Nike’s new NFL uniforms were unveiled today and we like what we see. Concerns over the potential for radical changes (a la Oregon Ducks) proved unwarranted. While fluorescents did make its way into the new Seattle Seahawks jerseys redesign, there was an obvious effort to respect league history (see pics below).
In typical Nike fashion, there are visible improvements to the finer elements (e.g. seem location and weight). Importantly, Nike didn’t need to make a big splash in its first big NFL reveal, it just needed to give consumers enough reason to come back and see what they come up with next and that is exactly what they did. As expected, the Nike/NFL era has started in favorable field position.
For additional perspective, here is a sense of the P&L contribution from our note titled "NKE: Eight Bucks:"
“By our math, the NFL deal, which flips from adibok to Nike in early April, will probably be around $200-$300mm in year 1. That’s the lower end of where Reebok had it. That’s also why we think Nike will double this rate in year 2. And likely grow it by 50% in year 3. If this is the case in year 1, then let’s say $200mm of it is set for delivery within Nike’s current futures window. Assuming that 85% of Nike’s US business is on the futures program, that suggests that the NFL deal helped futures by about 5%. So…22% minus 5% = 17% growth in North American futures. For what it’s worth, we have to look back to the Clinton Administration to find the last time the North American business grew at this pace – and back then the company was stuffing the channel with apparel product and was STILL half the size it is today.”
No Current Position in Europe
We expect both the ECB (on Wednesday) and BoE (on Thursday) to keep their main interest rates on hold at 1.0% and 0.5%, respectively, and not to add any major non-standard measures or asset purchases. We expect both banks to continue implementing a “wait-and-see” process to determine the impact of policy moves, including the LTROs, reduced collateral requirements, and reduced SMP sovereign bond purchases in the last two months by the ECB and increases in the BOE’s asset purchasing program (increased purchases by £50 Billion on 2/9 and remained unchanged on 3/8).
Below we present our quantitative views on the EUR/USD and GBP/USD over the near term TRADE and intermediate term TREND.
We continue to highlight that despite pockets of optimism on the Eurozone and UK economies, recent data continues to be weak. Yesterday we received European Manufacturing PMIs, which, as the table below shows, largely declined month-over-month in March (the UK saw a positive inflection), or were at or below the 50 line that divides contraction (below) from expansion (above). We expect a similar trend with European Services PMIs, which will be announced tomorrow.
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POSITIONS: Long Utilities (XLU), Shorting Industrials (XLI) and SPY
A market that doesn’t go down and has no volume is impressive, until it isn’t. It’s April the 3rdand US Equity volumes are running down between -6-17%, daily, versus my YTD composite average. We have only had 1 down day greater than -0.7%.
Maybe that is the new normal. Maybe Growth Slowing won’t matter this time either. But right around this time in 2008, 2010, and 2011, that was a really bad risk management assumption to make.
The most important lines across durations in my model are now:
- Immediate-term TRADE overbought = 1424
- Immediate-term TRADE support = 1407
- Intermediate-term TREND support = 1324
In other words, impressive should remain impressive, provided that 1407 holds. If it doesn’t, both economic gravity and 1324 are in play.
I have 13 LONGS and 14 SHORTS in the Hedgeye Portfolio.
Keith R. McCullough
Chief Executive Officer
Comps are coming in better than expected QTD up +LSD according to URBN’s latest 10-K update. With substantially cleaner inventories coming out of Q4 we see upside to current earnings expectations for one of our Top 3 longs. While we are still in the early stages of the turnaround underway, this is certainly a favorable sign that progress is indeed headed in the right direction.
Below is a list of recent management changes and some highlights from the Q4 call (March 12th):
Management changes (Nov 2011 – Present):
- Dick Hayne returning as CEO, Jan 10, 2012
- Frank Conforti as CFO, Mar 21, 2012
- Ted Marlow: Urban Outfitters CEO, Feb 6, 2012
- Charles Kessler: Urban Outfitters CMO, Oct 31, 2011
- David McCreight: Anthropologie Group CEO, Nov 7, 2011 (Also overseeing BHLDN)
- Wendy McDevitt President of Terrain, Nov 7, 2011
“The penetration of full-price selling has improved over the fourth quarter. So, we're selling more full-price items as a percent than we did in the fourth quarter, and that is one of our goals for this year is to improve the penetration of full-price selling. So, we're happy about that.” – Richard Hayne, CEO
“There remains a great deal of expansion ahead within our existing customer segment, existing distribution channels, and existing geographies. Our recent issues have been largely self-inflicted. Amidst a great deal of organizational change, we drifted away from our aesthetic positioning and the merchandising disciplines that built our strong and unique relationship with our customer. We will recapture those essential qualities.” – David McCreight, CEO Anthropologie
“Our retail team is working diligently to distort our store assortments by addressing different climates, as well as regional fashion trends. As of this quarter, we are fully staffed in operations, styling and visual roles, while training new management in the field. Our momentum has continued into the spring season. Direct and Wholesale channels are off to a strong start.” – Margaret Hayne, President Free People
“Our sights are set on course correcting our shortfalls with improved content, inventory quantification and creative execution. Thus, our mission at the moment is to improve the performance of our core Women's business. In general, our Men's and Home businesses have performed well in North America and Europe, while our Women's businesses have underperformed. I view our shortfall in Women's as quite fixable.” –Ted Marlow, CEO Urban Outfitters
Below is an excerpt from our 3/22/12 note, URBN: A Winner in 2012 outlining our thesis:
This is one of the few companies that can put up double digit square footage growth over the course of our 5-year model – and likely beyond. It’s not married to one concept that will simply max out growth when it runs out of malls – like what we saw at brands like Gap, American Eagle and Ann Taylor. We don’t think that its two major brands – Urban Outfitters and Anthropologie – are broken. They had fashion problems over the past year, which we think stem from poor execution by management. Fashion is a tough business, but when the right buying infrastructure is in place, there shouldn’t be a whole lot of risk for a company that sells third party brands. Rather, URBN got sloppy in both product selection, quality and even PR. It lost sight of who its customer is, and merchandised accordingly. Yes, there is a customer ‘piss off’ factor that hurts for a time. But ultimately if URBN has the right organization in place, it will have the right product, which it will then sell to the right customer.
The good news from our perspective is that a merchandising issue like this for a vertically integrated company often takes 1.5-2-years to fix. But for URBN, we can see results much sooner. We saw CEO Glen Senk ‘step down’ in early January, and we saw founder Richard Hayne – who is extremely well liked and respected by the organization - stepping back in totake control. Ted Marlow is also back heading the Urban Outfitters brand, after leaving when Senk was chosen for the CEO role.
We think MO revs fell slightly which is surprising considering 2 extra weekend days vs last year.
Missouri will release gaming revenues for March next week and we think they will be down slightly. Expectations are that March should be a great month for domestic gaming given the 2 extra weekend days this year vs last. We still believe that most of the other regional markets will post positive growth and one month from one state does not make a trend. Moreover, the Kansas City market is grappling with the February 3rd opening of PENN's Kansas casino which is part of the KC market but doesn't show up in the Missouri numbers.
Interestingly, February's revenues in MO were up 4% despite PENN's opening. Could high gas prices be impacting regional gaming revenues? We'll have to wait for more data points.
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