3 New Areas of Focus for Today's LULU Black Book

Takeaway: These are the three areas of focus that we think will be new to most people in today's LULU Black Book presentation.

Focus: LULU

Other Relevant Names: NKE, UA, GPS, VFC, COLM, Puma, Adidas, Reebok


This evening we put the finishing touches on a 50+ page Black Book detailing some of the key issues surrounding Lululemon. While we’ll certainly outline our thoughts around near-term factors given the print in two days, we think that the most value-add from our presentation will come from our work into three areas we’ve never seen researched before for LULU; 1) Brand perception by country (33 brands), 2) Competitive positioning by activity (yoga, running, pilates, etc…), and 3) detailed analysis of LULU’s 80 real estate markets in the US.   


Call Details 

Date/Time: Tuesday March 24/11:00am ET

Dial-In Number: 

Toll Free Number: 

Conference Password: 13604247

Materials: CLICK HERE


More specifically…

1)      Results of our consumer survey that allowed us to assess brand perception in the US, Canada, UK, Australia, and China by upper income athletic women (we’re surveying customers where LULU is growing)

  1. differences in spending levels by region on each of about 33 athletic brands
  2. what each of those brands is actually used for (for example, people talk about Athleta and Lululemon in the same sentence, but it turns out that the activities the product is used for is very different).
  3. we’ll look at differences in women’s activity level by country, whether Yoga translates to other cultures, and what sport/activity brands like LULU need to grow share in those markets.

2)      Analysis of LULU’s US real estate portfolio, including…

  1. detailed overview of market share in each of LULU’s 80 core markets (similar to what we did for RH to gage store opportunity and market size – see below)
  2. individual market saturation trend over time – which markets are driving the comp vs. hurting it?
  3. what are income characteristics of new markets versus existing?
  4. how do activity trends for female consumers look in new markets vs the existing fleet? 


RH Real Estate Example

 3 New Areas of Focus for Today's LULU Black Book - rh1


Each Column Below Represents A RH Store – We Have That Detail for Lululemon

 3 New Areas of Focus for Today's LULU Black Book - rh2


3 New Areas of Focus for Today's LULU Black Book - rh3


3 New Areas of Focus for Today's LULU Black Book - rh4











UUP: Adding the U.S. Dollar to Investing Ideas

Takeaway: We are adding the U.S. Dollar to Investing Ideas.

Editor's Note: Below is a brief note written earlier today by Hedgeye CEO Keith McCullough. Our macro team will provide a deeper update this weekend.

UUP: Adding the U.S. Dollar to Investing Ideas - Dollar cartoon 03.09.2015


After a -2.4% down week, the US Dollar selling continues this morning, by another -0.8%. While there haven't been many pullbacks to signal buy on in the last 6 months, this appears to be one of them.


US Dollar Index (and UUP) are signaling immediate-term TRADE oversold within its bullish intermediate-term TREND.


Europe and Japan have worked hard to devalue their respective currencies. I expect both of them to so more of the same next.


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

DRI: Room to Breathe

We are removing DRI from our Investment Ideas list as a short.


We do, however, maintain that Darden’s stock is moving significantly higher ahead of a turnaround in the core Olive Garden business.  In addition, there are valuation concerns following Friday’s “beat-and-raise” 3Q15 earnings release.

For the quarter, the company reported above consensus EPS of $0.15 (on slightly better same-store sales, lower costs, and higher margins) and guided to FY15 EPS of $2.45-2.48 versus the prior $2.25-2.30 range.  Lastly, Darden issued an above consensus 4Q15 EPS target range of $0.91-0.94.

DRi shares are fully-valued, trading at a 2016 P/E of 23.2x – we still see fair value in the range of $55-58.


Management also guided to the following 4Q15 same-store sales targets:

  • Olive Garden +1.5 to 2.5% versus consensus of 1.6%
  • LongHorn Steakhouse +4.0 to 5.0% versus consensus of 2.3%
  • Specialty Restaurant Group collectively at +2.5 to 3.5%

In the short run, the next 6-12 months will be a crucial cost cutting opportunity for the new management team.  As we suspected on the call, management held out a significant number of carrots to the investment community to highlight the changes that are being made within the company.  It has formally announced the sale leaseback of its headquarters in Orlando and has begun to test the waters by selling some properties upon which its restaurants sit. 


Management was very upbeat with how things are progressing on that front so far, noting that cap rates have been below 6%.  More generally, management maintains that it wants to move to a more asset-light model if it makes business sense.  Management provided little detail on the implications of the math on the income statement if they significantly reduced the number of properties they owned.


Operationally, management deliberately ran less price-point oriented promotions at Olive Garden in 3Q15 than a year ago, allowing for significantly improved profitability at Olive Garden.  They also scaled back media spending to historical levels.  These factors should continue to be in play for the next six months, during which it would be unwise to short the stock.


A simple reminder that Olive Garden is still struggling is that it continues to lose market share.  Traffic has now declined for the past four years and continues to trail the industry by about 1%.


We think it’s premature to give credit to management for improved SSS trends at Olive Garden.  Given the industry-wide noise created by weather and lower gas prices, it’s difficult to tell what the real trends look like at Olive Garden.  To that point, the earnings call was focused on financial engineering with little mention of food or operational changes being made to improve the concept.  Olive Garden needs a significant dose of innovation and improved assets before this chain be on a sustained path of positive traffic trends.  

China Economic Update: Will the "Beijing Put" Be Enough to Offset the Slowdown?

This morning we shot a brief video offering our updated, detailed thoughts on the Chinese economy and its financial markets, which are best summarized in the following picture:


China Economic Update: Will the "Beijing Put" Be Enough to Offset the Slowdown? - 1


Watch the video replay of this presentation below.


CLICK HERE to download the accompanying slides.


As always, please feel free to ping us with any follow-up questions.


Kind regards,




Darius Dale


European Banking Monitor: No Verdict in Greek Bailout Discussions

Takeaway: Risk is net neutral to slightly negative on the heels of the Fed and delayed progress in Greek-Eurozone bailout discussions.

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:

Risk perception in the U.S. and Europe improved but is neutral to negative as (1) the Fed dropped its "patient" verbiage but Chair Yellen moderated the market reaction in her press conference, and (2) as Greek-Eurozone bailout discussions made little progress. 


European Financial CDS - Swaps mostly widened in Europe last week with Greek bank swaps rocketing more than 700 bps wider.  Although Greek prime minister Tsipras agreed to send a new list of economic overhauls to Eurozone finance ministers, Greek-Eurozone bailout discussions are not making significant progress.  As German Finance Minister Wolfgang Schäuble said, time is running out for Greece. Meanwhile, Russia's Sberbank saw its swaps tighten by a notable -121 bps to 514. 


European Banking Monitor: No Verdict in Greek Bailout Discussions - chart1 financials CDs


Sovereign CDS – Sovereign swaps mostly widened over last week. Portuguese sovereign swaps widened the most, by 9 bps to 131.  Japanese swaps were the only ones to tighten, by -1 bps to 39.


European Banking Monitor: No Verdict in Greek Bailout Discussions - chart2 sovereign CDS


European Banking Monitor: No Verdict in Greek Bailout Discussions - chart3 sovereign CDS


European Banking Monitor: No Verdict in Greek Bailout Discussions - 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 11 bps.


European Banking Monitor: No Verdict in Greek Bailout Discussions - chart5 eruibor ois spread



Matthew Hedrick 



Ben Ryan






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