Retail Callouts (6/3): M, KSS, ASNA, ANN, GES, GIII, VRA

Takeaway: Dept Store Real Estate: M some optionality, KSS = not a real estate play. Now you know why ASNA is acquiring ANN.

M, KSS - Macy's Real Estate at Play?



Takeaway: For starters, M's real estate portfolio is far better than every other mid-tier operator in this space with an existing presence in ~80% of the 'A' malls in the US. Add to that the High Street locations (Herarld's Square, etc.) and its clear that the company has a pretty attractive owned real estate portfolio. Will the company monetize that? Hoguet did nothing on the last call to dispel the possibility of a real estate play.

Retail Callouts (6/3): M, KSS, ASNA, ANN, GES, GIII, VRA - 6 3 chart1

But, that seems like a near term solution being floated by investors who don't see a whole lot to get excited about in the base business. M paid ~$300mm in rent (1% of revenue) last year  -- assuming that the company pays $3/sq. ft. for it's leased DC space that implies $5.50/ft. for its leased/ground leased properties that are not capitalized. Assuming an identical rate for the 90.5mm sq. ft. of owned real estate (which is probably too low given  that lease terms will be marked to market for any sale leaseback transaction) we would see a minimum of 170 bps of added margin pressure from rent alone.


As for the crown jewel in the portfolio -- it is not the Saks 5th Avenue location which was valued at $3.7bil just a few months ago. Herald Square is about 3x the size of that building but its designation as a National Historic Landmark makes it far less attractive for anybody looking at a potential redevelopment. Just yesterday the 78k sq. ft. Old Navy door across the street which has a footing that could support a 300,000 sq. ft. mixed use property was acquired by Vornado for $355mm, a 41% premium to the price struck 12mnths ago. If we discount the transaction value for the Historic Landmark status we get to a valuation of about $1.3bil ($600/sq. ft. x 2.17mm sq. ft.). Add that to the existing 88mm of owned sq. ft. at near 'A' mall cap rates and rent/sq. ft. of around $7 and we get to an aggregate valuation in the $9.5-$12bil range.

Retail Callouts (6/3): M, KSS, ASNA, ANN, GES, GIII, VRA - 6 3 chart2 

Lastly, we think it's important to draw a distinction between M and KSS. Unlike M, KSS has limited mall exposure (virtually 0 'A' Mall exposure) and operates mostly in strip centers -- there are over 7,000 in this country. It's hard to argue an attractive valuation especially when you consider the holes being opened up by the consolidation of the office supply stores, Best Buy, etc. Where M has beach front property, especially in its 'A' mall locations, KSS would be the equivalent of a 2hr drive inland.



SIGMAs for Retailers Reporting in the Past 24 Hrs


ASNA, ANN - If you didn't know why ASNA is buying ANN, now you know. It's results were not good. But that won't matter now that it's crown jewel is Ann Taylor instead of Lane Bryant, Dress Barn, or Justice.  Seriously...what is this company becoming?

Retail Callouts (6/3): M, KSS, ASNA, ANN, GES, GIII, VRA - 6 3 chart3


GES - 1Q16

Retail Callouts (6/3): M, KSS, ASNA, ANN, GES, GIII, VRA - 6 3 chart4


GIII - 1Q16

Retail Callouts (6/3): M, KSS, ASNA, ANN, GES, GIII, VRA - 6 3 chart5


VRA - 1Q16

Retail Callouts (6/3): M, KSS, ASNA, ANN, GES, GIII, VRA - 6 3 chart6




Toys 'R' Us Hires New CEO With A Rich IPO Resume In David Brandon



VRA - Vera Bradley Names Theresa Palermo EVP, Chief Marketing Officer



True Religion promotes interim VP to CEO



Jo-Ann Fabric among first retailers to partner with Pinterest’s new Buyable Pins



USTR: TPP to Lower Tariffs on U.S. Exports



TGT - Target Takes Tartan to the Limit






Takeaway: Lucky LVS but market trends still negative


LVS held at a higher VIP hold percentage in May than even April, itself a lucky month for the Sands properties.  For the first time in a long time, we’ll have to adjust our quarterly LVS estimate higher, although a volume related increase would’ve been preferred by the LVS bulls I’m sure.  Wynn and Galaxy, on the other hand, weren’t so lucky.


The average hold for the market was normal. Less than a week of Galaxy’s Phase 2 were in May’s numbers so June will be an important month in determining whether the market has grown or not as result of new supply. We suspect Phase 2 provided a little bit of a boost to the market.


While VIP volumes remain weak YoY, they seem to have stabilized sequentially to some extent. The same can be said about the overall mass revenues and the trade in Macau stocks looks higher over the very near term.  However, we continue to believe the high margin base mass segment is in worse shape than the Street expects and will pressure margins for the operators in 2015 and 2016.  Upcoming gains in Macau stock prices may be short lived as we anticipate another round of 2015 and 2016 estimate cuts.


Please see our detailed note:


We will be hosting a call on Friday morning at 1pm to discuss our Macau outlook and analysis and to provide an in-depth look into EBITDA sensitivity by operator amid room and table supply increases. Please contact your Hedgeye salesperson for more details.

REPLAY - Brian Featured on The Macro Show

Takeaway: In case you missed it. See Brian give a 15 minute overview of the Retail Sector on Hedgeye's The Macro Show.


Retail Sector Head Brian McGough was featured on The Macro Show, Hedgeye's morning Macro call, today at 8:30AM. Brian runs through a big picture overview of the retail space, touching on wage inflation, earnings trends, and the Hedgeye Retail Idea List.


Click the image below for link to The Macro Show 


REPLAY - Brian Featured on The Macro Show - McGough Macro Show

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WSJ Chief Economics correspondent Jon Hilsenrath and Hedgeye Risk Management CEO Keith McCullough discuss China’s impact on global growth and how it impacts the Fed with Maria Bartiromo on Fox Business' Mornings with Maria.

CBRL: Rolls-up a Nice Quarter


CBRL delivered a top and bottom line beat in 3Q15, reporting $683.7 million in revenue vs consensus $679.8 million, and net income of $35.3 million vs consensus $32.9 million. Comparable SSS of 5.2% also slightly exceeded expectations. Management effectively controlled costs while improving operating margins by 49 basis points (bps) versus 3Q14, and expanding restaurant level margins by 121 bps for the same period. The company has done a nice job spending their money wisely to grow sales and traffic.  The concept has also benefited from lower gas prices.


We will be watching closely in the coming quarters to see if this positive momentum continues or begins to slow.  We remain cautious that CBRL can continue the momentum.


CBRL: Rolls-up a Nice Quarter - chart 1 replacement


Composition of the comp. This was an impressive quarter overall, the fourteenth consecutive quarter of outperformance of the Knapp-Track casual dining index. Although a bulk of the growth in same-store sales came from a +3.4% increase in average check, traffic growth was still greater than average in the industry, which is a positive sign.


Same-Store Sales Trends are on their way up. For the last three quarters CBRL has its 2-year same-store sales trends accelerating.  This past quarter, the 2-years trends slowed slightly, although the overall number remains healthy.


CBRL: Rolls-up a Nice Quarter - Chart 2


CBRL: Rolls-up a Nice Quarter - Chart 3


With great performance, comes great expectations.  Going into Q4 and then into FY16 they have tough comps to beat, and although the street isn’t expected knock out quarters like the Q2/Q3 of this year they still want to see low-to-mid single digit same-store sales growth. Although CBRL is not in our starting lineup right now, we will continue to monitor it on the bench and modify our thinking if necessary. 



CBRL is currently trading at the higher-end of its historical EV/ NTM EBITDA valuation range.  I believe over time this number will normalize back to a lower more reasonable range.  


CBRL: Rolls-up a Nice Quarter - chart 4

Dollar Down, Rates Up?

Client Talking Points


Dollar Down, Rates Up? That is, unless we accept that the only real up moves in U.S. Yields have been prefaced by meltups/scares in European Yields – that happened again, big time, yesterday, with German 10YR going from 0.49% to 0.71%, in a day! The U.S. 10YR has taken those long-term lower-highs and fallen in the face of slowing U.S. economic data – so get ready for that jobs report Friday.


We’ll see if a whopping 0.3% year-over-year Eurozone “inflation” gets ECB President Mario Draghi to let Bond Yields spike and the Euro to go to $1.15 vs USD this morning, but the signal says I doubt it. The immediate term risk range for the EUR/USD is now 1.08-1.12 and we expect that to hold, for now. 


Oil loves the Down Dollar part of the equation, so at least we got upping our asset allocation to Commodities right; Oil tapped the top end of our $58.68-61.90 risk range on a big Down Dollar day yesterday, then backed off as the EUR/USD failed at $1.12.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We see stability in regional gaming revenues over the next several months providing some much needed earnings visibility. PENN maintains the best new unit growth story in domestic gaming with the opening of the Plainridge casino in Massachusetts in June and the Jamul casino in Q2 2016. Both properties should well exceed current Street estimates for win per slot and EBITDA. PENN has a proven track record as the best regional casino operator and recently proved its prowess at successfully opening racinos (casinos at racetracks) with estimate beating Dayton and Mahoning commencing slot operations last year.


Housing went 3 for 3 as the Trinity of Fundamental Data Points released in the latest week continued to reflect accelerating rates of improvement across both the New and Existing markets. New Home Sales in April rose +6.8% month-over-month to +517K.  More notably, sales were up a remarkable 26% on a year-over-year basis as NHS re-converged back to the trend in New Home construction. Pending Home Sales rose +3.4% sequentially in April, accelerating to +14% year-over-year with the Index making a new 101-month high.  Pending Home Sales represent signed contract activity and are a historically strong lead indicator of Existing Home Sales.  The MBA’s weekly Mortgage Purchase Application Index re-captured the 200-level, rising +1.2% week-over-week and accelerating +250bps sequentially to +13.1% year-over-year.  


We believe the U.S. economy is past peak in rate-of-change terms and sliding down the slope to an eventual cliff (i.e. recession). That’s our call and we’re sticking to it. Friday’s negative revision takes our full-year estimate for real GDP growth down to +2% (from +2.3% prior). Both the Fed and Street are up at +2.5%, both of which continue to careen down from perpetual expectations of rainbows-and-puppy dogs (i.e. 3-plus percent growth) earlier this year. We reiterate our call to be long of long-duration in its many forms:  TLT, VNQ, EDV, and GLD (gold has historically performed well in down-dollar and down-interest rate environments and we think the June 17th FOMC statement has a high probability of being dovish and dollar-bearish).

Three for the Road


KOSPI down again, -0.7% (down -3% in the last month); India down another -1.2% #GrowthSlowing globally



When hungry, eat your rice; when tired, close your eyes. Fools may laugh at me, but wise men will know what I mean.



According to a  new New York Times-CBS national poll, 84% of people – 80% of Republicans and 90% of Democrats -- believe money has too much influence in American politics.

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