Hedgeye Macro Analyst Darius Dale shares the top three things in Keith's macro notebook this morning.
Hedgeye Macro Analyst Darius Dale shares the top three things in Keith's macro notebook this morning.
Takeaway: KSS/Industry read throughs on Comps & Margins. MW 4Q-Remains on Long Bench. WMT wage ripple effects. China factory strike. FEB Retail Sales.
EVENTS TO WATCH
BONT, KSS - GOOD READ THROUGH FOR KSS
Takeaway: BONT isn't a name we talk about a lot, but we took a few interesting tidbits away from the company's press release this morning.
1) Comps -- the company posted a 4.3% number (+5.3% through Nov/Dec and -1.4% in January). That's the best comp number this company has posted in 8.5 yrs. Yea since 2006. Could it be that this company has found its mojo. It's possible, but this is a bottom tier regional department store chain operating in a category that's grown sales at a -2% CAGR over the past 20yrs. If poor quality retailers like BONT (we could list about 10 more concepts) are putting up record numbers we think that's very solid proof that the +3.7% KSS comp number is more telling of the retail environment in 4Q than the 'Greatness Agenda'.
2) Margins - The company took a 130bps whack on the chin because of the 'highly promotional' retail environment and distribution related e-comm expenses in the quarter. E-comm sales grew 25% for the year to $167mm (6% of sales). That's a big headwind for such a small piece of the business. BONT currently has no free shipping threshold in place, meaning that consumers must pay shipping for each order. But we should note that the company is currently running a free shipping at $25 spend promotion. Companies do this all the time, but as retailers move to protect market share online (the only real growth driver in the industry) we think the one-offs become standard moving the threshold towards $0.
MW - 4Q14 Earnings
Takeaway: All in a very good quarter for MW. Comps looked strong across the portfolio in the quarter which was enough for 1% beat on the top line, though we should note that on a 2yr basis all concepts were flat to down sequentially. Margins looked good and the 66% sales growth leveraged into a 92% increase in adjusted EPS. Run rate synergies ended the year at $35mm with $50-$55mm guide for 2015. We think management is sandbagging on the $100mm it's thrown out to the street. MW remains on our long bench while we vet the bigger investment thesis.
WMT, TJX - At Home comfortable with wage increase
Takeaway: At Home operates 83 stores centered mostly in the Mid West and South. Think a bigger version of Pier 1 or maybe an Ashley Furniture. If you want to see what the WMT wage increase ripple effect looks like across the industry look no further than At Home. The company is raising hourly wages for full time workers to a $10 minimum and $9 for part-timers. It's not a concept that one would think would have to compete with WMT for employees, but sure enough here it is. WMT employs about 1.4mm people in the US. That's about 16.5% of the workforce in the Food & Beverage, Health/Personal Care, Clothing, and General Merchandise categories. Or, put another way…the company swings a big stick.
NKE, VFC - Chinese Labor Strike: 5,000 Workers Strike At Factory Making Shoes For Nike, Timberland, Kenneth Cole; Police Dogs Deployed
Takeaway: This does not impact high-profile 'Launch' footwear for Nike, as it dual and triple-sources those products in different countries to diversify against risks such as this -- which seem to come along every 2-3 years. But truth be told, the plant would need to be closed down permanently to be a shock to Nike's financial model -- and it'd only be a temporary one at that.
FEBRUARY RETAIL SALES
Takeaway: This confirms what we've seen from company's monthly sales numbers in Feb and the ICSC trend line. Sales decelerated on both a 1yr and 2yr basis to the lowest rates we seen in 12-13 months.
DG - 4Q14 SIGMA
PETM - BC Partners Completes Acquisition of PetSmart, Inc, Appoints Michael J. Massey as its President and Chief Executive Officer
TJX - TJX, Bluestar Eye Jones New York
APP - Robert Mintz Exits American Apparel
PLCE - Barington Capital, Macellum Advisors Urge Changes at Children’s Place
WMT - Women-owned logo arrives on Walmart shelves
GME - GameStop expands gift card trade-in program
UA - Under Armour opens digital center in Austin, Texas
In the Works: Four new retail concepts
Takeaway: This morning's strong claims print reinforces the conclusion that the labor market remains on solid footing for now.
Below is the detailed breakdown of this morning's initial claims data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact
The last few weeks saw claims rising steadily, but that changed in the latest week of data. Claims fell by a momentous 36k on a single week SA basis, bringing them back below 300k. Meanwhile, the rolling data improved WoW by 4k to 302k.
The YoY RoC in NSA rolling claims slowed to 8.3% this week, but this isn't suprising as YoY RoC should be converging towards zero as we get closer to lapping the frictional floor of 300k. All in all, the data this morning is strong and paints a picture of ongoing stability/improvement in the US labor market.
For the last few months we've been calling out the energy sector as an area of acute weakness amid the broader backdrop of strength for labor. The update there this week is that the energy state complex was relatively flat relative to the rest of the country.
Prior to revision, initial jobless claims fell 31k to 289k from 320k WoW, as the prior week's number was revised up by 5k to 325k.
The headline (unrevised) number shows claims were lower by 36k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3.75k WoW to 302.25k.
The 4-week rolling average of NSA claims, another way of evaluating the data, was -8.3% lower YoY, which is a sequential deceleration versus the previous week's YoY change of -8.8%
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT
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Takeaway: See update below on timing of SeatMe reclassification.
This note was originally published by our Internet & Media Sector Head Hesham Shaaban on March 10, 2015 at 11:46. For more information on how you can subscribe to America's fastest-growing independent financial research firm click here.
UPDATE: We originally believed revenues from SeatMe (reservation service) would be reclassified from YELP's Other Services segment into its core Local Advertising segment starting in 1Q15. However, that likely happened in 1Q14. We just didn't realize it because the reclassification wasn't explicitly disclosed in any of YELP's filings until its 2014 10-K filed two weeks ago. Given that its previously-reported 2014 quarterly segment revenues haven't changed within its recently-filed 10-K, we have to assume that the change already occurred in 1Q14. Details below. All Key Points remain the same.
YELP’s Local Advertising segment is riddled by an absurd level of attrition, which is becoming increasingly more challenging to overcome as the company presses up against a limited TAM that can’t support its model. We can already see YELP’s model breaking down in its reported metrics. So in response, management is now manipulating that very data in order to hide what’s really going on.
Below are series of suspect moves that management has taken to mask its rampant attrition issues, and overstate the fading strength in its core Local Advertising segment.
The overriding theme is that these suspect moves aren't any more sustainable than its current business model. Management may buy themselves a short-term reprieve on its stock, but are only raising the sell-side bar on an a fading buy-side growth story.
This is how we see the progression of the YELP's earnings releases as we move through the year.
In short, the setup for YELP will become progressively more challenging as we move through 2015 into 2016. Even if the stock pops on the 1Q15 release, it likely ends the year lower than it started once YELP doesn't raise guidance above expectations (likely 2H15).
Let us know if you have any questions, or would like to discuss in more detail.
Hesham Shaaban, CFA
A generational ramp for #StrongDollar finally signals immediate-term TRADE overbought (within a very bullish TREND) at $99.99 on the U.S. Dollar Index (Gretzky should be proud he got paid in Dollars, not Loonies!) and the EUR/USD bounces at what was our intermediate-term target of $1.05.
The Weimar Nikkei screamed higher overnight +1.4% to +8.9% year-to-date (vs S&P 500 -0.9% year-to-date) on Burning Yens, but that YEN vs USD cross is signaling oversold too – so we should see a short-term bounce in USD traded (Oil, Gold, etc.) and the Nikkei correct some tonight.
The Russell 2000 is up on the day with the SPY down -0.2% and we like it on the long side here into the Retail Sales print (which should beat) – being long domestic consumption in the U.S. remains our best relative long idea on the other side of our Global #Deflation call – Russell revs are 80% U.S. domestic.
|FIXED INCOME||24%||INTL CURRENCIES||11%|
iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.
Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.
Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.
GERMANY: whopping -0.2% correction day for the DAX, which is +20.2% YTD vs $SPX -0.9%
In the middle of every difficulty lies opportunity.
After 6 weeks of inflows, domestic stock funds returned to redemptions losing almost $2 billion in the most recent survey.
But I’m not kidding in telling you that I have my US equity asset allocation (see our dynamic and daily Hedgeye Asset Allocation model in the bottom of this note for how I’d be allocating capital or raising cash after macro moves) at YTD highs, on red.
From this time and price, I like US Consumer Discretionary (XLY), Housing (ITB), and the Russell 2000 (IWM) – in that order. I also like Healthcare (XLV) stocks, but in looking for a beta bounce on accelerating US consumption (US Retail Sales are going to be reported this morning), I think there’s more upside in the aforementioned order.
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