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The expression “long in the tooth” is an idiom that refers to old people, particularly when their age makes them too experienced or too seasoned for a particular thing, event, or role. When people use this phrase they are generally implying that the subject is past his or her prime.


While the phrase usually refers to horses or people, we are suggesting that CMG is getting older and looks like it will experience some growing pains in the near future. 

  1. Quality real estate is getting harder and more expensive to get
  2. Are the 2015 supply chain issues a one off experience?
  3. Slowing sales trends might not end in 3Q15



We keep hearing from our sources that finding quality real estate sites is becoming a bigger issue for a number of restaurant companies.  Part of the problem is the significant growth of the fast casual segment and the recent restaurant IPO boom that has put pressure on A rated locations.  It goes without saying, it never ends well for restaurant growth stocks when faced with the ever-growing demand and shrinking supply of quality real estate sites.  The majority of Fast Casual restaurant concepts have similar real estate requirements. Most concepts prefer to locate in high traffic shopping centers with good visibility. In most cases, these shopping centers have a mix of tenants, and many have language in their lease restricting the sale of similar products or food.


The real estate issue is an industry wide phenomenon, not just one facing CMG.  That being said, if you are a burrito concept (or a better burger concept), and if there is another burrito/burger concept in the shopping center, the landlord will often be prevented from entering a second lease.  Therefore, in popular locations, it’s not unusual to have an existing competitor on all four corners of a strong intersection.


There is no immediate issue pressuring CMG in 2015, but it’s likely that rents and availability will be a bigger issue in 2016.



The bigger CMG gets the harder it is going to be for them to adhere to their food with integrity mantra.  The challenge is even greater when we come to grips with the notion that the company will likely outgrow the supply chain over the next couple of years.  By 2017, CMG’s sales will account for 8% of all sales of non-GMO products at retail.  Therefore, the bigger challenge for the company is building a supply chain that can feed the ever growing needs of the company.  The Carnitas crisis of 2015, may just be the tip of the iceberg for the company.


What we find strange is, at the same time the company continues to punish (make fun of ) the same supply chain the company needs to be successful.  Evidence of this can be seen in the CMG game called, Friend or Faux – click HERE to try it out. The essence of this game goes beyond attacking McDonald’s or another restaurant company; it goes after the entire supply chain of food products. 


Has CMG gone too far, who is fighting back?  In a recent article, “Chipotle Hypocrisy: American Antibiotics Bad, British Antibiotics Good” (ARTICLE HERE) is clearly calling out CMG’s business model and challenging some of the ways the company does business.  It also put a spotlight on the supply chain issues and some of the complications the company faces as it gets bigger.


The supply chain puts CMG’s long-term same-store sales trends at risk.  First, the obvious, supply of available product is a clear issue.  Second, the more the company invites detractors to expose CMG’s issues, it will hurt the consumer perception of the brand.    






It’s usually never a winning proposition to make a call on any given quarter, especially for CMG.  That being said this quarter CMG is up against the most difficult quarter the company has experienced since coming public in 2006.  

  1. 4% pricing is rolling off sequentially
  2. Comparing against 19.8% same-store sales; 6.3% pricing and 3.4% traffic
  3. The street is expecting a 30bps sequential acceleration in 2-year same-store sales.  Management believes that the pork shortage may have impacted 2Q same-store sales by about 200bps.
  4. The 3Q15 2.4% same-store sales estimates suggest that CMG will see pressure on the labor line
  5. CMG should see a benefit from lower dairy costs
  6. The 2Q15 labor scheduling issue also impacted part of 3Q15
  7. Hourly labor rates continue to accelerate






CMG is a great company and has been on our Best Ideas list for the better part of two years.  There is enough evidence that there is a small shift that will begin to impact valuation.  So we are taking it off the best ideas list and putting it on the bench.



Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw



RL | Fountain of Youth

Takeaway: With one press release and three headcount moves, the average age of RL’s C-Suite came down by 22% -- from 60 1/2 yrs to 47.

We think this CEO change is a huge win for RL shareholders. It’s important, we think, for the age of the executive team at most consumer brands to be as closely aligned with its core customer as possible. For too long, that’s been going the wrong way at RL. But RL just made the biggest adjustment in that regard that we’ve seen at any company – perhaps ever.


We’re definitely more inclined to own RL on this announcement. Questions around management and Ralph’s oversight that we outlined in our June Vetting Book (CLICK HERE) were the biggest factors keeping us back from getting involved on the Long side. Those are now done. Now we need to get through the ongoing restructuring and SAP implementation, and yes, we’re still blown away that these two are happening at the same time.  But that’s 2-3 quarters away from an improving delta on the EBIT line. We think that once the bottom is in (perhaps in the early Feb print), demand to own this one will be strong.


Some Thoughts On The Announcement

  1. It’s Long Overdue. Ralph will be 76 years old in two weeks, making him the 7th oldest CEO in the S&P500. Since Roger Farah left his COO post in May 2014, Ralph has been taking on more and more responsibility, at a time when his age dictates he should probably be doing less.
  2. Jackie Is Out. Jackie Nemerov, current President and COO, will also be leaving in November. It’s amicable, but our sense is that this wasn’t exactly in her immediate-term plan. Nobody will come out and say it…but here goes. We’re happy to see Jackie go. Jackie is tough as nails and is a great leader internally, but her external profile was not good – especially with Wall Street. In her mid-60s, she helped prop up the average age in the C-Suite along with Mr. Lauren.
  3. Chris Peterson (49) remains President of the newly formed Global Brands Group. In other words, the six-headed Hydra that is Ralph’s new Brand structure entirely reports to him. This is a massive project, and the company’s bottom line will go nowhere until it’s done. As noted, we think its 2-3 more quarters until the rate of change turns positive.  
  4. New Guy Is From Where? All the calls we fielded this evening were hyper concerned about one thing…that Stefan Larsson, the new CEO is coming from none other than Old Navy – not exactly a fashion mecca. True.  That said, Old Navy is Gap’s biggest division, and both knows and serves its customer extremely well – even if it’s not RL’s customer. While no one on our team has met him personally, everything we know about his resume is impressive – very much so. First off, he’s 40-years old. He spent the bulk of his time at H&M where he rose from Regional manager, to Head of US Expansion, Head of Global Expansion, and ultimately Head of Global Sales. This is key because one of the biggest threats to RL is getting beat by Fast Fashion retailers like H&M.  Ultimately, he’s got age on his side, time at H&M, International experience, and a background in store growth – all the things that RL needs to grow.
  5. Too Young? We’ve already heard that one several times, and no, we’re not concerned. We’ll take a hyper-overachieving young gun over an ‘above average’ fifty-something anyday. We think age is irrelevant.
  6. Dramatic Changes? We heard this three times tonight. “Will the new CEO come in and make sweeping changes?” Keep in mind that Mr. Lauren’s office will still be occupied everyday, as he will maintain his role of a) Chairman of the Board, and b) driver of the creative process within Ralph Lauren. Also, there’s no coincidence at the massive age gap between Lauren and Larsson. Larsson could almost be Lauren’s son – in fact, he's 3-years younger than David Lauren, SVP Marketing at RL. Ralph was likely attracted to having someone young who is firmly entrenched to carry out his agenda by working side by side with him over the course of 2-3 years without rocking the boat. Remember, Ralph has 81% of the voting stock at RL – the second highest in the S&P (CEO of Universal Health is higher at 83%). In other words, Larsson will likely not so much as change the wattage of light bulbs in the Mansion without Ralph’s approval. The only friction we’d expect would be with Nemerov. But we don’t have to worry about that anymore. 

RL |  Fountain of Youth - Stefan Larsson 2

Stefan Larsson

Image Source: Gap


RL |  Fountain of Youth - RL chart 2

RL |  Fountain of Youth - RL chart 3c

MUST-SEE | McCullough vs. Wesbury on the Fed, Markets and Growth

(In case you needed another reason to tune into Fox Business, we bring you this gem.)


During this recent animated exchange hosted by Fox Business' Maria Bartiromo, Hedgeye Founder & CEO Keith McCullough and First Trust Chief Economist Brian Wesbury square off on the Fed's rate hike delay and the outlook for U.S. and global economic growth.

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Cartoon of the Day: Bears Crossing

Cartoon of the Day: Bears Crossing - Bear crossing cartoon 09.29.2015


"Rate hike or no rate hike? Who cares – stocks are now going down on both," Hedgeye CEO Keith McCullough wrote in a recent Early Look.

McCullough: Carl Icahn Can’t Be Serious


On today's edition of The Macro Show, Hedgeye CEO Keith McCullough takes activist investor Carl Icahn to task for encouraging the Fed to raise interest rates right now.


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


Subscribe to Hedgeye on YouTube for all of our free video content.


Retail Callouts (9/29): Titleist Looking To Go Public | RH Modern

Takeaway: Titleist looking to go public, but is golf investable? Consumer look at RH Modern, launching Oct. 1. Worst chain store growth # of the year.

NKE, UA, Adidas - Titleist looking to go public, but is golf investable? 

Acushnet Co (Titleist/FootJoy) is talking to banks about going public.  Acushnet (once owned by Fortune Brands) was purchased by Fila Korea Ltd. In 2011 for a purchase price of $1.225bn.  So naturally, the IPO is rumored to value the company at $2bn.


Titleist and FootJoy are among the best brands in Golf, and just about every 3-handicap PM who will be shopped the deal is likely to agree. But lets not forget that this is a low margin, operating asset intensive, high R&D business with two huge competitors (Nike and UA) who are jacking up the cost of growth by way of much more cash-rich core businesses.


Also, there is a net exodus of players from the game. Since 2007 (Economy & TigerGate) the number of people playing golf in the US is down by 5mm, or 17%.  Rounds per player has gone up since then, showing that it is the beginner that has left the game. That's definitely the lower-spending golfer, but the fact is that today's beginner is tomorrow's expert. 


Another thing  to consider is that if we're talking about an IPO, it likely means that the company has been shopped to UA and Adidas (Taylormade), both of whom presumably balked. And lastly, in the heyday of golf (circa 1999/2000) Callaway flirted with a $2bn valuation. Today it is below $700mm.  Titleist is a great brand, but is it 3 Callaways?


Perhaps it is. But they're going to have a tough round at this price.


Retail Callouts (9/29): Titleist Looking To Go Public  |  RH Modern - 9 29 chart1



RH Releases First Look at Modern to Consumer -- Launching Online October 1st 

CLICK HERE for Video

Retail Callouts (9/29): Titleist Looking To Go Public  |  RH Modern - 9 29 chart2



ICSC - Chain Stores put up worst growth number of the year at +1.2%. Eight straight weeks of decelerating growth on 1yr, 2yr, and 3yr basis.

Retail Callouts (9/29): Titleist Looking To Go Public  |  RH Modern - 9 29 chart3

Retail Callouts (9/29): Titleist Looking To Go Public  |  RH Modern - 9 29 chart4


JWN - A look at the new 140,000 SqFt Twin Cities Nordstrom store.  Uses the new store design including girlfriend fitting rooms, a 135 seat restaurant, and a kids playhouse.



Bob’s Furniture is entering Chicago-area market President’s Day weekend.  Company is planning five stores in the region, which was signaled in January upon leasing a 752,000 SqFt DC in Shorewood, IL



WMT - Wal-Mart making good on its commitment to get to using 100% renewable energy, announcing a long term power agreement with Pattern Energy Group for wind power.



Just a few weeks after the launch of Android pay, Samsung is launching its own payment solution, Samsung pay.  The phones are equipped for both near field communication magnetic secure transmission.



TUES - Michael Rouleau, CEO of Tuesday Morning, retiring from company and board effective  immediately.