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RETAIL EARNINGS OBSERVATIONS: 5/19

Takeaway: RETAIL EARNINGS OBSERVATIONS: 5/19 - WMT, TJX, DKS, URBN, KSS

OBSERVATIONS FROM EARNINGS OVER THE PAST 24 HOURS

1. #growthslowing -- is a theme that continues to steamroll through this earnings tape. We got a scent of it a few weeks back from those reporting March quarters, then a strong whiff last week from the department stores -- all of which slowed sequentially, and now the URBN debacle and WMT miss serves as the icing on the cake. 

2. WMT = Uninspiring. There was very little in this WMT print to get excited about. It wasn't bad...but rather extremely below average. If there was any positive it was that traffic was +1% (only the 3rd time in 2-years its' been positive). Gross margins were up 11bps -- bc WMT has to pay for its higher labor costs somehow (i.e. its vendors). But in the end WMT deleveraged flat revenue to an EPS decline of 6.9%.

3. URBN CEO Stock Sale. When the CEO of a company's namesake brand sells $2.2mm worth of stock two weeks before a quarter ends (tax planning or not), it usually makes sense to follow. Tad Marlow sold 50,000 shares of URBN four weeks ago at a price that's nearly 25% above where the rest of us can sell today. 

4. URBN, Time To Revisit? No. The juxtaposition of one of the best management teams in the business missing earnings significantly two times in three quarters after carefully setting out on a multi-year merchandising and distribution plan to rejuvinate the company is something that's tough to get over. It's now back to basics here for us. What's the REAL addressable market for each concept, how has the competitive landscape changed, and how much capital is needed to capture that growth? All in, there's no reason to think that those high-teens EBIT margins of old are 'owed' to URBN. This might be the new normal. At least, that's what we're going with until our research changes. 

5. Does TJX Ever Mess Up? The company beat on comp AND on merchandising margin despite the impact of foreign exchange. It's one of a small number of companies that beat expectations in the face of FX (Nike and Kate Spade also bucked the trend). The company kept guidance in tact for the year, but it sounds like a sandbag to us. 

6. DKS Buying Opportunity? Today's sell-off is interesting to us. We've almost never liked this story -- ever. But at the company's analyst meeting last month it talked down growth and margin expectations to a level that we thing is solidly beatable. Today management talked down the near-term recapture of margin lost last year when its golf and hunting business went into the tank. We don't buy it. If anything, there will be less margin because the company will reinvest in growth. We'll have more detailed comments out later. But this one wins the 'most interesting stock of the day' award for us.

KSS Trying To Sneak One Past The Goalie? There is a lot going on in retail land today, so maybe KSS thought this release would slip through, but we have to scratch our heads and wonder what a KSS off-price concept would look like. To have an 'off price' concept, you need steady access to high quality brands to consistently offer the perception of great deals to your consumer. KSS is capable of none of this. The retailer just simply doesn't have the brands or the content to support an off-price concept. Yes, it's a test, but if M Backstage is indicative of an ugly department store environment, KSS Off Aisle is a nail in the coffin.

KSS - New Concept 'Off Aisle' by KOHL'S in NJ

(http://www.trademarkia.com/off-aisle-by-kohls-86564609.html>

 

  

RETAIL EARNINGS OBSERVATIONS: 5/19 - 5 19 chart1

 

RETAIL EARNINGS OBSERVATIONS: 5/19 - 5 19 chart3

 

RETAIL EARNINGS OBSERVATIONS: 5/19 - 5 19 chart4

 

RETAIL EARNINGS OBSERVATIONS: 5/19 - 5 19 chart5

 

EVENTS TO WATCH

RETAIL EARNINGS OBSERVATIONS: 5/19 - 5 19 chart2

 

 

ICSC Chain Store Sales

This morning’s ICSC sales index (80 general merchandise retailers) sharply decelerated. People will look at the 1-year trend which was +2.3% vs +2.1% last week. But the 2-year put up the sharpest decline that we’ve seen since the first week of January. 

RETAIL EARNINGS OBSERVATIONS: 5/19 - 5 19 chart6


This Is the Currency War

Takeaway: In case you weren’t sure, this is the Currency War.

It was just a matter of time… another big league centrally planned market morning, worldwide #enjoy

This Is the Currency War - currency wars

 

The Eurocrats returned with a bang this morning. Forget the Italian (Mario Draghi) … They brought in the lefty French economist (Benoit Coeure) from L’Ecole Polytechnique and the Paris Club de creditors to devalue the Euro and “front-load QE” to this month and next.

 

In case you weren’t sure, this is the Currency War. And unless you have the timing of each incremental "easing" it's tough to risk manage. Meanwhile, the EUR/USD is right back down to the low-end of my $1.10-1.14 risk range on that. Correlation trades in motion (USD up, Commodities down)

 

Of course, omnipotent ECB central planners did not like the non-centrally-planned move in Euro Bond yields, hence the intervention this morning. The German 10yr yield is down to 0.61% on the news.

 

Not to be outdone by the Europeans, the Chinese were at it again overnight, “easing requirements for corporate bond issuance.” The Shanghai Composite Casino? It loved that, jumping over +3% to almost +37% YTD as growth there continues to slow and freak out the People's Bank of China (PBOC). 

 

As I wrote earlier today, “With both the European and Chinese economies now slowing, at the same time, there is only one play in their gravity-smoothing playbook for that: Must ease, faster.

 

More to be revealed.

*  *  *  *  *  *  *  

 

Editor's Note: This is an excerpt from Hedgeye morning research. Click here for more information on what we offer and how you can become a subscriber.


VIDEO | Darius Dale Walks Through The Hedgeye Macro Playbook

The Hedgeye Macro Playbook is a periodic, deep-dive update to our active Macro Themes and Thematic Investment Conclusions.

 

Watch Darius Dale walk through the latest updates below.

 

CLICK HERE to download the associated presentation in PDF format (25 slides).

 

CLICK HERE to download the latest refresh of our Tactical Asset Class Rotation Model (32 slides).

 

As always, feel free to ping us with any follow-up questions.

 

Enjoy the rest of your respective days,

 

DD

 

Darius Dale

Associate


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Keith's Macro Notebook 5/19: Euro | 10YR | China

 

Hedgeye Macro Analyst Darius Dale shares the top three things in CEO Keith McCullough's macro notebook this morning.


Big League Central Planning

Client Talking Points

EURO

Forget the Italian, they brought in the French economist (Coeure) to devalue the Euro and “front-load QE” to this month and next. The EUR/USD is right back down to the low-end of our $1.10-1.14 risk range on that; correlation trades in motion (USD up, Commodities down).

10YR YIELDS

The ECB didn’t like the non-centrally-planned move in Euro Bond yields – hence the intervention this morning. The German 10YR is down to 0.64% and the UK 10YR Gilt is down 6 basis points after printing its 1st #deflation in CPI since 1960. The UST 10Y is down -5 basis points on the global move. 

CHINA

Not to be outdone by the Europeans, the Chinese were at it again overnight “easing requirements for corporate bond issuance.” The Shanghai Composite Casino loved that, up +3.1% to +36.7% year-to-date as growth there continues to slow and freak out the PBOC.

Asset Allocation

CASH 53% US EQUITIES 4%
INTL EQUITIES 8% COMMODITIES 7%
FIXED INCOME 26% INTL CURRENCIES 2%

Top Long Ideas

Company Ticker Sector Duration
VNQ

One way to invest in Lower-For-Longer, from an equity perspective, is being long U.S. REITS (VNQ). The reality is that we are in a #LateCycle slowdown and the jockeying around each incremental data point will continue to get more and more intense as the Fed’s only ammo for suspending the cycle that has unfolded many times over is to push out the dots on a rate hike. #LowerForLonger.

ITB

The ITB turned in modest positive absolute and relative performance in the latest week as the advance in interest rates ebbed and the high frequency mortgage purchase application data continued to reflect improving housing demand trends. This is a data heavy week for housing. NAHB Builder Confidence dropped for the 4th time in 5 months, dipping -2pts sequentially in May to an Index reading of 54. Confidence currently sits +9 pts higher than May of last year and is basically right on the average reading of 55 observed over the last three expansionary periods.  At  the current reading of 54, the index remains well above the Better-Worse Mendoza line of 50, signaling builders continue to view conditions favorably.

TLT

The counter-TREND moves in the USD and commodities have been extensive and now confirmed: 1) U.S. Dollar: Down another 1.20% week-over-week to complete its BULLISH to BEARISH TREND Reversal. The dollar is now BULLISH on a TAIL duration (three years or less) and BEARISH on a TREND duration (3-Months or more) 2) CRB Index: +2.0% week-over-week and +5.5% 1-Month Change. The CRB is now BULLISH on a TREND duration and BEARISH on a TAIL duration.

Three for the Road

TWEET OF THE DAY

THIS MORNING

9:00am ET

Hedgeye CEO @KeithMcCullough joins @MariaBartiromo @FoxBusiness @OpeningBellFBN

@Hedgeye

QUOTE OF THE DAY

An obstacle is often a stepping stone.

-William Prescott

STAT OF THE DAY

Consumer prices in the UK fell 0.1% year-over-year, marking a return to deflation for the first time in at least 55 years. 


CHART OF THE DAY: It's Back to Burning Euros And Buying Bonds!

Editor's Note: The chart and blurb below are from today's Morning Newsletter written by Hedgeye CEO Keith McCullough. Click here for more information and to subscribe. 

 

CHART OF THE DAY: It's Back to Burning Euros And Buying Bonds! - z 05.19.15 chart

 

"...Instead of Draghi coming back from the beaches with a bazooka, he sent in the Frenchman. Who’s the French guy? As in The Lefty Economist, Benoit Coeure. This guy hails from L’Ecole Polytechnique and the Paris Club de creditors. He’s big time.

 

And a big time headline he provided, indeed!

 

“Ze ECB is going to front-load ze QE” -Coeure

 

That’s code for we’re going to get back to Burning Euros and buying bonds..."


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