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Watch The Macro Show, Unlocked for Real-Time Alerts Subscribers

Watch the replay of The Macro Show from June 12, 2015.

 

See guest analysis from Internet and Media Sector Head Hesham Shaaban. Hesham gave his updated thoughts on Twitter (TWTR) and the urgency for the Company to find a better way to monetize its business model. 

 

To learn more about The Macro Show and to become a subscriber click here.


Call Invite | Long WhiteWave Foods

Please join us live for our Black Book presentation on The WhiteWave Foods Company (WWAV) on Thursday, June 18th at 1:00 pm ET (Please note the time change versus our previous WWAV note). We have had WWAV on our Best Idea List since 4/11/14, and will provide a detailed updated presentation. 

 

Yes valuation is rich, but rightfully so, WWAV has been lapping its competitors in the marketplace. We strongly believe that this name still has more room to run. WWAV operates in many segments that are nowhere near their full potential, and are still gaining popularity among mainstream consumers.

 

Their brands are all number one or two in their respective categories, with the ability to transcend across categories. We have seen it with Horizon, entering the center-of-store with Mac & Cheese and other snacks and Earthbound into frozen, So Delicious into creamers, the list goes on and will continue to get longer.

 

Bottom line this growth story is not over, and we are very excited to tell you more about our thought process during our live presentation.

 

Longer term there are many way you can win with WWAV:

  1. Growth of the base business ― distribution growth & category expansions
  2. Growth through acquisitions ― string of pearls approach
  3. Sell the company ― many large CPG companies are looking for growth

 

Call details and materials to be provided next week.

 

If you have any questions heading into the call please let us know.

 

Howard Penney

(O)

(E)

 


Cartoon of the Day: Cuckoo Fed?

Cartoon of the Day: Cuckoo Fed? - Fed cartoon 06.11.2015

 

Below is an excerpt from today's Morning Newsletter by CEO Keith McCullough:

 

...While Yellen isn’t married to Bernanke, she is wed to the policy expectations framework he created. While anything is possible when it comes to un-elected decision making on interest rates, I highly doubt she raises rates for the sake of the apologists.

 

Apologists? Yes. As in the every-other-meeting I’ve been in this week where a sophisticated Institutional Investor asks me “isn’t it just time she raises rates?” I promptly say no. Raising rates into a slowdown could easily perpetuate the next US recession.

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.65%
  • SHORT SIGNALS 78.64%

Is Under Armour The Real Winner In Nike's Billion Dollar NBA Deal?

In case you missed it, Nike just inked a deal with the NBA taking over the rights to outfit its players beginning in 2017.

 

(Spoiler-Alert … we don’t consider this deal a “win” for Nike.)

 

Consider this: Just a week ago (before the 'official' announcement) if you approached ten people in your office, gym, neighborhood (whatever) and asked them who endorsed the NBA, I would bet $100 that no fewer than seven would have said Nike. And yet…  it was Adidas.

 

Four key issues to consider:

 

1. League endorsements largely do not work. Consumers really don't care about the logo players are required to put on their jerseys. What they care about is the logo players proudly choose to wear on their feet. That's why Nike walked away from these league deals over a decade ago.

Is Under Armour The Real Winner In Nike's Billion Dollar NBA Deal? - z cy

 

2. Adidas paid $400mm over 11 years. Nike is paying $1bn over 8-years. While this is still less than the $1.1bn/5-yrs that Nike is paying for the NFL, it is still a lot of coin to pay for the 5th most watched sport in the United States (NFL, MLB, CFB, NASCAR, NBA, NHL) -- yes, NBA is just one notch above hockey.

Is Under Armour The Real Winner In Nike's Billion Dollar NBA Deal? - z billion

 

3. Here's where Nike can earn its keep. If Nike can somehow figure out how to innovate the uniforms so that players notice a dramatic improvement in their ability to put points on the board and play over an extended period of time, then there's a commercial apparel opportunity for Nike. That's what Nike did with the NFL. But a football player's uniform weighs about 30lbs, and had not been innovated or streamlined in 30 years. That was a ripe opportunity for Nike.  Basketball? It’s a far different story -- shorts, tank top, shoes (maybe a headband)… that's it.

Is Under Armour The Real Winner In Nike's Billion Dollar NBA Deal? - z lf

 

4. We're reading a lot this morning about how this is bad for Under Armour.  Let's be clear about something...this helps UA. The fact that Under Armour is being boxed out of major endorsement deals by the 900lb gorilla in the space gives it all the ammo it needs to continue its reign as the anti-establishment brand for younger athletes.  We think Nike just gave UA a gift with this deal. And let's face it, UA has been crushing it lately with success in its own endorsement deals. Look no further than like Misty Copeland (a big miss by Nike), Jordan Spieth, Tom Brady, Andy Murray, and Stephen Curry.

Is Under Armour The Real Winner In Nike's Billion Dollar NBA Deal? - z jsp

 

Bottom line: Nike dropped the ball with this deal.


Initial Claims | Winter Is Coming

Takeaway: Now more than ever, after recently hitting a 15-yr low, claims seem to have only one direction to go, but it may take some time.

This is an excerpt from a research note published earlier this morning. Click here for more information on how you can subscribe to Hedgeye's contrarian investing research products.

The labor market remains strong, but conditions are clearly late-cycle for the broader economy. We're now 14 months into a sub-330k initial claims environment with the prospects of Fed tightening seemingly growing, and, ultimately, catalyzing the reversal of the expansion. Looking back at the last 3 cycles, claims stayed at a sub-330k level for an average of 33 months. Specifically, the last 3 cycles were 24 months (1990), 45 months (2001), 31 months (2008).

 

Initial Claims | Winter Is Coming - Claims3

 

Initial Claims | Winter Is Coming - Claims18

 

The Data:

Prior to revision, initial jobless claims rose 3k to 279k from 276k WoW, as the prior week's number was revised up by 1k to 277k.

 

The headline (unrevised) number shows claims were higher by 2k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 3.75k WoW to 278.75k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -12.1% lower YoY, which is a sequential improvement versus the previous week's YoY change of -11.6%

 

Initial Claims | Winter Is Coming - Claims2

 

Initial Claims | Winter Is Coming - Claims4

 

Initial Claims | Winter Is Coming - Claims5

 

Initial Claims | Winter Is Coming - Claims6

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 

Jonathan Casteleyn, CFA, CMT

203-562-6500

jcasteleyn@hedgeye.com

 


Retail Callouts (6/11): UA, NKE, LULU, KSS Did What?

Takeaway: Contra to the press, NKE NBA deal is ROIC dilutive, and a positive for UA. KSS makes bad CMO decision. So long, farewell Chip/LULU.

NKE, AdiBok, UA - THIS NIKE DEAL IS BOTH CRITICAL, AND ROIC-DILUTIVE

NIKE, INC. TO BECOME EXCLUSIVE ONCOURT UNIFORM AND APPAREL PROVIDER OF THE NBA, WNBA AND NBA D-LEAGUE

(http://news.nike.com/news/nike-inc-to-become-exclusive-oncourt-uniform-and-apparel-provider-of-the-nba-wnba-and-nba-d-league)

(http://www.wsj.com/articles/nike-wins-nba-sponsorship-contract-1433969199)

 

Takeaway: Consider this...a week ago (before this 'official' announcement) if you were to ask 10 people in your Office, Gym, Neighborhood (or whatever) who endorsed the NBA, I bet that no fewer than seven would have said Nike. Yet, it was Adidas. A few considerations…

  1. League endorsements largely do not work. Consumers don't care about the logo players are required to put on their shirts. They care about the logo they proudly wear on their feet. That's why Nike walked away from these League deals over a decade ago.
  2. Adidas paid $400mm over 11 years. Nike is paying $1bn over 8-years. While this is still less than the $1.1bn/5-yrs that Nike is paying for the NFL, it is a lot of coin to pay for the 5th most watched sport in the US (NFL, MLB, CFB, NASCAR, NBA, NHL) -- yes, NBA is just a notch above hockey.
  3. Here's where Nike can earn its keep. If they somehow figure out how to innovate the uniforms such that players notice a dramatic improvement in their ability to put points on the board and play over an extended period of time, then there's a commercial apparel opportunity for Nike. That's what it did with the NFL. But a football player's uniform weighs about 30lbs, and has not been innovated or streamlined in 30 years. That was a ripe opportunity for Nike.  Basketball is a very different story -- shorts, tank top, that's it.
  4. We're reading a lot this morning about how this is bad for UnderArmour.  Let's be clear about something...this HELPS UA. The fact that it is being boxed out of major endorsement deals by the 900lb gorilla in the space gives it all the ammo it needs to continue its reign as the anti-establishment brand for the young athlete.  Nike just gave UA a gift with this deal. And let's face it, UA has been crushing it lately with success in it's own endorsement deals, like Misty Copeland (big miss by Nike), Jordan Spieth, Tom Brady, Andy Murray, and Stephen Curry.

 

KSS - Chief Merchant Position Filled, New COO Search Underway

Takeaway: Kohl's ends external search for new Chief Merchant. Hires current Chief Customer Officer, Michele Gass.

With the entire global retail industry  as a talent pool to source this position, Mansell picked the person who said very explicitly at the Analyst Day in October that 'love' would drive the business -- not once, or twice, but 19 times.

Also, being a Chief Customer Officer (something that has no P&L responsibility or accountability) has nothing to do with being a Chief Merchant. This one will be hard for the bulls to defend.

 

LULU - Chip Away

Takeaway: A predictable move by The Chipper. Six months ago he made his intentions clear to move on by selling half his stock. That was more of a defensive move where he could not hold out for a better price. But the remaining half of his shares coming to market is a different story. This is Chip being opportunistic on price -- and (not to be confused with our opinion of him as a Leader) we agree with him every last step of the way. To own LULU here you have to think it's egregiously cheap (which it's not at 30x earnings and 18x EBITDA), or the company can execute on the next stage of its growth plan (if it actually has one) without a meaningful restructuring of the business. We don't believe either. Our bet is that neither does Chip. We don't see a catalyst on the short side, but we'd stay far clear of being Long this one. That's why we got out in March at $65. Since the Advent sale, Chip saw his remaining position appreciate by $700mm. Yes, he's been unhappy with the brand's trajectory for sometime, but he's still a capitalist.

As background on the Chip Soap Opera, as we call it, it's followed the playbook we laid out nearly 12 months ago to a T. We assigned the probability of either a strategic deal (30%) or Chip selling stock (35%) at 65%. And since that date we've seen both. First in August, Chip unloaded half his stake to Advent and agreed to a series of play nice provisions and today Wilson took the first step in unwinding the rest of his 22% position.

If the announcement had been made 6 months ago, we would have declared victory for the Board, but at this point Chip has been all but neutered and the Board has been making autonomous decisions since he resigned his seat in February. It could be that he wants to be more involved in his wife and son's relatively new Kit & Ace brand which he has been prohibited from working on due his non-compete clause.

Retail Callouts (6/11): UA, NKE, LULU, KSS Did What? - 6 11 chart1

 

RETAIL SALES

Takeaway: Nice uptick in retail sales for the month of May.

Retail Callouts (6/11): UA, NKE, LULU, KSS Did What? - 6 11 chart2

 

MW - 1Q15

Retail Callouts (6/11): UA, NKE, LULU, KSS Did What? - 6 11 chart3

 

AMZN -  Slight comp improvement in May for AMZN in ChannelAdvisor #s

Retail Callouts (6/11): UA, NKE, LULU, KSS Did What? - 6 11 chart4

 

 

OTHER NEWS

 

AMZN - EU opens investigation into Amazon's e-book business

(http://www.reuters.com/article/2015/06/11/us-eu-amazon-idUSKBN0OR0YY20150611)

 

MW - Men's Wearhouse Signs Agreement With Macy's To Operate 300 Macy's Tuxedo Shops And Online Rentals

(http://ir.menswearhouse.com/press-releases/detail/1758/mens-wearhouse-signs-agreement-with-macys-to-operate-300-macys-tuxedo-shops-and-online-rentals)

 

URBN - Anthropologie to Expand Beauty, Accessories Offerings

(http://wwd.com/retail-news/financial/anthropologie-beauty-accessories-expanding-10147091/)

 

JCP - Penney’s 2015 Plans: Accelerate Sales Gains, Improve Selling Floors

(http://wwd.com/retail-news/department-stores/jc-penney-2015-plans-omnichannel-10147043/)

 

CROX - Crocs Inc. Appoints Carrie Teffner to Board of Directors

(http://investors.crocs.com/phoenix.zhtml?c=193409&p=irol-newsArticle&ID=2057860)


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