prev

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout

Takeaway: Bad 2H inventory setup for retailers comes just in time for higher wage and shipping costs.

SIGMA Update - Bad 2H inventory setup just in time for higher wage and shipping costs

We sent out our updated SIGMA book for about 100 companies on Thursday. We picked out a few of the gnarlier looking charts. Most them are department stores -- or companies with no square footage growth. We're not playing favorites. They simply looked the worst.  Regardless, there's one thing that is undeniable...these retailers are heavier on inventory heading into 2H than they'd probably like. With wage pressure building beginning in August (courtesy of Wal-Mart, McDonalds, etc...) and higher dot.com costs (freight) headed into holiday, we still think we're going to see a sharp deceleration in EPS growth for US Retail.

 

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart1B

 

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart2B

 

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart3B

 

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart4B

 

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart5B

 

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart6B

 

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart7B

 

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart8B

 

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart9B

 

 

Notable Employment Callout

This is from one of Keith McCullough's notes to clients last night.

 

With Greece, it’ll be convenient for the Bullish Growth (rates up) camp to forget Friday’s jobs report. But this cycle data doesn’t cease to exist. Instead of writing more words, you can follow the cycle (in rate of change terms) using Crayola. I still say the US labor cycle peaked in FEB 2015.

 

Don’t forget that NFP peaks, on average, 3 months AFTER the economic cycle (GDP) has peaked. The US employment cycle peaked, right on time.

Retail Callouts (7/6): Gnarly SIGMAs, Employment Callout - 7 6 chart10

 

 

 

OTHER NEWS

 

NKE - World Cup: Nike adds a third star to United States uniform

(http://fansided.com/2015/07/05/united-states-world-cup-third-star-uniform/)

 

Ashley Furniture HomeStore to Open Multiple Canadian Locations

(http://www.retail-insider.com/retail-insider/2015/7/ashley-furniture-homestore)

 

PYPL - PayPal on hunt for takeovers after eBay split

(http://www.ft.com/intl/cms/s/0/0f17aa34-2134-11e5-aa5a-398b2169cf79.html#axzz3f6fKPL6U)

 

BRIEF-Puma and Kering Eyewear sign partnership agreement for optical frames and sunglasses

(http://in.reuters.com/article/2015/07/06/idINFWN0ZM00920150706)

 

SHLD - Sears Holding Corporation Announces Expiration And Over-Subscription Of Seritage Growth Properties Rights Offering

(http://searsholdings.mediaroom.com/index.php?s=16310&item=137374)

 

Tory Burch Sets Paris Flagship

(http://wwd.com/retail-news/designer-luxury/tory-burch-paris-flagship-10174738/)

 

BLKIA - Bain, Sycamore Circle Belk Inc.

(http://wwd.com/retail-news/department-stores/bain-sycamore-circle-belk-inc-10175037/)

 

Joe’s Receives Forbearance From Creditors

(http://wwd.com/business-news/financial/joes-forbearance-creditors-loan-10174919/)


YELP: Can't Find a Buyer

Takeaway: YELP can't find a buyer, but is still shopping. We doubt it will find one, especially after its 2Q15 earnings release.

KEY POINTS

  1. CAN'T FIND A BUYER: Last Friday, news broke that YELP's CEO/co-founder isn't looking to sell anymore, but YELP may have interest if an acquirer could help leverage its reviewers toward e-commerce.  Translation: YELP couldn't find a buyer, so it's pitching ways to promote its user base in order to drum up interest among potential acquirers.  YELP is still very much for sale, but we still don't believe it will find a buyer.  Broken Business Model + High Price = Tough Sell; especially if YELP disappoints again on its next print as we expect.
  2. 2Q15 PRINT WILL BE A DISASTER: We all thought that it was odd that management chose to maintain full-year revenue guidance after missing 1Q results and guiding light for 2Q15.  We suspect the reason why was because YELP was shopping itself, and it's much easier to do so when chalking up its recent weakness as temporary.  That is going to come back to bite them on this print.  YELP will need a massive acceleration in new account growth to hit consensus Local Advertising estimates, particularly in 2H15.  We're expecting YELP to miss 2Q Local Advertising estimates, guide light for 3Q15, and cut 2015 guidance. 
  3. THIS ISN'T TEMPORARY: YELP's model is predicated on hiring enough new sales reps in order to drive new account growth in excess of its rampant attrition, which is the overwhelming majority of its customers annually.  The issue is that its TAM isn't large enough to support its model.  That has manifested into a persistent decline in salesforce productivity, which is now devolving into a mounting exodus of its sales reps (see note below).  That last point means that its model is unraveling, and this story is going to get much uglier than we initially expected.  

 

See our most recent note below for supporting detail.  Let us know if you have any questions, or would like to discuss further.

 

Hesham Shaaban, CFA

@HedgeyeInternet

 

 

YELP: The New Major Red Flag (1Q15)

04/30/15 08:53 AM EDT

[click here]


INVITE | Q3 2015 MACRO THEMES CONFERENCE CALL

TOMORROW (July 7th) at 1pm ET we will be hosting our highly-anticipated Quarterly Macro Themes conference call.  Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications. 

 

Q3 2015 MACRO THEMES OVERVIEW:

 

#SecularStagnation: Amid consensus expectations for a return to “normal” economic conditions, our analysis shows ample evidence of secular stagnation. In light of that, we reiterate our “lower-for-longer” thesis on growth, inflation and interest rates and continue to find the FOMC’s hawkish guidance wholly misplaced.

 

#EuropeSlowing: With our proprietary GIP (growth, inflation, policy) model we’ll outline the top 6 European economies that will be most impacted by real GDP growth slowing as inflation accelerates in the back half of 2015. The timing of ECB head Mario Draghi’s eventual response will be critical in terms of risk managing the EUR/USD exchange rate, as well as any associated spillover risks.

 

#ConsumerCycle: Consumption peaks late cycle and with domestic and global growth set to slow alongside easing inflation comps in 2H15, it looks increasingly likely 1H15 marked the current cycle peak in household spending growth.  We'll contextualize the current cycle, discuss the implications and detail how best to be counter-cyclically positioned as the consumer cycle enters its twilight. 

 

CALL DETAILS:

  • U.S. Toll-Free Number:
  • U.S. Toll Number:
  • Confirmation Number: 13612090
  • Materials:  CLICK HERE (the slides will be available approximately one hour prior to the start of the call)

 

As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to .

 

Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.

 

Kind regards,

 

The Hedgeye Macro Team


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

RTA Live: July 6, 2015

Here is the replay of today's edition of RTA Live.

 


MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK

Takeaway: Instead of looking across the Atlantic, investors should be looking across the Pacific.

Key Takeaway:

While most US investors are looking at the big carnival in Greece and Europe this morning, we'd suggest they look in the other direction, towards China, where the real action is happening. 

 

Chinese equity prices are down ~30% in a month. In a month! Meanwhile, prices of Chinese steel continue to collapse (see our chart below) - an indicator we've long watched as a representation of the real underlying activity of China's economy - falling another 2.7% week-over-week. The bottom line is that real economy in China is under growing pressure and the stock market is now collapsing. 

 

As we pointed out last week, the real gauge of whether Europe poses risk to the US is best reflected in the overnight interbank lending markets. This risk can be measured in the TED Spread domestically and in Euribor-OIS in Europe. Neither of these measures have done much of anything on the Greece news. In other words, contagion fears are unfounded for now. If this changes, and those spreads begin to widen we'll be on top of it, but for now Greece/Europe are not pressing issues for the US Financials.

 

Current Ideas:

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM19 2

 

Financial Risk Monitor Summary

 • Short-term(WoW): Negative / 1 of 12 improved / 7 out of 12 worsened / 4 of 12 unchanged

 • Intermediate-term(WoW): Negative / 0 of 12 improved / 7 out of 12 worsened / 5 of 12 unchanged

 • Long-term(WoW): Positive / 3 of 12 improved / 2 out of 12 worsened / 7 of 12 unchanged

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM15

 

1. U.S. Financial CDS -  Swaps widened for 19 out of 27 domestic financial institutions. Once again, financial protection providers MBIA and Assured Guaranty led the way, widening by +132 bps to 749 bps and by +59 bps to 396 bps respectively.

 

Tightened the most WoW: CB, MTG, RDN

Widened the most WoW: MBI, AGO, MMC

Widened the least/ tightened the most WoW: SLM, SLM, SLM

Widened the most MoM: MBI, MMC, AGO

  

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM1

 

2. European Financial CDS - Swaps mostly widened in Europe last week in anticipation of Greece's referendum. Over the weekend, that referendum took place, and Greek citizens voted to reject the terms of the bailout package offered by the country's creditors. The median and average changes in swap spreads were +12 bps and +160 bps, week-over-week. CDS for Greek institutions blew out by over 1000 bps each.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM2

 

3. Asian Financial CDS - Swaps on Asia banks mostly widened last week with an average change of 2 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM17

 

4. Sovereign CDS – Sovereign Swaps mostly widened over last week, led by Italy, Spain, and Portugal on contagion worries. Those sovereigns' CDS widened by 24 bps to 134, 20 bps to 109 and 39 bps to 202 respectively.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM18

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM3

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM4

 

5. Emerging Market Sovereign CDS – Emerging market swaps mostly widened last week. Movement was moderate; the most significant was the 3 bps widening in Chinese CDS to 93 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM16 2

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM20 

 

6. High Yield (YTM) Monitor – High Yield rates rose 24 bps last week, ending the week at 6.62% versus 6.38% the prior week.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM5

 

7. Leveraged Loan Index Monitor – The Leveraged Loan Index fell 2.0 points last week, ending at 1891.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM6

 

8. TED Spread Monitor – The TED spread was unchanged last week at 28 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM7

 

9. CRB Commodity Price Index – The CRB index rose 0.2%, ending the week at 225 versus 224 the prior week. As compared with the prior month, commodity prices have increased 0.9%. We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM8

 

10. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 11 bps.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM9

 

11. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 20 basis points last week, ending the week at 1.16% versus last week’s print of 1.36%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM10

 

12. Chinese Steel – Steel prices in China fell 2.7% last week, or 61 yuan/ton, to 2165 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM12

 

13. 2-10 Spread – Last week the 2-10 spread tightened to 175 bps, -1 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.6% upside to TRADE resistance and 2.2% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR | RISK IS RISING, BUT NOT WHERE YOU THINK - RM14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


The Macro Show Replay | July 6, 2015

 


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.

next