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JWN: 1Q12 Report Card

Conclusion:

You have to be hiding under a rock not to know that things got worse on the margin in the department store space. First Macy’s, then Kohl’s…but high-quality Nordstrom should be immune, right? Hardly. The good news is that comps (known) were 8.5%, with total sales ringing in at 13.2%. The comp accelerated on both a 1yr & 2 yr basis with categories like high end hand bags as a key area of outperformance. This reaffirms strength we’re perennially seeing in the domestic luxury accessory market, marking a stark contrast to low end retail. The bad news is that with such impressive top line, the company only put up a 2.9% EBIT growth rate. Some people will chalk up the weak margins to one-off investments in e-commerce. But ecommerce is here to stay, and increased investments will need to as well. Also, Free Shipping hurt margins. Free shipping is like sticking a needle in the consumers’ arm – it’s very difficult to wean them off once they get a taste. Lastly, inventory per square foot was +16%, which the company made a noble effort to explain away as not being a concern. We’ll point to the -6% sales/Inventory Spread – just edging out Kohl’s as the worst in the department store space quarter to date, and a sequential decline from -5% last quarter. Then again…JCP has yet to report. Maybe then JWN can hold on to hope that Johnson and team will steal this prize.

 

What Drove the MISS?

Although credit sales came in slightly better than expectations (flat vs -14E) resulting in total revenues +13.2% vs +12.6E, gross margins came in light -31bps vs +33E resulting from free shipping to fashion rewards customers. With ramped up investment spending largely in line with consensus, operating margins were (-106bps) vs (-35E) driving the nickel miss. Despite strong top line trends with comps +8.5% driving a 100bps acceleration in underlying two years trends, JWN left full year EPS outlook unchanged at $4.30-$3.45 vs. $3.49. The only key delta in full year guidance was a $10mm pullback in credit SG&A to offset an incremental $10mm in retail investment in additional e-commerce enhancements. 

 

JWN: 1Q12 Report Card - dept store SIGMA

 

JWN: 1Q12 Report Card - high low end chart

 

Deltas in Forward Looking Commentary?

 

In order to properly measure performance relative to original expectations, we look at management’s 2012 guidance headed into the quarter as well as the key deltas in Q1 results vs. expectations :

 

 

FY2012 GUIDANCE

 

EPS

  • We expect to achieve 2012 EPS of between $3.30 and $3.45, with same-store sales between 4% to 6% UNCHANGED
  • Our plan for the 53rd week will increase our annual sales and EPS by approximately $160mm to $170mm and between $0.03 and $0.05, respectively UNCHANGED

Gross Profit

  • Our 2012 gross profit rate will range from 5 to 35BPS lower than last year UNCHANGED
  • This primarily is a function of the near-record performance of merchandise margin in 2011, along with the unfavorable gross profit impact from an increasing mix of Rack stores, the reduction of shipping revenue, and the introduction of our enhanced Fashion Rewards program

SG&A

  • We anticipate retail SG&A to be $265mm to $330mm higher than last year INCREASED $10mm to support additional E-Commerce investment spend
  • Credit card revenue is expected to be flat to up $10mm, with no anticipated growth in credit card receivables, due to increased sales volume being offset by higher payment rates UNCHANGED
  • Our Credit SG&A expense is expected to be $10mm to $20mm higher compared to last year, primarily due to the absence of planned reductions in our reserve for bad debt REDUCED as an offset to $10mm increase in retail SG&A

EBIT

  • EBIT as a percent of sales is planned to be in the range of 11.4% to 11.6% for the year UNCHANGED
  • This is a slight decrease from last year and is a function of the increased level of investments we’ve described
  • Interest expense is anticipated to increase $25mm to $30mm, largely due to increased borrowings and a higher interest rate relative to last year UNCHANGED
  • FCF is planned to be approximately $400mm for 2012 UNCHANGED


Highlights from the Call:

 

Investment Highlights:

  • In E-commerce, made enhancements to the website to improve navigation/checkout and increased the selection of merchandise, added to functionality of apps, improved fulfillment
  • Announced partnership with online Men's retailer Bonobos in April
  • In March, re-entered Salt lake city market with a store that had 100+ mobile POS devices, 3X the devices as cash registers.
  • Can see significant increase in speed of POS which provides better service in full line & Rack
  • Saw a favorable response to changes to fashion rewards which were focused on convenience- enrollment in new fashion rewards increase 50% YoY

 

1Q12 Highlights

  • EPS $0.70 +8% YoY
  • EBIT $280mm +2.9% YoY
  • Total sales +13.7%, Comps +8.5%
  • Nordstrom full line & direct comp +9.3% driven by handbags, women's shoe and men's shoes
  • Full line Comp +5.6% driven by the South and Midwest
  • Direct growth +44.2% YoY
  • Rack total sales grew 19.6% with comps +6.8%
  • Percentage of regular price sales continued to increase in the quarter

 

Gross Margin: -31 bps due primarily to enhanced customer loyalty program and the impact of free shipping

 

Retail SG&A: +110mm YoY

  • Half of the increase due to e-commerce growth investments focused on improved selection, convenience and overall service
  • Remaining SG&A attributable to sales growth in new/existing stores

Inventory:

  • Ending inventory per square foot +16% which are aligned with merchandise plans
  • Inventory turn of 5.4X slowed slightly from 2011 inline with expectations but expect improvement throughout the year

Credit Performance

  • Rate of decline improved to 4.7% from 7% a year ago
  • Reduced the reserve for bad debt by $10mm (percent of total 5.2%, down from 6.7% LY)

Share Repurchase:

  • 800K shares in Q1 at avg price of $50.79 for total of $40mm
  • $1.1bn remains in authorization

Outlook:

  • EPS outlook remains unchanged
  • Increase Retail SG&A by $10mm due to increase e-commerce investment spend

Comps:

  • 2Q: +LSD
  • 3Q: +HSD
  • Full year : +4-6%

Gross Margin:

  • 2Q: -70-90bps
  • 2H: -10 to +10bps
  • Full year: -5-35bps

 

Q&A:

 

Expenses:

  • Half of the $110 in expense increase due to stores which achieved percent to sales leverage
  • Retail SG&A deleveraged in the Q

Fashion Rewards:

  • Roughly 1/3 of overall volume done on various tenders
  • Started offering rewards in the rack
  • Still have same program as last year with the anniversary sale (rewards customers can shop early)

Guidance:

  • Guidance implies stronger GM in 2H
  • Believe back half earnings will be stronger than 1H

E-commerce Growth:

  • Strong DD comp increase last year relative to 44% growth in 1Q12

Investment Spending:

  • 2012 saw a step change and accelerating moment in investment spending
  • Expect these investments will help achieve long term goals 

Women's

  • Always looking to be most effective with space
  • Continue to find ways to add energy to second and third floors
  • Still working on hiring executive role to head up women's
  • Performance on the whole has been challenging- more modern casual side has been improving

Hautelook

  • Expect to do 50-60% sales increase
  • Company is currently on plan with very good momentum
  • Will continue to be JWN's primary online offset concept

53rd week impact

  • $0.03-$0.05 impact

Brooks Brothers Partnership

  • Big part is them understanding the JWN customer
  • Great relationship so far with promising early read

Anniversary Sale:

  • Always want to start the event on a Friday
  • Eventually the event gets pulled back a week due to timing
  • Nothing unusual driving the move

Inventory turns:

  • Slowdown was built into the plan as it relates to new stores and growth in direct
  • Position last year had greater turns

POS device Functionality

  • Functionality is currently at ~75%, will reach 100% by the end of the year
  • Will rollout more in 4Q
  • Planning an additional larger rollout in 1Q13 once POS devices hit full functionality

 Amazon:

  • JWN focused on serving customers on their terms
  • Now and going forward, how customers define service, continues to change
  • Making a lot of investments in capabilities around those areas and see good opportunity to build on capabilities and serve customers on their terms

Rack Profitability:

  • Rack continues to be a terrific opportunity to deploy capital
  • Will continue to grow at 15 stores a year
  • Are seeing no deterioration in the stores that have been opened

E-commerce:

  • Growth of 44%
  • If growth remains on track, could increased SG&A spend continue into 2013
  • Opportunity capture a lot more customers and continue to grow
  • A lot of the capabilities needed to enhance e-commerce requires more of the right people which is happening now
  • SG&A beyond 1H12 should be a slow growth rate than current due to hiring happening no

1Q Gross margin -30bps

  • Merchandise margin was roughly flat to last year
  • Predominantly related to fashion rewards and free shipping

Rack Concept:

  • Synergy between rack and full line stores
  • Continue to see a healthy relationship between the two formats- beneficial to both
  • Continues to be customer movement back and fourth between full line and nearby rack

Inventory on hand

  • Inventories will be slightly higher coming out of Q2 because there will be one additional week at the start of Q3 for the anniversary sale 

 


WEEKLY COMMODITY CHARTBOOK

As the dollar gained and gasoline prices came down over the past week, grains led to the downside which is a positive leading indicator for food processor margins.  We can expect that benefit to flow through to restaurants in time but, as we have highlighted before, building up the U.S. cattle herd will take time; it is likely that prices will remain high absent exogenous factors like an escalated BSE outbreak or persisting “pink slime” concerns. 

 

Besides dollar strength, the USDA report published today detailing World Agricultural Supply and Demand helped push corn lower.  Corn stocks were pegged higher than expected. 

 

Coffee is another commodity that we would highlight; despite dollar strength and continuing concern about economic weakness in Europe, Arabica coffee gained 1.6% over the past week.  Year-to-date, coffee is down 23%. 

 

WEEKLY COMMODITY CHARTBOOK - commod

 

 

GAS PRICES WATCH

 

Gas prices coming down are benefiting consumers as the dollar strengthens and this should be a positive for restaurants and grocers as consumers drive and grill more during the summer months.

 

WEEKLY COMMODITY CHARTBOOK - gasoline

 

 

SUPPLY & DEMAND

 

Coffee

 

Supply: Columbia said that the harvest rose 11% in April and may continue to rise for the remainder of the year.   

 

Demand:  Speculation that demand will continue to show strength despite eurozone concerns fueled the coffee gain today. 

 

Comments:  Falling coffee prices are good for company margins as long as demand is not falling so fast as to impact sales to a significant degree.  Starbucks has its coffee needs locked into fiscal 2013.  Peet’s has its coffee costs locked though 2012 at increasingly favorable prices throughout.  Last year was a difficult year for Peet’s from a cost perspective. 

 

 

Chicken

 

Supply: Egg sets placements continue to contract at around the same rate, -5%, according to the Broiler Hatchery report released by the USDA today. This implies that supply will remain tight as the industry looks for more favorable business conditions before expanding production. 

 

WEEKLY COMMODITY CHARTBOOK - egg sets wings

 

 

CORRELATION

 

WEEKLY COMMODITY CHARTBOOK - correl

 

 

CHARTS

 

WEEKLY COMMODITY CHARTBOOK - coffee

 

WEEKLY COMMODITY CHARTBOOK - corn

 

WEEKLY COMMODITY CHARTBOOK - wheat

 

WEEKLY COMMODITY CHARTBOOK - soybeans

 

WEEKLY COMMODITY CHARTBOOK - live cattle

 

WEEKLY COMMODITY CHARTBOOK - chicken breast

 

WEEKLY COMMODITY CHARTBOOK - chicken wings

 

WEEKLY COMMODITY CHARTBOOK - cheese

 

WEEKLY COMMODITY CHARTBOOK - milk

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


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KSS: 1Q12 Report Card

Conclusion:

KSS is finally taking steps to adjust its pricing strategy a full quarter after JCP implemented its new EDLP approach in February. We’re rarely (if ever) a fan of reactive strategies and this one is no different. KSS will now be more aggressively fighting for share – that’s great, but others have already been taking it for the last 3-months now such as Macy’s, the off-pricers (TJX/ROST), etc. Increased competition in the mid-tier that will ultimately drive increased margin pressure is here and officially heating up. This isn’t good for KSS, or the companies that rely heavily on this channel for distribution such as CRI, HBI, GIL to name a few.

 

What Drove the Beat?

KSS posted a very low quality SG&A driven beat for the quarter with both revenues and gross margins coming in soft. A few points of note here:

1) Revenues were light. We knew that last Thursday and now KSS is going to try to drive traffic with lower pricing. This didn’t work out so well for JCP. We expect an uphill battle ahead for KSS as well. Not good.

2) Gross margins also came in below expectations. While some portion of this degradation was due to the new pricing initiative, KSS’ sales/inventory spread is virtually unchanged and still among the worst in the mid-tier. That’s very gross margin bearish over the intermediate-term.

3) SG&A was the saving grace in the quarter coming in down (-0.2% adj) yy vs. guidance of +3.5%. We’d prefer to see KSS invest in remodeling some of its tired store base rather than pulling this lever so heavily to make EPS. It may indeed help manage earnings near-term, but that’s no good for F13 earnings growth sustainability. 

 

KSS: 1Q12 Report Card - KSS SIGMA

 

Deltas in Forward Looking Commentary?

 

In order to properly measure performance relative to original expectations, we look at management’s 2012 guidance headed into the quarter as well as the key deltas in Q1 results vs. expectations :

 

Q1 FY2012

  • We’re projecting a total sales increase of 3%, comparable sales increase of 1% MISS: Sales +2%, Comps +0.2%
  • By month, we expect February to be slightly below the quarterly guidance, March to be higher than the quarter, and April to be slightly below the quarter INLINE: KSS missed consensus 2/3 months
  • We’re projecting a gross margin rate decline of 160BPS MISS: Gross Margins down 220bps due primarily to increase promotional activity
  • SG&A expense dollars are projected to increase 3.5%, depreciation expense of $205mm, interest expense of $81mm, a tax rate of 38%, share count of 245mm diluted shares LOWER: SG&A -0.2% (adj), tax rate of 36% added $0.01 to EPS
  • And we’re also projecting share repurchases of about $305mm for the quarter, at an average price of approximately $53 per share
  • Including these estimated share repurchases, we expect earnings per diluted share to be $0.60 for Q1 BEAT: $0.63 vs $0.60

Full Year 2012

  • The following metrics are for FY2012: Total sales increase of 4.5% UNCHANGED
  • Excluding the impact of the 53rd week, we expect total sales to increase 3.5% UNCHANGED
  • A comparable sales increase of 2% UNCHANGED
  • A gross margin rate decline of 70BPS. UNCHANGED though not reiterated due to incomplete fall spending; 2Q SG&A to be down 200-250bps with 2H SG&A down YoY
  • SG&A is expected to increase about 3% for the FY, and 2% if you’re excluding the 53rd week UNCHANGED
  • Including estimated share repurchases, we expect earnings per diluted share to be $4.75 for FY2012 UNCHANGED

CAPITAL SPENDING, NEW STORES OPENINGS AND REMODELS

  • From a capital spending perspective, we expect CapExs to be approximately $825mm in 2012 UNCHANGED
  • We expect to open 20 new stores in 2012, eight in March and 12 in October REDUCED- Opened 9 stores in Q1 with 10 planned for the fall
  • We’re temporarily reducing the number of remodels to approximately 50 stores in 2012, as we look to potential changes to our stores to increase sales productivity as well as provide more efficiency UNCHANGED- remodeled 40 in Q1 with 10 planned for the Fall

 

 

Highlights from the Call:

 

Revenues:

  • Sales +1.9%, Comps +0.2%
  • AUR +4.9%, UPT -3.3%=average trans +1.6%
  • Transactions/store down (-1.4%)
  • E-Commerce: +34% ~$250mm
  • Private/Exclusive brands were 53% of sales
  • Growth was hindered by lack of inventory units in stores (entered quarter down 6% in units and 9% in seasonal categories)
  • Seasonal category unit inventory was down as much as 20% in the quarter
  • Planning unit inventory flat at the end of Q2 to drive sales demand though levels will continue to hinder 2Q top line

Category Performance

  • Men's, Children's & Accessories outperformed the company average
  • Men's strength in casual sportswear, basics, dress shirts and young men's
  • Children's led by boys & girls
  • Accessories strength in fashion, handbags, sterling silver & watches
  • Women's essentially flat- active and updated sportswear strongest +LDD
  • Footwear slightly negative despite LDD growth in women's shoes
  • Home down LSD; strongest performance in tabletop, bath & towels
  • Sales in Rock & Republic exceeded expectations

Regional Performance:

  • Cold regions outperformed warm (Mid Atlantic, Midwest, Northeast vs. South Central, Southeast, West)
  • Midwest & Northeast +LSD
  • Southeast and South Central down (-LSD)
  • West down (-MSD)

Store Productivity Testing:

  • Testing 50 store in Houston, Atlanta, Salt Lake City
  • Test includes expanded home selection
  • Expect to add 2 additional markets with 20 stores for back to school
  • Will make changes to remodels based on results of testing

Credit:

  • Credit share 56%, +270bps

Gross Margin:

  • GM (-220bps; had guided to -160bps)
  • Difference between actual -220 vs expectations -160 primarily due to promotional markdowns
  • Clearance levels similar to expectations
  • Gross margin guidance reflects customer response to new reduced pricing strategy

SG&A

  • SG&A  -0.2% adjusted (had guided to -3.5%)
  • Credit  business generated leverage in the quarter which is expected to moderate
  • Most all stores reported lower costs as percent of sales
  • Strongest improvement in store payroll
  • Advertising did not leverage due to support of new brand launches

D&A: $201 vs. $191 last year

  • Increase due to new stores & additional e-commerce fulfillment centers

Interest Expense: +$6mm YoY

  • Due to $650mm of long term debt issued in October 2011

Stores:

  • Currently 1134 stores, opened 9 stores, relocated 1, closed 1 in 1Q12

Inventory: +7%

  • Inventory/store +3.7%

Capex: $177mm vs. down $44mm YoY

  • Decrease reflecting lower spending on remodels/new stores/e-comm fulfillment partially offset by higher technology spending.
  • Opened 9 stores this year & last year; planning 10 stores this fall vs. 31 last fall.
  • Also reduced remodel plans from 100 last year to 50 this year.
  • Remodeled 40 stores in Q1 with 10 planned for the fall
  • Spending on 4th e-commerce facility ramping now

 

Guidance

 

2Q Guidance:

  • Sales +2-3%, comp sales flat to +1%
  • Expect May below, June in line and July well above quarterly comp
  • GM decline of 200-250bps
  • SG&A will be flat to +1.5%
  • Depreciation of $206mm
  • Interest Expense of $80mm
  • Tax rate of 38%
  • Share count 241mm diluted shares (repurchasing $250mm at an avg price of $50/share
  • Expecting EPS of $0.96-$1.02

Full year

  • EPS remains at $4.75/share
  • Expect Gross margin to improve in the fall season but remain down YoY
  • Apparel costs are down for the Fall season in the MSD range which will help gross margins

 

 

Q&A

 

Marketing Program:

  • Advertising expenses deleveraged in 1Q, would not expect leverage in 2Q
  • Expect to do better on the comp with more units in 2H and hope to leverage marketing in the back half
  • Lapping launch spend for Jlo in 2H which should create leverage
  • Customers will see price points very clearly in new ads and in the store
  • Message will be that it is exciting to shop value in stores

Operating Expense Control:

  • Saved on electricity spending in the quarter, spending down 4-5% in 1Q
  • Majority of savings came from store payroll
  • Saved on snow control in the quarter from more mild winter

Market Share Opportunities:

  • Biggest opportunity remains internal, a lot of changes taking place in the industry
  • Generating store to store success that has been seen in the past will be a result of better pricing, better product
  • Understand the changes that need to be made to the merchandising assortment

Result of Pricing Strategy:

  • Reduced a lot of opening price points in private brands which resulted in an acceleration in unit demand
  • Dramatic change in sell through as pricing was adjusted
  • Did not have the depth of inventory to support the unit growth which translated into the top line
  • Did well with newer brands in the portfolio (Rock n republic, J Lo, Marc Anthony)
  • Changing the value is making a difference in how customers view the product
  • Majority of gross margin pressure was in the private brands where prices were taken down the most but costs increased the most

Inventory:

  • Starting to see cost reductions so units might be up but costs down
  • Inventory up 3.7% on a per store basis
  • Units were down 6% in stores, expect to end the store on a unit basis as flattish
  • Expect 2Q inventory to be up MSD-HSD on a per store basis
  • Will be less aggressive on classic inventories on the missy side
  • Inventory growth will not be across the board- being smart about unit opportunity
  • Private brands were definitely hurt by the lack of units

Merchandising Opportunity:

  • Biggest opportunity is holiday
  • Really underperformed in 4Q11 in particular around more gift related categories- focus of 2012
  • Opening price point was an area of underperformance which was a function of more inventory support
  • 30% plus of the business is opening price point private brands
  • Need to continue to introduce news brands and will have announcements to share later in the Q but its more important to have new styles and new colors

Credit Uptick

  • Not coming from approval rates, new approval requirements have made this more difficult
  • Making changes from the scorecard perspective in June/July that should help approval
  • Really showing that you can get additional value by signing up for a Kohl's card
  • Expect the credit rate to continue to increase over time
  • Credit increase near $20mm- will continue to be a benefit throughout the year but not as good
  • Credit built into the guidance

JC Penney:

  • Difficult to quantify without knowing sales
  • If sales were up YoY, KSS most likely lost share to JCP

Comp cadence:

  • Missed a great deal of business in July last year resulting in this year's July comp above the quarter
  • Ran 2 credit events in June last year so comp expected to be in line with the quarter
  • Feel the company will be better positioned to drive sales later in the quarter

New store prototype/store remodels

  • Testing the expansion of home
  • Looking at other areas that aren't as productive as the overall stores but tests wont be done in 2013
  • Expectation for new stores in 2013 continues to be ~20
  • Remodels- will most likely stick to 50 remodels in 2013 based on test results

SG&A- Online infrastructure spend:

  • Guiding to an SG&A leverage point of 2%
  • Undergoing a profit improvement project throughout the entire company (5 total)
  • Expect to finish 2/5 projects by the end of year

Fashion Trend Response:

  • Experience in fall/holiday caused the company to rethink the entire buying process
  • Not dissimilar to 9 years ago when the company required a full rethink
  • There have been a tremendous amount of changes primarily in the buying and planning organizations
  • Focus around exclusive brands and the need to be more trend right has caused changes in the product development area as well
  • Working to buy more product on trend- merchants are chasing sales

New Prototype

  • Driven by e-commerce, recognition that online which continues to grow at a high rate is a potentially cannibalization of brick and mortar retail
  • Thinking long term in terms of sustained high growth in e-commerce and what it means for brick and more locations

Elasticity in Kid's

  • 2 areas where it was clear pricing would change trajectory of demand were children's apparel and broadly across the store in great value/key items (not in one particular category)
  • Saw acceleration in sell through rate as pricing was adjusted
  • Solid basis backing pricing decisions being made for the Fall

Full year Gross Margin:

  • Have not complete fall plans but expect margins to be down in the fall though improved over 1H
  • SG&A could be better than Fall guidance
  • Full year unchanged but not reiterated
  • Stock buyback of 250 in 2Q could be conservative, considering additional debt in 2H to buy back more stock

Executive changes:

  • New executive team will be driving the e-commerce business
  • Could accelerate growth even further in Fall Winter
  • Have made changes that could have major impact in juniors business during back to school
  • Certain areas will be impacted faster than others

Store Growth

  • Will continue to open stores which is largely above the rate of competitors
  • Objective about the need to solve some internal issues and will be in a position to consider new opportunities to grow
  • New stores have not been hitting the pro forma over the past couple of years due to the economy being different than it was when initial plans were in place
  • Could accelerate the 20 store growth as new store productivity improves 

INITIAL CLAIMS - WHAT'S REALLY GOING ON?

Is the Jobs Data Getting Better or Worse? It Depends Whether You're Looking at the SA or NSA data.

Initial claims rose 2k last week to 367k (falling 1k after a 3k upward revision to last week's data). Rolling claims fell by 5.25k WoW to 379k. On a non-seasonally adjusted basis, claims rose 5k to 338k.

 

We've been vocal in highlighting the seasonality distortions taking place in the data, and how they'll continue to act as a headwind through the July/August peak effect. That said, it's also important to highlight the other side of this, which is that the real numbers are actually improving. Consider the chart below, which shows the year-over-year change in the non-seasonally adjusted data. By this measure, the data continues to steadily improve at a rate of roughly 10% per year, indicating the underlying health of the jobs market remains on track. Nevertheless, we believe that a majority of investors rely primarily on the printed, seasonally-adjusted number, and, as such, regard the environment as moving sideways to up.  

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - YoY NSA

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Raw

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Rolling

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - NSA

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - NSA rolling

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - S P

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Fed and Claims

 

2-10 Spread

The 2-10 spread tightened 9 bps versus last week to 156 bps as of yesterday.  The ten-year bond yield increased 10 bps to 182 bps.

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - 2 10

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - 2 10 QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Subsector performance

 

INITIAL CLAIMS - WHAT'S REALLY GOING ON? - Subsector companies

 

Joshua Steiner, CFA

 

Allison Kaptur

 

Robert Belsky

 

Having trouble viewing the charts in this email? Please click the link at the bottom of the note to view in your browser.


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – May 10th, 2012

 

As we look at today’s set up for the S&P 500, the range is 21 points or -0.63% downside to 1346 and 0.92% upside to 1367.

 

 

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - levels

 

THE HEDGEYE DAILY OUTLOOK - SECTOR TABL

 

THE HEDGEYE DAILY OUTLOOK - Global

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 5/09 NYSE -1080
    • Down from the prior day’s trading of -613
  • VOLUME: on 5/09 NYSE 940.15
    • Increase versus prior day’s trading of 4.2%
  • VIX:  as of 5/09 was at 20.08
    • Increase versus most recent day’s trading of 5.4%
    • Year-to-date decrease of -14.2%
  • SPX PUT/CALL RATIO: as of 05/08 closed at 2.03
    • Up from the day prior at 1.31 

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 38.05
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.89
    • Decrease from prior day’s trading at 1.82
  • YIELD CURVE: as of this morning 1.65
    • Down from prior day’s trading of 2.03

 

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: Bank of England MPC rate decision, asset purchase target
  • 8:30am: Import Price Index, Apr., est. -0.2% (prior 1.3)
  • 8:30am: Trade Deficit, Mar., est. -$50.0b (prior -$46.0b)
  • 8:30am: Initial Jobless Claims, week of May 5 (prior 365k)
  • 8:30am: WASDE corn, cotton, soybean, wheat
  • 9:30am: Fed’s Bernanke speaks on bank capital in Chicago
  • 9:45am: Bloomberg Consumer Comfort, wk of May 6 (prior -37.6)
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage change
  • 11am: Fed to sell $8b-$8.75b note, 10/15/13 to 1/31/14 range
  • 1pm: U.S. to sell $16b 30-yr bonds
  • 1:20pm: Fed’s Kocherlakota speaks in Minneapolis
  • 2pm: Monthly Budget Stmnt, Apr., est. $30.5b (prior -$40.4b)

 

WHAT TO WATCH:

  • Bank of England expected to halt bond purchases at GBP325b
  • Cisco forecast 4Q revenue, profit growth that missed ests.
  • Euro diminished in poll showing more than 50% predicting an exit
  • Intel hosts investor day; watch commments on capex, gross margin: Stifel
  • Hong Kong Exchanges said to submit takeover bid for London Metals Exchange
  • Spain takes over Bankia after chairman says he will step down
  • ArcelorMittal beats estimates on U.S. steel-demand recovery
  • Sony profit forecast misses estimates as TV sales decline
  • Australia’s jobless rate falls to 1-year low, currency rises
  • Yanzhou Coal among cos. in talks to buy Vale SA’s stake in an Australian coal mine for more than A$500m, people familiar said
  • U.K. March manufacturing increases more-than-forecast 0.9%
  • Japan posts current-account surplus for a second month
  • Bernanke gets 75% approval rating in Bloomberg global poll
  • Las Vegas, Atlantic City casino monthly figures may be released

 

ANALYST RATINGS

  • Big Lots (BIG) raised to overweight at Barclays Capital
  • General Growth (GGP) raised to buy vs neutral at UBS
  • Highwoods Properties (HIW) cut to hold vs buy at Jefferies
  • JDS Uniphase (JDSU) raised to buy vs neutral at UBS
  • Macerich (MAC) cut to neutral vs buy at UBS
  • Tanger Factory (SKT) raised to buy vs neutral at UBS
  • Tesoro (TSO) raised to buy at BofA
  • Tetra Tech (TTI) rated new at Roth, PT $35
  • Vail Resorts (MTN) cut to market perform at Wells Fargo
  • Vertex Pharmaceuticals (VRTX) cut to outperform at RBC Capital
  • Vulcan Materials (VMC) raised to outperform at RBC Capital

 

 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Oil Snaps Longest Decline Since 2010 as U.S. Jobless Claims Fall
  • Copper Rises as Chinese Trade Figures Spur Stimulus Speculation
  • U.S. Soy Reserves May Fall 31% Before 2013 Harvest, USDA Says       
  • Brazil’s $2 Billion Sugar-Cane Revival Plan Fails: Commodities
  • U.S. Corn Reserves May Double on Record Crops, USDA Says
  • Soybeans Climb on Stockpile Speculation; Corn, Wheat Advance
  • Gold Declines for Fourth Day in New York as Dollar Strengthens
  • Cocoa Falls as Rain May Help Crop in Ivory Coast; Coffee Gains
  • Cotton Drops After Government Report Shows Bigger U.S. Harvest
  • Aluminum Buyers in Japan to Pay Record Fee as Supply Drops
  • Cosan’s $2.4 Billion Acquisition Spree Hurts Debt: Brazil Credit
  • London Oil Trades Beat New York for First Time: Chart of the Day
  • Cooking-Oil Imports by India Seen Advancing for Third Month
  • Florida Orange-Crop Estimate Little Changed, USDA Report Says
  • Arch Coal Lures Lenders With Coal in Ground: Corporate Finance
  • U.S. 2013 Wheat Stockpiles Seen Falling on Increased Exports
  • U.S. Cotton Crop Will Climb 9.2% as Harvested Area Expands

THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

CURRENCIES

 

US DOLLAR – forget Greece, get the US Dollar right and you’ll get a lot of other things right. US Dollar index up for 6 consecutive days and US Stocks down for 6 consecutive days – the USD Correlation Risk is screaming at -0.90 USD vs SPX right now and that’s why Gold and Oil refuse to bounce too. Correlation Risk isn’t perpetual, but when in the soup, it matters.

 

<CHART5>

 

 

EUROPEAN MARKETS

 

FRANCE – so you’re saying socialism is a ‘buy on the news’, eh? Non, non, mes amis – France flashing another negative divergence this morning, leading losers in Europe at -0.6%, taking the CAC’s draw-down from the March top (when European and US Growth Slowing accelerated on the downside0 to -14%.

 

THE HEDGEYE DAILY OUTLOOK - Europe

 

 

ASIAN MARKETS

 

CHINA – trade balance out last night just tells us more about what we already know – Growth Slowing in Asia marked the highs for both the Hang Seng and the Sensex all the way back in February. This is not new and it’s primarily why China continues to act pretty well on bad economic “news” (+0.1% overnight and +10% for 2012 YTD – my favorite Global Equity market).

 

THE HEDGEYE DAILY OUTLOOK - asia pacific

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - Middle East

 

 

The Hedgeye Macro Team

Howard Penney

Managing Director

 

 

 

 


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