It's Been a Tough Year In Bentonville | $WMT

Editor's Note: This an abridged excerpt from a research note written recently by our Retail team led by Sector Head Brian McGough. If you're an institutional investor and are interested in accessing our Retail research (or any of our other sector coverage areas) please email

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2015 has been less than a banner year for Walmart.


For starters, the stock is down 24% YTD as the company took one on the chin as it invested in both its people and e-comm capabilities. The new minimum wage standard at $9.00 alone will cost the company $0.24 (up from the original guidance of $0.20) add on top of investments in e-comm and Fx pressure and we get to an earnings growth rate for the year of -10% at the mid-point of the guide.


It's Been a Tough Year In Bentonville | $WMT - z wamo



We've seen Walmart try to offset these costs over the past year by renegotiating terms with its vendors (not once, but twice), cutting some 24-hour locations, and reducing employee hours.


Now it's going after its headcount at HQ.


This 2.5% headcount reduction is just a drop in the bucket compared to the 13% cut Target (TGT) announced earlier this year. But, its pretty obvious that Walmart is scratching and clawing for every bps of margin.


That's bad news for the rest of retail.

Do You Suffer From H.P.A.D.? (Hedgie Performance Anxiety Disorder)

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Monday Mashup

Monday Mashup - CHART 1









Friday, October 2

DIN | Increased quarterly dividend by 5% to $0.92 per share of common stock. Additionally, they raised the share repurchase authorization to $150mm from the currently remaining authorization of $63mm (ARTICLE HERE)


Thursday, October 1

TAST | Announced the acquisition of five Burger King restaurants in Ohio and West Virginia (ARTICLE HERE)

JMBA | CEO and Chairman James White announced his retirement (ARTICLE HERE)


Wednesday, September 30

DFRG | Announced the opening of the Hoboken Grille, this is the 21st Grille location for DFRG across the country (ARTICLE HERE)


Tuesday, September 29

PLAY | Announced proposed secondary offering of common stock, selling stockholders will receive all proceeds from the sale of these shares (ARTICLE HERE)


Monday, September 28

ZOES | Named Sunil M. Doshi their new CFO, he previously served as CFO of Fossil Americas, a $1.8bn division of Fossil Group (ARTICLE HERE)

CMG | Carnitas has returned to 90% of Chipotle restaurants, the company expects to have carnitas back in all restaurants by the end of November (ARTICLE HERE)

QSR | Announced the proposed acquisition of Quick Group, a fast food burger chain in France (ARTICLE HERE)



Casual Dining and Quick Service stocks that we follow widely underperformed the XLY last week. The XLY was up +1.6%, top performers on a relative basis from casual dining were CHUY and CBRL posting an increase of +5.6% and +0.4%, respectively, while ZOES and YUM led the quick service group this week up +6.2% and +2.2%, respectively.

Monday Mashup - CHART 2

Monday Mashup - CHART 3



The XLY has fared better than most other sectors in the YTD time period and as of late especially. In the last five trading days the SPX was up +1.0% and the XLY was up +1.6%, outperformed by XLV (Healthcare), XLE (Energy), and XLB (Materials).

Monday Mashup - CHART 4



From a quantitative perspective, the XLY looks bearish from a TRADE and TREND perspective, TRADE support is 72.14.

Monday Mashup - CHART 5



Monday Mashup - CHART 6

Monday Mashup - CHART 7

Monday Mashup - CHART 8



Monday Mashup - CHART 9

Monday Mashup - CHART 10

Monday Mashup - CHART 11


Keith’s Three Morning Bullets

Bad Jobs à Dollar Down, Rates Down à Energy/Basic Materials Crash/Squeeze (so much for the rate hike):


  1. US DOLLAR – down USD on Friday as rate of change in NFP hit another YTD #slowing low = EUR/USD up another +0.6% this am testing $1.13 and the headline chase for everything “reflation” (from Glencore to Crude and Russian stocks) is on!
  2. UST 2YR – after 7 consecutive failed “breakouts” > 0.75% in the 2yr, it got hammered -11bps last week and is down at 0.57% this morning (10yr = 1.99%) as Bond Bear hopes of a rate hike get blasted into 2016; rates were oversold Friday on the lows
  3. STOCKS – but, but – “stocks are up” – sure, off those early Friday morning lows where both the Russell and SPX tested YTD lows, and led largely by Basic Materials (XLB) reflation of +2.9% while Financials (XLF) were down w/ rates -0.5% on the wk


SPX immediate-term risk range = 1; UST 10yr Yield 1.94-2.09% (both Bond Yields and SPX signaling lower-highs)


Please call or e-mail with any questions.


Howard Penney

Managing Director


Shayne Laidlaw



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 80.52%
  • SHORT SIGNALS 78.67%

TWTR: More of the Same?

Takeaway: Dorsey is permanent & Bain may be running the show. This is a non-event till mgmt shows us how it will address the street moving forward


  1. PERMANENTLY DISTRACTED? Jack Dorsey, co-founder and interim CEO, has been named as TWTR's permanent CEO.  Dorsey will also remain CEO of Square, which is expected to go public soon.  We're not sure this is the smartest move for a company that doesn't know how to talk to the street.  The first time that TWTR disappoints, Dorsey's split role will likely be the first thing the street points to; especially if Square goes public anytime soon.
  2. BAIN RUNNING THE SHOW? We suspect Dorsey will be more of a figurehead given his split role, suggesting TWTR's new COO and current monetization head, Adam Bain, will be taking the reigns.  While TWTR has experienced considerable revenue growth under his watch, it has been primarily driven by rampant increases in ad load, which has led to a level of user attrition that may be turning into a structural issue (see note below).  That said, more of the same isn't the answer, but that really depends on what the new mgmt team's priorities are into 2016.
  3. MORE OF THE SAME? Collectively, the C-suite shakeup is a non event until we know how management will address street expectations moving forward.  If TWTR guides 2016 revenue inline with the street, it's basically 2015 again. TWTR would be chasing near-term upside at the expense of further longer-term damage to its model (user churn), and will likely disappoint on lofty consensus expectations for 2016 advertising revenue regardless.  If TWTR chooses to rebase expectations early, it would buy mgmt enough breathing room to ease up on the ad load and prioritize MAU growth, which will ultimately define its long-term prospects.


See the note below for our most recent thoughts on TWTR.  Let us know if you have any questions, or would like to discuss in more detail.


Hesham Shaaban, CFA




TWTR: The Crossroads  (User Survey: n=7,500)
08/25/15 07:48 AM EDT
[click here

TIF: Adding Tiffany to Investing Ideas (Short Side)

Takeaway: We are adding Tiffany to the short side.

Please be advised that we are adding Tiffany (TIF) to the short side today.


According to Hedgeye CEO Keith McCullough, "Tiffany's catalyst is the cycle. It's slowing. And I'll be shocked if the ISM Services report (in 5 mins) doesn't confirm that." (Editor's note: It just did.)


Our Retail team will send out a full stock report later this week outlining our bearish thesis on the luxury jewelry and specialty retailer.


TIF: Adding Tiffany to Investing Ideas (Short Side) - zz tif

RTA Live: October 5, 2015


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