Takeaway: After this week's drift downwards, we're hoping to see trends accelerate.
Editor's Note: This is a complimentary research excerpt from Retail Sector Head Brian McGough. For more information on our services, click here.
ICSC - Chain Store Sales Index
The latest International Council of Shopping Centers (ICSC)-Goldman Sachs weekly index, which measures nominal same-store or comparable-store sales excluding restaurant and vehicle demand, has been released. The weekly index statistically represents industry sales and is not just a sum of sales for a handful of retailers.
What we see is not a disaster by any means, but last week's positive +2.1% reading gave us a glimmer of hope. This week, though, we drifted back down to just +1.5%.
Keep in mind, as outlined in the chart below, that we're about to go against a 10-week run last year where sales growth was well below 2012 levels. In other words, we have an easy comp.
We hope we'll see trends accelerate…but we hate relying on hope.
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Takeaway: ICSC sales ebb again. AMZN streaming hardware late to party. UA split. DSW results worse than they appear. WMT challenging GME – good luck.
EVENTS TO WATCH
- PSUN - Earnings Call: Tuesday 3/18, 4:30pm
- GES - Earnings Call: Wednesday 3/19, 4:30pm
- TLYS - Earnings Call: Wednesday 3/19, 4:30pm
- WTSL - Earnings Call: Thursday 3/20, 5:00pm
- NKE - Earnings Call: Thursday 3/20, 5:00pm
- TIF - Earnings Call: Friday 3/21, 8:30am
ICSC - Chain Store Sales Index
Not a disaster by any means, but last week's +2.1% reading gave us a glimmer of hope. This week we drifted back down to +1.5%. Keep in mind, as outlined in the second chart below, that we're about to go against a 10-week run last year where sales growth was well below 2012 levels. In other words, we have an easy comp. We hope we'll see trends accelerate (but we hate relying on hope).
DSW - 4Q13 Earnings
The headline number was pretty decent relative to expectations. But after updating the model, the trajectory of DSW's business left us less than inspired. After three quarters of either the sales/inventory spread or margins improving, both took a nosedive this quarter. One thing that seriously bugs us is that DSW called out OmniChannel investments -- almost as if they are one-time in nature. Since when is it ok to single out investments in any area and expect the Street to strip them out of results? Investments are what they are -- money spent to accelerate profit growth in the future. You can't strip 'em out. We certainly won't.
AMZN - Amazon to Ship Video-Streaming Device in April
- "Amazon.com Inc. will begin shipping its long-awaited video-streaming device in early April, through its website as well as retailers including Best Buy Co. and Staples Inc., said people familiar with the company’s plans."
- "The Amazon device will carry a variety of apps available on Roku Inc. and Apple Inc. set-top boxes and run on a version of Google Inc.’s Android software, like Amazon’s tablet computers, these people said. Roku’s most popular apps include video services Netflix and Hulu Plus and music service Pandora, as well as Amazon’s own video-streaming service."
- "Pricing remains unclear, though the people familiar with the e-commerce giant’s plans said the device likely would come with incentives available to members of Amazon’s Prime streaming video and shipping program."
Takeaway: This is overdue for Amazon. You can buy a box from Apple, Roku and even Google (through a partnership with Sony). There'll be a real appetite for a competing product from AMZN -- especially if it leverages Prime from streaming content. One thing we wonder is if it is too late to the party. Walk into a Best Buy, and half the TVs on the wall are 'smart TVs' which already have the box embedded in the unit. No need to have Apple, Roku or Amazon there. Soon those 'smart TVs' will be 'dumb TVs' and everybody will have them. Apple seems to have this one right with their (worst secret in consumer electronics) soon-to-be move to bypass the little black box and go direct to a branded TV set.
UA - Under Armour Announces A Two-For-One Stock Split
- "Under Armour, Inc. today announced that its Board of Directors has approved a two-for-one stock split of its outstanding common stock."
"The additional shares issued as a result of the stock split will be distributed on or about April 14, 2014 to stockholders of record on March 28, 2014."
Takeaway: While I never quite understood the logic of a stock split, the reality is that there will always be some investors who think that a $60 stock is half as expensive as a $120 stock.
WMT, GME - Newest Player in Used Videogames: Wal-Mart
- "Wal-Mart Stores Inc. is making a play for the used videogame business, a move that could bring in new customers while rankling GameStop Corp., which has long dominated the market."
- "Starting next week, the world's largest retailer will allow shoppers to trade in used videogames for anything from groceries to gadgets across 3,100 of its stores. Customers will receive gift cards ranging from a few dollars to more than $35, based on the value of the games they turn in. Those cards can be redeemed in stores and online."
- "Wal-Mart itself ran a smaller trade-in program in 2009 where it allowed customers to sell used games through kiosks in certain stores, but the retailer failed to make it work. This time, Wal-Mart has teamed up with CExchange Inc., an electronic trade-in and recycling company based in Carrollton, Texas, which also works with RadioShack Corp. and eBay Inc."
Takeaway: We give WMT credit for going the used game route, and they could prove disruptive to GME -- to an extent. But the reality is that it is a tough business, and it took GME a very long time to get it right. It is harder to manage inventory in this category than almost any other in retail. There's no way Wal-Mart can do it as well as GameStop. One of the key reasons is that you need consistent volume of gamers that view your store as a source for the content that they want. GME has that steady flow of traffic -- it is the destination for gamers. Only after it established itself as the mecca for Video Games could it build a used game business. Seems premature for WMT.
Retailers Face Big Hurdles in Bridging the “Omni-Channel Commerce Gap,” According to new Research from Accenture and hybris
- "Organizational, operational and technology challenges are hampering retailers’ efforts to meet customers’ demand for a seamless shopping experience across all channels and touch points, according to a new research study from Accenture…"
- "Retailers view omni-channel maturity as a key brand differentiator for their companies, and improving their ability to provide customers with a seamless shopping experience across all channels, as a top priority, according to the study, 'Customer Desires Vs. Retailer Capabilities: Minding the Omni-Channel Commerce Gap,' conducted by Forrester Consulting. However, the study shows that nearly all – 94 percent – of retail decision makers surveyed as part of the research said that their companies face significant barriers to becoming an integrated omni-channel company."
- "The survey also found that 71 percent of the shoppers expect to view in-store inventory online, and 50 percent expect to buy online and pick up their purchase in a physical store. Yet, only one third (36 percent) of the retail decision makers surveyed said that their companies are able to provide customers with in-store pickup of online purchases, online visibility of cross-channel inventory and store-based fulfilment of online orders. All of these capabilities are considered vital for seamless retailing."
ETH - Ethan Allen names interim CFO
- "Ethan Allen Interiors Inc. today announced that David Callen, Vice President Finance & Treasurer, has resigned from the Company to pursue another opportunity, effective March 31, 2014."
- "The Company further announced that Corey Whitely, Executive Vice President, Operations, has assumed the additional role of interim Chief Financial Officer and Treasurer. The Company has also appointed John Bedford to the position of Vice President, Corporate Controller serving as the principal accounting officer. Mr. Bedford, 60, joined the Company in February 2008 and previously served as Director Corporate Finance & Reporting and most recently as Sr. Director Corporate Finance & Reporting."
Client Talking Points
US Equity volume is deader than a doornail on the squeeze yesterday (down -20% versus TREND average). Nope, that's definitely not a good thing as front-month VIX (volatility) held Hedgeye TREND support of 14.72, while SPX signals lower-highs of resistance at 1866 now. US consumer prices (CPI) should continue to surprise on the upside this morning with #InflationAccelerating.
Germany broke my TREND support signal line last week and was not able to get back above that (9,273) on the bounce. German Bunds well bid again with the 10-year Bund Yield down 10 basis points month/month to 1.56%. German #GrowthSlowing (on the margin) might be the read-through here.
The UST 10-year yield at 2.67% this morning has confirmed the bearish TREND (2.80% resistance). This makes sense as #InflationAccelerating has slowed US growth here in Q114. Again.
|FIXED INCOME||13%||INTL CURRENCIES||16%|
Top Long Ideas
Construction activity remains cyclically depressed, but has likely begun the long process of recovery. A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating. Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms. As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.
Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.
We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.
Three for the Road
TWEET OF THE DAY
FX: Yen backs up again vs Burning Buck this morning - $101.19-102.43 risk range vs USD @KeithMcCullough
QUOTE OF THE DAY
"You are never too old to chase your dreams." - Diana Nyad
STAT OF THE DAY
Most people have very little tucked away for retirement, and many aren't even trying to figure out how much they'll need later in life, a new national survey reveals. About 36% of workers have less than $1,000 in savings and investments that could be used for retirement, not counting their primary residence or defined benefits plans such as traditional pensions, and 60% of workers have less than $25,000. (USA Today)
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