prev

Retail Callouts (9/23): First Holiday Projection Bearish, With Tough 4Q Compare

Takeaway: First Holiday Sales Projection Bearish, Retail Facing Tough Compares in 4Q.

First Holiday Sales Projection Bearish, Retail Facing Tough Compares in 4Q

(http://www.reuters.com/article/2015/09/22/us-usa-retail-holidays-idUSKCN0RM2WN20150922)

 

This is the first official holiday sales projection of the year, and the outlook is markedly bearish from Alix Partners. We don't think there's much of a process behind forecasts from just about any source (NRF, Alix, you name it). The track record is a bit spotty as can be seen in the table below. In fact, not once over the past 4-years has the Actual sales growth number fallen within the 'Low/High' range.

 

But what we do know is that, the retail sector is facing tough revenue AND margin AND working capital compares in 4Q. In what will likely be an extremely promotional holiday – we’ll see ‘free shipping’ as the most commonly used offensive weapon. We think that retailers will opt to hold the line on market share and will view weaker margins as a customer acquisition cost while most components of the retail landscape are dropping the gloves online.  

 

Note in the chart below that the 16.4% EPS growth for retail in 4Q14 is the highest we've seen in any quarter for the group in over two years. We think there's a far better chance of that rate going negative this 4Q than being double-digit positive. We've seen retail multiples contract by about 2 points (XRT) over the past quarter, which is twice the contraction of the overall market. So clearly, some deceleration is expected. But we still need to be very selective about what we own with the group at 19x earnings.

 

Long: RH, KATE, PIR, NKE, RL

Short: FL, HIBB, KSS, TIF


Retail Callouts (9/23): First Holiday Projection Bearish, With Tough 4Q Compare - 9 23  chart2 B

Retail Callouts (9/23): First Holiday Projection Bearish, With Tough 4Q Compare - 9 23 chart1

 

UA - One week after it's investor day, UA is launching a new campaign behind two of its athletes.  The campaign is call "Slay Your Next Giant" and includes young soccer star Memphis Depay, and Cameron Carter-Vickers.

(http://footwearnews.com/2015/focus/athletic-outdoor/under-armour-soccer-football-slay-your-next-giant-campaign-man-u-153374/)

 

WMT - Wal-Mart has acquired PunchTab, a 4 year old tech startup to help with customer engagement and targeted offers at Sam's Club.  Terms are undisclosed.  This is the 15th acquisition for WMT in 4 years, as they continue to add young tech talent.

(http://wwd.com/retail-news/mass/walmart-labs-acquires-punchtab-10236874/)

 

AMZN, ETSY - Amazon has quietly started a "Handmade" concept connecting makers of handcrafted goods with Amazon shoppers, which would be a direct competitor to ETSY.  Though not officially launched, select sellers have started using it. 

(http://www.ecommercebytes.com/cab/abn/y15/m09/i21/s02)

 

LULU - Chip Wilson's family's new Brand Kit and Ace is a year old.  The company has 600 employees and plans to have 50 North American stores by mid 2016.

(http://www.bcbusiness.ca/retail/is-kit-and-ace-chip-wilsons-big-new-bet-really-a-tech-startup-0)


HBC, M - Saks announced a new Off 5th location in Woodland Hills, CA opening Aug 2016.  While Bloomingdale's announced two new outlet stores in Philly and San Diego by November.

(http://footwearnews.com/2015/business/retail/saks-off-5th-bloomingdales-outlet-new-stores-beverly-hills-philadelphia-153503/)

 

JCP - JC Penney promotes John Tighe to EVP and Chief Merchant, from SVP and senior general merchandise manager for men's, children's, footwear, handbags and intimate apparel.

(http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=2089751)

 

TPX, CONN - New Tempur Sealy CEO Scott Thompson resigns as director of Conn’s. Corporate governance guidelines require directors to offer to resign when their employment status changes.

(http://www.furnituretoday.com/article/523854-new-tempur-sealy-ceo-scott-thompson-resigns-director-conns)

 

CRI - Carter's amends revolving credit facility to $500mm from $375mm.

(https://www.sec.gov/Archives/edgar/data/1060822/000119312515325541/d35273d8k.htm)


WHAT’S IN STYLE?

The increased stock market volatility is overshadowing fundamentals in the Consumer Staples space.  Consistent with the Hedgeye Macro Team’s view of the overall market, style factors are currently playing a big role in performance and will likely be a factor as 3Q15 comes to a close.  According to the Hedgeye Macro Team, the style factors that should continue to get you paid into the quarter-end are:

  1. Low-Beta, Big Cap (Equities)
  2. Long Duration Government Bonds
  3. U.S. Stocks That Look Like Bonds

 

In the Consumer Staples space the proof is in the numbers. In the consumer staples sector large cap/low-beta names, for the most part, have been some of the best performing companies.  Consistent with this thesis on the LONG side we like GIS and LNCE.  Unfortunately, our WWAV long is painful, but the HAIN SHORT feels much better.  

WHAT’S IN STYLE? - CHART 1

WHAT’S IN STYLE? - CHART 2

 

In a flight to safety environment, Consumer Staples will likely continue outperforming.  Year-to-date, Consumer Staples has outperformed the S&P 500 by 260bps. Over the last five days, as you see below, the XLP has outperformed the entire market except for XLU.

WHAT’S IN STYLE? - CHART 3 replace

 

While on a relative performance the XLP is outperforming the stock market as whole, stocks still look expensive.  The XLP is currently trading at 11.38x EV / NTM EBITDA, well above its five year average of 9.77x.

WHAT’S IN STYLE? - CHART 4 replace

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


CHART OF THE DAY: Alpha Remains (For The Growth Slowing Bulls)

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

 

CHART OF THE DAY: Alpha Remains (For The Growth Slowing Bulls) - z ben cod 09.23.15 chart

 

...Not loving the following US Equity Sector Styles has shown you the performance love in both Q3 and YTD:

 

  1. Energy Stocks (XLE) -20.7% YTD
  2. Basic Materials (XLB) -15.1% YTD
  3. Industrials (XLI) -11.0% YTD

 

I don’t hate, but I’d dislike being long the Financials (XLF) on “rates are going up” (XLF -8.5% vs. SP500 -5.6% YTD); whereas I still like (don’t love) our non-consensus 2015 long --> US #HousingAccelerating is +4.8% YTD (ITB) in real absolute performance terms.

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%

Loving Growth?

“Every love story needs a catalyst of some sort.”

-Ian Somerhalder

 

I love growth. I do. I absolutely love it. I love it so much that my beautiful wife Laura and I have had 4 children and my firm and I have grown revenues +35% year-over-year to a new record here in the third quarter.

 

I loved our US #GrowthAccelerating call in 2013 too. So, please, tell your perma bull friends that I’m not a hater of growth. I’m a lover. I love a lot of things. A nice glass of wine. A cigar. Oh, and Damon’s flow! (Ian Somerhalder plays Damon in The Vampire Diaries)

 

But, as those of you who are bullish on baby making and/or revenue generation know, the manifestation of your love needs a catalyst. My love for the Long Bond as of late has a very simple one – Growth Slowing, Globally.

Loving Growth? - Slow growth snails cartoon 07.14.2015

**Join Keith LIVE on The Macro Show this morning at 9am ET. Click here for access.

 

Back to the Global Macro Grind

 

Since I’m gearing up to give you some more buy/cover signals (on red) in Real-Time Alerts today, I’m just trying to show you the love. I have it in me. Do you? What is the catalyst for you to start loving either Global or US growth this morning?

 

Loving the following Style Factors should continue to get you paid here into quarter-end:

 

  1. Low-Beta, Big Cap (Equities)
  2. Long Duration Government Bonds
  3. US Stocks That Look Like Bonds

 

Not loving the following US Equity Sector Styles has shown you the performance love in both Q3 and YTD:

 

  1. Energy Stocks (XLE) -20.7% YTD
  2. Basic Materials (XLB) -15.1% YTD
  3. Industrials (XLI) -11.0% YTD

 

I don’t hate, but I’d dislike being long the Financials (XLF) on “rates are going up” (XLF -8.5% vs. SP500 -5.6% YTD); whereas I still like (don’t love) our non-consensus 2015 long --> US #HousingAccelerating is +4.8% YTD (ITB) in real absolute performance terms.

 

Trust me, like my main man Lee Brice sings in “Hard To Love”, I get it. I’m a married man. I’m taken. Many on the Old Wall have no love for the transparent and accountable independent research platform we have built. How could they love their competition?

 

I’ve always told people who aspire to achieve all of the over-compensation benefits of this game that that’s not why they should play it. You should rise & grind to play this game every morning because you love it. That’s the catalyst. Not the money.

 

Today is central-planning-love day in Europe:

 

  1. ECB overlord Draghi testifies to European Parliament
  2. FX markets have been shorting Euros every day (since the Fed went dovish) into this event
  3. But will he deliver the love?

 

As of 5:50 am EST, the only comment I’ve seen from an ECB man (Nowotny) is that there’s “no real need to act in the short term.” Uh, oh. That’s not the love European Equity bulls were looking for! Stay tuned for super Mario. He’s up next.

 

In other Global Macro news this morning:

 

  1. China’s Manufacturing PMI (purchasing manager index) slowed in SEP to 47.0 from 47.5 in AUG
  2. Germany’s Manufacturing PMI slowed from 53.5 in AUG to 52.5 in SEP

 

Those are 2 of the top 4 countries in terms of Global GDP contribution (#1 is the USA, #3 is Japan) and, as you know, since both the USA and Japan have also slowed sequentially throughout the summer, the probability of their PMIs slowing in SEP is high too.

 

Yep. For growth bulls, it’s hard to love that statement. Especially if you’ve been telling clients that neither Global Growth Slowing nor #Deflation matter (and that you should be long the Industrials (XLI) and Financials (XLF), as a result). #Ouch

 

“So”, what, precisely, is the catalyst for the lovers of cyclical growth, when growth is clearly slowing?

 

  1. Is it central planning? (600 rate cuts globally didn’t cut it yet)
  2. Is it comping the slow-growth compares?
  3. Or is it sentiment being “too bearish” AFTER consensus had 2015 growth forecasts completely wrong?

 

Since the Fed, PBOC, and ECB are learning what the Japanese taught them (you can’t CTRL+Print growth) and Q3 US GDP slowing is still one of the biggest catalysts of the year, I guess sentiment is the only relevant catalyst to consider.

 

And, since I love no-conflict-of-interest-paper-trading in Real-Time Alerts, I’m looking forward to helping you risk manage that day-to-day chop. I absolutely love trying to handicap the immediate-term within the intermediate-term view. What’s not to love about that!

 

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

 

UST 10yr Yield 2.09-2.21% (bearish)

SPX 1 (bearish)
RUT 1131-1168 (bearish)
DAX 91 (bearish)

VIX 19.86-27.06 (bullish)
USD 94.59-96.71 (neutral)
EUR/USD 1.10-1.13 (neutral)
YEN 118.78-121.86 (bullish)
Oil (WTI) 43.93-48.61 (bearish)

Nat Gas 2.55-2.68 (bearish)

Gold 1117-1142 (bullish)
Copper 2.29-2.38 (bearish)

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Loving Growth? - z ben cod 09.23.15 chart


The U.S. Isn’t "Decoupling"

Client Talking Points

CHINA

We have no idea how anyone can trust their numbers, but even the ones they report are slowing – PMI 47.0 SEP vs. 47.3 AUG (lowest level since 2009). The Shanghai Composite remains in crash mode -2.2% overnight, -40% since APR.

DRAGHI

It’s central-planning hope day for European Equities as ECB President Mario Draghi testifies to the overlords. The DAX is bouncing +1.2%, but that’s after a nasty crash day yesterday (inclusive of the bounce, DAX -22% since April) and SEP PMI slows (again) to 52.5 from 53.5.

SECTORS

Don’t forget that begging for Draghi to devalue is deflationary (Down Euro --> Up Dollar --> Down Commodities and related sectors). Energy (XLE) is down -20.7% year-to-date and Basic Materials (XLB) is down -15.1% year-to-date – easy calls to have stayed with. We reiterate the SELL call on Industrial demand & pricing (XLI -11% year-to-date).

 

**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 70% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

McDonald’s remains one of our Restaurant teams Best Ideas on the LONG side.  We continue to believe that 3Q15 will be the inflection point for the company’s turnaround and that we are going to be looking at a much different company 1-3 years from now.

 

Urgency has been instilled from the top down by new CEO Steve Easterbrook. He wants more speed and is encouraging people to get things done faster. The food and experience provided to the customer will greatly improve over the coming months as “Experience the Future” is implemented across the system. It won’t be instantaneous though, as MCD has a lot of work to do around changing the perception to bring back customers it may have lost.

PENN

Penn National Gaming continues to be our favorite Regional Gaming stock.

 

Regional numbers for August have come in soft, but we predicted the August weakness. September revenues should rebound and serve as a catalyst for the stock going into Q3 earnings. On the research side we have not altered our views of PENN’s long term growth story. We continue to see more upside from current price levels. 

TLT

Slower (and Lower) For Longer remains our non-consensus call. It's nice to see that the Fed is finally starting to see what the #GrowthSlowing late-cycle data does.

  1. GROWTH: is #LateCycle and will be slower (again) in Q3 than it was in Q2
  2. INFLATION: misreported, yes – in the area code of the Fed’s 2% “target”, no

Our estimate for Y/Y% GDP for Q3 is a range of 0.1% to 1.5%. Even the Q/Q SAAR # that consensus hangs on will be comping against a 3.7% Q/Q SAAR GDP print (second revision). Good luck positioning for a rate hike. Prepare for the fade…. AGAIN.

Three for the Road

TWEET OF THE DAY

VIDEO (1min) Should You Stay Away From U.S. Equities? $SPY https://app.hedgeye.com/insights/46472-should-you-stay-away-from-u-s-equities

@KeithMcCullough

QUOTE OF THE DAY

Learn to smile at every situation. See it as an opportunity to prove your strength and ability.

Joe Brown

STAT OF THE DAY

According to a new study by researchers at Yale, Americans send 5 pounds of garbage per person per day to landfills.


The Macro Show Replay | September 23, 2015

 


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

next