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JACK | THE SHARKS ARE CIRCLING

Jack in the Box (JACK) is on our Hedgeye Restaurants Best Ideas list as a SHORT.

 

JACK reports 4Q15 earnings after market close on November 17th followed by a call on the 18th at 11:30am ET, we are staying SHORT into the print.

 

 

HEDGEYE OPINION

The world is constantly changing. This fact is very apparent in the food space, where consumers can’t make up their mind about what or where to eat their next meal/snack. Hence the need for a quality media plan, coupled with a differentiated experience to drive people to your restaurant versus the other dozen on the same road.

 

Per Restaurant Research, October TV airings momentum diverged, with QSR picking-up momentum while FSR continued to slow.

 

10 national chains increased the number of TV airings by more than +33% y/y including: +120% Arby's (brisket & steak sandwiches), +78% Taco Bell (breakfast & The Boss Wrap), +61% Chick-fil-A ("Eat Mor Chikin" Campaign/Original Chicken Sandwich), +61% Ruby Tuesday's (Garden Bar Lunch Combos Under $10), and +58% Papa John's (Players' Choice Lg. Pizzas $12).

 

Five chains decreased the number of TV airings by more than -33% including: -61% Red Robin, -56% Jack in the Box, -51% Dunkin' Donuts, -41% Buffalo Wild Wings and -41% Cracker Barrel.

 

Given what RRGB, DNKN and BWLD said about October and the market reaction they received, we suspect JACK will say October is soft/choppy as well.

 

CONSENSUS EXPECTATIONS ARE TOO HIGH

On the Jack in the Box stores specifically, consensus estimates are calling for them to post a same-stores sales growth number of 5.7% versus 3.1% a year prior, a 260bps increase. On a two-year trend basis this represents a 40bps sequential slowdown to 4.4%. It is unrealistic to think a company playing in an increasingly competitive market with declining advertising spending is going to see differentiated growth that outpaces the competition.

JACK | THE SHARKS ARE CIRCLING - CHART 1 Replace

 

Moving onto Qdoba, which was highlighted in our recent BURRITO TRACKER, is looking destined for disappointment. All of our Macro Monitor data sets are headed south, and with correlations in the past looking good, we have to stick to our guns on this one. Chipotle suffered during their 3Q15 which they reported a couple of weeks ago, and given their 0.71 correlation to each other it appears that Qdoba is headed in the same direction.

JACK | THE SHARKS ARE CIRCLING - CHART 2

JACK | THE SHARKS ARE CIRCLING - CHART 3

 

 

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 

 


November 12, 2015

We've made some updates and enhancements to Daily Trading Ranges. You'll now receive risk ranges for 20 tickers each day -  the last five of which will be determined by what's flashing on Keith's screen and by what names you're asking about. Contact support@hedgeye.com if you have any questions or feedback.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.38 2.09 2.32
SPX
S&P 500
2,054 2,093 2,075
RUT
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1,160 1,204 1,178
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NASDAQ Composite
4,999 5,111 5,067
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18,996 19,930 19,691
DAX
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10,588 11,001 10,908
VIX
Volatility Index
14.17 18.83 16.06
DXY
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98.05 100.23 99.16
EURUSD
Euro
1.06 1.08 1.07
USDJPY
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121.33 123.99 122.85
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42.07 45.37 43.07
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2.19 2.39 2.27
GOLD
Gold Spot Price
1,065 1,105 1,086
COPPER
Copper Spot Price
2.16 2.27 2.22
AAPL
Apple Inc.
115 120 116
PCLN
Priceline.com Inc.
1,279 1,371 1,330
VRX
Valeant Pharmaceuticals International, Inc.
71.06 92.69 78.90
BABA
Alibaba Group Holding Ltd.
77.98 83.29 79.85
M
Macy's Inc.
38.91 45.27 40.44
KSS
Kohl's Corp.
41.22 46.12 43.16

 

 


The Macro Show Replay | November 12, 2015

 

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Cartoon of the Day: Get a Second Opinion

Cartoon of the Day: Get a Second Opinion - Yellen cartoon 11.11.2015

 

"The Fed's 'forecast' is wrong 70% of the time," Hedgeye CEO Keith McCullough wrote earlier today. "They are the new market risk."  


Shhh! Macy's CEO Just Hinted At Recession

Takeaway: Retail analyst Brian McGough sees #LateCycle risk in Macy's numbers.

Macy’s shares are getting crushed today. The department store giant’s stock is down 14% after reporting troubling 3Q earnings. Are Macy’s poor performance emblematic of a broader economic trend playing out, perhaps even of an emerging consumer recession?

 

We think so.

 

Shhh! Macy's CEO Just Hinted At Recession - macy s crashing

 

Whether you look at durable goods, consumer confidence, industrial production, ISM Manufacturing, company earnings (the list goes on and on), the data appears to be rolling over.

 

Macy’s CEO Terry Lundgren seems to think so too. In fact, his presence on today’s earnings call spoke volumes in and of itself. As Hedgeye Retail analyst Brian McGough pointed out in a note to subscribers this morning, it was the first time that Lundgren had participated in an investor call since 4Q 2009. Back then, Lundgren was taking a victory lap of sorts, after Macy’s had emerged from the recession with a clear vision forward.

 

Shhh! Macy's CEO Just Hinted At Recession - Macy s dude

 

How times have changed. In its most recent quarter, Macy’s sales were down 5%, inventories up 5%, and the company lowered full-year revenue and profit guidance. “The company didn’t have a whole lot to get bullish about,” wrote McGough.

 

Furthermore, if Lundgren’s presence this go-around was meant to downplay Macy’s poor quarterly results, he did an equally poor job of it. Here’s an excerpt from McGough’s research note:

 

“Arguably the most troubling factor from our vantage point is that Lundgren said "We believe that the retail industry is going through a tough period that we seem to experience something like this every five to seven years or so, and this one feels familiar in that regard."   

 

And a tweet from Keith.

 

Click image to enlarge

Shhh! Macy's CEO Just Hinted At Recession - r word 

 

So while he didn’t come right out and drop the “R” word (Recession), we can read between the lines. In his research note, McGough offers his thoughts:

 

“He probably did not mean this to sound so dire, and softened it up accordingly after seeing the stock down double digits (his recoil didn’t work). But our concern is that growth is definitely slowing in the broader economy, and it appears to be very late-cycle.

 

But it does not feel like a recession – yet. If Macy’s is putting up numbers like this and making these statements today, what happens when (not if) the US economy contracts again? We certainly don’t want to be there when that happens.”

 

Macy’s is just one more example of what our Macro team has been calling out for a while now, #LateCycle and #GrowthSlowing.

 

Don’t say we didn’t tell you so.


REPLAY | EARNINGS RECAP | #ACATaper | JOBS REPORT | JOLTS

Takeaway: JOLTS report tomorrow, be ready!

SUMMARY

We went into the studio to present a couple of key charts and take Q&A.  We touched on the VRX conference call, and touched on AHS and other names we are short for the #ACATaper.  Be ready for the JOLTS update tomorrow from BLS, it should be interesting and will tell you more than last Friday's employment report!  

The slides and video from yesterday are linked below with a few key ones below.

 

REPLAY | EARNINGS RECAP | #ACATaper | JOBS REPORT | JOLTS - 2015 11 11 Q A

 

REPLAY | EARNINGS RECAP | #ACATaper | JOBS REPORT | JOLTS - 2015 11 11 JOLTS Slowing

REPLAY | EARNINGS RECAP | #ACATaper | JOBS REPORT | JOLTS - 2015 11 11 HC Employment ROC

REPLAY | EARNINGS RECAP | #ACATaper | JOBS REPORT | JOLTS - 2015 11 11 JOLTS Percent of Healthcar

 

CLICK HERE FOR SLIDE DECK


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