The 4 week moving average of claims now stands at 378,000, and this is the highest reading of the year. Within the framework of my US Consumer is "RIPTE" model (Regulation, Inflation, Protectionism, Taxes, and Employment), this trend in US employment is going to amplify the political pressures implied within the rest of the oncoming RIPTE consumer spending winds.
Let's face it. Nike's 4Q was definitely not what a $66 stock expected. I know this thing like the back of my hand and even I was surprised by the numbers. Yes, NKE beat by a penny, but in my mind, anything less than 5% upside is not a legitimate beat with Nike. Sales and GM% were both very solid, but to increase gross profit by 22% and post flat operating profit growth is a sharp reversal from the characteristics that have made this stock such a solid near-term hiding place. SG&A was obviously the big culprit due to Olympic and European Championship spending, but it will be impossible for anyone to miss that this was the biggest quarterly boost in spending since 1998. Nike got plenty of help on the tax rate, which accounted for about a dime relative to my number. The good news is that this is ongoing, but it does little to offset the 'quality of earnings' issue. The balance sheet looked good with the cash cycle improving by about 4 days vs. last year, but at a decelerating rate from what we've seen in prior quarters.
Net/net: My model still gets me to north of $4 in EPS for FY09 - which is likely 5-7% ahead of where the Street is likely to shake out. Even if the stock opens unchanged (which it won't) we're looking at 16x earnings and 9.3x EBITDA. Not ridiculously expensive, but not cheap either. This is when I turn to my Partner Keith McCullough for his take on where the stock is headed from a quantitative standpoint. His response sounded something like 'this stock is a buck away from breaking down - watch it like a hawk in the next few days.' I'll be doing just that.
No changes to my view on the long-term model - and even the near-term operating model for that matter. But with US futures flat, US EBIT down, Europe slowing on the margin, trepidation about 'what's next' in Asia after the Olympics, and pressure on the margin front for the industry, it's going to be tough to argue that we're not in one of those uncomfortable periods where volatility in this 'safety stock' picks up in a very meaningful way as views of the major constituents on Wall Street decouple.
I'm firm in my view that Nike will beat next year (based on many factors). We get sales growth and GM growth in 1H, and in 2H we get extremely easy SG&A compares to the extent that the top line weakens. If the stock does, in fact, break down, then later this summer it's a solid story to revisit vis/vis EPS beat and longer-term global growth.
GET THE HEDGEYE MARKET BRIEF FREE
Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE
By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.
Wednesday, June 25, 2008 4:41 PM
Jun. 25--Can a car run on beans and rice? Chipotle Mexican Grill thinks so -- sort of.
In an effort to offset the high cost of gasoline, the Mexican restaurant chain is offering customers free burritos, tacos or bowls from 5 to 8 p.m. today at Columbus-area stores -- one per person, no fax orders accepted. The company said it wants customers to be able to spend the money they'd usually spend on dinner on gasoline instead.
Discounting is never a good sign!
Of course, it's always accommodative to have the dynamic duo of Barron's and Cramer recommending you buy it within the last week. Cramer is really having some performance problems by the way.
With only 2.3% of the shares held short, this company has been one of Wall Street's favorites in Consumer land. The problem there is implied, and creates opportunity to the downside, particularly when the Street's Q3 estimates are as far away from reality as they are from ours. There are 10 sell siders with estimates on VFC - no one has a sell on it, and an all time high of 67% of ratings are either BUY or Overweight (according to Factset).
Capital Research filed on it, and their 5.6% ownership in the company looks ripe to be sold down if we are right on the Q3 miss.
*Full Disclosure: I am now short VFC in my fund.
(chart courtesy of stockcharts.com)
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.