Expect more of the same from the world’s unelected central planners including America’s own Fed chief Janet Yellen.
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.
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.
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.
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:
So, wage growth remains soft, but……
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.
Christian B. Drake
Takeaway: Idea Bench Update. Tory Burch trading hands for $3.5bn. LULU’s Chip saga updated. Confusing brand messages in Aussie Open Final (UA).
HEDGEYE RETAIL IDEA LIST
CHANGES THIS WEEK
EVENTS TO WATCH
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).
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).
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
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01/26/15 Monday Mashup: EAT, SONC and More
01/27/15 Shorting the White Space Opportunity
01/29/15 MCD: A New Beginning
01/29/15 EAT: Tough Crowd
Tuesday, February 3rd
Wednesday, February 4th
Thursday, February 5th
Monday, January 26th
Tuesday, January 27th
Wednesday, January 28th
Thursday, January 29th
From a quantitative perspective, the XLY remains bullish on an intermediate-term TREND duration.
Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
TICKERS: 1680.HK, RCL, NCLH, CCL
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 –
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.
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.”
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.
RCL – latest Weekend WoW deal
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.
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.
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.
Las Vegas - According to cheaptickets.com, 2015 LV hotel prices are down 5% YoY over the Spring Break period.
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%.
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.