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    November 13, 2009


    It looks like Dollar General is pricing at the low end of the $21-$23 range.  This seems to run counter to the bulk of feedback in my in-box yesterday about how this stock would ‘rip’ on day 1 due to such solid demand. Maybe the capital market mensa society that is Goldman, BAS, Citi and JP Morgan have some secret strategy to price at the low end and make people think they’re getting a deal to spur last minute demand. As noted in our DG BlackBook, the assumptions I need to make in order to sustain the rebound in asset turns and margins that DG is printing today are way too hefty for me given the current economic backdrop.  

    Rue21, however, priced at $19, above the $16-$18 range. For those unfamiliar with RUE, it is basically Aeropostale meets Buckle meets Steve and Barry’s (which went bankrupt last year). Virtually everything in the store is under $30.

    The key here, however, is growth, and EPS momentum. For better or worse, the hedge fund community is banking that RUE will smoke numbers for the next two quarters. Then is looking at what is legitimate square footage growth as the company takes its concept from 500 stores to 1,000 over 5-years.

    What’s interesting is that RUE has the same underwriters (sans Citi) as DG. If you got your hands on some RUE, congratulations. If not, and your salesperson is calling you this morning with a DG consolation prize, then my condolences.


    Some Notable Call Outs

  • Wal-Mart’s key message out of its 3Q conference call is that the company is focused on stepping up its marketing message and reinforcing its price leadership position. With two-thirds of its marketing budget covered by co-op, the company is clearly leveraging its scale and dominant share to drive an aggressive value message over the coming weeks.
  • While most investors likely view Kohl’s 4Q guidance as conservative, it’s easy to come to that conclusion. The company is entering the holiday season with 40% less clearance inventory year over year. Additionally, the company continues to benefit from tight inventory management relative to sales trends and improved product costs year over year. Barring an all out promotion-fest across the retail landscape, the sales and margin compares look to be setting up for some upside when the holiday is finally complete.
  • Both Kohl’s and Wal-Mart reported substantial growth in their ecommerce business. Wal-Mart’s increased by 20% while Kohl’s tracked up 30%. Both companies are bullish on the opportunity for the direct channel and were quick to point out their above-industry growth.
  • In one of the more articulate and upfront discussions about ecommerce, the CEO of Urban Outfitters described the growth in online sales (up 21% in 3q) as a “secular shift in the way the customer is shopping”. The company is increasingly focused on Facebook and social media, highlighting that there are now over 208,000 “fans” on the company’s Facebook accounts (in just a few months since they launched). The quote of the call however, was that the social networking phenomenon is “word of mouth on steroids”. The big challenge here is recognizing that good news and bad news can now travel to large audiences equally as fast.
  • Despite a penny miss relative to the Street, Nordstrom’s 3Q results appear to be setting the stage for a solid 4Q.  While most are focused on the apparent “miss”, the company’s inventory position has not been in better shape in 2 years, as we head into the holiday selling season. Additionally, 3Q marked the first quarter of gross margin expansion since 2Q08, which when combined with a 10% decline in inventory/foot suggests even management’s slightly more bullish stance may still be conservative.


    Fed May Cause Next Crisis, Hong Kong’s Tsang Suggests - The Federal Reserve’s policy of keeping interest rates near zero is fueling a wave of speculative capital that may cause the next global crisis, Hong Kong’s leader said. Fed Chairman Ben S. Bernanke, a scholar of the Great Depression, has overseen a record injection of liquidity into the world’s largest economy, pledging not to make the mistake of the 1930s, when officials tightened policy. Tsang’s warning contrasts with pledges by the Group of 20 nations that represent the world’s biggest economies to keep stimulus measures in place. “We have a U.S. dollar carry trade at the moment,” Tsang, 65, said in a speech where leaders of the Asia Pacific Economic Cooperation forum are gathering for a weekend summit. The carry trade is where investors borrow cheaply in one currency and use the funds to invest in other currencies. “Where is the money going -- it’s where the problem’s going to be: Asia,” Tsang said. “You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.” <bloomberg.com>

    Europe’s Economy Emerges From Recession on Exports - The euro-area economy emerged from its worst recession since World War II in the third quarter as exports from Germany and France helped compensate for households’ reluctance to increase spending. Gross domestic product in the economy of the 16 nations using the euro rose 0.4 percent from the second quarter, when it fell 0.2 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast the economy to grow 0.5 percent, according to the median of 34 estimates in a Bloomberg survey. Europe’s economy is gathering strength after governments stepped up stimulus measures and the European Central Bank injected billions of euros into markets to encourage lending. While confidence in the economic outlook is at a 13-month high, rising unemployment, the expiration of stimulus plans and a surging euro are threatening to undermine a recovery. <bloomberg.com>

    Japan Risks Economic Slowdown as DPJ Debates Stimulus - Japan’s economy probably expanded at the fastest pace in more than a year in the third quarter, helped by emergency spending by the former government that Prime Minister Yukio Hatoyama wants to phase out. Gross domestic product grew an annualized 2.9 percent, following a 2.3 percent expansion in the three months ended June 30, according to the median forecast of 20 economists surveyed ahead of the GDP release due Nov. 16. Domestic demand will make up more than half of the expansion for the period, the first time that’s happened since the first quarter of 2007, according to the median projection. Hatoyama’s plan to redirect what he termed the wasteful spending implemented by the ousted Liberal Democratic Party clouds the outlook for growth in 2010, analysts say. <bloomberg.com>

    Troubled Chicago Retail Project Might Open Soon - Despite a foreclosure lawsuit, developers of Chicago’s Block 37, which includes a 285,000-square-foot retail component, are pushing to open a section of the center before Thanksgiving. Zara, Anthropologie, Puma, Steve Madden and Swarovski are among the stores. Last month, a group of banks led by Bank of America filed suit against developer Joseph Freed & Associates LLC charging the company defaulted on $128.5 million. A Cook County Circuit Court judge Monday set a hearing for Nov. 20 on the banks’ request to put the project in receivership. Joseph Freed, which called the suit a “misguided action that could halt the project,” said it has signed leases with 13 new tenants including Sephora, L’Occitane and local specialty stores Michelle Tan and Claudia Kleiner Malabar Collection, which would be in a later phase of the project at 108 North State Street. <wwd.com>

    Wal-Mart, Kohl's Cautious About Outlook - Wal-Mart Stores Inc. and Kohl’s Corp. played the value game well in the third quarter, driving up sales and earnings, but both retailers were less bullish about holiday than Wall Street had hoped. The two retailers continued to forge ahead with expansion even as many competitors have avoided it in favor of cash preservation. “All over the world we’re gaining market share,” said Mike Duke, Wal-Mart’s president and chief executive officer, on a conference call. “We added more than 13 million square feet this quarter.” Still, profits at Wal-Mart rose 3.2 percent to $3.24 billion, or 84 cents a share. Kohl’s third-quarter net income shot up 20.6 percent to $193 million, or 63 cents a diluted share, but the company placed earnings in the current quarter at $1.14 to $1.24 a share, just below the $1.25 analysts projected. <wwd.com>

    Consumers embrace social shopping, new Deloitte survey reports - Retailers have been focusing lately on how they can harness online social media to generate sales, and the latest consumer poll from consulting firm Deloitte says they are right to have social media prominent on their radar screens.

    Deloitte’s 24th Annual Holiday Survey of 10,878 consumers reports that 22% of all consumers will do their primary shopping online this year. It also reports that consumers are adopting social media relatively fast, with 17% of all shoppers planning to use social media—Facebook, MySpace and other such online gathering and communication places—when they shop for gifts. And even though the users are skewed younger, they represent all ages up to 60: 52% of those who will use social sites are age 18-29; 33% are 30-44; and 12% are 45-60. <internetretailer.com>

    Footwear anti-dumping extension to cost 1bn euro - The European Commission’s proposal to extend anti-dumping duties on leather footwear from China and Vietnam would cost EU businesses and consumers in excess of €1bn (£90m) according to the European Footwear Alliance (EFA).

    Anti-dumping duties of 16.5% and 10% on leather footwear imported from China and Vietnam respectively could be extended beyond January if EU member states vote in favour of the European Commission’s proposal to extend them on November 19. The deadline for interested parties to lodge their objections to the proposed extension passed this week, but the British Retail Consortium and the British Footwear Association will continue to lobby member states. Submissions made to Drapers Dump The Duties campaign will be used to highlight the very real impact of the duties on businesses and consumers. <drapersonline.com>

    Japan’s Consumer Confidence Stalls as Wages Tumble - Japan’s household sentiment failed to rise in October for the first time this year as dwindling pay discouraged consumers. The confidence index stayed at 40.5, the highest since October 2007, the Cabinet Office said today in Tokyo. Sentiment had been rising every month since plunging to a record low in December. Today’s report indicates that the effect of government incentives to buy cars and electronics that probably helped the gross domestic product accelerate last quarter is starting to wane. Analysts say the stimulus boosts may have reached their peak, an indication that consumers, whose wages have been tumbling for 16 months, will be a drag on the world’s second- largest economy. <bloomberg.com>

    Brazil denounces the illegal “triangulation” of Chinese products - According to the National Secretary of the Development and Foreign Trade Ministry (MDIC), Welber Barral, Brazil is facing the challenge of solving tax problems for exporters who are having great difficulty in receiving tax credits. This is something which does not happen in competing nations such as China. "They are distortions which end up punishing Brazilian exporters and something we must correct", said Barral. The bureaucrat affirmed that there are products which are probably offered in Brazil on a "dumping" basis which otherwise would be taxed at a higher rate and which are coming into Brazil via "trade triangulation" from other countries so as to evade customs duties. Footwear could well be included in the mix. <fashionnetasia.com>

    Printemps Sees ‘Amazing’ Luxury Sales Amid $100 Million Refit - Spending on luxury apparel, jewelry and accessories is rebounding from a “difficult” summer, the head of Paris’s Au Printemps department store said yesterday as he took the wraps off a $100 million makeover. “Brands like Prada, Dior and Chanel are seeing amazing sales,” Chief Executive Officer Paolo de Cesare said in an interview at the 144-year-old store. Printemps marked the start of its holiday selling season last night by unveiling a spruced-up historical facade that’s been hiding behind scaffolding for more than two years. The store’s renovation, which is scheduled to run until next summer, will allow it to offer a wider selection of luxury brands and may result in “double-digit” revenue growth over Christmas and in the next few years, according to De Cesare. Optimism among wealthy shoppers is returning as economies emerge from recession. <bloomberg.com>

    Nike Opens Tokyo Flagship - Nike has brought its signature swoosh to one of this city’s trendiest neighborhoods. On Saturday, the athletic brand will open a sprawling new flagship in Harajuku, a district known for its cutting-edge street fashion and youthful clientele. Jeanne Jackson, president of direct-to-consumer for Nike Inc., said the athletics giant had thought about opening a significant flagship here for many years. The store was in the works before the economic downturn, but Jackson said she’s still optimistic it will be successful. She declined to give a sale estimate for the store. <wwd.com>

    Gap Opens Two Prototype - The San Francisco-based retailer is betting heavily on its new 1969 premium jeans collection with an 8,000-square-foot store opening here today at 528 Broadway on the corner of Spring Street. The first store of its kind, the store is also the first Gap unit to open in SoHo. The concept picks up where a Gap 1969 pop-up shop that opened in August on Robertson Boulevard in Los Angeles left off. The space was previously a Banana Republic men’s store, which moved to 552 Broadway, where it joined women’s in a new dual-gender prototype. “We had two goals for the store,” said Mark Walker, divisional merchandise manager overseeing the project. “The first was to make a store that really fit SoHo. The second goal was to really feature 1969 denim.” <wwd.com>

    Barrack, Rodos & Bacine is investigating potential claims on behalf of shareholders of Carter’s, Inc. - On October 27, 2009, Carter’s announced that it would delay its scheduled earnings release in order to complete a review of its accounting for margin support to wholesale customers. After the market closed on November 9, 2009, the Company announced that it would, in fact, need to restate its financial results for each fiscal year from 2004 through 2008 and for each fiscal quarter from September 2007 through June 2009. In response to these disclosures, the stock has declined nearly 24% and the Company has lost more than $350 million of market capitalization. <studio-5.financialcontent.com/>

    Tesco Forms China Venture to Build ‘Substantial’ Business - Tesco Plc, the U.K.’s largest retailer, said it formed the first in a series of joint ventures to build shopping centers in China as retail sales growth in the world’s most populous nation accelerates. The retailer will build three shopping malls in northern China in Anshan, Fushan and Qinhuangdao with a Tesco hypermarket anchoring each development, the London-based company said today in a statement. Tesco, which owns 65 large supermarkets and 6 small stores in China, said it wants to build a “substantial” business and plans to open 18 hypermarkets in the country by February. China’s retail sales and industrial production accelerated last month, bolstering forecasts for economic growth to exceed 10 percent this quarter. <bloomberg.com>

    Mango Eyes U.S. Expansion - The Spanish fashion retailer hopes to add 200 corners to its already-existing network of 12 stores, and is in talks with several potential partners. “We are in conversations with different U.S. department stores [to distribute the brand],” confirmed Isak Andic, Mango’s co-founder and chief executive officer. “We have not closed a deal yet, but a decision will be made very soon.” Candidates reportedly include J.C. Penney, Macy’s, Bloomingdale’s and Saks Fifth Avenue, although Andic declined to discuss with whom the retailer is in talks. <wwd.com>

    Arkansas Switches to Nike from Adidas - The University of Arkansas will enter into an all-sports apparel and footwear contract with Nike, beginning July 2010. An existing deal with Adidas expires June 30, 2010. "We are excited about our new partnership with Nike," Jeff Long, athletic director for Arkansas, said in a statement. "Nike is the most coveted brand in collegiate athletics and has a tremendous reach in the United States and world wide." <sportsonesource.com>

    Exclusive Star Trek Shoe Hits Payless Stores - The exclusive STPL x Airwalk Star Trek shoe is now arriving at Payless ShoeSource stores and payless.com. CBS Consumer Products tapped Jeff Staple to design the branded street-meets-skate shoe. The shoe, offered in three colors (red, blue and gold), is inspired by the Starship Enterprise crew's Starfleet uniforms in the classic TV series, as well as this summer's feature film. "The momentum for Star Trek only continues to grow during this banner year for the iconic brand," says Liz Kalodner, executive vice president and general manager of CBS Consumer Products. "A whole new generation of Star Trek fans can now show off hip, stylish fashions just in time for the holiday season." <licensemag.com>


    Dick's SG Names Chief Accounting Officer - Dick's Sporting Goods, Inc. said in a Securities & Exchange filing that effective Nov. 8, Joseph R. Oliver will assume the title of SVP, chief accounting officer and controller. Prior to this appointment, Oliver had been employed by the company as VP, controller and assistant secretary since February 2006, and as director of accounting of the company since May 2000. <sportsonesource.com>

    Walmart to Stay Open 24 Hours Thanksgiving Weekend - About 800 Walmart stores in the U.S. will be open 24 hours during Thanksgiving weekend. Black Friday sales will begin Nov. 27 at 5 a.m.

    The announcement from the retailer does not include most of its supercenters, which are already open 24 hours. Walmart has also re-addressed its store plans for entry, customer flow, checkout aisles and placement of big-ticket items. Last year, federal safety regulators cited the retailer for inadequate crowd control after the death of a temporary employee at a New York store. <licensemag.com>


    VFC: Eric Wiseman, President & CEO, sold 24,000 shares after exercising options to buy 24,000 shares for a net gain of $960k.

    CRI: Charles Whetzel, EVP, sold 20,000 shares after exercising options to buy 20,000 shares for a net gain of $420k. Transaction occurs amid an investigation of the corporation on behalf of the shareholders.

    FDO: Dorlisa Flur, EVP, sold 5,900 shares after exercising options to buy 6,600 shares for a net gain of $59k.

    FOSL: Alan Gold, Director, sold 6,800 shares after exercising options to buy 6,800 shares for a net gain of $149k.


    TIF: James Quinn, President, sold 25,000 shares after exercising options to buy 25,000 shares for a net gain of $38k.

    SWY: Kenneth Oder, Director, purchased 10,000 shares for a total cost of $230k.