Retail Callouts (10/9): UA, NKE, Adibok, URBN, W, OSTK, WMT, RL, AMZN

Takeaway: UA’s Wisconsin deal another notch against NKE. Tough Sept for AMZN US? OSTK furniture @ 86% off. C-Suites getting younger.

UA - Under Armour signs 10yr deal to outfit University of Wisconsin.  Under prior Adidas deal, Wisconsin was getting $1.375mm in product and $800k in cash.  UA will provide $2.45mm in product and $4mm in cash annually.  Importantly, UA now has 3 of the 14 Big Ten teams (Maryland, Northwestern, Wisconsin).



Wisconsin is just a drop in the bucket compared to what UA spent to lock down the Fighting Irish (UA - $10mm per year) and what Nike doled out for U of Michigan ($11.2mm per year), but there are a few interesting points we took from the deal…

1) Adidas is backing down meaningfully. The PR department at AdiBok was sure to throw in its public statement that it 'chose not to renew the deal'. Just like the company chose not to renew the deals with Michigan, Notre Dame, Tennessee, etc. By saying "chose not to renew" Adidas is saying "can not afford or get a positive ROI".

2) Obviously the team/league sponsorship hasn't worked in the US, but we're also skeptical about the efficacy of the stepped up endorsement spend on individual athletes where NKE especially, and UA to a lesser extent , already dominate. To cite one example -- Adi is spending $200mm on NBA MVP runner up James Harden, and is having a hard time getting the athlete to wear the brand in public.

3) UA now dominates the Chicagoland sports scene with partnership agreements inked with Northwestern, Notre Dame, and Wisconsin all of which have a big presence in the city. And the company owns the naming rights to the Cubs spring training facility and is one of the 5 legacy partners with the team. That's no coincidence given that the brand opened a 30k sq. ft. Brand House smack dab in the middle of Michigan Ave. Keep in mind that Chicago is the penultimate 'Jordan Town'. At least, it has been...

Retail Callouts (10/9): UA, NKE, Adibok, URBN, W, OSTK, WMT, RL, AMZN - 10 9 2015 chart1


URBN - Urban Outfitters asked some salaried employees to volunteer at a fulfillment center in Pennsylvania expecting a busy October. Company said hourly employees were willing to help, but were rejected to comply with labor laws. To URBN's credit, it's rare that people will work for free in any profession. But all-in, the request from URBN crosses the line.



W, OSTK - is offering 16% off furniture to celebrate its 16th birthday. At face value, we thought "that doesn’t seem very steep, the regular discount is 40-50% on OSTK." But if you check out the website you see that it's the standard discount (which is currently 70%) plus an additional 16%. Basically, OSTK is selling furniture for 86% off. People don't look at OSTK as often as they should when analyzing Wayfair -- but they should.  This discounting is severe.



WMT - CFO Charles Holley to retire Dec. 31, 2015 after 20 years. Brett Biggs, 47, will succeed Holley. Now WMT has a 49 year old CEO and 47 year old CFO. The age trend for retail executives continues to head lower. Note that with Ralph Lauren's recent announcement, the average age of the C-Suite went from 61 to 49 years.



AMZN - Comps from ChannelAdvisor are out.  This is actually a reasonable underlying directional indicator for AMZN's business, as outlined by mapping out the 2-year run rate for each on a quarterly basis. The bad news, however, is that September slowed on both a 1 and 2 year basis.

Retail Callouts (10/9): UA, NKE, Adibok, URBN, W, OSTK, WMT, RL, AMZN - 10 9 2015 chart2

Retail Callouts (10/9): UA, NKE, Adibok, URBN, W, OSTK, WMT, RL, AMZN - 10 9 2015 chart3


Can Everlane Really Become the Next J.Crew?



Ikea to open a Jacksonville, FL store in 2017.  Store planned to be 294,000 SqFt.  This will be Ikea's 1st store in North Florida, and its 5th in the state.



WMT - Laura Phillips to become senior VP of sustainability.  Current VP, Manuel Gomez taking position as VP of e-commerce strategy for Walmart Mexico/Central America.



UA -  Under Armour settles lawsuit around issue of new non voting stock to protect CEO Plank's control of the company.  The company issue additional compensation to the holders of Class C stock in the form of a dividend with a value of $59 million.



ASNA - Golden Gate discloses 9% stake in Ascena Retail Group



ARO - Aeropostale Signs License Agreement With Himatsingka America For Home Textiles



CHART OF THE DAY: Winter Is Coming For Global Growth

Editor's Note: Below is an excerpt and chart from today's Early Look written by Hedgeye Director of Research Daryl Jones. Click here for more information on how you become a subscriber to our decidedly non-consensus morning note.


"...the prevailing view of our Q4 theme presentation is that Winter Is Coming for global growth. As you can see in today's Chart of the Day, we remain 50% below Bloomberg consensus for global GDP growth."


CHART OF THE DAY: Winter Is Coming For Global Growth - z chart 55







the prevailing view of our Q4 theme presentation is that Winter is Coming for global growth.  As you can see in today's Chart of the Day, we remain 50% below Bloomberg consensus for global GDP growth.

Winter is Coming

“Now is the winter of our discontent.”



We held our big Q4 Macro themes call yesterday. No surprise, Keith put quite an entertaining spin on the presentation.  The introduction to the second section was a spoof of the popular HBO TV show, “Game of Thrones.” We renamed it “Game of Slowing” with each major economic region represented by a specific character from the show:


  • China / Emerging markets as Eddard Stark because Stark dies early and he did not come back;
  • Europe as Joffrey Targaryen because Joffrey does become King, but eventually it ends poorly for King Joffrey (and by extension European equity bulls);
  • Japan as John Snow, the bastard of global growth because Japanese growth continues to get worse (and worse); and finally
  • U.S. as Daenerys Targaryen, which represents the goldilocks potential of U.S. growth.


Winter is Coming - z hbo


Now, if you haven’t watched the show, the analogies may not mean as much to you. But suffice to say, the prevailing view of our Q4 theme presentation is that Winter is Coming for global growth.  As you can see in today's Chart of the Day, we remain 50% below Bloomberg consensus for global GDP growth.


Back to the Global Macro Grind...


Related to U.S. growth, my colleague Darius Dale wrote a follow up note to the themes presentation yesterday titled, “Risk Managing the Shift to #Quad3 – Especially in Energy.” So even though we were somewhat sympathetic to the idea that the U.S. economic outlook may have the potential for a better outcome as represented by the beautiful Daenerys Targaryen, the reality is that the U.S. is likely to be mired in a shift to Quad 3 based our models.


For those that haven’t been following Hedgeye as closely, Quad 3 occurs when growth slows as inflation accelerates.   Historically, the policy response in this scenario is that the central bankers are in a box because even though growth is clearly slowing, inflation is at, or surpassing their targets. Only time will tell whether the ensuing months play out like this, but one asset to stay focused on is oil.  As Darius writes:


“Since most investors are not positioned for energy to lead the market higher, we thought we’d offer our detailed thoughts on this developing risk. Specifically, at 7.3% of float, energy is the most heavily shorted sector in the S&P 500. That ratio is 297bps above the aggregate market and the next closest sector, consumer discretionary, is a distant -90bps behind. Indeed, investors are still very bearish on energy.


Why has energy lead the market higher over the past month (XLE +13.2% WoW and +7.1% MoM vs. +4.7% and +2.2% WoW and MoM, respectively, for the S&P 500)? Because of the ongoing shift to #Quad3 – economic growth slowing as reported inflation readings accelerate – and the dovish response we have gotten and may continue to receive from the Fed in the ensuing months.”


So, just as the decline of energy commodities and the total decimation of certain energy related equities like MLPs has hurt many on the long side, the appropriate debate to have now in your investment committees may well be whether you should be longer of energy into year-end.


On the topic of oil, WTI is above $50 per barrel for the first time this morning.  Adding to the bull case through year end is also the call out of Goldman this morning that the rally in oil is likely to reverse soon.  No surprise, we would recommend taking the other side of that call, especially in light of our expectation that the Fed will be more dovish than expected and thus the USD weaker.


Switching gears for a second to China, there is a noteworthy article from Bloomberg today emphasizing the frothiness.  Even as we joked with our #GameOfSlowing metaphor that Chinese economic growth may never come back, Chinese equity investors do seem to be voting that way with their dollars, flooding out of equities and into the corporate debt market.  


Over the last month, yields on top rated corporate five-year paper are down 79 basis points.  As a result, the spread over government securities is at 97 basis points, the narrowest since 2009.  To put this all in context, globally corporate yields are at almost two-year highs, so Chinese corporate yields are moving inversely to global yields.


Currently, default rates do remain low in China, so there is likely no reason for alarm just yet.  That said, credit default swaps (CDS), which are effectively insurance against corporate defaults, are also near two-year highs at around 135 basis points on average.  The fact that insurance against defaults is getting more expensive should be no surprise given the stretched valuation and, also, the fact that more than 15% of the companies listed in Shanghai lose money.


Historically, of course, defaults in China have remained low, but facts are facts even in centrally planned economies.  And as George Martin wrote in “A Game of Thrones”:


“Most men would rather deny a hard truth than face it.”




Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.98-2.12%

SPX 1 

VIX 15.94-28.98
USD 95.16-96.16
Oil (WTI) 46.39-50.25 

Gold 1130-1160


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research


Winter is Coming - z chart 55

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Keith's Daily Trading Ranges [Unlocked]

This is a complimentary look at today's Daily Trading Ranges. Hedgeye Risk-Manager-In-Chief Keith McCullough sends these proprietary buy and sell levels on major markets, commodities and currencies to subscribers weekday mornings. Click here to subscribe.

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The Macro Show Replay | October 9, 2015


4 Key Market Charts From Mucker This Morning

Here are some key charts Hedgeye CEO Keith "Mucker" McCullough is paying particularly close attention to this morning on Fox Business and Twitter.


You can follow Keith @KeithMcCullough.


4 Key Market Charts From Mucker This Morning - z chart2



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