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Penney on Bloomberg: Shake Shack Shares Set to Fall 60-70%

Penney on Bloomberg: Shake Shack Shares Set to Fall 60-70% - penney bloomberg

Hedgeye Risk Management Restaurants Analyst Howard Penney discusses the performance and valuation of Shake Shack on "Bloomberg Markets" and explains why he thinks shares are 'egregiously overpriced.'


Initial Claims | Aggregate Claims Improve While Energy Layoffs Rise

Takeaway: The overall labor market remains supportive while job losses in the energy sector continue to grow.

Below is the breakdown of this morning's initial claims data from Joshua Steiner and the Hedgeye Financials team. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 



Claims improved once again last week, falling to a seasonally adjusted 264k, continuing an impressive push below the frictional floor of 300k.


In the first chart below, we show that the spread between our indexed basket of energy state claims and the U.S. as a whole has tightened for the last few weeks, moving from 31.8 on April 11 to 24.8 on May 2.


However, the second chart below shows that the labor market in the energy sector worsened again in April. Job cut announcements in the energy sector had been running at 16-20k/month in January and February, but then appeared to show some glimmer of improvement when they fell to 1k in March. That didn't last long, as the latest data shows 20k more energy workers let go in April. 


Initial Claims | Aggregate Claims Improve While Energy Layoffs Rise - Claims18 normal  1


Initial Claims | Aggregate Claims Improve While Energy Layoffs Rise - Challenger


The Data

Initial jobless claims fell 1k to 264k from 265k WoW, as the prior week's number was unrevised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell by -8k WoW to 272k.


The 4-week rolling average of NSA claims, another way of evaluating the data, was -14.2% lower YoY, which is a sequential improvement versus the previous week's YoY change of -12.2%


Initial Claims | Aggregate Claims Improve While Energy Layoffs Rise - 5.14.15Claims2


Initial Claims | Aggregate Claims Improve While Energy Layoffs Rise - 5.14.15Claims3


Initial Claims | Aggregate Claims Improve While Energy Layoffs Rise - 5.14.15Claims4


Initial Claims | Aggregate Claims Improve While Energy Layoffs Rise - 5.14.15Claims5


Initial Claims | Aggregate Claims Improve While Energy Layoffs Rise - 5.14.15Claims6


Joshua Steiner, CFA


Jonathan Casteleyn, CFA, CMT



May 14, 2015

May 14, 2015 - slide 1 fix

RTA Live: May 14, 2015

Here is the replay of today's edition of RTA Live.



KSS Quick Take - Not the Beat a $75 Stock Expected

Takeaway: Not the beat a $75 stock expected.

The headline beat does not mean much here, particularly given that the print is below where estimates were before it guided down in February. The key here is that the prevailing view over the past quarter has been that the KSS story is bullet proof. The company had just printed a 3.7% comp in 4Q, and people could not tell how much was easy comps, gas, or a structural change in the company’s model (new brands, beauty, rewards program). Management had an extremely active NDR schedule both on the road and at KSS HQ – where it seemed to perpetuate that the company was on the right path. Then the latest data from some of the more widely used services as well as commentary from its top competitor (JCP) all pointed toward comps of 4%+.


But here’s what we got…

  1. Only a 1.4% comp – far below the 4%+ expectation, and a sharp deceleration from the 3.7% comp that KSS reported previously that the Street seemed to think was straight-lineable throughout 2015.
  2. It was also well below JCP, which came in at 3.4%. We still think (based on our surveys) that KSS took $1bn in sales from JCP when it was down and out, and JCP will either earn it back, or buy it back. Either way, it’s bad for KSS.
  3. The upside was entirely due to lower SG&A spending, which grew at 1.6% versus guidance of 4-5%.  Let’s face it, if there’s any line item a company like KSS should be extremely accurate, it’s SG&A. It’s clear that they guided up on this line simply to take EPS numbers down for 1Q.  We think it will be tougher – if not impossible – to leverage this line once we see the changes in the credit program hit critical mass later this year (as outlined in our Black Book presentation on Tuesday replay link: CLICK HERE, materials link: CLICK HERE).
  4. Gross margins were up 18bps, which is nice. But at the same time we saw 5% growth in inventories, implying a 9-point negative swing in the sales/inventory spread – something we never want to see.


We still think that EPS will steadily march below $3.00 – at a time when consensus numbers are going over $6.00. There’ll be ebbs and flows by quarter, but overall we think this one will serve as an appropriate reminder when people are tempted to get bulled up on KSS’ multiple anytime in the future.


Weak U.S. Economic Data

Client Talking Points


The Euro is up +0.6% to $1.14 - two points here: A) the immediate-term risk range is now tightening and B) weak U.S. economic data is Dollar bearish, Euro bullish – is there a case for Euro 1.18-1.19 into the next Fed meeting? Yes – we’re starting to think that’s probable.


Oil would absolutely love EUR/USD $1.19 – we can get you to $71 WTI on that, so it’s a risk management scenario to consider ahead of a bearish U.S. GDP report on May 29th and the potential for another slowing U.S. jobs report on June 5th (FOMC = June 17th). 


The best sector to be short on the fundamental news yesterday was Consumer Discretionary and earlier this week we signaled SELL on U.S. Retail (XRT) too – Euro up (Dollar Down) + Oil up + tough U.S. consumption comps + labor cycle rollover.

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


The Macro Show, Live @ 8:30AM ET https://app.hedgeye.com/insights/44089-the-macro-show-live-with-keith-mccullough-today-8-30am-et… via @hedgeye



The trouble with not having a goal is that you can spend your life running up and down the field and never score.

Bill Copeland


Americans paid over $44 billion more in taxes during this year's filing than they did in 2014, according to the Congressional Budget Office. Meanwhile, income-tax refunds stayed relatively flat, at $202 billion.  

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%