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Nike Gets Less Active, Fires FuelBand Team | $NKE

Takeaway: Nike is pulling the plug on its fitness hardware.

Nike Gets Less Active, Fires FuelBand Team | $NKE -  dsc6181

 

CNET Exclusive: Nike fires majority of FuelBand team, will stop making wearable hardware

  • "Nike is gearing up to shutter its wearable-hardware efforts, and the sportswear company this week fired the majority of the team responsible for the development of its FuelBand fitness tracker, a person familiar with the matter told CNET."
     
  • "The company informed members of the 70-person hardware team – part of its larger, technology-focused Digital Sport division comprised of about 200 people – of the job cuts Thursday. About 30 employees reside at Nike's Hong Kong offices, with the remainder of the team at Nike's Beaverton, Ore., headquarters."
     
  • "It's unclear how many current employees, if any, have been internally recruited to join other Nike divisions. Nike Digital Tech, responsible for Web software, was not affected."
     
  • "As CNET reported on April 10, Nike had serious discussions in the last few months –after the release of the FuelBand SE tracker last November – about exiting the wearable-hardware market. The shoemaker isn't throwing in the towel on technology. Rather, it's turning away from hardware and realigning its focus exclusively on fitness and athletic software…"

Takeaway From McGough:

Nike is officially pulling the plug on its wearable tech initiatives. The announcement isn't all that surprising given that the FuelBand and Nike + SportWatch trail the offerings currently on the market – FitBit, Jawbone, Garmin, etc. – by a wide margin. It doesn't appear that the company is throwing in the towel all together, instead shifting its focus from hardware to software.

 

Let's be clear about one thing, Nike's software leaves a lot to be desired; the Fuel Point metric is an arbitrary calculation that doesn't translate to other fitness devices. If Nike outsources hardware to a third party – which it appears that it will given the new software-focused Nike + Fuel offices in San Francisco – perhaps it can focus its energy where it has some expertise (i.e., digital media as opposed to digital hardware) and close the gap with its competitors.

 

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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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Monday Mashup: CMG, WEN and More

The table below lists our current Investment Ideas as well as our Watch List – a list of potential ideas that we are in the process of evaluating.  We intend to update this table regularly and will provide detail on any material changes.

 

Monday Mashup: CMG, WEN and More - 4 21 2014 9 10 59 AM

 

EAT – We're pulling Brinker from our long list.  The stock has acted well for us over the past year, but the departure of CFO Guy Constant, declining traffic trends and rising food costs are beginning to concern us. 

 

MCD – We’re relegating McDonald’s to the short watch list.  We removed it from our Best Ideas list back in mid-February amid concerns of a potential financial engineering event.  It could be through refranchising or a leverage event, we’re not quite sure, but we don’t want to be in the way.  We still believe the McDonald’s business is in secular decline, but there are several reasons, including easy comparisons and an attractive dividend, that give us reason to believe the stock has support.

 

BWLD – We’re relegating Buffalo Wild Wings to the short watch list.  While we believe the stock is fully valued, we see very few short-term catalysts that suggest near-term downside.  Declining new unit sales performance, ROIIC, and CFFO/Net Income are three metrics that make us bearish, but we believe the company has enough near-term drivers to support the stock.

Recent Notes

04/14/14  Monday Mashup: DRI Comes Under Fire

04/14/14  The Casual Dining Dilemma

04/15/14  Investment Ideas: Longs

04/16/14  Investment Ideas: Shorts

04/18/14  CMG: Building Market Share

Events This Week

04/22/14  MCD earnings call 11:00am EST

04/23/14  YUM earnings call 9:15am EST

04/23/14  EAT earnings call 10:00am EST

04/23/14  CAKE earnings call 5:00pm EST

04/24/14  DNKN earnings call 8:00am EST

04/24/14  DAVE earnings call 11:00am EST

04/24/14  SBUX earnings call 5:00pm EST

Chart of the Day

WEN trades at a discount to BKW and YUM and in-line with a market-saturated MCD despite having significantly more runway to improve revenues, margins and returns.  Despite strong performance in 2013, Wendy’s continues to be an out of favor name giving value-oriented investors a compelling opportunity.  We expect to see meaningful multiple expansion as Wendy’s continues to reimage its restaurants, rebalance its franchise mix and generate stronger returns.

 

Monday Mashup: CMG, WEN and More - 2

Recent News Flow

Monday, April 14

  • PLKI announced the resignation of CFO Melville Hope, who plans to depart in May to pursue opportunities.  The company has begun a search for his successor.    

Tuesday, April 15

  • SBUX announced the relocation of its European headquarters from the Netherlands to the UK
  • SONC upgraded to buy at Sterne Agee with a $25 PT

Wednesday, April 16

  • TAST announced it will hold a secondary stock offering to raise $60 million.  The proceeds are expected to be primarily used to accelerate the 20/20 restaurant reimage program and acquire franchised restaurants.  

Thursday, April 17

  • CMG reported a strong quarter with same-store sales up 13.4%, primarily driven by traffic.  Despite this, the company is seeing margin compression from rising food costs and announced plans to take mid-single digit price beginning at the end of 2Q14.  Chipotle continues to take market share in an increasingly competitive environment.

XLY Quantitative Setup

The XLY (+1.0%) underperformed the SPX (+1.7%) last week, as both casual dining and quick service stocks, in aggregate, underperformed the broader XLY benchmark.  From a quantitative setup, the sector remains bearish on an intermediate-term TREND duration.

 

Monday Mashup: CMG, WEN and More - 3 

Casual Dining Restaurants

Monday Mashup: CMG, WEN and More - 4

Monday Mashup: CMG, WEN and More - 5

Quick Service Restaurants

Monday Mashup: CMG, WEN and More - 6

Monday Mashup: CMG, WEN and More - 7

 

 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst

 


European Banking Monitor: Swaps Tighten Marginally

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

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European Financial CDS – Most swaps tightened marginally in Europe last week. The Greek banks continue to tighten notably, dropping an average of 15 bps in the past week and 195 bps in the past month. Russia’s Sberbank widened by 20 bps this past week; however, the bank remains tighter on the month by 24 bps.

European Banking Monitor: Swaps Tighten Marginally - chart 1 financials cds

 

Sovereign CDS – Sovereign Swaps either tightened or remained the same over the past week. Japanese sovereign swaps tightened by 4.9% (2 bps to 46) and US sovereign swaps tightened by 4.8% (1 bp to 17).

 

European Banking Monitor: Swaps Tighten Marginally - chart 2 sovereign cds

European Banking Monitor: Swaps Tighten Marginally - chart 3 sovereign cds

European Banking Monitor: Swaps Tighten Marginally - chart 4 sovereign cds

 

Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 2 bps to 15 bps.

European Banking Monitor: Swaps Tighten Marginally - chart 5 euribor OIS spread

 

Matthew Hedrick

Associate

 

Ben Ryan

Analyst

 

 

 


10 Scary US Charts; 5 Not-So-Scary Chinese Charts

Takeaway: Expectations should weigh on the growth style factor in the US. Chinese growth is bottoming out – on both a reported and prospective basis.

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 2

CONCLUSIONS (United states)

  • While we’re likely to see post-winter optical strength in the March/April timeframe, we continue to believe that the trend in domestic economic growth is decelerating and will continue to decelerate over the intermediate term. An acceleration in reported inflation coupled with a slowdown in both house price appreciation and housing sector activity remain our primary catalysts for the aforementioned deceleration in the consumption-heavy US economy.
     
  • This is especially true in the context of consensus expectations that continue to bake in our team’s 2013 bull case as the base case scenario for 2014 and beyond.
     
  • The likelihood that US economic growth continues to slow relative to those expectations should perpetuate what we have been appropriately signaling as a regime change in market leadership that is likely to be supported by the introduction of easier monetary policy (both on an absolute basis and relative to existing expectations) over the intermediate term.
     
  • As such, we continue to favor high-yielding assets (i.e. Treasuries, REITs, Utes), carry trading strategies (i.e. emerging markets) and inflation hedges (i.e. TIPS and commodities) in lieu of consumer exposure and high-growth/high-beta names, at the margins.
     
  • The biggest near-term risk to our view is that likely sequential strength in reported economic data over the next 1-2 months is extrapolated as confirming evidence of a consensus bias towards favoring the growth style factor in domestic capital markets. The biggest long-term risk to our view is a Federal Reserve that openly supports a #StrongDollar = #StrongAmerica economic policy. For now, neither risk appears particularly probable.

CONCLUSIONS (CHINA)

  • Chinese real GDP growth slowed in 1Q14, coming in roughly in line with our and the Street’s expectations. There were some bright spots in the higher-frequency data, but the general trend in Chinese economic growth remains negative.
     
  • That being said, we are of the ilk to side with the now-consistent rhetoric of Chinese policymakers in anticipating that Chinese economic growth is at/near a cyclical bottom from a rate-of-change perspective.
     
  • Specifically, either said policymakers have visibility into the Chinese economy that we lack as investors/analysts or they are effectively signing off on a plan to provide meaningful stimulus if growth continues to slow from here.
     
  • Our favorite leading indicator for the slope of Chinese economic growth (i.e. the slope of the average year-over-year percent change in rebar, iron ore and coal prices) is supportive of the former outcome; the dramatic easing of Chinese monetary conditions and sharp tightening of credit spreads in recent months is supportive of the latter outcome.
     
  • We are currently doing the work to re-quantify the risks embedded in the Chinese financial sector in order to appropriately handicap the probability of a severe and prolonged crisis (conference call date TBD). To the extent we find those risks are priced in, consensus expectations for Chinese economic growth are depressed enough to warrant bargain hunting on the long side of CNY/CNH-denominated capital markets.  

US GROWTH CHARTS

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 1

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 2

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 3

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 4

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 5

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 6

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 7

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 8

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 9

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - 10

CHINESE GROWTH CHARTS

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - China GDP Growth

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - China Iron Ore  Rebar and Coal YoY

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - China 7 day Repo Rate Monthly Avg

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - China 5Y AAA Spread.tif

 

10 Scary US Charts; 5 Not-So-Scary Chinese Charts - China GDP Expectations

 

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Editor's Note: This is an excerpt of a research note that was originally provided to subscribers on April 16, 2014 by Hedgeye Macro Analyst Darius Dale. Follow Darius on Twitter @HedgeyeDDale.

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