NDLS: Overcooked, Time to Take it off the Burner

Today we are announcing the removal of NDLS from our SHORT LIST, at this point we believe the stock has been beat to the floor. We originally added it to our Investing Ideas list as a short on 2/18/15, and as you see in the chart below it was a great time to get in short.  Since our call the stock price has traded down 44.2% falling from $26.56 to $14.81.  The valuation of this company is very much in line with where we think it is worth and we do not believe there is much more room to go lower, EV/ NTM EBITDA is down 33.8% from our call to 9.24x.


NDLS: Overcooked, Time to Take it off the Burner - chart 1 improved


Our original reasons for shorting the stock still hold true, but for the most part are now priced into the valuation:

  • Cost of sales inflation: management is only estimating 2% food inflation, but durum wheat prices are under pressure and food cost estimates could head higher as we move into the back half of the year
  • Geographic concentration: the company has a notable number of stores in the DC metro area, which is an extremely competitive market
  • Rising labor costs: 52% of company operated restaurants are in markets that are facing minimum wage increases in 2015 or 2016 (or both), the majority of which are coming this year
  • The Affordable Care Act: will add about 30-50 bps of pressure on margins in 2H15


Please note the changes made to our Restaurants Investing Ideas List below. In addition to our update on NDLS, MCD has been elevated to our LONG LIST (previously reported), WEN dropped to our LONG BENCH (previously reported) and BOJA added to our SHORT BENCH (new).


NDLS: Overcooked, Time to Take it off the Burner - Chart 2 

Steiner: This Is The Single Biggest Risk Facing U.S. Stocks Over The Next Decade


During this brief excerpt from today's edition of The Macro Show, Hedgeye Financials Sector Head Josh Steiner goes deep into the weeds on the single biggest risk facing U.S. equities right now.

VIDEO | $YELP Best Idea SHORT Update

Hedgeye's Internet & Media Team hosted an update call to our SHORT Yelp (YELP) Best Idea. YELP's business model is unsustainable and is already breaking down. Further, a new major red flag has emerged, which we believe is what prompted YELP to shop itself. However, we don’t believe YELP will find a buyer.


We updated our bearish thesis and explained why we see an additional 35%+ downside from here.



  • Extreme Attrition Rate: Overwhelming majority of customers are churning off annually.
  • Insufficient TAM: is not the low-hanging fruit, it's a pipe dream.
  • New Major Red Flag: The story is going to turn much sooner, and get much uglier, than we initially expected
  • Is There a Buyer? Assessing the M&A landscape in terms of both ability and willingness of potential suitors

Early Look

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Retail Callouts (6/4): TGT, AMZN, KSS, UA, NKE

Takeaway: TGT says it will beat AMZN, easier said than done. The year of UA continues with Curry and Murray rolling.

TGT, AMZN, KSS - "Target Will Beat Amazon" Online



Takeaway: Pretty bold statement by TGT's head of E-Comm. Granted he joined the company in 2013 and was elevated to his current position in December of 2014, so he isn't responsible for the company's historically bad track record online (see chart below). We'd actually be concerned if he wasn't talking up his team's digital prowess. The company set ambitious DTC goals at its analyst day back in March, calling for 5 years of 40% growth. But we think it’s a little too early for TGT to throw down the gauntlet with AMZN whose online revenues are 17x that of TGT. TGT has the physical brick and mortar assets and a beefed up online presence which should help curb showrooming, but it'll be incredibly difficult for TGT to undercut AMZN especially when the retailer has no margin to protect.

Lastly, TGT needs to prove that it can grow its online business without cannibalizing its brick and mortar sales. Look no further than KSS to see how difficult this actually is (the company has comped negative in its stores in every quarter but one from 2012-2014 as e-comm grew at a 28% CAGR). Plus, for TGT that channel comes in at a gross margin 650bps below the in-store average.

Retail Callouts (6/4): TGT, AMZN, KSS, UA, NKE - 6 4 chart1



UA, NKE - The Year of UA Continues



Takeaway: The year of UA continues with MVP Steph Curry leading his team to the NBA finals to take on NKE's poster boy King James. On the tennis court -- Andy Murray is in the semi-finals at the French Open (dressed head to toe in UA, but still wearing Adi kicks). Plus Tom Brady and Jordan Spieth had big wins at the Super Bowl and The Masters, respectively. UA has changed its endorsement tune a bit over the past few years going after more established talent, but that's been expensive for UA. Endorsements as a percent of sales have climbed ~400bps over the past 2yrs with the top line growing at an average of 30%. If there’s any real takeaway here it’s that as UA grows and succeeds in its own right, it is competing increasingly against the big boys (NKE, Adidas, Reebok, Puma) for marketable talent. It has a great advantage in that the brand is so hot, authentic and relevant. But those factors do not trump the economics associated with a higher ante-chip for sponsorship deals. We can see what’s coming on the cost side, now we just need the revenue to follow. It’ll probably come. But anyone looking for margins to go up might be in for a surprise.





AMZN - Amazon offers free shipping for light items



WMT - Walmart renews commitment to associates, makes ‘significant’ change to name badges



Authentic Brands Group Signs Partnership Deal with Global Brands Group for Jones New York Brand



Zara USA Faces $40M Discrimination Lawsuit



H&M to Open First Indian Store in New Delhi



Neiman Marcus to be shoppable on Pinterest





Takeaway: Research Topic: Who has the most to lose in an increasingly imbalanced supply demand environment over the next two years?

We will host a conference call on Friday, June 5 at 1PM ET to discuss the latest Macau data, our outlook on the market and the stocks and the presentation of a new, original research topic.




LVS, WYNN, MGM, MPEL, 0027.HK, 1128.HK, 1928.HK, 2282.HK, 6883.HK, and 0880.HK.




  • Details behind May GGR 
  • Discussion of base mass trends
  • The impact of Mass re-classifications
  • Revised 2015 monthly market projections
  • Hedgeye company EBITDA estimates vs the Street (LVS, WYNN, MGM, MPEL, and Galaxy Entertainment) 
  • Who has the most to lose in the increasingly imbalanced supply demand environment over the next two years? 



Attendance on this call is limited. Ping  for more information.



Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at today's Daily Trading Ranges - our proprietary buy and sell levels on major markets, commodities and currencies sent to subscribers weekday mornings by CEO Keith McCullough. Click here to subscribe.

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