The Economic Data calendar for the week of the 14th of April through the 18th of April is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.
Takeaway: At the time of this post, the majority went to 53% saying TIMBER! and 47% voting HICCUP.
The “You-Know-What” hit the fan again today as continuing weakness in the tech sector spread to the broader market. The Nasdaq was clearly the biggest loser this week falling roughly 1% and on track to end the week basically 3% lower.
We are still banging the non-consensus bubble warning drum here at Hedgeye. But we wanted to hear your thoughts in today’s poll: Has the stock market correction arrived OR is this just a hiccup?
While the voting was virtually neck-and-neck in the morning, the tide began to turn more bearish as the market resumed its fall later in the day. At the time of this post, the majority went to 53% saying TIMBER! and 47% voting HICCUP.
While it was indeed a close poll, voters who think the stock market correction has arrived (TIMBER!) had the most to say:
Those who believe this is a HICCUP admitted that time will tell; it depends on what the Fed does. And one voter strongly stated, “This is, without question, a hiccup. Spring and summer acquisition activity in the tech sector will give the market confidence, at least through the summer.”
Another HICCUP voter was more cautious, “People will get optimistic, probably within the next week or two, though towards the end of the year, it might turn into a timber scenario.”
Ultimately, Hedgeye CEO Keith McCullough put it this way: “Already an 8% ‘correction’ in the Nasdaq that basically no one on #OldWall called for. Give it time, she'll go lower - and consensus will capitulate.”
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Takeaway: This should help Nike+ reach a wider audience.
Nike has only about 10% market share in the fitness tracker segment. Part of the problem is that fuel points, the key metric for the FuelBand, are meaningless outside of the Nike+ platform. In order to make the device more applicable to the general public, Nike is partnering with established fitness platforms in other core competencies to develop a broader based product. This should help Nike+ reach a wider audience and allow Nike to gain better consumer insight from the + data mine.
Editor's Note: This is a complimentary research excerpt from Hedgeye Retail Sector Head Brian McGough. Follow McGough on Twitter @HedgeyeRetail.
Yesterday, the stock traded down sharply on news that Walmart plans to sell more organic products. WWAV is down -10% over the past month, but is still the best performing food stock YTD (+17.8%). All told, we don’t view the WMT announcement as being disruptive to the overall WWAV story.
This is primarily because WWAV continues to offer significant growth opportunities in an industry where they are hard to come by. In fact, we'd say that WhiteWave is one of the best-positioned companies we have seen in quite some time. WWAV’s on-trend category, volume growth and earnings growth potential are best in class. We believe they will be able to deliver high single-digit sales and low double-digit earnings growth for the next few years.
As a reminder, WWAV owns six key brands: Silk, Alpro, International Delight, Land O’ Lakes, Horizon Organic and the recently acquired Earthbound Farm. Through these brands, WhiteWave participates in the health and wellness space and is active in growing categories such as organic milk, plant-based beverages, packaged organic salad and other produce, creamers and liquid coffee.
The WWAV business model can produce sustainable high single-digit top line growth (management has guided to sales growth of 7-8% longer-term) and 20% EPS growth for the foreseeable future. We believe margin expansion will continue, as the company benefits from fixed cost leverage, favorable product mix and increased internal manufacturing capabilities. As with every company we follow, higher commodity costs could present a headwind but we believe it will be less severe for WWAV than others with a lesser growth profile.
WWAV is going after Annie's market and is not afraid to talk about it, which is among the reasons we are bearish on BNNY. WWAV is pushing its Horizon brand into the center of the store, similar to what BNNY is doing with Annie’s brand through its mainline initiative. To be fair, we don’t know exactly how the Mac & Cheese battle will play out. What we do know, however, is that WWAV said it aspires to be “maybe bigger than Annie’s” in shelf stable products at some point and will be “fairly aggressive” in pursuing this over the next few years.
One of the biggest opportunities for WWAV is to drive Silk usage among new consumers in the category. We believe household penetration remains low compared its longer-term potential. Another significant opportunity lies within its U.S. soy yogurt products. The Silk brand has underperformed the plant-based yogurt category due to an underwhelming consumer proposition. Later in FY14, WWAV will likely bring its successful soy yogurt technology from Europe over to the U.S. Concurrently, we expect the company to begin marketing soy yogurt much more heavily later this year and beyond.
The biggest tailwind to organic milk trends is higher conventional milk prices. Industry observers believe that higher conventional milk prices will help drive consumers to organic and/or plant based alternatives. Right now, the conventional milk market is being affected by structural issues, as increased global demand and decreased production continue to push prices higher. We’d suggest that the conventional milk market must adjust to this “new normal” of higher prices. This is in stark contrast to organic milk in emerging markets, as demand and, subsequently, price remains muted in comparison. Structurally higher conventional milk prices could create a situation where consumers shift to organic milk and/or plant-based alternatives, which could become increasingly attractive on a price basis.
The recent Earthbound Farm acquisition is an extremely attractive opportunity for WWAV. While packaged salad carries a higher risk profile relative to other segments of the company, its growth profile is profound. Over the last five years, organic packaged salads has posted a +15% CAGR due to very high market penetration. Nearly every grocer carries an organic packaged salad brand on its shelves, where Earthbound holds a dominant market share that is greater than 50%.
Given that WWAV is guiding to 7-8% top line growth in organic sales, we view the current EPS guidance of $0.90-0.94 (before a $0.05 headwind from the recently announced JV with China Megniu) as conservative. WWAV will report 1Q14 earnings on May 9th.
Takeaway: Nike taking Nike+ to SFO. Easter doesn't explain GPS comp #'s. Uniqlo set to open in Germany.
NKE - FIRST LOOK AT THE NIKE+ FUEL LAB IN SAN FRANCISCO
Takeaway: NKE has only about 10% market share in the fitness tracker segment. Part of the problem is that fuel points, the key metric for the FuelBand, are meaningless outside of the Nike+ platform. In order to make the device more applicable to the general public, Nike is partnering with established fitness platforms in other core competencies to develop a more broad based product. This should help Nike+ reach a wider audience and allow Nike to gain better consumer insight from the + data mine.
GPS - Gap Inc. Reports March Sales Results
Takeaway: We'd give a little more credence to the Easter shift explanation if the company was facing a +7% compare. When in reality the company was up against a +1% comp and just posted a -6% number. Easter played a part, but numbers aren't quite as good as the company's spin would otherwise suggest.
9983 - Uniqlo Bows in Berlin
Takeaway: Global is the growth driver for Uniqlo. These investments in new markets are proving to be a bigger drag on the bottom line than the company expected. But, the company has been able to grow its top line and upped revenue guidance proving the viability of the concepts in its new markets.
VFC - VF Announces the Dedication of Its New Central Distribution Center in Kunshan, China
0494 - Li & Fung Said to Work With Citigroup on Brands Unit Spinoff
OSTK - Overstock.com Makes Management Changes
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