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Retail Callouts (6/5): JCREW, PVH, ASOS, COST, VNCE, Breach Survey

Takeaway: JCREW miss calls out why Drexler was trying to sell. Lot's of hope in PVH's guidance. COST/hi-end crushes it again. Survey on data breaches.



Key Call Out Of The Day Belongs to a Company That's Not Even Public -- J.CREW


J CREW 1Q14 Earnings

"Revenues increased 5% to $592.0 million, with comparable company sales decreasing 2%."

"Gross margin was 38.7% compared to 44.7% in the first quarter last year."

Selling, general and administrative expenses were $195.2 million, or 33.0% of revenues, compared to $178.4 million, or 31.6% of revenues in the first quarter last year.

Operating income was $34.0 million, or 5.7% of revenues, compared to $73.6 million, or 13.1% of revenues, in the first quarter last year.


Takeaway:  This quarter was a disaster for J Crew. If you didn't know why Mickey Drexler was trying to unload this company to Fast Retailing four months ago, now you know. If you didn't know why Fast Retailing pulled out of the bidding a month later, now you know that too. This is a serious ding to Drexler's otherwise  bullet-proof credibility.



PVH - 1Q14 Earnings

Takeaway: The company's Heritage brands were the big reason behind the EPS shortfall and guide down. The big question in our minds is how PVH gets to such an aggressive (20%+) ramp in EPS growth for the remainder of the year after being down 23% in the first quarter. Inventories look like they are in decent shape, and we just saw the fourth consecutive quarter of margin contraction, which PVH will now start to anniversary. That's at least not bearish. But for a company with this little momentum, we're extremely cautious about the 'easy margin compare' game. There's no fundamental reason why margins can't be down again and again, and again.


Retail Callouts (6/5): JCREW, PVH, ASOS, COST, VNCE, Breach Survey  - pvhsigma



COST - Costco Wholesale Corporation Reports May Sales Results



"Inflation in gasoline prices had a positive impact on comparable sales for the four-week period, but a negative impact for the thirty-nine week period; foreign currencies had a negative impact for both periods. Excluding these effects, comparable sales were as follows:"


Retail Callouts (6/5): JCREW, PVH, ASOS, COST, VNCE, Breach Survey  - cost


Takeaway:  COST just put up good 3Q numbers a week ago, so today's news is no surprise. But the fact is that the headline beat again -- 6% comp vs 4.5% expectations.  If anything, this is another sign that the high-end consumer is doing just fine -- in start contrast to the WMT's and TGT's of the world. Yes, COST is hi-end, even though so many people wrongly lump it in with WMT. COST average customer income is $100k.


VNCE - 1Q14 Earnings

- Net Sales increased 32.4%

- Operating Income increased 174%

- Diluted EPS increased to $0.04

- Company raises guidance for fiscal 2014


Takeaway: Good numbers out of VNCE. But truth be told, 6 months out of the gate it should be crushing expectations.  This is hardly a KORS-like trajectory. That might be a tough one to compare it to, but when you come racing out of the IPO gate, trade at a 28x p/e all while selling $300 silk blouses, you'd better be outcomping Costco by more than 500bp.




ASOS - Asos Warns on Profit



Shares in Asos PLC dropped by more than 40% in early trading Thursday after the online fashion retailer warned full-year profit would fall short of forecasts because of the strong British pound, higher promotional activity and infrastructure investments.

"In an unscheduled trading statement, Asos reduced its [EBIT] guidance to 4.5% from 6.5% for the current financial year after the strong pound resulted in a slowdown in international sales growth to 17%..."

"Australia was the company's biggest international territory six months ago but now has fallen to third place, with about 8% of total sales. International retail sales account for 62% of total sales. Total retail sales increased by 25%, with U.K. sales up 43%, in the period."

"The strong pound meant that customers in some territories have faced price increases of more than 25%, and the company said it used promotions to try offset the worst of it."


SKX - Skechers Signs Matt Kuchar for GoGolf Line



"Seven-time PGA Tour winner Matt Kuchar will be the face of the GoGolf line, Manhattan Beach, Calif.-based Skechers USA Inc. announced today."

"Kuchar, who is currently ranked fifth in the world, will have a signature shoe line and will represent the brand in global TV, print, outdoor and digital ads under the multiyear agreement."


Alibaba - Alibaba Buys Half of Soccer Team



"E-commerce giant Alibaba Group said Thursday it has bought a 50 percent stake in China's reigning soccer champions Guangzhou Evergrande Football Club for approximately 1.2 billion yuan, or about $192 million, diversifying its investment portfolio beyond retail and logistics."


VNCE - Vince Names Natalie Ratabesi Creative Director



"Natalie Ratabesi, who stepped down as creative director of Philosophy last month, has been tapped as creative director of women’s design at Vince, the contemporary sportswear firm. She begins June 16 and will relocate from Milan to Vince’s design studio in Los Angeles."

"Ratabesi’s initial input will be seen in the women’s pre-fall 2015 season."

"Prior to becoming creative director of Philosophy in October 2012, Ratabesi held key design roles at houses including Christian Dior under John Galliano, Oscar de la Renta, Gucci and Ralph Lauren, where she did two tours and became senior creative director."


AMZN, WMT - 24% of Americans stopped buying online because of breaches



"A USA TODAY survey finds that almost a quarter of Americans have at least temporarily stopped buying online because of security concerns."

"A full 24% of those surveyed said they had stopped buying anything online in recent weeks because they were concerned about the safety of information they might put online."

"Most surprisingly, 56% said they had cut back on the number of Internet sites they used and were only going to large, well-known companies they were confident were safe."

June 5, 2014

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TODAY’S S&P 500 SET-UP – June 4, 2014

As we look at today's setup for the S&P 500, the range is 44 points or 1.76% downside to 1894 and 0.52% upside to 1938.                                                            














  • YIELD CURVE: 2.20 from 2.21
  • VIX closed at 12.08 1 day percent change of 1.77%


MACRO DATA POINTS (Bloomberg Estimates):


  • 7am: Bank of England seen maintaining 0.50% bank rate
  • 7:30am: Challenger Job Cuts y/y, May (prior 5.7%)
  • 7:30am: RBC Consumer Outlook Index, June (prior 50.1)
  • 7:45am: ECB seen cutting benchmark interest rate to 0.1% from 0.25%, marginal lending facility to 0.6% from 0.75%, deposit facility rate to -0.1% from 0%
  • 8:30am: ECB’s Draghi holds press conference, releases macroeconomic forecasts
  • 8:30am: Init Jobless Claims, May 31, est. 310k (prior 300k)
  • 9:45am: Bloomberg Consumer Comfort, June 1 (prior 33.3)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 12pm: Household Change in Net Worth, 1Q (prior $2.954t)
  • 1:30pm: Fed’s Kocherlakota speaks in Boston



    • President Obama attends G-7 meetings in Brussels, meets with U.K. Prime Minister David Cameron in afternoon, travels to Paris for dinner with French President Francois Hollande
    • Sec. of State Kerry meets with Russian FM Lavrov in Paris
    • Senate in session; House meets in pro forma session
    • U.S. Chemical Safety Board releases investigation reports on Deepwater Horizon disaster in Gulf of Mexico
    • 9:15am: Senate Commerce, Science and Transportation panel holds hearing on “Preserving Public Safety and Network Reliability in the IP Transition”
    • 9:50am: Obama, Cameron hold joint press conference
    • 10am: Senate Foreign Relations Cmte hearing on events in Ukraine
    • U.S. ELECTION WRAP: Competitive Race Outlook; Miss.; Calif. 31



  • GM’s Barra prepares to release details of Valukas review
  • Draghi preparing negative rates seen piquing demand for QE
  • ECB decision day guide
  • May U.S. Retail Sales seen “okay,” may slow vs April
  • Medtronic said to evaluate takeover offer for Smith & Nephew
  • Sprint, T-Mobile said near accord on price, termination fee
  • Amazon said to be ready to unveil smartphone to vie with Apple
  • BP, Anadarko may face billions in fines after oil spill ruling
  • Microsoft faces China backlash to Windows as U.S. spat escalates
  • Hollande says big BNP penalty could hit Europe bank stability
  • Eurozone April retail sales up 0.4% m/m; est. unchanged m/m
  • Adelson says new recruit could be player in succession at Sands
  • J. Crew says declining operating results may trigger impairment
  • Turner Networks said to consider departing Fox official for role
  • “Too many people on trading floors” may force layoffs: WSJ
  • Google said to seek streaming music service purchase: NY Post
  • Dave & Buster’s considers IPO after sale fails: Reuters



    • Analogic (ALOG) 4:15pm, $0.94
    • Canadian Western Bank (CWB CN) 8:30am, C$0.61 - Preview
    • Ciena (CIEN) 7am, $0.13 - Preview
    • Cooper (COO) 4:01pm, $1.60
    • Diamond Foods (DMND) 4:05pm, $0.17
    • JM Smucker (SJM) 6:30am, $1.17
    • Joy Global (JOY) 6am, $0.71 - Preview
    • Navistar (NAV) 7:02am, ($1.27) - Preview
    • Saputo (SAP CN) 12:46pm, C$0.75
    • Seachange (SEAC) 4:02pm, ($0.03)
    • Thor Industries (THO) 4:15pm, $1.07
    • Transcontinental (TCL/A CN) 8:05am, C$0.43
    • Vail Resorts (MTN) 4pm, $2.92
    • Vera Bradley (VRA) 8am, $0.13
    • VeriFone Systems (PAY) 4:01pm, $0.33




  • EU Wheat Crop at 6-Year High Compounds World Glut as Prices Drop
  • WTI Falls a Second Day on U.S. Fuel Inventories; Brent Declines
  • ETF Securities Joins LME in Proposing Silver Fixing Replacement
  • Storms Follow Bugs to Florida as Orange Crop Slumps: Commodities
  • Iron Ore Miners in China Seen Shuttering After Price Tumbles 30%
  • Gold Trades Near Four-Month Low Before ECB Decision, U.S. Data
  • Port Hedland Tug Deckhands Say Teekay Talks Were Constructive
  • Wheat Rebounds From Three-Month Low as Decline May Revive Demand
  • Aluminum Rebounds as Copper Slips Before ECB Policy Announcement
  • ICE Coffee Extends Drop as Dryness Seen Aiding Crop; Cocoa Falls
  • Qingdao Port Said to Investigate Volume of Metals in Warehouses
  • EU Gas-Market Push Strengthens as Oil-Link Widest Since 2009
  • Gold Leaves Investors Bored as Volatility Drops to 14-Month Low
  • Widodo to Keep Indonesia Ore Ban, Limit Plantation Expansion


























The Hedgeye Macro Team














Inflation Is a Lie

This note was originally published at 8am on May 22, 2014 for Hedgeye subscribers.

“Inflation is taxation without legislation.”

-Milton Friedman


It’s a good thing for Janet Yellen that Milton Friedman isn’t around to call her out. Ben Bernanke can get paid another $400,000 to spew to a bunch of head-nodders that there’s no inflation at $110/barrel oil and the all-time high in US rents too, I guess.


Friedman also said that a “government solution to a problem is usually as bad as the problem.” #Agreed. But the Federal Reserve is becoming a much larger problem than that. These people aren’t even elected.


“So”, after Soybeans, Oil, and Orange Juice prices inflated another +2.4%, +1.7%, and +1.3%, respectively, yesterday, Mr. Macro Market took the Fed’s commentary (Federal Reserve Minutes were released intraday) that there is no #InflationAccelerating risk as a sign to buy more inflation. 

Inflation Is a Lie - Inflation 04.29.2014


Back to the Global Macro Grind


On US rents (34% of Americans have to rent, and like it) and cost of living hitting all-time highs this week, this is what one of the most uninformed members of the US Federal Reserve, Bill Dudley, had to say:


“prices look likely to firm, somewhat”


Thanks for coming out Bill. And yes, I’m calling you out. When our kids look back on this period of US economic history, they’ll call you a lot worse than that. They might even call guys like you Jimmy Carter.


While it’s part of winning a hockey game, name-calling is no way to win a debate. Alongside #RentRipping, here’s more YTD #InflationAcclerating data:


  1. CRB Foodstuffs Index +21.9% YTD
  2. CRB Commodities Index +10% YTD
  3. Coffee +57.6% YTD
  4. Nickel +42.1% YTD
  5. Lean Hogs +28.3% YTD
  6. Soybeans +19.2% YTD
  7. Cattle +15.4% YTD
  8. Palladium +15.4% YTD
  9. Orange Juice +10.9% YTD
  10. Oil +7.9% YTD


Oh, right. Oil is only +8% YTD vs. US growth stocks (Russell 2000) and US Consumer Discretionary (XLY) down -5.7% and -3.9% YTD, respectively. No worries. Ben Bernanke said there was no inflation with Oil at $150 in Q2 of 2008 either.


It’s one thing for me to rant about this using real-time prices paid. It’s going to be an entirely different thing when the 80% of people in this country getting jammed by the Fed’s Policy To Inflate revolt.


As the late Robert Heinlein astutely observed, “there is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.” But he’s dead now too. So Janet doesn’t have to deal with him either.


Inflation Is a Lie - Chart of the Day


In other real-time (price, volume, volatility) news:


  1. PRICE – SP500, Nasdaq, and Russell all bounced to lower-highs (down -0.6%, -5.2%, and -8.7% from their bubble highs) yesterday
  2. VOLUME – total US Equity market volume was DOWN again on the UP-day (-9% and -31% versus its 1 and 3 months averages)
  3. VOLATILITY – front month VIX got smashed to a fresh YTD closing low of 11.91


And you buy stocks when volatility is at its oversold lows, right? Only if you are doing it with other people’s money! Must #chase daily #performance. Must short low and cover high. Must bang head against Old Wall.


No thanks.


If you bought US stocks at this level in the VIX in August of 2013, you were down -3.5% (in the SP500) in less than 2 weeks after that. The most recent time-spanking you’d have had buying US growth stocks (Russell 2000) with a “low VIX” in Jan-Mar 2014 is more like -7-9%.


But, if you play this game with real-ammo, you already know that.


Other than front-month-frustration for growth bears trying to express their fears in VIX (which has not been a recommendation in the Hedgeye Macro Theme playbook in 2014 due to 6,000 hedge funds trying to do the same, at the same time), where is US stock market sentiment at?


  1. II’s Bull Bear Survey just flashed a fresh new Q2 high in consensus bullishness
  2. After another no-volume bounce, Bulls have chased back up to 57.2% (from low 50%s at the YTD lows)
  3. The Bull/Bear Spread has widened +30% to the Bullish side since mid-April to +3890 basis points wide


In other words, the point here isn’t that 65-70% of people are bullish. It’s that only 17-19% will admit they are bearish! Do not underestimate the #behavioral risk to this US stock market that is called career risk management.


Not only has the Fed implicitly imposed a short-term performance chasing hyperactivity on equity fund managers being forced to chase yield, bubbles, etc., they’ve made a large % of the hedge fund business a levered long beta strategy.


But I digress. Having someone at the Fed explain what that means to Maxine Waters will be as difficult as these people trying to convince you that cost of living isn’t at all-time highs. While lies about inflation in Washington can most definitely live, they can’t live forever.


Our immediate-term Global Macro Risk Ranges are now:


RUT 1085-1121

VIX 11.84-14.02

USD 79.61-80.23

Brent Oil 109.05-110.99

Gold 1285-1315

Copper 3.08-3.19


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer

Our Process Is Different

“Because our process was so different… we felt it had real power.”

-Ed Catmull


As I grind through the end of it, Creativity Inc. is turning out to be one of the best business books I’ve read in a long time. Chapter 4, “Establishing Pixar’s Identity”, is all about process – “trust the process.”


For my team, that’s going to sound very familiar. As real-time market prices, volumes, and volatilities change, we feel that our process is better than our #OldWall competition’s, if only because we change.


Our Process Is Different - Busines

“What is the nature of honesty? If everyone agrees about its importance, why do we find it hard to be frank? How do we think about our own failures and fears? Is there a way to make our managers more comfortable with unexpected results?” (Catmull, pg 82)


Back to the Global Macro Grind


This is going to be one of the shortest Early Looks of the year because a European Central Planner can change my decision making process by doing something drastic to the Global Currency Market in the next few hours.


While I’d only have to work 6 hours a day if I had the inside information that Mario Draghi may have whispered to his favorite cronies, I still wouldn’t know how to position until I saw the reaction to this version of “whatever it takes.”


That’s the main point about my process. I react to what Mr. Macro Market tells me to do – I don’t tell him what to do. It’s taken me a long time to embrace the reality of not only information surprises, but how the market scores them.


Just to set the manic media’s volume on this ECB decision right:


  1. “Euro, stocks, hostage to ECB’s ability to surprise” –Reuters
  2. “Draghi’s rate tonic seen piquing taste for the stronger stuff” –Bloomberg
  3. “Live Blog: ECB’s Draghi poised to unveil stimulus” –CNBC


In other words, no one needs moarrr central-planning-cowbell moarrr than those trying to sell advertising. And everyone in the financial media is leading every lemming who will trade alongside the implied trend of the headline, until the market goes the other way.


That’s why contextualizing the #behavioral side of markets across multiple factors and durations is as critical as it has ever been. I’ve been doing this for almost 17 years now and I have never seen macro consensus positioning get run-over so consistently.


That’s not to say that Draghi can’t do something wacky this morning and burn the Euro through my $1.35 EUR/USD long-term TAIL risk line of support. It’s simply to remind you that everyone and their brother is worried that he will, at the same time.


“So”, deal with it. How do I deal?


  1. Have a process
  2. Have a plan
  3. Plan to change the plan, if the market tells you to do so


On the process, I’m constantly vetting, evolving, and hopefully improving ours by stress testing it with the best buy-side minds in the world. Yesterday I was in Boston. Coming out of every meeting I was told that our “macro calls” for 2014 have been different.


Being different can also mean being wrong. “So”, what’s the plan if I am wrong this morning and the EUR/USD doesn’t hold $1.35?


  1. If it snaps $1.35 in the moment, I won’t freak-out – I’ll wait and watch for confirmation
  2. A sustained breakdown in the Euro would probably mean a breakout in the US Dollar
  3. A breakout in the US Dollar would probably mean a breakdown in commodity #InflationAccelerating


In other words, the plan is that the plan could change. If I take myself out of the emotion of what will be this morning’s moment, there are other big time macro events that could then change the plan yet again:


  1. US Employment Report is on Friday
  2. US Federal Reserve June meeting (where I think Yellen will get incrementally dovish)
  3. Stanley Cup Finals


Yes, the process of printing moneys, destroying currencies, and compromising the trust of The People who have to eat the cost of living born out of that has real power too. Our job is to help you risk manage it.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.41-2.61%


RUT 1104-1151

USD 80.16-80.79

EUR/USD 1.35-1.37   

Gold 1


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Our Process Is Different - Chart of the Day

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