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December 7, 2009


EPS season is largely over. Macro season begins. Conviction (as measured by volume) is decelerating for retail – counter to what we see in the market. Add that to peak multiples on recovery earnings, and we’re setting up for a big bifurcation in 2010. That’s only 4 weeks away.

Earnings season is largely over, and now it’s Macro time through year-end. The Retail space is hanging right in there with the market – but where’s the conviction? S&P volumes (the best gauge of conviction) are flat to up, while Retail Sector volume is decelerating sharply. This is the first time we’ve seen this all quarter. On the same token, we’re looking at 20x p/e valuation on 20% consensus bottom-up 12-month forward earnings growth expectations. So let me get this straight… before the March 9th low, we had trough multiples on depressed earnings, and now we seeing peak multiples on recovery earnings. I’m not going to make valuation calls here, because the reality is that there are certain names that DESERVE to be expensive. But in maintaining the integrity of a bell curve, there are others that deserve to be cheap. That’s what we’re not seeing. I’m sticking with my view that we’ll begin to see a massive bifurcation in both cash flow trajectory and valuations intra-sector beginning in 2010.

Retail First Look: Peak on Peak is Not Sustainable - 1

Retail First Look: Peak on Peak is Not Sustainable - 2

Retail First Look: Peak on Peak is Not Sustainable - 3


  • As several of the companies we identified in our research on NOL Carry Backs on Nov 8th (i.e. TLB, CHRS, LIZ, & DDS) report earnings, the issue is becoming more impactful to results. CHRS reported last week and spoke in more detail about the NOL benefit and what they could expect to receive, and TLB reports tomorrow morning. With volatility amongst small-caps likely to remain high, this item is a positive ‘stocking stuffer’ for a select few that could use it. Other than LIZ, TLB is one of the more significant beneficiaries of this bill.
  • As the rumors continue surrounding Amazon’s potential purchase of European private-sale operator, Vente-Privee, a new site is gaining attention and investors. One Kings Lane has just landed an investment from Kleiner Perkins, adding to the growing list of private-sale operators attracting private equity and/or M&A attention. One Kings Lane offers discounted home furnishings over a sales period that usually lasts 72 hours.
  • The introduction of video games in Big Lots assortment during Q3 helped to drive an increase in the teens for the company’s electronics category. The company continues to expand its offering in electronics and is benefitting from increased SKU counts in televisions, DVD’s, and digital cameras.
  • More than half of all retailers are embracing social networking this holiday season in an effort to drive sales and brand awareness. This compares to only 4% of retailers using similar marketing techniques in 2007. Of those using social media, 76% are on Facebook and 50% are on Twitter.


Nike Opens Nike 6.0/Hurley/Converse Concept Store - Art and community combined with shopping at 225 Forest Thursday night. The concept store, which sells Hurley, Converse and Nike 6.0 products, hosted a release party for Munny World. Kids, teens and adults customized the faceless vinyl figures with permanent markers, stickers, spikes and fabric to create their own unique toy. Hosting events with a wide appeal is one way the store, at 225 Forest Ave., stands out from other surf or skate shops, said Adrian Nyman, senior vice president of branding for Hurley. "We really want to make this more about creativity," he said. Themes of art and community run throughout the store, which opened in July. The centerpiece is a painting that spans the store's two stories, created by artist Dalek with help from Laguna Beach High School students. Much of the materials used to build the store's interior are recycled. For Thursday's event, a DJ played records while locals shopped, crafted their new Munny or snacked on vegan cupcakes. "We want to have a relationship," Nyman said. "It's definitely a consumer experience." <ocregister.com>

U.S. Retail Hiring Rate Rose to Highest Level in 2009 - Hiring by U.S. discount, grocery, restaurant and specialty chains in November rose to the highest level in 2009, signaling that retailers may be anticipating a gradual recovery in consumer spending, a monthly survey found. In November, 3.87 percent of applications resulted in hires, the most this year according to seasonally adjusted figures compiled by software maker Kronos Inc. Job applications last month fell to 1.27 million, the lowest since March, after 10 straight months of increases, the closely held Chelmsford, Massachusetts-based company said today in a statement. While these are classic signs of a gradual, post-recession recovery, last month’s hiring increase might be a “spill over” from October, as retailers delayed the peak season for taking on employees, Robert Yerex, Kronos’s chief economist, said by telephone Dec. 4 from Beaverton, Oregon.  <bloomberg.com>

U.S. Department Stores Add 7,500 Jobs in Nov. - Retailers increased payrolls in November in anticipation of the holiday shopping season as the U.S. unemployment rate dropped unexpectedly and employers cut the fewest jobs since the recession started. Department stores added 7,500 jobs to employ 1.52 million people, recouping part of the revised 12,400 jobs cut from payrolls in October, the Labor Department said Friday. Specialty stores added 900 jobs to employ 1.41 million workers, after a revised decline of 600 jobs in October and an increase in payrolls in September. The unemployment rate fell to 10 percent in November after reaching a 26-year high of 10.2 percent in October, and the economy shed just 11,000 jobs, following three months of job losses averaging 135,000 a month. Although losses continued in manufacturing and construction, the private services sector added jobs for the first time since December 2007. <wwd.com>

Macy's, Sunglass Hut Strike Eyewear Deal - Luxottica Group has signed an agreement with Macy’s Inc. for its Sunglass Hut unit to serve as the sole operator of the retailer’s in-store sunglass departments. Macy’s will be the only U.S. department store to house Sunglass Hut shops. Beginning this spring, Macy’s will open an additional 430 Sunglass Hut departments, bringing its total to 670 by spring 2011. The new locations will operate as leased units. “Through this agreement, Macy’s is able to offer a comprehensive assortment of sun eyewear, including brands not previously available in all Macy’s stores,” said Ron Klein, Macy’s chief stores officer. “Sunglasses are an important fashion and functional accessory for our customers. Going forward with Sunglass Hut, we will be able to offer a wider choice of styles, supported by the high level of service associated with Macy’s.” Through the partnership, Sunglass Hut wants to strengthen its presence in the U.S. The retailer operates in more than 2,000 locations worldwide, including the Caribbean, Europe, Australia, Asia, the Middle East and South Africa.  <wwd.com>

Dave McTague Leaves Liz Claiborne - Dave McTague, executive vice president of the Partnered Brands division, left the company Friday. McTague is the latest to depart in the wake of the October deal to license the flagship brand to J.C. Penney Co. Inc. That move, which also shifted the Isaac Mizrahi-designed Liz Claiborne New York line to QVC, cost 115 Claiborne employees their jobs, although 15 were offered positions at QVC. “The operating strategy and landscape of the Partnered Brands portfolio has changed dramatically in the past two-and-a-half years,” said William L. McComb, chief executive officer. “In light of this, Dave’s departure and the new distribution strategy for the Liz Claiborne brand franchise, we are rethinking the management structure of the Partnered Brands business segment. I thank Dave for working so hard on behalf of Liz Claiborne Inc. during his tenure here and wish him well in the future.” <wwd.com>

E-retailers offer plenty of holiday deals, but pull back on free shipping - Among the top 100 online retailers, 68 offered free shipping offers for the week of Monday, Nov. 30, a slight drop from 71 the prior week, according to a survey by Internet Retailer. In the comparable week a year ago, 66 offered free shipping. In addition, 62 retailers in the top 100 also presented major promotional displays on their home pages—many with discounts of up 50%—and more than 40 followed up with special e-mail offers to shoppers who had signed up for e-mail promotions. Five retailers introduced free shipping offers for the week, including QVC and Abercrombie & Fitch Co. Meanwhile, Apple dropped its $50 minimum order to qualify for free shopping, allowing free shipping on all items. Among the retailers that changed their free-shipping offers, several restricted the benefit. <internetretailer.com>

Zappos.com Offers an Actual World Catalog - A company that could be the model for Internet retailing success is peddling goods by paper as well as by pixels. Zappos Life, the catalog of the virtual seller of shoes, is also advertising handbags, jewelry, clothing and fragrances. Zappos.com, the online seller of shoes and other merchandise that was recently acquired by Amazon, is mailing 750,000 copies of a printed catalog to consumers. The catalog, timed for holiday shopping, bears the title Zappos Life and has a fashion and designer focus, offering products like handbags, jewelry, clothing and fragrances in addition to the Zappos.com mainstay, footwear. Among the brands featured in the fashion catalog are Cole Haan, Guess, Calvin Klein, Lucky, Stila, True Religion and Stuart Weitzman. They can be bought on the Zappos.com Web site or by calling a toll-free telephone number. (The catalog can also be read at zapposlife.com.) <nytimes.com>

Intimacy Chain to Open Second Manhattan Unit - Intimacy, an eight-store chain specializing in bra fitting, plans to open its second store in Manhattan on Dec. 18, said Susan Nethero, founder and chief executive officer. The boutique, located at 62nd Street and Third Avenue, is 2,500 square feet with 11 dressing rooms occupying about half the square footage. Intimacy’s existing unit at 90th Street and Madison Avenue is 1,100 square feet and has sales of about $3,000 a square foot, Nethero said. Other units average $2,500 a square foot. Nethero, who plans to have 25 stores by 2014, attributed part of Intimacy’s rapid expansion to “the Oprah effect.” She has appeared on “The Oprah Winfrey Show” five times in the past five years talking about “bra violations” and showing how a properly fitted bra can transform a woman’s figure and style.  <wwd.com>

Phoenix Footwear Secures $4.5 Million Credit Revolver - Phoenix Footwear Group, Inc. said it has entered into a new two year, secured revolving credit facility with First Community Financial, a division of Pacific Western Bank. The facility replaces the company's previous credit facility with Wells Fargo Business Credit 9NYSE: WFC). The new credit facility provides for a line of credit up to $4.5 million, subject to a borrowing base limit, and as of December 4, 2009, has $2.0 million in borrowings, net of cash, outstanding under the new facility.  <tradingmarkets.com>

China to Maintain Policies, Boost Consumption in 2010 - China’s top leaders pledged to maintain a “moderately” loose monetary policy stance and “proactive” fiscal policies next year to bolster growth in the world’s third-largest economy. The government will ensure policy continuity, boost consumer spending and adjust growth models, the official Xinhua news agency reported, citing the annual central economic work conference between Dec. 5 and today in Beijing. President Hu Jintao and Premier Wen Jiabao attended the meeting, Xinhua said. Chinese policy makers are weighing the potential threat from inflation and asset bubbles against the need to maintain stimulus measures to create jobs and sustain the nation’s rebound from the slowest growth in almost a decade. The Communist Party’s Politburo said last month that existing monetary and fiscal policies would be maintained in 2010 and Premier Wen rebuffed calls for the yuan to strengthen. <bloomberg.com>

How social network investments can boost natural search results - While social media results currently account for only about 7% of the search engine listings of 1,000 branded keywords reviewed in a recent study, that percentage is likely to grow significantly in 2010, making social media a significant opportunity for brands seeking to show up more prominently in search results, according to the study, “The State of Search,” from digital marketing agency 360i. That opportunity stems from the fact that most current search results listings draw from social media venues that are not controlled by the brand, according to 360i. The report found that 77% of the YouTube, Twitter and Facebook listings that appeared for brand searches in a cross-industry review of the top 100 U.S. brand advertisers were controlled by a party other than the marketer.  <internetretailer.com>

Stride Rite Children's Group Appoints President - The Stride Rite Children's Group (SRCG) unit of Collective Brands Performance + Lifestyle Group announced that it has appointed Sharon John as its unit president. John will lead SRCG and its expanding portfolio of brands including Stride Rite, Robeez, Saucony Kids, Sperry Top-Sider Kids, Keds Kids, Jessica Simpson Kids, Tommy Hilfiger Kids, and more. SRCG said John has extensive experience in Children's brands, marketing to moms and kids, and strong licensing, product development and innovation expertise at such companies as Hasbro, Inc. and Mattel, Inc., among others. John will begin in her new role in late December and report to Gregg Ribatt, president and chief executive officer of the Collective Brands Performance + Lifestyle Group. She will head up all functions of the SRCG team including product creation, sales, marketing, merchandise planning and distribution, as well as retail which includes retail merchandising and operations of more than 350 Stride Rite stores. <sportsonesource.com>

John Lewis reports best-ever week - John Lewis has recorded its best-ever week, with sales in the week to Saturday December 5 £1m ahead of its previous record week set in 2007. Sales at John Lewis during the period were £102.4m, 13.8% up on the same week last year. The figure also represents a 6% rise on the equivalent week in 2007, when figures were not impacted by the turbulent trading conditions seen in 2008 following the banking collapse. Records were smashed in departments including gifts and online arm johnlewis.com reported its highest sales for one week. John Lewis said that this week is the earliest time in the Christmas season that the department store recorded a figure in excess of £100m. John Lewis added that branches across the country revealed that shoppers are buying gifts and preparing for a family Christmas at home. <drapersonline.com>

German Manufacturing Orders Unexpectedly Declined in October - German factory orders unexpectedly fell for the first time in eight months in October, led by a decline in export demand. Orders, adjusted for seasonal swings and inflation, dropped 2.1 percent from September, when they rose 1.3 percent, the Economy Ministry in Berlin said today. Economists expected a 0.8 percent gain in October, according to the median of 38 estimates in a Bloomberg News survey. Orders were 8.5 percent lower than a year earlier. Germany’s economic recovery may slow as the impact of government stimulus measures, such as the now-expired cash-for- clunkers program, dissipate and the stronger euro erodes export revenues. Daimler AG, the world’s second-largest maker of luxury cars, said last week that it will shift production of its best- selling Mercedes-Benz C-Class model to Alabama to reduce its reliance on German factories and take advantage of the cheaper dollar.  <bloomberg.com>

Brazil ends the year with a sharp fall in exports - In November Brazilian leather exports grew by 11% compared to the same month of 2008. Consolidated figures from January to November show a fall of 42% with US$1.028 billion exported in leather and hides compared to US$1.782 billion in 2008. In other words, Brazilian tanneries did not manage to sell a total of US$754 million in leather internationally. After registering falls which in their worst moments reached 60% the sector has been gradually recovering. In October, the decline was limited to a somewhat better 18%. Nevertheless, with only one month to go before the end of the year the data available clearly illustrates the difficulties experienced by the sector this year. The December figures will round off the final result of 2009 and give the definitive shortfall compared to 2008, when US$1.88 billion were exported. <fashionnetasia.com>