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Retail Callouts (1/8): DKS LBO, LULU CFO, PVH, FDO, AMZN, EBAY, TGT

Takeaway: If we were Ed Stack we'd be speed dating too. LULU brings in Haselden to shore up Finance department. PVH shuts down Izod DTC operation.



Today (1/8)

FDO - Earnings Call: 10:00am

BBBY - Earnings Call: 5:00pm




DKS - Dick’s Sporting Goods explores going private



Here's yet another example of a company that leaks out a one-liner talking about going private, and all of a sudden public markets get more excited about it. These are early stage discussions, which in no way, shape or form means that DKS actually will, in fact, go private.


Based on our LBO model (ping us is you want a copy), a DKS LBO at the current price -- and even 20% lower -- makes no financial sense. The IRR is negative in both instances.


To be clear, our model assumes…

  1. DKS tops out at 900 stores by 2018, below management's 1,100 goal
  2. 2% comp store sales growth as e-commerce offsets negative store traffic.
  3. Gross Margins fall by 50bp annually as e-commerce dilutes profitability, and aggregate sales growth is not strong enough for DKS to leverage occupancy costs.
  4. EBIT margins fall from 8% today to 5% in 2018.

The problem, however, is that DKS hired a banker that will use the inverse of our model as it shops the company around. Any PE investor worth its salt will see through bulled-up banker assumptions in a heartbeat. But if there's just one that's gullible enough think that DKS can grow its store base to 1,100 while improving margins at a low-mid single digit comp, then DKS might very well have a suitor. If I was Ed Stack (with 61% of the voting stock) I'd be speed-dating to find that partner.



LULU - lululemon athletica names stuart c. haselden chief financial officer



Takeaway: New CFO Stuart Haselden may not be a splashy hire, but we're inclined to give the duo of Michael Casey (ex. Starbucks CFO) and David Mussafer (Advent/new to the Board) the benefit of the doubt in the hiring process. This is the first big move for the Board after the coup that led to Chip's replacement as Chairman and the selling of half of his ownership position. We almost never get too upbeat about a single individual in an organization. But we think that this role is an exception.

Why? The Finance function at LULU has always been extremely weak. Currie (ex. CFO) was appropriate to be Chip's numbers guy in the early days of the company, but  CHIP purposely kept the entire function at bay as the company grew up as he thought it would hurt the culture of the company. Translation = one of LULU's biggest problems is that it grew up without having any finance culture whatsoever. It's impressive that it made it this far.

Now you have Haselden who was hired by the Board led by Casey and Mussafer who both know the caliber of person needed to get this company back on track. Our sense is that new CFO will be tasked with rightsizing the company. If Laurent wants to follow, then great. Everyone wins. But if he resists, then the new CEO will soon be the old CEO.

It's odd…in our conversations with investors, people agree that Currie had to go, but don't necessarily think that there's a problem with the finance organization being so weak at LULU. We think that people will only realize how problematic this has been once it is fixed. 


PVH - PVH Corp. Announces Closing of Izod Retail Division



Takeaway: The KSS bulls will argue that this is a net positive for the company who just picked up distribution in the fall of 2014. We'd point to a couple of things. 1) Most, if not all of the locations set to close are outlets. If you're an outlet shopper you don't go to the mall to buy IZOD, you go to the outlet center specifically to find great value in whatever brands happen to be there. Men's Polo shirts are a dime a dozen and so are the places that sell them. 2) IZOD - is not a KSS exclusive. If you go to Izod's website, which we would note doesn't actually sell anything, you'll see its wholesale partners: Kohl's, Macy's, Amazon, JCPenney, Belk, Bonton, Beall's, and Hudson's Bay. All of whom have a longer standing relationship and association with the brand than KSS. 3) Lastly and probably most importantly, PVH isn't closing these stores because consumers really want the brand. The IZ logo doesn't resonate the way the alligator once did and the brand has been diluted down to the point that it's a commodity. In that context, the closing of DTC makes sense as the brand itself can't drive traffic.


FDO - 1Q15 Earnings

Retail Callouts (1/8): DKS LBO, LULU CFO, PVH, FDO, AMZN, EBAY, TGT - 1 8 chart1



AMZN, EBAY - AMZN 2year trend improvement, EBAY negative data point on 1 and 2 year basis


Takeaway:  ChannelAdvisor's total same store sales for the Holiday (November and December) came in at +16.2%.  AMZN outperformed at +26.9% and EBAY underperformed at +7.3%.  The trend for both companies’ fiscal Q4 wasn't as good as the prior 2 quarters.

Retail Callouts (1/8): DKS LBO, LULU CFO, PVH, FDO, AMZN, EBAY, TGT - 1 8 chart2





TGT - Target Links With Lilly Pulitzer



TSCDY - Tesco’s Lewis Sets Out Revival Plan With Closures, Disposals



TSCDY - Tesco Names Halfords’s Davies as U.K. CEO in Turnaround Bid



MAKSF -Marks & Spencer Clothing Sales Drop Amid Online Delays



FAST - Fast Retailing Q1 Net Profit Jumps 64%



WTSL - Bankruptcy Rumblings Surround Wet Seal Closures



BODY - Body Central Said to Prepare for Bankruptcy Within a Week



Bi-Lo CEO to leave


January 8, 2015

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January 8, 2015 - Slide13


Takeaway: In today's edition of Macro Playbook, we revisit the #Quad4 vs. #Quad1 debate. #Quad4 is once again winning the fight and remains our view.


Long Ideas/Overweight Recommendations

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

Short Ideas/Underweight Recommendations

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



Revisiting the #Quad4 vs. #Quad1 Debate: For the past 3-4 weeks, we’ve been highlighting the U.S. equity market’s ongoing internal struggle between #Quad4 – an economic environment where both real GDP growth and reported inflation are slowing simultaneously – and #Quad1, which is an economic environment whereby disinflation is contributing to (or at least concomitant with) an acceleration in real GDP growth.


For equity investors – even the most ardent stock pickers that “don’t do macro” – understanding and, more importantly, navigating this transition will be the key to generating alpha – which is becoming increasingly scarce – in 1H15:


Consumer Cyclical or Consumer Non-Cyclical?






Financials or Healthcare?






Offensive Small-Caps or Defensive Utilities?






On that note, let’s revisit the debate from our usual quantitative perspective. There are two signals we are looking for to justify a transition from our long-held defensive sector and style factor recommendations to a more offensive/cyclical grouping:


  1. The outperformance of pro-#Quad1 sectors and style factors on a trending basis
  2. Pro-#Quad1 sectors and style factors consistently atop the leader board from the perspective of TACRM’s U.S. Equity Style Factor Volatility-Adjusted Multi-Duration Momentum Indicator Ranking System


As the following charts show, neither #1 nor #2 are occurring at the present moment. We’ve seen glimpses of both in recent weeks, but the fact remains neither are occurring on a trending/consistent basis.



Source: Bloomberg L.P. 



Source: Bloomberg L.P. 



Source: Bloomberg L.P. 


Please note that of the top-10 VAMDMI readings, #Quad4 accounts for seven of the ETFs: VNQ, IBB, XLU, IHI, IHE, XLP and XLV, while #Quad1 accounts for only two: ITB and XRT; the former is in line with our team’s now-bullish bias on the domestic housing market and the latter is supported by the recent – and nascent – uptick in consumption data.




All told, the most appropriate call we can make is to stick with our pro-#Quad4 sector and style factor recommendations for the time being (i.e. healthcare, staples, utilities and REITs).


***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.


Captain Obvious: December ISM (1/6)


#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.


Grexit? Not So Fast (1/6)


#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.


#Bubbles: “Hedge Fund Hotel” Edition (Part II) (12/8)


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 – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.       

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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

TODAY | Q1 2015 Macro Themes Conference Call (Video Link included)

We will be hosting our highly-anticipated Quarterly Macro Themes conference call today at 1:00pm EST. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.




  • HedgeyeTV: Watch the live video stream above
  • Number:
  • Password: 13598477
  • Materials: CLICK HERE (slides will be available approximately one hour prior to the start of the call)



  • Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven commodity price deflation) will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds (TLT, EDV, ZROZ, etc.)
  • #Quad414: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.
  • Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014.  2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex. 


Contact for more information. A replay of the presentation will be distributed following the call.

Yen, Oil and S&P 500

Client Talking Points


Yen experienced textbook counter-TREND bounce on Monday (in Gold too) to lower-highs, so keep those Burning Yen shorts on as the Japanese prepare for CTRL+Print (again). There is no support to $121.27 vs. USD and we like the Weimar Nikkei long on that, +1.7% overnight after holding @Hedgeye 16,884 support.



Drowning out the knife catchers, call options buyers, etc. and trying to establish higher-lows in WTI’s immediate-term risk range all the while – that’s currently $47.22-52.63, so keep that in mind when you look at some of these counter-TREND bounces in Russian and Brazilian stocks (+3-5%).


S&P 500

Smoked some of the December 29th (SPX = 2090) momentum chasers (and call option buyers) out of their holes (95 handles lower), so we should see some follow through and a test of 2046; if it fails there and that jobs report isn’t pristine tomorrow, this gets more volatile, faster.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.


As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.


Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road


McDonald’s cuts 63 jobs at headquarters http://nrn.com/mcdonalds/mcdonald-s-cuts-63-jobs-headquarters … via @NRNonline




Always do your best.  What you plant now, you will harvest later.

-Og Mandino



In 2014, only 15.6% of the several hundred advisers monitored by the Hulbert Financial Digest outperformed the Wilshire 5000 Index. Five years ago, the proportion stood at 33.1%.

CHART OF THE DAY: Riding #Quad4 (Until the Data Changes)

CHART OF THE DAY: Riding #Quad4 (Until the Data Changes) - 01.08.15 chart

It’s been years since we’ve seen so many great long and short ideas across the Global Macro universe. At 1PM EST today, our macro team led by CEO Keith McCullough will review our Global Macro Themes for Q1 of 2015. Ping sales@Hedgeye.com if you’d like access. 

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Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.