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Retail Callouts (12/21): Idea List (COH, COST, LULU, PIR), NKE/UA Endorsement Strategy, BOPIS

Takeaway: Hedgeye Retail Idea List - COH, COST, LULU, PIR. NKE meaningful tweak to endorsement strategy. BOPIS kinks not ironed out.

Hedgeye Retail Idea List

 

This Week's Changes

Coach (COH): Added to our Long Bench for Vetting. Near $30, we simply need to give this perennial dog a look on the long side. The decision tree is one where all the business needs to do is stabilize, and the stock works. The business improves -- even if by accident -- and the stock goes up a lot. This would be a tactical TRADE/TREND call, and nothing more.

 

Costco (COST): Added to Short Bench for initial Vetting. Half of our team thinks this name is starting to screen like a good short. Half of our team thinks the other half is nuts. Still, a process is a process. We're vetting it.

 

Lululemon (LULU): This has been sitting on our Short Bench waiting for a better price. But we think that the CEO is fired within six months in conjunction with another miss. This company can either invest in people who can develop a real strategy, or sales can drift lower while management chases the elusive mid-50's GM%.

 

Pier 1 (PIR): Booted to the long bench. The call here is simple. It’s not easy, but it is simple. If you DON’T think we’re headed into a recession, or are not concerned about growth slowing incrementally from here…then you’re looking at a 20% FCF yield and 6% dividend yield as PIR recovers from a 3-year investment to build its online business from 1-20%. In a normal economy next year, this stock could be a 4-bagger.  But if you’re in the other camp, then the equity value could go away entirely. We still think that the upside to a $20-something stock is there. But unfortunately, has the potential downside to zero, which we don't like so late in an economic cycle.

 

Retail Callouts (12/21): Idea List (COH, COST, LULU, PIR), NKE/UA Endorsement Strategy, BOPIS - 12 21 2015 idea list

 

NKE - Meaningful Tweak To Endorsement Strategy

http://www.wsj.com/articles/nike-still-has-room-to-run-1450639115

The crux of this article is that Nike has been conservative with athlete endorsements in recent years. Despite the headlines, that's actually true -- on a relative/competitive basis, at least.  The reality is that Nike has $6.2bn in minimum endorsement obligations, which is 16x what Under Armour has committed. UA is at 6.5% of Nike's endorsement levels today, vs 4.5% just two years ago, and 2.0% in 2010. That's on the heels of Nike uncategorically losing the spotlight to UA on its home turf during 2015 thanks to the likes of Steph Curry, Misty Copeland, Jordan Spieth, and Tom Brady. 

 

We can't say that UA's reign will end. But we're near certain that a major theme in 2016 for Nike will be spending more money on athletes. While first blush is that this would be ROIC dilutive...consider that Nike could add the equivalent of UA's entire 10-year endorsement budget to its current capital base with no cash payback, and it would erode Nike's 21% ROIC by only 60bps.

 

Retail Callouts (12/21): Idea List (COH, COST, LULU, PIR), NKE/UA Endorsement Strategy, BOPIS - endoresement minimum UA NKE

 

Retail Callouts (12/21): Idea List (COH, COST, LULU, PIR), NKE/UA Endorsement Strategy, BOPIS - endoresement analysis

 

WMT, TGT, KSS, Department Stores - BOPIS Kinks not ironed out. More investment needed.

(http://www.post-gazette.com/news/nation/2015/12/21/Buy-online-pick-up-in-store-Simple-right-Not-this-Christmas/stories/201512210086)

 

For retailers today, the standard ante chip for an 'omnichannel' operation involves a few key functionalities: website, mobile app, ship from store, and buy-online pickup in store (BOPIS). Scan any brick and mortar analyst day or earnings call transcript and you will see the mention of either the development or implementation of this group of strategies. But, it appears that the group still has a long way to go on the infrastructure side in order to service the ship from store/BOPIS functionality. This holiday season, 60% of BOPIS orders ran into a problem - that's notable as it's supposed be a) a margin saver as e-commerce sales are typically bps GM dilutive, and b) a traffic driver to stores. These services become most important during the peak shopping periods (especially when handlers are struggling to keep up with the volume), and its clear that the kinks are not ironed out. Meaning more investment needed in the IT/infrastructure side, and more employees to service the program.

 

BABA - Alibaba Group Appoints Matthew Bassiur as Head of Global Intellectual Property Enforcement

(http://www.businesswire.com/news/home/20151221005376/en/Alibaba-Group-Appoints-Matthew-Bassiur-Head-Global)

 

JCP - JCP names new CIO with Target background

(http://www.retailingtoday.com/article/jcp-names-new-cio-target-background)

 

FDX, UPS - Jet.com warns shoppers that packages will not arrive in time for Christmas

(http://blogs.wsj.com/digits/2015/12/18/holiday-shipping-delays-claim-retailer-jet-com/)

 

60% of shoppers wait for last minute Holiday deals, up from 50% last year.

(http://www.wsj.com/articles/holiday-shoppers-wait-until-the-last-minute-for-deals-1450521042)

  

ADS - Milan Shoppers On The Hunt For Black Adidas Yeezy 750s

(http://footwearnews.com/2015/focus/athletic-outdoor/adidas-yeezy-boost-750-black-kanye-west-release-milan-178465/)

 

KSS, M, WMT, SHLD - For last-minute shoppers, big retailers offer deals, extended hours

(http://www.fredericknewspost.com/news/economy_and_business/retail/for-last-minute-shoppers-big-retailers-offer-deals-extended-hours/article_b403adc9-1f99-5617-802f-4ff2820215f8.html)

 

NKE, GPS, HM-B - Cambodia workers protest after $20 monthly wage hike not implemented

(http://www.channelnewsasia.com/news/asiapacific/cambodian-police-use/2366600.html)

 
Returns Scams to Cost Retailers Billions

Holiday return fraud is expected to cost retailers $2.2 billion this year, up 15% over 2014 levels, according to a National Retail Federation survey released on Thursday.

(http://fortune.com/2015/12/17/holiday-returns-scams/


Repeat After Me: Deflation Is Not Transitory

Takeaway: Deflation is real and it's pervasive.

Let’s be crystal clear about what happened last week. Our omnipotent central planners at the Federal Reserve tightened into a slowdown and perpetuated #deflation in doing so.

 

Essentially, by trying to “demonstrate strength” by raising interest rates into a slowdown revealed the #1 weakness of the macro market last week. It’s called #Deflation.

 

Here’s what that looks like in the real world:

 

Repeat After Me: Deflation Is Not Transitory - oil update

 

Oil is down almost 2% this morning to $34.04 after deflating another -3% last week. Make no mistake,  #Deflation is not “transitory.” On the contrary, it’s been pervasive. And since the U.S. is in an industrial recession right now, it’s finding its way into revs/earnings for 1H 2016.

 

More to be revealed.

 


Monday Mashup

Monday Mashup - CHARt 1

 

RECENT NOTES

12/21/15 DRI | GREAT QUARTER, DON’T EXPECT ANOTHER ONE SOON

12/17/15 AN OPEN LETTER TO THE CEO OF CHIPOTLE FROM HIS PEER GROUP

12/16/15 DRI | ONE LAST GOOD QUARTER

12/11/15 YUM | INVESTOR DAY IN REVIEW

12/9/15 CMG | WHO WILL BENEFIT FROM THEIR STRUGGLES? (ZOES, PNRA, QDOBA, CHUY, MCD)

 

SECTOR PERFORMANCE

Casual Dining and Quick Service stocks that we follow outperformed the XLY, last week, which was down -0.9%. Top performers on a relative basis from casual dining were DRI and KONA posting increases of +9.1% and +6.8%, respectively, while NDLS and JMBA led the quick service group this week up +3.9% and +3.6%, respectively.

Monday Mashup - CHART 2

Monday Mashup - CHART 3

 

XLY VERSUS THE MARKET

Monday Mashup - CHART 4

 

CASUAL DINING RESTAURANTS

Monday Mashup - CHART 5

Monday Mashup - CHART 6

Monday Mashup - CHART 7

 

QUICK SERVICE RESTAURANTS

Monday Mashup - CHART 8

Monday Mashup - CHART 9

Monday Mashup - CHART 10

 

Keith’s Three Morning Bullets

The Fed tightened into a slow-down last week and perpetuated #deflation in doing so…

 

  1. VIX – with the SP500 -3.6% for DEC, front-month VIX is back up at 20.70 – more importantly, it’s risk range is now 17.84-24.83 and this breakout on our TREND duration has been brutal for High Beta as a Style Factor, which was down another -2% last wk
  2. SPAIN – down hard in a generally up tape for European Equities this morning – post the Spanish election the IBEX is -2% (-7.5% in the last month) while the 10yr Yield for Spain is +11bps to 1.80%; I still think Draghi wants to snap Euro $1.05 vs. USD
  3. OIL – down another -0.6% this morning to $34.49 after deflating another -3% last week - #Deflation is not “transitory”, it’s been pervasive and since the US is in an industrial recession right now, it’s finding its way into revs/earnings for 1H 2016

 

SPX immediate-term risk range = 1; UST 10yr Yield 2.12-2.32%

 

Please call or e-mail with any questions.

 

Howard Penney

Managing Director

 

Shayne Laidlaw

Analyst

 


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The Macro Show Replay | December 21, 2015

 


INVITE (NEM) | HAPPY ASSUMPTIONS VS. SAD REALITIES

As a follow-up to the the launch of the Hedgeye Materials vertical, please join us TOMORROW (Tuesday, December 22, 2015 at 11AM EST) for a review of the bear case on Newmont Mining.

 

INVITE (NEM) | HAPPY ASSUMPTIONS VS. SAD REALITIES - Marketing Image

 

Overview

 

NEM is typically perceived as a ‘premium’ gold miner, but, for one, we aren’t sure there really is such a thing.  Long-term, NEM has been a secular underperformer; we expect that underperformance to continue.  NEM may struggle with comparatively high costs in a declining gold price environment.  We are not convinced that NEM’s 2015 cost reductions reflect the underlying production economics and expect the shares to be further derated by the market in 2016.

 

 

Highlights

  • Assumption vs. Reality:  A look at key assumptions behind NEM’s costs and those of competitors
  • Charges Coming:  NEM may need to again adjust asset values lower, potentially with broader implications
  • Likely Value Trap:  Cyclicals in a downswing typically look cheap as conditions deteriorate
  • No Gold Cure:  With mine production likely to exceed estimates and gold continuing to move out of favor with investors, we expect gold prices to decline in most major currencies.

 

Dial-in information will be distributed in the reminder email for this call. Please email sales@hedgeye.com for more information on joining.

 


December 21, 2015

Hedgeye's Daily Trading Ranges are twenty immediate-term (TRADE) buy and sell levels, with our intermediate-term (TREND) view and the previous day's closing price for each name.  Click HERE for a video from Hedgeye CEO Keith McCullough on how to use these risk ranges.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.32 2.12 2.19
SPX
S&P 500
1,995 2,048 2,005
RUT
Russell 2000
1,104 1,157 1,121
COMPQ
NASDAQ Composite
4,879 5,042 4,923
NIKK
Nikkei 225 Index
18,503 19,618 18,986
DAX
German DAX Composite
10,192 10,871 10,608
VIX
Volatility Index
17.84 24.83 20.70
DXY
U.S. Dollar Index
97.68 99.41 98.73
EURUSD
Euro
1.06 1.10 1.08
USDJPY
Japanese Yen
120.35 123.15 121.25
WTIC
Light Crude Oil Spot Price
34.24 37.98 35.83
NATGAS
Natural Gas Spot Price
1.66 1.98 1.76
GOLD
Gold Spot Price
1,049 1,082 1,065
COPPER
Copper Spot Price
2.03 2.13 2.11
AAPL
Apple Inc.
105 112 106
AMZN
Amazon.com Inc.
641 685 664
GOOGL
Alphabet Inc.
745 780 756
NFLX
Netflix
113 122 118
KMI
Kinder Morgan Inc.
13.84 17.37 15.14
DIS
Walt Disney Company, Inc.
105 112 107

 

 


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