6 Tweets: Hedgeye's Howard Penney Thinks Burger King Is 'Disaster Waiting to Happen'

Takeaway: We don't like this Burger King/Tim Horton's deal.

Veteran Hedgeye restaurants analyst Howard Penney is not shy about his opinion on what's going on with Burger King (BKW). He was quoted in today’s Wall Street Journal and says ‘BKW is a disaster waiting to happen thus the need to buy Tim Horton’s (THI)’


Here are 6 tweets which capture Penney's less-than-bullish view. 


6 Tweets: Hedgeye's Howard Penney Thinks Burger King Is 'Disaster Waiting to Happen' - h2


6 Tweets: Hedgeye's Howard Penney Thinks Burger King Is 'Disaster Waiting to Happen' - h3


6 Tweets: Hedgeye's Howard Penney Thinks Burger King Is 'Disaster Waiting to Happen' - h4


6 Tweets: Hedgeye's Howard Penney Thinks Burger King Is 'Disaster Waiting to Happen' - h5


You can follow Howard Penney on Twitter at @HedgeyeHWP.


Takeaway: Deceleration saturation complete as second derivative HPI slowed across all 20-cities…..

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 




Today's Focus: June S&P/Case-Shiller Home Price Report & FHFA HPI


Key Takeaways

With July data from Corelogic in hand for almost a month already, we knew the slope and likely magnitude of the deceleration for Case-Shiller in June, but it's nice to get the official confirmation. We should get the Corelogic home price report for August either Monday or Tuesday of next week, which will be the far more important report.


* Home Price growth slowed for a seventh consecutive month, decelerating -130 bps sequentially in June to +8.1% YoY.  This was the third biggest month of deceleration since August of 2010 (last month and the month before that were the other two largest months). 


* Notably, June marked the 2nd consecutive month of negative MoM price growth - the first such occurrence since January 2012 in the seasonally-adjusted series. 


* As the release aptly highlights, the 2nd derivative slowdown in HPI remains discrete and broad based:  


"For the first time since February 2008, all cities showed lower annual rates than the previous month"


So, all the primary price series continue to tell a cohesive story of deceleration – one which we expect to continue through the back half of the year. 















Bottom Line:

Housing-related equities follow the path of HPI. So long as HPI is decelerating, housing equities will move sideways to lower. We can forecast HPI's path by looking at demand trends on a 12-18 month lead/lag basis. Our expectation is that prices continue to decelerate throughout 2H14 and potentially into 1H15.



The FHFA HPI for June showed home prices decelerated a further -10bps sequentially to +5.2% YoY from 5.3% in May. It's worth noting that the May growth rate was downwardly revised from the previously reported +5.5%.  





About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.


Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.



Joshua Steiner, CFA


Christian B. Drake

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Expert Call: Coffee Outlook in 2015 and Beyond

On Thursday, August 21st, the Hedgeye Macro Team hosted a call with Judith Ganes-Chase, founder and president of J. Ganes Consulting, an independent agricultural softs commodities research and consultancy firm. Judy worked on the sell-side for 20 years before founding J. Ganes Consulting in 2001. A replay link to the call is included below with a brief summary:


Call Replay


Judy acknowledged that Brazil has a cyclical pattern of coffee production (one year up, one year down). However the scale of Brazil’s shortfall in the coming years will be unprecedented: She emphasized that this is the first time we are looking at a two-year production deficit.

Judy proceeded to outline three unusual weather scenarios that occurred earlier this year:

  1. Late Winter Frost: Brazilian winter (November-December) mild frost lowered crop quality
  2. Severe Drought: Drought and lack of moisture in tree root system from January-March during the vegetative period
  3. Heavy Rainfall: Late timing of heavy rainfall knocked flowers off trees, reducing the available volume for harvest
  • In her prediction prices could easily move much higher: Brazil will not produce enough volume in 2015-2016 to meet the global market demand for Arabica coffee.
  • Consensus expected 53-64 million bags of Arabica to be produced, but less than 46 million bags will come out of Brazil this year.  
  • Dire outlook into next year: Next year aggregate demand is expected to be around 34 million bags. However due to a current stock deficit and severe crop damage, Brazil’s production yield will be just 27 million bags in 2015.
  • Nobody to pick-up the slack: Not enough capacity from other countries to cover the expected crop shortage of Arabica coffee in Brazil.
  • How High Can Prices Go?: $2.75 to above $4.00/lb. There will likely be a spike in prices for Arabica, and a higher basis for other grades of coffee. We can expect some read-through after the assessment of the third or fourth bloom in the coming weeks.


*h/t to The Macro Team's Ben Ryan for his work on this topic.


Feel free to reach out with additional questions.


Howard Penney

Managing Director


Fred Masotta



Keith's Macro Notebook 8/26: Volume DAX UST 10YR

Retail Callouts (8/26): BBY, WMT, AMZN, Retail Sales Trends

Takeaway: Retail sales reaccelerate when it matters. BBY crushes – but when does earnings quality matter again? WMT investing to avoid becoming TGT.



Wednesday (8/27)

CHS - Earnings Call: 8:30am

TIF - Earnings Call: 8:30am

BWS - Earnings Call: 9:00am

GES - Earnings Call: 4:30pm

WSM - Earnings Call: 5:00pm


Thursday (8/28)

ANF - Earnings Call: 8:30am

DG - Earnings Call: 10:00am




Takeaway:  Retail trends remain strong as the retailers are solidly into one of the most important seasonal spending ramps of the year for Consumers. We expected a pop in the numbers this week due to easy compares from last year, but even the 2-year run rate accelerated on the margin. Even if the underlying strength ebbs, the comparisons look favorable through October.


Retail Callouts (8/26): BBY, WMT, AMZN, Retail Sales Trends - 8 26 chart1


Retail Callouts (8/26): BBY, WMT, AMZN, Retail Sales Trends - 8 26 chart2






DSW - 2Q14 Earnings


Retail Callouts (8/26): BBY, WMT, AMZN, Retail Sales Trends - chart3 8 26


BBY - 2Q15 Earnings

Another name that annihilated earnings, but with really bad earnings quality. BBY earned $0.44, crushing the Street's $0.31 estimate. But did so by way of comping -2.7% -- 50bp below the Street's forecast.  Gross margins missed as well, but the company made it all up, and then some, on SG&A. Inventories also took a turn for the worse. On top of all that, BBY is stepping up investment levels to stem the weakness it is seeing in traffic in its stores. Does not sounds like a model we're comfortable we're investing in.  We understand that there's more at play here than the basic P&L and balance sheet -- as the stock has outperformed the S&P by a factor of six since January 2013, and 2.5x for 2014 to-date. But increased investment on weaker gross margins and eroding working capital turns just looks bearish from where we sit. 


Retail Callouts (8/26): BBY, WMT, AMZN, Retail Sales Trends - 8 26 chart 4



WMT, TGT - For Smarter Security, a Smarter Walmart MasterCard



  • "If you have a Walmart MasterCard, you can enjoy even greater security through a new chip-enabled card coming to your mailbox in the next few weeks."
  • "Walmart is among the first retailers to implement chip technology as a more secure payment means for cardholders. Sam’s Club also introduced a chip-enabled MasterCard in June, and both cards prompt customers not to swipe – but to insert and briefly leave the card in the payment terminal, so the card’s embedded chip can be accessed."
  • "Another new aspect of the Walmart co-branded MasterCard is savings. Cardholders will enjoy $5 back on every $500 they spend. They’ll also save 5 cents per gallon of gas at participating Walmart gas stations and 15 cents during Walmart’s 'Great Gas Rollback' promotion that’s running now through Sept. 8."


Takeaway: Not a single dollar WalMart spends on data security is wasted. A data breach at WMT would be a massive blow -- and would probably be the best thing that could happen to Target.  Of course, one could argue that if there are data integrity issues at a company whose reach is as great as WMT's, then it could have a far-reaching impact on consumers' willingness to share any information whatsoever with any retailer.





AMZN - to Acquire Twitch



  • ", Inc. announced that it has reached an agreement to acquire Twitch Interactive, Inc., the leading live video platform for gamers. In July, more than 55 million unique visitors viewed more than 15 billion minutes of content on Twitch produced by more than 1 million broadcasters, including individual gamers, pro players, publishers, developers, media outlets, conventions and stadium-filling esports organizations."


LUZ - Luxottica Group Board to Discuss Management Structure



  • "Luxottica Group SpA is to hold a board meeting on Sept. 1 to discuss its management structure and Guerra’s position, followed by a conference call for analysts and investors. While not commenting on the rumors last week, the giant Italian eyewear manufacturer said that president Leonardo Del Vecchio and Guerra 'had for some time been discussing future strategies and managerial assets of the group.'"


LVMH - LVMH Said Eyeing Proenza Schouler Stake



  • "According to market sources, LVMH Moët Hennessy Louis Vuitton has held talks about acquiring a stake in the New York-based fashion house. It’s understood discussions involve the 40 percent stake of Proenza Schouler that Andrew Rosen, John Howard and other investors jointly acquired in 2011 from Valentino Fashion Group."


One Stop stores to launch beacon service



  • "Customers at Tesco-owned convenience stores will soon find their smartphones offering them bespoke discounts, in the first UK-wide rollout of Apple’s beacon technology."
  • "A national British commercial campaign using the US technology group’s in-store beacon system will be launched next week by magazine group IPC Media in 740 One Stop stores. Thousands of other outlets are expected to be involved over the next year."


Hudson's Bay Company Announces Appointment of John Caplice to Senior Vice President, Treasury and Investor Relations



  • "Hudson's Bay Company announced today the appointment of John Caplice to the position of Senior Vice President, Treasury and Investor Relations, effective September 2nd, 2014. Lucas Evans has been appointed Senior Vice President, Corporate Development, HBC, reporting to the Office of the Chairman."


Onestop to Run E-commerce for Juicy Couture's Web Site



  • "Authentic Brands Group has outsourced its Juicy Couture digital e-commerce platform to Onestop Internet."
  • "Onestop, backed by venture capital firms Bessemer Venture Partners and Fung Capital USA, works with 45 brands."


EXPR - Express launches mobile promotion with GQ



  • "Express Inc. will be using Rich Media Messaging technology from Iris Mobile to drive the fashion retailer’s seasonal “Back-to-Business” sweepstakes campaign with GQ Magazine. A combination of both a participant-based sweepstakes and a voting-based contest, this campaign will award one emerging startup entrepreneur with a grant from Express based on public votes."



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 80.45%
  • SHORT SIGNALS 78.38%