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10-Second Takeaway: Nike's Come a Long Way Since the Tonya Harding Fiasco

Takeaway: It's been a big year for the "Morals Clause" in athlete endorsements.

NKE - Nike, Target Pull Adrian Peterson NFL Merchandise

 

  • "As the National Football League continues to regroup in the wake of the domestic violence controversy, a few key sponsors have somewhat distanced themselves from the league."
  • "Nike suspended its endorsement deal with Minnesota Vikings star Adrian Peterson, who is facing child-abuse charges, and Target has pulled Peterson merchandise from its stores and Web site."

10-Second Takeaway: Nike's Come a Long Way Since the Tonya Harding Fiasco - a22

10 second Hedgeye Retail Takeaway

This year is definitely setting a record for the number of athlete endorsements being pulled due to violation of the 'Morals Clause.' This is basically the brand's Get Out of Jail Free card. In some instances (like with Tiger Woods or Kobe Bryant) the brands will simply renegotiate the deals and make payout based upon winning percentage, on-field performance, or dollars associated with a specific product line.

 

Bottom line: The industry has come a long way since 1994 when Nike not only stuck by disgraced figure skater Tonya Harding after her boyfriend bashed Nancy Kerrigan's kneecaps, but also paid all of her legal bills. 

 

10-Second Takeaway: Nike's Come a Long Way Since the Tonya Harding Fiasco - 23


Retail Callouts (9/19): NKE, KSS, WMT, LULU, HD, COST

Takeaway: Big year for The Morals Clause in endorsements. KSS hiring 12% more temps than WMT this holiday. Interesting new LULU product launch.

COMPANY HIGHLIGHTS


NKE - Nike, Target Pull Adrian Peterson NFL Merchandise

(http://www.wwd.com/markets-news/intimates-activewear/nike-target-pull-peterson-merchandise-7925273?module=hp-topstories)

 

  • "As the National Football League continues to regroup in the wake of the domestic violence controversy, a few key sponsors have somewhat distanced themselves from the league."
  • "Nike suspended its endorsement deal with Minnesota Vikings star Adrian Peterson, who is facing child-abuse charges, and Target has pulled Peterson merchandise from its stores and Web site."

 

Takeaway: This year is definitely setting a record for the number of athlete endorsements being pulled due to violation of the 'Morals Clause'. This is the Brand's 'get of jail free' card. Sometimes, like with Tiger Woods or Kobe Bryant, the brands will simply renegotiate the deals and make payout based on winning percentage, on-field performance, or dollars associated with a specific product line. The industry has come a long way since 1994 when Nike not only stuck by Tonya Harding after her boyfriend bashed Nancy Kerrigan's kneecaps, but it also paid all of her legal bills.

 

KSS, WMT - Kohl’s Department Stores to Hire More than 67,000 Associates This Holiday Season

(http://phx.corporate-ir.net/phoenix.zhtml?c=60706&p=irol-newsArticle&ID=1968904&highlight=)

 

  • "Kohl’s Department Stores announced it anticipates hiring more than 67,000 associates nationwide this holiday season to support seasonal business in stores and growth on Kohls.com."
  • "'By adding these associates, Kohl’s will continue to deliver an enjoyable and convenient shopping experience to all our valued customers, whether they choose to shop in store or online at Kohls.com this holiday season.'"
  • "Kohl’s anticipates hiring an average of 50 associates per store to provide customers with excellent customer service throughout the holiday season at its 1,163 stores in 49 states. In addition, the company anticipates hiring approximately 9,300 seasonal positions at distribution centers across the country and approximately 670 seasonal credit operations positions."

Walmart to up holiday hiring by nearly 10%

(http://www.chainstoreage.com/article/walmart-holiday-hiring-nearly-10)

  • "Walmart on Thursday said it plans to hire 60,000 temporary workers for the holiday season, an increase of nearly 10% from last year."
  • "The discounter also said that current workers who want more hours during the holidays will receive priority."

 

Takeaway: Make no mistake about it, 67,000 is a big number. It implies that hiring plans for the season are up 34% from the 50,000 associates the company announced that would hire around the same time last year. But, based on company commentary the increase is closer to 15% as hiring exceeded expectations last year. The last time KSS had a similar increase in hiring was 2012. Sales were up 2.6% (after adjusting for 14th week) and gross margin was down almost 300bps.  Also, tough to ignore that KSS is hiring 12% more workers than WMT, despite having one sixth WMT's square footage.

 

LULU - New Product Spotlight

Something tells us that this new LULU bodysuit won't exactly end up being the new staple in Yoga studios.

Retail Callouts (9/19): NKE, KSS, WMT, LULU, HD, COST - 9 19 chart1

 

 

OTHER NEWS

 

COST - Costco to stop accepting American Express cards in Canada, switches to Capital One and Mastercard

(http://business.financialpost.com/2014/09/18/costco-canada-american-express/

 

  • "Capital One Financial Corp. will replace American Express Co. as the issuer for Costco Wholesale Corp.’s credit cards in Canada. The Capital One Platinum MasterCard will serve as both a credit card and a Costco membership card. MasterCard Canada has also entered into an agreement with Costco to open credit card acceptance to all MasterCard cardholders."

 

WMT - Wal-Mart Mexico Unit Probed on Complaints of Cockfight

(http://www.bloomberg.com/news/2014-09-17/wal-mart-mexico-unit-probed-on-complaints-of-cockfight.html)

 

  • "Wal-Mart de Mexico SAB, the country’s biggest retailer, is being probed by local officials after shoppers complained that a store hosted a cockfight to promote a soda company."
  • "Fines of as much as 96,000 pesos ($7,240) could be levied if Walmex is found responsible, said Jose Luis Hernandez, commercial director of the city of Boca del Rio, where betting on fighting roosters is illegal. A Walmex spokesman, Antonio Ocaranza, said the roosters weren’t armed with blades, no betting took place at the store and no birds were harmed."

 

HD - Home Depot Says Data Hack Affected 56 Million Payment Cards

(http://www.bloomberg.com/news/2014-09-18/home-depot-says-data-breach-affected-56-million-payment-cards.html)

 

  • "Home Depot Inc. said a data breach between April and September put about 56 million payment cards at risk, signaling that the hacker attack was bigger than the one that struck Target Corp. last year."


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Silicon Labs (SLAB): Internet of Things Portfolio & Acquisition Appeal

Takeaway: A $2 billion market cap puts SLAB is in the sweet spot for a hungry acquirer.

Hedgeye’s semiconductors sector head Craig Berger debuted with a detailed analysis of his complex and wide-ranging sector, identifying companies that could be attractive acquisition targets in a sector that has traditionally seen waves of companies buying each other. 

 

One name that stands out is Silicon Labs (SLAB), a premier vendor of chips, software, and systems for the burgeoning “Internet Of Things” market. The company seems to be an attractive M&A candidate on a number of Berger’s key screens.

 

Silicon Labs (SLAB): Internet of Things Portfolio & Acquisition Appeal - sl9

 

SLAB’s website says they offer a “diverse portfolio of highly-integrated, easy-to-use solutions” providing “significant advantages in performance, size, cost and power consumption.”  The firm’s IoT portfolio includes sensors, short range wireless products and tiny computers on a chip known as Microcontrollers. Berger says that Silicon Labs’ chip and system solutions are often the smallest footprint and most integrated solutions in the world.

 

Our proprietary technical screen has SLAB bearish on both TRADE and TREND time horizons – out as much as three months.  But, says Berger, near-term fuzziness in the stock could provide a unique buying opportunity for patient investors.  The stock has a two-year pattern of trading in the $40-$50 range – not a bad return if you catch it right.  For a larger company looking to enter the Internet of Things space, the Make-Or-Buy decision could be compelling, particularly with the stock showing relative weakness.

 

At a $2 billion market cap, SLAB is in the sweet spot for a hungry acquirer: small enough to digest, yet big enough to be a serious deal that will attract strong interest from bankers, investors, and any firm looking to meaningfully participate in the burgeoning Internet of Things market. 


Futures Ramp to All-Time Highs

Client Talking Points

POUND

Long the Pound Sterling was our way to play the No vote, and while we saw $1.65 vs. USD early this morning, this trade is now signaling immediate-term TRADE overbought within a $1.62-1.65 risk range on the news – book some.

VIX

The front-month VIX signaled immediate-term TRADE overbought in our Risk Range model (within its bullish TREND) on Monday 9/15 at 14.19, so now we’ll look for TREND support of 11.34 to hold before we start sending out the U.S. small cap (IWM) equity sell signals again.

S&P 500

Since we sent out the “Oversold” research note at 11:04AM on Monday, we don’t have to feel shame on this squeeze. Had a lot of feedback to keep shorts on down there, but that was not the playbook call to make – BUY the low-end and SELL the top-end of the Hedgeye risk ranges, rinse/repeat #process.

Asset Allocation

CASH 34% US EQUITIES 6%
INTL EQUITIES 20% COMMODITIES 4%
FIXED INCOME 32% INTL CURRENCIES 4%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). Now that we have our first set of late-cycle economic indicators slowing in rate of change terms (ADP numbers and the NFP number), it's time to really think through the upcoming moves of this bond market. We are doubling down on our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.

TLT

Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

RH

Restoration Hardware remains our Retail Team’s highest-conviction long idea. We think that most parts of the thesis are at least acknowledged by the market (category growth, real estate expansion), but people are absolutely missing how all the pieces are coming together to drive such outsized earnings growth over an extremely long duration. The punchline of our real estate analysis is that a) RH stores could get far bigger than even the RH bulls seem to think, b) Aside from reconfiguring 66 existing markets, there’s another 19 markets we identified where the spending rate on home furnishings by people making over $100k in income suggests that RH should expand to these markets with Design Galleries, and c) the availability and economics on large properties for all these markets are far better than people think. The consensus is looking for long-term earnings growth of 28% -- we’re looking for 45%.  

Three for the Road

TWEET OF THE DAY

The bearish 80 page slide deck we released on $SBUX [yesterday] is titled the "Seven Year Itch" - Its been seven years since the famous memo!

@HedgeyeHWP

QUOTE OF THE DAY

The real test is how you behave when the crowd is roaring the other way.

-George Goodman

STAT OF THE DAY

The Russian stock market is getting smoked again, down -1.7% to down -15.7% year-to-date.


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