$JCP: McGough Called It Right

(Editor's note: This JCP summation comes from Hedgeye Retail Sector Head Brian McGough. The stock is up over 5% in pre-market trading.)


As expected, there’s good and bad in the JCP quarter, but the net read is positive. What we were looking for was improvement in both the P&L and the balance sheet, and we got ‘em both.


1)    The bad, Gross margins were down 300 basis points in the quarter, as JCP cleared away inventory overhand from 1H and stepped up its promotional cadence.

2)    The good news is that promos worked, and sales improved sequentially throughout the quarter. sales were up 24.5%.

3)    EPS of ($1.81) missed the Street’s ($1.70) but the reported number includes a $0.73 loss associated with a tax valuation allowance.

4)    JCP voluntarily repaid $200mm on its revolver. That’s not behavior one would expect from a company about to file Chapter 11.

5)    Guidance for 4Q includes; 1) additional sequential improvement in top line and gross margin – and both positive vs last year, 2) DOWN sg&a versus last year, and liquidity to be in excess of $2bn.

6)    That final point on liquidity is the most important. The big bears out there had estimates for year-end liquidity of $1.5bn to $1.8bn. Again, companies with stocks going to zero don’t take up liquidity estimates.

7)    Our bet is that a third of sell side noted share the same title today ‘turning a corner’. This will be the quarter people will point to in hindsight as evidence that JCP is actually a viable company.


FLASHBACK: Here was McGough's take last week ahead of the report.

November 20, 2013

November 20, 2013 - dtrja

The Fed's English

This note was originally published at 8am on November 06, 2013 for Hedgeye subscribers.

“Why do we have noses that run and feet that smell?”



The Fed’s English can be confusing too. As you can see in our Chart of The Day, that’s what’s been driving unprecedented volatility in the US bond market this year. Confusion about @FederalReserve policy is starting to breed contempt.


But oh no, no, no – silly Mucker must have this all wrong. The Fed has a “study” that proves pretty much anything they want to prove. The latest data-mining propaganda coming out of the head of the anti-dog-eat-dog-Fed-Monetary-Affairs-Division, William English, insinuates that it’s time for Bernanke and Yellen to move the goal posts again on the unemployment target. #Wonderful


Huh? This is what Bush/Obama empowered - an un-elected and un-checked central planning agency that is trying to prove out their academic dogma versus well established forces (like gravity). The Fed can pretty much keep making up the rules as they go here until the entire Bond Bubble blows up. Isn’t that awesome? History will write plenty of English “papers” on this!


Back to the Global Macro Grind


Since the Fed was wrong on its US growth forecast again (this time they and #OldWall were too low at the beginning of 2013, and the bond market started front-running them as tapering expectations perpetuated the 2-stroke engine of #StrongDollar + #RatesRising), and the unemployment rate is getting too close to their policy change target of 6.5%, they need to change the target.




Or is it? I’ll be doing another full day of institutional client meetings in NYC today and I’ll tell you that (especially for clients who aren’t in the business of being levered-long bonds that they can’t get out of) this expectations game isn’t cool.



  1. 1.       Dollar Down + Rates Down = US Growth Expectations Down (see US economic history for details)
  2. For the last month, you’ve seen every growth “Style Factor” start to underperform slow-growth yield chasing
  3. If we’re going back to slow-growth yield chasing (long Gold, Consumer Staples, and Bonds) that’s a big shift

The Fed won’t have a “study” on this because that would prove that incrementally dovish policy does 2 things:

  1. Devalues America’s Currency (which they are supposed to be protecting)
  2. Represses rates and growth expectations (as Dollar Debauchery perpetuates inflation, not real-growth)

All the while, the same western academic dogma that we imported from Europe remains in parts of Europe. This morning’s central planning bureau headline out of Italy’s Finance Minister is begging Mario Draghi to cut rates and devalue the Euro!


To review, from December 2012 to August 2013, a #StrongCurrency policy (tapering):

  1. Crushed inflation expectations
  2. Ramped real (inflation adjusted) growth expectations

But these damn bureaucrats see that very Deflating of The Inflation (from the world’s all-time high inflation readings of Gold and Food prices in 2011-2012) as a threat to their failed policies!


Moving along, I bought more exposure to our #EuroBull Macro Theme yesterday via:

  1. Eurostoxx50 Index (FEZ) which tested and held my immediate-term TRADE line of support
  2. Swiss stocks (EWL) which were holding support and have bounced a full +1% this morning

Why buy US Growth anymore if we’re going to let these clowns at the Fed blow up our currency again? This all started with Keynes in Britain, and even the British have given up on the QE thing (thank God) at this point. Carney (the Canadian who doesn’t do crack cocaine) replacing Mervyn King at the Bank of England is like replacing Bernanke with me (or something like that).


#StrongPound in the United Kingdom continues to perpetuate rising UK growth expectations. When growth expectations rise, government bond yields rise (bonds go down). The 10yr UK Gilt Bond Yield is +10 basis points in the last 2-days as the UK printed the best Services PMI reading in 16 years (UK industrial production growth just accelerated to +2.2% y/y as well).


The final point to be made this morning is that after perpetuating Gold, Bond, and Utility Bubbles with his 0%-interest-rates-forever thing (formally known in a Hedgeye “paper” as Yield Chasing), Bernanke is probably going to get tagged with creating another US stock market bubble too. Today’s II Bull/Bear Sentiment Spread just clocked a fresh YTD high at +3960bps wide to the bull side.


I am still recommending prayer for those at the Fed who still don’t yet know about the “paper” on the definition of insanity. The summary of the paper is in plain English too – doing the same thing over and over again, and expecting different results.


Our immediate-term Risk Ranges are now:


UST 10yr Yield 2.55-2.69%

SPX 1751-1771

DAX 8976-9058

Swiss Market 8113-8299

Pound 1.60-1.62

Gold 1301-1339


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


The Fed's English - Chart of the Day


The Fed's English - Virtual Portfolio

Early Look

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CPB – Praying For Strong Winter Soup Sales

Position: Tactically short on strength.

Campbell’s had a rough quarter to say the least; the stock is trading down -6% intraday on management lowering FY guidance.


Despite concerted efforts to reduce costs (CPB completed the sale of its European Simple Meals business, the exit of 4 plants in the past two years, and plans to save an additional $40 in FY 2014) we struggle to get behinds CPB’s plan to increase its marketing spend (and likely promotion) as it accelerates the launch of eight new soups in the next two quarters (Fiscal Q2 and Q3). The drivers under the hood suggest further top-line pressure on increasingly more difficult comps and continued gross margin and operating margin pressure over the next two quarters.  We also don’t think the company has not hit the mark on soups, launching hearty and healthier higher premium soups that look to be missing on the consumer’s value perception given the still very strapped labor market and macro environment.   


In short, CEO Denise Morrison continues to under-deliver on her promise to turn around an ailing portfolio; US Simple Meals and US Beverages were clearly significant laggards in the quarter. Fiscal Q1 revenues of $2.17B fell -7.3% in the quarter (underwhelming consensus of $2.29B) and EPS declined -21% to $0.66 (vs consensus $0.86). Management attempted to explain away the decline citing unexpected light retailer inventory building and this year’s late Thanksgiving that will push more shipments into next quarter (Q2).


CPB is immediate term TRADE oversold and bearish on the intermediate term TREND.  Therefore, this is a name we’re not comfortable owning over the intermediate term, and may only tactically trade around it to take advantage of price imbalances.


CPB – Praying For Strong Winter Soup Sales - z.  cpb chart


Given the weakness in the quarter, CPB lowered it FY 2014 guidance: sale 4% to 5% (prior 5% to 6%); EBIT 4% to 6% (prior 5% to 7%); and EPS 2% to 4% or $2.53 to $2.58 (prior $2.58-2.62).


CPB – Praying For Strong Winter Soup Sales - z. cpb sales


CPB – Praying For Strong Winter Soup Sales - z. cpb operating


Matthew Hedrick


[VIDEO] Keith's Macro Notebook 11/19: $USD, UST 10YR, COMMODITIES

Commodity Ugly

Takeaway: Commodities. Ugly.

It's been a disaster of a year for Commodities.


The CRB Index hit a fresh year-to-date low yesterday down -7.8% (in spite of US Dollar weakness.)


After selling Gold into Thursday's Yellen "Mother of All Doves" Bounce, our asset allocation to Commodities is back down to 0%.


We are also short Oil in RealTimeAlerts.


Commodity Ugly - drake44


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