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Retail Callouts (11/30) | What To Own/Short Into Holiday

Takeaway: We’re net sellers of Retail, this is bigger than weather/holiday. Hedgeye Retail Idea List.

SELL RETAIL | THIS IS BIGGER THAN HOLIDAY

We’re happy to get into the debate about how crowded the parking lot was at the mall this weekend, but it’s nowhere near as relevant as the current profitability growth trajectory for Retail, and the consensus expectations for the group as we head into 2016. The good news is that 4Q sales estimates look only slightly high. The bad news is that margins expectations are still 50-100bps high for the group. The worse news is that the Street’s numbers are banking on a recovery in growth and margin starting in 1Q16. In other words, it’s chalking up this ‘thing’ retailers are feeling now as exactly what management teams want us all to believe – while they cross their fingers, hope and pray that the economy is not really slowing.  The group might be viewed as damaged goods in this market, but keep in mind that it’s only down 4.3% for the YTD vs a 1.5% gain for the market – not a big difference. It’s trading at 18-19x earnings, and has short interest that is disproportionately low for an economy that is #LateCycle. We’re net sellers of Retail.

To see our full note from yesterday CLICK HERE

Hedgeye Retail Idea List

Retail Callouts (11/30)  |  What To Own/Short Into Holiday - 11 30 2015 chart1

SPLS, ODP - Regulators prepare blocking Staples-Office Depot merger

(http://nypost.com/2015/11/29/regulators-eye-blocking-staples-office-depot-6b-merger/)

Our Take: Blocking this merger is ridiculous. The 'space' is so loosely defined. There's nothing you can buy in a Staples/Office Depot that you can't buy in Wal-Mart, Target, CVS or even your average local supermarket.

NRF’s 2015 Thanksgiving weekend survey, including the spending amount, are not comparable to last year’s survey as the methodology has changed.

(https://nrf.com/media/press-releases/thanksgiving-weekend-shopping-brings-big-store-and-online-crowds-according-nrf)

Our Take: How convenient that the survey methodology for the NRF -- the Retail Industry's lobbying group -- changed at the same time results for the average retailer are well below plan.  This is akin to a company that misses a quarter and changes disclosure to mask the real underlying trends.

AMZN - Amazon shows off future drone delivery service in ad

(http://www.marketingweek.com/2015/11/30/amazon-shows-off-future-drone-delivery-service-in-ad-starring-jeremy-clarkson/)

Our Take: Many people still consider this concept to be ridiculous, but we'll rarely bet against Bezos. Consumer buy-in is critical with this delivery service, and with Wal-Mart hot on its tail in testing its own concept, we're glad to see AMZN lead the way.

Neiman Marcus web site suffers outages on Friday and Saturday

(http://fortune.com/2015/11/28/neiman-marcus-ecommerce-2/)

ZQK - Quiksilver Employee Incentive Plan Gets Pushback

(http://wwd.com/business-news/legal/quiksilver-incentive-plan-gets-pushback-10286702/)

EBAY - Brief Outage Strikes PayPal Ahead of Cyber Monday

(http://www.ecommercebytes.com/cab/abn/y15/m11/i30/s01)