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Poll of the Day Recap: Majority Says US Housing Market Slowing

Recent reports of declining mortgage applications could be the first sign of a #HousingSlowdown – one of Hedgeye’s new quarterly macro themes.
 

We wanted to know where you stood on this issue, so we asked in today’s poll: Do you see that the US housing market is indeed slowing?


At the time of this post, most people feel the US housing market is slowing with 69% responding YES; 31% saying NO.


Some who voted YES said they felt it so much that they (and friends) were once looking to upsize but have now backed off. Others saw slowing especially in low-end homes.

 

Hedgeye CEO Keith McCullough voted YES noting, “Given rates have been falling since their December highs, the MBA mortgage purchase application data is flat out scary.”

 

Other noteworthy YES comments included:

  • “Prices [are] far outpacing capacity for first time home buyers to purchase.  When funds cease to be the marginal buyer of existing homes, they may turn into a marginal seller.  That would leave a vacuum of demand until the price adjusts to levels at which first time home buyers, 24-30 year olds, can afford to be owners via their incomes.”
     
  • “Banks aren't interested in lending at these rates and they also are scared of the future economic collapse that is coming.”
     
  • “Pent up demand and investor buying is flattening out. Wage and job growth stagnating, baby boomers trying to retire (so paying off debt, reducing RE assets & saving money) and 1st homebuyers saddled with 60 month car payments & student loans. Getting into and out of a mortgage costs have risen due to loan fees & taxes. It now costs 10% or higher just to buy/sell.”
     
  • “[Yes] because of year over year reduced housing prices. Lack of demand is the culprit due to growth slowing in income, etc.”
     
  • “The fundamentals of housing (demand and supply) turn well in advance of price. Demand has been rolling over for ~9 months now and prices are just beginning to show signs of deceleration. QM is a significant and underappreciated headwind for housing.”

Interestingly, one YES commenter said the US housing market’s slow growth was old news, while another said it wouldn't be a media issue for another 9-12 months “meaning most consumers and investors won't have a clue until it's too late.”

 

NO voters, however, said that they hadn’t specifically experienced a slowdown where they lived, further explaining why they felt it was simply location dependent.

 

One NO voter felt a slower housing market wouldn’t happen for another year, and a few others hoped it would benefit them when they looked for a house in terms of lower pricing. (One responder even said that because rental rates continue to go up they’re being practically forced to look for a place to buy.)

 

Maybe Keith can sum it up for us:  “Housing $ITB -0.9% today leads losers again = US #HousingSlowdown.”

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Nike Jacking Up Jersey Prices: Will Consumers Rebel? | $NKE

Takeaway: Nike has total control over this market; they can essentially do whatever they want.

Nike Jacking Up Jersey Prices: Will Consumers Rebel? | $NKE - SP14 AT SB Jersey 001 large

 

Nike raises NFL jersey prices

  • "Nike, which makes the official league uniform, has decided to raise prices on two of the three types of jerseys it sells. Nike did not announce the increase in price, but retailers, including the official league online store, started charging more on April 1."
     
  • "The Game jersey, which is the cheapest replica, will still cost $100. But the price of the Limited jersey, which has embroidered twill numbers and letters in place of the silicon printing on the Game jersey, has jumped from $135 to $150. The Elite jersey, which is the closest to what the players wear on the field and boasts being water repellent and has a tighter, tailored fit to the body, went up nearly 20 percent to $295, up from $250."
     
  • "NFL spokesman Brian McCarthy said that Nike and the retailers, not the league, determine the prices. But sources told ESPN.com that it was Nike executives alone who made the decision, implementing the new prices as the minimum prices retailers could sell the different style of jerseys for."

Takeaway From McGough:

Nike has a monopoly over this market. It can raise prices at its own discretion -- presuming that  consumers don’t rebel. (If only it was that simple for its footwear and apparel business!) Nike has successfully raised prices over the past couple years as input costs moderated. Now, with commodity costs switching from a headwind to tailwind, and very little pricing power left to exercise, we think that the next move on the gross margin line is down. $295 for a jersey?

 

Editor's Note: This is a complimentary research excerpt from Hedgeye Retail Sector Head Brian McGough. Follow McGough on Twitter @HedgeyeRetail

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Cartoon of the Day: Dollar Down!

Takeaway: The USD Index at $79.78 remains well below our long-term TAIL risk line of $81.17 — yes taxing US Consumption.

Cartoon of the Day: Dollar Down! - Fallen dollar

 

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Retail Callouts (4/9): AMZN, EBAY, NKE, APP, VFC, GES, CHS, GPS

Takeaway: EBAY/AMZN strong March. NKE NFL price hike. No Americans want to save APP. VFC mgmt gets stronger. But not GES. Greene dips toe in CHS.

EVENTS TO WATCH

  • BBBY - Earnings Call: Wednesday 4/9, 5:00pm

 

COMPANY NEWS

 

EBAY, AMZN - March 2014 ChannelAdvisor Same Store Sales (SSS) for eBay, Amazon, Search and CSE

(http://ebaystrategies.blogs.com/ebay_strategies/2014/04/march-2014-channeladvisor-same-store-sales-sss-for-ebay-amazon-search-and-cse.html)

 

  • March 2014 SSS Results 
    • Amazon - "Amazon's March SSS came in at 26.2% compared to February’s 23.0%, a strong m/m increase we believe due to the improvement in weather conditions."
    • eBay -  "eBay's March came in at 17.8% up from January’s 15.0%."

 

Retail Callouts (4/9): AMZN, EBAY, NKE, APP, VFC, GES, CHS, GPS - chart2 4 9

 

Takeaway: Agreed…good uptick for AMZN, and continued strength for eBay, which shows the healthiest trend of the bunch. But the comment about AMZN sales picking up because of a weather recovery borders on ridiculous. A brick & mortar store MIGHT have a case in arguing that sales were weak in 1Q due to weather. But someone who generates 100% of sales online ? We have a really tough time believing that one.

 

NKE - Nike raises NFL jersey prices

(http://espn.go.com/nfl/story/_/id/10752520/nike-raises-prices-two-types-nfl-jerseys)

 

  • "Nike, which makes the official league uniform, has decided to raise prices on two of the three types of jerseys it sells. Nike did not announce the increase in price, but retailers, including the official league online store, started charging more on April 1."
  • "The Game jersey, which is the cheapest replica, will still cost $100. But the price of the Limited jersey, which has embroidered twill numbers and letters in place of the silicon printing on the Game jersey, has jumped from $135 to $150. The Elite jersey, which is the closest to what the players wear on the field and boasts being water repellent and has a tighter, tailored fit to the body, went up nearly 20 percent to $295, up from $250."
  • "NFL spokesman Brian McCarthy said that Nike and the retailers, not the league, determine the prices. But sources told ESPN.com that it was Nike executives alone who made the decision, implementing the new prices as the minimum prices retailers could sell the different style of jerseys for."

 

Takeaway: NKE has a monopoly over this market so it can raise prices at its discretion -- presuming that the consumer does not rebel. If only it was that simple for its footwear and apparel business. NKE has successfully taken up price over the past couple years while input costs moderated. Now with commodity costs switching from a headwind to tailwind and very little pricing power left to exercise, we think that the next move on the Gross Margin line is down.

 

VFC - VF Announces Strategic Leadership Changes to Align Business for Continued Long-Term Growth

(http://phx.corporate-ir.net/phoenix.zhtml?c=61559&p=irol-newsArticle&ID=1916737&highlight=)

 

  • "VF Corporation today announced the appointment of Steve Rendle to the newly created role of Senior Vice President, Americas."
  • "Since 2011, Rendle has served as Vice President & Group President – Outdoor & Action Sports Americas. His new responsibilities in the Americas will include leadership of the Outdoor & Action Sports, Jeanswear, Imagewear, Sportswear and Contemporary Brands coalitions."
  • "The company also announced the following senior management changes: Patrik Frisk, currently Timberland® brand President, has been promoted to Coalition President, Outdoor Americas, with responsibility for The North Face®Timberland®, JanSport®, lucy® and SmartWool® brands. A successor to Frisk to lead the Timberland® brand in the Americas will be announced in the coming months."
  • "Kevin Bailey, who is currently Vans® brand President, Americas, has been promoted to Coalition President, Action Sports Americas and Vans. In addition to the Vans® brand, Bailey will oversee the Reef® and Eagle Creek® brands."

 

Takeaway: This is an uncharacteristic management move by VFC. But the reality is that it is probably the best managed company in the business, and we'll think twice (maybe three times) before questioning a reorg of its management rank.

 

GES - Joseph Gromek Appointed to Guess?, Inc. Board of Directors

(http://investors.guess.com/phoenix.zhtml?c=92506&p=irol-newsArticle&ID=1916936&highlight=)

 

  • "Guess?, Inc. today announced that its Board of Directors has appointed Joseph Gromek to its Board, increasing the number of directors to seven and bringing the total number of independent directors to five. Mr. Gromek will also serve on the Compensation and Nominating and Governance Committees of the Board."

 

Takeaway: Our opinion is that WRC was among the worst managed companies in the apparel/retail industry. We didn't have a big problem with Gromek, but the reality is that he was captain of a ship who's only asset belonged to someone else (PVH -- Calvin license).  WRC had extensive operations in Europe, which could help GES -- but that's not where they have a problem. It's in regaining relevance with the North American consumer. Not sure how much help Gromek will be there. 

 

APP - American Apparel CEO Finds New Believer Just in Time

(http://www.bloomberg.com/news/2014-04-08/american-apparel-ceo-finds-new-believer-just-in-time.html)

 

  • "The American Apparel Inc. chief executive officer, facing a looming debt payment, attracted an investment last month from Swiss firm FiveT Capital AG."
  • "FiveT, a Zurich-based firm run by 35-year-old Johannes Minho Roth, bought about half the shares in an American Apparel stock offering, helping the clothing chain pay bills and stave off the risk of default. FiveT is now the American Apparel’s largest outside investor -- second only to Charney -- with an almost 13 percent stake."
  • “'He’s a visionary,' Roth said by phone. 'Dov wants to make it his life goal to make American Apparel into a successful company. I have a very positive view on him.'”
  • “'We can’t believe how cheap it is,' Roth said. Especially since 'it’s a lot further in the restructuring process than people think.'"

 

Takeaway: The irony that the blue-blood American Apparel brand isn't saved by an American company is borderline hilarious. Roth definitely sees something that we don't.

 

CHS - Chico’s Rises After Leonard Green Reports 1.3% Stake

(http://www.bloomberg.com/news/2014-04-08/chico-s-rises-after-leonard-green-reports-1-3-stake.html)

 

  • "Chico’s FAS Inc...rose the most in more than two years after Leonard Green & Partners LP disclosed a 1.3 percent stake in the company."
  • The shares climbed 8.4 percent to $16.97 at the close in New York, the biggest-one day gain Feb. 22, 2012...Leonard Green...purchased 2.05 million shares of the company, according to a filing today."

 

Takeaway: This is probably not the last we hear of Leonard Green with CHS. The reality is that it does not buy 1% of anything -- ever -- without plans to scale meaningfully higher (like 100%). That's what yesterday's 9% move in the stock suggests, at least. 

 

OTHER NEWS

 

PVH - PVH Corp. Announces Minority Investment in Karl Lagerfeld

(http://www.pvh.com/investor_relations_press_release_article.aspx?reqid=1916945)

 

  • "PVH Corp. announced today that it has become a minority shareholder in the parent company of the Karl Lagerfeld brand. Terms of the deal were not disclosed."
  • "This investment will enable PVH to benefit from the growth of this unique brand and includes the right of first offer to license the brand for North America, which has primarily been focused in Europe and Asia."
  • "Karl Lagerfeld was part of the Tommy Hilfiger Group until PVH acquired the Group in 2010, at which time it was spun off to the Group’s former shareholders. Other investors in Karl Lagerfeld include Apax Funds, the Chou Group, Mr. Tommy Hilfiger and Fred Gehring, CEO of Tommy Hilfiger."

 

GPS - Rachel Tipograph Exiting Digital Role at Gap

(http://www.wwd.com/fashion-news/fashion-scoops/exiting-gap-7634495)

 

  • "Rachel Tipograph on Friday is stepping down as Gap Inc.’s director of global digital and social media after nearly three years on the job."

PODCAST | McCullough: Here's What Really Matters In Macro Right Now

 

Hedgeye CEO Keith McCullough fires away on the non-consensus economic developments which will move markets in the weeks and months ahead. (This is an unlocked podcast from this morning's macro conference call with subscribers.)



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