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The Unreported Truth Behind Today's Jobs Report

Takeaway: U.S. jobs growth peaked in Febraury 2015. It's been all downhill ever since.

The Unreported Truth Behind Today's Jobs Report - jobs cartoon 10.05.2015

 

Despite financial media headlines trumpeting "Everything You Need To Know" about today's jobs report, the Old Wall media missed the most obvious story of all. Digging a tiny bit deeper reveals the real story. Job growth peaked in Febraury 2015. It's been all downhill ever since.

 

Sure, we all know job growth slowed to 160,000, well below the 200,000 number Wall Street economists were predicting.

 

Blah, blah, blah...

 

Digging just a tiny bit deeper reveals the actual story.

 

Job growth peaked in Febraury 2015. It's been all downhill ever since.

 

The Unreported Truth Behind Today's Jobs Report - employment 5 6

 

Here's the detailed breakdown:

 

The Unreported Truth Behind Today's Jobs Report - employment summary 5 6

 

And finally, a message from our outspoken CEO Keith McCullough. What you should have owned heading into today's #LateCycle Jobs Report.

 


Don’t Worry, Retail’s Just Fine (not)

Takeaway: Weak Dept Stores, weakest LB comp trend in a generation. The economy is fine tho… Gear up for a volatile retail EPS season.

KSS, JCP, M - JCP Memo Signaling Weak 1Q

(http://nypost.com/2016/05/05/jcpenney-taking-emergency-measures-to-stay-afloat/)

Department store earnings start next week, and the NY Post stirred the pot in preview.  This article discusses an internal memo from JCP management to store managers that declared significant cost cutting initiatives into quarter close.  These cuts manifested in chopped employee hours and slashed T&E expenses. 

The read-throughs here are very bearish for the rest of JCP's peer group. Coming off a low base JPC still has a lot of room to run as it regains parts of the $5.4bn it coughed up during the RonJon tenure. To date - the company has taken back only $800mm, with KSS being the biggest beneficiary.  With JCP nickel and diming to manage expenses into quarter close, we would expect the hurt to be more pronounced on its competitive set as the comp trend in the industry continues to play out.

This is stage 1 of our 3 part KSS call continuing to play out.  'Stage 1' is characterized by weak sales simply as a result of the fact that KSS sells less and less of what consumers increasingly want to buy.  The model is stretched with very few leverage points (not to mention the only sales line that is growing is online where the gross margin is 1000bps below a B&M sale), and no real estate optionality.  Not to mention the risk to 30% of EBIT from a credit portfolio that has hit its peak. By the time our call gets to 'Stage 3', the dividend is wiped out, and this 'free cash flow support' we keep hearing about will wash away, taking valuation support with it.

 

For more details on our 3-stage KSS call, CLICK HERE.

 

Don’t Worry, Retail’s Just Fine (not) - 5 6 2016 chart1

  

LB - L Brands Stumbling in 2016

LB, traditionally one of the pillars of stability in the US retail group, continues its stretch of doing pretty much nothing right. Just 4 months into the year, the company has missed 3 times, and Fiscal Q1 EPS was guided below the street for the first time in over 3 years. The 2-year comp (see below) is testing negative territory for the first time in a generation.

The bear case about the Victoria's Secret catalog changes while the company is at peak productivity, peak margins, and cycle-peak multiples on almost every metric with only 3.7% of the float held short is clearly winning. But we're still intrigued here and continue to vet the name. In fact, it just got more interesting from where we sit. Stay tuned for a Vetting Book on that one.

 

Don’t Worry, Retail’s Just Fine (not) - 5 6 2016 chart2

 

 

AEO - American Eagle names Peter Z. Horvath Chief Global Commercial and Administrative Officer -- Horvath's previous roles include Exec VP COO at Victoria's Secret and President of Footwear at DSW

(http://www.businesswire.com/news/home/20160505006651/en/)

 

HBI - Australia Foreign Investment Review Board officially approves Hanesbrands' acquisition of Pacific Brands

(https://www.nzx.com/files/attachments/234982.pdf)

 

WMT - Walmart reviving door-greeters after removing program in 2012 --  tested program last summer and will roll out  to all stores by mid-summer

(http://www.retailingtoday.com/article/guess-what-old-tradition-walmart-bringing-back)

 

JCP - JC Penney teams up with Michael Strahan for new athleisure line, released men's tailored line last year

(http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=2165587)

 

AMZN - Amazon CEO Jeff Bezos said company will hire over 25,000 military veterans and spouses over next 5 years -- in 2012 Amazon made effort to hire 10,000 veterans

(http://www.seattletimes.com/business/amazon/amazon-ceo-vows-to-hire-25000-veterans-and-military-spouses/)

 

Claire's Stores CEO Beatrice Lafon resigns & quits board, will be replaced by board member Ron Marshall

(http://www.retailingtoday.com/article/ceo-claires-stores-resigns-replaced-industry-vet)


Daily Market Data Dump: Friday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, and rates and bond spreads. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Friday - world equity 5 6

 

Daily Market Data Dump: Friday - sector performance 5 6

 

Daily Market Data Dump: Friday - volume 5 6

 

Daily Market Data Dump: Friday - rates and spreads 5 6


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YELP | More Red Flags (1Q16)

Takeaway: What drove the 1Q beat will likely come back bite them by year-end. We remain short, but need to monitor consensus to time next catalyst

KEY POINTS

  1. 1Q16 = LOOKED REALLY GOOD: YELP beat consensus 1Q revenue estimates, with Local beating consensus for the first time since 2014.  YELP raised 2016 revenue guidance inline with the 1Q beat, and issued 2Q revenue guidance with the high end above consensus.  YELP produced accelerating Local Ad Revenue growth of 40% (vs. 35% in 4Q15 ), while producing a surge in 1Q16 new account growth (34% vs. 22% in 4Q15).  AdSense didn’t drive the Local Ad beat as we suspected might be the case; mgmt clarified that revenue was recognized in Other Services.  Mgmt attributed the upside to better ad "budget fulfillment", which it suggested was due to a combination of better ad targeting and improvement in its auto-bidding algorithm (see link for context).
  2. BUT DRIVER CONCERNING: In short, better ad budget fulfillment means ARPU, which accelerated despite its declining q/q customer repeat rate, which is a natural ARPU headwind given the lower percentage of accounts paying a full quarter's worth of revenue.  Further, the promotions (discounts) around its self-service accounts, which drove a "meaningful percentage" of its net account growth, further exacerbates the ARPU drag.  Yet ARPU still accelerated, so net-net the ARPU increase on its repeating customers was a lot higher than its reported metrics would suggest at first glance.  Translating back to English, that basically means YELP's customers are now either paying more in monthly advertising expense, or getting less ad clicks on that spend due to YELP's sudden algorithmic changes.  
  3. MORE RED FLAGS: Remember the problem with the model is ROI.  Local Ad customers aren't getting enough conversion off their ad spend, leading to YELP's rampant attrition issues (see note below).  Algorithmic changes to jack up that CPC only makes the ROI problem worse, and is just another example of YELP's short-sighted attempts to chase consesnus at all costs.  Futher, we're left wondering what "meaningful percentage" means when it comes to the self-serve portion of its net account growth.  Remember self-serve by definition has nothing to do with YELP's salesforce, which continues to grow at a faster pace than YELP's new account growth (self-serve included).  That said, we're wondering what 1Q16 new account growth would have been without these promotional add-ons, how many will remain into 2Q, and at what ARPU.  We remain short, but need to monitor consensus estimates to time the next catalyst.

 

Let us know if you have questions, or would like to discuss in more detail. 

 

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet

 

 

YELP: Grand Tales of ROI

02/13/15 01:34 PM EST
[click here]

 

YELP | More Red Flags (1Q16) - YELP   New Acct vs. Sales 1Q16 v3

YELP | More Red Flags (1Q16) - YELP   New Acct vs. ARPU


McCullough Denounces Trump On Dollar

 

In this brief excerpt from The Macro Show yesterday, Hedgeye CEO Keith McCullough denounces Donald Trump who reportedly said that a strong dollar is a big problem. “If you think a strong dollar is a problem, you’re a jackass,” McCullough said. “Strengthening the purchasing power of the people is the answer.” 


Trump’s Path To The Presidency

 

Hedgeye Director of Research Daryl Jones sits down with Hedgeye Potomac Chief Political Strategist JT Taylor to discuss the path forward for the presumptive Republican and Democratic nominees.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.51%
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