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Retail Callouts (12/15): ATHLETIC BLACK BOOK, IDEA LIST, PETM, LULU, ZQK, RL, WSM, WMT

Takeaway: The Athletic Black Book-call details and time change. Hedgeye Retail Idea List (LULU, ZQK, RL, WSM, WMT). PETM pods justify multiple.

The Athletic Black Book (***Please note date and time change)

 

On Thursday, December 18 at 1:00pm EST, Hedgeye's Retail Team will be hosting a call to review our next Black Book, which will be focused on the Athletic footwear and apparel space.  

 

Specific names include Nike (NKE), Adidas (ADDYY), UnderArmour (UA), Foot Locker (FL), Hibbett (HIBB), Dick's Sporting Goods (DKS), and Finish Line (FINL) - which collectively offer up a good mix of longs and shorts.

Retail Callouts (12/15): ATHLETIC BLACK BOOK, IDEA LIST, PETM, LULU, ZQK, RL, WSM, WMT - 12 15 chart2

 

Call Details

Toll Free Number:

Toll Number:

Password: 13597073

Materials: CLICK HERE

 

 

HEDGEYE RETAIL IDEA LIST

Retail Callouts (12/15): ATHLETIC BLACK BOOK, IDEA LIST, PETM, LULU, ZQK, RL, WSM, WMT - 12 15 chart1B

 

We made the following changes to our idea list this week.

  • LULU: Still on our Best Idea list, but the stock is up 35%, and the reality is that the management team has really done little to deserve it. We're taking it down a couple of notches on our list below RL and NKE for now. We should be seeing better growth in the business as LULU laps its product and PR gaffes from last year. We still think that there will be big changes at the company, which will likely come after the new CFO starts (within 3 months). We rarely put so much stock in one individual, but for several reasons, we think it makes sense with LULU. See our note LULU - Long, But On A Short Leash from last week for more details.
  • ZQK off of our Long Bench.  We've been holding out hope that what once appeared to be a rock star management team would start to deliver, and that a $2 stock would prove to be a great call option. But the reality is that this team can't get it together. Not worth our time.
  • RL: moved it two notches higher on our idea list. No change in the model, but the risk/reward relative to other names on the long sheet is looking better.
  • WSM: moved two notches higher on our Short Bench, as we're getting that much closer to the point where RH will begin to compete with WSM in kitchens. Perhaps not a negative earnings event for WSM immediately, but it won't help the multiple.
  • WMT: Off our Short Bench. No reason other than the fact that it has been on our bench for most of 2H14. We don't see a company-specific reason to press this one, and with oil in a free fall, it only helps WMT.

 

 

EVENTS TO WATCH

Retail Callouts (12/15): ATHLETIC BLACK BOOK, IDEA LIST, PETM, LULU, ZQK, RL, WSM, WMT - 12 13 chart3

 

 

COMPANY HIGHLIGHTS

 

PETM - Consortium led by BC Partners to Acquire PetSmart for $83.00 per Share in Cash

(http://phx.corporate-ir.net/phoenix.zhtml?c=196265&p=irol-newsArticle&ID=1999212)

 

Takeaway: Nothing unexpected here given all the activism over the past year, and the fact that the stock spiked to the high-$70s in mid-November. What's interesting is that the take-out is about 9x EBITDA, which at face value looks cheap compared to other bids like what we've seen at FDO -- a lesser quality company but with bids as high as 12x EBITDA.   That said, PETM is one of the select few retailers that never put up a negative annual comp. But it's on track to break that trend this year -- with negative comps in 2 of the three quarters-to-date. At the same time peak productivity is rolling over, the company is sitting at peak Gross Margins, trough SG&A margins, and obviously peak EBIT mgns. With that context, the 9x EBITDA multiple seems a lot more fair.

 

OTHER NEWS

 

H&M - November Sales +10% vs Consensus  +7%

http://about.hm.com/en/news/newsroom/news.html/en/financial-reports/2014/12/1775348.html?categoryPath=hm:filters/categories/corporate

 

AMZN, AAPL - Apple Heads to Court Monday in E-Book Appeal

(http://www.wsj.com/articles/apple-heads-to-court-monday-in-e-book-appeal-1418593882)

 

DG, FDO, DLTR - Delayed merger vote is all about the almighty ‘Dollar’

(http://nypost.com/2014/12/12/delayed-merger-vote-is-all-about-the-almighty-dollar/)

 

AMZN - Amazon.ca Expands Delivery Options; Introduces Amazon Pickup Points for Customers Across Canada

(http://www.newswire.ca/en/story/1462447/amazon-ca-expands-delivery-options-introduces-amazon-pickup-points-for-customers-across-canada?)

 

Jim Wiggett Named Chief Executive Officer of bebe stores, inc.

(http://investorrelations.bebe.com/press-release/other/jim-wiggett-named-chief-executive-officer-bebe-stores-inc)

 

Labor Board Rules to Speed Union Elections

(http://www.wwd.com/business-news/government-trade/labor-board-rules-to-speed-union-elections-8074410?module=Retail-latest)


Hedgeye Morning Macro Call with CEO Keith McCullough: This is Why We're Not Going To Be In Barron's

On this morning’s institutional Macro Call, Keith urged you to steer clear of the Russell 2000, the Barron’s Forecasters, and  Johnny Manziel.

 

***This is a complimentary peek behind-the-macro-scenes of our daily Morning Macro Call for institutional subscribers.***

 


European Banking Monitor: Financials and Sovereigns Widen

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 

 

------ 

 

Key Takeaway:

 

Continuing to highlight Russia, the country's Sberbank CDS continue to drastically widen (+64 bps WoW, +204 bps MoM).  The ruble continued to fall alongside the drop in oil prices last week, even with Russia's central bank decision to lift its key interest rate.

 

Greece re-entered the risk spotlight with banks CDS widening by more than +200 bps; the country's snap presidential election rekindled investor worries about the country's recovery.

 

European Financial CDS - Swaps mostly widened in Europe last week.  The average move was a drastic +14.8%.  The only two institutions whose CDS tightened were Portugal's Banco Espirito Santo and the UK's HBOS.  HBOS' swaps tightened by only -1 bps.  Banco Espiroto Santo's swaps continued to tighten after the December 4 news that the bank was nearing a sale of some of its parts.

 

Greek bank swaps blew out last week, with CDS widening +216 bps on average, on the announcement of a snap presidential election.  The announcement sparked fresh investor fears over how long-lasting and/or effective Greek fiscal reform will be.

 

European Banking Monitor: Financials and Sovereigns Widen  - chart1 financial CDS

 

Sovereign CDS – Sovereign swaps widened across the board last week. Spanish sovereign swaps widened by 26.8% (22 bps to 105), while Portuguese swaps widened by 37 bps.  The global theme last week was derisking as the Global Dow fell -4.43% and CDS nearly universally widened. 

 

European Banking Monitor: Financials and Sovereigns Widen  - chart2 sovereign CDS

 

European Banking Monitor: Financials and Sovereigns Widen  - chart3 sovereign CDS

 

European Banking Monitor: Financials and Sovereigns Widen  - chart4 sovereign CDS

 

Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 9 bps.

 

European Banking Monitor: Financials and Sovereigns Widen  - chart5 euribor OIS spread

 

Matthew Hedrick 

Associate

 

Ben Ryan

Analyst

 

 

 


 


Daily Trading Ranges

20 Proprietary Risk Ranges

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Keith's Macro Notebook 12/15: Japan | UST 10YR | Sentiment

 

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


Call Today | Abenomics Round II: Risk Is GROSSLY Mispriced

Takeaway: Join us on a conference call today at 1pm to discuss our revised outlook for Japan and the associated investment implications.

The LDP/NKP coalition election victory this weekend has major implications for the global economy and the financial markets that underpin it.  

 

Please join the Hedgeye Macro Team on a conference call today at 1:00pm EST for an overview of these implications and how we think you should position your portfolio to profit from these macro catalysts.

 

KEY TOPICS WILL INCLUDE 

 

  • Where we stand vs. consensus RE: Abenomics
  • Our intermediate-term outlook for Japanese monetary and fiscal policy
  • The elevated risk of a global deflationary spiral

 

In summary, we anticipate ~20% downside in the Japanese yen vis-à-vis the U.S. dollar over the NTM. This compares to -5% and unchanged, respectively, for the Bloomberg consensus EOY '15 forecast and the current 4Q15 USD/JPY forward rate.

 

A linear regression model based on the trailing 2Y correlation would suggest our forecast of a re-test of the August 1998 highs on the dollar-yen cross implies a level of ~25,300 on the Nikkei 225 Index – or potential upside of +48% from today's closing price! 

 

If these forecasts sound crazy to you, that's a good thing [to us]. We sounded equally as crazy making a similar call in November 2012 (i.e. before Abe even took office).

 

Call Today | Abenomics Round II: Risk Is GROSSLY Mispriced - Thinking Through a Potential Currency Crisis In Japan

 

DIAL-IN INSTRUCTIONS

 

  • Toll Free Number:
  • Toll Number:
  • Conference ID/Password: 13597789
  • Materials: CLICK HERE

  

As always, there will be a live Q&A session at the end of the call. Please email to submit a question to the queue.

 

We look forward to having you join us!

 

Darius Dale

Associate: Macro Team


MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY

Takeaway: Russia remains front and center with Greece stepping back onstage. Global risk is rising rapidly as our Risk Monitor is now decidedly red.

Current Ideas:

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 19 2

 

Key Takeaway:

The global theme last week was derisking as the Global Dow fell -4.43% and CDS nearly universally widened.  The only positive short-term measure on our heat map below is the falling price of commodities; however, that has recently signaled concerns over global economic slowing.  Intermediate-term measures don't look much better, dominated by red.

 

Continuing to highlight Russia, the country's Sberbank CDS continue to drastically widen (+64 bps WoW, +204 bps MoM).  The ruble continued to fall alongside the drop in oil prices last week, even with Russia's central bank decision to lift its key interest rate.

 

Greece re-entered the risk spotlight with banks CDS widening by more than +200 bps; the country's snap presidential election rekindled investor worries about the country's recovery.

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 1 of 12 improved / 9 out of 12 worsened / 2 of 12 unchanged

 • Intermediate-term(WoW): Negative / 2 of 12 improved / 6 out of 12 worsened / 4 of 12 unchanged

 • Long-term(WoW): Negative / 2 of 12 improved / 3 out of 12 worsened / 7 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 15

 

1. U.S. Financial CDS -  Swaps widened for 23 out of 27 domestic financial institutions.  Marsh & McLennan was the only institution whose CDS tightened (-5.6% WoW).  This continues the intermediate trend; month over month, of all American CDS, MMC's have tightened the most at -11.7%.

 

Widened the least/ tightened the most WoW: MMC, ALL, TRV

Widened the most WoW: JPM, AGO, HIG

Tightened the most WoW: MMC, ALL, CB

Widened the most MoM: GNW, C, SLM

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 1

 

2. European Financial CDS - Swaps mostly widened in Europe last week.  The average move was a drastic +14.8%.  The only two institutions whose CDS tightened were Portugal's Banco Espirito Santo and the UK's HBOS.  HBOS' swaps tightened by only -1 bps.  Banco Espiroto Santo's swaps continued to tighten after the December 4 news that the bank was nearing a sale of some of its parts.

 

Greek bank swaps blew out last week, with CDS widening +216 bps on average, on the announcement of a snap presidential election.  The announcement sparked fresh investor fears over how long-lasting and/or effective Greek fiscal reform will be.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 2

 

3. Asian Financial CDS continued the global trend of derisking with all CDS in the table below widening.  Of note, Chinese inflation figures came in at a five-year low for November.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 17

 

4. Sovereign CDS – Sovereign swaps widened across the board last week. Spanish sovereign swaps widened by 26.8% (22 bps to 105), while Portuguese swaps widened by 37 bps.  The global theme last week was derisking as the Global Dow fell -4.43% and CDS nearly universally widened. 

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 18

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 3

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 4

 

5. High Yield (YTM) Monitor – High Yield rates rose 36.7 bps last week, ending the week at 6.70% versus 6.33% the prior week.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 29.0 points last week, ending at 1843.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 6

 

7. TED Spread Monitor – The TED spread was unchanged last week at 22.3 bps.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 7

 

8. CRB Commodity Price Index – The CRB index fell -3.7%, ending the week at 244 versus 253 the prior week. As compared with the prior month, commodity prices have decreased -7.9% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 9 bps.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 2 basis points last week, ending the week at 2.646% versus last week’s print of 2.628%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 10

 

11. Chinese Steel – Steel prices in China fell 1.2% last week, or 36 yuan/ton, to 2879 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 12

 

12. 2-10 Spread – Last week the 2-10 spread tightened to 154 bps, -12 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 2.0% upside to TRADE resistance and 0.5% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: RISK IS RISING RAPIDLY - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 


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