LF: A BIG JUMP FORWARD

Leapfrog reported a very nice quarter last night. Virtually all key metrics turned positive or confirmed a positive trend. Revenues grew for the first time since Q2 2005 and average inventory days outstanding shrunk for the 3rd straight quarter. The margin picture looks good as well. Gross margin expanded 310bps in Q2 and the SG&A ratio declined 11.5%. EBIT margin increased for the 3rd straight quarter, up 22%.
  • Clearly, management’s long-term strategy and implementation is finally paying off. We introduced LF on our portal in our 6/26/08 posting “LF: A HOP BACK IN ITS STEP” and the company hasn’t disappointed. New products (with higher margins) are off to a great start, impacting revenues about a quarter earlier than expected. Tie ratios should improve gradually, driving gross margins higher. After years of heavy SG&A spend, the company can now dial that down a bit with the exception of advertising. Consistent with Q2, accelerating sales will leverage SG&A nicely.
  • Despite the strength of the quarter, management left its guidance unchanged for the year. The bears will say that sales were just pulled forward into Q2. I disagree. Management is being appropriately conservative given the consumer environment. Don’t be surprised if they continue to beat their guidance though. LF is probably less dependent on the economy given the fully revamped and reloaded product offering. They’ve barely scratched the surface with their new products internationally. That’ll change in the back half of 2008. Domestically new products are still being rolled out with significant advertising support.
  • Concentrating the long side of your consumer portfolio on names less tied to near term economic factors like LF seems to make a lot of sense in this environment.

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This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

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7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

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Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

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GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

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Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

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Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

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Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

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People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

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UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

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Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

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Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

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An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

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