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UUP: Adding U.S. Dollar to Investing Ideas

Takeaway: We are adding the U.S. Dollar to Investing Ideas on the long side.

Editor's Note: The note below was written by Hedgeye CEO Keith McCullough.

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UUP: Adding U.S. Dollar to Investing Ideas - z doll

With the Euro overbought here, the US Dollar Index is signaling immediate-term TRADE oversold within it's bullish intermediate-term TREND. 

 

Catalyst for the US Dollar this week could be the GDP report (Thursday). It's obviously a lagging report (it's a Q2 report and most of the economic #deflation has been in Q3) but the way Wall St reads it is sequentially vs. the Q1 bomb. That report will be good.

 

It won't be until Q3 GDP is reported that GDP looks as bad as it did in Q1 (to headline chasers). Net net, being bearish on Euros and Yens (and Emerging Market FX) keeps us long-term bullish on USD anyway.

KM


ZOES + FNGN: Adding Zoe's Kitchen and Financial Engines Back to Investing Ideas

Takeaway: We are adding Zoe's Kitchen and Financial Engines back to Investing Ideas.

Editor's Note: The note below was written by Hedgeye CEO Keith McCullough.

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Fundamental research views from our analysts Howard Penney (Restaurants/Consumer Staples) and Jonathan Casteleyn (Financials) didn’t change. I was trying to help risk manage what ended up being a 5% correction in the Russell 2000 (small cap) and High-Beta as a risk management Style Factor.

 

Going forward, we don’t plan on removing names from Investing Ideas unless the fundamental story (from our analysts' perspective) changes.

 

Thanks for bearing with us as we evolve the Investing Ideas product. We’re always trying to learn from our mistakes.

 

KM

ZOES + FNGN: Adding Zoe's Kitchen and Financial Engines Back to Investing Ideas - z1


Monday Mashup

Monday Mashup - CHART 1

 

RECENT NOTES

7/27/15 HAIN | ORGANIC DECEPTION PART TWO

7/24/15 HAIN | COSMETIC DECEPTION

7/23/15 CPB | Analyst Day Notes

7/21/15 GIS | Green Giant Divestiture is the Worst Kept Secret

 

RECENT NEWS FLOW


Friday, July 24

DF | Resumed neutral at JPMorgan, target is $18.

HAIN | Acquires the Mona Group, a European plant-based drink manufacturer (click here for article) or for our take click here


Wednesday, July 22

UNFI | Downgraded to neutral from outperform at Wedbush; removed from Best Ideas list, target cut to $60 from $74

UNFI | Downgraded to equal-weight from overweight at Morgan Stanley, target cut to $63 from $78

 

Tuesday, July 21

KHC | Initiated outperform at RBC with $88 target

GIS | Upgraded to outperform from sector perform at RBC; target increased to $65 from $58

 

Monday, July 20

GIS | Rumor, Bounduelle prepares bid for Green Giant (click here for article) or for our take click here

UNFI | Announces early termination of distribution contract with Albertsons (click here for article)

 

SECTOR PERFORMANCE

Food and organic stocks that we follow, in aggregate, underperformed the XLP last week. The XLP was down -0.8%, the top performer from our list was MJN posting an increase of 3.2%, although MJN is down -14.8% for the year.

Monday Mashup - CHART 2

 

QUANTITATIVE SETUP

From a quantitative perspective, the XLP remains bullish on a TRADE and TREND duration.

Monday Mashup - CHART 3

 

Food and Organic Companies

Monday Mashup - CHART 4

Monday Mashup - CHART 5

 


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McCullough: Coo! Coo!

In this excerpt from The Macro Show earlier this morning, Hedgeye CEO Keith McCullough responds to a subscriber’s question on how markets will react if the Fed decides against raising rates in September.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

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MCD | THE GAME CHANGER | ALL DAY BREAKFAST (ADB) SURVEY RESULTS

As we said in our recent MCD Black Book, 3Q15 will be a critical inflection point for the company.  It now looks like there is a major initiative underway that could be announced in late 2015 or early 2016 – ALL DAY BREAKFAST.  The trends MCD reported in 2Q15 now support the thesis that 3Q15 will be a key inflection point in the company’s turnaround.    

 

With clear visibility on an improved cost structure, fixing sales trends are a critical next step.  One way to get there is to serve some key breakfast items all day.  I would go so far as to say that if McDonald’s has figured a way to serve ALL DAY BREAKFAST it will be a game changer for the company and it will have significant industry implications. 

 

From the research we have done and the conversations we have had with people close to McDonald’s suggest that All Day Breakfast could be that silver bullet McDonald’s is looking for!

 

Early in his tenure as CEO, this initiative by Steve Easterbrook could define his legacy at MCD.  Does Mr. Easterbrook want to be the CEO who just couldn't make ALL DAY BREAKFAST happen, or will he be the CEO who made ALL DAY BREAKFAST work for the first time in McDonald's history. 

 

Currently, ADB is in a small test in Southern California.  I understand that the costs for changes to the kitchen will range from $10,000 - $20,000 and involve adding an egg-cooker.  As always, the cost will vary by restaurant depending on what other equipment they already have on hand.  I believe that if the costs exceed $20,000, it will be very difficult to sell it to franchisees.

 

I also believe that if McDonald’s does add some breakfast items to the menu it should be a part of a broader reduction in other menu items.  The question remains do they have the discipline to do it?  A complex menu is a complex menu whether it's beef, chicken, or breakfast egg products.  There is the possibility, that adding breakfast to the all-day menu might make ordering more confusing for the customer.

 

We went out and conducted a survey to gauge consumer interest in ADB and the outcome was pretty positive. When we asked 2,000 people whether they would go to MCD more often if they could get breakfast for lunch, 33.3% of people said yes. We weren’t expecting to see a number over 50%, we consider 33.3% to be a significant number. Not surprisingly, lower income people said yes more often as well, further confirming the need for MCD to deliver value to customers.

 

MCD | THE GAME CHANGER | ALL DAY BREAKFAST (ADB) SURVEY RESULTS - CHART ADB 


Retail Callouts (7/27): GPS, TGT, AMZN, BBY

Takeaway: GPS trying to improve turns, but can it? TGT cash from store liquidations coming in slow. AMZN drive-thru. iWatch at BBY, already?

GPS - Gap goes seamless with inventory management

(http://www.chainstoreage.com/article/gap-goes-seamless-inventory-management)

We're intrigued anytime we see GPS make moves as it relates to inventory management. GPS is perceived to be so lean in its inventories, but one could argue that it's not. The chart below shows that it is on the higher end of Specialty Retailing peers, but nearly half the levels of the department stores.  As it relates to trend, the dept store group has largely been trending higher, while the Specialty group has had inventories trending lower. GPS, on the flipside, has been pegged right at 65 days. Did it find a bottom at the start of the Glenn Murphy days? Or does it have room to operate closer to the Specialty group? Our sense is that it has found a bottom. This company has not grown sales in a decade, and has found every way imaginable to grow margins and free up cash to repo stock. If initiatives like the one discussed in this article bear any fruit, we're talking a day, maybe two -- max.

Retail Callouts (7/27): GPS, TGT, AMZN, BBY - 7 27 chart2

 

TGT - Target’s struggle to sell stores exposes Canada’s weak retail leasing market

(http://www.theglobeandmail.com/report-on-business/targets-struggle-to-sell-stores-exposes-canadas-weak-retail-leasing-market/article25715341/)

This may be simplifying a very complex set of transactions and minimizing current real estate market conditions, but the fact that TGT can't find buyers for over 50% of its stores speaks volumes for the quality of properties TGT acquired when it bought the Zellers leases back in 2011. That's under the bridge at this point.

When the company announced it's exit from Canada, management guided to $500 to $600mm in cash charges associated with the move. That doesn’t appear to be headed higher because of the weak demand for its real estate, but as Target Propco is the largest creditor with a $1.9bil claim -- it's possible that the cash expected to be recovered comes in a bit light.

 

AMZN - Amazon planning drive-through grocery stores

(http://www.telegraph.co.uk/technology/amazon/11763617/Amazon-planning-drive-through-grocery-stores.html)

The concept of 'drive through grocery stores' might be a head scratcher for many. But keep in mind that the company already operates a grocery delivery service called Amazon Fresh, as well as a service called Amazon Locker, where consumers could pick up online orders in a centralized location (see below).  Though there have been rumors that Amazon would allow people to browse physical stores, the company is likely -- at least initially -- to offer this as a pure drive-thru/pick-up service. But like everything else AMZN does, this will evolve. When you're growing sales annually by $15bn -- the size of Whole Foods -- you pretty much have a free pass to try anything -- profitable or not.

Retail Callouts (7/27): GPS, TGT, AMZN, BBY - 7 27 chart1

 

BBY - Apple Watch to Be Sold at Best Buy

(http://blogs.wsj.com/digits/2015/07/26/draft-apple-watch-to-start-selling-at-best-buy/)

So soon? We'd have thunk that the launch into mass channels like Best Buy wouldn't come so soon after the April 24th launch of the watch. We view this as bullish for companies like FOSL, who the Smart Watch trend was perceived to have in its line of sight.

 

 

OTHER NEWS

 

Weak Euro Masks Lingering Woes at LVMH, Kering

(http://www.wsj.com/articles/low-euro-masks-lingering-woes-at-lvmh-kering-1437942805)

 

Kering Names Grita Loebsack CEO of Luxury Emerging Brands

(http://wwd.com/business-news/executive-changes/kering-names-grita-loebsack-ceo-luxury-emerging-brands-10192560/)

 

WWW - Keds Launches ‘Ladies First’ Campaign With Taylor Swift

(http://vampfootwear.com/keds-launches-ladies-first-campaign-with-taylor-swift/)

 

Kmart Settles Converse Trademark Case

(http://wwd.com/business-news/government-trade/kmart-converse-trademark-settlement-10192736/)

 

JWN - Nordstrom-Madewell Partnership Advances

(http://wwd.com/retail-news/department-stores/nordstrom-brings-nordstrom-to-more-doors-10192529/)

 

WMT - Walmart hatches an exceptional partnership

(http://www.retailingtoday.com/article/walmart-hatches-exceptional-partnership)

 

LOW - Lowe’s Canada to add 14 stores

(http://www.chainstoreage.com/article/lowe%E2%80%99s-canada-add-14-stores)

 

CVS - CVS unveils new beauty lines

(http://www.retailingtoday.com/article/cvs-unveils-new-beauty-lines)

 

Morrisons buyers demanded one-off payments from suppliers

(http://www.theguardian.com/business/2015/jul/26/morrisons-buyers-demanded-one-off-payments-from-suppliers)


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.

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