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Game Time YouTube: Bernanke Burns The Buck

Our Game Time call was that he would pander – he just pandered.

 

There was no signal of raising rates – explicitly or rhetorically. Bernanke said the Fed is going to “gradually slow the pace” of buying UST Bonds, but that’s just a political plug.

 

Per Wikipedia: to pander means, “in politics, portrayal of one's views to fit in line with a certain crowd of voters the candidate is attempting to impress.”

 

Ben Bernanke is pandering to the political pressures associated with getting a core constituency paid: Bankers, Debtors, and Politicians. He is hostage to his own personal history (studying depressions) and those savvy politicians who understand how to use that personal history as a backboard for their compromised agenda.

 

While, in the long run, this doesn’t end well for those paying the bills (US consumers via inflation and the Chinese holders of US Debt), in the immediate term you should continue to focus on how you can get paid. Just understand the dynamics of US Dollar Devaluation, and capitalize on it.

 

The US Dollar is down on the day, and everything priced in those dollars is up.

KM

 

Game Time YouTube: Bernanke Burns The Buck - bern

 


Retail: Destocking Over?

Inventory destocking and clean-up across the supply chain appears to be at an inflection point now that the majority of the branded apparel and footwear vendors have reported 2Q results.  The chart below shows branded apparel and footwear sales to inventory spreads over the past several quarters vs. the trend at Macy’s (one of the largest sellers of all these goods).  Yes we know that most vendors have become less and less reliant on the department store channel, but with the dominance of Macy’s market-share in branded retailing, it’s still worth a look. We’ll have a better picture of this over the next week or two when every other retailer reports 2Q inventories, but for now it is clear that the delta on sales/inventory is getting better on the margin. 

 

The bottom line here appears to be that this is good for most links in the supply chain.  But we can’t improve this delta (hence boosting Gross Margin) by simply shrinking inventories forever. At some point, companies are going to have to actually buy inventory if they care to grow their respective businesses. This actually smells a little like Wall Street to me, where many people are not ALLOWED to be bullish because they (or their PMs) are too afraid of being run over making a positive bet on a consumer discretionary company. At some point, retailers are going to have to start to open the gates. My sense is that this will be around Holiday. That’s also the time when we eye a period (Spring) where the delta on compares won’t be as easy, and companies will need to either benefit from, or suffer with, the capital deployment decisions made today.

 

Bottom line is that I still think that the Quality Trade returns in early 2010, and companies that are proactively preparing to grow their businesses for the New Reality will prove that today’s numbers are far too low (RL, BBBY, UA, and even Nike later in the year). PSS is in there – though I accept that it does not deserve the ‘quality’ label. Junk is as junk does. That’s WRC, GIL, and JNY. And yes, include ROST and TJX in there. I know everyone loves them and they’re not ‘junky,' but we’ll start to see quality of earnings and incremental ROIC head in that direction next year.

 

Retail: Destocking Over? - Sales Inventory Growth

 


Long Germany: EWG

As a follow up to Matt Hedrick’s thorough post on Germany vs. UK yesterday, we have been getting a lot of questions as to what this ETF holds.

Here’s the data:

KM

 

Long Germany: EWG - ewg

Long Germany: EWG - chart

Long Germany: EWG - ewg3

Long Germany: EWG - ewg4


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LIZ: FINALLY BETTER THAN AWFUL

LIZ: FINALLY BETTER THAN AWFUL

12 AUGUST 2009

 

TODAY’S CALL OUT

 

Lots going on from an earnings standpoint this morning, and most is net positive. The key call out here is LIZ. The print is in line with pre-announcement, and inventories improved on the margin for the first time in a year (see SIGMA below). SG&A deleverage is still killing the numbers, but with another $100mm in cost reductions announced, this is a pretty big development given that LIZ struggled to print $126mm in EBIT last year (and will be around ¼ of that this year). Bears will point to continued weak comps and a big sequential deceleration in margins at Direct Brands. I’m OK with that given 1) the sequential acceleration on a 2-year basis, and the fact that inventories are finally getting better on the margin. Also, look for the company to discuss its recent covert initiatives (i.e. key hires) to fix Mexx. We don’t give it a ton of focus in the US, but keep in mind that Mexx is roughly the same size as the Liz Claiborne brand, and is operating at a loss. Heck, if they unwound any and all investments in Mexx it would be accretive to every key line of the P&L and cash flow statement. The stock is off in early trading. Quite frankly, I don’t get it. This was one of the first times we did not see a meaningful guide-down in 2-years. I think prior guide-down will prove to have been the last. People will be calling me when this stock is mid-high single digits asking if it is time to start doing the work on it.  I still like this one.

LIZ: FINALLY BETTER THAN AWFUL - LIZ SIGMA

LIZ: FINALLY BETTER THAN AWFUL - LIZ Comp Traj 8 09

LIZ: FINALLY BETTER THAN AWFUL - LIZ Comp Traj 2Yr 8 09

 

LEVINE’S LOW DOWN

Some Notable Call Outs

 

  • While still in the early stages of development, Fossil is rolling out a men’s and women’s footwear line to compliment the company’s leather accessory and non-watch business. The men’s line launched this Spring in a limited amount of doors and was essentially a learning experience for the company. Women’s launched a couple of weeks ago and is seeing a strong initial response. Based on a strong read from the footwear show, Spring 2010 is expected to show substantial door growth for the women’s line.

 

  • Warnaco’s management repeated several times over the course of its 2Q conference call that the timing of some wholesale shipments have been moved out of 2Q into 3Q. Customers are taking product closer to need or the time of retail sale. Given the relatively low level of visibility at retail, we expect this trend to continue over the next couple of quarters.

 

  • We’ve seen many examples of retailers and consumer brands using Twitter to get closer to their core customers, whether it be with a trend update or a promotion. In an interesting twist, New York discount/off-price retailer Daffy’s is using Twitter to alert customers where their delivery trucks are and when they are arriving on the loading dock. Clever? Yes. Useful? Probably not. The Tweets have no specifics on what merchandise is on the trucks are if the inventory will actually make it out on the floor in a timely manner. Nonetheless, an interesting use of real time media to connect the brand with customers (and generate buzz at the same time).

 

MORNING NEWS 

 

-The British Retail Consortium (BRC) has forecast that the return of VAT to 17.5% on January 1 will cost retailers £90m, as the Conservative party refused to rule out raising VAT further if they come to power - Retailers spent £90m altering their prices and systems when VAT was reduced to 15% in December, and the BRC said that it will cost a similar amount to reverse the change by January. Shadow chancellor George Osborne has also refused to rule out increasing VAT further than 17.5% to rebalance public finance. According to The Daily Telegraph senior Conservatives are looking at the possibility of increasing VAT to 20%. Separately, the Office for National Statistics (ONS) has found that a third of retailers did not pass on the price changes to consumers following the reduction in VAT in December. The ONS said that while 43% of shops applied the price change and 14% changed all prices marked on the shelves, 9% used a combination of the strategies. <drapersonline.com>

 

-Escada AG must file for bankruptcy after failing to achieve 80% acceptance of bonds - Having failed to reach the targeted 80% acceptance level for its bond exchange offer, Escada AG has reiterated plans to file for insolvency later this week. German law does not have the equivalent of Chapter 11, and planned insolvency is the closest procedure to bankruptcy. Late Tuesday night, the German fashion house said the bond exchange offer, which expired at 3 p.m. German time on Tuesday, achieved only a 46% acceptance rate. <wwd.com/business-news>

 

-CIT Group Inc. has two stress-inducing deadlines looming on the horizon - Friday, for a debt tender offer, and Oct. 1, for a restructuring plan. In a regulatory filing Tuesday with the Securities and Exchange Commission, CIT said the first steps of its restructuring plan are to complete a tender offer for its outstanding $1 billion in senior notes due Monday. It already reached an agreement with major bondholders for a $3 billion secured term loan facility, which has been drawn down. Presuming the tender offer is successful, neither CIT nor the steering committee of the bondholder lending group intends to file for Chapter 11 bankruptcy court protection. However, if the tender offer is not completed and the firm is unable to obtain alternative financing, the company said it would be in default under its credit facility and “could seek relief” under the auspices of the bankruptcy court. CIT previously said it had received enough offers, or 58% of the debt to be tendered, to complete the repurchase program. The tender offer expires Friday. <wwd.com/business-news>

 

-The NPD Group Tuesday added to the growing body of evidence that this year’s back-to-school season will be late and lean - NPD reported 44% of those surveyed said they would spend less this b-t-s season than they did a year ago, while 32% expect to spend the same and 23% foresee greater expenditures. Last year, 35% expected to spend less, 34% the same and 31% more. Although still the second-most critical category behind school supplies, apparel is a lower priority this year than last, with 52% of respondents expecting to purchase it versus 60% last year. Footwear was down to 39% from 48%, but held the number-three spot in order of priority. Apparel accessories fell to 16% from 20%, and beauty products declined to 13% from 17%. <wwd.com/business-news>

 

-After seeing heavy markdowns and few profits in recent years, the market now is about to lose one of its premier names and major anchors: Ellen Tracy - Under a new operating license with RVC Enterprises, Ellen Tracy plans to morph into a better sportswear player, taking its prices down considerably and competing with firms such as Michael Michael Kors, Lauren by Ralph Lauren, Jones New York, Calvin Klein white label, Liz Claiborne and AK Anne Klein. Sources indicated that Ellen Tracy is talking with several major retail groups, namely Macy’s, Dillard’s and Lord & Taylor, about an exclusive sportswear arrangement.  The company’s plan to exit the bridge floor has put major real estate in limbo at key accounts such as Bloomingdale’s, Saks Fifth Avenue, Neiman Marcus, Nordstrom, Dillard’s and Lord & Taylor — and is a further blow to a brand that was once the undisputed leader of the category, with sales of more than $170 million at wholesale at its peak.  <wwd.com/retail-news>

 

-AVP Pro Beach Volleyball and Crocs Inc. will part ways in 2010 after a longstanding partnership - Crocs has bought out the remainder of its contract with the domestic professional beach volleyball tour <sportsonesource.com>

 

-adidas America, Inc., announced a long-term extension of its relationship with Agron, Inc. - Argon is adi's exclusive licensee for headwear, bags, socks, underwear, and other accessory items. The extension through 2022 will expand the two companies’ successful partnership offering a strong portfolio of accessories. <sportsonesource.com>

 

-Macy’s has teamed up with Feeding America to launch a celebrity-studded fall campaign that links the eat-at-home trend with hunger relief - The campaign, called “Come Together,” asks consumers to host dinner parties and have guests make a donation to Feeding America instead of the usual host gift. Macy’s is matching all contributions until a total of 10 million meals is reached. The retailer has tapped celebrities like Jessica Simpson, Queen Latifah and Tommy Hilfiger to star in the campaign. One spot breaking in mid-September shows the A-listers seated for a meal—inside a Macy’s store—that’s “peppered with the usual and unexpected twists and turns that occur at all great gatherings,” per the company.  With the eat-at-home trend holding steady, however, Macy's saw an opportunity to link the trend with cause marketing. “Come Together was designed with two goals in mind: To create special moments in our customers’ own homes this fall by bringing friends and families together over a meal, and in turn, to raise meals for an incredible cause that is feeling the real side effects of today’s economy,” said Robin Reibel, Macy’s group vp of cause marketing and public relations.  <brandweek.com>

 

-An exclusive line of Marvel-inspired T-shirts and more for boys and toddlers have arrived at Old Navy stores in the U.S. and Canada - Just in time for the back-to-school season, the collection includes tees, hoodies and outerwear featuring Spider-Man, The Incredible Hulk, Iron Man and X-Men. Fans will also receive a limited-edition Amazing Fantasy No. 15 comic book with the purchase of a Marvel collectible T-shirt. "We are excited to continue our successful relationship with Old Navy and celebrate Marvel's 70th anniversary with a leading retail brand," says Paul Gitter, president of consumer products for Marvel Entertainment in North America. "This partnership reinforces our overall strategy to build exclusive relationships and merchandising programs that open up new channels of distribution for Marvel, enabling us to further maximize the exposure for our brands." <licensemag.com>

 

-A military footwear manufacturer will bring more than 100 jobs when it opens a new plant in the Morristown Airport Industrial District month after next - Wellco Enterprises, a manufacturer of footwear for military, tactical, industrial and outdoor applications will open its new plant in the former BOS Automotive Inc. building. Lee Ferguson, Chief Executive Officer of Wellco’s parent company, Tactical Holdings Operations Inc. announced the new manufacturing project which will realize a capital investment of $8 million in building and equipment. "We have had a very long, slow period in the economy, and too many people have lost jobs during this recession," said chamber chair Lynn Elkins. <timesnews.net>

 

-Last week in Akron, when LeBron James unveiled the Air Zoom LeBron VII, he expressed his happiness with his decision to sign with Nike in May 2003 - “I looked at it like I was going to be in a position with a great company, where I can help hopefully business with them and they can help me," James said. And now, seven years later, it’s been everything I’ve expected.” The question is, as James' Nike contract comes to an end after this season, was it all that Nike expected when they signed him 2,273 days ago. The answer is no. When Nike signed James they agreed to guarantee him some $13 million a year, which would have only been worth it if he turned into the next Michael Jordan. But while James has somehow lived up to the hype on the court, he hasn’t really done so off the court.  Much of it is not his fault. It’s just that it’s LeBron himself who has proven that there is no next Michael Jordan. In LeBron, we finally had the perfect test case. The most glorified high school basketball player of all time who somehow lived up to all expectations. And yet, even he couldn’t sell gear or shoes like MJ did. So the question is how much does Nike pay LeBron for his next deal? Some might suggest James has some leverage in that he could sign his next deal with the Knicks, which would literally put him on Madison Avenue. But, trust me, location doesn't sell as much as championships do. <cnbc.com>

LIZ: FINALLY BETTER THAN AWFUL - LeBron shoes 

 

RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): PSS, PETM

 

08/11/2009 10:56 AM

BUYING PSS $15.08

Here's a name that McGough doesn't necessarily like for the quarter, but likes it for the intermediate term - and I like at this price. Buying red. KM

 

08/11/2009 10:03 AM

BUYING PETM $21.98

Buying the red associated with the JPM downgrade. McGough and Levine's read on this upcoming quarter is that margin expectations are too low. KM

 

INSIDER TRADING ACTIVITY:

 

RL: Roger Farah, President and COO, sold 99,458shs ($6.8mm) nearly 40% of common holdings.

JCG:  Mickey Drexler, sold 58,074shs ($1.7mm) less than 5% of total common holdings.

KSWS:

  • David Nichols, Executive VP, sold 100,000shs ($1.1mm) after exercising the right to buy 100,000shs roughly 30% of common holdings.
  • George Powlick, VP of Finance, CFO, sold 30,000shs ($323k) after exercising the right to buy 30,000shs roughly 20% of common holdings.

BGFV: Michael Brown, Director, sold 750shs (~$11k) nearly 12.5% of common holdings.

 

MACRO SECTOR VIEW AND TRADING CALL OUTS

 

LIZ: FINALLY BETTER THAN AWFUL - SV 8 12 09

 

 


BYI: 8K IS REVEALING

Ahead of BYI’s earnings tonight, BYI filed an interesting 8K. Historically, adding change of control provisions to management employment contracts has been a signal.

 

 

Bally filed an 8k last night involving an amendment to CEO Dick Haddrill’s employment contract.  Among other things, the amendment provides for a cash payment of $2.5 million to Mr. Haddrill upon the company meeting certain financial objectives OR upon a change of control. 

 

Michelle Leder of Footnoted, our SEC filings expert and partner, will be following up with some important detail and historical implications of these types of filings.  The main takeaway, however, is that adding change of control language to management employment contracts has been a somewhat reliable signal of a company being acquired.

 

Mr. Haddrill successfully sold another gaming equipment supplier, Powerhouse Technologies, among other companies, so he is no stranger to getting deals done at a premium.

 

BYI will report earnings tonight after the close.  As we wrote about in our preview note, we think earnings will be fine but we are not making a call on the quarter.  We do like the company and fundamentals long-term and obviously, realization of the company’s true value could be expedited with a sale.


MACAU: LITTLE GOVERNMENT ACTIVITY UNTIL 2010

Status quo from Beijing or Macau governments until 2010 at the earliest but visa and tax changes are looking likely in 2010. 

 

 

Our sources are telling us that Beijing wants to be perceived as impartial when it comes to Macau politics.  The visa situation is unlikely to change until well into 2010.  The new Macau government is also likely to remain idle but the good news is that they are becoming increasingly open to reducing the gaming tax rate to remain competitive with Singapore.  We are hearing that LVS will not open in Singapore until April and the Macau government would wait on the tax reduction until then.

 

We’ve got some pretty good color on government intentions:

  • Investors expecting an immediate visa relaxation by Beijing may be disappointed. We are hearing that the Chinese government wants to sit tight for 4 to 6 months after the new CE takes over later this year so not to show favoritism.  We remain convinced that Beijing wants to control growth in the 5% range and will only tweak the visas to reach that goal.
  • We are now more optimistic about the Macau government lowering the gaming tax rate.  Our government sources indicate that officials are very worried about the Singapore impact.  Macau wouldn’t move until the spring, just a bit ahead of the LVS opening in Singapore.  This would be good news, just maybe not as soon as some were hoping.
  • The new Macau government will be deliberate on implementing any changes.
  • The bad news on the status quo is that Macau hotel casinos are still being forced to reduce the number of foreign employees.  The entertainment divisions are taking the biggest hit which is affecting service issues and potentially could weigh on visitation.  We’ll be following this closely.

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