"Ride The Horse, Short The Pig." McCullough Talks Pair Trading on RTA Live


In this excerpt from today's edition of RTA Live, Hedgeye CEO Keith McCullough weighs in on what to look for when considering a pairs trade in response to a subscriber question.

RTA Live is a run-down of Hedgeye's Real-Time Alerts positions followed by live Q&A with Keith McCuollough, available EXCLUSIVELY to Real-Time Alerts subscribers. Sign up HERE for access.

February 9, 2015


In today's edition of RTA Live, Hedgeye CEO Keith McCullough breaks down all of the Real-Time Alerts positions as of 10:30AM on 2/9 and takes subscriber questions on the Russell 2000,  recent moves for MLPs like $LINE and $BWP, and his thoughts on pair trading within an industry. 


Takeaway: A very weak start to February even after considering the CNY shift


We continue to think that a down 35% February suggests Macau fundamentals are stable with recent monthly volumes. However, if the first week of February is any indication, the trend may be worsening. 


Please see our detailed note:


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Keith's Macro Notebook 2/9: FX | Europe | UST 10YR


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

Retail Callouts (2/9): US & China e-Commerce, TSCDY, TGT Canada, WFM, BWS

Takeaway: US & China Footwear & Apparel e-Commerce demographics. Tesco turns to suppliers for help. TGT Canada liquidation getting tricky.


Retail Callouts (2/9): US & China e-Commerce, TSCDY, TGT Canada, WFM, BWS - 2 9 chart2




CHINA vs. US: Footwear & Apparel e-Commerce Breakdown


This is a topic we've hit pretty hard over the past few months in our recent Black Books looking at the space. We did our own consumer survey on the topic, and while our results were in line with the info pertaining to the United States, here is an interesting look at the differences in demographic spending patterns in the US and China on footwear and apparel. For context, the online US footwear and apparel business was a $37bil industry in 2013 (10% penetration) and China grew at a 178% CAGR over the past 5 years to $33bil (11% penetration). A few of our takeaways...

  1. Income - The Chinese market is dominated by the top tier of the demographic group due in part to the simple fact that there is a divide in internet access between income groups. The US on the other hand is much more consistent. Though the bulk of the volume and $$$ can be attributed to the upper tiers of the income skew in the US -- shoppers across the spectrum have adopted the internet as an option, though not with the same frequency as the Chinese.
  2. Age - Here the two nations' skew across age demographics is the inverse of the income charts we hit on earlier. The Chinese consumer has more or less accepted the internet as a channel across age groups with a slight bias towards the younger generation. But, in the US there is a serious discrepancy between the 15-24 age bracket and the rest of the population. That's the demo we called out in our FL Black Book in January as the group that really matters in the e-comm discussion as it accounts for nearly all of the volatility. As the younger generation moves online we think that accrues to the brands not the retailers…a negative event especially for HIBB and FL.
  3. Women - Our comment here is focused specifically on the US market where 25% of men say they never shop for Apparel and Footwear online compared to just 15% of women. That's a big deal in the athletic industry where NKE, UA, FL, etc. are making a big push to build their respective Women's businesses. As with Footwear, we think that the upside accrues directly to NKE and UA rather than FL which has tried and failed for years to right the Lady Foot Locker ship. 


Retail Callouts (2/9): US & China e-Commerce, TSCDY, TGT Canada, WFM, BWS - 2 9 chart1



Retail Callouts (2/9): US & China e-Commerce, TSCDY, TGT Canada, WFM, BWS - 2 9 chart3

Source: Euromonitor


TSCO - Tesco tells suppliers to cut prices as commodities slump



Takeaway: When this flashed across our radar this morning it smelled a lot like TGT-Canada's plea for concessions from its suppliers in late July. While it's not unusual for a retailer to ask for vendor support, this, like the TGT ask, looks to be coming from a position of weakness rather than strength.


TGT - Target sale fail? Disappointed shoppers can expect deeper discounts ahead



Takeaway: This is where the Canada closure starts to get tricky. The US parent has severed ties with the red headed step child in the Great White North, but how will the company's relationships in the US be affected because of this? After years of promises from TGT and doubtless concessions by the suppliers we've got to believe that things are a little bit testy. It's no wonder that TGT Canada is treading lightly on thin ice when it comes to its liquidation sales. This is just one example, but telling of TGT's precarious spot. iPad's are discounted just 5% - if that goes higher we could see AAPL take it out on the US business when it plans its next round of allocations.





JCP - J.C. Penney partners with InStyle on new in-store salon concept



OVS Heads for IPO



Sweaty Betty Receives Catterton Investment



WBA - Walgreens introducing new beauty brand



BWS - Ex-Victoria's Secret CEO joins Brown Shoe board



WFM - Whole Foods, Instacart partner on same-day floral delivery



Guggenheim and Affiliates Invest $135M in BCBG



SPLS - Staples launches new omnichannel small business campaign Feb. 8


Monday Mashup: CAKE, PNRA and More

Monday Mashup: CAKE, PNRA and More - 1


Recent Notes

02/02/15 Monday Mashup: WEN, CMG, DNKN, YUM, BWLD

02/03/15 WEN: Middling Q, But that’s Not the Story Here

02/03/15 WEN Leveraged Recap Puts Pressure on Yum

02/04/15 CMG: Look Past the Near Term Noise

02/05/15 YUM: In Need of a Nudge

02/06/15 January Sales & Traffic Strongest in Six Years


Events This Week

Monday, February 9th

  • MCD January 2015 Sales and Revenue Release

Tuesday, February 10th

  • GTIM earnings call 11:00am EST

Wednesday, February 11th

  • CAKE earnings call 5:00pm EST

Thursday, February 12th

  • PNRA earnings call 8:30am EST

Friday, February 13th

  • RRGB earnings call 10:00am EST
  • JACK Annual General Meeting


Chart of the Day

Monday Mashup: CAKE, PNRA and More - 2


Recent News Flow

This Morning

  • BWLD was downgraded to hold at Miller Tabak with a $193 PT.

Monday, February 2nd

  • LOCO announced the addition of Baja Shrimp as a seasonal menu option available through the spring.  The new menu items include: Shrimp Mango Tacos, Shrimp Verde Enchiladas, Shrimp & Chicken Avocado Bowl, and Avocado Shrimp Salad.
  • PZZA announced it is bringing back a fan favorite, the Bacon Cheeseburger Pizza, available through March 15th.

Tuesday, February 3rd

  • BJRI announced the opening of its newest restaurant in Nanuet, New York.  The 8,000 square ft. restaurant seats approximately 250 guests.

Wednesday, February 4th

  • RUTH announced the opening of its newest restaurant in St. Petersburg, Florida. 

Thursday, February 5th

  • WEN was upgraded to positive at Susquehanna with a $13 PT.
  • KKD announced the termination of its tax asset plan and stock transfer restrictions.
  • EAT declared a quarterly dividend of $0.28 per share, payable on March 26, 2015 to shareholders as of March 6th, 2015.
  • EAT announced the election of Elaine L. Boltz to its Board of Directors.  Boltz is a Senior Vice President at TJX Companies and has previously held positions with The Boston Consulting Group, ANN Inc., and Chico’s FAS, Inc.

Friday, February 6th

  • DNKN entered into a $400 million accelerated share repurchase program with Goldman, Sachs & Co.  On February 10th, the company will pay Goldman $400 million in cash and will receive ~6,950,000 of the company’s common stock.


Sector Performance

The XLY (+4.2%) outperformed the SPX (+3.0%) last week.  Both casual dining and quick service stocks, in aggregate, underperformed the XLY.

Monday Mashup: CAKE, PNRA and More - 3


Monday Mashup: CAKE, PNRA and More - 4


Quantitative Setup

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

Monday Mashup: CAKE, PNRA and More - 5

Casual Dining Restaurants

Monday Mashup: CAKE, PNRA and More - 6

Monday Mashup: CAKE, PNRA and More - 7


Quick Service Restaurants

Monday Mashup: CAKE, PNRA and More - 8

Monday Mashup: CAKE, PNRA and More - 9

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