Here's the question-and-answer portion from our daily institutional Morning Call hosted by Hedgeye CEO Keith McCullough and Senior Macro Analyst Darius Dale.
Takeaway: SPX hits all-time-bubble high on one of the lowest volume days of the decade, while the Russell falls again.
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Takeaway: DG - margins an issue. COLM closes acquisition of Prana. NKE shakes up category leaders.
EVENTS TO WATCH
FIVE - Earnings Call: 4:30pm
PVH - Earnings Call: 9:00am
VNCE - Earnings Call: 9:00am
ICSC - Chain Store Sales Index
Takeaway: A little sign of life, but numbers still below 2013 readings. Through the first 22 weeks of this year we've had 8 weeks above last years numbers and 14 below. The average beat = 63 bps and average miss = -120 bps.
DG - 1Q14 Earnings
Takeaway: All in, not a disaster of a quarter for DG despite the penny miss. At least the company comped positive, while the more discretionary retailers are struggling to keep their heads in positive territory. Margins, however, were concerning, as mix and occupancy deleverage hurt Gross Margin, while SG&A growth of 8.8% further pressured EBIT margins. At least inventories remain reasonably controlled. But one thing that concerns us is that that this was an 'easy margin compare'. This is the fifth consecutive quarter of margins being down year/year. That doesn't set a good precedent for the next few quarters.
COLM - Columbia Sportswear Company Completes Acquisition of prAna Lifestyle Apparel Brand
- "Columbia Sportswear Company...today announced that at midnight, May 30, 2014 it successfully completed its previously announced acquisition of prAna Living LLC for a purchase price of $190 million in cash, subject to customary post-close working capital adjustments."
- "Purchase price of $190 million, subject to customary post-close working capital adjustments, equates to approximately 13 times prAna's projected 2014 EBITDA."
- "PrAna will remain headquartered in Carlsbad, California as a wholly owned subsidiary of Columbia Sportswear Company and will continue to be led by current CEO Scott Kerslake, who will report directly to Columbia president and CEO Tim Boyle."
Takeaway: Price seems a bit rich, but we have to ask if COLM could enter this category on its own. We think the answer to that question is no. Prana helps COLM diversify its cold weather offering and gives it instant exposure to the women's yoga market. Overall good acquisition for COLM getting a brand with solid distribution but limited awareness.
NKE - Nike Promotes Craig Zanon to Lead Expanded Men's Training Category
- "Nike, Inc. announced a number of general management changes within key Geographies and Categories across its global business. The changes are designed to continue to drive the company’s global growth while further strengthening and diversifying its leadership bench."
- "In an effort to continue to focus and accelerate growth across Nike’s training business, Craig Zanon will now lead an expanded and elevated role in the Men’s Training category as VP, GM of Global Men’s Training. Zanon, currently VP, GM of Global Basketball, has held a range of senior management roles in the US during his 23-year career with NIKE."
- "Michael Jackson will take the lead in the Basketball category as VP, GM of Global Basketball. Currently VP, GM of North America Basketball…"
- "Marc van Pappelendam, currently VP, GM of UK & Ireland becomes VP, GM of Central & Eastern Europe...Jim Reynolds becomes VP, GM of Japan, transitioning from his current role as VP, GM of Russia…"
BURL - Burlington Stores, Inc. Announces Appointment of Thomas A. Kingsbury as Chairman of the Board and Formation of Nominating and Corporate Governance Committee
- "Burlington Stores, Inc. today announced that Thomas A. Kingsbury, the Company’s Chief Executive Officer and President, has been unanimously elected by the Board of Directors to be Chairman of the Board."
WMT - Price competition causes historic lows in market growth
- "The latest supermarket share figures from Kantar Worldpanel, published today for the 12 weeks ending 25 May 2014, show a slowdown in grocery market growth to 1.7% – the lowest level for at least 11 years.* Supermarket price competition is prompting another drop in the level of grocery price inflation to 1.2%."
Takeaway: CoreLogic today released its May HPI report, which showed further marked deceleration in the rate of home price growth nationally.
Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.
Today's Focus: May CoreLogic Home Price Report
CoreLogic released its monthly home price report for April/May earlier this morning. Unlike S&P/Case-Shiller, which is a rolling 3-month average repeat sales index, CoreLogic is a single month index released on almost no lag. Essentially, it gives you information three months more current than what you get from Case-Shiller.
CoreLogic estimates that home prices rose +8.9% YoY in May, a deceleration vs the +10.5% in April and +11.1% in March. We show this in the first chart below.
Our main thesis on housing is that the rate of home price appreciation will slow meaningfully over the course of 2014 and into 2015. Historically, inflections in the rate of HPI or HPD have been major macro drivers of relative positive or negative performance.
CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."
Joshua Steiner, CFA
Christian B. Drake
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