Retail sales suffered their largest decline in nearly a year, down 0.9% in December.
Takeaway: We’re releasing 2 Black Books – Deep Dive on FL and HIBB. Our Athletic Book focused on the Industry/Theme. This dives into the short ideas.
We’re going to release two Black Books over the next two weeks. One on Foot Locker next Thursday, January 22nd at 11:00 am ET. And the other on Hibbett on Monday, January 26th at 1:00 pm ET. Dial-in info is below. Since we launched our 90-page Athletic Black book in late December, our Short Call on Foot Locker has been something of a lightning rod, accounting for a disproportionate amount of our call volume. Since then, we’ve seen several Sell-Side downgrades on FL, the latest because of a ‘Slowdown in Basketball’, which we think misses the mark and understates the downside in this financial model in the intermediate-term and long-term. Simply put, the ‘newly bearish’ out there are simply not bearish enough. Conversely, people are not as focused as they should be on HIBB, which has major downside in the model.
Unlike in our Athletic Black Book, where we had just a few slides on each company, we’ll be doing a thorough deep dive into every line item and business driver for FL and HIBB.
Note that this is a time we previously reserved for our e-commerce Black Book. That’s still on the way – and you should expect it in February. But we think that given the changing focus of the market, and the controversy around FL and HIBB warrant immediate attention.
Here’s Just a Few of the Topics We’ll Hit On For FL/HIBB
1) Store footprint potential vs what we see today.
3) e-commerce. One of our key points is that store sales (barring 6% industry growth) will never grow again. In that regard…
4) Ken Hicks was a bigger force inside FL than the market is recognizing. But FL is not in trouble because he left, he left because FL is in trouble.
5) What SG&A levers can both companies pull if the gross profit algorithm rolls.
FL Call Info (Thursday 1/22, 11:00 am ET)
HIBB Call Info (Monday 1/26, 1:00 pm ET)
In this excerpt from today's Morning Macro Call, Hedgeye CEO Keith McCullough responds to a viewer's question about recent moves in gold and outlines what he believes could make the "uber-bull" setup for gold moving forward.
Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.
Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
On a special extended edition of the Morning Macro Call, Hedgeye CEO Keith McCullough gives his global macro rundown, welcomes in Financials Sector Head Josh Steiner to talk JP Morgan after they missed earnings, and announces Hedgeye's Market Marathon, an all-day live streaming event that will air on January 27.
To sign up for the Market Marathon, visit live.hedgeye.com/market-marathon
Takeaway: AdiBok-unlikely to execute endorsement plan, but if it does it hurts UA. Dept. Store closures-JCPs two options.
AdiBok, UA, NKE - Adidas to Sign Up to 500 Athletes for Endorsements
"The company’s U.S. arm has the go-ahead to sign as many as 250 National Football League players and 250 Major League Baseball players over the next three years, up from a total of fewer than 40 now."
Takeaway: When a once-relevant brand duo (Adidas and Reebok) plans to buy its way into the US sports endorsement arena, it is bad news for everyone. Maybe we'd be ok with that if the company had the product to back it up. But it doesn't. Apparently in Herzogenaurach, the order of operation is a) spend, b) sell, c) create great product.
We're especially surprised in that AdiBok is getting so aggressive with its endorsement spending after it just signed a $1.3bn (US) deal ($130mm/10 years) for Manchester United -- which is almost triple the price Nike was previously paying. This number accounts for about 5% of Adi SG&A.
In reality, we don't actually think that AdiBok will get to a point where it can execute on this aggressive plan in the US, as it ranks in the top 10 global retailers/brands that need a complete management overhaul. We think that's more likely than not in 2015.
But if it does not happen, and AdiBok continues with its plan to up the ante in the endorsement game, it severely crimps Under Armour -- which has started to sign larger athletes and now appears to have some severe competition (note that Notre Dame, a perennial Adidas school, switched to UA last year).
JCP - Landlords eager to reclaim JCPenney stores
Takeaway: The announced store closures by M and JCP are 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, go away -- and never come back. Our work shows that JCP needs to close 300 stores. And we think the company can take 2 different paths to achieve this end goal.
1) In the report we put together in May we identified a fleet of stores (300) that matched the demographic profile of the announced closures from January '14. In summary the annual household income within a 15 minute driving radius was about 20% below the company average. By eliminating the bottom of the barrel demographic our math shows that the demographic profile would rise 7% and productivity would increase 20% for JCP's remaining 700 store portfolio. At first glance it appears that the 40 closures this year are in this bucket. So, JCP can continue cull its bottom tier stores locked in less than optimal properties, or…
2) The company could play offense and monetize its 134 'A' Mall locations. The economics are such that landlords could take an existing JCP property. Chop it up into a RH, Whole Foods, and Cheesecake factory and take rental income from the Anchors up 100+% (see image below). Which would still allow for good returns after factoring in the redevelopment costs.
US December Retail Sales
AMZN - Amazon to take over textbook sales at UMass Amherst
Obama Pushes for Greater Cybersecurity
Online grocery delivery startup Instacart gets $220 million infusion
RSH - RadioShack offered $500 million loan from Salus Capital
Game Digital slumps 40% after profit warning
RAD - Rite Aid Completes Amendment and Extension of Existing Credit Facility
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