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Video | McCullough: Am I Crazy?

Hedgeye CEO Keith McCullough takes a look at key market and economic issues investors should be focusing on right now but aren't.


Hedgeye Retail: Delivery Service Alliance Between Google and Stores Has Potential | $TGT $WAG

Takeaway: There are still a lot of kinks that need to be ironed out, but it’s a step in the right direction.

Hedgeye Retail: Delivery Service Alliance Between Google and Stores Has Potential | $TGT $WAG - png base644159201ce6c76ef3

 

Google Targets Amazon With Free Same-Day Delivery in NY & LA

  • "Google just threw down the gauntlet in the same-day delivery wars, launching its Google Shopping Express service in Manhattan and parts of Los Angeles and offering free same-day delivery for the first six months."
  • "The service, previously available only in the San Francisco Bay area, delivers groceries and other goods from the likes of Costco, Target and Walgreens, and usually costs $4.99 per store visited."

Takeaway From Hedgeye’s Alec Richards:

Partnering with Google and Ebay is the best alternative for retailers when trying to fend off Amazon, but scaling same day in a market as dense as New York won't be easy. Orders overwhelmed Google's network yesterday and the company was forced to refuse service after noon. Still a lot of kinks need to be ironed out, but a step in the right direction for brick and mortar.

 

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Editor's Note: This is a complimentary research excerpt from Hedgeye Retail analyst Alec Richards. Follow Retail sector head Brian McGough on Twitter @HedgeyeRetail

Subscribe to Hedgeye.



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Retail Callouts (5/6): ICSC, Adi, GOOG, AMZN, WMT, TGT, BBY

Takeaway: No stability in ICSC #'s. AdiBok weakness in core. GOOG rollouts out same-day delivery to NYC. BBY another Retail exec departs

EVENTS TO WATCH

 

TUESDAY

  • WFM - Earnings Call: Tuesday 5/6, 5:00pm

 

THURSDAY

  • BEBE - Earnings Call: Thursday 5/8, 4:30pm
  • TUMI - Earnings Call: Thursday 5/8, 4:30pm

 

FRIDAY

  • RL - Earnings Call: Friday 5/9, 9:00am

 

ECONOMIC DATA

 

ICSC - Chain Store Sales Index

 

Takeaway: One positive, one negative data point trend continues. Still no stability from the consumer in retail land. One more easy comp before compares get much more difficult.

 

Retail Callouts (5/6): ICSC, Adi, GOOG, AMZN, WMT, TGT, BBY - chart2 5 6

 

COMPANY NEWS

 

ADDYY - 1Q14 Earnings

 

Takeaway: Sales flat in AdiBok's backyard and down 20% on a currency adjusted basis in North America. Emerging market growth means very little if the company can't hold onto market share in its core markets. Yes the World Cup should help in 2Q, but we should have seen some benefit starting in 1Q. Sales inventory spread of -13% plus margin erosion = a difficult setup for the remainder of the year.

 

Retail Callouts (5/6): ICSC, Adi, GOOG, AMZN, WMT, TGT, BBY - chart1 5 6

 

GOOG, AMZN, WMT, TGT - Google Targets Amazon With Free Same-Day Delivery in N.Y. and L.A.

(http://recode.net/2014/05/05/google-targets-amazon-with-free-same-day-delivery-in-n-y-and-l-a/)

 

  • "Google just threw down the gauntlet in the same-day delivery wars, launching its Google Shopping Express service in Manhattan and parts of Los Angeles and offering free same-day delivery for the first six months."
  • "The service, previously available only in the San Francisco Bay area, delivers groceries and other goods from the likes of Costco, Target and Walgreens, and usually costs $4.99 per store visited."

 

Takeaway: Partnering with Google and Ebay is the best alternative for retailers when trying to fend off AMZN, but scaling same day in a market as dense as NY won't be easy. Orders overwhelmed Google's network yesterday and the company was forced to refuse service after noon. Still a lot of kinks need to be ironed out, but a step in the right direction for brick and mortar.

 

BBY - Senior executive resigns at Best Buy

(http://www.startribune.com/business/258042011.html)

 

  • "Jude Buckley has resigned as chief commercial officer of Best Buy Co., where he was in charge of store design and strategies for vendors and wireless carriers, the company said Monday."
  • "He is the second top operations executive to leave the Richfield-based electronics retailer in recent weeks. On April 14, Best Buy said Shawn Score, a 29-year veteran of the company, left after little more than a year as head of the company’s U.S. retail stores."
  • "After the appointment of Hubert Joly as chief executive officer in 2012, Buckley was elevated to chief commercial officer reporting to Joly."

 

Takeaway: Two keys pieces of the US retail team gone in under one month. Not a good sign for a company trying to remake itself and rationalize its real-estate.

 

OTHER NEWS

 

ADDYY - Adidas Puts Rockport Shoe Brand on Auction Block

(http://online.wsj.com/news/articles/SB10001424052702303417104579543850877613912)

 

  • "...Adidas AG is looking to sell its Rockport brand, according to people familiar with the matter."
  • "The German company has hired investment bank Guggenheim Partners to start pitching Rockport to potential buyers, said two of the people. Rockport has between $30 million and $40 million in annual...Ebitda...Rockport could command $300 million or more."

 

PVH - PVH Corp. Announces License Agreement with TS Commerce Corporation for Van Heusen Brand

(http://www.pvh.com/investor_relations_press_release_article.aspx?reqid=1927057)

 

  • "PVH Corp. and TS Commerce Corporation have entered into a license agreement under which TS Commerce Corporation will manufacture, sell, distribute and promote apparel and accessories for the Van Heusen brand in Korea. The initial term of the license agreement runs through December 2018."
  • "Under the license agreement, TS Commerce Corporation has the rights to manufacture, sell, distribute and promote Van Heusen products which include men’s dress and sport shirts, neckwear, knit shirts, suits and suit separates, pants, underwear, leather belts, wallets, cuff links, tie bars, socks, headwear, bags and shoes."
  • "TS Commerce Corporation will open and operate free-standing Van Heusen stores in Korea, and has the rights to also distribute Van Heusen products through shop-in-shops, specialty stores, department stores, retail outlets and via an e-commerce website."

 

JWN - Nordstrom debuts integrated online & mobile shopping site

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=163059)

 

  • "Seattle-based Nordstrom, Inc., has launched nordstromrack.com, a new e-commerce site and mobile app, built on a shared platform with HauteLook, Nordstrom's flash sale business. The new site gives customers access to shop Nordstrom Rack merchandise alongside HauteLook flash sale events."
  • "The site experience is designed to offer an integrated way for customers to browse and buy merchandise either through a persistent Nordstrom Rack offering of on trend apparel, accessories and shoes at 30-70 percent off regular prices or through limited-time, limited-inventory flash sale events powered by HauteLook. Customers are able to shop both sites through a single log-in, shopping cart and can combine items into one easy checkout."


Retail Callouts (5/6): ICSC, Adi, GOOG, AMZN, WMT, TGT, BBY - chart3 5 6

 

MW - Men's Wearhouse Announces Termination Of Shareholder Rights Plan

(http://ir.menswearhouse.com/press-releases/detail/1394/mens-wearhouse-announces-termination-of-shareholder-rights-plan)

 

  • "The Men's Wearhouse announced today that its rights agreement has been amended to accelerate the expiration date to May 5, 2014, effectively terminating the company's shareholder rights plan as of that date.  The rights agreement had originally been scheduled to expire on September 30, 2014."

 

Alec Richards

Analyst


Call with YUM CFO Today at 11am EST

We are hosting a conference call with Yum! Brands CFO Pat Grismer today at 11am EST.

 

 

CALL DETAILS

Toll Free Number:

Direct Dial Number:

Conference Code: 551668#

 

 

Broadly speaking, we plan to hit on three key topics, including:

 

1. Succession planning

  • Pending CEO Greg Creed
  • Office of the Chairman

2. Taco Bell breakfast

  • How is it progressing?
  • What is the go-forward game plan?
  • What are the important benchmarks?

3. China Division

  • How is it progressing?
  • What is the go-forward game plan?
  • What are the important benchmarks?

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst



Sell in May and Go Away?

Client Talking Points

VOLUME

Our total U.S. Equity market volume reading was down -26% and -40%, respectively, versus the one- and three-month average volume studies yesterday. It’s easily one of the worst up price/down volume readings I have ever seen.

FOOD

#InflationAccelerating continues (Wheat and Corn up +1.9% yesterday; Coffee up another +0.9%; US meat prices hitting all-time highs) into the USDA’s global grain harvest report on Friday. Meanwhile, ramping US cost of living continues to augment our #ConsumerSlowing and US #HousingSlowdown calls.

EUROPE

Sell in May and go away? It’s been a great run for Italian Equities (up +14.4% year-to-date), the Euro, the Pound, etc. but on good Service PMI prints out of the UK, Spain, and Italy this morning, equities don’t seem to care. I’m watching lower-highs very closely. We still like European growth more than US growth, but don’t have to wear it all summer long.

 

Asset Allocation

CASH 30% US EQUITIES 0%
INTL EQUITIES 6% COMMODITIES 24%
FIXED INCOME 20% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

OC

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.

DRI

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.

Three for the Road

TWEET OF THE DAY

Whatever u do today, do not quote America's Currency Credibility (USD) hitting fresh YTD lows @KeithMcCullough

QUOTE OF THE DAY

“Great thoughts speak only to the thoughtful mind, but great actions speak to all mankind.” –Theodore Roosevelt

STAT OF THE DAY

The German drug maker Bayer has agreed to acquire Merck’s consumer care business for $14.2 billion. The deal will make Bayer one of the largest providers of over-the-counter products, giving it control of several well-known brand names, including Claritin, Coppertone and Dr. Scholl’s. (New York Times)

 


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