Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.
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
European Financial CDS - Swaps widened almost universally among European banks last week as a lack of progress in Greek bailout negotiations racked investors' nerves.
Sovereign CDS – Sovereign Swaps mostly widened over last week. Italian, Spanish, and Portuguese swaps led the way, widening by 25 bps to 133, 19 bps to 105, and 30 bps to 162, respectively.
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 12 bps.
Takeaway: Changing up idea list this week: NKE, CRI, DKS, M, GES, ANF, GIL, SKX
RETAIL IDEA LIST
CHANGES THIS WEEK:
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.
EVENTS TO WATCH
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.
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
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04/13/15 Monday Mashup
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.
The SPX (-1%) outperformed the XLY (-1.9%) last week. In aggregate, casual dining stocks underperformed the XLY, as quick service stocks outperformed.
From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.
Casual Dining Restaurants
Quick Service Restaurants
Hedgeye CEO Keith McCullough answers your questions about Real-Time Alerts.
Takeaway: Sequentially better but...
CALL TO ACTION
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:
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