Sales and Traffic Downtrend Continues in March

Black Box Sales, Traffic Discouraging in March

Despite the industry registering its 9th consecutive month of same-store sales growth, Black Box results for March were relatively disappointing.  This comes following a soft February, during which same-store sales and traffic decelerated 400 bps and 340 bps sequentially.


Restaurant same-store sales increased +0.8%, while same-restaurant traffic decreased -2.4% during the March month.  These numbers were down 130 bps and 140 bps, respectively, on a sequential basis.  Importantly, 1Q15 overall was a strong quarter from a sales perspective – the strongest in at least three years – with same-restaurant sales up +3.0%.  Traffic during the quarter was less inspiring, slipping down 30 bps sequentially to -0.3% from a flat 4Q14.


Sales and Traffic Downtrend Continues in March - 1


The widening gap between sales (or average check) and traffic suggests that the industry does not have pricing flexibility.  This could become a bigger issue down the road in 2015 as companies begin facing significant labor cost pressure.


Sales and Traffic Downtrend Continues in March - 2


Black Box noted that the New England region was the best performing in the month, while the Southwest was the worst performing.


Sales and Traffic Downtrend Continues in March - 3

Sales and Traffic Downtrend Continues in March - 4


Employment Growth Remains Solid

All age cohorts, save the 20-24 group, had positive employment growth during the month – continuing an impressive run.  Although the 20-24 YOA cohort saw employment growth decline -0.84% in the month, it is not significant enough to give us cause for concern given the strength in the other categories.  However, given the extent of the sequential drop in employment growth for this category, we must monitor it closely moving forward as a continuation in this trend could have negative implications on the fast food industry.


March Employment Growth Data:

  • 20-24 YOA -0.84% YoY; -374.9 bps sequentially
  • 25-34 YOA +2.64% YoY; +4.4 bps sequentially
  • 35-44 YOA +0.46%; +23.9 bps sequentially
  • 45-54 YOA +0.50%; -83 bps sequentially
  • 55-64 YOA +2.63%; +66.9 bps sequentially


Sales and Traffic Downtrend Continues in March - 5


McCullough: My Meetings In NYC Yesterday

Takeaway: Macro markets, across durations, are non-linear.

I spent all day yesterday in New York City with my team meeting and debating some of the smartest institutional investors in the world.

McCullough: My Meetings In NYC Yesterday - z44

The debate (in most meetings) was as vibrant as it has been in a long time. You can read all about it in my Morning Newsletter. Lots of learning equals less mistakes.


Some quick thoughts:


Right now, there are a lot of people looking for the US Dollar to decline and Oil to rise. It’s just not happening as the USD is +2.6% week over week to 99.29 on the USD Index and WTI is re-testing a breakdown through $50.


Meanwhile, Euros continue to burn, $1.06 last – we’re staying with our #StrongDollarDeflation theme.


On a related note…my, oh my, are these stock markets in Europe incredible to watch!


In Germany, the DAX is +1.7% this morning to fresh year to date highs of over +26%. Places like Denmark are up over +35% year to date. They love the smell of Burning Euros. How could you blame them?


European profit margins are going up on this epic FX move like US ones did when the USD was devalued.


Click image to enlarge.

McCullough: My Meetings In NYC Yesterday - z34

Retail Callouts (4/10): FL, NKE, UA, AdiBok, March Comp Sales, AMZN

Takeaway: Brands vs FL online visitation divergence hits new highs in March. Easter shift and weather improvement benefit March comp sales.



FL vs. Athletic Brands - March E-comm Visitation Stats

Tickers: FL, UA, NKE, Adi


Takeaway: In the most recent update of e-comm visitation stats we saw the brands (Nike, UA, and AdiBok) continue to outpace the growth of FL. The two (brands and FL) moved in tandem through April of 2014, and then right around the World Cup we saw a meaningful divergence. That spread has continued to blow out over the past 12 months and hit a new high again in March. That doesn't bode well for B&M retailers like FL, DKS, HIBB, FINL, etc. who have to compete with brands like NKE and UA who are pushing the direct agenda.

Over the past 3 quarters Nike has grown it's e-comm business at 70%, 66%, and 42% -- outpacing the growth of its wholesale partners. Meaning retailers now have to fight with the brands for incremental dollars from a channel that by our math should account for the majority of the industry's growth over the next 6 years.

Retail Callouts (4/10): FL, NKE, UA, AdiBok, March Comp Sales, AMZN - 4 10 chart2

Retail Callouts (4/10): FL, NKE, UA, AdiBok, March Comp Sales, AMZN - 4 10 chart1


March Monthly Comps


Takeaway: March monthly comp numbers benefited from 2 things. 1) The shift of Easter from the end of the month in 2014 to 4/5/15 this year, and 2) a miserably cold and snowy February. ICSC numbers got marginally better sequentially throughout the month on a 2yr and 3yr basis. For companies reporting on a Fiscal calendar the added March benefit should be net neutral as April slows down without the Easter boost and sales shifted from February into March. The stores concentrated in the South and MidWest regions showed the best sequential improvement on a 2yr basis which is what we'd expect after the ugly numbers reported in FEB.

Retail Callouts (4/10): FL, NKE, UA, AdiBok, March Comp Sales, AMZN - 4 10  chart3

Retail Callouts (4/10): FL, NKE, UA, AdiBok, March Comp Sales, AMZN - 4 10 chart4





AMZN - EXCLUSIVE: Shoefitr slides into Amazon portfolio



AMZN - FAA approves Amazon drone research again



Kit and Ace to Open 15 Canadian Flagships in 10 Months



Chanel Tests Net-a-porter Shop



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Keith's Macro Notebook 4/10: Asia | U.S. Dollar | Europe


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

Asia, USD, Europe

Client Talking Points


This ramp chart on the Hang Seng is something to see, up another +1.2% overnight (8th day in a row) and +15% in the last month to +16.1% year to date; KOSPI ripped another +1.4% to its highest level since AUG 2011 (Chinese Stocks up another +1.9% to +24.7% year to date for the Shanghai Comp).


US Dollar

 I was seeing NYC investors all day yesterday and there are a lot of people looking for the USD to decline (and Oil to rise) – not happening as the USD is +2.6% week over week to 99.29 on the USD Index and WTI is re-testing a breakdown through $50; Euros continue to burn, $1.06 last – staying with our #StrongDollarDeflation theme.


My oh my are these stock markets in Europe incredible to watch – DAX is +1% this am to fresh year to date highs of +25.4% and places like Denmark are +35.7% year to date. They love the smell of Burning Euros, and how could you blame them? European profit margins are going up on this FX move like US ones did when the USD was devalued.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Manitowoc (MTW) is splitting the business into two companies. Given the valuation differential between the sum-of-the-parts and the current enterprise value of the company, the break-up should be a substantial positive. Recent nonresidential and nonbuilding construction data remains firm for 2015, which suggests that MTW’s crane sales should see a pickup in the first half of the year. The Architecture Billings Index (a survey of architects) typically leads nonresidential and residential construction spending by approximately 9-12 months. More importantly, the ABI Index leads MTW Crane Orders by 2 quarters.


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. Builder Confidence retreated for a 3rd consecutive month in March and New Home Starts in February saw their biggest month-over-month decline since January 2007.  We think the underlying reality is more sanguine with the preponderance of the weakness in the reported February data largely attributable to weather.


                                                    While labor supply constraints may serve as a drag to builder confidence, presumably it is rising demand trends that are driving tighter conditions in the resi employment market.  All else equal, we’d view improving demand as a net positive.  On the New Construction side, while the sharp drop in Housing Starts captured most of the headlines, we believe the real story was in the 3% gain in permits. We'd expect to see a big rebound in the next two months in housing starts as the data plays catch-up to the thaw.


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. Most of the #Deflation trades bounced to something less-than-terrible (both absolute and relative) for 2015, whereas the real alpha trending in macro markets continues to play to the lower-rates-for-longer camp’s advantage.

Three for the Road


OIL: not delivering for the bulls as #StrongDollar Deflation continues to dominate -1.1% = $50.25



“The secret of getting ahead is getting started.”

                           -Mark Twain                       


The total year-to-date outflow from domestic equity funds increased by nearly two thirds to -$8.8 billion as of April 1st from -$5.4 billion as of March 25th.  This asset class is doing especially poorly this year.  From 2007 through 2014, excluding 2008, domestic equity funds lost -$68.6 billion per year on average. However, even with those outflows, average first-quarter domestic equity flows were neutral.  On the other hand, as we show in the chart below, this year's Q1 flow sits -$8.8 billion below the ex-2008 average of +$26 million.  Post-2006, the only years that had worse domestic equity outflows in the first quarter were 2008 at -$41.0 billion, 2009 at -$27.3 billion, and 2012 at -$19.2 billion.  By the end of those years, investors had pulled -$157.0, -$40.6, and -$167.9 billion, respectively, from domestic equity funds.  Given the asset class' year-to-date outflows in what is usually the best quarter of the year, things do not look so rosy for domestic active managers.

The Short Happy Life

This note was originally published at 8am on March 27, 2015 for Hedgeye subscribers.

“You know, I’d like to try another lion.”



That was a Hemingway metaphor for married-middle-aged-men conquering their fears in a short story called “The Short Happy Life of Francis Macomber.” It’s a story about a man and his adulterous wife on a safari hunt in Africa.


Right before she kills him, Macomber says: “I’m really not afraid of them now. After all, what can they do to you?


Well, evidently, she (and/or a lion) can do a lot to you! And it made me think about the confidence I am building in risk managing this macro tape. Buying US Dollars, Stocks, and Bonds on dips – Shorting Commodities on rips. Feels like a short happy life, for now…


The Short Happy Life - 56


Back to the Global Macro Grind


But, as any battle tested hunter of the Alpha knows, what we “feel” about markets doesn’t matter. In fact, fading our most immediate-term fears tends to be where we make the best short-term-happy buy/sell decisions.


Whether I’ll prove to be right on this or not for more than today is the ultimate Global Macro question right now (it’s been the same question for 6 months), but this morning it’s back to business with what I think is the best way to be positioned right now:


  1. Long US Dollars (UUP)
  2. Long long-term Treasuries (TLT)
  3. Long US Housing (ITB)
  4. Long US Consumption and Healthcare stocks (XLY and XLV)
  5. Short Commodities and their related stocks/bonds (OIL and XOP)


Ultimately this is the long and short of being positioned for our top Global Macro Theme in Q1 of 2015, Global #Deflation (yes, there are plenty of ways to be uber LONG of the bearish theme – because it’s only bearish for those who are long inflation expectations).


Not to be confused with Global #GrowthAccelerating, #Deflation is Mr. Macro Market’s message when:


  1. The World’s Reserve Currency (Cash) is in high demand vs. other countries who are burning theirs
  2. Both US and Global Interest Rates are falling


Anyone who has studied economic and market history knows that interest rates don’t fall unless the rate of change in GROWTH is slowing. When the rate of change in GROWTH was accelerating (USA in 2013), both the US currency and US rates rose, in tandem.


#StrongDollar and #RatesRising was the macro center-piece of the 1993-1999 real US economic consumption expansion (sub $20 Oil) too. Unfortunately, today is not the 1990s (perma growth bulls note this week’s capex cycle chart, which is slowing, faster, now).


What could change my mind on this?


That’s easy – reversing everything that’s been priced into macro markets for the last 6 months, for more than a 2-3 day trade.


What do I mean by that? For intermediate-term risk managers, here’s a list of 10 TREND levels to watch:


  1. UST 10yr Yield = 2.39% resistance
  2. US Dollar Index = 93.20 support
  3. EUR/USD = $1.16 resistance
  4. YEN (vs USD) = 117.09 resistance
  5. CRB Commodities Index = 235 resistance
  6. WTI Oil = $57.79 resistance
  7. Copper = $2.99 resistance
  8. Housing (ITB) = $25.01 support
  9. Healthcare (XLV) = $70.05 support
  10. Oil & Gas Stocks (XOP) = $54.39 resistance


In other words, my short happy life of the last 6 months is all one macro view. It’s by no means a permanent macro view. As most of you who have followed me for a long time know, I have no problem reversing the entire thing and doing the opposite.


But, as promiscuous as I can be with macro trends, is as wedded I am to my process.


And for now, you know, the #process is telling me to try another lion.


Our immediate-term Global Macro Risk Ranges are now as follows (with our intermediate-term TREND views in brackets):


UST 10yr Yield 1.83-2.02% (bearish)
SPX 2049-2080 (bullish)

RUT 1223-1250 (bullish)
DAX 11705-12140 (bullish)
EUR/USD 1.05-1.10 (bearish)
YEN 118.62-121.69 (bearish)
Oil (WTI) 41.93-51.96 (bearish)
Natural Gas 2.63-2.79 (bearish)
Gold 1140-1208 (bearish)
Copper 2.56-2.85 (bearish)


Best of luck to our Bulldogs in Blue this afternoon at the NCAA Hockey Tournament vs. Boston University,




Keith R. McCullough
Chief Executive Officer


The Short Happy Life - 03.27.15 chart

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