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Strong Restaurant Sales, Traffic, Employment Data

Black Box reported eye-catching sales and traffic growth for the month of October, up +2.8% and +0.4%, respectively.  Two-year trends, though slightly weaker, were strong as well, with sales up +1.9% and traffic down -0.5%.  October marks the first time we’ve seen positive traffic in the industry since January 2012.  It is also the strongest two-year number we have on file since we began compiling data in November 2011.  


This confirms our view that declining gas prices (July, August, September, October) and notable employment growth are leading to a period of improved trends in the restaurant industry.  As you can see below, we were properly positioned for this move.  We still view this as a difficult environment to be in for those looking for shorts within the restaurant space.  With that being said, we believe we’ve identified a couple and will continue to judiciously search for more.


Strong Restaurant Sales, Traffic, Employment Data - 1


Strong Restaurant Sales, Traffic, Employment Data - 2


Strong Restaurant Sales, Traffic, Employment Data - 3


This is the fourth consecutive month employment growth has increased year-over-year across our five primary age cohorts.  While we saw strength across the board, we do have several notable callouts:

  • 20-24 YOA: an impressive +194.4 bps sequential acceleration in employment growth
  • 25-34 YOA: the strongest month of employment growth we’ve seen since prior to the recession
  • 45-54 YOA: four straight months of growth after 20 straight months of declines
  • 55-64 YOA: second strongest month of growth we've seen in the last 22 months


While widespread employment growth is positive for all restaurants, October’s employment release is particularly positive for casual diners as both the 45-54 and 55-64 YOA cohorts are showing their strongest levels of growth in the last two years.  With that being said, we continue to favor BLMN and BOBE on the long side as both have the potential to unlock substantial shareholder value through restructuring of sorts.


The release was also a positive for quick-service and fast casual restaurants, highlighted by a very strong month of growth in the 20-24 and 25-34 YOA cohorts. We continue to favor select quick-service and fast casual operators including JACK, YUM, CMG, KKD, PLKI and WEN.


September Employment Growth Data:

  • 20-24 YOA +2.91 YoY; +194.4 bps sequentially
  • 25-34 YOA +3.24% YoY; +77.5 bps sequentially
  • 35-44 YOA +1.37% YoY; +48.9 bps sequentially
  • 45-54 YOA +1.05% YoY; +84.2 bps sequentially
  • 55-64 YOA +3.54% YoY; -5.6 bps sequentially


Strong Restaurant Sales, Traffic, Employment Data - 4


Please let us know if you’d like to discuss any of our current ideas in greater detail or would like to review our deep dive work on active ideas including BOBE, SBUX and CHUY.


Howard Penney

Managing Director


Fred Masotta


Keith's Macro Notebook 11/7: Yen | Russia | UST 10YR


Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.

Retail Callouts (11/7): Port Dispute, ANF, TGT, GPS, LULU, COLM

Takeaway: Port labor situation getting too much play relative to importance. ANF miss despite decidedly better product. GPS comp -3% - get used to it.



Fears Grow Over West Coast Ports as Comps Hit



  • "Retailers already concerned about weak demand as they head into the critical holiday season have a new concern: limited supply."
  • "In reporting weaker-than-expected sales and negative comparable sales for the third quarter and projecting lower-than-expected sales and a low-single-digit comp decline in the holiday quarter, which has just begun, Ann Inc. also said it was being hit by delayed shipments due to congested West Coast ports, which have been crippled by a union dispute."


Takeaway: Let's be clear about something...disputes with Port workers only happen in the fourth quarter. You will never see workers threatening to strike in the month of June. It's a seasonally low freight shipping period, which gives the workers zero leverage. They'll always threaten a strike from October-December. This happens every 2-3 years, and rarely ends up in a prolonged work stoppage that negatively impacts retail or the US consumer. The better companies see this coming from a mile away, and usually ship product a few weeks early. Air freight companies are all over this as well -- they'll make sure the product finds its way into the US (albeit at 10-12x the price of ocean freight).  If things get too bad, the President will usually step in and force an agreement between unions and shippers. Rubbing the two constituents the wrong way isn't ideal, but it's a better choice for Obama than kids not getting presents this holiday.




Q3 Sales: -12%

Q3 Comps: -10%

  US: -7%

  Int'l: -15%

e-commerce: +8%


Takeaway: We took this name off our long bench a month ago because we just did not have confidence in anything beyond the consensus 'cost cutting, Board change' thesis. Our concern was that when all is said and done, you'd be left with a brand that is Abercrombie -- and lacking relevance with its core consumer. What's interesting is that the product over the past two months has reportedly gotten better -- in quality and aesthetic. Apparently consumers don't care. Even e-commerce was up only 8%, which is unacceptable for any brand (19% of total sales for ANF). We're fine staying away from this one at any price within spitting distance of $30.


TGT - Target Names Jacqueline Hourigan Rice as Senior Vice President, Chief Risk and Compliance Officer



  • "Target Corp. announced it has hired Jacqueline Hourigan Rice as senior vice president, chief risk and compliance officer."
  • "Rice joins Target effective December 1 and will report directly to Brian Cornell, chairman of the board and chief executive officer of Target. In addition, the company is elevating the position to include centralized oversight of enterprise risk management, compliance, vendor management and corporate security under her leadership."
  • "Rice comes to Target from General Motors Company where she was most recently the chief compliance officer. Her 17-year-career with the company included key global leadership roles in areas that included ethics, compliance and data privacy."


Takeaway: Two C-suiters over the past 6 months from GM with titles that involve Security and Risk strikes us as a little ironic. That may be an unfair characterization of the two individuals - we know very little about either of them. But we don't understand why TGT is adding to the executive team in areas that have very little touch with the end consumer. Maybe there are seats that need to be filled but we characterize this as a B priority. Nearly all of the executives who surround Steinhafel are still in their respective seats and most are Target lifers. Cornell is approaching his 3 month anniversary with the company and we'd expect to see some turnover soon. That is if the company wants to go from TGT 1.0 to 2.0.


GPS - Gap Q3 Earnings Better Than Expected (http://www.gapinc.com/content/gapinc/html/media/pressrelease/2014/med_pr_GPS_Sales_November0614.html)

October Sales: $1.29B  (Comp -3%)

Q3 Sales: $3.97B  (Comp -2%)

Q3 EPS Guidance: $0.78 - $0.79 ($0.06 from tax rate) vs Consensus $0.71


Takeaway: GPS is batting 3-for-3 this quarter when it comes to missing sales expectations. Flat sales for the quarter and a $0.06 tax benefit is nothing to get excited about. Operating expenses came in lower than expected, but that's down from the guided 8% growth. Our thoughts are the same now as they were when Glen Murphy announced that he was jumping ship; GPS isn't in trouble because Glen Murphy is leaving, Glen Murphy is leaving because GPS is in trouble.





LULU - lululemon athletica appoints duke stump as executive vice-president, community and brand



  • "lululemon athletica inc. announced that Duke Stump has been appointed to its senior leadership team as Executive Vice-President, Community and Brand effective December 1, 2014. Mr. Stump will be responsible for continuing to build an authentic and differentiated global Brand and Community experience, and amplifying lululemon's global impact. He will report to the Company's Chief Executive Officer, Laurent Potdevin."


TGT - Target Is Closing Another 11 Stores



  • "Target decided to close eight stores in May, including two stores in the Las Vegas area and two stores in Ohio. This week, Target announced it will be closing 11 more stores in the U.S., including two Chicago-area locations and three Targets in Michigan."
  • "The 11 stores will be shut down by February 1, 2015."


PETM - Private-Equity Firms Invited to Final Round of PetSmart Bidding



  • "A handful of private-equity firms have been invited to the final round of bidding for PetSmart Inc., according to people familiar with the matter."
  • "Firms including BC Partners, Apollo Global Management LLC, KKR & Co. and Clayton Dubilier & Rice Inc. have been asked to submit second-round bids and meet with the pet-supply retailer’s management, the people said."


COLM - Columbia Sportswear opens store dedicated to performance fishing gear



  • "Columbia Sportswear Company opened its first-ever store dedicated to its performance fishing gear (PFG) at the Avalon Mall in Alpharetta, Ga. Columbia’s PFG collection is inspired by the performance, style and comfort needs of professional and recreational anglers of all ages."
  • "The 3,176-sq.-ft. store has a clean design, boutique feel and digital integration that includes an interactive knot-tying station."


SHLD - Comedian Mike Myers takes jab at Sears Canada in rebranding promo



  • Sears Canada enlisted a little star power for what appears to be a rebranding video to let Canadians know the struggling retailer isn’t going away.
  • In the marketing video, Toronto-born comedian Mike Myers stopped by Sears Canada’s corporate office to visit his older brother Peter, a long-time employee.
  • The Wayne’s World star asks his brother “is Sears Canada going away?”
  • “We are not going anywhere,” his brother replies.

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COMPLIMENTARY VIDEO | Hedgeye's Morning Macro Call with CEO Keith McCullough


We are pleased to present this complimentary peek behind-the-macro-scenes of Hedgeye's daily Morning Macro Call for institutional subscribers. 

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Cartoon of the Day: 'Behind' the Scenes at the BLS

Here's how we think the Bureau of Labor Statistics REALLY calculates the monthly jobs number.


Cartoon of the Day: 'Behind' the Scenes at the BLS - Jobs  good numbers  11.07.2014


Takeaway: Our Macro Playbook is a daily 1-page summary of our investment themes, core ETF recommendations and proprietary quantitative market context.


Long Ideas/Overweight Recommendations

  1. iShares National AMT-Free Muni Bond ETF (MUB)
  2. iShares 20+ Year Treasury Bond ETF (TLT)
  3. Vanguard Extended Duration Treasury ETF (EDV)
  4. Health Care Select Sector SPDR Fund (XLV)
  5. Consumer Staples Select Sector SPDR Fund (XLP)

Short Ideas/Underweight Recommendations

  1. SPDR S&P Regional Banking ETF (KRE)
  2. iShares Russell 2000 ETF (IWM)
  3. iShares MSCI European Monetary Union ETF (EZU)
  4. iShares MSCI France ETF (EWQ)
  5. SPDR S&P Oil & Gas Exploration & Production ETF (XOP)




  • Global Macro Spillover Risk: As our research on the Eurozone, China, Japan, Brazil and Russia continues to highlight, global growth is slowing. Even India – which had been our favorite international equity exposure through late-September – is starting to show economic deterioration, on the margin. With #GrowthSlowing in at least six of the world’s top seven economies – four of which are in recession (Brazil), teetering on recession (Japan, Eurozone) or careening towards economic collapse (Russia) – what could possibly go wrong? It would appear the U.S. is the lone holdout – at least according to Consensus Macro “surveys” – although our analysis of the actual economic data continues to show a steady trend of degradation from the 2Q highs. While the “bad house in a worse neighborhood” argument is effective in the FX market where pricing is always relative, we don’t think it has any place in equity investing. Anyone who’s being honest with themselves understands that simultaneous domestic and global slowing is a headwind to the revenue growth and profitability of U.S. corporations. Moreover, the domestically-exposed Russell 2000 (IWM) should be materially outperforming the S&P 500 (SPY), if in fact, the “bad house in a worse neighborhood” argument has any validity... Looking to our Tactical Asset Class Rotation Model (TACRM) for quantitative confirmation, 33% of the ~200 ETFs in the model have a VAMDMI reading less than -1x on a trailing 3M average basis. That’s the highest reading of broad-based negative multi-duration price momentum since the summer of 2012!
  • Follow the Bouncing Ball on Nat Gas: On Tuesday, Keith and I met with one of the best natural resource investment firms on the planet. One of the topics of discussion that stuck with me the most is how shale/tight oil production has impacted natural gas supply in recent years. Specifically, one of the co-PMs remarked that 2/3rds of natural gas supply growth in the U.S. has been from “associated gas” – or the gas that comes out concomitantly with crude oil production. Well, if OPEC is right in their assumption that CapEx associated with U.S. crude oil production is likely to be cut if crude oil prices remain at/near current prices, then it’s reasonable to assume a subdued outlook for natural gas growth as well. Perhaps that’s why TACRM is now generating a “BUY” signal for the United States Natural Gas Fund (UNG). Just something to watch…


***CLICK HERE to download the full TACRM presentation.***



#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.


Oil: More Downside? (11/5)


#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.


Top Ten Reasons to Stay Short the Euro (11/5)


#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.


Early Look: My Bubble’s Birthday! (11/7)


Best of luck out there,




Darius Dale

Associate: Macro Team


About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.