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Retail Callouts (6/30): Idea Bench, DG, FINL, UA, APP, CHS, AEO

HEDGEYE RETAIL IDEAS LIST

 

Retail Callouts (6/30): Idea Bench, DG, FINL, UA, APP, CHS, AEO - Chart 1 6 30 2014

EBAY removed from long bench.  NKE removed from short bench.

 

 

COMPANY NEWS

 

DG - Dollar General CEO Announces Retirement Plans

(http://investor.shareholder.com/dollar/releasedetail.cfm?ReleaseID=856844)

 

"Dollar General Corporation announced that its chairman and chief executive officer, Rick Dreiling, 60, has informed the Board of Directors of his intent to retire as CEO effective May 30, 2015 or upon the appointment of a successor. Dreiling has agreed to serve, at the discretion of the Board, as chairman during a transition period following the appointment of a new CEO."

"Dreiling has served as CEO since January 2008 and was named chairman of the Board in December 2008. Under his leadership, the Company's annual sales have increased more than 80 percent to $17.5 billion in 2013 and store count has increased by 38 percent to more than 11,000 stores in 40 states."

 

Takeaway: Dreiling was critical in leading DG in the two years leading up to its (re)IPO in December 2009. Since that point, he's executed on the real estate growth strategy, but also in a meaningful shift into consumables. We've been vocal about the category shift being largely played out at DG (and FDO). And although there is admittedly still room for the company to expand (and fill out) its footprint, we can't imagine that a CEO switch at this point does not signal either a change in the growth trajectory, or the likelihood that growth is simply harder to come by. That's a similar theme these days in retail -- DG, TGT, JCP, KSS.

 

 

FINL  - 1Q14 Earnings

All in, a good quarter for FINL -- and it's not too often that we say that. Comps were good, costs were well-controlled (usually a problem for FINL) and inventories looked outstanding.  It's been better than three years since we've seen FINL's inventories so low and improvement so robust.

Retail Callouts (6/30): Idea Bench, DG, FINL, UA, APP, CHS, AEO - Chart 2 6 30 2014

 

 

OTHER NEWS

 

U.S. retailers nervous as West Coast port labor talks running out of time

(http://www.reuters.com/article/2014/06/27/us-usa-ports-labor-idUSKBN0F22FI20140627)

 

"With peak shipping season approaching, U.S. retailers are anxiously monitoring labor negotiations affecting 20,000 workers at West Coast ports that handle more than 40 percent of goods shipped in ocean containers."

"The six-year contract between dockworkers and the employers who operate port terminal and shipping lines expires on July 1 at 5 p.m. PDT. It covers workers at 29 ports from California to Washington state, including major hubs in Los Angeles/Long Beach and Seattle/Tacoma."

"Representatives for the workers and their employers said they expect container cargo to continue moving until an agreement is reached, but retailers and other business that depend on the ports are still haunted by a costly 2002 shutdown."

 

UA  - Under Armour opens new retail experience in Panama

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=165227)

 

"Under Armour Founder and CEO Kevin Plank hosted the launch event for the brand's new retail space in Panama City, Panama. Located in one of the country's premiere shopping destinations, Multiplaza Pacific Mall, the store offers the brand's diverse range of performance footwear, apparel and equipment designed to give athletes an advantage when they train and perform."

"The first Under Armour retail store in Central America features a giant LED Screen positioned in the center of the display window to showcase the brand's impactful advertising. The metal and wood finishing throughout the interior design underscores the signature raw and gritty ethos of the brand and the innovation and technology engineered into its performance gear."

"Opening a brand store in Panama City represents the latest international expansion effort, for Under Armour, which continues to build its presence outside North America. In the past six months, the brand has launched in Brazil, Chile, the Philippines and Singapore."

 

AEO - American Eagle Outfitters Announces Entry into United Kingdom

(http://investors.ae.com/financial-news/financial-news-details/2014/American-Eagle-Outfitters-Announces-Entry-into-United-Kingdom/default.aspx)

 

"American Eagle Outfitters, Inc. today announced its entry into the United Kingdom, as the Company further expands its global presence with the opening of three new company owned and operated stores. The American Eagle Outfitters stores will be located in the Bluewater premier mall in Kent, England, as well as the Westfield Group’s London and Stratford City shopping centers in London, England. The stores opening in the Westfield centers will include an aerie presence in shop-in-shop form. All of the stores are expected to open during the fall of 2014."

 

BEBE - Plans to Exit 2b Concept to Focus on the bebe Brand Initiate Cost Reduction Program

(http://investorrelations.bebe.com/press-release/other/plans-exit-2b-concept-focus-bebe-brand-initiate-cost-reduction-program)

 

"bebe stores, inc. announced the exit of its 2b business and a comprehensive cost reduction program as part of the Company's on-going turnaround plan. Following a strategic business review, the Company has identified key initiatives it estimates will generate approximately $9-10 million in annualized pre-tax savings, beginning in fiscal 2015."

"Following careful evaluation, the Company has made the determination to exit the 2b business by the end of fiscal 2014, July 5, 2014, enabling it to increase its focus on the core bebe brand’s retail and outlet stores, e-commerce and international licensing business. The 16 2b mall-based stores including e-commerce business are expected to generate pre-tax losses of approximately $5-6 million in fiscal 2014, excluding impairment charges. The Company estimates that it will record pre-tax restructuring charges of approximately $5-6 million in relation to lease termination, asset write-off, inventory liquidation write downs and employee termination costs to close the remaining 16 2b mall stores including the e-commerce business."

 

APP - American Apparel Adopts Poison Pill Defense

(http://www.wwd.com/business-news/financial/american-apparel-adopts-poison-pill-7771613?module=hp-topstories)

 

"The company scrambled over the weekend to set up a stockholder rights plan, or poison pill, to prevent ousted Charney from regaining control of the firm by accumulating more stock."

"Charney — a lightening rod libertine who was sidelined as president, chief executive officer and chairman for alleged misconduct — already owns 27.2 percent of the company, or 47.2 million shares."

"And on Wednesday he quietly inked a deal that would have Standard General buy at least 10 percent of the company’s stock and then loan Charney the money to acquire the stake."

 

CHS - Chico's FAS, Inc. Appoints Todd E. Vogensen to Senior Vice President, Chief Financial Officer

(http://www.chicosfas.com/investor-relations/press-releases/press-release-details/2014/Chicos-FAS-Inc-Appoints-Todd-E-Vogensen-to-Senior-Vice-President-Chief-Financial-Officer/default.aspx)

 

"Chico's FAS, Inc. announced that its Board of Directors has appointed Todd E. Vogensen as the Company's new Senior Vice President, Chief Financial Officer, replacing Pamela Knous, who has left the organization to pursue other interests. Prior to his appointment as CFO, Mr. Vogensen had been the Company's Senior Vice President, Finance.  Mr. Vogensen will report to Kent Kleeberger, the Company's Executive Vice President, Chief Operating Officer and its Chief Financial Officer from 2008 to 2011."

 

Forever 21 - Forever 21 Sets Ambitious Growth Plan

(http://www.wwd.com/retail-news/mass-off-price/forever-21-sets-ambitious-growth-plan-7775404?module=hp-topstories)

 

"Don Chang is plotting a dramatic expansion for Forever 21."

"The founder and chief executive officer of the fast-fashion chain, based here, told WWD his “ultimate goal is to double the size of our company within the next three years,” giving it a footprint of 1,200 doors globally."

"And the company’s newest concept, F21 Red, could be key to that ambitious plan. Last month, Forever 21 launched the banner at the Azalea Shopping Center in South Gate, Calif., a working-class community about 20 miles south of here."

"The 18,000-square-foot store targets a value-oriented customer with a deeper selection of the Forever 21’s core items at seemingly sharper price points. The move surprised many analysts and retail experts, who questioned how the company would make its margins on $1.80 camisoles, $3.80 tank tops, $4.80 bikinis and denim starting at $7.80."


Imperial Sweetens Potential RAI-LO Deal

Investment Position: we remain long Lorillard (LO), which we added as a Best Idea on February 26, 2014 with a longer term price target of $80/share.

 

Boosting investor spirits that a RAI-LO deal gets done is news that Imperial Tobacco may soon be flush with cash and shopping the market to increase its U.S. business. 

 

Imperial is planning to sell 30% of its stock next month in its Madrid unit, Compania de Distribucion Integral Logista Holdings SA, which is expected to raise about $800 million for the fourth-largest global cigarette maker.

 

The Imperial news comes as RAI is likely shopping  some of its menthol-related brands (Kool, Winston and Salem, around ~5% total market share) to divest exposure and prevent anti-trust hurdles.  Currently, the main flags weighing on a RAI-LO getting done include:

  • A combined RAI + LO would own ~ 67% of U.S. menthol market.
  • A combined deal would rank as the biggest-ever tobacco merger. Big tobacco is already a highly concentrated industry in the U.S. across the big three – MO has a leading ~51% of market share; a combined RAI + LO would equate to ~ 42% share.   

Imperial currently has around 3% market share of U.S tobacco, and may be looking to boost its U.S. exposure. In 2007 it acquired Kentucky-based Commonwealth Brands for $1.9 Billion and sells under such brands as USA Gold, Sonoma and Fortuna brands. 

 

Below we’ve outlined our TREND duration over the intermediate term (3 month); our longer term price target of $80/share represents +30% higher than Friday’s closing price of $61.50.

 

Imperial Sweetens Potential RAI-LO Deal  - zzLO

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst 



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.64%

European Banking Monitor: Portuguese Swaps Widen Amid Probe

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 - Swaps were generally wider across the board in Europe's banking system, but were acutely wider in Portugal. Portugal's largest bank, Banco Espirito Santo, is being probed by Luxembourg's justice department. The swaps widened to 318 bps (+130 bps w/w).

 

European Banking Monitor: Portuguese Swaps Widen Amid Probe  - chart 1 financials CDS

 

Sovereign CDS – Sovereign swaps were generally little-changed on the  week, though Portugal was +9 bps to 154 bps in response to concerns over the probe into its largest bank, Espirito Santo, by Luxembourg's justice department. 

 

European Banking Monitor: Portuguese Swaps Widen Amid Probe  - chart 2 sovereign CDS

 

European Banking Monitor: Portuguese Swaps Widen Amid Probe  - chart 3 sovereign CDS

 

European Banking Monitor: Portuguese Swaps Widen Amid Probe  - 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 tightened by 1 bps to 15 bps.

 

European Banking Monitor: Portuguese Swaps Widen Amid Probe  - chart 5 Euribor OIS

 

 

Matthew Hedrick 

Associate

 

Ben Ryan

Analyst

 

 

 


Macau: Weakness Prevails into Month End

The latest Macau figures show table revenues average of HK$764 million per day for last week (HK$5.348 billion for the week), down 14% year/year and down 6% month-to-date vs June 2013.  As such June will finish down 5% to 7%.  This will be the 1st monthly decline since June 2009.

 

MGM, Galaxy and SJM are outperforming thus far in June in terms of market share while Wynn and MPEL remain below trend.  MPEL may have more exposure to squeezed junkets than the other concessionaires which could be contributing to its weak share.  Wynn looks to remain conservative in its commission approach given the uncertain environment.  

 

Macau:  Weakness Prevails into Month End - macau234

 

Macau:  Weakness Prevails into Month End - macau2


Monday Mashup: DNKN, NDLS and More

Investment Ideas

The table below lists our 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: DNKN, NDLS and More - chart1

Recent Notes

06/23/14  Monday Mashup: DRI, SBUX and More

06/24/14  DRI: Management’s Perpetual, Misguided Vision

06/25/14  Restaurant Value Spread In Unfamiliar Territory

Events This Week

No events scheduled for this week.

Chart of the Day

Feeling the squeeze? Gasoline prices are up +5.3% YoY and +10.6% YTD.

 

Monday Mashup: DNKN, NDLS and More - chart2

Recent News Flow

Monday, June 23rd

  • DFRG dismissed Ernst & Young LLP as its independent auditor.
  • RRGB is two weeks away from opening its first restaurant in Orlando, Florida.
  • BOBE named former SVP and CFO of the Brown Shoe Company, Mark Hood as CFO, effective immediately.

 

Tuesday, June 24th

  • CMG announced plans to serve more than 20 million pounds of locally grown produce in 2014, up from 15 million pounds in 2013.

 

Wednesday, June 25th                                

  • DNKN named Jeff Miller as Executive Chef and VP of Product Innovation.  Mr. Miller, who has been with Dunkin’ Brands for 11 years, will head the company’s 22-person culinary team.

 

Thursday, June 26th

  • RRGB appointed Cammie Dunaway to its Board of Directors.  Dunaway currently serves as the U.S. President and Global Chief Marketing Officer for KidZania.  Prior to KidZania, Dunaway served as Executive Vice President for Nintendo, Chief Marketing Officer for Yahoo as well as in various other roles.
  • RT CFO Michael Moore announced his retirement.  The company appointed Jill Golder as CFO, effective immediately.  Ms. Golder has served as Ruby Tuesday’s Senior Vice President of Finance since April 15, 2013.  Moore will remain with Ruby Tuesday as an advisor and help assist in Ms. Golder’s transition until his retirement in August.
  • DNKN promoted Roxanne Bensason to Vice President of International Field Marketing.  Ms. Bensason, who has been with the company for the past 12 years, will report directly to John Costello.
  • NDLS appointed Johanna Murphy to its Board of Directors and a member of its Audit Committee.  Ms. Murphy currently serves as CMO and Director of Digital for Ivanka Trump International.

 

Friday, June 27th

  • GMCR was upgraded to buy at Argus Research with a $140 PT.

Sector Performance

The XLY (+1.0%) outperformed the SPX (-0.1%) last week.  Both casual dining and quick service stocks underperformed the narrower XLY index.

 

Monday Mashup: DNKN, NDLS and More - chart3

 

Monday Mashup: DNKN, NDLS and More - chart4

U.S. Macro Consumption

The Hedgeye U.S. Consumption Model continues to signal bearish, flashing red on 7 out of 12 metrics.

 

Monday Mashup: DNKN, NDLS and More - chart5

XLY Quantitative Setup

From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.

 

Monday Mashup: DNKN, NDLS and More - chart6

Casual Dining Restaurants

Monday Mashup: DNKN, NDLS and More - chart7

 

Monday Mashup: DNKN, NDLS and More - chart8

Quick Service Restaurants

Monday Mashup: DNKN, NDLS and More - chart9

 

Monday Mashup: DNKN, NDLS and More - chart19

 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst

 


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.

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