HIBB: Adding Hibbett Sports to Investing Ideas (BEAR SIDE)

Takeaway: We are adding Hibbett Sports (HIBB) to Investing Ideas as a short..

Editor's Note: We received considerable positive feedback from our subscribers this past weekend after we decided to highlight one of our favorite names on the short side right now ... Royal Caribbean. In light of the fact that we have grown increasingly bearish on U.S. equities, and do not see many attractive long opportunities currently, we give you Hibbett Sports.


Below is a brief note from Hedgeye CEO Keith McCullough explaining why we are adding HIBB to Investing Ideas as a short. Retail Sector Head Brian McGough will provide a fuller explanation in this weekend's update.

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HIBB: Adding Hibbett Sports to Investing Ideas (BEAR SIDE) - 36


Getting bearish (on US Equities) is a process... and I think we waded into what will now be a net short position (more shorts in US Equities than longs) at a measured pace.


We're short a few index/sector exposures (IWM and XLF) and now adding single stocks, as we received overbought signals.


The Bear case for Hibbett from Brian McGough has not changed.

Sell/Short Green (from Chicago),


REMINDER: KSS – New Black Book. Putting Our Credit Thesis To The Test

Takeaway: Our new Black Book/consumer survey will test our thesis that 25% of KSS’ EBIT is at risk of going away – contrary to management’s guidance.

Please join us tomorrow, Tuesday May 12 at 1pm for a call in conjunction with our latest Black Book on Kohl’s, which is a Best Idea Short. Note that the call will be two days before KSS 1Q results. Despite the obvious strength in the stock and the business year to date, we think that earnings growth will decelerate sharply as the year progresses, and that earnings power will prove to have peaked at $4.26 last year. We think consensus estimates are high by 15% this year (after we pass 1Q), and by 30-40% over the following two years. Ultimately we think that KSS will shift from trading at a peak multiple on peak earnings, to more of a mid-cycle multiple on something closer to $3.50. That suggests a stock in the low $40s, or about 45% downside from here.


The key issue as we see it links back to the company’s credit card and rewards program. Specifically, we think that the rationale behind the recent change in KSS Rewards is evidence that KSS is in the 10th inning as it relates to finding new customers. About 85% of profits are linked to the credit card, and we think that 25% of EBIT is at risk due to the recent changes implemented by KSS management.


In order to put our thesis to the test, we are in the process of completing a very detailed consumer survey of 1,000 KSS shoppers who either hold a Kohl’s credit card or the new Yes2You rewards program. The results should give us an accurate picture as to who is shopping, how much they are spending, and how much of a customer’s incremental purchases are flowing through KSS Card or some other Third Party Card (Visa, MC, etc).


Participant Dialing Instructions (We’ll Also Have A Live Streaming Presentation in Conjunction with the Call)

US Toll Free:

US Toll:

Confirmation Number: 39610531

Materials Link: CLICK HERE


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Burger Bubble: Shake Shack Is One of the Most Overvalued Stocks Out There | $SHAK

"The Shake Shack (SHAK) charade is over,” outspoken Hedgeye Restaurants Sector Head Howard Penney wrote last week.  “And I mean over and done. It’s just a matter of time.”

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Burger Bubble: Shake Shack Is One of the Most Overvalued Stocks Out There | $SHAK - zen


Penney (who has a long and successful track record shorting restaurant stocks and pointing out Market Emperors Wearing No Clothes) took to Twitter recently to reiterate his bear case on SHAK's ballooning stock price.


One point in particular that stands out: Trading at $64 million per store Shake Shack is 5.9x time more expensive than Chipotle's (CMG) ever was!

Highlights below.


Burger Bubble: Shake Shack Is One of the Most Overvalued Stocks Out There | $SHAK - zen 99


Burger Bubble: Shake Shack Is One of the Most Overvalued Stocks Out There | $SHAK - zen 1


Burger Bubble: Shake Shack Is One of the Most Overvalued Stocks Out There | $SHAK - zen 2


Burger Bubble: Shake Shack Is One of the Most Overvalued Stocks Out There | $SHAK - zen 3

BOTTOM LINE? "It can’t defy gravity for much longer," Penney says.


If you're an institutional investor and would like more information on Penney's research ping

Keith's Macro Notebook 5/11: China | Greece | UK

Hedgeye Director of Research Daryl Jones shares the top three things in CEO Keith McCullough's macro notebook this morning.

China, Greece and The UK

Client Talking Points


The PBOC lowered one-year lending rates by 0.25% to 5.10% and decreased deposit rates by 0.25%, lowering the benchmark one-year rate to 2.25%. The chief economist said the latest rate cuts "aren't QE." Chinese equities and Asian equities broadly acted positively on the news. The Shanghai Composite Casino was up about +3% to +34% year-to-date.


European Finance Ministers meeting today to discuss the next steps with Greece. The big catalyst for Greece is obviously a payment to the IMF that is due Tuesday. Greece has come out and said that they will make that payment where as a few EU Ministers have suggested that they might not make it. Greek equities are down about 3% and the Greek Banks are reacting accordingly. 


The Bank of England kept the base rate unchanged at 0.5%, the bank rate has been at a record low of 0.5% since March 2009. They also effectively said QE will remain unchanged as well (at £375 billion/$578 billion).

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

One way to invest in Lower-For-Longer, from an equity perspective, is being long U.S. REITS (VNQ). The highly anticipated Non-Farm Payrolls report came and went Friday, and it was largely a non-event. The change in non-farm payrolls was +223K vs. consensus estimates of +228K for April. Considering last month’s report was a bomb (revised to 85K from 126K), April had an easy comp. Our thesis on interest rates remains lower-for-longer, but that view is being tested in the short-term.


iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. It was a relatively light data week for housing with weekly mortgage application data and the March employment report offering incremental updates on the current state of housing demand.  On the market side, interest rate volatility remained a concern for the public homebuilders but one we believe remains shorter-term in nature absent another expedited, step function increase in interest rates. We think the rate related pressure will be largely transient unless we see a further back-up in mortgage rates on the order of +50-100bps from here – a potentiality we would not view as probable at this point. On the fundamental side, the drumbeat of improvement remains ongoing.


The U.S. dollar has gone on a big reversal since the Fed’s March 18th meeting. Since the meeting, the dollar has moved lower and rates higher. This short-term move in rates has caused confusion with respect to our lower for longer call. Put simply, we have been wrong on the direction of our four macro tickers in the newsletter. A continuation of this trend will force us to re-evaluate the longer term call.

Three for the Road



Breaking $BAD?

Why These Stock-Pitch Contest Winners Say Buy Badger Daylighting via @KeithMcCullough



Always borrow money from a pessimist. He won’t expect it back.

-Oscar Wilde


California grows half of the fruits and veggies produced in the U.S., including more than 90% of the country's grapes, broccoli, almonds, and walnuts.


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