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The Macro Show Replay | May 21, 2015

 


We Invite You To Watch The Macro Show

CLICK HERE to watch The Macro Show on Hedgeye at 8:30am ET. We hope you’ll join us every day. 

 

We Invite You To Watch The Macro Show - Macro Show cartoon

 

Since Hedgeye's inception, CEO Keith McCullough has hosted a morning global macro conference call before market open. In our ongoing efforts to be pioneers in financial media, we are now offering this call as a live-streaming video program that we call The Macro Show. 

 

We encourage all of our subscribers to log in to Hedgeye.com each morning and tune in at 8:30am ET, ready to ask Keith and the team their questions. In addition to clearer, higher-quality sound than you would have had over the phone, you’ll get to see the team and any slides they reference. The same dynamism, thoughtful analysis and wit you have come to expect from Hedgeye is not changing. The format in which we deliver it is – for the better. 


Cartoon of the Day: Twisted

Cartoon of the Day: Twisted - Oil cartoon 05.20.2015

Dollar down, oil up ... Dollar up, oil down ... Rinse, twist and repeat.


Early Look

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GLD: Adding Gold to Investing Ideas

Takeaway: We are adding Gold to Investing Ideas today.

Please note that we are adding Gold (GLD) to Investing Ideas today. Below is a brief note from CEO Keith McCullough. We'll have an additional update in this weekend's edition.

 

GLD: Adding Gold to Investing Ideas - z g

 

I've been waiting, patiently, on this one - and here it is - a buy signal on Gold. 

 

To review what will really make Gold rip:

 

1. Down Dollar 

2. Down Rates

 

With the 10yr UST (and German 10yr) making lower-long-term highs here, the catalyst for Gold to go up is clear. 

 

We'll see if I was patient enough.

KM


NCLH: NORWEGIAN DAWN INCIDENT CALL NOTES

CONF CALL

  • Earlier this morning, DNV inspectors made the inspections. Minor scratches on the ship. 
  • Dawn expected to arrive in Boston on Friday morning, as scheduled
  • Passengers on ship will receive a 15% credit on future cruise
  • No cancellations for next week's Dawn cruise

KEY RETAIL EARNINGS CALLOUTS (5/20)

Takeaway: KEY RETAIL EARNINGS CALLOUTS (5/20) - TGT, AEO, HD, LOW, SPLS

 

1. Target: Good Algorithm -- Notable Comments on Credit

a)  Put up one of the better growth algorithms in the quarter, with comps of +2.3%, revenue +2.8%, gross profit +6.1%. EBIT +7.6%, and EPS +13.0%. That compares to 3.9% revenue and 2.4% EPS growth for the 13 major retailers that reported over the past week and a half.  

b)  E-comm grew at 37%, just off the 40% long term growth target management laid out at its analyst day. Store comps get much tougher as the year progresses with a 2.9% book end, and if e-comm can’t grow at a 40%+ rate now off a very small base, then when will we see it?

c)  Though the earnings growth algorithm looked good as noted above, it fell apart on the cash flow line -- something that matters from where we sit --  with cash from ops down -12% as the sales to inventory was up 9% heading out of the quarter. Retailers can blame the port strike until the cows come home, but the fact is that balance sheets look a lot messier headed out of 1Q and that’s a negative margin event. TGT maybe able to cushion the blow given the price action taken in 2Q of last year to fight off the data breach, but its definitely a negative flag.

d)  Guidance  leaves a lot to be desired after a $0.07 beat. The $0.05 lift to the low end of guidance implies a guide down for the rest of the year as comps get tougher. The weak price action today relative to the headline beat supports this.

e)  We thought that the biggest takeaway was that credit income was up $3mm in the quarter as sales penetration from the RedCard were up 110bps to 21.5% of total. Profitably of the RedCard fell by 30bp to 4.1%. Management commented that credit risk was at all time lows and there was an increase in payment rates by consumers on their balances.    This is in-line with what we noted last week in our analysis of KSS credit portfolio, in that charge-off rates for the 100 largest banks in the US are currently sitting at 30-year lows.  The companies with the greatest credit exposure (M, KSS, DDS, TGT, JWN) might be getting credit for this now when things are good -- but will likely see a disproportionate hit on the downside if credit mean-reverts.


KEY RETAIL EARNINGS CALLOUTS (5/20) - 5 20 chart1


2. AEO - Amazing what positive comps can do for a company. AEO still has a lot of wood to chop before it can come even remotely close to claiming victory. But it bucked the trend we've seen out of other retailers and put up an accelerating comp trend  on a 2yr basis. Importantly, inventories look very clean coming out of the quarter. We need to see a lot more than this to get interested here.

 

3. LOW Beats Out HD By Our Math

a)  Expectations were high headed into the quarter after HD threw up a 6.1% comp yesterday, and LOW has been trading at a premium to HD on a NTM P/E basis over the past 6+ months.

b)  While the headline print out of LOW was below expectations, we'd note that it put up a near identical earnings growth algorithm as HD this quarter . Both landed at 21% EPS growth, but LOW had a slightly lower comp of 5.2% (HD was 6.1%) as the company opted to be less promotional than HD. As such, LOW put up 18% EBIT growth vs HD at 14%, a notable difference.  HD made up for the lower EBIT growth with financial engineering -- something we won't pay much for.

c)  The lower promotional cadence out of LOW reaccelerated the comp gap between the two. As you can see in the chart below, the comp spread between the two retailers has reaccelerated in the past two quarters after flattening out in 3Q14. LOW has not outcomped HD in 24 quarters -- basically the entire economic cycle. We'd be surprised if that does not change over the next year.

  

KEY RETAIL EARNINGS CALLOUTS (5/20) - 5 20 chart3

 

HD & LOW Multiples

KEY RETAIL EARNINGS CALLOUTS (5/20) - 5 20 chart2

 

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KEY RETAIL EARNINGS CALLOUTS (5/20) - 5 20 chart7

 

KEY RETAIL EARNINGS CALLOUTS (5/20) - 5 20 chart8

 

 

EVENTS TO WATCH

KEY RETAIL EARNINGS CALLOUTS (5/20) - 5 20 chart9

 

 


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.

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