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podcast | McCullough: Janet Yellen's Crazy (There I Said It)

 

Hedgeye CEO Keith McCullough goes no holds-barred on the Fed's serial dollar debauchery and how this "Burning Buck" policy is creating major risks and opportunities. 

 



KSS: Dot.Com Trends Rolling in the Wrong Direction

Takeaway: KSS '14 guidance is still too aggressive. $800mm in revenue is at risk for JCP, and eroding dot.com weakens a pillar of support.

Conclusion: We already stated our belief that KSS 2014 guidance is too aggressive – in fact, we don’t even think it will comp positive. While the crux of our argument rests in $800mm in revenue that we think is at risk to JCP, we found the company’s e-commerce trends to be troubling as well. E-commerce sales have protected KSS' comp for the past 9 quarters. With dot.com growth slowing, we seriously question the company’s 2014 comp guidance. If we estimate a (4%) brick and mortar comp with a 15% .com growth rate, we are looking at a (3%) blended comp in FY14 -- representing about half of what is at risk for the year.

 

While not outwardly clear given dot.com and store comps are blended into one number, it’s pretty troubling that brick and mortar comps have been negative for nine straight quarters. Growth in the dot.com channel has protected the company's reported comp over that time period to some degree, as outlined in the chart below.  

 

KSS: Dot.Com Trends Rolling in the Wrong Direction - KSS comp

 

KSS definitely recognized the importance of dot.com and have grown that side of the business at a 37% CAGR over the last 5 years into a $1.7bn business. Unfortunately, the growth rate of KSS’ dot.com is clearly slowing – both on a one and two-year basis. We still dot.com growth of 15% in '14 - but it won't continue to grow fast enough off of a much bigger base to offset weakness in KSS' 1100+ doors.

 

 KSS: Dot.Com Trends Rolling in the Wrong Direction - KSS com

 

Alec Richards

HedgeyeRetail



Early Look

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#GROWTHSLOWING: 4Q13 GDP

Summary:  We’ve been vocal in our expectation for a deceleration in the slope of domestic growth over the last couple months and while this morning’s downward revision to 4Q13 wasn’t particularly surprising, it does offer some positive confirmation to that view. 

 

With the dollar breaking down, #InflationAccelerating, earnings growth still sub-trend, wealth effect (equities/housing) momentum decelerating and little incremental upside for consumption growth via a reduction in savings, we continue to think the growth decelerating trend extends through 1H14. 

 

GIP MODEL REFRESH:  The net impact to our GIP (Growth/Inflation/Policy) model from this morning’s data is another incremental shift in trajectory towards quadrant #3 – Slowing Growth and Rising Inflation

 

To the extent that the market continues to discount slowing growth and subsequent, incremental easing in policy – which ironically/unfortunately only perpetuates the move into Quad #3 – we think slow growth exposure (gold/bonds/commodities/utilities) continues to outperform pro-growth leverage. 

 

#GROWTHSLOWING:  4Q13 GDP - UNITED STATES 

 

 

GDP DATA SUMMARY:  Below we highlight the notables in this mornings, 1st revision to the 4Q13 GDP estimate. 

 

Real GDP:  revised lower by 80bps to 2.4% from 3.2%.  Decelerating 170bps QoQ to 2.4%. 

Nominal GDP:  decelerating 200bps QoQ  from +6% in 3Q13 to +4% in 4Q14. 

 

Inflation:  Inflation estimates marked higher with the GDP Price index and Core PCE measures revised up 30bps and 20bps, respectively. 

 

C+I+G+E Revision:  Investment revised up small, everything else revised lower.

C: Consumption saw the largest downward revision from a contribution perspective at -.53% with QoQ growth revised from +3.3% to +2.6%.  Durable/NonDurables/Services were all revised lower but Durables (as the latest PCE data has reflected) saw the largest decline.

 

Whether the emergent deceleration in durables, and luxury and higher-end durables particularly, represents a pull-back in spending across the top income quintiles as equity and home value gains slow remains to be seen. We’ll get the updated PCE detail data on Monday.  

 

I:  Investment:  Private Nonresidential Investment, which was revised higher by +0.4 from a contribution perspective and +3.5% from a growth perspective, was one of the lone bright spots in the report. 

 

Inventories were revised lower and with inventory-to-sales ratios continuing to creep higher through year end, its unlikely inventories provide another outsized boost to reported growth in the coming quarters. 

 

G + NE:  Government was revised down modestly while the revision to the trade balance was the second biggest contributor to the headline decline with export growth revised -2.0% against a +.60% revision for imports. 

 

Real Final Sales growth (GDP less Inventory Change):  decelerating 20bps QoQ to 2.3%…revised lower by 50bps

Gross Domestic Purchases (GDP less exports, including imports):  Very Weak sequentially - Decelerating 250bps QoQ to +1.4%..revised lower by 40bps

Real Final Sales to Domestic Purchasers (GDP less exports less inventory change):  (Perhaps) The cleanest read on aggregate domestic demand was also weak, decelerating 100bps to +1.2%, revised lower by 20bps.

 

#GROWTHSLOWING:  4Q13 GDP - GDP

 

#GROWTHSLOWING:  4Q13 GDP - DXY

 

#GROWTHSLOWING:  4Q13 GDP - Cmon

 

#GROWTHSLOWING:  4Q13 GDP - Eco Summary 022714 

 

 

Christian B. Drake

@HedgeyeUSA



2/28 COMMODITY CHARTBOOK

The Big Picture

Rapid advances and declines have largely muted the overall commodities basket to-date in 2014, with the CRB Foodstuffs Index up 40 bps YoY.  However, the index ticked up 310 bps last week and a continuation of this trend would be bearish for all restaurant operators.

 

Commodity prices up YoY:

  • Coffee
  • Lean Hogs
  • Cheese Block
  • Live Cattle
  • Soybean
  • Milk
  • Natural Gas

Commodity prices down YoY:

  • Sugar
  • Gasoline at the Pump
  • Corn
  • Chicken Wings
  • Wheat
  • Rough Rice
  • Chicken Whole Breast

 

Notable trends:

Coffee prices continue their rapid rise, ticking up 5.5% over the past week.  They are now up 12.8% YoY.  First, it was torrential rains in Brazil’s coffee belt hurting the crop.  More recently, however, the Brazil crop has been hampered by a prolonged period of dry weather.  Analysts estimate the global market could be facing its first shortage in over four years.  Not only is this fundamentally bearish for coffee retailers, but it has also negatively affected sentiment within the space (see SBUX for example).  Takeaway – bearish for SBUX, DNKN, GMCR, KKD.

 


Pork and Beef prices continue to rip higher, up 5.1% and 4.0% over the past week.  They are now up 25.9% and 17.5% YoY, respectively.  Pork prices have come under pressure lately due to the spread of the porcine epidemic diarrhea virus, also known as PEDv, which results in a very high mortality rate for piglets.  Beef prices have been surging as cow herd sizes continue to decline.  Restaurant operators don’t expect much relief anytime soon, as it takes well over two years for a cattle herd to hit the market.  Takeaway – bearish for TXRH, RUTH, RRGB, BLMN, CMG, MCD, JACK, SONC, WEN and other operators with notable exposure.

 

 

Cheese Block and Milk prices are up 38.3% and 36.5% YoY.  While cheese block prices ticked up 4.2% over the past week, milk held flat.  CME cheese block prices are currently close to a decade high.  We will continue to monitor these trends closely.  Takeaway – bearish for CAKE, DPZ, PZZA and others.

 

 

Corn and Wheat prices continue to be the saving grace for many operators, effectively offsetting pressure from other commodity costs.  Both commodities are down 20.6% and 21.3% YoY, respectively.  Takeaway – bullish for everyone.

 

 

Chicken and Chicken Wing prices have also led several operators to offer new items and LTO’s as they seek to more prominently feature chicken on their menus.  Both commodities are down 9.7% and 29.4% YoY, respectively, and should help the margins of operators with notable exposure to this group.  Takeaway – bullish for PLKI, BWLD, YUM and others.

 

 

Gasoline at the Pump is down 8.8% YoY, but ticked up 1.1% over the past week.  Takeaway – while the YoY decline is a positive for the industry, last week’s move gives us reason to be cautious on our outlook.  We will continue to monitor this trend, as any sustained increase or decrease in gas prices could have a significant impact on the direction of discretionary spending and the consumer’s willingness to eat out.

 

 

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2/28 COMMODITY CHARTBOOK - SUGAR

2/28 COMMODITY CHARTBOOK - 14

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Howard Penney

Managing Director

 


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