Hedgeye Healthcare Sector Head Tom Tobin is adding Hologic, Inc. to Investing Ideas.
We will send out a full report shortly detailing our bullish case.
Takeaway: We pulled the plug on our LULU Bear call. Our work clearly shows that things are improving. If the qtr is weak, we may get outright bullish.
Conclusion: After being extremely bearish on LULU since the fall, we're changing our position on the name. While we are not outright bulls at this point -- and while we believe there are extreme challenges for LULU from here -- we do not think that the bear case carries meaningful merit. If the quarter is sloppy and the stock trades down, we may get outright bullish.
As background, we had been long-term bulls of LULU, but last fall turned bearish as LULU's well-publicized gaffes started to come about. Then we conducted a detailed consumer survey of 500 female Yoga shoppers (80% of whom were LULU customers) across appropriate demographic groups. That survey -- conducted three months ago -- told us to press our short, and it was right to suggest we do so.
But yesterday we released an update to our survey, which asks the same detailed questions (and then some) to the same demographic group. The punchline is that things are unquestionably getting better on the margin. We outline all of the reasons why, and then some, in our 52-page slide deck, the link to which is below. Also, if you care to listen to the accompanying presentation, that audio link is below as well.
One slide we'll highlight is #12, which shows the 'Brand recommendation factor' now versus when we first ran the survey at the beginning of the year. The question asks the extent to which consumers would recommend each of 18 brands to their friends. At the start of the year, LULU ranked embarrassingly low. But today, it is right in line with peers. There's definitely room for improvement. But things have gotten better on the margin, and that's what matters most to us.
By no means is the change in our opinion based on one simple question. But many of the questions that we asked -- especially those where we could compare today's results versus those from the start of the year, simply suggest that anyone playing on the short side for things to materially worsen from here has a pretty tough risk/reward on their hands.
Are their challenges? Sure. Athleta (GPS) is emerging as a major threat to LULU's business, and Nike is strengthening on the margin. Also, based on our results we think that there is a problem with perception of value for LULU's product, which suggests to us that the company will have to start a more meaningful discounting strategy.
In the end, we come out much higher on the top line over our 3-5 year modeling period, but we have margins going from 24.5% to just under 19% (see Exhibit below). While multiples rarely expand when margins are coming down, we think that with the stock having a 4-handle, better top line will probably win over margin degradation.
If the company gives weak guidance on the quarter, based on what we see we'd likely look to get more aggressive on the name.
HERE'S A LINK TO OUR FULL SURVEY AS WELL AS THE AUDIO PORTION OF THE PRESENTATION
MATERIALS: CLICK HERE
AUDIO REPLAY: CLICK HERE
Gold has shot up over 9% versus the DJIA, which is down over 1% year-to-date. Why? #InflationAccelerating.
Watch Hedgeye CEO Keith McCullough discuss the market and economic implications for investors of our top Q1 global macro theme.
Gold remains one of the best ways to be long of inflation slowing US growth.
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In an effort to evaluate performance, we compare how the quarter measured up to previous management commentary and guidance
1H 2014 TRENDS
2014 ONBOARD YIELDS
Editor's Note: This research note was originally published March 20, 2014 by Hedgeye’s Restaurant Team. For more information on Hedgeye please click here.
The Bureau of Labor Statistics released its Consumer Price Index data for the month of February last week. Despite a marginal improvement in the Restaurant Value Spread during the month, food away from home continues to be notably more expensive than food at home. This suggests that cost sensitive consumers are more likely to frequent the grocery store and prepare their own food than they are to visit a restaurant and dine out.
The value spread did, however, narrow sequentially by 30 bps in February to -1.3% as food at home inflation accelerated at a faster rate than food away from home inflation. Therefore, we’d surmise that eating out did become marginally more attractive over the course of the month. Overall, we view the release as less bearish, on the margin, for the restaurant industry.
Full-service and limited-service prices grew +2.3% and +2.2% YoY, suggesting that fast casual and QSR restaurants are becoming more attractive, on the margin, than casual dining restaurants to cash-strapped consumers.
Overall, retail grocery sales and food services sales data continue to support our thesis regarding the negative Restaurant Value Spread, as grocery sales continue to increase on a YoY basis at the expense of food services sales.
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