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Sorting Through Easter Noise – Easing Compares Arrive

R3: REQUIRED RETAIL READING

April 15, 2010

 

 

TODAY’S CALL OUT

 

With the Easter holiday falling a week earlier this year, it’s easy to be jolted by the considerable sequential deceleration in footwear trends reflected in this week’s data. While optically striking, it’s important to keep a few things in perspective as one week never a trend makes.

 

For starters, when looking at March-to-date trends in an effort to negate the calendar shift, industry sales are up 7%.  Importantly, this is consistent with the rate of growth we’ve seen since early February.  Additionally, it’s important to be mindful that beginning this week, the ‘tough compare’ argument becomes less credible-as footwear embarks on a 5-month stretch of easing compares.  In the near-term the most difficult compares and the calendar noise are now behind us, which gives us continued confidence that strength will persist across the athletic footwear space.  Oh, and don’t forget Nike’s big product push is still on the horizon.

 

Sorting Through Easter Noise – Easing Compares Arrive - Footwear Apparel 1 Year

 

Sorting Through Easter Noise – Easing Compares Arrive - Easter Table

 

 

LEVINE’S LOW DOWN 

 

- In an effort to keep Ralph Lauren’s new flagship store in Paris true to its American roots, the in-store restaurant has been crafted with guidance from New York restaurant icon Danny Meyer. The menu is entirely American, cooked by French chefs, trained by American chefs. The goal was to offer a truly authentic American menu and one with little French influence. The menu includes burgers, fried chicken, and beef flown in from Ralph Lauren’s Colorado cattle ranch.

 

- Genesco noted that its top priority for use of cash is to make an acquisition, grow a new concept, or to make a niche-acquisition. However, if opportunities in those areas do not present themselves, the company would then look to share buyback as a means to enhance shareholder value.

 

- Consistent with its track record for beating expectations, PVH confirmed that business trends remain robust and there’s a high likelihood of exceeding full-year guidance at a conference earlier today. Assuming a margin of conservatism with Tommy related synergies, additional upside is likely to come from better than expected growth in southern European markets. Despite being highlighted by other retailers as a challenging market, Italy is a pocket of strength for not only PVH, but WRC as well.

 

- In a prime example of chasing the trend, management of GCO mentioned that while their merchants don’t sense toning is going to become a fashion item for teenagers (their primary demographic), the category has become such a compelling trend that they are currently testing it. Sounds like the makings of a new Rock ’n Roll line.

 

 

HEDGEYE CALENDAR

 

Sorting Through Easter Noise – Easing Compares Arrive - Calendar

 

 

MORNING NEWS 

 

Long Beach Container Traffic Slows in March - March container traffic growth slowed to 13% growth from 30% in February.  The monthly container cargo count at the Port of Long Beach increased 13% in March to 422,774 twenty-foot equivalent container units compared to the same period last year. It is the fourth consecutive month of volume increases at the Port in the year-to-year comparisons. A total of 206,652 TEUs were imported through the Port last month, a 10.8% increase over March of last year. Empty containers, mostly bound overseas for refilling, was up 22.3% to 85,627 TEUs. <polb.com/economics/stats/tonnage>

 

Sorting Through Easter Noise – Easing Compares Arrive - Long Beach Container Traffic 

 

CPI Growth Slows for Apparel - Retail apparel prices declined a seasonally adjusted 0.4% in March compared with February, and dropped 0.4% from a year earlier, the Labor Department said Wednesday in its Consumer Price Index. CPI growth has been sequentially slowing since December 2009.  Men's CPI growth has been declining at a faster rate, ending March down 3.9% while women's CPI growth is slowing but holding positive at 0.6%. <wwd.com/business-news>

 

Sorting Through Easter Noise – Easing Compares Arrive - CPI History Chart

 

LTD Expanding Globally - The company on Wednesday said it is creating Limited Brands Canada, a Montreal-based company that will support all Limited Brands retail stores and strategic expansion in Canada, including La Senza, Bath & Body Works, Victoria’s Secret Pink and Victoria’s Secret, which is launching in Canada later this year. LTD will consolidate the creative and merchant leadership of its international businesses at its corporate headquarters in Columbus, Ohio. Also on Wednesday, Limited Brands unveiled a franchise partnership with M.H. Alshaya, Co. to operate stores in the Middle East. Plans are to launch BBW stores later this year in the region. <wwd.com/business-news>

 

Quiksilver Sells Swim Brands - Quiksilver Inc. agreed to sell its Raisins portfolio of swim brands to AOM Holdings, LLC. The brands, which Quiksilver has operated since 1994, include Raisins, Raisins Girls, Leilani, Island Soul an Island Escape. <sportsonesource.com>

 

ANF Pays CEO to Not Use Corporate Jet - Abercrombie & Fitch is paying its chief executive $4m (£2.5m) to compensate him for curbing his use of the company’s corporate jet. <drapersonline.com>

 

Peru Foresees a 16% Increase in Textile Exports - Peru's textile exports are expected to grow by 15% to 16% for this year, beating the industry's estimates of 10%.

Drawback rates might be reduced from 8% to 6.5% from the month of June, in case of an effective recovery of general exports. <fashionnetasia.com>

 

Target is Busy Launching Collections - The ink is barely dry on the signage for Zac Posen for Target’s Go International collection, and the retailer is unveiling the next limited edition designer for its Go franchise. Gaby Basora will launch a collection at most Target stores and target.com on Sept. 10 featuring the Tucker brand known for its exclusive offbeat and charming prints. Target is partnering with fine jewelry designer Temple St. Clair Carr to launch a limited edition jewelry collection. <wwd.com/retail-news>

 

Brooks Sports Partners with Docs for Running R&D - Brooks Sports, Inc. announced partnerships with Prof. Dr. Gert-Peter Bruggemann and Prof. Dr. Joseph Hamill, two of the world's leading running biomechanics researchers. Both Hamill and Bruggemann will join forces with Brooks' award-winning footwear team to conduct large retrospective and prospective studies, each intended to garner information that will influence footwear design.  <sportsonesource.com>

 

ColdwaterCreek.com Leads Large Retailers in High Broadband Availability - ColdwaterCreek.com ranked first in high broadband availability tests among large retailers for March, says Gomez. Last month online shoppers could access the apparel and accessories retailer’s site 94.37% of the time. <internetretailer.com>

 

MW's K&G Fashion Superstore Steps It Up - Mary Beth Blake, president of the off-price K&G Fashion Superstore, has revamped the merchandise mix, increased the percentage of women’s wear, launched a designer showcase, upgraded the presentation and adjacencies in the stores, and launched a new image-centered advertising campaign. <wwd.com/retail-news>

 

Sorting Through Easter Noise – Easing Compares Arrive - K G image

 


CLAIMS WORSEN TWO WEEKS IN A ROW - JURY STILL OUT AS LABOR DEPT SAYS DON'T PANIC

The data is getting worse, but the jury is still out until we get past the Easter anomaly. After getting positive datapoints out of both JPM's March subprime unsecured print yesterday and this morning's COF March data (and DFS for that matter), the jobless claims data this morning laid an egg (for the second week in a row). Claims climbed 24k this week, and are now up 42k in two weeks - now 484k. There was no revision to last week's number. The 4-week rolling average rose 7,500 to 457,750.  Consensus had expected just 430k initial claims.  The chart below shows the rolling average trend line. 

 

CLAIMS WORSEN TWO WEEKS IN A ROW - JURY STILL OUT AS LABOR DEPT SAYS DON'T PANIC - claims 4wk

 

The last two weeks of data have been pushing claims farther outside our 3 sigma channel. To be fair, the Labor Department said that there were significant one-time items and Easter-related distortion affecting this week's number to the upside, but that's also the reason they gave last week, which is why the consensus for this week's number was off by a mile. We've said for the last month that we expect claims to improve, and so far we've been dead wrong. We'll reserve more final judgment until we see whether the Labor Department's explanations are valid (i.e. the next two weeks). Census hiring should continue to heat up this month and next. The following chart shows the raw claims data.

 

CLAIMS WORSEN TWO WEEKS IN A ROW - JURY STILL OUT AS LABOR DEPT SAYS DON'T PANIC - claims raw

 

As a reminder, the following chart shows census hiring from the 2000 and 1990 census by month, which should be a reasonable proxy for hiring this spring. 

 

CLAIMS WORSEN TWO WEEKS IN A ROW - JURY STILL OUT AS LABOR DEPT SAYS DON'T PANIC - census chart

 

Joshua Steiner, CFA

 

Allison Kaptur


CLAIMS WORSEN TWO WEEKS IN A ROW - JURY STILL OUT AS LABOR DEPT SAYS DON'T PANIC

The data is getting worse, but the jury is still out until we get past the Easter anomaly. After getting positive datapoints out of both JPM's March subprime unsecured print yesterday and this morning's COF March data (and DFS for that matter), the jobless claims data this morning laid an egg (for the second week in a row). Claims climbed 24k this week, and are now up 42k in two weeks - now 484k. There was no revision to last week's number. The 4-week rolling average rose 7,500 to 457,750.  Consensus had expected just 430k initial claims.  The chart below shows the rolling average trend line. 

 

CLAIMS WORSEN TWO WEEKS IN A ROW - JURY STILL OUT AS LABOR DEPT SAYS DON'T PANIC - claims 4wk

 

The last two weeks of data have been pushing claims farther outside our 3 sigma channel. To be fair, the Labor Department said that there were significant one-time items and Easter-related distortion affecting this week's number to the upside, but that's also the reason they gave last week, which is why the consensus for this week's number was off by a mile. We've said for the last month that we expect claims to improve, and so far we've been dead wrong. We'll reserve more final judgment until we see whether the Labor Department's explanations are valid (i.e. the next two weeks). Census hiring should continue to heat up this month and next. The following chart shows the raw claims data.

 

CLAIMS WORSEN TWO WEEKS IN A ROW - JURY STILL OUT AS LABOR DEPT SAYS DON'T PANIC - claims raw

 

As a reminder, the following chart shows census hiring from the 2000 and 1990 census by month, which should be a reasonable proxy for hiring this spring. 

 

CLAIMS WORSEN TWO WEEKS IN A ROW - JURY STILL OUT AS LABOR DEPT SAYS DON'T PANIC - census chart

 

Joshua Steiner, CFA

 

Allison Kaptur

 


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US STRATEGY - “I could go on and on”

“There is clear and broad-based improvement in the economic factors in the United States and around the world”

-JPM CEO Jamie Dimon said yesterday in talking about the economy 

 

The S&P 500 finished higher by 1.1% on Wednesday, with the average up 11 of the last 13 days.  The earnings calendar was the driver of yesterday’s performance, with better-than-expected results out of the Financials (XLF) and Technology (XLK) - two of the three best performing sectors.  Rounding out the top three was consumer discretionary (XLY). 

 

The MACRO calendar was another bright spot for some, as inflation appeared subdued and the resilient consumer is Omnipresent.  Lastly, despite JPM’s blow out earnings and positive economic commentary, Fed Chairman Bernanke reiterated today that rates will remain low for an extended period. 

 

The speculation that China would print a better-than-expected Q1 GDP was correct, which continues to help support the RISK/RECOVERY trade. 

 

Yesterday, the Financials (XLF) were the best performing sector, as the banking group resumed its upside leadership today with the BKX +3.4%; the BKX is now up 34% year-to-date.  Yesterdays’ rally was largely driven by Q1 results from JPM (up 4.1% yesterday and 14.5% YTD), which beat on both the top- and bottom-line.  

 

To quote the CEO of JPM: “China’s growing, India’s growing, Japan is growing, home prices have stopped going down, consumers income is up, consumers are spending, service and manufacturing indexes are up, inventories are still low, I could go on and on.”  Yet, according to the FED, we still have the need for interest rates to stay at exceptionally low levels.

 

The Consumer Discretionary (XLY) was help by a strong retail sales number and LBO speculation in the housing group as Lennar was up 5.8%; the most since February 11th.  Retail sales rose 1.6% month-to-month in March vs. expectations for a 1.2%.  In addition, February retail sales were revised higher to 0.5% vs. the originally reported 0.3% increase.   Retail stocks also put in a strong performance, with the S&P Retail Index +1.7%.

 

Yesterday crude rallied 2.1% to close at $85.45, on the back of an unexpected draw in crude stockpiles. 

 

The commodity complex has also benefited for the dollar declining for the past four days.  The Dollar Index was down 0.39% yesterday and 1.65% over the past three days. 

 

Helping to boost the BETA trade yesterday was he continued meltdown in the VIX.  The VIX declined 3.8% yesterday and in now down 28% year-to-date. 

 

In early trading gold is trading lower, as the dollar rebounds from four down days. 

 

Copper prices are trading lower, despite a blowout GDP number from China. 

 

In early trading, equity futures are trading below fair value as Europe pares gains amid Chinese measures to reign in borrowing to curb the threat of inflation.  As we look at today’s set up the range for the S&P 500 is 23 points or 1.6% (1,191) downside and 0.3% (1,214) upside. 

 

On the MACRO calendar today:

 

  • Initial Jobless claims
  • March Empire Manufacturing
  • Feb TIC Flows
  • March Industrial Production
  • Capacity Utilization
  • April Philly Fed
  • Natural Gas Inventories
  • April NAHB Housing Market Index

 

Howard Penney

Managing Director


THE M3: TOURIST STATS, SALARY GUARANTEE FUND, "PEOPLE'S CASINO"

The Macau Metro Monitor, April 15th, 2010


PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR FEBRUARY 2010 DSEC

Visitor arrivals in package tours increased by 16.3% YoY to 464,370 in February 2010. Visitors from Mainland China (336,551); Japan (21,944); Taiwan, China (21,456); and Hong Kong (19,922) rose by 9.4%, 17.3%, 47.2% and 5.4% respectively. In the first two months of 2010, visitor arrivals in package tours rose up by 12.9% YoY to 923,277.

At the end of February 2010, total number of available guest rooms of the hotel sector increased by 1,360 (+7.7%) YoY to 18,937 rooms.

A total of 578,877 guests checked into hotels and guest-houses in February 2010, up by 12.3% YoY. The average occupancy rate of the hotels and guest-houses increased by 8.5% YoY to 77.8% and that of the hotels reached 78.5%, with 3-star hotels leading at 82.2%. The average length of stay of the guests increased by 0.2 night to 1.5 nights. The cumulative number of guests reached 1,243,276 in the first two months of 2010, up by 19.5% over the same period in 2009.

 

TOURIST PRICE INDEX FOR THE 1Q 2010 DSEC

The Tourist Price Index (TPI) for the first quarter of 2010 rose by 9.40% YoY to 161.81. TPI reflects the price changes of goods and services purchased by visitors, which is compiled according to the consumption pattern of visitors.

 

The price indices of Miscellaneous Goods; Accommodation; Transport & Communications; Food, Alcoholic Drinks & Tobacco; and Restaurant Services increased notably by 19.26%, 11.66%, 4.94%, 4.59% and 4.59% respectively, attributable to rising gold prices; substantial rise of hotel room rate, airfares, food prices, as well as higher charges for restaurant services during the Lunar New Year. On the contrary, price index of Clothing & Footwear registered a slight decrease of 0.38% year-on-year.

 

GOVERNMENT TO CREATE SALARY GUARANTEE FUND macaubusiness.com

The preparation of a law to create an independent salary guarantee fund to which employees of insolvent companies can apply is in its final stages, says Secretary for Economy and Finance, Francis Tam Pak Yuen. Salary guarantee funds help ensure employees their due salary, compensation and other legally recognised benefits. Tam said that, by law, a portion of the taxes paid by gaming concessionaires is already destined for such a fund.  At present, the accumulated contributions amount to MOP600 million, a figure considered sufficient by the government to start this new scheme, said Tam. One of the goals of the law proposal in preparation is to create a sustainable guarantee fund, noted Tam.

 

LAWMAKER PROPOSES "PEOPLE'S CASINO" macaubusiness.com

Lawmaker Chan Meng Kam has proposed the creation of a new gaming license in Macau, to be managed by a government-backed company. Chan believes that each resident, as a shareholder in the new gaming concessionaire, would enjoy the benefits of the city's gaming boom. Chan is president of Golden Dragon Group which operates Hotel Golden Dragon, which includes a casino managed under SJM's gaming license.

 

 


High vs. Low Society

“We took a perfectly useless psychopath like Valentine, and turned him into a successful executive. And during the same time, we turned an honest, hard-working man into a violently, deranged, would-be killer! Now, what are we going to do about taking Winthorpe back and returning Valentine to the ghetto?”

-Randolph Duke from the movie Trading Places 

 

When thinking about some of the topics that have been discussed in our morning meeting recently, the topic of a HIGH vs. LOW society has come up several times.  I joked that it’s like working at Hedgeye Risk Management where you have the Ivy League educated vs. everyone else.  All kidding aside, as a firm, we have some of the most talented young people working at Hedgeye, thanks to our ties with Yale University. 

 

That being said, the first thing I think of when talking about the HIGH vs. LOW society is the highly entertaining movie Trading Places.  (Sadly, our talented young group from Yale is too young to remember the movie.)  The storyline is that of a HIGH vs. LOW society and the movie has been called a modern take on Mark Twain's classic 19th century novel The Prince and the Pauper.

 

Fast forward to yesterday’s press briefing by White House Press Secretary Robert Gibbs and Treasury Secretary Tim Geithner; Mr. Gibbs commented that the market is going up because of Obama’s Administrative policies.  Mr. Gibbs is correct to a degree, and Mr. Obama gets full credit for the market’s performance under his term as president.  In fact, the President even gets credit for calling the bottom in the market when on March 3rd he offered some advice on the market saying stocks are "potentially a good deal for those willing to think long term.”  Great call!

 

Obama’s policies have created a V-shaped recovery and a 78% return in the market since he nearly called the bottom perfectly.  In many respects, his policies have created this HIGH vs. LOW society which might be very difficult to get out from under.

 

Yesterday, the S&P 500 rallied 1.1% (now up 8.6% YTD) on the back of the earnings calendar, with better-than-expected results out of the Financials (XLF - up 18.4% YTD) and Technology (XLK - up 4.4% YTD).  The Financials led the way yesterday, thanks to JP Morgan, and is the most striking example of the HIGH vs. LOW society.  

 

FOOD STAMPS VS PIGGY BANKERS SPREAD - The most recent statistics from the NY Times are that one in eight Americans rely on food stamps; one in four children in the United States rely on food stamps; and one in 50 Americans live on nothing but food stamps.  Contrast those disturbing facts against JPM’s reported earnings, which is a company that is printing money because of the Piggy Banker Spread.

 

To quote the CEO of JPM - “China’s growing, India’s growing, Japan is growing, home prices have stopped going down, consumers income is up, consumers are spending, service and manufacturing indexes are up, inventories are still low, I could go on and on.”  Yet, according to the FED, we still have the need for interest rates to stay at exceptionally low levels.     

 

President Obama’s campaign promised “Change” and to help the middle class.  Unfortunately, his policies that have helped drive the V shape recovery in the S&P 500 are only making the rich feel richer.

 

RICH vs. POOR - Back in early 2009, the spread in confidence levels, as measured by the Conference Board, between those people making more than $50,000 per year and those making less than $15,000 was 2 points.  As of the most recent reading the spread stands at 17 points.  

 

YOUNG vs. OLD - The Millennials were often cited as a strong political force that helped the Obama administration get elected.  It’s also the Millennials that are being hurt the most by the current recession.  Unemployment levels among the youngest demographic of our society stand at 25% versus 9.7% for the national average.    

 

BULLISH BEARISH SURVEY vs. CONSUMER CONFIDENCE - The most recent Institutional Investor survey shows one of the widest spreads between “bulls” and “bears” since 2007.  This, contrasted against the most recent ABC consumer confidence index, which fell to -47 in the week ending April 11, down 4 points from a week earlier, highlights the Wall Street vs. Main Street disconnect.  As an aside, today it was reported that the UK Nationwide consumer confidence fell to 72 in March vs. 81 in February.  We are not alone!

 

We have a chart book of MACRO data points that has only one relevant shape to describe the current economic recovery and that is a V and the signs of “over stimulation” continue.  China’s economic growth accelerated to the fastest pace in almost three years in 1Q10 - GDP rose 11.9%.  The market reaction to the news was muted as the case for continued policy tightening is clear.   

 

We are short the S&P 500 and "fighting the Fed" which makes us wrong, for now.  Right now, it’s more prudent to manage risk around the excessive stimulus measures that are unsustainable and inflationary.

 

As for Billy Ray Valentine and Louis Winthorpe III - they're not just getting rich... They're getting even!

 

Function in disaster; finish in style

 

Howard Penney

Managing Director

 

High vs. Low Society - ABC Piggy

 


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