SEPTEMBER 14, 2009





How can we not comment on the insider selling at KSS on Thursday and Friday.  Five insiders sold a total of 814k shares for about $45mm, marking the first insider open market sale at KSS since April 2007. If there’s any good news, it’s that in 2007 (with the stock at about $75) management sold about $215mm, and the previous cluster in 2006 was for $126mm.  But with 70% of the 20 analysts sporting Buy ratings, the remainder at ‘Hold’ and absolutely no one at ‘Sell,’ this is a major call out. So is the fact that price targets are only 5% above current value and short interest has been declining over the past three months and now sits below 6%. But when I look at our SIGMA, which shows that KSS is starting to anniversary positive Gross Margin swings over the past five quarters, SG&A compares should begin to get tougher, and capex as % of sales is at trough, it makes the consensus view of 60bp margin expansion next year and 13% EPS growth tougher to bank on. Simply put, this name is the poster child for the kind of consumer name where we need to bet to a meaningful recovery in consumer spending in order to make it work.  


1. Red arrows represent insider sells, while green represent buys.




2. Sell-side sentiment remains overwhelmingly positive 




3. Short interest has been heading lower 




4. SIGMA setup relies upon organic comp and SG&A leverage. 






Some Notable Call Outs


  • Following in the footsteps of GameStop and Best Buy, Toys R Us announced that is introducing a used video game exchange program. Customers can trade in used video games in return for a credit to be used towards any future purchase in store or online. It is unclear if Toys R Us is also selling the used games. Toys R Us offers a gift card in exchange for the trade-in whereas GameStop offers cash. Early experience with the new Toys R Us program suggest they are offering slightly higher trade- in values vs. GameStop.


  • When asked about the sustainability of the large amount of goods in the market for sale to off price retailers, Burlington Coat Factory’s CEO suggested obtaining inventory has never been a problem. His comments mimic the unanimous view from all off-pricers that there is always inventory available, no matter what the economic backdrop might be at any given time.


  • In an effort to differentiate itself from Target and Wal*Mart, Kmart is testing a program in Michigan that targets unemployed consumers. The program called Smart Assist offers a 20% discount towards purchases of private brands. Aside from driving incremental traffic, the program is also generating positive buzz in the media as the company competes head to head with WMT and TGT.





-Most footwear vendors say the recovery will be long, sluggish and have lasting effects on the industry - “This has been a wakeup call to the fundamental business models that had been in play,” said Angel Martinez, president and CEO of Deckers Outdoor Corp. Martinez said that for years the footwear market was unnaturally active, fueled by credit-card spending and money from home equity loans. As a result, the market grew at an artificial, unsustainable rate. Jerry Turner, chairman and CEO American Sporting Goods, said the slow recovery would be the new reality for manufacturers and retailers of all stripes. “There was so much false spending going on out there, with consumers using credit cards and borrowing on their homes, that there is no recovery from that. It was false. There’s no going back to that,” he said. “So there will be less business out there ... and it will take strong discipline on the part of anyone in business to grow profitably.” Wolverine Footwear Group President Ted Gedra said the company’s lean business practices have helped lessen the impact of the sour economy. Still, he said, the company had been forced to prioritize its investment spending. For example, in the Wolverine brand business, spending has been focused on lifestyle positioning, while the company’s core workboot business is centered on new technologies such as its Contour Welt construction. The “new normal,” as some have termed the current economy, has prompted Glendale, Wis.-based Weyco Group’s Florsheim brand to play to its strengths, shifting inventory deeper for core shoes and away from specialty items. “We used to be a little more aggressive with seasonal shoes,” said Tom Florsheim, Weyco chairman and CEO. “Now we’re about stocking inventory on our core shoes. [But] we’re really built for tough times. We run a very lean company.” K-Swiss expects another lasting effect of the recession could be a prolonged consumer focus on value, whether that means a lower price or a higher perceived merit. “That means you have to run your business very lean and tight forever,” said K-Swiss CEO Steven Nichols. “The recession could end, but I don’t think times are going to be spectacular.” To energize the value component of the company’s products, Nichols said K-Swiss was making significant investments in research and development and new technologies. “We’re probably putting more money into design and development than we ever have,” he said. “We’re doing things regardless of where the business is now.” <>


-Unfortunately, Adidas won’t be producing the pink-and-yellow Barricade V shoe inscribed with the word “believe,” worn by 17-year-old tennis sensation Melanie Oudin during her phenomenal U.S. Open run. But there is a workaround for tennis fans desperate to pay homage: The company invites them to make their own via the Mi Adidas Website. “We will not be doing any mass production, [but] fans can go onto — which is exactly the same way [Oudin] did it — and customize their shoes with ‘believe’ or whatever else inspires them,” said a company spokeswoman. Despite her loss to Denmark’s Caroline Wozniacki on Sept. 9, Oudin certainly secured a spot in tennis history last week and will likely become a familiar face for the athletic brand. “She will probably be a lot more prominent in terms of our tennis athletes,” said the Adidas rep.  <>


-Footwear News survey says kids footwear sales are up - Channel checking 6 private family footwear stores yielded the results that children's footwear is selling.  <>


-Ralph Lauren’s Rugby tosses a second ball into the mobile commerce scrum - Right now retail mobile apps are battling in a rugby-like scrum, fighting for the attention and subsequent downloads that move them high on the list of popular apps in an app store. Ralph Lauren’s Rugby brand today entered the fray with a mobile app targeting young adult fashion consumers who want to personalize what they buy and how they buy it. The new iPhone app expands Ralph Lauren’s already considerable presence in m-commerce. The retailer operates two transactional mobile sites, and, and both Polo and Rugby use text messaging in their marketing programs.  <>


-Traffic fails to make the grade at computer and electronics e-retailers - Despite school days lurking right around the corner, consumers weren’t looking online for laptops or other gadgets to help them in school in July, at least not as much as last year. Most of the top 10 e-retailers in terms of traffic that sell computers and consumer electronics posted drops in unique visitors, Nielsen Online says. Gamestop was the traffic winner with a 25% rise compared to last year. On the other end of the spectrum, Circuit City posted a 73% decline. The top multi-category computers and electronics online shopping destinations in July with unique visitors in millions this year and last and growth from prior year, according to Nielsen Online, were: Best Buy, 14.36, 13.90, 3%, eBay Electronics, 4.89, 7.72, -33%,, 4.06, 3.24, 25%, OSTG, 3.70, 4.10, -10%,, 3.24, 3.97, -18%, Circuit City, 3.21, 11.76, -73%,, 3.11, 3.56, -13%, eBay Computers, 2.09, 4.28, -51%, Sony Electronics, 1.54, 1.70, -10%, Samsung, 1.38, 1.62, -15%. <>


-Yahoo! Inc. is selling a stake in Ltd. - The operator of China’s biggest trading Web site, for as much as HK$1.17 billion ($151 million), according to the terms of the sale obtained by Bloomberg News. UBS AG, the sole bookrunner, is placing 57.5 million shares at an indicated price range of HK$19.80 to HK$20.30 apiece, the terms showed. That’s 6.4 percent to 4 percent less than Alibaba’s closing price in Hong Kong today and the number of shares is equivalent to a 1.1 percent stake. Sunnyvale, California-based Yahoo, owner of the second- biggest U.S. Internet search engine, is selling Alibaba shares after the Chinese company’s stock almost quadrupled in Hong Kong trading this year. Alibaba rose 3.7 percent to HK$21.15 in Hong Kong today, while the city’s benchmark Hang Seng Index fell 1.1 percent.  <>


-John Lewis has relaunched its online fashion offer and is set to drive sales by 30% this year - The site, at, gives shoppers access to over 200 fashion and beauty brands and includes updated search and navigation technology. The department store plans to add £70m to John Lewis’ online fashion sales by 2011. Fashion sales represent about 6% of’s total sales and the department store is set to grow that by 30% this year. It will launch more than 100 new brands online across all categories. Brands available online will include Lulu Guinness, Steve Madden, Belstaff, Hudson Jeans, Elie Tahari, Mulberry, Ralph Lauren, Orla Kiely, Paul & Joe Sister, Nicole Farhi and Paul Costelloe. John Lewis Direct managing director Robin Terrell said: “Fashion online is one of the biggest business opportunities for John Lewis over the next three years and there will be a significant step change in our customers’ shopping experience online. <>


-Retail sales in London in August were at their lowest in four years, according to the London Retail Sales Monitor - Sales for the four weeks to August 29 were down 5.9% on last year, the first time they have fallen this year, following a strong seven months. It is also the biggest like-for-like drop since August 2005. Overall UK retail sales dropped 0.1%, marking the first time this year that London has performed worse than the UK as a whole. Clothing and footwear performed worse than food. The fall in London was due in part to better August weather prompting people to spend their time outdoors, as well as visitors from the Middle East returning home earlier this year, as Ramadan began earlier. <>


-Gap making more of a presence in UK with a pop-up shop for 19 days - Gap opened a 40th anniversary pop-up store in Kingley Count, off London’s Regent Street. The two floor store is one of a quartet of pop-ups marking the event. The first opened last month in Los Angeles last month followed by London, New York and Paris. The London store has two floors, will trade for 19 days and 69 hours (the original Gap store opened in 1969) and on opening day 69 pairs of jeans were on offer for, yes, £19.69. <>


-Glassware and gifts brand Designs by Lolita is unveiling a home accessories collection - by Avanti Linens this fall at Macy's stores. The line includes beach towels ($24.99) and other accessories for bath, kitchen, bed, bar and beach. The beach towels, which feature a fiber-reactive print on the front and has a drink recipe on the back, will first hit in November at Macy's stores in South Florida. A nationwide rollout will follow in the spring. More product release dates and retail partners will be announced in October. <>


-Indian retailers are upbeat once again as consumption picks up indicating more money coming in to the hands of customers - Researchers say that private consumption continues to grow at double digit - Rs18 trillion projected for 2010 and that modern retail is expected to further spur consumption and catalyze speedier economic growth while technology brings in efficiencies in every sphere of retail and contribution. These will be the broad agenda at India’s mega retail convention, India Retail Forum (IRF) ’09, scheduled on 16th & 17th September at the Renaissance, Mumbai. <>







  • Kevin Mansell, Chairman, President & CEO, sold 138,000shs ($7.8mm) nearly 50% of total common holdings, but closer to 10% of total holdings including options.
  • John Herma, Director, sold 100,000shs ($5.7mm) less than 2% of total common holdings.
  • Bill Kellogg, Director, sold 300,000shs ($16.7mm) less than 4% of total common holdings.
  • Frank Sica, Director, sold 1,000shs (55k) less than 5% of total common holdings.
  • Peter Sommerhauser, Director, sold 35,000shs (~$2M) nearly 30% of total common holdings.
  • (Thursday 9/10) Lawrence Montgomery, Director, sold 240,000shs ($13.1mm) nearly 35% of total common holdings.


DKS: Ed Stack, Chairman & CEO, sold 50,000shs ($1.1mm) after exercising the right to buy 50,000 shares less than 1% of total common holdings.


FOSL: Ken Anderson, Director, sold 6,750shs ($190k) after exercising the right to buy 6,750 shares roughly 50% of total common holdings.


GES: Michael Relich, SVP & CIO, sold 6,697shs ($240k) nearly 25% of total common holdings.


VLCM: Richard Woolcott, Chairman & CEO, sold 20,000shs ($300k) less than 1% pursuant to a 10b5-1 plan.





525,731 guests stayed at Macau’s 86 hotels in July, according to figures from the Macau Statistics and Census Service.  This represents an increase of 17.9% from June and a decrease of 10.5% compared to the same month in 2008.  Occupancy fell 10.8% year-over-year to 68.1%.  Guests from the mainland and Hong Kong accounted for 43.3% and 29.3% of all guests in July, respectively.


The number of package tour visitors rose 42.7% in July from the preceding month but decreased 35.7% year-over-year; mainlanders accounted for 62.5% of all package tour arrivals in July.



Wynn Resorts Ltd. has received Hong Kong regulatory approval to list its Macau casino operations in the city in a $1 billion initial public offering.  The road show for the share sale will start on September 21 and listing on the Hong Kong stock exchange is scheduled for October 9.  The company plans to sell a 20% stake in Macau operations in the IPO.  Wynn generated over half of its $723 million second quarter net revenues for the quarter ending June 30 from its Macau operations. 

One Year Later: To hell and (almost) back?

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%


The August explosion in Macau has lifted September expectations off the charts, especially given it is the first easy comparison. Not so fast. Business has been slow so far.



My Macau guys are telling me to slow down on my September expections.  Business has been surprisingly slow so far in September, nothing like August.  We’re not exactly sure why yet but walk-throughs and conversations with mid-level casino employees suggest that there has been a marked slowdown in traffic, in both the Mass and VIP segments. 


One explanation could be related to Hong Kong.  A lot of the growth in August was from Hong Kong.  You could see it at the pools which were packed in August.  Chinese mainlanders don’t go to the pools.  With families in back-to-school mode, the Hong Kong kicker is gone. 


Another factor, as suggested by a client of mine, might be customers delaying their Macau trip until October.  There are more holiday days in October of this year versus last year and, of course, the celebration of the 50th anniversary of the founding of The People's Republic of China begins October 1st.


Investor expectations are pretty high for September given the August boom, despite 40% growth last year, and the September comp is the first easy one in a long time.  The volatility of the stocks to short term catalysts make this a tricky trade.  September is likely to disappoint lofty expectations, but October could be a big month, although expectations are pretty high for that month already.


                                                                       SEPTEMBER IS A WHOLE DIFFERENT MONTH - Total Macau Revenue August



“The better part of valor is discretion”
– William Shakespeare



Thanks Bill, and the better or necessary part of consumer spending is the staples.  Necessity is why staples are also called non-discretionary.  With their discretion, will consumers be so valorous as to empty their wallets for things they want, rather than need?  The almost vertical trajectory of discretionary consumer stocks suggests yes.  On the contrary, sound analysis indicates that consumers face an almost impenetrable ceiling, triple fortified by the Three S’s:  Savings rate, Stagflation, and Share of wallet.  I’d add consumer credit (bad) to the mix but it doesn’t begin with an S, we like 3s, and our macro team will be addressing this topic shortly.


So while Geithner may say that “things are better than 3 months ago, 6 months ago, before this recession began”, I would ask two questions:  By what metric and for whom?  Geithner’s preferred metric lately, it appears, is the rate of change or the “less bad” thesis that Research Edge was espousing when everyone else thought the world was falling apart (March 9th ring a bell?).  The stock market has already discounted “less bad”, then “stability”, and now is viewing the consumer as in “recovery” mode.  This is what scares me.


“Recovery mode” implies, well…recovery.  I’m certainly not seeing it in the consumer discretionary sectors of gaming, lodging, and leisure that comprise my analytical vertical.  Is business less bad?  Maybe, but I think the comparisons are just getting easier.  The consumer is not necessarily getting stronger.


“Recovery mode” also implies some lasting duration.  We are very worried about Q4 from a macro and consumer perspective.  The threat of stagflation is real, maybe coming as soon as Q4.  Stagflation is a consumer killer.  In a stagflation environment, fewer consumers have jobs and the ones that do can’t buy as much as before.  Will you take credit for that too, Mr. Geithner, when it happens?  Your policies and your predecessor’s policies (as well as the Bernanke constant) have created a fertile environment for potentially massive inflation, yet unemployment continues to grow.  Sure unemployment is growing at a slower rate (10% but it could’ve been 10.5%!).  Congratulations - pop the champagne – at least the French consumer discretionary industry will benefit.


So if I’m out of work (thankfully I’m not) and my purchasing power begins to decline at an accelerating rate (rate of change cuts both ways Tim), am I really going to buy that 2nd boat, 8th Coach bag, or book that 3rd cruise this year, or will I feed my family.  Want versus need.


This also gets us to the share of the wallet question.  In an inflationary economy, a larger part of consumer spending will go to non-discretionary items.  With stagflation, the size of the wallet shrinks.  One of my industries has a third problem:  even within the consumer discretionary segment, casino spending is shrinking as a % of Personal Consumption Expenditures (PCE) for the first time in 25 years.  Now that’s a triple whammy!


So what do we do?  Be careful and manage risk.  We can’t ignore the warning signs just because the stock market and consumer stocks are going up.  Timing, as always, is critical.  This is where I defer to our timing tutor, Keith McCullough.


On a separate note, I will be taking many moments of silence today to contemplate what happened exactly 8 years ago on a beautiful, sunny Tuesday morning.  The events of 9/11 had an impact on virtually every American.  The impact was personal for many of us living/working in NYC that day.  We move forward in part by looking back.


Todd Jordan

Managing Director


The week of the 14th through the 18th will be busy, with a large number of economic data points scheduled for release in North America and Europe (while Asia will have a relatively light schedule).  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.  


Monday September 14


North America

Q2 Capacity Utilization for Canada will be released at 8:30 am.



Eurozone Industrial Production data for July will be released in the morning.



Revised Industrial Production data for Japan will be released in the morning while in Australia the notes from the September RBA meeting will be released at 9:30 PM.  


Tuesday September 15


North America

August PPI and Retail Sales data will be announced at 8:30 AM while July Business Inventory figures will be released at 10.  Weekly ICSC, Redbook and ABC Consumer Comfort index data will also be released at normal scheduled times.  In Canada July vehicle sales and Q2 Labor Productivity figures will be released on Tuesday morning. 



Eurozone Q2 labor costs will be released on Tuesday morning as will French CPI and German ZEW sentiment indices. In the UK, August CPI and Retail Sales Data will be released at 4:30 AM as will DCLG House Prices for July.


Wednesday September 16


North America

Wednesday morning will be busy with August CPI, Industrial Production and Capacity Utilization scheduled for release as well as Q2 Current Account data.  Weekly MBA Mortgage application data will be released on Wednesday morning along with EIA oil gas and distillate stock levels. NAHB Housing Market Index levels will be announced at 1 PM for September.  In Canada Manufacturing Shipments, Orders and Inventories for July will be released at 8:30 AM.



August CPI data will be released in the morning for both the Eurozone and Italy , while in the UK August Claimiant and July Unemployment will be published. Germany will auction 10 year bunds.



August Unemployment will be released in South Korea on Wednesday morning while July Tertiary Index levels for July will be released in Japan in the evening.


Thursday September 17


North America

After a slight decline last week, the market will be focused on Initial Claims data for the week of the 28th when it is released at 8:30 AM. ISM Non-Manufacturing and Priced data for August will be released at 10 AM, while weekly Natural Gas stock data will be announced at 10:35 by the EIA (a closely followed data point in the wake of the prior week’s bearish reading). Also on Thursday morning the Treasury Department will announce 3, 10 and 30 years.



Eurozone July Trade data will be announced While in Switzerland the Scheduled SNB Monetray Assessment wile b held at 8 Am. In the UK August Retail sales data will be released while Her Majesty’s Treasury will offer 5.25 GBP Billion of 2014 Gilt at 2.25%). 


Another light schedule with Weekly Wholesale Inflation data from India and August Unemployment rate levels for August slated for release.


Friday September 18


North America

In Canada Wholesale Trade figures for July will be released at 8:30 AM.



Eurozone Current account figures for July will be released on Friday morning, as will Italian Industrial Orders and Sales data for July and German PPI for August. In the UK August M4, Net Borrowing and CML Gross Mortgage figures will eb announced. 



On Friday morning Leading and Coincident Index levels for July will be released in Japan