Retail Callouts (10/2): NKE QUIZ, W, RH, SHLD, WSM, JWN, VFC

Takeaway: QUIZ OF THE DAY: What does this date, 10/2, signify in Nike’s history? Wayfair IPO is one to watch in light of the Zalando dud yesterday.


What does this date, 10/2, signify in Nike’s history?

Send us your response. Answer to also come in tomorrow's Retail Callouts note.





Today (10/2)

HEDGEYE MACRO: Quarterly Macro Themes Call - 1:00pm

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W - Wayfair Announces Pricing of Initial Public Offering



Wayfair is finally going public. The deal priced last night at $29. Let's see how it trades after Zalando disappointed yesterday in Germany. Wayfair did $915mm in sales last year under four major sub-brands. It's a bigger player than most people would likely think. To put it in perspective, its sales base is bigger than RH's online business, which stands at about $700mm. The big difference, however, (aside from continuity, quality and price of assortment) is that Wayfair does not make any money. Operating margins are negative. It's unclear what the financial model will look like a few years down the road. Will it move to 2-3% operating margins, but have fierce velocity in its operating asset turns (i.e. 5-6x)? That would peg ROIC in the mid-teens for a fast growing model in a highly fragmented yet consolidating space. This is one to watch.


Retail Callouts (10/2): NKE QUIZ, W, RH, SHLD, WSM, JWN, VFC - 10 2 chart1


ZAL - Zalando Stock Debut Disappoints



  • "Zalando SE's stock market debut was described as disappointing by analysts Wednesday after the online retailer's shares swiftly shed their opening gains."
  • "The stock initially rose 12% above its issue price on the Frankfurt exchange but pared those gains within the first hour of trading."
  • "By midmorning its Zalando's shares were slightly below €23 ($29) compared with their debut of €24.10. The e-commerce company's €21.50 issue price was set at the upper end of its bookbuilding range."


Takeaway: Yeah, it might have seemed like a good idea to go public amidst the Alibaba hype. But a better comp for Zalando is Asos. An online apparel-only retailer -- also based in Europe. That chart looks like death, having lost 67% of its value year-to-date. Maybe this name should have listed in the US. 



SHLD - Sears Holdings Corporation Provides Update on actions to generate liquidity, fund its transformation and evolve its capital structure



  • "Sears Holdings Corporation today announced that the Company expects to generate up to U.S.$380 million in proceeds from its interest in Sears Canada Inc. by early November 2014, assuming the completion of its previously announced rights offering of Sears Canada shares to the Company's stockholders and the exercise of all such rights. Of this amount, the Company expects to receive at least $168 million in mid-to-late October from the exercise of the rights distributed to them by ESL Partners, L.P. and Edward S. Lampert, Chairman and Chief Executive Officer of Holdings and Chairman and Chief Executive Officer of ESL Investments, Inc., which collectively with their affiliates own 48.5% of Holdings' outstanding common stock."


Takeaway:  There are so many pressing details associated with this model and ownership structure right now. But to take a really big picture view on this one -- isn't it noteworthy for a company to have to free up liquidity when the industry in which it competes is at the tail end (peak) of a cyclical margin cycle. What happens to margins and liquidity if the environment goes the other way?





WSM - Williams-Sonoma, Inc. Announces Strategic Franchise Partnership and Expansion to Mexico



  • "Williams-Sonoma, Inc. announced today that it will bring its family of home furnishings brands to Mexico through a franchise agreement with Distribuidora Liverpool, S.A. de C.V., the country’s leading department store chain. The multi-year agreement includes both store and e-commerce rights in Mexico for the following brands in the Williams-Sonoma, Inc. portfolio: Williams-Sonoma, Williams-Sonoma Home, Pottery Barn, Pottery Barn Kids, PBteen and West Elm. The first stores are expected to open in 2015."


SHLD - Sears Holdings Corporation Announces Intent to Conduct Rights Offering of Sears Canada Shares



  • "Sears Holdings Corporation today announced that the Company's board of directors has approved a rights offering of up to 40,000,000 common shares of Sears Canada Inc. ESL Partners, L.P. and Edward S. Lampert, Chairman and Chief Executive Officer of Holdings and Chairman and Chief Executive Officer of ESL Investments, Inc., have advised Holdings that they intend to exercise their pro rata portion of the subscription rights in full as soon as practicable after such subscription rights have been distributed, though they have not entered into any agreement to do so. Fairholme Capital Management, L.L.C. also has advised Holdings that it expects that certain of its clients will participate in the rights offering at levels to be determined, subject to review of the terms and conditions of the rights offering and regulatory considerations."


JWN - Nordstrom Said Eyeing Downtown NYC



  • "The Seattle-based retailer is said to be looking for space to open a full-line store downtown. Nordstrom in June 2012 revealed plans for its first full-line store in New York City, a 280,000-square-foot flagship, to open in 2018 at the base of a future skyscraper on the north side of 57th Street between Broadway and Seventh Avenue."
  • "A real estate source said Nordstrom is looking for about 250,000 square feet of space downtown. If Nordstrom does find a site, the downtown store won’t necessarily open before the uptown store, the source said."


VFC - VF Corporation Senior Vice President & Chief Financial Officer Robert K. Shearer to Retire in March 2015



  • "VF Corporation, a leader in branded lifestyle apparel and footwear, announced that Senior Vice President & Chief Financial Officer Robert K. Shearer will retire in March 2015, after 28 years with the company."
  • "VF named Scott A. Roe, 49, currently Vice President, Controller and Chief Accounting Officer, to succeed Shearer in the role of Chief Financial Officer."


DG - Dollar General Extends Tender Offer to Acquire Family Dollar to October 31, 2014



  • "Dollar General Corporation announced that it has extended its tender offer to acquire all outstanding shares of Family Dollar Stores Inc. for $80.00 per share in cash (including associated preferred share purchase rights) to 5:00 p.m. New York City time on October 31, 2014, unless further extended. The tender offer was previously set to expire at 5:00 p.m. New York City time on October 8, 2014. All other terms and conditions of the tender offer remain unchanged."


ITX, BABA - Zara Partly Cedes China Web Control to Alibaba to Aid Growth



  • "Since opening its first website four years ago, Inditex SA has maintained full control of online sales for its flagship brand Zara. To gain a stronger foothold in China, the Spanish retailer plans to partially cede both oversight of the chain’s Web sales and a share of its profit."
  • "This month, Zara will open an online store on Tmall, a Chinese website owned by Alibaba Group Holding Ltd. where companies such as Nike Inc., Burberry Group Plc and The Gap Inc. sell their wares."


APP - American Apparel Said to Be Open to Keeping Charney



  • "The retailer, which ousted Charney as CEO almost four months ago in an acrimonious split, is considering giving him a new role, said the people, who asked not to be identified because the deliberations are private. In the meantime, Charney is serving as a paid strategic consultant."


California becomes first state to ban single-use plastic bags



  • "California Governor Jerry Brown on Tuesday signed legislation for the nation's first statewide ban on single-use plastic bags at supermarkets, drug stores and select other retail outlets."



Poll of the Day | 10-Year Treasury Yield: 2% or 3% Next?

Our macro team’s biggest call this year? Being right on Treasuries. We bucked the consensus tide that the bond bubble was over via our long TLT recommendation which is up 18% YTD. Hedgeye CEO Keith McCullough says there’s no long-term support for the 10yr yield to 1.7%. "Just wait until another bad jobs report and/or multiple GDP misses and Yellen will freak out like Draghi," according to McCullough. It last hit 3% on 12/31/13 and 2% in May 2013.

Restaurant Sector Valuation

Key Takeaways

  • Mixed results for restaurant stocks in September as valuations fluctuated by segment. Casual Dining, Coffee, Family Dining and Sandwich stocks all had multiple expansion during the month, while Fast Casual, Fine Dining and Pizza stocks had multiple contraction.
  • Takovers (BAGL,THI) have driven the multiples in the Coffee segment, which has now overtaken Fast Casual as the most expensive segment on an EV-to-EBITDA basis, with BAGL, DNKN, KKD, SBUX and THI all trading above their average valuations since 2010.
  • Casual Dining, Fast Casual and Fine Dining stocks are currently trading at the most compelling valuations of the bunch relative to their more recent historical means.
  • Casual Dining is trading at one of the lowest multiples out of all of the segments, which we believe means two things: 1) it is likely to attract activist investors and 2) it will pressure management teams to pursue value enhancing initiatives (BLMN).
  • Family Dining is trading near the high end of its range due to the recent activist activity surrounding BOBE.


Restaurant Sector Valuation - 1


Restaurant Sector Valuation - 2

Restaurant Industry

Restaurant Sector Valuation - 3

Restaurant Sector Valuation - 44

Casual Dining

Restaurant Sector Valuation - 5

Restaurant Sector Valuation - 66


Restaurant Sector Valuation - 7

Restaurant Sector Valuation - 8

Family Dining

Restaurant Sector Valuation - 9

Restaurant Sector Valuation - 10

Fast Casual

Restaurant Sector Valuation - 11

Restaurant Sector Valuation - 12

Fine Dining

Restaurant Sector Valuation - 13

Restaurant Sector Valuation - 14


Restaurant Sector Valuation - 15

Restaurant Sector Valuation - 16


Restaurant Sector Valuation - 177

Restaurant Sector Valuation - 18


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Keith's Macro Notebook 10/2: RUSSELL 2000 | UST 10YR | OIL

Russell 2000 Is a ‘Certified Train Wreck’ as Treasury Yields Plummet (Who Warned You?)

Takeaway: Hedgeye called the move in Treasuries and small caps.

The Russell 2000 is a certified train wreck down double-digits (-10.2%) from where we called it the all-time #bubble high in small cap illiquidity.

Russell 2000 Is a ‘Certified Train Wreck’ as Treasury Yields Plummet (Who Warned You?) - 10.02.14 TLT vs. Russell 2000

Meanwhile, overall market volume continues to accelerate on the down days (Total Equity Market Volume was up +25.7% yesterday vs. 3 month average on the -1.5% sell-off in the Russell 2000). Don’t underestimate how hard it is for funds to get out of some of these exposures.


Meanwhile, we’ve remained long the Long Bond (in TLT terms), despite Old Wall consensus saying otherwise. It's up over 18% YTD. Yields can, in fact, go a lot lower from here. There’s no long-term support for the UST 10YR Yield to 1.7%.


Why settle for Old Wall research? Join the winning team today.

LEISURE LETTER (10/02/2014)

Tickers: BYI, ISEL, LVS, H


  • Oct 2: G2E Las Vegas
  • Oct 8: HT Investor Day


BYI/GTK:IM – GTECH’s board has approved the merger of GTECH into Georgia Worldwide, or what GTK is calling the NewCo, which is part of its deal to buy IGT. The board also approved the repurchase of 16.676 million GTK shares, which is part of the transaction.

 Takeaway: The merger progressing seemingly faster than projected.


ISLE – The Davenport Planning and Zoning Commission approved a plan to alter a comprehensive plan for a 108-acre site at the southwest corner of Interstates 74 and 80 to accommodate a casino and seven-story hotel. The property rezoning will allow Dan Kehl and his casino company to migrate the Rhythm City Casino from a riverboat to a land based casino.  The proposed the casino will encompass a $110 million, seven-story, a 143-room hotel, a 1,500-seat event center and 33,800 square feet of gaming space. 

Takeaway: The development a land based casino in Davenport will likely cannibalize ISLE's Bettendorf riverboat.


LVS (Bloomberg) Mr. Adelson suggested the VIP gambling business in Macau could see a recovery in two months following a Chinese government crackdown on corruption sapped demand. 

Takeaway: What constitutes "recovery"?


LVS (Bloomberg) During a discussion at G2E, Mr. Adelson said Las Vegas Sands would be interested in building a casino at the Meadowlands racetrack in New Jersey, if proposals to expand casino gambling beyond Atlantic City were approved by state legislators.

Takeaway: Low tax rate needed to move the needle.


H – announced Interval Leisure Group has completed the previously announced acquisition of Hyatt Residential Group from affiliates of Hyatt Hotels Corporation. The purchase price of approximately $220 million includes Hyatt's interest in a joint venture that owns and is developing Hyatt Kanapali Beach, a 131-unit shared ownership property in Maui. In connection with the acquisition, a subsidiary of ILG has entered into a global Master License Agreement with respect to the exclusive use of the Hyatt brand in shared ownership.



Macau Golden Week Visitation – October 1st visitation was 136,908, +10% year-over-year while visitors from mainland China was 104,569, an increase of 2.3% year-over-year

Takeaway: Overall strong visitation growth, but visitation from mainland China trailing expectations.


Communist Party China Add'l Reform – the Political Bureau of the CPC Central Committee released a statement announcing that the fourth plenary session of the CPC 18th Central Committee, which is set to discuss rule of law, will be held from Oct. 20 to 23. This will be the first time a plenary session of the CPC Central Committee has taken rule of law as its central theme. And rule of law is a must if the country wants to build a prosperous society and comprehensively deepen reform. All in all, the 65th anniversary of the PRC's founding seems a new start for further reform and exploration of socialism with Chinese characteristics.

Takeaway: Stay tuned for additional reforms.


Occupy Central spills into Macau – In Macau, organizers say about 500 activists are gathering at the Praca Da Amizade to show solidarity with Hong Kong protests. The gathering had been approved by the territory's government. The meeting was first planned to take place in front of Macau's Legislative Assembly, but later moved

Takeaway: Growing discord moves from Hong Kong to Macau but very unlikely to be sustained there.


New Jersey Sports Betting ( Two New Jersey state senators, Democrat Raymond Lesniak and Republican Joseph Kyrillos announced that they intend to introduce the legislation when the Senate meets Oct. 9. They say the bill would reinforce the state attorney general’s position that the state can legally lift the ban on sports betting, so long as it does not specifically authorize the wagering.



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.