• run with the bulls

    get your first month

    of hedgeye free


Rearview Report: Income & Spending Diverge in December

We received the 4Q growth estimates on Friday so there was little in the way of surprise in the aggregate household spending and income figures for December released this morning.  There are, however, a few dynamics worth highlighting in the detail data.


In short: Consumption growth slowed in December alongside a rising savings rate and likely moderation in revolving credit growth.  Aggregate Disposable Income growth, meanwhile, continued to accelerate alongside an accelerating employment base and rising salary and wage growth.  The annotations in the summary table below highlight these trends.


Rearview Report:  Income & Spending Diverge in December - Income   Spending Table


Spending: Real household spending declined -0.1% sequentially while decelerating modestly on both a 1Y & 2Y basis. 


Spending growth slowed across all of Services/Durables/NonDurables with goods spending leading the December slowdown.   The rise in the savings rate to 4.9% in December from +4.3% in November was responsible for most of the retreat in spending.


Revolving consumer credit growth broke out of its 3Y slumber in 2Q14 alongside accelerated spending on durables and the two have moved in lockstep the last 6+ months.  It’s likely card spending moderates alongside the moderation in higher ticket discretionary consumption.


Rearview Report:  Income & Spending Diverge in December - PCE YoY


Rearview Report:  Income & Spending Diverge in December - Revolving Credit YoY


Rearview Report:  Income & Spending Diverge in December - Revolving Credit vs Durable Goods


Income:  Aggregate disposable income growth, per capita income growth and salary and wage growth all accelerated on both a 1Y/2Y basis in the latest month.  Note, however, that the reported acceleration in December comes against a very easy comp and that compares get decidedly harder beginning in January.    


Rearview Report:  Income & Spending Diverge in December - Salary   Wage Dec


HOURLY WAGE vs AGGREGATE INCOME GROWTH: The following, somewhat conflicting trends in Wage growth and Income growth have characterized the better part of the last 6 months: 


  • Wage Growth The trend in nominal wage growth in the private sector has been stagnant at ~2% (a bit better for production & nonsupervisory workers)  and decidedly soft in December with average hourly earnings growth slowing to 1.7% YoY.  Note that the more recent ECI data – a more comprehensive measure of compensation – showed stronger compensation trends than those reflected in the monthly wage figures released alongside the establishment survey.   


So, wage growth remains soft, but……


  • Aggregate Income Growth:  With total employment growth accelerating (ie. an accelerating employment base) in recent months, aggregate personal income growth has been able to accelerate in spite of middling hourly/weekly wage growth.  The aggregate figures tell us nothing about distribution effects, but with the highest income quintile supporting the bulk of consumption spending and with the correlation between aggregate income growth and total household spending extremely tight over decades of data, the aggregate figures are the predominant driver of reported PCE growth.  


Rearview Report:  Income & Spending Diverge in December - PCE 3D


Accelerating salary and wage growth and a rising savings rate are favorable fundamental developments although the rising savings rate mutes the flow through to actual spending growth. 


Fundamental positives manifesting as a reported slowdown in household spending - in conjunction with a discrete deceleration in ROW growth – all (further) complicate dynamically allocating capital across asset classes, equity  sectors, and style factors. 


Consider the typical thought train and level of confliction/cognitive dissonance prevailing in recent investor discussions:   OUS is slowing and we’re late cycle domestically.  Late-cycle exposure is underperforming significantly alongside negative deflation leverage and the more recent domestic manufacturing data suggest the US is not divorced from the broader global reality.  However, select early-cycle exposure could work alongside lower energy prices, TTM underperformance, stable labor market trends and lower rates catalyzed more by global than domestic forces.  But, wait, how could early-cycle exposure work when we’re late-cycle, when shale state woes are beginning to pressure what had been accelerating improvement in initial jobless claims data and when while the preponderance of domestic macro data – while still okay on an absolute basis – is slowing on a rate of change basis. 


Our rejoinder has simply been to remain long the long bond as both the fundamental data and quantitative setup continue to support it.  We also continue to like defensive yield sectors along with select early-cycle exposure such as housing, but not at every time and every price.  


Rearview Report:  Income & Spending Diverge in December - Eco Summary



Christian B. Drake


Retail Callouts (2/2): IDEA LIST, LULU, Tory Burch, UA, DKS, RSH

Takeaway: Idea Bench Update. Tory Burch trading hands for $3.5bn. LULU’s Chip saga updated. Confusing brand messages in Aussie Open Final (UA).


Retail Callouts (2/2): IDEA LIST, LULU, Tory Burch, UA, DKS, RSH - 2 2 chart1


  1. HBI: Removed HBI from our Long Bench. We like the balance sheet story, but now it's printing bad numbers even with the benefit of acquisitions. Not for us.
  2. COH: Took COH off Long Bench. This name was there for all of 2 weeks (an odd call for us). After it bought Stuart Weitzman -- which we think is perhaps the worst deal we've seen in retail in a year, we actually added to our LONG bench. The reason is that COH -- a company whose net income is below levels experienced in the Great Recession, would finally manufacture earnings growth with this deal. But we think that COH will end up having to pay closer to $1bn vs the reported $574mm due to underinvestment by the former owner. This stock might work for a few bucks on the 'less bad' trade. But it should start with a $2-handle.
  3. DG: Removed from Short Bench. Our short bias was a "lose if they win, and lose if they lose" scenario as it relates to Family Dollar. Either DG pays too much (12-13x EBITDA), or it loses and the stock falls back to where it was when it started.  The deal appears to be a non-starter, and DG is only 6% above where it was when the bidding began. With gas prices having fallen so far, there's likely no catalyst on the downside here.



Retail Callouts (2/2): IDEA LIST, LULU, Tory Burch, UA, DKS, RSH - 2 2 chart2





LULU - lululemon athletica Founder Chip Wilson Announces Resignation from Board



Takeaway: No surprise here at all. First Wilson traded in his Chairman title in exchange for the Board putting through Laurent Potdevin as new CEO (despite his lack of qualifications). But handing in his Chairman title, in effect, neutered Wilson -- a) could no longer call a Board vote, b) did not have anything close to a majority vote on the Board, and c) was banned from the building except for Board meetings due to his behavior.  Within six months, Wilson sold half of his stake to Advent International at $38 for $845mm. For the record, that investment is now worth $1.38bn not six months later. Wilson has stated publicly that he feels 'handcuffed' to LULU due to his ownership. To his credit, he's a successful entrepreneur at heart, and his family members are trying to start up a retail concept without his 'official' involvement.  It makes all the sense in the world that he'd pull away from the Board, and we wouldn't be surprised to see him sell the rest of his stock in a negotiated transaction -- like with Advent. In fact, if he doesn't, it probably means that the pool of buyers out there is slim, which will worry us.


Tory Burch's Growing Value: Firm Now Worth $3.5B



Takeaway: A good article outlining the ownership of Tory Burch -- something we think equity investors will need to know in 12-18 month's time when the company goes public.  The $3.5bn valuation implied by recent private transactions makes sense to us. Kate Spade is trading about $4.3bn, 23% higher despite the fact that it's footprint is actually a third smaller than Burch.  This isn't a function of KATE being overvalued -- in fact we'd argue the opposite.  Getting in at $3.5bn for Tory appears to be a no-brainer.  We think that the bankers couldn't have made this name more marketable by getting Roger Farrah on board from Ralph Lauren. The Burch/Farrah co-CEO one-two punch is easily good for another 5-10 multiple points -- whether Roger actually succeeds or not. Wall Street will definitely give him the benefit of the doubt (they'll remember his success at RL, and forget his failures at Foot Locker and Federated).


Retail Callouts (2/2): IDEA LIST, LULU, Tory Burch, UA, DKS, RSH - 2 2 chart5


UA, FAST - Murray/Djokovic Sport Confusing Brand Images


Takeaway: We got confusing brand messages in the Final of the Australian Open.

In one corner was Novak Djokovic, who wore his trademark Uniqlo apparel, while donning nondescript white Adidas court shoes. We've grown to accept that, as his primary endorser -- Uniqlo -- does not make shoes.


But it was Andy Murray who was more interesting. After signing a deal with UnderArmour on Dec 30th, he was proudly covered head to … knee in UnderArmour product.  His toes, unfortunately, were still wearing Adidas.   This simply shows the complexity of the footwear business model vs apparel. The day UA announced the deal, Murray was proudly wearing top-of-the-line UA apparel. But five weeks later, UA does not have a shoe that he is comfortable performing in at a major event. That's not a knock on UA -- as it's almost impossible for most brands to work that fast (Nike probably could).  But the design, development and production process might mean that Murray has to wear dual-brands for another few months at least.   On the bright side, UA can blame Murray's loss on Adidas (and believe us, they will).


Retail Callouts (2/2): IDEA LIST, LULU, Tory Burch, UA, DKS, RSH - 2 2 chart3


Retail Callouts (2/2): IDEA LIST, LULU, Tory Burch, UA, DKS, RSH - 2 2 chart4





DKS - DICK'S Sporting Goods Announces that Chief Financial Officer Andre J. Hawaux will Assume Additional Responsibilities as Chief Operating Officer



TGT - Target to seek two-month extension of protection from creditors



RSH - Chapter 11 as Early as Today



Neiman Marcus, Office Depot to accept MasterPass



L Capital Acquires 50% of Ba&sh



Gucci to Appeal Guess Case in Paris



DSW - DSW shifts exec roles, responsibilities


Monday Mashup: WEN, CMG, DNKN, YUM, BWLD

Monday Mashup: WEN, CMG, DNKN, YUM, BWLD - 111


Recent Notes

01/26/15 Monday Mashup: EAT, SONC and More

01/27/15 Shorting the White Space Opportunity

01/28/15 Changes in Latitude, Changes in Attitude

01/29/15 MCD: A New Beginning

01/29/15 EAT: Tough Crowd


Events This Week

Tuesday, February 3rd

  • WEN earnings call 8:30am EST
  • CMG earnings call 4:30pm EST

Wednesday, February 4th

  • GMCR earnings call 5:00pm EST

Thursday, February 5th

  • DNKN earnings call 8:00am EST
  • YUM earnings call 9:15am EST
  • BWLD earnings call 5:00pm EST


Chart of the Day

Monday Mashup: WEN, CMG, DNKN, YUM, BWLD - 2


Recent News Flow

Monday, January 26th

  • WEN introduced its newest LTO, the new Bacon and Blue on Brioche, which features “a blue cheese herb aioli topped with spring mix and three strips of freshly cooked, thick-cut, Applewood Smoked Bacon, all served on a toasted brioche bun.”
  • RRGB announced it is two weeks away from opening its newest restaurant in New Jersey.
  • DNKN announced the completion of its refinancing efforts by replacing the company’s old $1.9 billion senior secured credit facility with a $2.6 billion securitized debt facility.

Tuesday, January 27th

  • BLMN announced the completion of its sale of Roy’s to United Ohana, LLC.

Wednesday, January 28th

  • QSR Tim Hortons confirmed it is laying off an unspecified number of employees, now rumored to be close to 350.
  • PZZA declared a quarterly dividend of $0.14 per common share, payable February 20, 2015 to shareholders of record on February 9, 2015.
  • BWLD announced the opening of its first restaurant in the Philippines.
  • LOCO El Pollo Loco celebrated the opening of its newest restaurant in Katy, TX.  The restaurant is 2,900 square ft. and has seating for 70 guests.
  • MCD President and CEO Don Thompson announced his retirement, effective March 1st.  The board elected Senior Executive VP and Chief Brand Officer, Steve Easterbrook, to replace Thompson as President and CEO.

Thursday, January 29th

  • SONC declared a quarterly cash dividend of $0.09 per common share, payable February 20, 2015 to shareholders of record on February 11, 2015.
  • PLKI appointed S. Kirk Kinsell to its Board of Directors.  Mr. Kinsell has devoted more than 35 years to the hospitality industry and was recently named Chief Executive Officer of Loews Hotels & Resorts.


Sector Performance

Monday Mashup: WEN, CMG, DNKN, YUM, BWLD - 3


Monday Mashup: WEN, CMG, DNKN, YUM, BWLD - 4


Quantitative Setup

From a quantitative perspective, the XLY remains bullish on an intermediate-term TREND duration.


Monday Mashup: WEN, CMG, DNKN, YUM, BWLD - 5


Casual Dining Restaurants

Monday Mashup: WEN, CMG, DNKN, YUM, BWLD - 6


Monday Mashup: WEN, CMG, DNKN, YUM, BWLD - 7


Quick Service Restaurants

Monday Mashup: WEN, CMG, DNKN, YUM, BWLD - 8


Monday Mashup: WEN, CMG, DNKN, YUM, BWLD - 9

Keith's Macro Notebook 2/2: China | Oil | UST 10YR


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

LEISURE LETTER (02/02/2015)




  • Feb 3:  GLPI 4Q CC
  • Feb 3: WYNN 4Q CC
    • ; pw: 57961245
  • Feb 12: MPEL 4Q CC
    • (1866) ; pw: MPEL
  • Feb 17: MGM 4Q CC
    • ; pw: 8870181


GGR - Macau GGR for January came in at  28.74 billion MOP (27.90 HKD, 3.60 USD), down 17.4% YoY. 

Takeaway: Slightly worse than consensus in-line with Hedgeye


Cruise 2015 Wave color – 

  • Jean Paugh, manager at All About You Travel Unlimited in Rockledge, Fla. “It’s been a good first month of the year; we sort of picked up where we left off in December.”  Paugh said a number of cruise lines jumped the gun by introducing promotional specials for Wave season in December or even November, which has helped drive early Wave business.  A variety of destinations are in demand, Paugh said, ranging from Florida cruises for clients who don’t mind repeating itineraries, to Alaska and beyond.
    • The soft spot for Paugh is Europe. While river cruises are still doing well, as are luxury cruises, the higher airfares to Europe have put a damper on midmarket demand. “It’s the Mediterraneans and Baltics, that’s what’s really soft with us so far,” she said.
  • Other sellers report a different experience. “We’re selling a lot of Europe,” said Karen Kimmey, owner of OK Travel Agency, in Chicago.
  • Cruise lines were advertising more, especially Viking River Cruises, which was a sponsor of the U.S. Figure Skating Championship on TV in mid-January.
  • Shari Marsh, owner of a Cruise Holidays franchise in Raleigh, N.C., said her sales for January were up 50% from last year. “Europe is selling really, really well,” she said. But there’s a catch. “I’m scared to death because a lot of people will go ahead and book, but they don’t do air right away,” Marsh said. “I’m worried what people will say when I circle back around and tell them what the air prices are.”
  • “I’m seeing we’re having a tough time with Europe,” said Ross Spalding, president of Crown Cruise Vacations, an Ensemble agency in Princeton, N.J.
    • Spalding said the Jan. 7 terrorist attack in Paris and subsequent events “are causing people to hold off just a little...We are about half of where we were last year for the first few weeks.”   
    • Spalding said he has to sell considerably more Caribbean cruises to make up for lost European sales, “although the offers these suppliers have out there are pretty darn aggressive in Europe.”
  • Ken Muskat, executive vice president of sales at MSC Cruises said the company’s Wave season promotion of reduced deposits, onboard spending credits and a complimentary beverage package in some cases is driving an increase in call volume compared with last January.
    • “The large majority of the bookings are associated with the Wave offer,” he said. “Europe is doing well. We’ve been very focused on Europe for a while,” he said, using a package that combines a cruise, airfare and a two-night stay in a hotel pre-cruise.
    • Muskat said MSC recently reduced its peak season rate on the package for departures out of Barcelona. “You really can’t get on your own the air, a two-night hotel stay and a seven-night cruise for the price we’ve got out there,” he said.
    • Muskat said he sees that happening, as well: “We’re probably this year focused on sending more North Americans to more of our ships that are deployed in Europe than ever before.”

Article HERE

 Takeaway:  While there are some mixed reactions, Europe continues to be a concern with many agents.  MSC's comments signal more promotions ahead for the European sailing season which will drive bookings at the expense of lower pricing. 


Macau Legend/1680.HK  said it has received all the necessary permits from the Macau government to open its 444-room Harbourview Hotel. The hotel is having a soft opening on Monday and an official opening on February 11.  The hotel will not have any gaming. But it is connected by bridge to the firm’s Babylon Casino.


Macau Legend added in their Monday filing:  “As the redevelopment of the Macau Fisherman’s Wharf progresses, the board expects that more gaming tables would be granted by the DICJ to the company on an incremental basis to support the redevelopment of the Macau Fisherman’s Wharf.”

Takeaway: The number of additional tables Macau Legend receives is absolutely critical to its long-term growth targets.


Landing Mainland China real estate developer Landing International Development Ltd said there would be a groundbreaking ceremony on February 12 for its new US$2.2 billion casino project to be located on Jeju Island in South Korea. It will be called ‘Myth-History Park’.  


According to building permits granted by the Jeju government, Landing Jeju is permitted to develop and construct “a gaming and integrated resort with a total gross floor area (GFA) of approximately 306,763 square metres [3.30 million sq. feet]” added the filing.


It would include “premium hotels and villa hotel and other conferencing and exhibition facilities, a gaming facility, a theme park and shopping and other entertainment and tourism facilities” plus condominiums, villas, bungalows and other accommodation facilities with a GFA of approximately 132,265 square metres.


NCLH - customers who book a cruise of three nights or longer can choose from one of four value-added perks that include a free Ultimate Dining Package, a free Ultimate Beverage Package or up to $300 in on-board credits. The fourth option is to bring along extra passengers in a cabin for free when there already are two paying passengers (up to the limit allowed in the cabin). The option only is available on select sailings.

Article HERE

Takeaway: New Norwegian Wave deal


CCL -  According to Carnival UK’s executive vice president of operations, David Noya, "There is a lot of interest and bookings for the new ship, and since we launched the new ads, we are on track for our biggest ever wave for P&O. We’re seeing a lot of newcomers – people who are totally new to cruise, as well as people that have cruised before.”

Article HERE

Takeaway: Bookings are doing well for P&O Cruises UK possibly due to an earlier Wave. There hasn't been any commentary on pricing, which we think is slowing in the UK.


RCL - According to RCL Senior Vice President, Sales, Trade Support and Service Vicki Freed, there will be a new rotational dining program for RCL. Under the new program, guests will dine at different complimentary restaurants each night of their cruise based on their rotational schedule.  At each restaurant, guests will have the same wait staff and table mates each evening.


The new rotational dining program will begin with Anthem of the Seas, but there is no indication yet if it will spread to Quantum of the Seas, Oasis of the Seas and/or Allure of the Seas.

Article HERE

 Takeaway:  We think this modification is due to the negative feedback regarding the implementation of the Dynamic Dining on Quantum.

RCL latest Weekend WoW deal

Article HERE


CCL – Carnival aired its first-ever Super Bowl TV commercial entitled "Come Back to the Sea" – a 60-second spot combining stunning cinematic images of the ocean and stirring words from President John F. Kennedy to create an emotional storyline about people's universal connection with the sea.

Article HERE


Montage Laguna Beach - Strategic Hotels & Resorts Inc. bought the 250-room Montage Laguna Beach from an affiliate of Ohana Real Estate Investors, a Redwood City investment firm funded by Pierre Omidyar, the founder and chairman of eBay. Ohana still owns the Travelodge Laguna Beach and the Montage Beverly Hills, among other properties. The sale was for $360 million.

Article HERE

Takeaway: This luxury property was sold at a California record of $1.44m average price per key.


WYN - Wyndham Hotel Group, announced it has acquired Dolce Hotels and Resorts, a provider and manager of group accommodations with a portfolio of 24 properties and over 5,500 guestrooms across seven countries in Europe and North America, for $57M in cash.

Article HERE



Las Vegas - According to cheaptickets.com, 2015 LV hotel prices are down 5% YoY over the Spring Break period. 

Article HERE


Macau – The average daily wage of construction workers increased by 6.1% QoQ in 4Q 2014, and the average daily wage of local construction workers was up by 8.2%.

Article HERE

 Takeaway:  Higher construction worker wages is another headwind 


Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.

European Banking Monitor: No Follow Through on Euro-QE; Swaps Widen

Takeaway: Last week's enthusiasm over ECB asset purchases was short-lived as investors remain concerned about EM collapse risk.

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:


The ECB’s asset purchase high was short-lived as global markets resumed their decline shortly after the news. The collapse in energy prices continues to destabilize select economies raising the specter of a financial crisis. We watch closely both TED Spread and Euribor-OIS for indications of rising global systemic risk in the banking system both at home and in Europe. TED Spread has quietly crept up to 25 bps from 21 bps a month ago, but that magnitude of change is not especially noteworthy. Meanwhile, Euribor-OIS is essentially unchanged.


Belgium cut rates, Russia cut rates, and the ECB is buying bonds.  Global central banks are trying to stimulate growth, but markets are falling.  Perhaps investors have built up a tolerance to central bank drugs.  As that seemed to be the case last week, short-term risk measures in our heat map below came out mostly in the red.


European Financial CDS- Swaps widened across the board in Europe last week.  Greek spreads blew out following Syriza’s election victory.  Syriza’s win again raises concerns around austerity/Grexit. Concerns that Spain could follow a similar electoral path pushed out spreads for most Spanish banks.  Russia's Sberbank saw its spreads widen by a further 67 bps after the Bank of Russia unexpectedly cut interest rates on fears of an impending recession. This conflicts with six rate increases over the past year as the central bank is stuck between a rock and a hard place. This past week, Russia’s rate policy shifted from fighting inflation and supporting the Ruble to stimulating economic activity.


European Banking Monitor: No Follow Through on Euro-QE; Swaps Widen - chart1 financials CDS


Sovereign CDS – Sovereign swaps were mostly wider last week as global markets fell amid waning enthusiasm over ECB asset purchases. French sovereign swaps tightened by -6.9% (-4 bps to 47 ) while Spanish sovereign swaps widened by 13.1% (10 bps to 87).


European Banking Monitor: No Follow Through on Euro-QE; Swaps Widen - chart2 sovereign CDS


European Banking Monitor: No Follow Through on Euro-QE; Swaps Widen - chart3 sovereign CDS


European Banking Monitor: No Follow Through on Euro-QE; Swaps 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 was unchanged at 9 bps.


European Banking Monitor: No Follow Through on Euro-QE; Swaps Widen - chart5 euribor OIS



Matthew Hedrick



Ben Ryan




Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.37%
  • SHORT SIGNALS 78.32%