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4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN

Takeaway: The Fed's Senior Loan Officer Survey is a useful tool for gauging where we are in the credit cycle and it just inflected negatively.

C&I and CRE Results Turn Negative

The Fed released its 4Q15 Senior Loan Officer Survey yesterday afternoon. The survey was conducted between September 29 and October 13 and covers lending standards and loan demand across business and consumer loan categories.

 

The survey results turned negative for both C&I and CRE lending. Residential mortgage lending standards were mixed. Consumer lending showed the most positive results; a net positive percentage of banks continued to report easing consumer lending standards, and demand for those loans increased.

  

Here are the two main takeaways this quarter:

 

1. The net % of banks tightening C&I lending standards turned positive in 4Q15. Just to be clear, this is a bad thing. 7.3% of banks, net, tightened C&I credit standards for large and medium firms in 4Q15. This is only the second time since the last recession that a net positive percentage of banks tightened standards; the last time banks tightened was 1Q12, when 5.4% tightened C&I standards for large and medium sized firms. Moreover, 1.4% of banks, net, tightened C&I credit standards for small firms in 4Q15. As the chart below shows, tighening standards have preceeded and arguably been a proximate cause of the last two recessions. That being said, there have also been a few false positives, such as 1Q12, 1Q96 and it's debatable whether the surge in tightening that accompanied the late-1990s Asian Financial Crisis and LTCM was in fact a false positive or not.

 

At a minimum, the takeaway is fairly clear: lending standards tend to autocorrelate across the cycle and when they roll from net easing to net tightening it's something investors must take note of. 

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - main chart   new one

 

While somewhat obvious, it's nevertheless worth stating that this could be the inflection point signaling that Financial equity prices are at or near their peak. Unlike the prior positive tick in 1Q12, this time the economic cycle is showing many signs of being late stage.

 

The chart below looks at the historical C&I lending standards (LHS) juxtaposed against the S&P 500 Financials Index (RHS). C&I lending standards have historically begun tightening coincident with or ahead of peaks in Financial equity prices. We've highlighted in green the periods during which Financials stocks have risen. In the 1990s it was clear that lending standards were tightening by late 1999, suggesting the roll was near. In the 2003-2007 period standards began to tighten in 2007.

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - main chart v2 

 

2. CRE Tightening. Commercial real estate lending also saw standards tighten in the quarter. The tightening was across all three categories: C&D, Nonfarm Nonresidential and Multifamily. Unfortunately, the survey format changed with the 4Q13 survey when they replaced the single category of CRE loans with the three aforementioned subcategories. As such, it's not possible to compare apples to apples historically. That said,  in the 9 quarters since the new format began, this marks only the second (and second consecutive) quarter in which standards have tightened on C&D loans. It marks the first quarter in which Nonfarm Nonresidential loans have seen standards tighten. The Multifamly category has been bouncing between easing and tightening over the last two years so we take this quarter's net tightening with a grain of salt.

 

 

A Quick Review of the Senior Loan Officer Survey by Category:

 

C&I: The Canary In the Coal Mine

Two quarters ago, we called out C&I as a potential canary in the coal mine. That's because the net percentage of lenders tightening standards was almost back to the zero line. That percentage then eased back in 3Q15. However, 4Q15 appears to be the confirmation; the net percentage of banks tightening standards for loans to large firms moved past zero to +7.3%. Additionally, +1.4% of banks tightened standards for C&I loans to small firms. This could mark the end of the 6-year bull market for Financials equities. 

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS2

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS3

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS4

 

CRE: Tightening Across the Board

After C&D lending saw a moderate 1.4% of lenders tightening standards in 3Q15, banks are now tightening standards for all three CRE categories in 4Q15. This inflection in CRE standards adds to our concern over the inflection in C&I standards.

 

Meanwhile, demand for all three categories of CRE loans increased in the fourth quarter.

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS6

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS5

 

Residential Mortgage: Mixed

Starting in 1Q15, the Federal Reserve broke the survey's residential Prime and Nontraditional categories into six new categories and kept the Subprime category for a total of seven different categories. The six new categories include: (GSE-Eligible, Government, QM non-jumbo/non-GSE eligible, QM jumbo, Non-QM jumbo, and Non-QM/non-jumbo). The categories we're most interested in are the GSE-Eligible (Fannie/Freddie) and Government categories (FHA/VA) since these two categories account for ~90% of all origination volume. The GSE-Eligible category showed 13.8% of banks, net, eased standards Q/Q in 4Q15. However, Government showed a 5.5% net tightening. 20% of banks also tightened standards for Subprime loans. Three of the other four categories eased while one was unchanged.

 

We pay little attention to the demand component of the Fed's Survey because it reflects shifting refi demand and isn't a good barometer for purchase activity. Nevertheless, we include both charts below.

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS7

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS8

 

Consumer Loans: Easing

Standards for credit cards, auto loans, and consumer loans ex-cards and autos all eased in the third quarter.

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS9

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS10

 

4Q15 SENIOR LOAN OFFICER SURVEY | SIGNS OF A SLOWDOWN - SLOOS11

 

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 

 

 

 


BLMN | CAN YOU TEACH AN OLD DOG NEW TRICKS?

Bloomin’ Brands (BLMN) is on our Hedgeye Restaurants SHORT bench.

 

HEDGEYE OPINION

Last week we released a note on BLMN, previewing the quarter as well as introducing the STEAK TRACKER. Our core thesis on BLMN is that they need to divest non-core assets and focus on the core concept, Outback. This point was especially evident in this quarter as they lacked innovation and for the third year in a row rolled out a steak and unlimited shrimp promotion that did not resonate with consumers this time around. Traffic ended down -0.9% in the quarter for Outback, evidence that this lack of attention is not sustainable long-term.

 

During the call management spoke to sweeping remodels across the Outback system, renovating the exteriors of all stores over the next three years. The conviction in this initiative is the result of positive tests at 33 trial stores which showed 5% sales growth post remodel. Additionally, to our liking, management is focused on international growth. Outback Brazil had comp growth of 6.9% and Korea had traffic growth of 13.8% in 3Q15. BLMN is focused on investing “significant capital” in Brazil and looking for expansion opportunities across the world in areas such as the Middle East, China and Australia.

 

Even with this, we are still bearish on BLMN until they decide to divest non-core assets. Multi-concept casual dining restaurant companies in our eyes are destined to fail, as proper capital allocation is difficult to preserve.

 

THE STEAK TRACKER

Outback SSS trend continued in line with what we were seeing in the steak tracker heading into the quarter. The correlation between Outback US SSS and Men Employment 55-64 YOA tightened in the quarter from 0.72 to 0.74. This specific tracker has been dependable in predicting the trend of Outback SSS and we continue to grow more confident in it.

BLMN | CAN YOU TEACH AN OLD DOG NEW TRICKS? - CHART 1 replace

 

Our other trackers, the more long term in nature, CPI – Uncooked Beef Steak and CPI – Beef and Veal, held up well. Although, the correlation decreased slightly, we are using them for trends not quarterly ebb and flows and those remained accurate.

BLMN | CAN YOU TEACH AN OLD DOG NEW TRICKS? - CHART 2 replace

BLMN | CAN YOU TEACH AN OLD DOG NEW TRICKS? - CHART 3 replace

 

3Q15 FINANCIAL RESULTS

BLMN reported revenue declined 3.6% YoY to $1,027mm versus consensus estimates of $1,035mm. The top line miss was driven by bad same-store sales growth for all concepts. Outback US SSS increased 0.1% versus consensus estimates of 1.7%, a 470bps YoY decline. Bonefish reported SSS of -6.1%, 80 bps below consensus estimates of -5.3% and a 870bps decline YoY. Carrabba’s SSS came in at -2.0%, 310bps below consensus estimates of 1.1% and representing an 80bps decline YoY. Restaurant level operating margins improved 70bps in the quarter to 14.5% in-line with consensus estimates. Moving to the bottom-line BLMN was able to translate a top-line miss into a bottom-line beat, reporting EPS of $0.15 versus consensus estimates of $0.14.

 

BLMN | CAN YOU TEACH AN OLD DOG NEW TRICKS? - CHART 1

BLMN | CAN YOU TEACH AN OLD DOG NEW TRICKS? - CHART 2

BLMN | CAN YOU TEACH AN OLD DOG NEW TRICKS? - CHART 3

 

MANAGEMENT GUIDANCE

Management reaffirmed full year EPS guidance of at least $1.27. The company revised blended US comp growth to be 0.5% to 1.0% versus prior guidance of “approximately 1.5%”. Total revenue guidance was shaved slightly, to approximately $4.37bn down from approximately $4.43bn.

 

Looking to FY2016, management expects EPS growth of 10% to 15%, with positive SSS in the U.S. Additionally management is calling for commodity basket inflation of approximately 1%. This number is variable depending on how beef shakes out through the course of the year.

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


RHP 3Q CONFERENCE CALL NOTES

Takeaway: Very bullish October commentary somewhat incongruent with slightly lower guidance

MGMT COMMENTS 

  • Hospitality Results (excludes AC Hotel at National Harbor, D.C.)
    • SS Revenue +1.5% YoY, Total +3.2% YoY
    • SS Adj EBITDA +7.8% YoY, Total +8.9% YoY
    • SS Adj EBITDA margin +1.8% (29.8% vs 28.0% in 2014)
    • Total Adj EBITDA margin +1.5% (28.2% vs. 26.7% in 2014)
    • OCC -2.1% YoY, ADR +1.1% YoY, RevPAR -1.8% YoY, Total RevPAR +1.5% (room rennovations at Gaylord Opryland and Gaylord Texan)
  • Gross Room nights booked +24.1% YoY, leads for group bookings are +10% YoY
  • Group Attrition -4.0% YoY, worse than they anticipated but they don't see systemic issues with the group segment as a result  
  • Cancellations actually second lowest in last 8 years. Q3 is seasonally the worst time for cancellations
  • Opryland - flat revenues, OCC -6.1% YoY, partially offset by strong banquet revenue 
  • Palms - Revenues -16.7% YoY, OCC slowed due to calendar shift
  • Texan - Revenues +12.1% YoY,  OCC +2.2%, ADR +6.8% YoY (could be adding more group space to this property) 
  • National - Revenues +7.0% YoY, strong banquet performance drove results 
  • FY 2015 Guidance - RevPAR guidance top end lowered due to a larger leisure component in November and December. Comps are very hard in November and December (RevPAR in mid to high teens for both months).
  • RHP 3Q CONFERENCE CALL NOTES  - rhp guidance
  • 2016 view of strong future has not changed. 100k more room nights currently booked vs. the same period a year earlier. (10% more YoY)
  • Exploring opportunity to expand more group space and also look into options to expand the transient side of their business. 
  • Transient rate increase have been positives and they are postioned well for the transient segment in 4Q
  • Albeit slower, economy still growing, they maintain their positive views based on their group demand. 
  • October has been the best october ever, generating $100M, October RevPAR +16% across the portfolio and 13% in total RevPAR
  • 85+% in consolidated OCC for October 
  • Cite markets concern with REIT's ability stay attractive amid possible rate rises. They are not concerned with their ability to boost their dividend, and very bullish on the properties they own.  

Q&A 

  • 100% of additional room nights booked are all corporate groups. Have good connection with their hotel managers (Marriott). 
  • Marriott aids their transient and group segment. 
  • Not seeing an influx of lower rated groups, most of their focus on higher rated groups
  • Nashville market transformation is incredible, leisure and group demand continues to be very strong. Would consider adding more rooms in the future, but most likley as a standalone property instead of adding on to Opryland.  
  • Attrition spike not concern: reasons were group specific issues, smaller groups that were likely first term groups who underestimated costs etc., and finally there was a large group that had to shorten their stay due calendar shift. 
  • They conducted deep dive analysis on the group attrition and found no parallels to 2008 trends
  • Very little energy related group exposure, less than 5% of group is energy related. Continue to very bullish on the Dallas property due to visibility into 2016
  • Groups set new records for spend levels, outside the room spending levels at record levels, but still a lot of room to run for other clients 
  • Pharma, Tech, Financials make up the bulk of their business  
  • Not seeing fewer rooms booked relatively to meeting space booked. Meeting Planners continue to ask for more meeting space.  

 

 


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Got Myopic Loss Aversion (MLA)? Why Your Smartphone May Be Killing Your Portfolio

CLICK IMAGE TO WATCH:

Got Myopic Loss Aversion (MLA)? Why Your Smartphone May Be Killing Your Portfolio - km fbn

 

Hedgeye CEO Keith McCullough, JPMorgan strategist Anastasia Amoroso and FBN’s Jo Ling Kent and Dagen McDowell discuss whether stock market smartphone apps are negatively impacting your portfolio’s returns on Mornings with Maria.


RTA Live: November 3, 2015

 

 


Retail Callouts (11/3): TIF E-comm Traffic, Retail Sales Trends, LB

Takeaway: TIF traffic trends decelerate in 3Q. Rare spike in both ICSC/Redbook, compares easy until Black Friday / Dec, which is what really matters.

TIF - E-comm Traffic Trends Decelerate in 3Q

TIF just closed the books on 3Q, and the traffic trends headed out of the quarter look particularly weak. E-commerce accounts for just 6% of total sales for the company -- but because the average ticket for TIF sits at $750 there is a lot less impulse and a lot more planning before a consumer slaps down a credit card and walks away with a blue box. The metric, which looks at the relative strength of an e-commerce site relative to the internet in aggregate takes into account two metrics (unique visitation and page visits per user), decelerated from +10% YY at the end of the 2nd quarter to -5% at the end of 3Q with marked softness throughout the quarter.

Not a good barometer for brand strength in 3Q, especially when the common perception seems to be that “just because Tiffany (TIF) blew up earlier this year, it can’t blow up again.” We disagree. It actually blew up twice this year. And we think there will be another. Next year's estimates are sitting at $4.54. We think an optimistic number is $4.25. If our Macro team's bearish call plays out according to plan, TIF will be lucky to earn $4.00.

With productivity, margins and returns all near 10-year highs, and the stock trading at 19x a number we don't think is doable, we still like this one on the short side.

Retail Callouts (11/3): TIF E-comm Traffic, Retail Sales Trends, LB - 11 3 2015 chart1

 

RETAIL sales Trends (ICSC / RedBook) - a rare spike in both indices, which happened on the same day LB put up a big comp (3Q at ~7% vs 5% expectations). On the heels of a lot of negative sentiment around retail, this offers up a 1-day reprieve. Note, however, that comps are very easy through most of November -- until Black Friday and December, which is what really matters.

Retail Callouts (11/3): TIF E-comm Traffic, Retail Sales Trends, LB - 11 3 2015 chart2

Retail Callouts (11/3): TIF E-comm Traffic, Retail Sales Trends, LB - 11 3 2015 chart3

Retail Callouts (11/3): TIF E-comm Traffic, Retail Sales Trends, LB - 11 3 2015 chart4

 

LB - L Brands Reports Oct. Comp #s, Takes Up 3Q Ahead Of Investor Day

(http://phx.corporate-ir.net/phoenix.zhtml?c=94854&p=RssLanding&cat=news&id=2105541)

 

DLTR - Dollar Tree completes sale of 330 Family Dollar stores to Sycamore Partners. Stores to be branded Dollar Express.

(http://www.dollartreeinfo.com/investors/global/releasedetail.cfm?ReleaseID=939816)

 

AMZN - Amazon bookstore opening in University Village.  The 5500 SqFt store will carry 5000-6000 titles.

(http://www.seattletimes.com/business/amazon/amazon-opens-first-bricks-and-mortar-bookstore-at-u-village/)

 

AEO - American Eagle Outfitters acquiring Tailgate Clothing Company for $11mm, takes up 3Q guidance.

(http://investors.ae.com/press-releases/financial-news-details/2015/American-Eagle-Outfitters-Acquires-Tailgate-Clothing-Company/default.aspx)

 

GNC - GNC expects to repurchase an additional $200mm shares by year end, raising guidance 2 cents to include the impact.

(http://phx.corporate-ir.net/phoenix.zhtml?c=88669&p=irol-newsArticle&ID=2105684)

 

EBAY - eBay Enterprise Sold Off and Broken Up

(http://www.ecommercebytes.com/cab/abn/y15/m11/i03/s04)

 

99 Cents Only announced Felicia Thornton has been appointed as its CFO and treasurer

(http://www.chainstoreage.com/article/-cents-only-stores-has-new-cfo)

 

SHLD - Sears enters online home services market

(http://www.chainstoreage.com/article/sears-enters-online-home-services-market)

 

BONT - Bon-Ton Stores Announces Extension of Private Label Credit Card Agreement With Alliance Data's Card Services Business

(http://investors.bonton.com/releasedetail.cfm?ReleaseID=939995)

 

GCO - Genesco To Acquire Little Burgundy Chain From The Aldo Group

(http://phx.corporate-ir.net/mobile.view?c=75042&v=203&d=1&id=2105697)

 

Sports Authority Launches New Fitness Training App

(http://footwearnews.com/2015/focus/athletic-outdoor/sports-authority-new-bodyfit-fitness-app-167141/)

 

Selfridges Buys Arnotts Department Store in Dublin

(http://wwd.com/retail-news/department-stores/selfridges-buys-arnotts-department-store-dublin-ireland-10272288/)


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