Takeaway: 10 SIGMAs for the week’s EPS. JCREW lost FAST as suitor, so it’s going public - again - +75% from where it went out? But there’s no bubble.
J. CREW - Infographic: Privately-Held Retailer Could Be Next "In" Fashion IPO; PrivCo-Estimated $5.25B IPO Value; 75% More Than Take-Private Price in 2011
- "J. Crew could use the IPO proceeds to pay down its heavy debt load and decrease interest expenses in order to increase cashflow.
Takeaway: J Crew went private in 2010 for $3bn. A $5.25bn price tag this time around would represent a 75% boost in value. What we find interesting is that J Crew was on the tape in March as being bought by Fast Retailing for $5bn, but the deal crumbled when FAST went through the numbers in detail (and shortly after, J Crew released weak results). Now it looks like Drexler is getting his $5bn price tag after all. But we're not at a market top or anything.
These 10 companies represent what should be the last of our weekly SIGMA reviews for Retail earnings for 2Q14 earnings. As a reminder, the analysis triangulates sales, inventories and margins. The vertical axis is the spread between sales and inventories -- the higher on the scale, the better. The horizontal axis is the y/y change in EBIT margin. In effect, you want to be either in the upper right hand quadrant, or headed there. The opposite holds true for the lower left. The two winners are ULTA and LULU, but the market has obviously reacted on those two names. RH is interesting, as margins look very good, but inventories climbed meaningfully. We'd note, however, that the nature of the furniture business -- where product is almost all ordered for future delivery (you don't walk out of the store with a couch) -- gives us confidence that higher RH inventories will drive accelerated top line in 3Q.
ULTA - 2Q14 Earnings
LULU - 2Q14 Earnings
RH - 2Q14 Earnings
OXM - 2Q14 Earnings
VRA - 2Q15 Earnings
FIVE - 2Q14 Earnings
MW - 2Q14 Earnings
WTSL - 2Q14 Earnings
RSH - 2Q14 Earnings
HBC - Q214 Earnings
WMT - Walmart rolls out new extreme value private-label brand
- "Walmart has taken its value-pricing model even lower with the debut of a house brand, Price First, in select U.S. markets."
- "Among the first products to be introduced are condiments such as ketchup, mustard and mayonnaise; macaroni and cheese; peanut butter and jelly; pasta and packaged baking mixes. Non-food items include foam plates and bowls (97 cents for a 40-count package), paper napkins (97 cents for a 150-count pack) and four rolls of bathroom tissue for 68 cents, according to media reports.
- The plain packaging features a solid blue coloured label with the product name in simple white letters."
HD, TGT - Home Depot’s Malware Hints That Its Hackers Weren’t Target’s
- "Home Depot Inc. was hacked with a malicious software program that plunders store registers while disguising itself as antivirus software, according to two security researchers."
- "The credit card-stealing program used in the attack on the Atlanta-based retailer is being dubbed FrameworkPOS, and differs significantly from the software used last year to hack Target Corp., said Dan Guido, chief executive officer of Trail of Bits, an information security company."
GME - GameStop's Mobile Data Determines Brick-and-Mortar Inventory
- "Despite the flood of online and mobile games in recent years, GameStop remains set on owning the brick-and-mortar gaming space. But the retailer is leveraging mobile commerce with tracking technology like beacons to better understand why shoppers still like the in-store experience and which products they’re buying."
- "One of the first steps GameStop took with digital was the launch of a loyalty program in 2010 called Power-Up. Top-tier members in the program (who pay $15 for added perks) spend three to four times more than nonpaying members. And members in that group who have also downloaded GameStop’s app spend 80 percent more than those who don’t have the app."
LOW - Ad of the Day: NFL Fans Are Beside Themselves in Funny New Lowe's Campaign
- "Toward the end of a tough week for the league, Lowe's will break a new NFL campaign, themed 'Make your football self happy,' during Thursday's CBS telecast of the Baltimore Ravens game against the Pittsburgh Steelers."
- "Four humorous spots from BBDO New York show men and women being urged by their inner pigskin selves to get their home improvement projects done—so they'll be free to watch pro football on Sunday."
GPS, AAPL - Report: Apple hires Gap marketing director
- "Apple Inc. has reportedly hired Marcela Aguilar, senior global director of marketing communications for Gap Inc., to be its new director of global marketing communications, according to AdAge. Aguilar, who has worked at Gap since 2011, is credited as helping to drive the company’s resurgence in brand awareness, especially among Millennials."
VSI - Vitamin Shoppe CEO to retire in 2015
- "Tony Truesdale, who has served as CEO of Vitamin Shoppe Inc. since 2006, has announced his intent to retire on June 27, 2015 to spend more time with his family and his external board work. The board of directors of the Vitamin Shoppe will be commencing a search for a new CEO, which will include both internal and external candidates, who will then implement the next stages of the company's long-term growth plans."
CHS - Chico’s expands e-commerce with Borderfree
- "Chico’s FAS Inc. has partnered with Borderfree to expand its e-commerce capabilities globally. Through this partnership, Chico’s FAS will now be able to transact with shoppers in more than 100 countries and territories worldwide in more than 60 global currencies."
Here’s a peek behind the scenes at Hedgeye as we evaluated whether or not to remove Hologic (HOLX) from our Investing Ideas product this week. It was a debate between the coach (Keith McCullough) and player (Tom Tobin). Tobin is our Healthcare sector head and he authored this note.
[At a fund] I would be telling my portfolio manager to take down the position, but not eliminate it. Embracing the uncertainty of how the data leans (high valuation, +performance, possible negative surprise on revenue) is the key here.
Player: I am sitting on some good performance. I like the long term, but I see some short term risk. Data point 1, data point 2, etc….
Coach: Let’s book it. What I see from my seat doesn’t look good for the name. I hate this market and want to take down long exposure.
Player: But it could double from here! Be patient, you're overreacting. I’m just covering myself by sounding an alarm. I may be misreading how the street will react. And there’s always a chance I’m being way too worried about what other people think.
Coach: Relax. We’ll buy it back.
Player: That never happens. If I am wrong, the stock will be up and you’ll wait for a pullback that never comes. All of my research will get wasted. I put so much into this it will be heartbreaking to see us not participate.
Coach: Okay. Let’s sell half, more if it rallies into the number, less if it sells off. You good with that?
Player: That sounds good. If they puke the quarter we can double down. I’ll keep you posted as I update key data.
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Tickers: MGM, MAR, HOT, TVPT, MTN
- Sept 12: SNOW F4Q14 11:30 am
- Sept 16: Trump Plaza closes
- Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept
2282.HK/MGM; 880.HK/SJM – (GGRAsia, Macau Business Daily) A group of casino workers from MGM China is reportedly meeting on Monday (September 15) with the city’s Labor Affairs Bureau to complain about the company’s pay policies.
Another protest by SJM employees will occur on Saturday. The gathering is set for 3:00pm, after which the demonstrators plan to march to the Lisboa and Grand Lisboa casinos.
Takeaway: Labor protests all over the place - labor costs will continue to rise
MAR – announced plans to expand its Autograph Collection portfolio in Europe with new additions in Zurich, Switzerland and Barcelona, Spain in the spring of 2015 with the new 245-room Kameha Grand Zurich and the 83-room boutique hotel, The Cotton House, Barcelona.
Takeaway: Growth via the lower management revenue affiliated properties channel. Barcelona remains one of the top global tourist destinations.
HOT – announced plans to debut The Luxury Collection brand in California’s famed Napa Valley with Las Alcobas, a Luxury Collection Hotel, Napa Valley that will open in the fall of 2015 following a comprehensive multi-million renovation that will transform the former Grandview Hotel & Spa.
Takeaway: A good property and destination addition to The Luxury Collection for Starwood.
TVPT – Travelport files amended S-1; to offer 30M shares in range of $14-16/share through Morgan Stanley, UBS, Credit Suisse and Deutsche Bank. TVPT's principal shareholders include: Blackstone Funds and TCV Funds.
Takeaway: "Redefining travel commerce"...more like an equity market bubble in our book. After all, what's new about yield management and SAAS?
MTN – announced that the company has acquired Park City Mountain Resort from Powdr Corp. for $182.5 million in cash, settled all aspects of the prior litigation with Park City Mountain Resort, and expects $35 million in incremental EBITDA in FY2015.
Takeaway: A great acquisition at a very inexpensive EBITDA multiple while also adding a new mountain to the EPIC Pass program.
PNK – EVP, Secretary and General Counsel John A. Godfrey acquired 25,000 shares of the company’s stock (which were part of a stock option award) for $16.92 and then sold the same 25,000 shares for $27 on Tuesday, September 9. The transaction was part of a 10b5-1 plan adopted on March 13, 2014 and following the sale, Mr. Godfrey now directly owns 141,722 shares in the company and 50,000 additional options with an exercise price of $16.92/share that expire on May 16, 2015.
Las Vegas Old is New – Paragon Gaming told the Nevada Gaming Control Board, The Rivera Casino is considering a $100 million renovation. The Riviera opened on April 20, 1955 as the first high-rise and the ninth resort on the Las Vegas Strip. Today, The Rivera has over 2,100 rooms and a 110,000 sq ft of gaming space. Paragon has operated the property for more than a year, following the departure of several Riviera executives. Riviera's ownership group includes Starwood Capital Group.
Takeaway: The renovation of the north end of the Strip continues.
China Loan & Money Supply Growth –
- New yuan loans CNY702.5B vs CNY700B consensus and CNY385.2B in July
- Loan growth +13.3% y/y vs +13.4% in July
- Deposits +10.1% y/y vs +10.9% in July
- Total social financing CNY957.4B vs CNY1.130T consensus and CNY273.1B in July
- M2 +12.8% y/y vs +13.4% consensus and +13.5% in July
Takeaway: Lending continues to be weak
China Auto Sales – According to the China Association of Automobile Manufacturers, Chinese drivers bought 1.5 million passenger cars in August, an increase from 1.35 million units in August 2013.
Hedgeye remains negative on consumer spending and believes in more inflation. Following a great call on rising housing prices, the Hedgeye
Macro/Financials team is turning decidedly less positive.
Takeaway: We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.
This note was originally published at 8am on August 29, 2014 for Hedgeye subscribers.
“Because there is no effort without error and shortcoming.”
That’s one of the best quotes from one of the best leadership speeches in American history – President Teddy Roosevelt’s “The Man In The Arena” (more formally referred to by political types as his “Citizenship in a Republic” speech).
I’m not much of a political type. I’m more of a Mucker in the arena type. Perversely, I love getting smacked around once in a while. I love to fight against consensus. Yes, it can get messy. But working alongside those of you whose portfolios are “marred by dust and sweat and blood” drives me.
Those of you who didn’t get run over buying the tops of the 2000 and 2007 US stock market bubbles get where I am coming from. We are going to do this all over again. And while this time may be different, we know “the triumph of high achievement” … and if we fail, at least we’ll do so “while daring greatly.”
Back to the Global Macro Grind…
I obviously love that speech, but I don’t think our call for US #GrowthSlowing as inflation accelerated (from 3 year lows) in 2014 was much of a dare at all. It was a playbook modeling call. Amidst all of the storytelling out there, the easiest US Macro positions to take were:
- Long Inflation Assets in 1H 2014 (JAN-JUN)
- Long Slow-Growth all year long (Long Bond and anything Equities that looks like a Bond)
- Short US Domestic Growth (Russell 2000)
Score: Long Bond (TLT) +17.2% vs. Russell 2000 0.0% YTD #timestamped (10yr yield = 2.34%)
*that’s pre-reinvesting dividends if you are long the 30yr UST Bond, the absolute return is even better
But you won’t hear that on Old Wall TV. You probably won’t read that in the paper either (I certainly haven’t – mainly because I don’t read newspapers!). Instead, you’ll hear something from the cheap seats like, “look at the Dow – its above its 50-day moving avg.”
The Dow, btw, is up less than 3% for 2014. Thanks for coming out.
If you’re a hard core perma growth bull, where you should really be long is India. Unlike the Russell 20000, India’s stock market (BSE Sensex) closed the month at its YTD highs, +27.7% YTD. Inflation is falling there – and real consumption growth is accelerating. Sound familiar?
It certainly doesn’t sound like Europe.
European central planning bureaucrats (who are just like the un-elected ones we have here at the Fed) live in perpetual fear of what the general population wants (hint: lower cost of living). Read their conflicted and compromised media headlines this morning:
- “Eurozone deflation risk at its highest level since 2009”
- “Draghi hints at more stimulus”
This isn’t the arena of real life where real players have a real scoreboard. This is a joke.
For those of you who recall what the Keynesian finance newspaper (The Economist) was trumpeting last year (Abenomics), only 1-year after implementing 60-70 TRILLION Yen in incremental “easing”, here’s what Japan reported for July 2014:
- Japanese inflation +3.4% y/y
- Japanese Household Spending -5.9% y/y
- Japanese Housing Starts -14.1% y/y
In Hedgeye rate of change speak, “y/y” means year-over-year (or what it is now versus last year). And in Japan it’s just plain sad to watch. If you’re blowing up on the golf course this weekend, try it yourself – just keep doing the same things, over, and over, and over again. But don’t expect different results.
“So” Europe definitely needs to do that… definitely, right?
Right, right. And as US growth continues to slow from this fanciful Q2 headline Obama was trying to trumpet yesterday (newsflash: it’s Q3), guess what your central planning committee at the Fed is going to do in the face of that? Must do moarrr easing…
With a few Hedgeye Best Short Ideas going against us (like YELP) right now, I have plenty of issues of my own to deal with, but a broken process is not one of them. If I had a broken process, I would either get fired or mocked.
Where I grew up, they call the place where people who get paid to get mocked a circus. That’s the perfect place for a bunch of unaccountable people who are bought and paid for by governments policies to perform.
Our immediate-term Global Macro Risk Ranges are now:
UST 10yr Yield 2.32-2.39%
Shanghai Comp 2181-2280
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
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