PNRA - Standing Apart

Going into Q2, I was having difficulty seeing how PNRA would achieve the high end of its $0.62-$0.64 EPS guidance range.  Well today, PNRA reported $0.69 per share excluding $0.04 of one-time charges.  On the high quality side, PNRA’s company same-store sales came in at -0.7%, which was better than my expectations, particularly considering the 6.5% comparison from 2Q08.  PNRA’s same-store sales improved rather significantly throughout the quarter, posting -1.9% in April, -1.6% in May and +1.6% in June.  The favorable June sales trends continued into July and even improved, running up 2.8% for the first 27 days of Q3.

On the low quality side, however, G&A expenses declined nearly 15% YOY, marking the first time this expense has decreased on a YOY basis in at least 5 years, never mind the magnitude of the decline!  This significant cut to G&A costs accounted for $0.04 per share relative to what I was modeling.  Management stated that it is not cutting G&A, but rather the quarterly decline can be attributed to the general lumpiness of projecting G&A costs as a result of timing differences for overhead expenses.   Specifically, management said that bonus accruals were lower in 2Q because relative to certain performance metrics, the company had underperformed relative to Q1.   Given that restaurant margins declined 110 bps YOY in the quarter (before the one-time charge related to the roll out of new china), the timing of such a significant reduction to G&A expense does not seem coincidental.  Instead, it seems that management needed to cut G&A to save operating margins. 

Even with PNRA maintaining such impressive top-line numbers, it is going to become increasingly more difficult for the company to maintain margins.  Unlike most restaurant companies, PNRA is still growing.  I am forecasting 4% company unit growth in 2009, which means that PNRA is still incurring growth related costs.    And, these costs are only heading higher next year because management stated today that it expects to increase its company-owned unit growth by 50% in 2010.  PNRA is only expecting modest cost inflation in 2010 as higher labor and occupancy costs are expected to be largely offset by lower food costs, but increased development costs will creep into the P&L as the company aggressively ratchets up its unit growth targets.

PNRA - Standing Apart  - PNRA Restaurant level margin 2Q09

PNRA - Standing Apart  - PNRA G A 2Q09


First, to state right up front, it’s been well over a year since we have shorted the financials.  Currently, the XLF is the only sector in the market not trading above the TAIL line (three years or less).    As steep as the yield curve looks right now and as good as the ted spread looks – this is, by definition as good as it gets for credit and the financials.   

On top of all this, the dollar is teetering on a major breakdown below the 78 line.  The dollar is currently down 12% since March – we call that a crash.  We view the XLF as the most politically compromised sector in the market because financials have the most political dependence, which helps to fix the earnings power of the industry.  What the government giveth, it can also take away! 

Last week, Ben Bernanke proved to the world that he is staying with his politicized strategy by keeping the low end of the curve at 0%.  As the rest of the world moves on from the financial crisis, there are many countries that may not invest in the politically compromised U.S. Financial services industry.  This fits our thesis of “buy what china needs and not what we want them to need.”  The US government wants China to buy US dollars and US treasuries, but our belief is that China’s central bankers will decide that they need to diminish their exposure, a conclusion that will be made easier by the politics of the situation. 

Provided that we keep the low end of the curve at 0% in the US, there is no incentive to save in this country, and economics 101 has taught us that savings need to equal investment over time.  Investment is perpetuated by a country that has cash and savings – think China (although it’s easy to hoard when all property and income belongs to the state).

The bulk of the XLF is made up of the Diversified Financials (55%), which include the industry heavy weights JPM, BAC, GS and MS.  Banks make up 20% of the ETF with Insurance and Real Estate companies accounting for the balance. 

The earnings trends for the Real Estate and insurance companies have been disastrous all year and did not find much support going into 2Q earnings season.  The Banks, those best levered to taking advantage of the steep yield curve, have shown the most positive earnings revisions trends of the past week and month.  Overall however, earnings revisions for the XLF continue to be negative.


Since the XLF bottomed on March 5th, 2009 at $6.24, we have seen a generational short squeeze that most investment managers missed.  The XLF has rallied +102% largely on the back of a massive recovery in earnings sponsored by the US taxpayer.  As you can see in the chart below, earnings for the XLF declined significantly in 2H08, have since recovered in 1Q09 and continue to improve in 2Q09.  While 2Q09 was strong for the financials, it appears that the bulk of the earnings recovery is behind us as there was a sequential deceleration in improvement.  Going forward, the pace of sequential improvement in the XLF EPS will continue to slow, declining to 9% in 4Q09.  These estimates are based on a compromised yield curve.  If our 4Q inflation call proves to be correct, interest rates are headed higher.  What will happen to Q4 numbers if the yield curve flattens? 


It is our conclusion that things can only go downhill from here for the majority of the financial sector for the immediate and intermediate duration. As always, we are data dependent and will be testing our thesis as new data emerges.  

Howard W. Penney

Managing Director


We wrongly assumed that given the updated guidance on June 29th captured most of the negative news.  Commentary on 1Q 2010 was strong, but we’re not sure it matters given the credibility issues related to lowering guidance 3 times in a row.


RCL 2Q09 Earnings call:

Introduction of the two Solstice class ships was the most successful introductions in memory

All of the new capacity is being deployed outside North America

NA supply will be down in 2009

Think that Europe is 10-15 years behind NA in its development as a cruise market

Asia and South American virtually untapped as well

So they are very “bullish” on new capacity… we wish we could say the same

Economy in Spain:          

  • Initially hoped that Spain’s recovery would be sooner since it fell first… but not so, unemployment now at 18%

Beginning to see signs of encouragement

  • Booking levels are stable
  • Financing environment is ok
  • Situation began to stabilize 6 months ago and thought that it would lead to an upturn, but unfortunately it has not

2Q09 commentary:

Dollar weakened 15% vs sterling which produced a below the line loss

Adjusting for H1, they would have come inline

Fuel expense was 6MM better than expected, because of the IFO and MGO lag to WTI, and consumption was below guidance

Booking environment update:

  • Pricing for all three quarters remains behind last year, but magnitude is stable
  • On the volume side, they see bookings lag, up until four weeks prior to sailing… so no closing in on the short booking window
  • Yield decline of mid-single digits in 4Q09
  • 2010 commentary
    • 1Q09: Slightly more than 1/3 sold, lagging where they were y-o-y. Pricing is materially higher than where they ended 1Q09. Optimistic they will see yield improvement in 1Q2010
  • More pessimistic view on Spain, given the unemployment rates
  • 2009 full year guidance
    • H1N1 impacts 3Q yields by over 2% and 1% for the full year

Fuel hedge prices are in the equivalent to WTI in the high 60’s for 2010 and 2011, so should have another fuel benefit in 2010.

H1N1 impact 5 cents worse, fuel is 8 cents per share higher, interest expense is 7 cents (upsize of debt deal), balance of weakness is Pullmantur

Don’t see the need to access capital markets for 2010 & 2011 even in their pessimistic scenarios

Remain reserved in their expectations for economic rebound

Shipboard revenues have declined meaningfully, with gaming most negatively affected

Europe & Alaska price declines are putting the most pressure on yield declines, but are pleased with the increased local sourcing in European markets. 

  • Alaska, no new supply, but massive price declines.  Change in the profitability of this market has been dramatic
  • Selling fall cruises to Mexico remains a challenge for the 3Q and 4Q

Taking possession of Oasis in a few weeks, continue to be very pleased with the bookings for this ship

Cost control initiatives continue throughout the organization

Solstice class ships

  • Pricing ahead of 4Q08 & 1Q09 but behind last year’s levels
  • Will account for 40% of Celebrity’s capacity


In general 2/3 of passengers in Europe will be non-US

How is the carve out of Azamara going to change the reporting/ cost structure?

  • Won’t … just trying to achieve better brand recognition

Why did constant dollar yields decline by 2% … we know 1% was due to H1N1

  • Took down Spain – 25-30bps on yields (7 cents on earnings)
  • Balance is a rounding error??? Ok – looks like expectations are simply lower across many markets

Fuel hedge strategy – probably won’t see large increases in hedge positions for 2010

What have booking volumes done over the last few weeks?

  • See “remarkable” consistency
  • Dip was bc they ran out of inventory
  • 4Q09 guidance assumes a  lot of cost savings-so EPS growth is driven by cost savings

Greatest upside from Q1 2010 really due to easier comps and new ships

Swine Flu issue – what are they doing to mitigate the impact… you can’t… but they spoke about containment and gradual fade of panic

Net Cruise Costs – G&A continues to run very efficiently but remain very committed to marketing and sales efforts as those are strategically important

Yield management systems- what are they doing?  Seems like they have no visibility since they keep lowering their guidance.  Shorter booking windows really hamper forecasting- I don’t think that’s any surprise

  • Think that their yield systems are the best in the industry, especially when you take into consideration H1N1 and FX movement
  • Their leverage is also huge so small changes in yields have huge impacts on bottom line

Yields in 2010 – will they still be negative

  • Sticking with the expectation of yield improvement in the 1Q 2010 (FX helps them too) plus better product mix… YES POSITIVE YIELDS NOT LESS NEGATIVE
  • Higher occupancy on newer vessels, benefitting from newer vessels

Sounds like CCL is going to start building more ships beyond 2012… does that mean that they will as well?

  • Clear that this isn’t a market share game… claims there is brand loyalty… etc… we’re skeptical about the whole brand loyalty thing
  • Will look a the decision of building purely based on getting best ROI – and that comes from margin expansion not supply growth – Hallelujah

Decline on the short Caribbean- what happened?

  • Those have the least visibility and the shortest booking cycle? Close in bookings were weaker than expected and hence pricing was disappointing

New ship financing on Allure – still 15 months away, will start looking at that.  Have had some preliminary conversations, but feel very good. Don’t expect to have an update until year end

Fuel technology – too early

IFO/MGO gaps to WTI - we don’t get this question because you can simply track IFO and MGO directly so why even rely on WTI

If the flu season is much worse this year, that is going to negatively impact guidance

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TBL Angry, UA Happy

Here's the quote of the day -- live from the TBL conf call. Jeff Shwartz at TBL is just flat-out angry. He just lost his rock star teamate (Gene McCarthy) who is one of the best brand-builders in the business right now. When I hear this I get even more pumped about Gene being at UA today.


"It's 10 minutes to 9 on the 29th and I'm finished with the arrogant conversation from Timberland about we are restricting the allocation. It sounds terrific, but the bottom line is we have a clean distribution network and we are out in the world fighting for every pair of orders we can get with consumers. The speechifying about -- we will make it harder for you to get. That crap is done. My view is we have a clean, balanced distribution network of retail partners we want to do business with and we are interested in serving consumers. We are not going to stuff the channel and we are not going to starve the channel. We're going to serve the consumer."



29 JULY 2009



If I had to sum up the reporting over the past 24 hours its “same old same old”. Inventories remain tight (if not tighter in the case of COH) allowing gross margins to continue to expand. SG&A is still in check across the board (with the exception of COLM). Revenues were expected to be lackluster and for the most part they are right inline. In looking back at the first quarter results for each of these names, very little has changed. The comments we made on COLM about earnings heading higher despite topline pressures are playing out as evidenced by the beat. CRI appears to be truly on offense and the dynamics there remain clear. Real topline growth is driving EBIT expansion. The retail stores are working even as the mass channel struggles a bit (likely still a Wal-Mart issue although we’ll find out on the call).

In looking at COH, last quarter we spoke about driving a truck down the middle of it, separating the bull and bear case on the name. This also still holds true. On one hand the inventories are finally in check but to get there gross margins have eroded meaningfully and the company is altering its mix dramatically towards lower ticket product at $300 or below. I’m also concerned about the timing on stepping up China. Clearly there is a market opportunity there but the addition of 15 stores this year seems like an attempt to drive revenues as the U.S and Japan continue their slide. I still think there is more “adjusting” to be made from a stock perspective as a bottom needs to form on the company’s EBIT margin. The question here is can the company hold a low 20’s margin with a saturated store base, lower price points, higher penetration of outlet stores, and rapid expansion in China?

So where does all this leave us? Pretty much where we were at the end of last week before we saw these results. We’re still looking out to 2010 to see where the real opportunities lie beyond SG&A cuts and tightly managed inventories. Based on the last 24 hours, CRI is the name that stands out as fitting in the mold of market share gains balanced with investment, which is ultimately creating profitable growth.  Clearly with positive same store sales momentum in both brands, there is evidence that the investment made in product and marketing is now paying off.

COH- Key difference here from last quarter is that they finally got inventories more in line with sales. Overall the topline was slightly weaker and gross margins continued to erode. SG&A was better controlled and share buybacks helped to make the eps.  Announced stepped up growth in China which appears is an attempt to offset softness domestically and in Japan. Also shifting the mix to 50% of price points below $300, which is a big move off a base currently at 30% of the mix. This suggests to me while margin compares are easy and there is a chance to firm things up on here with full priced selling at lower price points, it will be harder to drive the topline in the absence of a meaningful uptick in traffic or units sold.


COLM- The key callout here was gross margins up, but SG&A also up dramatically. Results came in at a loss of $0.29, we were at ($0.26), and the Street was lower at ($0.41). Inventories also came out of the quarter high, with company citing earlier receipts of fall goods as vendors capacity has improved in Asia which allowed them to ship earlier.  


CRI- Bottom line, huge beat and clean.  Essentially the same dynamics as last quarter. Reported $0.23 vs Street at $0.05. We were at $0.13. Key source of upside was GM, up 357 bps we were looking for flat gm’s. SG&A up 84bps, we were looking for up 18bps.  Bottom line here is that the brand momentum continues at both Carters and Osh Kosh with at least one more qtr of easy compares.   This is one of the few names in our entire universe that is in the “Sweet Spot” of our Sigma analysis.


*If you need assistance interpreting our Sigma charts let us know…

 Eric Levine



Some Notable Call Outs

- Cleary dictated by changes in consumer behavior, Coach is rebalancing its assortment to reflect more affordable price points.  Handbags priced at $300 or below represented 30% of the assortment in FY09 and are expected to represent 50% of the mix in FY’10.   With traffic under pressure and price points coming down as a result of the mix shift, it is unlikely that same store sales momentum will pick up meaningfully in the intermediate term.

- With intense focus on Under Armour’s footwear business, it’s important to remind everyone where the product line stands from a maturity standpoint.  The company just anniversaried the launch of its non-cleated trainers in May and just reported its second quarter of sales for  the running product.  With basketball on the horizon, CEO Kevin Plank reminded investors on its 2Q conference call that the footwear category as a whole has an opportunity to improve by 1000+bps as benefits from scale, sourcing, and improved execution kick in.

- Based on comments on SuperValu’s earnings conference call coupled with recent commentary and results from SWY, it appears that food retailers are operating in one of the most volatile environments in recent history.  SVU management commented that sequential change in inflation was one of the greatest ever, with the rate going from +5% to +2% in 3 months.  Additionally, the company’s promotional mix is the highest in company history and trading-down continues to increase at an accelerated rate.



- German womenswear company files for Chapter 11 equivalent - German womenswear firm Delmod International, the parent company behind womenswear brands Delmod and Hirsh, has fallen into administration. It is unclear at present what effect the insolvency will have on the UK market. Delmod is the second German mainstream womenswear brand to come into difficulty in the last month. Escada, the German luxury womenswear group, sold off its Cavita, Apriori and and Laurel brands earlier this year to help it raise cash. <>

- Global trade statistics for US imports of furniture indicate double digit declines - PIERS Global Intelligence Solutions has released trade statistics that gauge the recession's impact on the top U.S. import commodity by volume, furniture. In first-quarter 2009, inbound containerized shipments of furniture declined  19.2%. Based on first-quarter results, PIERS is forecasting a 16.52% decline in furniture imports for 2009 compared to 2008's shipments. This year's projected inbound furniture is expected to drop 27% from the peak in 2005. Overall, 2008 was a year in which furniture imports grew 73.55% -- but, against 2007's steep drop of 48.39% -- this is seen as regaining ground lost when the U.S. housing bubble went bust. Now global recession looks likely to reverse the recovery. An analysis of 2008 trade data on source countries shows that China, accounting for 62.4% of total known value of imports, was the top supplier of furniture to the U.S. However, China's rate of growth in furniture imports -- 66.73% -- was surpassed by Vietnam, with a 154.93% growth rate, albeit from a lower volume base. As a result, China's share of the U.S. market for imports dropped 2.83%, while Vietnam gained 2.74%. This is evidence of the continued shift in production away from China to lower-cost countries, a trend that is expected to accelerate post-recession. California led the states as an importer. North Carolina ranked as the number 2 importer, yet another indication of the furniture sector's globalization. Florida was the top furniture exporting state, followed by New Jersey. <>

- Nielsen forecasts a modest gain in the Back to School Season - This year, as the U.S. continues to be in the grips of a recession, Nielsen is forecasting a dollar sales rise of 0.4%  to 1.3%, a pace below the growth achieved in 2008. Unit sales will drop 5.5%. “Unlike the winter holidays, back to school shopping, to some extent, is not viewed as discretionary by consumers. Kids must have certain items at the start of the new school year.  That said, we expect sales to increase at an extremely modest level in dollar terms in 2009.  The nation is firmly in the midst of recession, so consumers will spend their money carefully, as they have for the better part of a year, and focus on purchasing the essentials,” said James Russo, Vice President, Global Consumer Insights at The Nielsen Company. One peripheral category which is forecast to gain is bottled waters. Often considered a  discretionary item, bottled water is consumed as a staple, and is expected to out-pace juice sales with growth of 3.57%. “The winners this season will be retailers who offer strong discounts and appeal to the consumer’s desire for savings and value. Look for gains from supercenters, dollar stores, drug stores and to a lesser extent, club and grocery stores,” said Russo. <>

- Group of apparel and footwear companies ask US government to restore democracy in Honduras - A group of apparel and footwear companies have sent a letter to Secretary of State Hillary Rodham Clinton and other officials urging the Obama administration to help restore democracy in Honduras, while calling for an adherence to civil liberties in the wake of a military coup that deposed President Manuel Zelaya in June. Nike Inc., Adidas Group, Gap Inc. and Knights Apparel sent letters late Monday to Clinton, as well as to José Miguel Insulza, secretary general of the Organization of American States, and Thomas Shannon, assistant secretary of the Bureau of Western Hemisphere Affairs at the State Department, outlining their concerns over the political instability in a country where U.S. companies produce millions of dollars worth of apparel annually. The coup at the end of June has not disrupted apparel production in Honduras, according to sourcing executives, but they are concerned about long-term infrastructure breakdowns and potential problems if the new government does not adhere to internationally recognized standards on workers’ rights. <>

- EU Commission will adjust rules benefitting online retail - The European Commission on Tuesday said it plans to adjust the rules governing the rights of retailers to sell their goods on the Internet in an attempt to make more goods available online. According to existing European Union rules, due to expire in May 2010, brand owners such as LVMH Moët Hennessy Louis Vuitton SA and Nike Inc. can dictate who sells their goods and in what environment. If a store sells a brand owner's goods, the brand owner can forbid the store from also selling those goods on its Web site. The commission said Tuesday that distributors should be able to sell and advertise goods online as they see fit. However, the commission said that a current restriction should be preserved: brand owners should be able to insist that a distributor that sells goods online should sell the goods in regular stores. That way, online entrepreneurs can't unfairly benefit from the brand recognition or luxury image created by regular shops and manufacturers. The commission's plans aren't final. The ruling is a setback for online-only retailers such as eBay Inc., which has argued that its users should be allowed to sell goods online without a brick-and-mortar store. <>

- Brazil's footwear exports have tumbled during first half of 2009 - Shipments dropped 28.4% year-on-year, according to figures from the Brazilian Footwear Association Abicalçados. The country earned $728.7 million through footwear exports in H1, while imports increased 11% to $172.8 million. In terms of volume, footwear exports fell 26.5% to 65.8 million pairs in H1, while exports to its major market, the US, fell 31%. In the UK, Brazil's second most important market, purchases fell by 33.4%. <>

- Indian government to ban child labor - Indian government has convened a meeting of exporters associations to eradicate the child labour problem in factories, according to Minister of State for Labour and Employment Harish Rawat. This came about after US casualwear retailer GAP has announced to stop all sourcing work to Indian garment manufacturers. Rawat said ecisions were taken regarding proactive steps such as external social audits, collaboration with local administration, NGOs and social activists, concerted action in child labour prone districts, examination of supply chain to ensure that exporters, suppliers and subcontractors conform to child labour laws. <>

- Japan's Retail Sales Fall, Extending Longest Losing Streak in Six Years  - Japan’s retail sales fell for a 10th month in June, extending the longest losing streak since 2003 as job losses and wage cuts forced households to trim spending. <>

- Its official, California retailers and vendors avoid any tax hikes in new budget - California Gov. Arnold Schwarzenegger signed a budget package on Tuesday to close a $26.3 billion deficit after vetoing hundreds of millions of dollars in state spending. Retailers and vendors in California were spared increased taxes and fees, but the sweeping cuts range from state parks to AIDS prevention and treatment programs. The spending plan also relies on accounting maneuvers and borrowing as California struggles with rising unemployment and home foreclosures, as well as reduced consumer spending. <>

- Timberland Co. hires new VP and GM of North America - The Timberland Co. named Mark Bryden to the newly created position of VP and GM of North America, effective immediately. He will be responsible for all North American operations at the Stratham, N.H.-based firm, including marketing, retail, wholesale and e-commerce, reporting to Jeffrey Swartz, president and CEO. Bryden was most recently president and GM of SmartWool Corp., acquired by Timberland in 2005. According to a Timberland release, during his tenure there, the company experienced record growth with the launch of sport and lifestyle apparel and expansion into international markets. Prior to joining SmartWool, Bryden spent 26 years at Levi Strauss & Co. in a variety of sales and marketing positions before moving into its international and supply chain management organization. In a separate move, SmartWool announced that Mark Satkiewicz, VP of sales, has been promoted to fill the position of president and GM. <>

- Guess? Co-Founder Georges Marciano Must Pay Former Employees $370 Million - Guess? Inc. co-founder Georges Marciano must pay $370 million in damages to five former employees who were defamed and suffered emotional distress when he sued them for embezzlement, a plaintiffs’ lawyer said. <>

- Wal-Mart Prices First U.S. Samurai Bonds Since Lehman Default in September  - Wal-Mart Stores Inc., the world’s biggest retailer, sold the first samurai bonds from a U.S. borrower since Lehman Brothers Holdings Inc. defaulted on its yen debt in September. <>

- Nordstrom is to introduce an Oracle Retail application to improve the size distribution of clothing in its stores - The size profile optimization system will ensure a better alignment of the right merchandise in the right sizes to meet customer demand and improve customer service. It will analyze sales data to create size profiles for its clothing merchandise that are unique to each store. These profiles will assist with decision-making around initial ordering of product, and then allocation and assortment planning decisions. The system can also be used to improve availability, and reduce end-of-season markdowns due to size limitations. <>

- Golfsmith re-launches e-commerce site - Golfsmith International Holdings, Inc. announced that it has redesigned and re-launched its e-commerce site at with a variety of new features and social marketing tools. <>

- Geox plans to have flat sales growth in 2H after 4% growth in the first half of 2009 driven by flatish footwear and strong apparel growth - Despite taking a 28% hit on its bottom line, Geox SpA reiterated its plan for full-year sales to be in line with last year. The Italian footwear company's sales increased 4%. Footwear, which accounts for 91% of the company’s sales, increased by 1% while apparel grew 43%. <>

- Asics strong running sales has driven its forecast for 2010 to high single digit growth - Asics America Corporation is forecasting high-single-digit growth for the 2010 fiscal year, thanks to continued growth in its running footwear business and strong sell-in for its apparel business. The company is estimating that revenues will increase between 6% and 7% for the first half of the year, and about 8% for the entire year. <>

- Luxottica's well-balanced brand portfolio and the performance of the Ray-Ban and Oakley brands helped drive sales up 3.5% in Q2 - Luxottica, which has eyewear licenses with Bulgari, Burberry, Chanel, Dolce & Gabbana, Donna Karan, Prada, Salvatore Ferragamo and Versace, among others, said the economic environment today “is less uncertain albeit certainly still challenging,” with North America “still suffering,” although June results were positive. The European market is picking up, Luxottica said, while business in Japan fell, as did emerging markets, “affected by the decline in the tourism industry.” <>

- Lane Bryant's popular Right Fit(TM) collection continues to deliver what women want with the launch of the Right Fit straight leg jean - "Our Right Fit straight leg jean features classic five-pocket styling that pairs beautifully with boots, flats and even stilettos," says Brian Woolf, President, Lane Bryant and Cacique. "Our customers have been asking for a straight leg jean and we know they're going to love this new addition to the already popular Right Fit collection." While many other brands have recently folded their plus size collection or have relegated their lines to online-only sales, Lane Bryant continues to cater to the fastest growing fashion segment in America. "We listen to our customers. We know they want fashionable, flattering clothes and our Right Fit straight leg jean proves that women of all sizes can wear the latest fashions and look great," says Woolf. The new straight leg jean, retailing for $54.50, isn't the only exciting announcement from Lane Bryant. The retailer has paired up with the producers of the brand new dating show on Fox, "More to Love," for a dream date sweepstakes.  <>

- While the rest of the retail market struggles, sales of men's skinny jeans are going strong - Men's premium jeans, a small part of the overall market, have been a bright spot in the current recession. Men's jeans sales totaled $5.31 billion in the United States for the 12 months ended April 30, according to market researcher NPD Group, down 2% from a year earlier. But sales of fashion jeans priced $50 or more rose 8%. Denim brands, retailers and men's fashion magazines have relentlessly promoted skinny jeans. And pop stars such as Justin Timberlake and Kanye West, by wearing skinny jeans, have given something resembling permission for style-conscious young men to wear them. The style can be unforgiving, but many makers of men's jeans are trying to be more accommodating. Levi Strauss & Co. added room in the seat and thigh in its newest skinny jeans for men. True Religion added what it calls a "four-way stretch" Spandex material to its line of men's jeans selling for between $172 and $398. 7 for All Mankind, whose men's jeans sell for between $155 and $225, widened the thigh and elongated the distance from the crotch to the top of the waistband on the new skinny men's jeans it will start selling this month. After men complained the thighs on its jeans were too tight, the label, owned by VF Corp., had male employees at its Los Angeles headquarters walk, squat and bend in prototypes of the new look. It sold the style, called "Jared," at its Los Angeles stores as a test. Customers liked it, so it is going national. Gap's new men's slim jeans, which it calls "Authentic," contain three-quarters of an inch more fabric in the thigh and 11/2 inches more in the knee than its current skinny jeans do. <>

-  Jack Rogers is to become a lifestyle brand - Jack Rogers, essentially a one-note fashion story with its widely popular, oft-copied Navajo sandal, is about to be blown out into a lifestyle brand. Global Reach Capital last November quietly bought the brand from Miami-based JMR Management, manufacturer of Jack Rogers, and has formed a team of merchants, designers, production, marketing, financial and sales personnel to roll out new Jack Rogers products and categories. On the drawing board: sportswear, dresses, handbags, shoes, boots and a wider selection of sandals, and the first Jack Rogers retail stores, for the upcoming resort and spring seasons. Global Reach is partnering with the Peter Marcus Group on shoe manufacturing, with Modco, a branding company helping with the visual presentation, and with JMR, which continues to be a key supplier. “Three years ago we formed Global Reach Capital to invest in great brands. Jack Rogers has been on our radar since the beginning,” said William M. Smith, managing partner of Global Reach, chairman of Jack Rogers and former president of Financo. He wouldn’t disclose the purchase price for the brand, which has an estimated volume between $10 million and $12 million. “There are more dollars set aside to build the brand than we paid for it,” Smith said. “If in five years we don’t do 10 times the volume, we are going to be very disappointed.” Denise Johnston, the former Liz Claiborne group president and president of Gap men’s, women’s and adult accessories, has been named Jack Rogers chief executive officer. She said Jack Rogers shops in the 1,000-square-foot range are being planned, with the first expected to open around February 2010 in Manhattan, followed by units in the Hamptons, and Palm Beach or Bal Harbour, Fla. <>

- Comfort footwear brand Alegria Shoes has named Sheri Poe to the position of chief marketing executive officer - Poe, founder of Ryka athletic footwear, was most recently CEO of U.S. operations at MBT. Her duties at Alegria, owned by parent company Pepper Gate Footwear in Los Angeles and known for its rocker-bottom looks in a wide range of novelty materials and colors, will include overseeing branding and marketing. <>



VFC: Bob Shearer, CFO, sold 110,000shs ($7.2mm) accounting for more than 50% of common holdings.

NKE: Ralph Denunzio, Director, sold 2,000shs ($104k) after converting 2,000 Class B shares less than 3% of common holdings pursuant to 10b5-1 plan.

LULU: Brad Martin, Director, sold 10,000shs ($160k) roughly 25% of common holdings.







Pressure Cooker

"The pressure not to lose has been replaced by the pressure not to miss out."
-Seth Klarman (Founder of Baupost)
I love airplanes. Other than in the shower and in movie theatres, it's one of the few places that no one can email or call me. It's a great place to think. As I was grinding through my pile of reading on a flight to Chicago last night, I came across that simple, but very timely, quote by one of Boston's investment managers, Seth Klarman.
There are many players in this game who operate with a one factor investment model - price momentum. They chase it down. They chase it up. That's not new - what is new is that we have a generationally high level of players in the game doing it. They all have tremendous pressure not to lose. Daily, weekly, monthly returns - this is the pressure cooker.
The pressure not to miss out is one of supply. As a result, we have created an institutional investment business in the USA that is setup for cyclical mean reversion. One of the very best mean reversion investors of this generation is another Boston based lad by the name of Jeremy Grantham.
In Grantham's recent July letter he called the current market levels a "Boring Fair Price." And this morning, with the SP500 at 979, I have to agree with that conclusion. While all of the 200-day and 50-day Moving Monkeys are pressured to chase one another around the group-think keepers cages, we continue to settle into a low volatility range bound tape. If you missed calling the crash or the squeeze, too bad. Get over it.
I know - now I have complimented 2 people in the same note and offended my beautiful wife for insinuating that I don't love her every cell phone call (I do Laura!). There must have been something in those world class Chicago ribs I had last night. There is also something about this pressure cooker that makes me a little itchy.
Itchy? Yeah, you know - scratching. How will it all end? We all know that it won't end well. This could be the toothpick industry and my conclusion would be the same. Like in any oversupplied industry, we need to reduce capacity. Since we've decided to socialize this game, the natural progression of supply coming down just happens at a slower pace. It's kind of like injecting a game of Monopoly with moneys from the heavens on the hour, every hour - keeping the levered alive.
So what's my call on the US market this morning? That's easy, Range Rover. Here are my immediate term TRADE levels of support/resistance:
1.      SP500 962-994

2.      Nasdaq 1

3.      Dow 8

Unlike the "level 3" super "side pocket" gurus of everything Wall Street securitization, we manage risk on a marked-to-market basis. Every 90 minutes of trading our global macro models refresh risk management levels. As a result, when price/volume/volatility changes, we change our view.
On the US Equity side, I don't disagree with Grantham's take - he said he wants to "buy quality and short junk." I have expressed this view somewhat differently, but it gets me to the same place. I want to be long liquidity and short financial leverage. From a macro perspective, this is why I remain long the Nasdaq (QQQQ) and short the Dow (DIA). From a bottom's up stock picking perspective, this is why I remain long a 4 letter name in the Nasdaq with a great balance sheet like Yahoo (YHOO), and short the ole school house of leverage games past, General Electric (GE).
If you're on the other side of Grantham and I, congratulations. As the US Government has opted to Burn The Buck, all Debtors and owners of junk got paid. "Got" would be the most important word in that sentence. Be certain of this, if/when the US Dollar rallies, a lot of the debtor obligations that are denominated in US Dollars will start to underperform. Yes, the price of junk can be the recipient of a socialized process of REFLATION but, in the end, it's still junk.
The Lords of The Tops (Mega Private Equity Funds), will have plenty of junk to re-issue to Wall Street. This morning you are seeing KKR in the news again, floating the idea of bringing one of their pigs with lipstick back to the public market. Never mind those Chinese IPO's folks, we gotta get ourselves some of that overstored US Retail capacity ala Dollar General!
I am sure that Goldman will be leading the no growth "dollar store" stagflation deal, and my sincerest of congratulations to those bankers for gaming this system for what it is - a pressure cooker. People need to do what they need to do to get paid. We get it.
Whether it's the current US Private Equity overhang of $400 billion USD, the Chinese stock market having its biggest down day (-5%) in the last 8 months overnight due to a massive IPO overhang, or yesterday's 2-year auction for US Treasuries showing the demand of a dribbling catheter... it's all one and the same. We have a supply problem that's structurally here to stay - and as prices rise, we have the hyperbole of an increasinginstitutional "pressure not to miss out."
Best of luck out there today,


EWG - iShares Germany
- We bought Germany on 7/28 on a pullback in the etf. Chancellor Merkel has shown leadership in the economic downturn, from a measured stimulus package and budget balance to timely incentives such as the auto rebate program. We believe that Germany's powerful manufacturing capacity remains a primary structural advantage; factory orders and production as well as business and consumer confidence have seen a steady rise over the last three months, while internal demand appears to be improving with the low CPI/interest rate environment bolstering consumer spending. We expect slow but steady economic improvement for Europe's largest economy.

XLK - SPDR Technology - Tech got smushed for the 2nd day in a row on 7/27. Buying red.

QQQQ - PowerShares NASDAQ 100 -With a pullback in the best looking US stock market index (Nasdaq) on 7/24, we bought Qs. The index includes companies with better balance sheets that don't need as much financial leverage.

CYB - WisdomTree Dreyfus Chinese Yuan- The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

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.

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.

XLF - SPDR Financials
- Shorted Financials on a bounce on 7/27 with the yield curve as good as it gets.

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.

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
- As Reflation morphs into inflation, the US Consumer Discretionary rally will run out of its short squeeze steam. We shorted XLY on 7/9 and again on 7/22.

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.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.