October outperforming recent trends, adjusted for seasonality.



Given the volatility over the past two years, we believe sequential performance, adjusted for seasonality, gives a better measure of market health than simple YoY comparisons.  Assuming Mississippi reports an in-line number this week, October riverboat revs, a regional market barometer, will be 2-3% above recent trends, adjusted for seasonality, as seen in the chart below.  Easy comps in November and December set the stage for growth for the rest of the year.  Since attendance was lower than that of a year ago and hold stayed relatively steady, higher per capita spending was the catalyst for October’s outperformance.




Here are some regional market takeaways for October:


West Virginia (table revs up 94.86% YoY):  With a 1-2 punch seen below, Charles Town (PENN) recorded a new monthly high in table revs, $10.69MM.


1)      Charles Town continues to cannibalize its competition.  Ever since Charles Town opened tables on July 2, it has grown market share.    

2)      New customers propelled state table revs to 85-110% growth in the last 3 months.




Illinois (casino revs down 0.2% YoY):  Argosy (PENN) had its best YoY performance (-2%) since November 2007.  We’ll find out next month whether the better results were related to hold.


Louisiana (casino revs up 1.8% YoY):  1st YoY gain for the state since Sept 2009.  PNK had better results at Boomtown Bossier but L’Auberge lost 4.3% YoY.


Missouri (casino revs up 4.5% YoY):  Lumiere Place (PNK) was down 17.6% YoY and River City (PNK) reported $14.4MM.  However, the combination of Lumiere and River City continues to trend around $27-29MM of revenues monthly.  All of ISLE’s properties reported YoY growth.


Pennsylvania (slot revs up 11.5% YoY):  PENN National reported $20.8MM (+1.8% YoY).  Disappointing coin-in (-11.32% YoY) offset higher than average hold (+88bps).  Meanwhile, Sands Bethlehem (LVS) had the highest YoY change among the casinos; coin-in for that property has exhibited positive YoY growth since May 2010.


Florida: (same-store revs up 18.2% YoY) Pompano (ISLE) delivered a strong performance, having its highest YoY growth since February 2010.


Atlantic City:  The only disappointment.  Total revenues, table revs, and slot revs were down 14.6%, 16.2%, and 10.3% YoY, respectively.  However, Borgata (BYD) fared relatively well, with revenues only slipping 0.4% YoY.  This was due to a 4% and 4.1% YoY growth in slot win and slot drop, respectively.  By revenue market share, Borgata attained 18.7%, its highest share since January.


Conclusion: Despite the ongoing pantomime that is government officials pretending not to see inflation, the Bernanke dollar debacle has not made its way into the official inflation numbers as yet but it is on the way.  


The recently reported lack of inflation (on a seasonally adjusted basis) outside of the energy sector should not last long, as evidence continues to support that it will be reflected in upcoming data.  Nonetheless, annual inflation started creeping higher in October, albeit slowly, in both the CPI and PPI and I expect a continuing sequential acceleration over the next few months.


Illogically, the inflation that consumers are seeing day-to-day from the effects of Quantitative Guessing is the type of inflation the Fed chooses to ignore, focusing instead on "core" inflation. The effects of volatile food and energy cost cannot be ignored; certainly those who consume food or energy (everyone) do not have the luxury of being able to ignore their costs.  The food index rose 0.1% in October after a 0.3% increase in September.


As Keith said in today’s Early Look, “Over the course of global economic history there’s never been a world power that’s devalued its way to prosperity".  While commodity prices can be volatile, the long-term weakness in the U.S. dollar and increased purchasing-power of gold and stronger global currencies are here to stay despite the credibility-devalued rhetoric of the government.  As the sovereign debt dichotomy migrates to the USA in the coming months, the only option being put forth by the mainstream view is the spending or creation of whatever money is needed in order to prevent systemic failure. 


In October, the softer-than-expected CPI was dominated by rising gasoline prices and, although somewhat ignored in the overall calculation, food prices.  Over the years, the BLS has altered the meaning of the CPI from being a measure of the cost of living needed to maintain a constant standard, to a compromised metric that no longer reflects the reality of consumers’ daily needs.  Within the core CPI calculation, housing represents 42% of the calculation.  Included in the housing calculation is “rent of primary residence (rent) and Owners' equivalent rent of primary residence (rental equivalence).”


Shockingly, the estimates for each of the five components of the Shelter Index are “estimated” directly from data reported by sampled households in the Consumer Expenditure (CE) Interview Survey.  The bottom line is that Ben Bernanke is basing what he sees (or does not see as the case may be) on a household survey that has, at best, a tenuous link to real time prices.


The Hedgeye call on housing is for a decline of 15-20% over the next 12 months.  Given that, it is unlikely that the Fed will turn off the spigot any time soon.  To justify that, Bernanke and friends will need to continue the pantomime act of not seeing inflation.


Howard Penney

Managing Director


INFLATION – BEHIND YOU! - cpi components

Breakdown: SP500 Levels, Refreshed...

POSITION: no position in the SPY here


As of 11AM EST, 2 critical lines of resistance have been registered in my risk management model: 

  1.        Lower-high of Intermediate term TREND resistance = 1222
  2.        Breakdown of the Immediate term TRADE line = 1197 

Any time my model whips around like this (from bullish to bearish) it’s a signal to take down gross long exposure. The next question is when to make short sales? What’s interesting is that my immediate term TRADE line of support is also the 50-day moving average.


I don’t use one-factor models like moving averages to make risk management decisions, but I do observe the big ones for behavioral factoring. This may be the first time in a month that both the bulls and I are going to wait on the same immediate term TRADE line of support (1171).


We have 3 immediate term bearish catalysts coming down the macro pike on the catalyst calendar: 

  1. Existing home sales (OCT) = tomorrow
  2. New home sales (OCT) = Wednesday
  3. Fed Minutes = Wednesday (reaction may shift to some of the incrementally hawkish comments against Bernanke’s view) 

For our long term TAIL call on housing titled “Housing Headwinds” see Josh Steiner’s 101 slide page report.


Yours in real-time risk management,



Keith R. McCullough
Chief Executive Officer


Breakdown: SP500 Levels, Refreshed... - 1


Hedgeye Virtual Portfolio:

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 80.43%
  • SHORT SIGNALS 78.35%

R3: H&M, Groupon, Black Friday, Toning


November 22, 2010





  • Groupon continues to battle a speculated $3-$4 billion valuation for the company and repeatedly embarrassing (and frustrating) service outages.  The company’s latest blunder came late last week when it offered a $25 for $50 gift card to Nordstrom’s Rack in San Diego.  The demand caused the site to crash temporarily as well as operate slowly.  Recall that a Gap promotion early in the Fall took the site down completely.
  • H&M finally launched its long awaited designer collab with Lanvin on Friday.  A quick check of the store in Boston revealed that the line sold out in just one day.  In Manhattan, customers were given wristbands and just 15 minutes to shop the new collection as a means for crowd control.  Customers were seen grabbing as many items as they possibly could in order to beat the clock and maximize their 15 minutes.
  • According to the American Family Association (AFA) the percentage of retailers recognizing “Christmas” in their marketing messages has risen from 20% to 80% over the past five years.  Historically the group has targeted retailers promoting “holiday” messages with boycotts in an effort to promote the use of “Christmas” terminology.  This year’s list of boycott targets is relegated solely to Dick’s Sporting Goods- a company whose online site has been branded the “Holiday Shop”.  The AFA uses a 2.3 million member email list to facilitate its actions. 



SKX Taps Into Kardashian Family Fame - Skechers USA Inc. is about to get another serious dose of star power. The Manhattan Beach, Calif.-based company has tapped Kim Kardashian and her mom, Kris Jenner, for its Skechers Shape-ups global marketing campaign, slated to launch next spring. “The Kardashians are the definition of pop culture. Everything they do, people are inspired to emulate,” said Skechers Fitness Group President Leonard Armato. The mother and daughter duo will participate in a fully integrated campaign, including television, print and online advertisements. “[Skechers Shape-ups] provide something for everyone,” said Kardashian. “And, more important, they maximize your workout.” Kardashian and Jenner will also work with the product team on a new collection, launch an interactive “Shaping Up With the Kardashians” challenge (along with sisters Kourtney and Khloe) and feature the brand on their reality TV show “Keeping Up With the Kardashians.” Shape-ups has already been endorsed by several public figures, though mainly in the sports field. Athletes Joe Montana, Karl Malone and Kareem Abdul-Jabbar have all served as spokesmen. <WWD>

Hedgeye Retail’s Take: So much for dialing back marketing spend in the face of slowing toning sales – instead, the company does the complete opposite. A substantial upgrade to current spokespeople, we expect the cost of securing the Kardashian family fame will also be a substantially higher.


Armani Does Toning - Toning shoes are gaining a little flair. Emporio Armani and Reebok have teamed up to create the first toning sneaker from a major fashion house. Reebok President Uli Becker said the partnership drew on the strengths of both companies. “[The shoes] combine Reebok’s proprietary technologies with the style of one of the world’s leading designers,” he said. Only 1,111 pairs have been produced, and each has been individually numbered. Besides being outfitted with Reebok’s EasyTone technology, the sneakers also feature crocodile-print detailing and come with three different sets of laces. The limited-edition shoes retail for $140 and are available at select Emporio Armani stores and at <WWD>

Hedgeye Retail’s Take: Latest entry in the toning space comes from none other than one of high fashion’s big houses. While we don’t expect the toning trend to work its way into high fashion in a meaningful way, additional offerings from additional brands make it increasingly difficult for the pioneers (i.e. SKX & Reebok) to maintain share.  In this case, the “halo” effect may actually help Reebok with its Easy Tone aesthetic as we’ve seen with other high profile collabs.


Camuto Signs Licensing Agreement with Chaus - Vince Camuto is well versed in building power brands such as Tory Burch, Jessica Simpson and Nine West. Now he’s out to turn his own name into the next big thing. Five years after successfully introducing Vince Camuto footwear, the Camuto Group has signed a licensing agreement with Bernard Chaus Inc. to launch a women’s sportswear collection for fall under the Vince Camuto label. “This is an opportunity for us to fully clothe the woman from head to toe,” said Vince Camuto, creative director and chief executive officer of Camuto Group, a leading footwear manufacturer. For Chaus, the Vince Camuto brand will replace the Kenneth Cole business, whose license was terminated five months early. Kenneth Cole had accounted for more than half of the $101.2 million in volume generated by Chaus in the year ended July 3. The Greenwich, Conn.-based Camuto Group is known for its ability to build women’s lifestyle brands on a global scale. The master licensee for the Jessica Simpson Collection, Camuto develops and manages several exclusive brands for Dillard’s and holds the footwear licenses for BCBGeneration, BCBG Max Azria, Lucky Brand, KensieGirl and Banana Republic. The company, which sells its products in more than 5,400 doors, also designs and sources footwear for Tory Burch and has a partnership with Sanctuary. Vince Camuto was also the co-founder, with Jerome Fisher, of Nine West, which they sold to Jones Apparel Group in 1999. “We are a shoe guy,” acknowledged Camuto, “but we have been involved in ready-to-wear also. As you know, we took the Jessica Simpson [business] in 2005 and we said we wanted to build a $1 billion brand, and we’re three-quarters of the way this year.” Simpson’s ready-to-wear will be launched next fall with Jones Apparel Group, which already has the license for Jessica Simpson jeanswear. Camuto manufactures the Simpson footwear. <WWD>

Hedgeye Retail’s Take: Chaus is struggling to replace the volume it abruptly lost with the Kenneth Cole license moving back in house.  With a multi-brand portfolio under its belt, perhaps Camuto could turn out to be a solid partner for the struggling apparel wholesaler.


H&M to Open in Singapore - Hennes & Mauritz said Monday that it is planning to open its first store in Singapore in the fall of next year. The Swedish fast-fashion giant said the 32,291-square-foot boutique will be located on Orchard Road, a key shopping district of the city.  “We look forward to opening our first store in South East Asia. There is great potential for expansion in this highly populated and fashion conscious region,” said Karl-Johan Persson, H&M’s chief executive officer. Fast Retailing Co. Ltd.’s Uniqlo is also eyeing the South East Asian market. Earlier this month it opened its first store in Malaysia and last year it bowed in Singapore with two boutiques. H&M announced separately that it will open its first store in the southern Japanese city Fukuoka in the fall of next year. H&M entered the Japanese market in 2008 and its presence has since grown to 10 stores in cities such as Tokyo, Yokohama and Osaka. <WWD>

Hedgeye Retail’s Take:  No surprise here as H&M remains one of the few truly global, fast fashion brands. Of all the retail concepts, fast turning cheap fashion apparel clearly resonates across cultures and demographics.


Dolce & Gabbana in Pinstripes? - In the latest go-round between fashion designers and crusading Italian authorities, Stefano Gabbana and Domenico Dolce have been indicted for alleged tax evasion, sources said. The designers now may have to face a court trial, which would be the latest step in a case that began in 2008 and which could result in the designers, if they are found guilty, being personally liable for more than $1 billion in unpaid taxes and fines. Dolce and Gabbana have always denied any wrongdoing. The designers are charged with tax evasion and abuse of rights relating to the 2004 sale of the Dolce & Gabbana and D&G brands to the designers’ Luxembourg-based holding company Gado Srl. If the judge decides to proceed, Dolce and Gabbana’s lawyers may decide to negotiate, pay a fine and avoid a drawn-out and costly court trial. In addition, their criminal record would remain clear. However, as the designers have claimed their innocence, they may not be willing to take that route, and an ordinary trial would take place over the coming years. A third alternative is a shortened and speedier trial, based on a reduced number of documents and witnesses, which results in a penalty that is discounted by one third. The designers’ alleged evasion of national income tax carries up to a three-year prison sentence or a fine up to 1 million euros, or $1.3 million at current exchange. <WWD>

Hedgeye Retail’s Take: Not an entirely new development, but certainly getting uglier for the brand’s figureheads.


Birkenstocks Targeting New Consumers - After several years of reorganization, including the sale of the company to its namesake family, Birkenstock USA is on the road to revival. For spring ’11, the firm has already added several key retailers, including Madewell, Steven Allan and Urban Outfitters, and the brand’s appeal is growing across age groups. “We have had a tremendous year exceeding all of our sales expectations,” said VP of sales and marketing Jay McGregor. “We’re continuing to elevate our brand in the consumer’s eye, staying true to our core wellness message but also acknowledging that Birkenstock can be hip and stylish, too.” Shelly Glasgow, director of product development and merchandising, said the company has simplified its advertising message and increased its visibility in the marketplace, in a way that speaks to different demographics. The company’s current advertising campaign features limited copy that speaks to a wide range of consumer ages, from 15-year-olds to 60-year-olds. Glasgow said the company took an aggressive approach to marketing in 2009, followed by an even more vigorous plan in 2010, which topped $2 million. That amount will likely increase for 2011, as the company continues to branch out with ads targeted at male consumers. Those investments have helped the company increase 2010 sales in the double-digits, according to Glasgow. <WWD>

Hedgeye Retail’s Take: Long a brand with a small, but ferociously loyal customer base, this is a great call for a solid brand that has historically spend very little on marketing.


More Promotions Expected This Cyber Monday - According to's eHoliday Survey, nearly nine in ten (88.2%) retailers will have a special promotion for Cyber Monday, up from just 72.2% in 2007. Retailers' Cyber Monday plans are more robust this year with nearly half of companies offering specific deals (49.0%, up from 42.9% last year) and many planning one-day sales (41.2% vs. 32.9% last year) and free shipping on all purchases (21.6% vs. 15.7% last year). In addition, the majority of retailers (62.7%) will send promotions and deals to shoppers through a special Cyber Monday email. Cyber Monday, a term coined by in 2005, began after retailers noticed a trend of people shopping online on the Monday after Thanksgiving. Today, Cyber Monday is viewed as the online equivalent to Black Friday. <WWD>

Hedgeye Retail’s Take: As expected, with fewer consumers buying anything at full-price, promotional cadence is on the rise this year.


Retailers Look to Facebook For Black Friday - Consumers who Like Macy’s Inc. on Facebook yesterday could click on a Black Friday tab on the retailer’s social network page to view all the special deals the retailer will offer on the day after Thanksgiving, also known as Black Friday. In addition to a catalog that showcases the more than 200 specially priced items that are available, the pages feature a tool that enables consumers to drag and drop items showcased as Black Friday specials onto a shopping list. And, if a consumer doesn’t understand how the tool works, she can watch a video on the page that demonstrates it.  "Macy's is excited to offer some of the season's most desirable gifts at incredibly compelling prices this Black Friday," says Martine Reardon, executive vice president of marketing for Macy's, No. 20 in the Internet Retailer Top 500 Guide. The retailer’s approach to promoting those offers is influenced by a desire to inspire consumers to shop early, she says. Macy’s is not alone in turning to social media to promote its Black Friday specials. 39.2% of retailers say they will use their Facebook page to announce and promote their day after Thanksgiving deals, according to a recent National Retail Federation survey conducted by BIGResearch. <WWD>

Hedgeye Retail’s Take: With 26% of consumers expecting to use their social networks to find promotional deals according to an survey by Lightspeed Research, a solid risk management move by retailers at a minimum.


China Tanners Production up YTD - China’s large-scale tanneries posted an increase of 23.8% in the value of their production for the month of September 2010 compared to the same period last year, according to the China Leather Industry Association. For the first nine months of this year, the state-run industry organisation said the value of its tanneries’ leather output had increased by 24.5% compared to the same period last year. The organisation put the value of the nine months’ worth of leather at $14.1 billion. <FashionNetAsia>

Hedgeye Retail’s Take: It’s important to note that this figure is based on value, not units. With leather in short supply globally, prices have escalated substantially this year, which may more than offset the rise in value. As such, it looks like leather remains in short supply and prices for luxury leather elevated.


Chinese Shoe Production Continues to Slow - Although shoe exports in Guandong province posted a 20.5% growth in pairs to to 3.44 billion and value grew 24.4% to US$ 10.15 billion, the growth during the recent three months continue to drop and indicate a trend of contraction, according to the China Leather Industry Association citing the latest official customs figures. The authorities attribute the decline of shoe exports to the increase of trade barriers, revaluation of RMB and increase in raw material prices. Meanwhile, neigboring rivals like India and Vietnam have shown stronger competitiveness by taking advantage of their low labor costs. Currently, India accounts for 16% of the world production and ranks the second in the world, while Vietnam is the fourth largest country in terms of shoe production and exports.

Hedgeye Retail’s Take: Outflows continue for Chinese footwear producers.


November still on track for ~40% growth.



Based on the gross gaming revenues below through 11/21/10, we’ve upped our November forecast of total gaming  revenues including slots slightly to HK$16.2-16.7 billion.  This represents 37-41% growth over November of 2009, up from our previous 35-39% projection after the first two weeks.  As always, we take into account the number of weekend and weekdays and any special events in our computations.


As expected, Macau was heavily populated over the weekend with the Grand Prix (GP), but it appears that the GP dragged VIP volumes down a bit while Mass revenue may have felt a boost from the influx of race fans.  Traffic was chaotic and getting around town was extremely difficult, although a change to the alternative road system that was put in place worked far better than in previous years.


In terms of market share, LVS and MGM share grew in the past week, mostly at the expense of MPEL.  Hold is usually responsible for week to week changes like this.  Relative to recent months, LVS remains well below its 19-20% average while MGM and MPEL are tracking well ahead of historical levels.




The Macau Metro Monitor, November 22nd, 2010


SJM CEO Ambrose So says the government's cap on gaming tables allows casinos to improve its table utilization rate.  So said currently each table serves less than 50 punters a day, half of what was happening in 2003, before the first non-SJM casino opened in Macau. So reiterated his 10-20% forecast for 2011 growth rate.


October CPI increased 3.95% YoY and 0.39% month-to-month.  However, price index of Recreation & Culture fell by 0.92% due to lower charges for outbound package tours.



According to the 2011 budget proposal, the government expects MOP 57.4 BN (US $7.2BN) in direct taxes from gaming, which translates into total 2011 GGR of MOP164BN (US $20.5BN).  This is below what the Street's estimate of MOP180BN for 2010.  The Macau government is known for its conservative estimates of the gaming industry.



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