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BLMN | ANOTHER BACK HALF MISS?

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 1

 

On the heels of the BWLD and PNRA “miss and guide down” we wanted to highlight another “miss and guide down” name, Bloomin’ Brands (BLMN). BLMN is not currently on our list and although we don’t see it as a long term LONG, given the stock performance of BWLD and PNRA on their earnings, up ~11% and ~8%, respectively, this relatively cheap stock could see a “miss and guide down” and similar pop.

 

BLMN has their 2Q15 earnings conference call on Tuesday, August 4, at 9:00am ET.

 

The company’s current guidance of same-store sales of “at least” 1.5% and EPS of “at least” $1.27 will be difficult to achieve.  We believe that same-store sales will be between 0-0.5% and EPS will be closer to $1.20.

 

BLMN is down ~10% year-to-date, so expectations are not high for the company, except sell-side estimates are too high for fiscal 2015.  BLMN (like BWLD and PNRA) has seen a significant increase in the short interest over the past three months.  If the beat and miss is less than feared the shorts will likely be forced to cover following the earnings release.     

 

PERFORMANCE

As we just stated BLMN is down ~10% YTD, while the S&P 500 is up ~2.4%. Expectations for this company are low and we think there is a possibility of the company missing by “not that much” which would probably yield a positive reaction.

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 2

 

SAME-STORE SALES

Consolidated same-store sales (SSS) are projected to decelerate modestly for the next three quarters. Management’s focus continues to be on Outback, which represents the only brand that matters for the company. Outback needs to maintain positive momentum in order for the company to succeed. This is crux of our issue with BLMN, because we have little faith in the Outback concept long-term.

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 3

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 4

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 5

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 6

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 7

 

MARGINS

Restaurant level margins are trending upwards, thanks to cost management practices.

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 8

 

EBIT margins are similarly benefiting seeing larger % increases YoY in 1Q15 than Restaurant level margins.

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 9

 

VALUATION

This stock is cheap, but rightfully so, multi-concept casual dining chains are disadvantaged from the get-go given the lack of focus and capital allocation issues. But with BLMN currently trading at 8.15x EV / NTM EBITDA, it is trading at a steep discount to the competition, but deservingly so.

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 10

 

SHORT INTEREST

Currently short interest is 5.5% of the float, there is not a big bet against this company currently, but short interest is rising heading into the quarter.

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 11

 

SENTIMENT

The street cannot get more bullish on this company, 79% of analysts covering the stock have a buy rating, with zero sell ratings.

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 12

 

HEDGEYE RESTAURANTS IDEAS LIST

BLMN | ANOTHER BACK HALF MISS? - BLMN CHART 13 


Lower-highs

Client Talking Points

USD

While yesterday’s Fed commentary was, on the margin, dovish (this time acknowledging that “reflation” isn’t happening anymore), we think both rates and USD are trading up this morning ahead of what should be a “good” headline GDP report – it’ll read good vs the “bad” Q1, then Q3 will just be bad vs. Q2 again. 

GOLD

Positioned for #deflation? Gold bounced then faded like a flower, trading down another -0.9% this morning and has no immediate-term support to $1065/oz – most of the “reflation” trades led the 2-day U.S. equity bounce; fade them.  

DAX

The DAX is up +0.4% on the bounce but remains bearish TREND @Hedgeye with no support to 10,905 – while some may want to ignore the “data” right now, you shouldn’t . July CPI readings are dropping again this morning with Spain back to 0.0% year-over-year.

Asset Allocation

CASH 49% US EQUITIES 5%
INTL EQUITIES 9% COMMODITIES 0%
FIXED INCOME 23% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
GIS

General Mills (GIS) remains on the Hedgeye Consumer Staples Best Ideas list as a LONG. Key segments across the company are turning the corner and improving performance. Specifically GIS has figured out the yogurt category, after 3 years of struggling with Greek and losing on the core business, management has turned the Yogurt division into a growth segment. Cereal has obviously been a struggle for all companies participating. Although still down, the trend is looking better, in FY16 we hope to see the switch to Gluten Free Cheerios and other improvement, turn performance around.

PENN

Penn National Gaming reported Q2 profit of $16.9 million on Thursday. The company's profit of 19 cents per share beat analysts' expectations.  PENN posted revenue of $701 million in the period, which also beat forecasts.  Shares have climbed 40% since the beginning of the year and 58% over the last 12 months, obviously much higher than the S&P 500. Gaming, Lodging and Leisure Sector Head Todd Jordan was at Penn National Gaming's investor day on July 24th. He will provide a detailed update this week.

TLT

Those long of #LowerforLonger enjoyed another solid week of 2%+ gains for TLT and EDV. VNQ followed up last week’s gains with a pullback of equal size, but we received a positive sloth of data this week that confirms our long housing theme. A positive housing outlook within a bearish rate environment should be positive for VNQ.

Three for the Road

TWEET OF THE DAY

$LINE $LNCO to suspend distribution!

@HedgeyeEnergy

QUOTE OF THE DAY

If you limit your choices only to what seems possible or reasonable, you disconnect yourself from what you truly want, and all that is left is a compromise.

Robert Fritz

STAT OF THE DAY

This quarter marked the 5th consecutive quarter of traffic growth for PNRA, showing strong performance versus the competition beating Black Box Intelligence traffic metrics by 290 basis points in 2Q.


CHART OF THE DAY: Just One Bad Jobs Report Away From Janet Bailing on Hikes...

Editor's Note: The chart and excerpt below are from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to begin your subscription.

 

And… as you can see in today’s Chart of the Day, the “pace” (which most of you who are mathematically inclined might agree should be defined as the rate of change) of “gains” in US Non-Farm Payrolls has been slowing since February.

 

Therefore the most patient investor does nothing on today’s “good” Q2 GDP report and waits for not only the Q3 economic data, but the next 3-6 jobs reports. With “reflation” crashing, we’re only one bad jobs report away from Janet bailing on hikes...

 

CHART OF THE DAY: Just One Bad Jobs Report Away From Janet Bailing on Hikes... - Z NFP CoD


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The Fed's Pace

“Adopt the pace of nature; her secret is patience.”

-Ralph Waldo Emerson

 

Admittedly, there is a confirmation bias in my rate of change driven #process. I’m a big believer in gravity. Cycles take time to play out. We need to dynamically adapt to their pace and be patient.

 

This Federal Reserve isn’t the one we got used to with Bernanke. Janet’s secret isn’t trying to shape the data to a +3% “growth” outcomes – hers is much more “data dependent.” She’s patient.

 

Yesterday’s Fed statement had a wiggle. It adjusted (just a bit, but on the margin is what matters) for the recent marked-to-market change in inflation. Very few at the Fed want to raise rates as nature’s pace of #deflation is accelerating.

 

The Fed's Pace - Deflation cartoon 02.24.2015

 

Back to the Global Macro Grind

 

“So” as many like to say, if we’ve already solved for inflation looking a heck of a lot more like #deflation, what we really need to solve for is growth; specifically the pace of growth in the US labor market.

 

And… as you can see in today’s Chart of the Day, the “pace” (which most of you who are mathematically inclined might agree should be defined as the rate of change) of “gains” in US Non-Farm Payrolls has been slowing since February.

 

Therefore the most patient investor does nothing on today’s “good” Q2 GDP report and waits for not only the Q3 economic data, but the next 3-6 jobs reports. With “reflation” crashing, we’re only one bad jobs report away from Janet bailing on hikes.

 

Moving along to the European “data” this morning:

 

  1. Spain’s headline “inflation” (CPI) reading came in at 0.0% y/y for July (vs. 0.1% in June)
  2. Belgium’s CPI slowed to 0.46% y/y in July (vs. 0.63% in June)
  3. Greece and Austria printed deflationary PPIs (producer prices) of -5.7% and -1.0% y/y, respectively

 

I know. Damn the “data.” Eventually a mean reverting diffusion index like the PMI will stop going down and everything will be fine, eh?

 

Reality is that Draghi was as unsuccessful at slowing the pace of nature as Bernanke ultimately was. The lesson from this grand central planning experiment is this:

 

You can print, devalue, and obfuscate until enough people get sucked into the illusion of growth (commonly known as inflation)  - but then, from those artificially inflated asset prices, all you have left is #deflation.

 

What to do with all of this?

 

  1. Stay long US Dollars (UUP) until the Fed starts getting bad jobs reports and hints at Qe4
  2. Stay net short or out of anything commodity “reflation”
  3. Stay with long-duration ways to be bullish on growth and inflation slowing (long-term Bonds and their proxies)

 

And, in equity markets you like (which hopefully have nothing to do with inflation expectations and/or their commodity-links), I have another huge confirmation bias that seems to be working: buy low, sell high.

 

On that score, after 5 straight down days (tagging the low-end of my immediate-term risk range) the beloved SP500 was up for 2 days, to lower-highs. “So” you can start selling everything “reflation” and “global growth” again.

 

Heck, even the almighty Facebook (FB) talked about year-over-year revenue growth “slowing” last night. Those of you who “love the company” but have been patient enough to buy something like that on down days will be rewarded by nature today.

 

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

 

UST 10yr Yield 2.21-2.39% (bearish)

SPX 2065-2123 (bearish)
RUT 1 (bearish)
DAX 105 (bearish)

VIX 11.88-15.15 (bullish)
USD 96.43-98.44 (bullish)
EUR/USD 1.07-1.10 (bearish)
YEN 123.18-124.79 (bearish)
Oil (WTI) 46.43-49.05 (bearish)

Nat Gas 2.75-2.92 (bearish)

Gold 1065-1101 (bearish)
Copper 2.31-2.51 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Fed's Pace - Z NFP CoD


ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits

Takeaway: International equity funds and equity ETFs continue to benefit from domestic equity outflows.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the most recent 5-day period ending July 22nd, investors continued to redeem funds from active domestic equity funds with the category losing another -$3.2 billion last week. Investors instead re-distributed these proceeds into international equity funds and domestic ETFs with inflows last week of +$5.0 billion and +$1.3 billion respectively. The shift to passive from active domestically has been pervasive with over +450 billion having moved into U.S. ETFs over the past 3 years against the -$175 billion drawn down from domestic funds. With $6.2 trillion remaining in domestic mutual funds versus $1.2 trillion in U.S. ETFs, there is plenty of track left for passives to gain share. With this secular opportunity for ETFs, we continue to remain bearish on shares of leading active managers including T. Rowe Price (see report here) and Janus Capital Group (see report here). 

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI19

 

In the most recent ICI survey for last week, all categories experienced modest inflows except for domestic mutual funds:


ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI1


In the most recent 5-day period ending July 22nd, total equity mutual funds put up net inflows of +$1.9 billion, outpacing the year-to-date weekly average inflow of +$220 million and the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$5.1 billion and domestic stock fund withdrawals of -$3.2 billion. International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 10 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net inflows of +$1.6 billion, trailing the year-to-date weekly average inflow of +$1.9 billion but outpacing the 2014 average inflow of +$929 million. The inflow was composed of tax-free or municipal bond funds contributions of +$250 million and taxable bond funds contributions of +$1.3 billion.

 

Equity ETFs had net subscriptions of +$1.4 billion, trailing the year-to-date weekly average inflow of +$2.5 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$1.7 billion, outpacing the year-to-date weekly average inflow of +$935 million and the 2014 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2014 and the weekly year-to-date average for 2015:

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI2

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI3

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI4

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI5

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI6

 

 

Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI12

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI13

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI14

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI15

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI16

 

 

Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2014, and the weekly year-to-date average for 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI7

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI8

 

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the long treasury TLT ETF took in contributions of +$285 million or +6% as investors felt jitters over the lack of breadth in the equity market's recent highs.

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI9

 

 

Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI17

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI18

 

 

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$58 million spread for the week (+$3.2 billion of total equity inflow net of the +$3.3 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$1.8 billion (more positive money flow to equities) with a 52-week high of +$27.9 billion (more positive money flow to equities) and a 52-week low of -$18.1 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI10

 

Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey | International Funds and Equity ETFs Reaping the Benefits - ICI11 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

 

 

 

 


The Macro Show Replay | July 30, 2015

 


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