Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY

Takeaway: FOSL hits trifecta–beat, algorithm, KORS – with big ROE kicker. WMT’s employee problem is bigger than grocery. Golf sales still in the tank.



Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart2





FOSL - 3Q14 Earnings


Takeaway - Fossil hit the earnings trifecta this quarter. Not only did it beat the quarter by 8%, but did so by putting up a clean algorithm of +10% sales, +15% net income, and +25% net income. Its SIGMA trajectory swung towards the upper right hand quadrant, which is bullish for gross margins in the upcoming quarter. One thing we particularly liked was how we're starting to see a meaningful diversion between ROE and ROIC for this company. Too many companies that tout improving ROIC trends leave out the fact that they're letting cash build on their balance sheets. FOSL is doing the inverse. When we see ROE trending above an upward-sloping ROIC curve, we definitely take notice.  Oh, and by the way, the Michael Kors agreement -- which accounts for 22% of FOSL sales -- was renegotiated until 2024.


Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart4


Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart5


AMZN, EBAY - Sequential slowing for both AMZN and EBAY in ChannelAdvisor Comp Sales

Takeaway: The noticeable spread between the two companies in 2014 held in October.  Sales growth slowed for both companies slowed on a 1 and 2 year trend.  Ebay's +4.4% is the worst month since early 2011.


Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart1


AMZN, EBAY, DKS - Golf Comps

Takeaway: Amazon golf comps put up yet another strong month.  The delta between  Amazon and eBay can partially be explained by the fact that eBay implemented a defect rate as part of its seller profile earlier this year, thus pressuring used product sellers to be more selective in their inventory.  At the same time Amazon has added features to expand the used category.  Either way, strong sales in this channel -- which is the bottom of the food chain for golf sales -- does not bode well for the category in general. The malaise that became apparent earlier this year (plaguing DKS and others) is still alive and well. 

 Retail Callouts (11/12): FOSL, KORS, WMT, DKS, AMZN, EBAY - 11 12 chart3



WMT - Walmart Memo Orders Stores to Improve Grocery Performance



Takeaway: The writer here clearly had an agenda from the start. Taking a confidential memo about the need for improvement in the grocery department and dovetailing that with a singular store visit is just flat out irresponsible. For starters, these types of memos get circulated all the time. We're sure if you found a disgruntled Whole Foods employee you could get your hands on something similar. Asking your employees to execute on the 'Would I Buy It?' grocery test isn't egregious. The troubling thing for WMT is the overall discontent from its employee - that's nothing new, we know that, but to have store managers tactically leak information to the press is never a good recipe.  This is an employee-relations problem, not a grocery problem.





WMT - Wal-Mart Stretches Black Friday Deals to Reach Shoppers



  • "The 'New Black Friday' will include five days of sales on and in stores, starting at 12:01 a.m. online on Thanksgiving and running through Cyber Monday, the Bentonville, Arkansas-based company said in a statement today."


JWN - Nordstrom Rolling Out Shoes of Prey In-Store Shops



  • "Nordstrom is rolling out in-store shops for Shoes of Prey, an Australia-based online firm that enables women to design their own shoes."


Cambodia to Increase Minimum Wage



  • "The minimum wage in Cambodia’s garment sector will be raised to $128 beginning in 2015, a 28 percent increase over the current $100 monthly wage."


REI names its first-ever chief creative officer



  • "Outdoor outfitter REI has added a chief creative officer slot, and hired Ben Steele to fill the position, effective Jan. 1. Steele most recently served as executive creative director at global brand firm Hornall Anderson in Seattle."


BBY - Best Buy to open 5 p.m. on Thanksgiving, one hour earlier than last year



Keith's Macro Notebook 11/12: Sentiment | Europe | UST 10YR

Sentiment, Europe and UST 10YR (UPDATED)

Client Talking Points


What isn’t bearish is how people were positioned at the SEP $SPX highs and this morning’s – II Bull Bear Spread (bulls minus bears) is +99% to the bullish side since OCT 13th (14.8% Bears tracking all-time lows).


Saw a lot of “charts” in which people were claiming Europe was “breaking out yesterday” – in other news this morning, Italy leads losers -1.6% - MIB Index, the DAX -0.9%, and Eurostoxx50 -0.9% all confirming bearish TREND @Hedgeye).


UST 10YR Yield is down 3 bps this morning (after falling last week on a bad jobs report) to 2.33%, continues to crash (-23% year-to-date) vs. misplaced U.S. growth expectations of +3-4%; we still see sub 2% for the year when it’s all said and done (Q4 slowing).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.


We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).


The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road


BoE growth outlook cut:  2015 GDP at 2.9% vs 3.1% in August and 2016 GDP at 2.6% vs 2.8%. Inflation outlook also revised down #EuropeSlowing



Either write things worth reading or do things worth writing.

-Ben Franklin


Wal-Mart isn’t concerned about slowing growth in China; the Company is sticking by a plan to have around 480 Wal-Mart stores in China by the end of 2016.

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COMPLIMENTARY VIDEO | Hedgeye's Morning Macro Call with CEO Keith McCullough 11/12/14

We are pleased to present this complimentary peek behind-the-macro-scenes of Hedgeye's daily Morning Macro Call for institutional subscribers. Watch for a special appearance by retail analyst Brian McGough during the Q&A.

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LEISURE LETTER (11/12/2014)

Tickers: MGM, H, HLT, RCL


  • Nov 13-16
    • Macau Grand Prix
    • Hedgeye Cruise Pricing Survey
  • Nov 16-18
    • Quantum of the Seas cruise to nowhere


880:HK SJM – Chief Executive Officer Ambrose So is bearish about Macau gambling revenue from high rollers over the next six months as Chinese President Xi Jinping escalates his anti-corruption drive. The executive of Asia’s largest casino operator expects industry-wide gaming revenue to be flat or drop slightly this year. So forecast a “high single digit” growth for 2015.

Takeaway: Mr. So isn't bearish enough - we'll take the under on high single digit growth for 2015.


AC:FP – listed for sale the Sofitel Bora Bora Marara Beach Resort, Sofitel Bora Bora Private Island and Sofitel Moorea Ia Ora Beach Resort in a move to focus on investment in Europe.  JLL Hotels & Hospitality Group has been exclusively appointed to offer the resorts for sale.

Takeaway: Such luxury properties are expensive to run and are often targeted for points redemption by its frequent guests and


H – filed an SEC Form 8K and disclosed "after the repurchase there are 111,405,463 shares of Class B Common Stock outstanding and 38,763,686 shares of Class A Common Stock outstanding, and the Company has approximately $110 million remaining under its repurchase authorization." 


Hyatt disclosed on November 5, the Company repurchased an aggregate of 1,122,000 shares of Class B Common Stock at a price of $60.1987 per share from an affiliate of Daniel Pritzker, which represents the Volume Weighted Average Price for the Class A Common Stock for the three (3) trading-day period ending October 31, 2014 as reported by Bloomberg,


HLT – announces the management agreement for Hilton on The Park Melbourne will expire on December 31, 2014 and will not be renewed.  Hilton on the Park Melbourne was the first Hilton hotel in Australia with a 40 year history.

Takeaway: While a unit loss, Hilton is adding 40+ new hotels per quarter to its managed and franchised segment, so the loss is negligible to revenues. Finally, based on the pictures we've viewed, it would appear the hotel is in need of capex to maintain the Hilton brand standards.

RCL – said it will be several years before the Sea Pass wristbands being used for room keys on Quantum of the Seas can be rolled out fleetwide. The radio-frequency identification (RFID) wristbands are simple, but they go hand-in-hand with a new shipboard property management system that takes a fair amount of time to install.


Takeaway: Ultimately a device which should lower operational expenses. 


Insider Transactions:

SHO – COO Marc Andrew Hoffman sold 13,395 shares of stock on Monday, November 10 and at an average price of $15.62 and now owns 165,450 shares.

Takeaway: Another non-options related insider sale in the lodging industry.


Macau Concession Renegotiation Risks Rising? – According to Macau's Chief Executive Fernando Chui Sai, the government will conduct a study to assess the development of the gaming industry, ahead of the negotiations to renew the licenses of the six Macau gaming concessionaires.  The Chief Executive noted, “We have to conduct a study about the gaming industry and take into consideration if the concessionaires have followed the terms set in their contracts. We have to look at all features of their projects, including gaming and non-gaming elements, in order to speed up the economic diversification [of Macau]."

Takeaway: Looks to us, like the concession renewals could be more contentious than currently expected. 


Macau 2015 Government Budget – The Macau government is being cautious about next year’s budget due to the slowdown in casino gross gaming revenue. The government has forecast total public revenue of MOP145 billion for 2015, excluding revenue raised by special bodies such as Macao Foundation. That is up 2.7% from the public revenue tally expected for 2014, but nonetheless a much smaller increase than in forecasts for previous years. In 2015 the government expects to collect MOP125 billion in direct taxes; however, the amount of taxes the administration is expecting from direct taxes on gaming is not disclosed and will be revealed when the Secretary for Economy and Finance discusses the draft budget with legislators.

Takeaway: Gaming and the associated gaming taxes, once viewed as Macau's salvation are now viewed as too closely tied to the economic welfare of the SAR - thus the calls for increased economic diversification.


Macau 2015 Tax Rebates – Chief Executive Fernando Chui Sai called for residents’ understanding for their annual cash handout next year remaining unchanged at 9,000 patacas, adding he hoped a 6.75% increase in public servants’ salaries could take effect on January 1 which followed a public servants’ salary raise of 5.71% in May 2014.,english/


Texas Historical Racing Appeal Likely – In late August, the Texas Racing Commission approved a rule change to allow historical racing at Texas horse and dog tracks, despite objections from several state lawmakers. Two lawsuits were filed — one in Tarrant County by state Rep. Matt Krause, R-Fort Worth, who said commissioners lacked the the authority to allow the race betting machines (which some critics argue closely resemble slot machines), and one in Travis County by a coalition of charitable bingo groups that said the machines might run them out of business. The Fort Worth lawsuit was dismissed. But state District Judge Lora Livingston in Austin ruled the commission exceeded its authority and that such decisions should be left to the Legislature.

Takeaway: Texas one of a few remaining growth markets for regional gaming and thus an appeal is likely.


Las Vegas F1 Gaining Speed – the driving force behind it is Farid Shidfar, founder of digital meeting service and pioneer of the Los Angeles media and entertainment practice at consultancy firm Accenture. Mr Shidfar is understood to have been analyzing the opportunity to bring F1 to Vegas since 2011 and has boosted his efforts over the past year. On January 17 he founded the Nevada company P2M Motorsports Management LLC. According to Forbes, Mr. Ecclestone has handed Mr Shidfar a contract for a Vegas Grand Prix

Takeaway: As we wrote on October 20, the city would benefit from the energy, excitement, and significant foreign visitation related to the race and events.


Lodging 2015 RevPAR – Even as supply growth accelerates in 2015, PwC predicts that industry-wide occupancy levels will reach 64.9%, the highest levels since 1984. The strong outlook for group demand, combined with continued strong transient travel activity and a positive economic environment, will drive an 8.2% increase in RevPAR for 2014. By comparison for 2015, PwC is projecting that RevPAR growth will moderate to 7.4%, but at the same time ADR growth will tick upward by 150 basis points from 2014 projection of 4.7% to 6.2%, the largest year-over-year gain since 2007. PwC’s outlook expects supply growth to accelerate to 1.4% in 2015, given the increasing momentum of new construction: development was up 40% year-over-year in Q3.

Takeaway: Peak occupancy, peak ADR and peak margins and low supply growth - the perfect back drop for strong earnings growth but do investors believe? 


China Economic Growth - The China Securities Journal noted that H1 2015 growth will likely fall to 7% before rebounding in H2, highlighting policies to support real estate and infrastructure investments, looser monetary policy, improvement in export environment, and lower commodity prices as supporting the rebound.


Japan Economic Growth - The Japan Center for Economic Research released its monthly estimates of GDP and inflation for FY14 and FY15. Real GDP is seen growing at +0.18% y/y in FY14 and +1.31% in FY15, while the nominal growth rates are +2.07% and +2.26%, respectively. GDP is seen growing +2.47% y/y in Q3 and +2.51% in Q4. Core CPI was seen at +3.11% in FY14 and +1.77% in FY15, excluding the effects of the consumption tax +1.10% and +1.11%, respectively.


Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottoms up slowing in Europe cruise pricing in our monthly survey. Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis. 


Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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.

CHART OF THE DAY: Liquidity Traps = Bearish


CHART OF THE DAY: Liquidity Traps = Bearish - cod

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