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Cartoon of the Day: That's Some Expensive Beef Bro!

Takeaway: Beef prices just hit a new record high.

Cartoon of the Day: That's Some Expensive Beef Bro! - Beef 04.10.2014sm

 

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Be Careful: Bed Bath & Beyond + Pier 1 Enter ‘Danger Zone’ | $BBBY $PIR

Takeaway: Bed Bath & Beyond and Pier 1 Imports have both put up less-than-stellar results, but there's an important theme.

Be Careful: Bed Bath & Beyond + Pier 1 Enter ‘Danger Zone’ | $BBBY $PIR - chart1 4 10

 

Be Careful: Bed Bath & Beyond + Pier 1 Enter ‘Danger Zone’ | $BBBY $PIR - chart3 4 10

Takeaway From McGough:

Just look at the SIGMA trajectory for both retailers: sales down, inventories up, weak margins. But how come that is in such stark contrast to what we saw out of Restoration Hardware (RH) and Williams & Sonoma (WSM)? Aside from better product, merchandising, and marketing, there's a structural factor as well. Bed Bath & Beyond generates only 4% of its sales online. Pier 1 Imports is only at 5%. That means when people don't want to leave their homes due to weather, sheer laziness, or whatever, these two companies are at a competitive disadvantage. RH and WSM, however, generate nearly half of their respective sales online.  They both have the ultimate channel hedge to complement their premium product offering. This quarter it made a difference.

 

Bed Bath & Beyond may have printed earnings that are in line with prior guidance, but any way we slice it, this SIGMA trajectory looks horrendous. A 6% sales decline on a 5% inventory build is was out of character for Bed Bath & Beyond.

 

But, as bad as Bed Bath & Beyond looks, Pier 1 looks even worse. Not enough sales, way too much inventory, and no margin to be found. It’s ugly.

 

Editor's Note: This is a complimentary research excerpt from Hedgeye Retail Sector Head Brian McGough. Follow McGough on Twitter @HedgeyeRetail

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SHORT BNNY: CONFERENCE CALL TODAY 11AM

We recently added BNNY to the Hedgeye Best Ideas list as a SHORT.

 

We’re hosting a brief conference call TODAY at 11am EST to hit on the key points of our thesis and field questions. 


Participant Dialing Instructions

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 197923#
  • Materials: CLICK HERE

 

BNNY’s core business is the marketing and distribution of natural and organic food products under the Annie’s brand name.  BNNY has the number one natural and organic market position in four product lines: macaroni and cheese, snack crackers, fruit snacks and graham crackers.  The natural and organic segment of the food industry is the fastest and most dynamic part of the industry – and BNNY is a key player.

 

Generally, the street is rather cautious on the name, with 80% of analysts rating the stock a hold and short interest comprising 23% of the float.  However, with the street looking for 22% EPS growth in FY15, we believe this is a prudent call.  At 35x NTM EPS, the stock trades at a substantial premium to the group, which is trading closer to 22x.  To its credit, BNNY is showing significantly stronger top line growth than its peers; however, we have legitimate concerns with the company’s ability to manage EPS.

 

Key issues include:

  • Decelerating sales trends in FY15
  • Margin pressure in FY15
  • Management’s ability to manage a significant growth opportunity
  • The dilutive nature of the new snack manufacturing plant
  • Aggressive FY15 EPS estimates
  • Balance sheet concerns

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


Early Look

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SHORT BNNY: CONFERENCE CALL TODAY 11AM

We recently added BNNY to the Hedgeye Best Ideas list as a SHORT.

 

We’re hosting a brief conference call TODAY at 11am EST to hit on the key points of our thesis and field questions.  

 

Participant Dialing Instructions

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 197923#
  • Materials: CLICK HERE

 

BNNY’s core business is the marketing and distribution of natural and organic food products under the Annie’s brand name.  BNNY has the number one natural and organic market position in four product lines: macaroni and cheese, snack crackers, fruit snacks and graham crackers.  The natural and organic segment of the food industry is the fastest and most dynamic part of the industry – and BNNY is a key player.

 

Generally, the street is rather cautious on the name, with 80% of analysts rating the stock a hold and short interest comprising 23% of the float.  However, with the street looking for 22% EPS growth in FY15, we believe this is a prudent call.  At 35x NTM EPS, the stock trades at a substantial premium to the group, which is trading closer to 22x.  To its credit, BNNY is showing significantly stronger top line growth than its peers; however, we have legitimate concerns with the company’s ability to manage EPS.

 

Key issues include:

  • Decelerating sales trends in FY15
  • Margin pressure in FY15
  • Management’s ability to manage a significant growth opportunity
  • The dilutive nature of the new snack manufacturing plant
  • Aggressive FY15 EPS estimates
  • Balance sheet concerns

 

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst

 


VIDEO | Keith's Macro Notebook 4/10: USD COMMODITIES UST10YR


INITIAL CLAIMS: THREE WEEKS OF ACCELERATING IMPROVEMENT & WE STILL LIKE COF

Takeaway: The slope of the line in the claims series is improving sharply. This morning's numbers are the strongest YTD.

Battleships & Bathtubs

This week's initial claims data brings the "streak" of good news to three weeks, and almost a trend makes. Notably, this week's improvement is the strongest we've seen YTD. The year-over-year change in non-seasonally adjusted initial claims came in at -16.4%, a sharp acceleration vs the prior week's 7.1% improvement and the previous week's 13.2% improvement. That brought the 4-wk moving average to -10.7%, as compared with -7.5% and -7.1% in the preceding two weeks. Remember, a more negative number is better as it reflects a faster rate of improvement. 

 

The weather has been a much-maligned scapegoat for softening labor data through the first 2-3 months of 2014. While we may never know the full extent of the role weather played, it stands to reason that if, in fact, weather was at least partly to blame for softness in Jan/Feb then we would expect to see improvement by late March/April, and that is exactly what we're seeing. Coincidence? Possibly, but it's worth considering. As my colleague Christian Drake, on our macro team, reminded me this morning: the labor market is a battleship and turns very slowly, but is subject to lots of short/intermediate term distortions. #Indeed.

 

Capital One (COF)

Our favorite way to play this rebound in the labor market remains Capital One (COF). We continue to think the company is poised to beat the quarter - they report next Thursday before the open - and the seasonal pattern of outperformance from late January to early July is strong. Unsecured consumer lenders like Cap One are high-beta plays on claims because with only nominal loan growth, stable margins and expenses the one lever the company has is credit, and claims has always been the best leading indicator for credit.

 

The Data

Prior to revision, initial jobless claims fell 26k to 300k from 326k WoW, as the prior week's number was revised up by 6k to 332k.

 

The headline (unrevised) number shows claims were lower by 32k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3.75k WoW to 315.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -10.7% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.5%

 

INITIAL CLAIMS: THREE WEEKS OF ACCELERATING IMPROVEMENT & WE STILL LIKE COF - 1

 

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INITIAL CLAIMS: THREE WEEKS OF ACCELERATING IMPROVEMENT & WE STILL LIKE COF - 12

 

INITIAL CLAIMS: THREE WEEKS OF ACCELERATING IMPROVEMENT & WE STILL LIKE COF - 13

 

INITIAL CLAIMS: THREE WEEKS OF ACCELERATING IMPROVEMENT & WE STILL LIKE COF - 19

 

INITIAL CLAIMS: THREE WEEKS OF ACCELERATING IMPROVEMENT & WE STILL LIKE COF - 14

 

Yield Spreads

The 2-10 spread fell -3 basis points WoW to 233 bps. 2Q14TD, the 2-10 spread is averaging 232 bps, which is lower by -7 bps relative to 1Q14.

 

INITIAL CLAIMS: THREE WEEKS OF ACCELERATING IMPROVEMENT & WE STILL LIKE COF - 15

 

INITIAL CLAIMS: THREE WEEKS OF ACCELERATING IMPROVEMENT & WE STILL LIKE COF - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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