What #ConsumerSlowing Means to Industrials

Takeaway: Rising prices for consumer necessities may be negative for spending on other more discretionary categories.

What #ConsumerSlowing Means to Industrials - 4 15 2014 10 57 45 AM


The Hedgeye Macro team have presented their 2Q Macro themes and, as usual, it was data rich, timely, and insightful. The Macro Themes calls have too enviable forecasting track record to ignore. Below, we touch on how this quarter’s themes relate to parts of the Industrials sector. The themes of a slowing consumer, structural inflation, and a housing slowdown have implications for the sector and its performance relative to broader indices. We also highlight key transport data that shows broader resilience into 2Q 2014.


Commodity Price Divergence

Consumer oriented commodities, such as food/agricultural commodities, have increased much more than many industrial inputs, like copper or oil.  Large supply increases in several metal categories and weaker emerging market demand may be pressuring industrial metals. Rising prices for consumer necessities may be negative for spending on other more discretionary categories. 


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Capacity Utilization

While some slack remains, corporations have tended to repurchase shares and pay dividends rather than invest in capacity in recent years. Long-term, that may conceptually result in too little of the right capacity in the appropriate places.  One person’s inflation may prove to be another person’s pricing power, potentially benefiting well-positioned manufacturers.  North American heavy truck fleets appear to be a compelling example of this theme, discussed below.


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Housing Slowdown

A variety of factors, from new mortgage rules (QM) to higher interest rates, appear to be pressuring housing activity.


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Residential Construction

While still posting strong year-on-year growth, there appears to be a deceleration in new residential construction spending.  Weather is a likely contributor, but the broader trends are also potential drivers.


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Truckload Rates

Truckload rates have been rising as fleet utilization is at decade-plus highs.  Truckers have been hesitant to invest in capacity growth in recent years. It is a potential positive for PCAR and other Truck OEMs, while likely negative for truckload 3PLs that are structurally short capacity. 


Heavy Truck Backlog to Build (North America)

The environment for Heavy Truck OEMs appears better, in part due to higher equipment rates.  However, we would generally see a high reading on this index as an exit signal should it continue to improve.


China Exports

Recent increases in the CRB index are particularly noteworthy given signs of weaker Chinese activity.  China is often viewed as the key swing consumer of commodities.


Cass Freight Index

The 1.144 March read of the Cass shipment index is at the high-end of its range in recent years.  



International air cargo growth continues to improve, a positive sign for carriers. 


Intermodal Rail Traffic

Intermodal traffic has rebounded smartly, partly reflecting better weather through March.


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Editor's Note: This is an excerpt of a research note that was originally provided to Industrials Pro subscribers on April 11, 2014 by Hedgeye’s Industrials Sector Head Jay Van Sciver. Follow Jay on Twitter @HedgeyeIndstrls.


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Daily Trading Ranges, Refreshed

Takeaway: The rate of change in German #GrowthAccelerating is starting to slow – alongside United States and Japan. Add it to the list.

Editor's note: This unlocked edition of Daily Trading Ranges was originally published April 15, 2014 at 8:29 a.m EST. For more information on how you can receive these levels every morning in your inbox click here.

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Retail Callouts (4/15): ICSC, DSW, LB, SHOO, H&M

Takeaway: ICSC numbers get a shot in the arm from Easter shift. DSW acquires entry point into Canada. Vicky moves show to London

***McGough on the road, takeaways by Richards





  • GPS - Investor Meeting: Wednesday 4/16, 1:00 pm



  • LULU - Analyst Day: Thursday 4/17, 12:00 pm




ICSC - Chain Store Sales Index


Only the 4th time all year we've seen the YY growth rate ahead of 2013. The timing of the Easter holiday this year provided a much needed shot to the arm, but there is still a lot of ground that needs to be made up. 


Retail Callouts (4/15): ICSC, DSW, LB, SHOO, H&M - chart1 4 15




DSW - DSW Inc. Acquires Interest in Town Shoes of Canada



  • " DSW Inc. and Town Shoes Limited announced today that they have entered into a definitive agreement whereby DSW Inc. will purchase for cash approximately 44% interest in Town Shoes, the largest footwear and accessories retailer in Canada, for CAD $68 million (or approximately $62 million based on current exchange rates). The transaction has been approved by each company's Board of Directors and is expected to close in May 2014, subject to customary closing conditions."
  • "Town Shoes is the market leader in branded footwear in Canada, with sales of CAD $291 million in its fiscal year ending January, 2014. Town operates 182 locations across Canada primarily under The Shoe Company, Shoe Warehouse and Town Shoes banners."
  • "DSW Inc. is purchasing its initial 44% stake from AIMCo and may acquire additional shares from certain other minority shareholders as part of its initial investment. Additionally, DSW Inc. will have the right to purchase the balance of Town Shoes from the remaining shareholders, including Callisto Capital, after four years at a pre-determined EBITDA multiple. Callisto, on behalf of itself and the remaining shareholders, has the right to put the balance of the company to DSW Inc. after three years at a pre-determined EBITDA multiple. DSW Inc.'s initial stake provides 50% voting control and board representation, both of which are equal to that of Callisto."
  • "The transaction, which the company anticipates to record under the equity method, is expected to be slightly accretive to earnings in 2014, excluding one-time transaction expenses."


Takeaway: This move gives DSW an entry point into the Canadian market. Town shoes operates 182 stores in Canada under two different banners - Town Shoes and The Shoe Company.


LB - Victoria’s Secret Moves Show to London



  • "Victoria’s Secret will hold its next show in London, the lingerie giant said today. The event is set to take place at London’s Earl’s Court on Dec. 2."
  • "Victoria’s Secret models Adriana Lima and Candice Swanepoel joined the label’s chief marketing officer Ed Razek to announce the move at the Victoria’s Secret store on London’s New Bond Street Tuesday morning."


Takeaway: The brand is beginning to build its international footprint. Moving the show to London makes sense in light of the company's push into that market. It should help create some buzz around in one of Vicky's newest markets.




HMB - H&M Sales Rise 13% in March



  • "Hennes & Mauritz AB said total sales in local currencies jumped by 13 percent in March as the chain continued its global store rollout."
  • "The Swedish fashion retailer provided only a percentage figure, and no longer breaks out same-store sales data. Total sales include value added taxes."
  • "H&M noted its store network comprised 3,216 locations on March 31 versus 2,853 on the same date in 2013."


SHOO - Steve Madden Revamps Digital Flagship



  • "…The newly revamped, which puts social commerce front and center and seeks to capitalize on the rapid rise of mobile shopping. The site, which saw its last major overhaul in 2006, is part of a significant digital push for the company, said founder Steve Madden…"


Retail Callouts (4/15): ICSC, DSW, LB, SHOO, H&M - CHART2 4 15


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