Small caps. Tech stocks. IPOs. And more. There are bubbles everywhere, and it’s why #Bubbles is one of Hedgeye’s three core Macro Themes this quarter.
Takeaway: Prices at the grocery store are rising faster than they are at restaurants. Here's what that means.
We have a favorable data point for restaurants, says Hedgeye's Restaurants sector team.
The restaurant value spread, which measures the difference between food at home and food away from home, has widened over the past three months.
In the past, we've seen evidence that when this spread widens, same-store sales for many restaurants improves.
Check out this chart below.
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09/29/14 Monday Mashup: BLMN, SBUX and More
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10/02/14 Restaurant Sector Valuation
10/02/14 Bullish on Bloomin'
Wednesday, October 8th
Thursday, October 9th
Friday, October 10th
A favorable data point for restaurants: the restaurant value spread, which measures the difference between food at home and food away from home, has widened over the past three months.
Monday, September 29th
Tuesday, September 30th
Wednesday, October 1st
Thursday, October 2nd
Friday, October 3rd
The XLY (-0.7%) outperformed the SPX (-0.8%) last week. Both casual dining and quick service stocks, in aggregate, outperformed the XLY.
From a quantitative setup, the sector remains bearish on an intermediate-term TREND duration.
Takeaway: The company's new financing program plus growth in in-house interior design gives us greater confidence in our long-term revenue model.
This note was originally published October 03, 2014 at 09:04 in Retail
Last night (Thursday night) RH announced a long-term financing program that we think is positive news for its top line. The company already offers a credit card, but that carries a much higher interest rate (24.99%) and is a shorter-term financing bridge for consumers. With the new RH program, consumers can finance purchases at 5.99% for a duration ranging from 24 months to 7-years.
There's no question for us that this is a positive for RH's top line. In our latest RH consumer survey, we asked 1,000 consumers how important it is for a furniture store to offer store credit -- on small, medium and large purchases. Interestingly, it is 'Very Important' to only 13.6% of consumers for 'Small Purchases' and only '18.8% for 'Medium Purchases'. But once we get into the 'Large Purchase' classification, it is 'Very Important' for 41.7% of customers. Even 33.4% of the $100k+ demographic said that it Very Important to their purchasing decision.
An interesting note is the screen shot below that 'advertises' consumers to meet with RH designers. This is the first time we EVER saw this advertised by the company. Approximately 40% of RH's business comes from designers, but they are largely third party designers. These are people that are hired by a customer and shop dozens of stores, where they pick and choose assortments that work -- maybe including RH, maybe not.
But now RH not only has a massive product assortment (i.e. 3,300 pages), but a stepped-up in-house Interior Design team AND a superior long-term financing program. Add all that up and you get a stealth revenue driver that will build meaningfully. We're not taking up our estimates (which are already high on the street by a country mile) but these factors give us more confidence that the company will get there.
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 Sugar, Soybeans, and Coffee markets experienced the most BULLISH relative positioning change in the CRB week-over-week.
The Cotton, Silver, and Copper markets experienced the most BEARISH relative positioning change in the CRB week-over-week:
2. Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.
3. Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.
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.
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