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VIDEO | McCullough: 3 Reasons Why Stocks Are Getting Whacked

Hedgeye CEO Keith McCullough explains the reasons why stocks have fallen during the last two sessions and why most hedge funds were not positioned for this decline.


Wal-Mart CEO's Not-So-Good News for U.S. Consumers: 'It's Not Getting Any Better'

Takeaway: When Wal-Mart's CEO talks about the US consumer, we listen.

Editor's note: This is a brief excerpt from Hedgeye retail sector head Brian McGough's morning research. Click here for more information on subscribing to Hedgeye.

 

U.S. job rebound not spurring spending, Wal-Mart's Simon says

 

Wal-Mart CEO's Not-So-Good News for U.S. Consumers: 'It's Not Getting Any Better' - walmart

  • "In an interview with Reuters, Bill Simon, the president and chief executive officer of Wal-Mart U.S., said the improving employment picture had so far failed to raise cash register receipts at the retailer's U.S. stores. 'It's really hard to see in our business today … that it's gotten any better,' he said."
  • “'We’ve reached a point where it’s not getting any better but it’s not getting any worse – at least for the middle (class) and down.'"
  • "Simon said Wal-Mart's lower- and middle-income customers appeared to have made a number of changes to their shopping habits that were 'not the best thing in the world for a retailer,' splurging on events like back to school and holidays like the Fourth of July, but pulling back spending in between. 'They’re adapting to what has been a difficult macroeconomic situation,' he said."

Read the whole article at Reuters.

 

Takeaway: Nothing earth shattering here, but when Wal-Mart (WMT) talks about the US consumer we listen. The company has over 30 petabytes of shopper data to draw conclusions from. All in, this is not a ringing endorsement for the median American consumer. And it doesn’t bode well for our two least liked names in this space - Target (TGT) and Kohl's (KSS).

 

When we looked at shopping intent over the last 3 quarters, WMT was the only retailer in the space with positive readings, so if it is still feeling the macro heat then that pain is being felt across the rest of the industry.


Reality Check: The S&P 500 Hasn’t Had a +/- 1% Move in 55 Trading Days

Takeaway: At first risk happens slowly, then all at once.

Click image to enlarge.

 

Reality Check: The S&P 500 Hasn’t Had a +/- 1% Move in 55 Trading Days - Streak


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$KLAC: Our "Dividend and Buyback" Semis Theme Comes to the Fore

Takeaway: KLAC's announcement this morning puts our "Dividend and Buyback" theme back into focus.

Hedgeye Semiconductor analyst Craig Berger noted earlier this morning that the "Dividend and Buyback" theme is back in focus today after KLA-Tencor Corporation (KLAC) -- a SemiCap equipment firm -- raised its dividend 11% and authorized a new $1 billion share buyback

 

$KLAC: Our "Dividend and Buyback" Semis Theme Comes to the Fore - klac

 

Berger spent a fair amount of time during his recent launch discussing how the Semiconductor sector is transitioning into a Cash Return story, and how that's bolstering sector stock performance.

 

In his detailed and proprietary Cash Return Affordability Analysis, Berger highlighted five other firms in addition to KLAC which could make large dividend or buyback increases, and two others that are in acquisition mode, but could also possibly increase Cash Returns.

 

Click below to watch Berger's recent Cash Returns & Dividends video:  

 

 


Retail Callouts (7/8): ICSC, WMT, TGT, KSS

Takeaway: Another solid data point from ICSC. WMT US CEO doesn't give US consumer clean bill of health. TGT hires three for e-commerce.

EVENTS TO WATCH

 

Tuesday (7/8)

  • TCS - Earnings Call: 4:30pm

 

Thursday (7/10)

  • FDO - Earnings Call: 10:00am

 

Friday (7/11)

  • PSMT - Earnings Call: 12:00pm

 

ECONOMIC DATA

 

ICSC - Chain Store Sales Index

 

Takeaway: Another solid data point from the ICSC numbers this week - sales up 3.3% on top of a 2.9% number last year. While numbers have climbed steadily since the 13th week of the year, we'd point to WMT's US CEO Bill Simon's comments from this morning quoted in the story below. Not exactly a clean bill of  health for the median US consumer.

 

Retail Callouts (7/8): ICSC, WMT, TGT, KSS - Chart1 7 8 2014

 

COMPANY NEWS

 

WMT - U.S. job rebound not spurring spending, Wal-Mart's Simon says

(http://www.reuters.com/article/2014/07/08/us-walmart-simon-idUSKBN0FC2GW20140708)

 

  • "In an interview with Reuters, Bill Simon, the president and chief executive officer of Wal-Mart U.S., said the improving employment picture had so far failed to raise cash register receipts at the retailer's U.S. stores. 'It's really hard to see in our business today … that it's gotten any better,' he said."
  • “'We’ve reached a point where it’s not getting any better but it’s not getting any worse – at least for the middle (class) and down.'"
  • "Simon said Wal-Mart's lower- and middle-income customers appeared to have made a number of changes to their shopping habits that were 'not the best thing in the world for a retailer,' splurging on events like back to school and holidays like the Fourth of July, but pulling back spending in between. 'They’re adapting to what has been a difficult macroeconomic situation,' he said."

 

Takeaway: Nothing earth shattering here, but when WMT talks about the US consumer we listen. The company has over 30 petabytes of shopper data to draw conclusions from. All in, this is not a ringing endorsement for the median consumer in America. And it doesn’t bode well for our two least liked names in this space - TGT and KSS. When we looked at shopping intent over the last 3 quarters, WMT was the only retailer in the space with positive readings, so if it is still feeling the macro heat then that pain is being felt across the rest of the industry. Yes, one could argue that WMT is more exposed to the lower end consumer than most of the names in the chart below, more TGT than KSS. But we'd argue that TGT's brand transformations over the past 5 years (P-Fresh, RedCard, etc.) has only increased its exposure to the lower end shopper.

 

Retail Callouts (7/8): ICSC, WMT, TGT, KSS - chart2 7 8

 

TGT - Target Appoints Three New Officers, Spanning Information Technology, E-commerce and Digital Product Teams

(http://pressroom.target.com/news/target-appoints-three-new-officers-spanning-information-technology-e-commerce-and-digital-product-teams)

 

  • "Jim Fisher joins Target as senior vice president, Infrastructure and Operations, Target Technology Services, where he will oversee Target’s technical infrastructure and operations."
  • "Alan Wizemann joins Target as vice president, Target.com and Mobile Product, where he will oversee digital product teams."
  • "David Weissman joins Target as president of DermStore, based in El Segundo, Calif., which Target acquired last year."

 

Takeaway: Kudos to TGT on these hires. We don't have any edge on any of these 3 personally, but the fact is that TGT has one of the worst performing e-commerce businesses in the industry. Clearly new blood is needed in order to innovate and implement the type of changes that need to be made. We feel like a broken record saying this, but…those changes won't be cheap.

 

Retail Callouts (7/8): ICSC, WMT, TGT, KSS - chart3 7 8

 

OTHER NEWS

 

BBBY - Bed Bath & Beyond Inc. Board of Directors Authorizes New $2.0 Billion Share Repurchase Program

(http://phx.corporate-ir.net/phoenix.zhtml?c=97860&p=irol-newsArticle&ID=1945198&highlight=)

 

  • "The Company expects that the new share repurchase program will commence after the completion of its existing share repurchase program, which, as of May 31, 2014 had approximately $861 million remaining."

 

PETM - PetSmart Shareholder Longview Joins Call for Company to Consider Sale

(http://online.wsj.com/articles/petsmart-reviews-capital-structure-amid-activist-pressure-1404736641?mod=mktw)

 

  • "Longview Asset Management LLC, which owns about 9% of PetSmart and has been an investor since 2005, asked the company to consider a potential sale or other strategic alternatives in a letter to PetSmart's board Monday."

 

CA - Carrefour to Close Stores in India

(http://www.wwd.com/retail-news/mass-off-price/carrefour-to-close-stores-in-india-7786295)

 

  • "Carrefour SA said Monday it would close its five cash & carry stores in India, effective at the end of September."
  • "Carrefour, the world’s second-largest retailer behind Wal-Mart  Stores Inc., has been represented in India since 2010."

 


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