Retail Callouts (4/20): Idea Changes NKE, CRI, DKS, M, GES, ANF, GIL, SKX

Takeaway: Changing up idea list this week: NKE, CRI, DKS, M, GES, ANF, GIL, SKX


Retail Callouts (4/20): Idea Changes NKE, CRI, DKS, M, GES, ANF, GIL, SKX - 4 20 chart1B



NKE: Moved Nike back to Core Longs from our Bench. It's expensive and we're concerned about management changes, but the reality is that it could take years before anything management-related manifests in results. Until then, it's one of the few names in consumer that looks positive over every investment duration.

CRI: Off our short-bench. It's been sitting there for three quarters, which is way too long to wait for a catalyst. We have a negative bias toward the business model, but can't get an edge on timing.

DKS: Off of our short list. As we highlighted in our note last week, this is the first time in a while where DKS management set expectations at a level that are actually achievable.

M: We bumped this down from the core short list to the bench. This one is all about timing. We still think that the group (including M) will have a very ugly 2H. But for the next few months the catalysts are likely positive. And with M, unlike KSS or JCP, there's real estate value support.

GES: Off our short list. The stock is down 36% over the past year, and year-to-date short interest more than doubled to 24% of the float. Are numbers still too high? Probably. But with margins already down to 6% from 16% in three years and $5.60 per share in net cash on the books, this short has mostly played out.

ANF: We were about to take this off our long bench as we couldn't find a convincing angle aside from the management/board changes. But with 32% of the float short, this company could do something right -- even if by mistake -- and the stock will rally. Still need to vet this one.

SKX: A company that has done a lot right in recent years. But it was one of the worst looking names in our SIGMA screen this past week.



Retail Callouts (4/20): Idea Changes NKE, CRI, DKS, M, GES, ANF, GIL, SKX - 4 20 chart2





NKE - Nike signs Jameis Winston and Marcus Mariota



Takeaway: UA has the rights to 'The Combine' apparel (shirts, shorts, and socks) which explains why the top 2 rated quarterbacks for this years draft were rocking Under Armour jackets in an interview snap shot we pulled below. But, this will be the last time that either wears anything but Nike. As long as they behave themselves. And that's always been an issue for NKE, exhibit A… Johnny Manziel who just checked out of rehab. Mariota was a NKE lock given his Alma Mater (Oregon Ducks a.k.a the Nike Ducks), but we have to assume that Winston came at a little higher price tag. Jameis even wore Adidas footwear during the combine.

 Retail Callouts (4/20): Idea Changes NKE, CRI, DKS, M, GES, ANF, GIL, SKX - 4 20 chart3


FL - Foot Locker finds digital fit with new shoe app



Takeaway: No surprise that FL incorporated a lot of the same features that NKE introduced 2+ months ago with its SNKRS app into the company's first mobile app. We're referring primarily to the release calendar and store locator features. Foot Locker paired that with limited shopping functionality and sneaker emojis. The direct business totaled 12% of sales at FL last year -- the lion's share of which was Eastbay, with the other store banners within the portfolio under developed relative to other players in this space. Over the past 5 years FL was able to take productivity and returns up as the company rationalized its store base and took capital out of the model. This release is just another example of how the company needs to reinvest in order to drive future growth -- while at best maintaining Nike at 73% of purchases and 80%+ of sales.  FL remains one of our top shorts.


TGT - Target Website, Apps Overwhelmed by Demand for Lilly Pulitzer



Takeaway: These limited release collections are just that - limited. No doubt that Lilly Pulitzer was a big coup for TGT on day one exhibited by the internet outages, but TGT has had some big wins in the past with Missoni and Phillip Lim which sold out almost instantly. Missoni in fact caused the same type of outages back in 2011. It's a good way for the brand to make media waves, but doesn't mean much from a comp perspective unless TGT can some how get Lilly to leave a line in TGT year around. We doubt that happens.




KSS - Retirement of Senior Executive Vice President Ken Bonning



WMT - Wal-Mart to Cut Management Role to Simplify Store Operations



ICON - Seth Horowitz, Iconix Chief Operating Officer Resigns



KSS- Kohl’s Taps Thakoon for DesigNation Collection



Abercrombie & Fitch to Open 1st Vancouver Location



AAPL - Apple in talks to launch Apple Pay in Canada: WSJ



Rakuten Buys Stake in China’s Fanli



TGT - Target does creative fitness deal with Lifetime



Former Ralph Lauren Exec Launches Lingerie Collection



Chris Evert Launches Tennis Line With Tail



Mall Developer Alfred Taubman Dies


Monday Mashup

Monday Mashup - 1


Recent Notes

04/13/15 Monday Mashup

04/16/15 1Q15 Investment Ideas Earnings Preview

04/17/15 PNRA Flash Call Today @11am EST

Events This Week

Tuesday, April 21

  • EAT earning call 10am EST
  • CMG earnings call 4:30pm EST

Wednesday, April 22

  • YUM earnings call 9:15am EST
  • MCD earnings call 11:00am EST
  • CAKE earnings call 5:00pm EST

Thursday, April 23

  • DNKN earnings call 8:00am EST
  • DPZ earnings call 10:00am EST
  • BJRI earnings call 5:00pm EST


Recent News Flow

Monday, April 13

  • PNRA named Michael Bufano SVP and CFO.  Mr. Bufano has served as VP of Planning from July 2010 to August 2014.  Executive Vice Chairman William Moreton, who was serving as interim CFO, will continue his role as Executive Vice Chairman and assist the company in its financial strategy.
  • JMBA announced plans to further accelerate refranchising, with the goal of becoming a 90% plus franchise-to-company owed model by the end of FY15.
  • JACK The Jack in the Box Foundation announced the donation of $325,000 to Big Brothers Big Sisters.

Tuesday, April 14

  • DIN IHOP raised over $3.5 million during its National Pancake Day in March.  The proceeds will go to Children’s Miracle Network Hospitals and other local charities.
  • WEN introduced the new Jalapeno Fresco Spicy Chicken Sandwich and Ghost Pepper Fries as its latest LTO.
  • BJRI opened its newest restaurant in Albuquerque, New Mexico on Monday, April 13.  The 7,400 square ft. restaurant seats approximately 225 guests and features BJ’s extensive menu.

Wednesday, April 15

  • PNRA announced an increase in its share repurchase authorization to $750 million which will be funded through a combination of cash on hand, cash flow from operations, and $500 million of new debt.  Management also disclosed updated details on its plan to refranchise 50 to 150 stores.

Thursday, April 16

  • LOCO announced the launch of new menu items featuring fire-grilled Carne Asada.  The limited time only menu items include: Burrito, Tostada, Tacos, Quesadilla, and Wet Burrito.

Friday, April 17

  • PZZA is leveraging its online channels to highlight its “Better Ingredients” by providing consumers with details on their favorite ingredients (no trans-fats, MSG, fillers in meat toppings, BHA or BHT, or partially hydrogenated oils).
  • IRG completed the sale of Romano’s Macaroni Grill to Redrock Partners, LLC for $8 million.  The company also promoted Brad Leist to CFO, David Catalano to COO, and Robyn Martin to General Counsel.  In addition, Michael Dixon, President and CFO, and Jim Mazany, Preisdent of Joe’s Crab Shack, have left the company.


Sector Performance

The SPX (-1%) outperformed the XLY (-1.9%) last week. In aggregate, casual dining stocks underperformed the XLY, as quick service stocks outperformed.

Monday Mashup - 3

Monday Mashup - 4


Quantitative Setup

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

Monday Mashup - 5


Casual Dining Restaurants

Monday Mashup - 6

Monday Mashup - 7


Quick Service Restaurants

Monday Mashup - 8

Monday Mashup - 9

RTA Live: April 20, 2015

Hedgeye CEO Keith McCullough answers your questions about Real-Time Alerts.



Early Look

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Takeaway: Sequentially better but...


The past week’s data was sequentially better but the YoY growth remained very negative, -40% YoY.  We do expect easier comps the remainder of the month which could pull the full month GGR decline into the high 30s%.


From a stock perspective, our concern remains with the grind mass segment. Grind mass appears to be stabilizing but at a level lower than anticipated by the Street. Indeed, hotel room demand is waning and promotional activity may be ticking up to entice more spending. Lower grind mass equals lower margins and likely, another round of estimate cuts.  


Please see our detailed note:

Euro, DAX and UST 10YR

Client Talking Points


Expectations for a more dovish Fed at the April 29th meeting took the Euro +2% vs USD last week. The Euro tapped the top-end of its current 1.05-1.08 risk range, and now the EUR/USD backs off -0.5% to 1.07.


If you didn’t know European stocks love Down Euro, now you know. Down Euro this morning = +1.1% DAX (to +20.6% year-to-date), with EUR/USD range bound within a bearish TREND, European stocks (especially German and Dutch) remain bullish from an intermediate-term TREND perspective.


The UST 10YR Yield is at 1.87%, down 31 basis points year-to-date as lower-for-longer continues to get priced in. The German 10YR is at 0.07% and the Swiss 10YR is at  negative -0.21% this morning.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

MTW revised down its 2015 guidance for the Foodservice Equipment segment and preannounced a weaker than expected 1Q 2015. Sales in the quarter are a noteworthy miss, but we do not believe that the release has relevance for our sum-of-the-parts valuation thesis, and see many reasons to anticipate stronger operating results in 2H 2015.  Basically, we think investors stand to be paid for suffering through this volatility, with potential share price upside on separation ranging from the high 20s to low 40s. Near-term profit weakness is partly why the shares are ‘cheap’, and we think holders may be compensated well for the volatility. The shares are currently trading lower on a weaker than expected 1Q15, but 2Q15 should show improved Crane segment results and 2H should show better Foodservice Equipment results.


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. The housing data was mixed in the latest week with the April homebuilder confidence survey (NAHB HMI) putting in a strong sequential improvement, while March Housing Starts were a bit soft. The National Association of Home Builders (NAHB) released its April Housing Market Index survey (HMI) – essentially a survey of builder confidence. The print was strong as it showed a nice bounce across all three survey categories: traffic of prospective buyers, current conditions, and expectations 6 months out. Housing Starts were up sequentially in March, but by less than the market expected. Total Starts rose by 2% to 926,000 (seasonally-adjusted annualized rate) from 908,000 in February.


On the domestic fixed income front we’re looking at lower yields for longer. Lower yields benefit those slow-growth fixed income cash flows tied to the treasury curve (yields down, bonds up). TLT sets-up nicely in a slow-growth, deflationary setting because inflation missing=expectation for even easier policy=more central-planning cowbell=lower yields for longer.

Three for the Road


Our Q2 Macro Theme of #DemographicYields (lower-for-longer) firmly intact @HedgeyeDDale



Sometimes you don’t realize your own strength until you come face to face with your greatest weakness.

Susan Gale


2 million high school aged kids in the U.S. smoke electronic cigarettes, according to the CDC.

CHART OF THE DAY: Counter-Trend Macro Correlations

CHART OF THE DAY: Counter-Trend Macro Correlations - 04.20.15 chart


Editor's Note: This is a brief excerpt and chart from today's Morning Newsletter. Click here for more information on how you can subscribe.


If you look at the Correlation Risk (USD vs. everything Commodities) on a 1-month basis, it’s been significant, even though the USD hasn’t corrected much on a percentage basis. Here are the 1-month moves:


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.