prev

Retail Callouts (10/21): UA E-Trends Best in Class, AdiBok 'SpeedFactories', NKE, LULU

Takeaway: UA Web Traffic trends leading athletic space. AdiBok to onsite manufacture by 2020. Nike will be there 1st.

UA - E-comm  Traffic Trends = Best In Class

 

UA traffic trends on a YY are basis are the best we've seen in the athletic space. Yep, better than LULU, Adi, and even NKE which has been growing like a weed -- in excess of 40% online in each of the past six quarters. The metric - which ranks all sites on the internet on a relative basis based on a) unique visits and b) page visits per user, has looked dynamite for UA throughout the year.

 

That tell us that a) UA continues to push its DTC agenda with sales growth in this channel on par with or outpacing the company average in 8 of the past 12 quarters. And b) brand heat remains strong as visitation to UA.com continues to outpace the rest of the industry on a relative basis.

Retail Callouts (10/21): UA E-Trends Best in Class, AdiBok 'SpeedFactories', NKE, LULU - 10 21 chart1

 

Adibok - Adidas Expects to Establish US Speedfactories by 2020 

(http://www.sportsonesource.com/news/fbu/fbu_article.asp?section=8&Prod=5&id=57993)

 

3-D printing and on site manufacturing are hot button topics in the athletic space. But we can be sure of two things. 1) AdiBok will not beat NKE to market with this technology. 2) NKE's FlyKnit technology lends itself much more to this process than anything Adi currently produces. Adi is saying 2020 for on site customization, NKE quietly should have it rolled out by 2017.

 

UA - Under Armour Reuniting Jamie Foxx and Steph Curry for the Curry 2 Launch

(http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=8&id=57998)

 

DKS - New Dicks Sporting Goods Store Openings: Numbers 641 to 645

Glendale, CA

Cerritos, CA

Sevierville, TN

Las Vegas, NV

Muskogee, OK

 

HD, LOW - The hipster hardware store that has Home Depot scared

(http://www.retailingtoday.com/article/hipster-hardware-store-has-home-depot-scared)

 

Prime FREE Same-Day Delivery Expands to Chicago and Orlando Metro Areas – Serving More Than 750 Cities and Towns Nationwide

(http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=2098861)

 

AMZN - Amazon.com targets fake reviewers in Lawsuit

(http://www.retailingtoday.com/article/amazoncom-targets-fake-reviewers-lawsuit)

 

AMZN - Amazon gets into the restaurant delivery biz in Oregon

(http://www.retailingtoday.com/article/amazon-gets-restaurant-delivery-biz-oregon)

 


Why McDonald's Stock Will Never Trade Below $100 Again

Why McDonald's Stock Will Never Trade Below $100 Again - 10 21 2015 Fortune Howard

 

The fast-food chain’s stock will likely pop next year, thanks to its real estate holdings and its ‘All-Day Breakfast’ menu.

 

Last week, McDonald’s shares jumped 1.5%, amid speculation that the fast-food giant might spin-off its massive real-estate holdings. That looks increasingly likely under the activist-like new CEO, Steve Easterbrook. It’s another welcome development and a broader sign that McDonald’s is finally turning the corner. Our prediction: This year will be the last time McDonald’s stock sees a price below $100.

 

Let’s be clear. A lot has changed at McDonald’s in the past year...

 

Click here to read more of Hedgeye analyst Howard Penney's story on Fortune.  


Purchase Demand | Rollercoaster Returns to Trend

Takeaway: TRID chop has played out in MBA, but will be back next week in NHS & EHS. The better-than-reality optics may help Housing's short-term momo.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

Purchase Demand | Rollercoaster Returns to Trend - Compendium 10.21.15

 

Today's Focus: MBA Mortgage Applications

The three-week, TRID catalyzed volatility ride is ebbing and the data is back to looking much like it did for most of 3Q.  Purchase Demand rose +16.4% WoW (after falling -34% prior and gaining +27% two weeks ago), taking the index back up to 197.4 – for reference, the Index average in 3Q was 201.   On a year-over-year basis growth also re-accelerated back to trend at +20% and, given the continued easy comps dynamics, static activity levels from here imply a similar pace of growth over the balance of the year.   

 

Rates on the 30Y FRM contract, meanwhile, held below 4% for a third consecutive week, declining -4bps to 3.95% and marking the lowest level since the first week of May.  At current levels, and ceteris paribus, rates remain a modest tailwind to both HPI and affordability.

 

So, takeaway = the ongoing march toward housing market normalization (↑ conventional/mortgaged purchases, ↓ cash/investor/distressed sales) and the stable demand environment that has characterized 2015 YTD remains ongoing.  We do expect TRID related issues to drive some further chop in the data over the nearer term. Specifically, we expect the Pending Home Sales and New Home Sales numbers for September - both will be reported next week - to benefit from TRID pullforward. The reverse will hold in late November when we get the post-TRID hangover in those series.

 

Purchase Demand | Rollercoaster Returns to Trend - Purchase YoY

 

Purchase Demand | Rollercoaster Returns to Trend - Purchase 2013v14v15

 

Purchase Demand | Rollercoaster Returns to Trend - Purchase Index   YoY Qtrlypng

 

Purchase Demand | Rollercoaster Returns to Trend - Purchase   Refi YoY

 

Purchase Demand | Rollercoaster Returns to Trend - Purchase LT

 

Purchase Demand | Rollercoaster Returns to Trend - 30Y FRM 

 

 

  

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

The Macro Show Replay | October 21, 2015

 


YUM | SO MANY LEVERS TO PULL

Yesterday, YUM announced plans to de-risk the company from its China business by executing a major restructuring, including the spin-off of its China business (YUM CHINA).  In addition, in a shift from their previous thought process, the company will lever-up its remaining predominately franchised business (YUM BRANDS).

 

We fully believe that this move will create significant shareholder value.  The timing of the actual restructuring will be dependent on achieving final approvals and executing the necessary steps, but is expected to be completed by the end of 2016.

 

As more details become available, we believe the stock will trade higher over time.  In the short run, holding things back will be the good bank/bad bank mentality.

 

Over the coming months, Yum! Brands (the good bank) is expected to execute a Leveraged recapitalization. In a complete shift from it’s current philosophy, YUM announced intentions for its franchised business to “become a non-investment grade credit rating with a balance sheet more consistent with highly-levered peers.” As a result, we believe that the new Yum! Brands will execute a $13-$15 per share leveraged recapitalization, bringing the new company to a debt-to-EBITDA ratio of 4.5x-5.0x. Upon this event we see the stock trading above $80 and the market capturing a majority of the leverage recap immediately. 

 

Spin-off of Yum! China (bad bank for now) will likely be a better managed company as a stand-alone entity.  It can also be argued that giving the public a direct way to play in the growth of KFC will boost consumer attachment to the brands - China KFC and Pizza Hut. While not specifically announced, we believe that YUM China will trade on the Hong Kong exchange, and will be the largest consumer company traded on that exchange.  It also could be a must own equity for funds and indices in that region.  We have long believed that the process of KFC China going public will act as a significant positive catalyst for the business as we have seen numerous times in the USA. 

 

SHAK Chairman, Danny Meyer, said on CNBC last week that all the press about going public helped build brands awareness.  KFC China will likely see that same benefit from months of substantial positive press.  Lastly, looking at the Corvex plan the Yum! China business can also execute structural changes that can accelerate growth by selling stores and bringing in sub-franchisees. 

YUM | SO MANY LEVERS TO PULL - chart 1

 

Our new YUM model assumes that YUM China will pay YUM Brands a 4% royalty rate. 

 

In the coming days we will be updating our sum-of–the-parts model for the combined entities.

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 

 


Earnings, Oil and UST 10YR

Client Talking Points

EARNINGS

86 of 500 companies have reported and this profit cycle recession we are entering is becoming broad based (i.e. not “ex-Energy”); Financials and Info Technology EPS -8% and -15%, respectively.

OIL

Oil is down another -1.5% this morning (after deflating -4.8% last week) and the most important callout here this morning is that the USD inverse correlation to everything WTI/Brent is burning off, i.e. not staying in the -0.7-0.9 zone anymore; this should confuse consensus.

UST 10YR

There is nothing confusing about buying LT bonds on every bounce to the top-end of our UST 10YR Yield risk range of 1.98-2.09%; post the bounce to 2.08% yesterday, back down to 2.04% this am, so at least top-down GDP growth and bottom-up earnings slowing is getting Bond Bulls paid.

 

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

Asset Allocation

CASH 62% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 32% INTL CURRENCIES 0%

Top Long Ideas

Company Ticker Sector Duration
MCD

McDonald’s reports 3Q15 earnings Thursday, October 22nd before the market opens, with a conference call at 11:00am ET. We are expecting strong sequential improvement in performance globally. We look forward to giving you an update on the company’s performance next week, but this week we wanted to focus on the ‘Looming Crash in Beef.'

 

On Thursday, October 15th, we held a thought-leader call regarding the declining price of beef and how long it will continue. Prices have sky rocketed in recent years and are now standing at more than two standard deviations above the 30 year average. We believe a 50% decline down to historical averages is well within the realm of possibilities. Declining beef prices will be a major tailwind for McDonald’s as they navigate their turnaround.

RH

Restoration Hardware opened its new Full Line Design Gallery at the Cherry Creek Shopping Center in Denver this week.  This is another anchor property -- using 53,000 feet of the 90,000 left vacant by Saks at Cherry Creek.

 

RH is taking up the size of its stores from an average of 8,000 square feet to about 40,000+ for its new stores – and productivity rates on these new assets are headed higher. In the old stores, RH could only show 10% of its assortment, while in the newer format stores, the company is showcasing better than 75%. Consumers can’t (and don’t) buy what they don’t see.

TLT

The #SlowerForLonger theme from Hedgeye Macro has been consistent and straightforward. Our pivot in advance of the most recent jobs report to get long of gold and stay out of the way short-side on commodities turned out to be a good position.

 

Growth expectations have been correctly revised, but there’s still a good amount of room between Hedgeye estimates and consensus. We are expecting GDP in a range of 0.1%-1.5% for Q3 and another 1-handle in Q4. If that proves accurate, flatter goes the Treasury curve (TLT, EDV), wider goes high yield spreads (bad for JNK), and down goes the USD (GLD).

Three for the Road

TWEET OF THE DAY

VIDEO (2mins) https://app.hedgeye.com/insights/47004-mccullough-short-euro-over-yen… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Life is like a dogsled team. If you aren’t the lead dog, the scenery never changes.

Lewis Grizzard        

STAT OF THE DAY

97% of Tesla owners said they would definitely buy their car again despite Consumer Reports forecasts that the Tesla Model S will have worse-than-average reliability.


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

next