Retail Callouts (11/17): RH, HIBB, JCP, KATE, KORS, AMZN, JOEZ, WMT

Takeaway: Retail Idea Bench. HIBB added to Short Bench. JCP pulled from Long Bench. Math on RH Atlanta says 65k ft is conservative size.



Retail Callouts (11/17): RH, HIBB, JCP, KATE, KORS, AMZN, JOEZ, WMT - 11 17 CHART1


This Week's Changes Hedgeye Retail Idea List

  1. Added Hibbett Sports to Short Bench: We don't have enough ammo to short ahead of earnings this Friday. But we have an extremely negative view on the margin implications as HIBB changes its business model to protect its market share.
  2. Removed JC Penney from our long bench. It became clear to us that JCP could achieve its sales goals -- but only if the economy is optimal. The problem is that we're six years into a recovery, and the liklihood of going another four is slim, in our opinion.  We pick four years as the bogey because that's when JCP faces a significant $2.2bn maturity. We're not making the 'donut' call on JCP. But we think that there's just as great a chance that this stock goes to zero as it does going to $15. Not a good risk/reward by any stretch.



Retail Callouts (11/17): RH, HIBB, JCP, KATE, KORS, AMZN, JOEZ, WMT - 11 17 chart2


RH Atlanta

We'll be at the RH Atlanta Design Gallery Grand Opening on Thursday night. This is an important one because the store is 65,000 SqFt -- the first of the '2nd Generation' Design Galleries. Remember that the first wave of Design Galleries averaged at about 20,000 feet. The Street 'gets it' that the economics in these stores are significantly better than in the legacy 9,000 ft stores, but there are massive questions (and doubts) about the economics associated with a mega-store like what RH is building in Atlanta.


A couple of reasons why we think this store size makes sense for RH in Atlanta.

1.  As we outlined in our RH Real Estate Deep Dive, you need to look at market size of every single store -- which we define as home furnishings spend for consumers earning over $100k.  We did that in every single region RH operates.
2.  Our math suggests that there are 22 existing RH locations that could support a store of 60,000 or greater. This assumes 2018 market share of 10%, and sales productivity of $1,200.
3.  Of these 22 locations, Atlanta is #3 on the list, behind New York and Houston. Our math suggests RH could have a store size as great as 90,000 feet.
4.  The rent economics work. Relative to RH's existing store in Atlanta, we think that occupancy math lines up well with the Denver store, which will open in 2015 (See math below).


RH remains our top idea in Retail.


Retail Callouts (11/17): RH, HIBB, JCP, KATE, KORS, AMZN, JOEZ, WMT - 11 17 chart3


Retail Callouts (11/17): RH, HIBB, JCP, KATE, KORS, AMZN, JOEZ, WMT - 11 17 chart4




AdiBok - ESPN Anchor Blames adidas Shoes for Derrick Rose's Injuries



H&M - October Sales +14% vs Last Year



WMT - Walmart workers plan Black Friday protests over wages



  • "A group of Walmart employees pushing for higher wages said on Friday they were planning protests at 1,600 Walmart stores nationwide on Black Friday."


KATE - Ad of the Day: Anna Kendrick Makes Something Out of Nothing in Kate Spade's Holiday Ad



AMZN - Amazon chief Jeff Bezos takes long-term view



  • "Last week, Mr Bezos gave a textbook demonstration. He abandoned a long-running and very public spat with French publisher Hachette over ebook pricing. Amazon appeared to make some big concessions. The bookseller gave up its right to sell ebooks at any price it chose – essentially the way it sells the physical product now."


KORS - Michael Kors' Instagram Adds 'Buy'



  • "Facebook and Twitter are instrumental in inspiring fans and helping in the shopping process, but finding a way to 'shop' Instagram was a necessity, the company said."


JOEZ - Joe's Jeans Defaults on Term Loan



  • "Joe’s Jeans Inc. declined 21.2 percent to close at 75 cents in Nasdaq trading, after the company reported that it had fallen out of compliance with the profit requirements of its Garrison Loan Agency term loan and was seeking waivers and adjustments."

Monday Mashup: LOCO, BLMN and More

Monday Mashup: LOCO, BLMN and More - 1111


Recent Notes

11/10/14 Monday Mashup: Covering CHUY

11/10/14 MCD: October Sales Weak

11/13/14 PLKI: World-Class Quarter


Events This Week

Tuesday, November 18th

  • Morgan Stanley Global Consumer & Retail Conference: CAKE, SONC, JACK
  • PZZI Annual General Meeting

Wednesday, November 19th

  • Morgan Stanley Global Consumer & Retail Conference: MCD, DPZ, NDLS, TSN, DNKN, GMCR
  • JACK earnings call 11:30am EST
  • GMCR earnings call 5:00pm EST

Thursday, November 20th

  • ZOES earnings call 5:00pm EST


Chart of the Day

Monday Mashup: LOCO, BLMN and More - 2


Recent News Flow

Monday, November 11th

  • RRGB announced it is two weeks away from opening its newest restaurant in Tracy, CA, in the state's Central Valley.
  • BLMN announced a secondary public offering of common stock, as Bain Capital Partners sold an aggregate of 18,307,782 shares of the company's common stock to Goldman, Sachs & Co.

Tuesday, November 12th

  • DRI upgraded to buy from hold at KeyBanc with a $62 PT.
  • CAKE announced the opening of its newest restaurant at the CoolSprings Galleria in Franklin, TN, a suburb of Nashville.  The new store is approximately 8,700 square ft. and accommodates approximately 215 guests.
  • CBRL downgraded to hold from buy at Miller Tabak with a $120 PT.

Wednesday, November 13th

  • BBRG announced the commencement of a modified "Dutch auction" tender offer to purchase up to $50 million in value of its common shares.  This tender offer will be financed from borrowing under BBRG's new, five-year $100 million senior secured credit facility.

Thursday, November 14th

  • BJRI announced the opening of its newest restaurant in Laurel, MD, on Monday, November 10th.  The restaurant is approximately 7,300 square ft. and accommodates approximately 225 guests.
  • LOCO celebrated the opening of its newest restaurant in Roseville, CA.  This is the 17th El Pollo Loco in the Sacramento area and the third opening in the last months.  LOCO is targeting 8-10% unit growth annually in Sacramento, which it considers a key expansion market.
  • DRI announced it will terminate its shareholder rights plan, effective November 28th, as part of its corporate governance reform.  It also announced several changes including, but not limited to: termination of the "poison pill," majority voting standard for election of directors, a 10% voting threshold to call a special meeting, and elimination of supermajority vote for certain charter amendments.


Sector Performance

The XLY (+1.9%) outperformed the SPX (+0.4%) last week.  Both casual dining and quick service stocks, in aggregate, underperformed the XLY.


Monday Mashup: LOCO, BLMN and More - 3

Monday Mashup: LOCO, BLMN and More - 4


XLY Quantitative Setup

From a quantitative setup, the sector remains bearish on an intermediate-term TREND duration.


Monday Mashup: LOCO, BLMN and More - 5


Casual Dining Restaurants

Monday Mashup: LOCO, BLMN and More - 6

Monday Mashup: LOCO, BLMN and More - 7


Quick Service Restaurants

Monday Mashup: LOCO, BLMN and More - 8

Monday Mashup: LOCO, BLMN and More - 9


Howard Penney

Managing Director


Fred Masotta


Japan, Oil and The UST 10YR

Client Talking Points


Weimar Nikkei drops -3% on the session as the Yen stops going down (+0.3% vs. USD to $115.90 – so just a little bit of correlation risk there!) as Bloomberg breaks that “Japan unexpectedly falls into recession” – unexpected by those who thought Abenomics was working maybe -  but this is getting panicky, faster.


WTI Oil is down another -1.2% to $74.9 despite the USD down (on Yen up), which is just nasty given that it was down -3.4% last week; BOE’s Carney called it “huge disinflationary pressures” (i.e. our #deflation call) and this should continue to weigh on illiquid energy stocks/bonds with bad balance sheets (i.e. MLP like Linn Energy w/ 5x leverage).


The UST 10YR Yield remains in crash mode (-24% year-to-date), falling back down to 2.29% this morning as it becomes less believable by the day that the U.S. will “decouple” from either growth or inflation expectations slowing, globally; long the Long Bond (TLT, EDV, etc) remains our highest conviction macro idea for 2014.

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


Yield Spread (10yr minus 2yr - good leading indicator for growth) drops back to its YTD lows = 179bps @KeithMcCullough


A man may die, nations may rise and fall, but an idea lives on. Ideas have endurance without death.

-John F. Kennedy


Energy Stocks (XLE) led U.S. stock market sector losers, -1.8% on the week to -2.6% year-to-date.

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CHART OF THE DAY: Keep Moving (And Selling the Russell 2000) | $IWM

"While risk often moves slowly, then all at once… sometimes it doesn’t move at all," wrote CEO Keith McCullough in today's Morning Newsletter. "Last week, our least preferred of the major US stock market indices (Russell 2000) did absolutely nothing."


"Oh, and it was unchanged in the week before that too. I guess that’s what they call a 'bull market' - something that doesn’t go down! After going down hard (-15% from its all-time #bubble high in July, to its October low), the Russell is +0.9% YTD.


“So,” keep selling that (IWM) against The Perfect Idea during what we call #Quad4 Deflation = Long the Long Bond (in TLT, EDV, etc.). And de-stress yourself a little as the macro market stresses about both growth and inflation slowing."


CHART OF THE DAY: Keep Moving (And Selling the Russell 2000) | $IWM - 11.17.14 Chart

The Perfect Idea

“The idea, the perfect idea, is to keep moving.”



The more #history I read, the more I like Ike; especially the Ike (Dwight D. Eisenhower) that was on the ground alongside his men, serving as the 1st Supreme Allied Commander of Europe during WWII.


The aforementioned quote comes from page 273 of The Guns At Last Light above a picture of American soldiers wading “from a landing craft toward Omaha Beach” #1944. Oh how our collective expectations in life have changed since then.


I thank God every day for the opportunities I’ve been provided. While my “highest conviction” ideas reside in this fish bowl, The Perfect Idea is for me to have two feet on the floor at the top of the risk management morning, and to keep moving.


The Perfect Idea - dwight


Back to the Global Macro Grind


While risk often moves slowly, then all at once… sometimes it doesn’t move at all. Last week, our least preferred of the major US stock market indices (Russell 2000) did absolutely nothing.


Oh, and it was unchanged in the week before that too. I guess that’s what they call a “bull market” - something that doesn’t go down! After going down hard (-15% from its all-time #bubble high in July, to its October low), the Russell is +0.9% YTD.


“So”, keep selling that (IWM) against The Perfect Idea during what we call #Quad4 Deflation = Long the Long Bond (in TLT, EDV, etc.). And de-stress yourself a little as the macro market stresses about both growth and inflation slowing.


Dow navel gazers saw it “up” +0.3% last week – but here were the rest of the world’s #deflation signals:


  1. Japanese Yen burnt for another -1.4% devaluation (-9.4% YTD vs USD)
  2. Commodities (CRB Index) deflated another -1.4% week-over-week to -4.8% YTD
  3. Oil (WTI crude) continued to crash, down another -3.4% on the wk to -18.1% YTD
  4. Natural Gas dropped -7.8% week-over-week (sans le Polar Vortex) to -5.7% YTD
  5. Energy Stocks (XLE) led US stock market sector losers, -1.8% on the wk to -2.6% YTD
  6. Russian Stocks (RSX) continued to crash, -0.7% to -30.7% YTD


I know, this is cherry picking – or something like that (like quoting the Dow isn’t!), but if you broaden your horizons and look beyond an epic currency devaluation and energy-deflation linked stock and bond exposures, here’s what else was going on:


  1. Greek stocks continued to crash, down another -2.2% on the wk to -23.4% YTD
  2. Brazil’s major stock market index (Bovespa) got tagged for another -2.7% weekly loss (+0.5% YTD)
  3. Mexico’s stock market dropped -2.8% week-over-week to +1.5% YTD


Yes, the “no worries” CNBC narrative gets more worrisome when you consider what the Bank of England’s chief, Mark Carney, called “huge disinflationary pressures” (code words for #deflation) this morning.


That comment came on the heels of Japan’s stock market dropping -3% overnight (after the Yen stopped going down) as Japan “unexpectedly falls into recession.” Unexpected by some Bloomberg beat writer maybe - #expected by anyone paying attention.


While it may feel a little odd buying into a central plan that promises more of what has not worked economically (they call it Abenomics), if you did that last week, you #crushed it –amidst the global #deflation in stock prices, the Nikkei was +3.6% #hooray.


Which brings us to this morning’s Consensus Macro positioning (non-commercial CFTC futures and options contracts):


  1. Japanes Yen’s net short position got -12,042 shorter last week to -85,768 NET SHORT
  2. SP500 (Index + Emini) NET SHORT position got cut by +36,543 contracts to almost neutral at -1,762
  3. UST 10yr Treasury NET SHORT position ramped by another -86,212 contracts to -126,213 shorts!


In other words, Consensus Macro (which has had both global growth and bond yields wrong for all of 2014) figured the Japanese Yen was going to go down every day, US stocks higher (every day), and the Long Bond down (bond yields up)…


In other news, the exact opposite is happening this morning. Which makes being NET LONG the long-end of the Treasury market and NET SHORT the Russell 2000 feel like the perfect contrarian idea to start off your week.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.28-2.36%


RUT 1148-1187

Italy MIB 188

Yen 113.58-116.51
WTI Oil 74.35-77.25


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


The Perfect Idea - 11.17.14 Chart


TODAY’S S&P 500 SET-UP – November 17, 2014

As we look at today's setup for the S&P 500, the range is 55 points or 2.20% downside to 1995 and 0.50% upside to 2050.                                        













  • YIELD CURVE: 1.80 from 1.81
  • VIX closed at 13.31 1 day percent change of -3.48%


MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Empire Manufacturing, Nov., est. 12.0 (prior 6.17)          
  • 9:00am: ECB’s Draghi speaks in Brussels
  • 9:15am: Capacity, Oct., est. 79.3% (prior 79.3%)
  • 9:15am: Industrial Production, Oct., est. 0.2% (prior 1%)               
  • 10am: Fed’s Evans speaks in Chicago      
  • 11am: U.S. announces plans for auction of 4W bills          
  • 11:30am: U.S. to sell $24b 3M bills, $28b 6M bills               



    • 1pm: Nuclear Regulatory Commission Chair Allison Macfarlane speaks at NPC on safe operation of nation’s more than 100 nuclear power plants



  • Japan Unexpectedly Enters Recession as Abe Weighs Tax            
  • *Pfizer to Buy Merck KGaA Cancer Drug Rights for $850m            
  • ** Pfizer Cuts 2014 Reported Diluted EPS Range to $1.40-$1.49 
  • Actavis Said Near Deal to Buy Allergan for Over $215/Share         
  • Halliburton Said to Resume Merger Talks With Baker Hughes     
  • JPMorgan Settles Oil Rights-Owner Suit Alleging Deals   
  • Zoetis Adds Poison Pill as Ackman Stake Raises Takeover Chance             
  • Ford Expands Ranger Pickup Recall for Flawed Takata Air Bags   
  • Facebook Tells Marketers to Stop Trying to Post Ads for Free     
  • Delta Seeks to Boost Asia Hub With Plan to Triple Seattle Gates
  • Carrey’s ‘Dumb & Dumber To’ Debuts as Top Box-Office Hit       
  • China’s Bad Loans Jump Most Since 2005 in Threat to Economy 
  • Putin Warns He Won’t Let Rebels Be Beaten by Ukraine Forces 
  • Citigroup, JPMorgan, others post monthly credit-card data         
  • 13-F WRAP: Alibaba Attracts Appaloosa, Paulson, Soros, Moore



    • Agilent Technologies (A) 4:05pm, $0.89 
    • Jacobs Engineering (JEC) 9:30pm, $0.86 
    • Keysight Technologies (KEYS) 4pm, $0.77             
    • Tyson Foods (TSN) 7:30am, $0.77             
    • Urban Outfitters (URBN) 4pm, $0.41                      



  • Brent Crude Drops on Growth Concerns as Japan Enters Recession
  • Gold Trades Below Two-Week High Amid Signs of Physical Buying
  • China to Cut Agriculture Tariffs in ‘Game Changer’ for Australia
  • Hedge Funds Cut Gold Bets in Fastest Exit This Year: Commodities
  • Copper Falls Amid Demand Concern as Japan Sinks Into Recession
  • Australia-China Free Trade Deal to Remove Some Resources Tariffs
  • Mounting Pressure on OPEC Spurs More Wagers on Oil Rally: Energy
  • Osisko to Buy Virginia for $408 Million to Add Gold Royalties
  • Steel Rebar Falls as Weak Demand Weighs Against Production Cuts
  • China Copper, Zinc, Alumina Output Rise to Record Highs in Oct.
  • Wheat Climbs Toward 11-Week High on Australia, U.S. Crop Outlook
  • Arabica Trades Near 3-Week High on Brazil Dryness; Sugar Falls
  • OIL DAYBOOK: Crude Down; Iran Minister Visits UAE Ahead of OPEC
  • Australia Opens China’s Services Market With Free Trade Accord


























The Hedgeye Macro Team




















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