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CRUISELINES WAVE AN EARLY GOODBYE TO 2014

Takeaway: An earlier Wave may signal a longer period of promotional activity

CALL TO ACTION

Wave Season promotions began earlier than usual for many of the operators. Given the difficult 2014 environment in the Caribbean, we’re not surprised.  The early promoters seem to be the relatively struggling brands.  2015 bookings curve could be pushed out a little bit at the expense of lower pricing and promos.

 

Please see our detailed note: 

http://docs.hedgeye.com/2015_WAVE_PROMOS.pdf

 


The Best of This Week From Hedgeye

Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.

HEDGEYE TV

Gabelli Unplugged: Finding Hidden Value, Secrets to Long-Term Success and Why the Knicks Will Win

Billionaire value investor Mario Gabelli of Gamco Investors sat down with Hedgeye CEO Keith McCullough in a granular, wide-ranging “Real Conversations” interview to discuss his investment strategy, process and where he sees opportunity right now.

 

 

Hedgeye Morning Macro Call with CEO Keith McCullough: Crystal Ballers

On Tuesday’s institutional Macro Call, Keith discusses the importance of having a daily process rather than relying on a crystal ball or moving "monkey" averages.

 

Keith highlights the great run in bonds, how ugly things really are in Europe and the epic down move in commodities.

 

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

 

 

"Draghi Has No Plan": McCullough Talks Europe, Japan, and U.S. Dollar

In this excerpt from Wednesday’s Morning Macro Call, Keith answers questions about today’s $SPX trading ranges and describes the different durations. 

Keith also discusses the likelihood of a dovish Fed and what impact that will have on the three main currency players (Yen, USD and Euro). 

Subscribe to Hedgeye's Daily Trading Ranges product to receive Keith's proprietary ranges for the S&P 500, U.S. Dollar, Euro, and more every morning before the market opens.

 

 

McCullough: One Thing That Could Trigger a Recession

In this excerpt from Monday’s Real-Time Alerts Live show, Hedgeye CEO Keith McCullough responds to a subscriber’s question about whether a U.S. recession is coming. 

 

CLICK HERE to subscribe to Real-Time Alerts. With your subscription you'll receive all of Keith's #timestamped signals sent right to your inbox, as well as full access to this and all other RTA Live episodes. 

 

CARTOON

IT'S ALL GREEK TO ME

The Best of This Week From Hedgeye - Greek ruins 1.7.15

Greece's crumbling economy and its potential impact on the EU is roiling global markets. Again.

 

HITTING THE SLOPE

The Best of This Week From Hedgeye - 10yr downhill 1.6.15

The yield on the 10-year U.S. Treasury fell under 2% to its lowest level since May 2013. On a related note, yes... Hedgeye's macro team remains long TLT.

 

CHART

RIDING #QUAD4 (UNTIL THE DATA CHANGES)

The Best of This Week From Hedgeye - COD quad4 idead 1.8.15

It’s been years since we’ve seen so many great long and short ideas across the Global Macro universe. At 1PM EST Thursday, our macro team led by CEO Keith McCullough reviewed our Global Macro Themes for Q1 of 2015. 

 

 

WHAT MY MACRO CRYSTAL BALL SAYS ABOUT THE RUSSELL | $IWM

The Best of This Week From Hedgeye - COD Russell 1.6.15

Editor's note: This is an excerpt from Tuesday's Morning Newsletter by CEO Keith McCullough.

 

The other thing crystal ball is telling me this AM is don’t short the Russell 2000 today. #Pardon? Yes. You heard it from whatever this transparent ball is that I am rubbing this morning first! Do not short the IWM because:

  1. After another swift -3.1% correction, the Russell 2000 is signaling immediate-term TRADE oversold
  2. The inverse of that beta trade (VIX) is signaling immediate-term TRADE overbought at 20.59
  3. Hedge Fund Consensus is short the Russell (IWM) vs long SPY

 

POLL OF THE DAY

WILL THE 10-YEAR TREASURY YIELD GO BELOW 1.75% AT ANY POINT THIS YEAR?


 

 



Cartoon of the Day: Crude Reality

Cartoon of the Day: Crude Reality - Oil cartoon 01.09.2015

 

Oil prices continue to fall as both WTI and Brent prices are hovering around five-year lows. 


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.

SBUX: Part of the Story is Going Untold

Considering last night’s news that COO Troy Alstead is taking a “coffee break” from the company, we are inclined to believe there is more to the story than Starbucks is willing to tell.  The general sentiment in the investment community seems to be that the move doesn’t “feel” right – a sentiment we share.  Yesterday morning we firmly believed Troy was next in-line for the CEO position and, now, we’re left with little more than questions and skepticism.

 

Whether it played a direct role in Troy’s departure or not, the company has taken a big bet on food and it doesn’t seem to be working.  With this in mind, we decided to re-run our consumer survey focused on the food at Starbucks – and the results revealed a noticeably unfavorable trend.  Knowing this, along with the recent timeline of events below, we continue to have sound conviction in our short thesis.  

 

Starbucks/Hedgeye Timeline

September 2014: Hedgeye adds Starbucks to the Best Ideas list as a short.  The core of the thesis is predicated on rapidly decelerating traffic – the new food is not resonating with consumers and is leading to increased menu and operational complexity.

 

October 2014: Starbucks misses 4Q14 EPS and guides down FY15 estimates.  Traffic trends are a serious red flag for analysts, but management insists any concerns are unfounded.

 

December 2014: COO Troy Alstead plays a major role at Starbucks analyst day and is clearly positioned as the heir apparent to the CEO role.  Food is a major topic of discussion and is framed as one of the keys to the future of the company.

 

December 2014: Hedgeye’s channel checks indicate that holiday promotions are not being as effective as planned.

 

January 2015: The Street begins to lower 1Q15 same-store sales and traffic estimates.

 

January 2015: Starbucks hires a new VP of Food.  The Street begins to wonder why it has taken this long to hire a culinary person given the company’s food ambitions.  Furthermore, it’s unclear what happened to the two executives that presented at the analyst conference.

 

January 2015: Starbucks announces that COO Troy Alstead is taking an “unpaid coffee break” to “spend time with his family.”  Given Troy’s role at the recent analyst meeting, his rash unpaid leave is taken with significant skepticism.

 

Updated Consumer Survey

Last September, we ran a consumer survey in which we gathered over 1,500 responses and learned that the overwhelming majority of Starbucks customers that participated were not in favor of the company's new food offerings.

 

We recently re-ran this survey in order to gauge any swing in sentiment one way or the other.  The results were quite telling:

  • Importantly, people are noticing a difference in the food as awareness ticked up 480 bps
  • The percentage of respondents that answered “No” increased 860 bps from September
  • The percentage of respondents that answered “Yes” decreased 190 bps from September

 

SBUX: Part of the Story is Going Untold - 1 9 2015 10 39 22 AM


Keith's Macro Notebook 1/9: UST 10YR | Oil | Russia

 

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


Retail Callouts (1/9): Dept Store Closures, M, JCP, KSS, UA Footwear, BBBY

Takeaway: M comp doesn't translate well for KSS. Dept store closures - another 90mm sq. ft. needs to go. UA footwear milestones. BBBY off Long Bench.

COMPANY HIGHLIGHTS

 

M - Our Take on Macy's Comp and Restructuring Plans

(http://phx.corporate-ir.net/phoenix.zhtml?c=84477&p=irol-newsArticle&ID=2005216)

 

Takeaway: What's more important to us than the 2.7% comp (2.1% owned) is the relative outperformance of JCP. This is the first quarter that JCP was comping against market share gains from both KSS and M after ceding over $5bil in sales. Our work suggests that M took $450mm, and KSS took a whopping $1bil of the market share, and both are in denial about the potential risk of JCP winning/buying the share back. It's unlikely that KSS will release a sales update based on the trend of less disclosure over the past year, but we're pretty comfortable in what we'll see on the print. For the past 11 quarters M has outcomped KSS - the average spread = 2.7%. That coupled with JCP stealing market share, and the recent trend in e-commerce visitation, doesn’t translate well for KSS.

 

JCP - J.C. Penney Closing 39 Stores in April -- Not Nearly Enough

(http://www.wwd.com/retail-news/department-stores/jc-penney-closing-40-stores-in-april-8092977?module=Business-latest)

 

Takeaway: We weren't surprised by the JCP's decision not to announce any store closures at its Analyst Day in October. It was too close to Holiday for Ullman to stand up in front of his rank and file announce closings/layoffs. Employees who know they'll soon be out of a job aren't exactly positive for the top line.

Our work shows that JCP needs to close 300 stores. Whether it actually will is up for debate because of the inextricable link between e-comm and B&M which we quantified in our Department Store Black Book from October. Our sense is that retailers will be more hesitant to close stores than in the past because of the fear that e-comm sales will go along with them.

JCP's 39 paired with M's announced 14 means that 6.5mm sq. ft. is being pulled out of the industry's aggregate sq. ft. Our model suggests that 93mm sq. ft. or over 1,000 stores needs to be shuttered over the next 5 years to compensate for $20bn in sales that will be lost by the department store group.

Bottom line -- 6.5mm square feet is nice, but the reality is that half of that will come back as capacity selling apparel. We need to see another 90mm square feet, or 950 stores need to go away -- and never come back.

 

UA - New Speedform Iteration, First Signature B-Ball Shoe

 

Takeaway - Two announcements out of UA on the footwear side yesterday.

1) The company released the 3rd iteration of it's Speedform platform. UA's answer to Nike's FlyKnit but instead of being made on a cotton loom its assembled in a Bra factory. The shoe itself is notable - though the marketing behind it is far below where it was last year when UA took over Grand Central station in New York to host one of its brand holidays around the release. One thing that caught our eye in the email blast sent around was the phrase at the bottom, "Also available at your local Brand House." This is new for UA for a reason. It finally has a store platform (UA Brand House) to showcase its full price line outside of its wholesale partners. The footprint is still small - just 5 stores- but the company is slowly building out its network. The newest door will be 30K sq. ft. on Michigan Ave in Chicago. Another example of the content owners circumventing the 40yr old wholesale model to reach the end consumer.

Retail Callouts (1/9): Dept Store Closures, M, JCP, KSS, UA Footwear, BBBY - 1 9 chart2

Secondly, UA released its first signature basketball shoe for Steph Curry yesterday. It's a milestone for the company for sure, but we wonder why it took them so long. Curry signed with the brand in October of 2013 and it took them this long to build up the infrastructure to release his first signature shoe? Imagine what would have happened if UA had stolen KD from Nike. Think about UA and Nike in the footwear space like this - Nike releases a new iteration of its signature line for its athletes about once a month. UA just released its first in 8+ years.

Retail Callouts (1/9): Dept Store Closures, M, JCP, KSS, UA Footwear, BBBY - 1 9 chart3

 

BBBY - 3Q14 Earnings, Off the Long Bench

 

Takeaway: We added BBBY to the Long Bench following the 2Q14 beat. After missing 7 of the last 8 quarters and seeing the multiple compress from 16x to 11.5X our thinking was that expectations had been right sized and the top line would stabilize. But the run in the stock from the low-60's to the high-70's and last nights underwhelming #'s make this less attractive to us on the long side. We're taking it off of our Long Bench.

Retail Callouts (1/9): Dept Store Closures, M, JCP, KSS, UA Footwear, BBBY - 1 9 chart1

 

  

OTHER NEWS

 

ZU - Zulily mulls closing U.K. operations after tough year

(http://www.chainstoreage.com/article/zulily-mulls-closing-uk-operations-after-tough-year)

 

FIVE - Five Below Names Michael Romanko EVP of Merchandising

(http://investor.fivebelow.com/releasedetail.cfm?ReleaseID=890406)

 

ZARA - Inditex to open more than a dozen Zara stores in U.S. this year

(http://www.reuters.com/article/2015/01/08/us-inditex-usa-zara-idUSKBN0KH1LR20150108)

 

China to allow online sales of prescription drugs as early as this month: sources

(http://www.reuters.com/article/2015/01/09/us-china-pharmaceuticals-idUSKBN0KI0Y220150109)


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