CCL’s earnings release and conference call went as planned.  A big Q2 beat but little change to 2015 yield or EPS guidance.  With the stock up today, it appears that investors view the guidance as conservative, once again.


We’ll take the other side to this – guidance looks reasonable to us, given the company’s struggles in Europe.  CCL, along with RCL, tends to trade on the assumption that Street estimates are too low.  If we’re right, in-line performance won’t be good enough and stock upside in both names should be limited.


Please see our detailed note:

Retail Callouts (6/24): WMT Squeezing Vendors Again, KATE Adds Depth To Org. Chart

Takeaway: Wal-Mart Squeezed Vendors In The Spring, Now It's Doing It Again. KATE adds depth to org. chart.

WMT - Wal-Mart Squeezed Vendors In The Spring. Now It's Doing It Again.



1) It’s been almost 3 months since a story hit about WMT squeezing its vendors for concessions. But this year, unlike prior years it is to pay employees instead of customers (or shareholders by way of better margins).

2)  We've seen a stark contrast in risk management processes from companies who operate in this space. When 3 of the top 6 private sector employers in the country (WMT, MCD, and TGT) announce that all employees will receive a 25% premium to the government mandated minimum wage it’s impossible to think that it won't have ripple effects across the industry. While many have talked down the potential hit, the well run companies are actively managing the business in a way to offset the rising employment cost pressures. That's exactly what this move by WMT is all about.

3) Unfortunately for WMT, the higher wage rate isn't resulting in a meaningfully better shopping experience -- or if it is, we're just not seeing it in WMT's comp. It makes sense that the retailer would take a second whack at pricing pressure.

4) All in we're looking at a 4%-8% annualized EPS hit at each of the following retailers if we extrapolate the estimated cost per employee at WMT to the relevant number of employees in each retailers workforce.  

Retail Callouts (6/24): WMT Squeezing Vendors Again, KATE Adds Depth To Org. Chart - chart1 6 24 15

5) The reason why we haven’t seen elevated compensation expense pressure yet is because we’re now at a seasonal lull for retail. By mid-July, retailers will start beefing up temporary workforce ranks for ‘Back to School’ and then they kick it up a notch again in October as they prepare for Holiday. With the exception of grocery retailers, they ALL follow that pattern. That’s precisely when we’ll see the biggest wage pressure.


KATE - Kate Spade & Company Appoints Emilia Fabricant Executive Vice President, President Of North America



KATE announced the addition of a President of North America to its ranks yesterday. This makes perfect sense from where we sit. The KSNY brand should hit the $1bn mark in NA by years end. And this will take some of the executional responsibility off the plates of the C-Suite. In fact, we're surprised that KATE has not added more people at the top ranks sooner. KATE now has leadership in place for both its North American and International segments with the announced hiring of Emilia Fabricant yesterday. We don't know Fabricant personally, and parts of her resume are kind of a head scratcher to us (bebe, Aeropostale, Charlotte Ruse). But Leavitt has made good HR decisions to date...and we'll give him the benefit of the doubt on this one while we vet her on our own. Also, this is not the kind of role (ie Creative) where a person can walk in the door and do damage on their first day on the job.


All in, we still like the KATE story a lot, and think it is egregiously undervalued here relative to the underlying earnings power and growth potential.




SPLS, ODP - Staples merger unlikely after judge blocks Sysco/US Foods union



JWN - Advantage Sales & Marketing LLC CEO Tanya Domier Joins Nordstrom Board Of Directors



CVS, TGT - CVS Health has a new marketing chief



Li & Fung Joins With Chinese Retailers for Joint Venture



Meijer opens first Wisconsin stores



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2 New Black Books In July: RH, WSM, PIR, BBBY, KSS, JCP, TGT, WMT, M, ETH, LZB

Takeaway: 1) RH – Roadmap to $300. 2) Broader ‘Launch’ of the Home Furnishings space – will also present results of our Consumer Survey on the space.

A quick note on two Black Books we just put on the calendar in July.


July 9th

RH: Roadmap to $300

We’ll be releasing a detailed RH Black Book on July 9th with many new thoughts, ideas and analysis that we have not yet articulated, and ultimately will show RH’s Roadmap to a $300 stock. This will include a full real estate analysis (including productivity and profitability estimates for new stores), quantifying the potential for RH Modern, identifying additional growth concepts/ideas, and detailing RH’s sourcing and vendor networks – which are both critical to its growth, margin structure, and capital intensity. Importantly, we’re also going to stress test our Bull case to see where we could be wrong.


July 29th

Home Furnishings Launch/Consumer Survey: WSM, W, PIR, BBBY, ETH, LZB

We’re going to leverage all the work we’ve done on RH and will ’Launch’ more broadly on the Home Furnishings Space.  Relevant tickers (aside from RH) include WSM, W, PIR, BBBY, ETH and LZB – not to mention KSS, JCP, TGT, WMT and M. We think there are some really interesting Long and Short ideas in what is an increasingly bifurcating space. In addition to detail on all these companies and the industry, this Black Book will also include the results of our Consumer Survey on all the different brands/retailers in the Home Furnishings space, and will look at things like price point thresholds for shopping online vs. in-store, spending capacity and shopping patterns for different aesthetics (i.e. traditional vs. contemporary/modern).


We also have other ‘sub-sector’ studies in the works, like we’ve already done for Athletic, Department Stores and now Home Furnishings. Specifically those include Dollar Stores, Home Improvement, and e-Commerce.


CHART OF THE DAY: We Are Still Bullish on Housing

Editor's Note: This is a brief excerpt and chart from today's morning note written by Hedgeye CEO Keith McCullough. Click here to learn how to subscribe. 


...But, but… “how can you be bullish on Housing and not the US economy?” That’s easy. Because I am. So tell your friends to stop whining about it and buy ITB (Housing) vs short Industrials and Transports (XLI and ITB).


Housing is early-to-mid-cycle, whereas Industrials are classic #LateCycle... 


CHART OF THE DAY: We Are Still Bullish on Housing - 06.24.15 chart

Sit, Read, & Wait

“Now we can sit and wait.”

-Wallace Stegner


Allegedly, I’m on vacation this week. There’s nothing like time, fresh air, and space up here on the Big Lake they call Gitche Gumee. “The lake, it is said, never gives up her dead – when the skies of November turn gloomy.”


For those of you who aren’t familiar with either Thunder Bay, Ontario or that Gordon Lightfoot classic… fire it up on your mobile and listen to the ringtone. It will put the manic nature of our profession in context.


The aforementioned quote was one I underlined while I was sitting on the deck yesterday, reading The Angle of Repose. Instead of reacting to every basis point move in the bond market, that’s going to be my call for the summer – sit and wait.


Sit, Read, & Wait - tbay2


Back to the Global Macro Grind


After playing with my kids down by the lake yesterday, I came up to the house to see if anything was “going on” in the marketplace.


Oh my god – oh my god – after realizing that Hedgeye might be right on US #HousingAccelerating (New Home Sales +20% y/y), the Atlanta Fed “raised its Q2 GDP forecast”. Bond Yields Up, Dollar Up – oh my god… what should I do?


  1. SHORT US Dollar (UUP) on the overbought signal
  2. BUY Long-term STRIPS (EDV) on the oversold signal
  3. SHORT Regional Banks (KRE) on the overbought signal


Crazy Mucker, fading the move. I know.


But does the consensus that had been looking for:


  1. > 3% GDP
  2. > 2% “inflation”
  3. > 3% 10yr Yield


… really think that the US Federal Reserve is going to thwart the only thing other than #LateCycle employment gains that’s shocking bears to the upside right now (US #HousingAccelerating) with a pre-emptive rate hike?


I hope so, because that’s what makes a market.


In other US economic news yesterday:


  1. USA’s Markit PMI reading for JUN slowed small to 53.4 (vs. 54.0 in MAY)
  2. US Durable Goods orders dropped -1.8% m/m coming in at -2.5% year-over-year


Yes. That’s a down -2.5% year-over-year recession (post a -3.4% decline in April) in a classic #LateCycle gone bad component of the US economy (and one the Atlanta Fed model didn’t seem to notice).


But the internals of the US stock market did:


  1. US Industrials (XLI) were down another -0.3% on the day to -1.2% YTD (in a green tape)
  2. US Healthcare (XLV) was +0.2% day-over-day to +11.8% YTD


But, but… “how can you be bullish on Housing and not the US economy?” That’s easy. Because I am. So tell your friends to stop whining about it and buy ITB (Housing) vs short Industrials and Transports (XLI and ITB).


Housing is early-to-mid-cycle, whereas Industrials are classic #LateCycle. This, of course, is frequently perpetuated by the broader economic slow-down because the Fed typically eases in response to slowing data à rates fall, and housing works.


Oh, but you’re long stocks on a socialization of leverage in Greece?


Roger that. While that wasn’t my catalyst to “buy everything” into and out of the recent Fed acknowledgment of economic slowing (cutting its 2015 US growth estimate to 1.8-2.0%), I certainly didn’t want to fight that “catalyst.”


That said, every macro catalyst comes and goes. Alongside Greek central-planning-spokesman Tsipras driving ad revs today with the latest whatever, you’ll get a reminder of Q1 final US GDP this morning.


While US GDP in Q1 wasn’t nearly as bad as where Durable Goods orders and capex have been (year-over-year) in Q2, to the macro headline chasers Q1 will look bad.


So sit and wait. For Long-term Bond Bulls, bad economic data is good. It’s good for Housing and rate sensitive stocks that look like bonds too. If you want to buy something that’s not at its all-time highs, buy those on down days.


If you need me to react to every tick in between, sorry - I’ll be on my deck reading.


Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND views in brackets) are now:


UST 10yr Yield 2.18-2.41% (bearish)

SPX 2105-2130 (bullish)
RUT 1 (bullish)
Nikkei 208 (bullish)
VIX 11.88-14.12 (bullish)
USD 93.94-95.84 (neutral)
EUR/USD 1.11-1.14 (neutral)
YEN 122.39-124.91 (bearish)
Oil (WTI) 59.34-61.90 (bullish)

Nat Gas 2.66-2.89 (bullish)

Gold 1170-1200 (bullish)
Copper 2.55-2.69 (bearish)


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Sit, Read, & Wait - 06.24.15 chart

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