when TGT uses the term "meet or exceed". 


If 2Q results were to blow out the revised numbers and really squeeze us, the company would need 1) to see a meaningful pick up in apparel and home, both of which show no signs of improvement at the moment for TGT.  Consumables are the dominant driver here and will likely remain so, which puts some cap on the gross margin upside.  2) Admittedly, credit profits can and will likely improve, which could also result in EPS upside.  However, the company has been signaling improvement in credit quality and is not in a position to go full force on taking down reserves to drive EPS higher. 


Regardless, I see credit as a catch-22.  They either have trouble with it and the Street gets worried about the risk associated with a retailer running a credit card or they actually drive EPS upside with credit but the Street then wonders what multiple to pay for credit-driven results when in reality TGT is a retailer...


Missing is not a high probability outcome for the current quarter either.  This is more sentiment vs. rising expectations than anything else.  Inventories and product mix are predictable enough such that it is unlikely to see a miss.  Looking out into 4Q with the easy compares, the real exercise is in how aggressive the Street is vs. how aggressive management guides.  Historically, against easy compares the company leans on the conservative side of things...


TGT: Notable TREND/TRADE Resistance - 7 13 2009 5 54 55 PM


Eric Levine



Research Edge Position: Short EWJ

The Aso administration's call for an election on August 30 is being reported in the media as the curtain being lowered on the LDP's domination of government in Japan for an entire generation.  With a moribund economy, a vicious demographic curve looming ever larger and a national debt that, at 200% of GDP, which is staggering, a defeat for the incumbent party is a foregone conclusion.

Today's consumer confidence data reading from the cabinet office showed a marginally positive reading for at least one aspect of the Aso' government's stimulus package. Despite worries about job security and future earnings, consumers seem primed to start buying durable goods to take advantage of the various government price rebate incentives and corporate discounting (with the Tokyo specific index showing more pronounced divergence than the national index).


Leadership with the Democratic Party -which is expected to have an easy victory in the upcoming polling, has zeroed in on dollar replacement rhetoric as a substitute for any proposal to encourage growth for the stagnant domestic economy.  Mashaharu Nakagawa's comments last week on a move to hold more Euro or IMF denominated debt.

Politicians aren't the only ones longing for a strong dollar, Japanese equity investors remained focused on currency valuation as the sole near term positive catalyst for Japanese export dependent industrials who are floundering in a strong yen environment. 


If you have been reading our work for a while, you are aware that we view the Japanese economy of something of a ponzi scheme, with massive debt held domestically by a rapidly ageing population who are receiving little or no yield for their trouble.  As more and more seniors starting drawing down their savings and receiving pensions, the pressure on policy makers intensifies to find new methods of stimulating growth -so far Aso's appliance coupons and reduced road tolls have failed to spur the internal demand growth.  It remains to be seen if the Democratic Party will assemble an economic platform that contains any original ideas -or simply more of the same short term incentives for consumer spending that the LDP has relied on.

We are currently short Japanese equities via EWJ with a long term negative bias.  We see no long term or intermediate duration factors which could conceivably drive Japan's economy to recover in advance of the US and European customer markets they depend on.

Andrew Barber