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Monday Mashup: SBUX, LOCO and More

Investment Ideas

The table below lists our Investment Ideas as well as our Bench -- a list of potential ideas we are watching closely.  We intend to update this table regularly and will provide detail on any material changes.

 

Monday Mashup: SBUX, LOCO and More - 11

Notable Callouts

  • We removed short BNNY from our Investment Ideas list after the GIS bid.
  • Our short call on SBUX was featured in Barron's this weekend in a column titled "The Problem With Starbucks."
  • We are hosting a Best Idea call this Thursday, September 18, 2014 at 11am EST to run through our short thesis on SBUX and field questions.

Recent Notes

09/08/14 Monday Mashup: BLMN, PLKI and More

09/11/14 New Best Idea: Short SBUX

Events This Week

Monday, September 15th

  • YUM Investor & Analyst Conference Day 1

Tuesday, September 16th

  • YUM Investor & Analyst Conference Day 2

Wednesday, September 17th

  • DNKN Investor & Analyst Day
  • CBRL earnings call 11:00am EST

Chart of the Day

Coffee prices are up +52.5% YTD and +39.5% YoY.

 

Monday Mashup: SBUX, LOCO and More - chart2

Recent News Flow

Monday, September 8th

  • BAGL appointed Frank G. Paci as President and Chief Executive Officer.  Interim CEO Michael Arthur will continue to serve on the company's Board of Directors.  Mr. Paci most recently served as President and CEO at McAlister's Deli and has held prior roles at The Pantry, Pizza Hut and Burger King.
  • RRGB announced it will open its newest restaurant in New York state (Horseheads, NY)  on September 22nd.

Tuesday, September 9th

  • DIN introduced its new "Waffullicious Waffles" which will be available for a limited time.
  • MCD reported disappointing August comps as global same-store sales fell -3.7%, led by -4% and -14.3% declines in the U.S. and APMEA regions, respectively.
  • BJRI increased its existing unsecured revolving line of credit to $150 million from $75 million and announced the opening of its newest restaurant in Denton, TX.
  • KKD announced a greater Maryland and Washington DC area development agreement with Monument Restaurant VII for the development of 20 new Krispy Kreme shops over the next several years.

Wednesday, September 10th

  • YUM increased its quarterly dividend by 10.8% to $0.41.

Friday, September 12th

  • DRI Starboard released its transformation plan for Darden Restaurants in a 294 page slide deck.  If enacted, the activist believes its plan could unlock $19-38/sh in value.  This excludes the potential value that could be unlocked through an Olive Garden turnaround.
  • SBUX 6.2 million share block trade was priced at $75.15 through BoA.
  • LOCO celebrated the grand opening of its newest restaurant in Sacramento, CA.

Sector Performance

The SPX (-1.1%) outperformed the XLY (-1.3%) last week.  In aggregate, casual dining and quick service stocks outperformed the SPX.

 

Monday Mashup: SBUX, LOCO and More - chart3

Monday Mashup: SBUX, LOCO and More - chart4

XLY Quantitative Setup

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

 

Monday Mashup: SBUX, LOCO and More - chart5

Casual Dining Restaurants

Monday Mashup: SBUX, LOCO and More - chart6

Monday Mashup: SBUX, LOCO and More - chart7

Quick Service Restaurants

Monday Mashup: SBUX, LOCO and More - chart8

Monday Mashup: SBUX, LOCO and More - chart9

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    

 

------ 

 

1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “large speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.

 

The Cotton, Live Cattle, Lean Hogs markets experienced the most BULLISH relative positioning change in the CRB Index week-over-week.

  • Sentiment in the cotton market is joining the rally (+6.9% last week and +12% over the last month)
    • The CFTC Commitments of traders report released last Friday reflected the largest relative positioning change of any commodity in the CRB (remember the data reveals market positioning through last Tuesday rather than a snapshot at week-end)
    • Timing: Australia, which is the seventh largest cotton producer, cut production estimates for 2014-15 by -29% from its most recent June estimate. The news broke during the day last Tuesday which may explain the change in sentiment by the close of the session.
  • The lean hogs and live cattle markets have shown a significant divergence over the last month (Lean Hogs -7.3% vs. live cattle +4.4%). Spot-1Yr basis shown below outlines the bearish expectation for both markets moving forward    

The Sugar, Copper, Soybeans, and Natural Gas markets experienced the most BEARISH relative positioning change in the CRB week-over-week:

  • Sugar: Bullish sentiment in the sugar market was cut by -2/3rds week-over-week despite the huge divergence in the price spread between spot prices and contracts expiring in 1-year which are trading +28% higher.
  • Natural Gas: Market -9.3% shorter week over week and -8%/-23%/-37%vs. 1/3/6-month averages
    • Increase in Stockpiles: reached an 11-year low in March of this year
      • EIA data through last week shows 2.8 trillion cubic feet of stockpiles vs. ~800K at March Lows

Commodities Weekly Sentiment Tracker - chart1 cftc net positions

 

2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The Sugar, Corn, Wheat, and Coffee markets are positioned for HIGHER PRICES near-term
  • The Lean Hogs, Cotton, and Gasoline markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot second month basis 

 

3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The Sugar, Corn , Wheat, and Coffee markets are positioned for HIGHER PRICES in 1-year  
  • The Lean Hogs, Live Cattle, and Cotton markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1yr basis

 

4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.

 

Commodities Weekly Sentiment Tracker - chart4 aggregate open interest         

 

Ben Ryan

Analyst



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LEISURE LETTER (09/15/2014)

Tickers: LVS, MGM, MAR

EVENTS

  • Sept 15-19: CLSA Investor Forum (MGM, Genting S'pore, WYNN, LVS, SJM, Bloomberry, 
  • Sept 16: Trump Plaza closes
  • Sept 16: FCH investor meetings in Canada
  • Sept 17: Massachusetts Gaming Commission: Boston Decision by Wednesday
  • Sept 17: PENN at Credit Suisse Small & Mid Cap Conference
  • Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept
  • Sept 18: Imperial Capital Global Opportunities Conference
    • BYD, PENN, GLPI
  • Sept 18: WYN & VAC at MKM Entertainment, Leisure Conference

COMPANY NEWS

880:HK SJM – (Macau Business) Employees of SJM have threatened to go on strike during the golden week of holidays beginning on October 1. The secretary-general of the trade union Forefront of Macao Gaming, Cloee Chao, said the workers would strike if their employer and the government failed to sit down with them to discuss their demand for better pay and benefits. This past Saturday, hundreds of SJM employees marched from Sintra Square to the company’s Grand Lisboa and Hotel Lisboa casinos to demonstrate their dissatisfaction with their pay and opportunities for promotion.

Takeaway: SJM facing increased labor actions which may disrupt the vital Golden Week holiday - Labor woes is becoming another negative headline for Macau stocks.

 

GENM:MK – BB Entertainment Ltd, a unit of Genting Malaysia Bhd, is paying US$24.6 million to RAV Bahamas Ltd for 16.2 acres (6.6 hectares) of land adjacent to Resorts World Bimini on the Bimini Islands, Bahamas. BB Entertainment owns and operates the casino in the property. 

Takeaway: If you can't build a casino in South Florida, build it 50 miles due east of Miami in a lower tax jurisdiction -- the official opening of the first phase of the new Port at ResortsWorld Bimini occurs on Thursday, September 18th with Bahamas Prime Minister, the Rt. Hon. Perry Christie and Executive Chairman of Genting Group, Tan Sri KT Lim attending.

 

LVS & 1928:HK (GGRAsia) International ad agency Saatchi and Saatchi announced it was appointed by Macau-based casino operator Sands China Ltd to serve as the firm’s creative agency for the mainland China, Hong Kong and Macau markets. One of Saatchi and Saatchi’s main tasks will be to help promote the US$2.7 billion Parisian Macao casino resort. 

Takeaway: The retention of a strong marketing and advertising firm to help drive gaming and non-gaming visits to the Macau and Cotai. 

   

MAR – announced the appointment of Toni Stoeckl to Vice President of Lifestyle Brands including global responsibility for Renaissance Hotels, AC Hotels by Marriott and Moxy Hotels. Mr. Stoeckl previously served as vice president for the Renaissance Hotels brand. In his newly expanded role, his leadership will drive, define and execute global brand strategies and signature programming for more than 225 hotels around the world.

Takeaway: Efforts to appeal to a younger generation of traveler and hotel guest. 

 

MAR – encourages guests to tip to housekeepers as part of new tipping initiative called "The Envelope Please"

Takeaway:  A blatant push for guests to pay more…and avoid potential labor relations issues with housekeepers. 



HOTEL TRANSACTIONS:

Connecticut-based Starwood Capital Group, is part of a group that purchased Jim Korroch’s SpringHill Suites by Marriott and his Residence Inn by Marriott, both of which are at the Plazzio development at 13th and Greenwich. Also included in the deal is the Hampton Inn & Suites at Regency Lakes at 21st and Greenwich and the Hilton Garden Inn Wichita at Bradley Fair. The total value of the four asset portfolio was greater than $50 million.

Takeaway: It would seem private equity is moving into second and third tier markets in an attempt to achieve higher returns than might be achieved in core, first tier markets. 

INDUSTRY NEWS

Typhoon Kalmaegi – Typhoon Kalmaegi, known as Typhoon Luis in the Philippines, zipped west across the northern part of Luzon, the northern of the three largest islands in the Philippines, on Sunday.  Kalmaegi will then approach southern China's Leizhou Peninsula and Hainan Island Tuesday morning as a category 1 equivalent typhoon and northern Vietnam by Tuesday evening local time, bringing the potential for flooding and some wind damage. The center will stay south of Hong Kong. However, at least some outer rain bands and tropical storm-force gusts appear possible in Hong Kong during that time.

 

LEISURE LETTER (09/15/2014) - typhoon

 

Takeaway: The immediate Hong Kong and Macau areas are expected to experience a typhoon Signal 8 by midnight local time, up from current singal number 3 and could result in a modest impact to Macau gaming due to rough seas impacting ferry traffic.  

MACRO

Singapore Macro:

  • Retail sales +5.5% in July, mainly due to strong vehicle sales.  Ex auto, sales fell 0.4%. 
  • Excluding executive condominiums (ECs), developers sold 432 new units in August, down from the 509 units sold in July, data from the Urban Redevelopment Authority showed

China Macro: 

  • Aug Industrial production +6.9% year-over-year vs +8.7% consensus and +9.0% in July, the slowest increase since 2008
  • Aug Retail sales +11.9% year-over-year vs +12.1% consensus and +12.2% in July 

Takeaway: Disappointing 3Q data from two Asian tigers

 

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M

Takeaway: Moved KATE up and LULU down on our Idea List. CHKE blames TGT for miss. H&M trends accelerate – decent barometer for Global Retail.

HEDGEYE RETAIL IDEA LIST

 

Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart1

This week's changes:

The only change is that we took LULU down a notch within our Best Ideas, and we moved KATE up. We like the controversy around KATE right now, and still think it remains a very BIG idea.  We still like LULU, but the stock has been acting very well, and there's no doubt that this past quarter gave the existing management team breathing room to continue to be incompetent. We still think the new CEO will be the old CEO. But recent results might push that move out by a quarter or two.

 

 

EVENTS TO WATCH

 

Wenesday (9/17)

PIR - Earnings Call: 4:30pm

 

Thursday (9/18)

RAD - Earnings Call: 8:30am

 

 

COMPANY HIGHLIGHTS

 

TGT - Cherokee Q2 Grows Despite Weakness at Target

(http://www.wwd.com/business-news/financial/cherokee-q2-grows-despite-weakness-at-target-7907488?module=Retail-latest)

 

  • "Sales of Cherokee products at Target’s U.S. stores fell 6.8 percent during the second quarter and were down 4.6 percent during the first half. Henry Stupp, chief executive officer of the Sherman Oaks, Calif.-based brand management firm, said Target in the U.S. 'continues to experience some lingering effects of the data breach that occurred during December of 2013. While foot traffic is improving, it has not yet returned to prior levels.'"

 

Takeaway: A strong statement from a management team who relies on TGT as a vendor for over 50% of its business. For what it's worth, Cherokee accounts for only 0.04% of Target's business.  When we saw the statement, we thought "the contract must be ending soon, otherwise Cherokee wouldn't have the guts to say something like that.". But it was extended in January through Jan/2017. We'd bet that CHKE gets an angry call from someone in Minneapolis over this one.

 

H&M - August Sales

 

Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart2

 

Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart3

 

Takeaway: Big number out of H&M, with 19% growth in sales. We'd argue that this is one of the better retailers to track if you want to get a sense of directional trends in global retail. While not hugely popular in the US, the company has an extremely well diversified base for its 3,341 stores -- over 53 different countries. The US accounts for about 8% of sales, which is similar to France, the UK, and Sweden. Germany is the biggest exposure with about 22%.

 

FL - Foot Locker to offer online customers same-day delivery

(http://www.retailingtoday.com/article/foot-locker-offer-online-customers-same-day-delivery)

 

  • "Foot Locker has enlisted crowdsourced delivery service Deliv so it can offer online customers same-day delivery."
  • "Deliv's Application Programming Interface (API) connects directly to Footlocker’s website, allowing shoppers to select same-day or next day delivery for $5."

 

Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart4

 

Takeaway: Makes sense that FL is turbo charging its e-commerce offering. In the latest quarter, three of the top five e-commerce growth rates through all of retail were UnderArmour, Nike and Adidas. There's no question that the athletic brands are increasingly going around traditional wholesale accounts.

 

AAPL, RSH - AND THE 'SHOCKING PICTURE OF THE WEEK' AWARD GOES TO...RADIOSHACK & APPLE

 

Takeaway: We know Apple didn't exactly have this signage printed up in Cupertino and shipped to Suburban CT. But don't you think it would have at least some handle on how its product is advertised by third-party vendors? Scribbling 'pre-order your iPhone 6/6+' on an old whiteboard with a Sharpie doesn't exactly seem consistent with Apple's image. It is, however, consistent with Radio Shack's.

 

Retail Callouts (9/15): KATE, LULU, TGT, AAPL, RSH, FL, H&M - 9 15 chart5

 

 

OTHER NEWS

 

AdiBok - Big Investors Pressure Adidas CEO

(http://online.wsj.com/articles/adidas-ceo-under-pressure-from-shareholders-1410547096)

 

  • "Adidas  investors are putting pressure on the German sporting-goods giant to accelerate a turnaround, and even discussed with executives the possible removal of the company's longtime chief executive, according to people familiar with the matter."

 

 

AMZN - Amazon hits India tax snag

(http://www.ft.com/intl/cms/s/0/60798a7e-3caf-11e4-94feabdc0.html?siteedition=intl#axzz3DNhXnfOj)

 

  • "Amazon, which is pouring $2bn into its fast-growing ecommerce business in India, has run into regulatory trouble in the southern state of Karnataka, where tax authorities have ordered some of the online retailer’s third-party merchants to stop storing goods in its warehouses.
  • The dispute with the Karnataka government involves how much tax Amazon should pay on goods sold by third-party merchants and delivered to customers directly from its Bangalore warehouse – and in particular whether the online retailer is liable to pay Karnataka state sales taxes, as physical retailers are."

 

HBC - Saks Says No Breach of Systems in Credit Theft Scheme

(http://www.wwd.com/retail-news/department-stores/saks-says-no-breach-of-systems-in-credit-theft-scheme-7911243?module=hp-topstories)

 

  • "Saks Fifth Avenue said Friday that its network and systems weren’t compromised when six employees at its Fifth Avenue flagship here allegedly stole customers’ credit-card information and used it to purchase more than $400,000 worth of shoes, handbags and other merchandise."

 

WMT - Wal-Mart will not accept Apple Pay

(http://www.chainstoreage.com/article/wal-mart-will-not-accept-apple-pay)

 

  • "Wal-Mart Stores has no plans to join Apple’s newly-announced mobile payments system, Apple Pay, which is due to launch in October."
  • "Wal-Mart is supporting a retailer-owned mobile technology group, the Merchant Customer Exchange, which is launching its own mobile wallet application. The application, called CurrentC, is now in pilot and is expected to be rolled out nationwide in 2015, according to The Washington Post.  Best Buy is also among the retailers supporting CurrentC." 

THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – September 15, 2014


As we look at today's setup for the S&P 500, the range is 21 points or 0.43% downside to 1977 and 0.63% upside to 1998.                                                            

                                                                   

SECTOR PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

EQUITY SENTIMENT:

 

THE HEDGEYE DAILY OUTLOOK - 10

 

CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 2.04 from 2.05
  • VIX closed at 13.31 1 day percent change of 3.98%

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Empire Mfg, Sept., est. 16 (prior 14.69)
  • 9:15am: Industrial Production, Aug., est. 0.3% (prior 0.4%)
  • 9:15am: Capacity Utilization, est. 79.3% (prior 79.2%)
  • 11am: U.S. to announce plans for auction of 4W bills
  • 11:30am: U.S. to sell $24b 3M bills, $23b 6M bills

 

GOVERNMENT:

    • Senate, House in session
    • 9:30am: FHA Commissioner Carol Galante speaks on future of agency at housing summit hosted by Bipartisan Policy Center
    • 3pm: Senate Homeland Security and Governmental Affairs Cmte hearing on D.C. statehood
    • 8:15pm: Hillary Clinton delivers keynote address at Cardiovascual Research Foundation’s Transcatheter Cardiovascular Therapeutics Conf.

 

WHAT TO WATCH:

  • Danaher agrees to buy Nobel Biocare for ~$2.2b in cash
  • Heineken spurned SABMiller offer, will stay independent
  • Alibaba said to raise top end of price range to <$70 vs $60-$66
  • Sinopec sells $17.5b stake in fuel unit to investors
  • Micro focus to buy Attachmate in $1.2b all-share deal
  • Denmark’s TDC to buy Norway cable provider Get AS for $2.2b
  • Ackman’s Pershing fund aims to raise $2b in Amsterdam IPO
  • ZF selling steering-venture stake to Bosch to help TRW deal
  • United Rentals, Universal Health to join S&P 500
  • Independent Scotland faces GBP14b hole in budget: study
  • Beheading spurs coalition efforts in fight vs Islamic State
  • Gold industry needs ‘cleansing’ of weakest miners: Fidelity
  • Salix’s budesonide foam for treating colitis awaits FDA verdict
  • Sony’s ‘No Good Deed’ beats ‘Guardians’ to lead NA box office
  • Citigroup, JPMorgan, others report monthly credit-card data
  • BARRON’S ROUNDUP: New AmEx, Alibaba, Lam, Popular, Allstate

              

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Commodities Extend Decline to Lowest Since ’09 on China Slowdown
  • Brent Crude Falls to Two-Year Low as China Industry Output Slows
  • Hedge Funds Lower Crop Bets to Lowest Since January: Commodities
  • Nickel Falls for Fifth Session as China Data Indicates Slowdown
  • Arabica Coffee Drops on Outlook for Rain in Brazil; Sugar Falls
  • U.K. Gas Contracts Climb Most in Two Weeks Amid Reduced Flows
  • Iron Ore Rebound Seen by Morgan Stanley as Vale Predicts $100
  • Wheat Drops Below $5 for First Time Since 2010 on Global Output
  • Steel Rebar Rises as Record Low Price Spurs Restocking Demand
  • Cotton Extends Loss in N.Y., Heads for Biggest Drop Since July
  • Gold Industry Needs ‘Cleansing’ of Weakest Miners, Fidelity Says
  • H.K. Gold Bourse Approved to Build Precious-Metal Vault in China
  • Major Hurricane Odile Set to Rake Mexico’s Baja California Sur
  • Palm Oil Seen Dropping as Mistry Has Buy Call on Planter Stocks

 

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EUROPEAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


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 80.64%
  • SHORT SIGNALS 78.61%
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