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R3: JCG, WMT, TRU, UK Snow


December 20, 2010





  • First it was J Crew and now it’s vintage?  Word has it that first lady, Michelle Obama, traded in her fondness for J Crew and instead wore a vintage dress (in public!) to TNT’s Christmas in Washington taping.  Fashionistas are blogging up a storm as a result and pointing out that this is the first time a first lady has worn “second-hand” clothing in public.  Good news for thrift stores across the country, which get a substantial and free endorsement from one of the most widely watched women on the planet.
  • While Wal-mart’s “small store” format hasn’t amounted to much so far, the company is testing a new format on the campus of University of Arkansas.  The 10,000 square foot prototype called “Wal-mart on Campus” replaces a university run pharmacy.  Part grocer, part pharmacy, and part campus store, the prototype is thought to be part of a series of smaller format test stores that the company hopes to incubate as potential growth drivers.  However, testing on a university campus in WMT’s back yard hardly seems like a fair test. 
  • With 2010 shaping up to be a year in which the democratization of fashion took center stage with the help of technology, there’s yet another fashion start-up looking to shake things up.  This time, Fabricly aims to provide marketing, production, sourcing, and sales support to fledgling designers much like a record label would do for an emerging artist.  While the site likely takes a cut of finished good sales, the cost to produce and develop a salable product is born entirely  by Fabricly.  The success of this model is still unproven but it’s approach to letting designers remain “designers” while the “business” is left to others certainly makes practical sense.
  • Starting tomorrow, Toys”R”Us will be keeping its stores open 24-hours a day through 10pm Christmas Eve nationwide joining the likes of other toy retailers for the first time in the company’s history. Appears to be a doubling down of sorts in addition to the ~600 holiday pop-up stores.



Surge in Luxury due to Accessories - From handbags to shoes to watches, accessories are generating the power that is driving luxury’s surge.  It’s a global trend — from the U.S. to emerging markets such as China, Brazil, India and the Middle East. When the final tally is made, the sales growth of luxury accessories in 2010 is expected to be 16 percent, compared with 8 percent for luxury apparel, according to a new worldwide study from Bain & Co., a strategic consulting firm. By comparison, sales of luxury accessories in 2009 contracted 1 percent versus 2008, with luxury apparel sales dipping 10 percent. Customers are increasingly sophisticated, cherry-picking across categories, brands and channels for quality, style or value, the report said, with men showing the same spending patterns as women on leather goods. Despite persistent high unemployment in many countries, concerns about European debt and a still-wobbly global economy, stock values are up this year, holiday shopping indicators for high-end goods have been positive and, in a period when product adaptability and value are essential, accessories are particularly appealing because they are a versatile, fast way for consumers to freshen what’s in their closets. Pete Nordstrom, president of merchandising at Nordstrom Inc., said shoes and accessories have been “the strongest category for us in the last several years, before things got difficult, when things got difficult and now” as retail recovers.<WWD>

Hedgeye Retail’s Take:  Even more interesting is a study released by American Express that suggests luxury spending overall has eclipsed pre-recession levels. On the flip side, demand is not unanimously robust across the board.  Did anyone catch the Gucci and Jimmy Choo sales on Bluefly over the weekend?


Norma Kamali Seeks Investors - Staying true to her own convictions, Norma Kamali is embarking on her next challenge: She is seeking investors for a new venture selling an accessibly priced product line on her Web site. Kamali, who spoke Wednesday at the Fashion Institute of Technology, which hosted FashInvest’s first “Capital Conference: Where Creativity Gets Down to Business,” declined to provide specifics, stating the collection was still in the early stages but that it would be a line under her name. Kamali said she felt a responsibility to design apparel that women could use for five to 10 years. Some people thought her venture with Wal-Mart featuring $20 jackets and $12 vests was a risky career move, given her existing high-end collections, she said. Kamali boasted the entire outfit she was wearing on Wednesday was from her line at Wal-Mart. “I felt Wal-Mart wasn’t a risk because it was a challenge I wanted to do,” she said, noting the idea came from her work in the public schools, where she noticed that many moms didn’t go to the parent-teacher meetings. “Some women were so embarrassed that they didn’t go to the school because they didn’t have anything to wear.” <WWD>

Hedgeye Retail’s Take:   Did you Kamali was one of the originators of “packable, multi-use poly jersey clothing” and the inventor of the “sleeping bag coat”?  With Wal-mart helping to bring her name back to life, it’s not surprising that she’s looking to re-invent herself after a draught of innovation. 


Department Stores Bank on Outlets - Outlets are definitely in for department stores. Saks Fifth Avenue, Nordstrom and Neiman Marcus all opened new locations for their respective Off 5th, Rack and Last Call outlets this year, while timely real estate opportunities led Bloomingdale's to enter the outlet business for the first time. "With the recession receding a bit, luxury department stores are beginning to recapture the customers who slowed their spending," said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates and a former CEO of Saks Fifth Avenue. "They are now trying to refine the outlet concept so the customer does not feel like a second-class citizen." Retailers said outlets act as an extension of their brand and can reach shoppers who don't necessarily shop at their full-line outposts.  "The Bloomingdale's outlet customer is very different from the regular Bloomingdale's customer. For the most part, we're finding a whole new consumer, one who perhaps shopped our competition when it came to the outlets," said Arnie Orlick, SVP for outlet stores at Bloomingdale's, which bowed its first four outlets in Paramus, N.J.; Miami and Sunrise, Fla.; and Woodbridge, Va. <WWD>

Hedgeye Retail’s Take:   Hardly a new trend, outlets tied to luxury department stores have been around for the better part of a decade.  In fact, there are more Off Fifth’s, Last Call’s, and Rack’s  than full priced luxury department stores combined.  The key here is that 4-wall margins for these outlets are higher than the core businesses, making growth in this format a virtual no-brainer (at least for now!).


Breitling Launches First Store - After 21 years as a wholesale presence in the U.S., the Swiss luxury watch brand Breitling is staking a retail claim. The company today is opening its first store here on East 57th Street, in a neighborhood that Tiffany & Co., Tourneau and Bulgari, among others, also call home. “We feel we’re ready,” said Marie Bodman, president of Breitling USA. “We’re secure enough in our market. We know that Americans really will like it.…We want our customers to understand the DNA of Breitling.” The 3,400-square-foot unit was designed by Alain Porta and Frédéric Legendre. It covers three floors, each of which has a dedicated selling area. In addition, the second floor features a display of vintage Breitling timepieces and the third floor includes a conference room and a bar. The main floor is awash with color, thanks to several projected artworks by contemporary artist Kevin Kelly. “He’s Breitling — daring and sophisticated,” Bodman said. Walls were constructed from a wood called Quadrillo that is known for its ability to absorb sound. Bodman said the design will provide a blueprint for future stores. The firm plans two more next year, in Saint-Tropez and in Buenos Aires. Reflecting on the company’s progress in the U.S., Bodman said: “In 1989, I was the first one, traveling with my little suitcase, getting people to buy our watches.…Our watches 20 years ago were…well, everything else was thin and flat, and nobody wanted to see a chronograph.” <WWD>

Hedgeye Retail’s Take:  Clearly the “surge in luxury” is adding confidence to retail expansion for luxury expansion.  Or, perhaps the fact that over 25% of mom  & pop jewelers went out of business during the recession is reason enough for the brands to take back control of their distribution.


Online Firm Bonobos Gets Financing - Men’s online apparel firm Bonobos on Friday said it has secured $18.5 million in a third round of venture capital financing, led by Lightspeed Venture Partners and Accel Partners, along with ongoing participation from angel investors. Jeremy Liew of Lightspeed and Sameer Gandhi of Accel will join the Bonobos board, according to the online firm. Bonobos also said proceeds will be used for marketing purposes and expanding staffing. Andy Dunn, founder and chief executive officer of Bonobos, said, “With Lightspeed, we were especially impressed with Jeremy’s knowledge and understanding of the potential for online men’s retail to take off.…Sameer brings great experience from the board of Diapers.com, and Accel has a powerhouse portfolio in consumer technology across Facebook, ModCloth, Groupon and Etsy.”  <WWD>

Hedgeye Retail’s Take:   E-commerce investment is on fire and there’s apparently plenty of money on the sidelines looking to be put to work.  Not a bad investment for the founders of Bonobos which claim to have about $15 million in sales, 36,000 active customers, and sell 1 in 5 units to customers in New York City.


Inflation In E-Commerce Spikes- The prices of goods sold online has moved up sharply according to data from MIT. The movement higher has outpaced the Consumer Price Index recently, a possible sign of inflation in the cost of goods sold. There has been convincing evidence recently that the underlying costs of commodities used in many products sold at retail has moved higher more than expected by most economists. This could well be a sign of upcoming inflation at the consumer level.The measurement is based on online retail prices as of the start of 2007. The index is 100 at that point. The index has gone from just under 100 in late August to 100.77 recently.<247WallSt>

Hedgeye Retail’s Take:  Consistent with Hedeye’s inflation index, this “real world” index is tracking price escalation in real time with real data.  Interestingly, the MIT index got listed in the NY Times Annual Year in Ideas edition.


Snow is threat to retail revival in UK - As Arctic conditions gripped Britain again this weekend, the deep freeze threatened to curtail a nascent recovery in retail sales. Snowmen 'passengers' wait on snowbound Haywards Heath station  New figures show that after UK high streets were hit by a sales downturn due to cold weather earlier this month, they saw a dramatic bounce-back in trade last week. However, the fresh bout of snow that hit the country this weekend could derail the turnaround as store groups enter their most important trading week of the year. Travel chaos threatened to keep people at home and Brent Cross in north London closed yesterday. But Christmas shoppers at Bluewater in Kent seemed undeterred as the shopping centre stayed open despite the snow. Shops were also hopeful that customers would brave the wintry weather to pick up last-minute Christmas gifts as the snow delayed online deliveries. Between Monday and Thursday of last week, before the snow hit, the number of people shopping in the North East of England was just 0.1pc lower than the same week the previous year. Shopper numbers in Scotland were down by 1.4pc, while traffic volumes in the East Midlands and Yorkshire and Humberside were down by 3.9pc. <TelegraphUK>

Hedgeye Retail’s Take:  Despite the temporary logistical set back created by extreme conditions, this back drop bodes extremely well for sales of boots, outwear, and seasonal accessories (as long as this doesn’t last for weeks on end).


Cotton rises 12% due to export panic in India - Communication from government misunderstood to mean more exports. Cotton prices shot up by over 12 per cent to Rs 41,500 per candy on Friday after a communication issued that day by the commerce & industry ministry created panic in the market. It was misunderstood to mean that the government was pushing exports, though the cotton crop has been affected badly by erratic rainfall. The textile ministry had allowed the export of 5.5 million bales for a period of 45 days which ended on December 15. The communication from the commerce & industry ministry, a copy of which is available with Business Standard, stated that “it was the decision of the group of ministers that 5.5 million bales of cotton should be allowed for export during the cotton season 2010-11”. This, people in the trade felt, was an extension of the deadline of December 15. The textile ministry on Saturday clarified that there was no such extension. Textile Secretary Rita Menon told Business Standard that “the cap was not lifted, and, till December 15, only 3 million bales have been shipped”. However, she added that the government will reopen registration “so that the remaining 2.5 million bales can also be shipped”. <BusinessStandard>

Hedgeye Retail’s Take:  Clearly a sign of the fragility in the commodity market when a game of “telephone” on Friday created mini-run on cotton.  As a result, sensitivity (and prices) remain at highs. 


Interesting Chart: Complacency and Slowing Global Growth

Below is an overlay of the Baltic Dry Index and US Equity market Volatility. Both have been headed in one direction as of late – lower.


There will undoubtedly be plenty of explanations for this, but I’d like to solicit our exclusive network of risk managers for thoughtful responses. The VIX hasn’t been this low since the end of April. Everyone knows what happened to US equities for 2-3 months thereafter.


In Global Equities, if China, India and Brazil didn’t look a lot like this Baltic Dry chart since early November, I wouldn’t be calling the Slowing Global Growth point into attention.


If you have time, send us your replies and we’ll pick the best one and post it anonymously.


Thanks in advance,



Keith R. McCullough
Chief Executive Officer


Interesting Chart: Complacency and Slowing Global Growth - bdi vix


Strong finish to the week but restaurant space largely traded sideways over the past seven days.


The momentum in restaurant stocks certainly seems to have slowed despite the strong performance on Friday.  Casual dining saw a more broad-based gain than quick service following the release of Malcolm Knapp’s Knapp Track sales data.  A few notable observations and news items:

  • Knapp Track data for November showed a sequential slowdown in sales for November on a one and two-year basis.  The print for November sales trends in casual dining was +0.9% vs final +1.6% in October.  Traffic also slowed on a two-year basis.  The print for November traffic in casual dining was -1% vs final -1.2% in October. 
  • Strong performance from CHUX to close out the week during which they announced the resignation of their CFO and the closing of 16 underperforming stores
  • MRT declined on strong volume.  This name has been on a tear over the past month
  • RT underperformed all casual dining stocks on high volume
  • DIN also declined on strong volume
  • SONC was the strongest performing restaurant stock on Friday.  On Tuesday it announced the repurchase of $62.5 million of its Class A-1 variable funding senior notes. 



Howard Penney

Managing Director

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The Macau Metro Monitor, December 20th, 2010



Sands China said it has received a letter from the Macau Land, Public Works and Transport Bureau saying "the process is at its final proceeding."  The draft contract finalizing the approval process is expected to be issued very shortly.


"We truly appreciate the government's diligence in addressing this matter and we are optimistic that a resolution could be forthcoming very quickly.  The company has been inquiring of prospective buyers over many months and has accelerated the inquiries to ascertain the viability of a concentrated sales effort starting after the first of the year.  The reaction from prospective buyers is very positive and company management is optimistic that our anticipated pricing will be well-received," Sheldon Adelson said.



COO Mike Leven said, “They’re [Macau’s Land, Public Works and Transport Bureau] trying to manage growth in a healthy way.  They’re probably not going to allow them all to be built at once. When one gets built and gets close to opening, they’ll allow the next one to start construction, and it will open after the existing property ramps up.”  Projects by Wynn, MGM and Sands’ site 3 may be the next three Cotai casinos allowed, Leven added.



Galaxy announced it has closed its fixed rate senior unsecured bond issuance in an aggregate principal amount of RMB 1.38 billion.  The bonds will mature in December 2013.



  • Strong vote of confidence in Galaxy with offering more than 13 times oversubscribed
  • Attractive fixed interest rate of 4.625% p.a. for this groundbreaking offering
  • The first ever RMB denominated non-financial-institution corporate bond listed on the Hong Kong Stock Exchange
  • Opportunistic financing which raises reserve funding for development of non-gaming businesses and creates additional general working capital
  • Effective hedging strategies will be implemented to eliminate the currency risk


The consortium of Belle Corp. and Leisure Resources World Corp. (LRWC) may hire Asia Pacific Gaming for consultancy services for its multi-billion peso IR complex.  Negros Occidental Rep. Alfredo “Albee” Benitez, majority owner and former president of LRWC, said the group may not take in a foreign strategic partner and could just hire APG to help them operate The Belle Grande Manila Bay, which is targeted for soft opening by the fourth quarter next year."


In preparation for the CCL Q4 2010 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from CCL’s Q3 earnings call.



YouTube from Q3



  • 13 week booking period—covering 4Q 2010, 1Q 2011, and 2Q 2011
    • “Bookings have been strong, running 8% ahead on a YoY  basis.”
    • “For our Europe brands, booking volumes for the last 13 weeks have been very strong on a YoY basis for cruises during the next three quarters with slightly higher local currency pricing. And booking volumes during the last six weeks for Europe brands have also shown significant improvement on a YoY basis.”
  • “Ticket prices, excluding prices for winter Caribbean cruises, are running higher YoY; winter Caribbean pricing is lower, largely as a result of significant increases in industry Caribbean capacity, which in the first quarter is approximately 15% higher, and our fleet capacity in the Caribbean winter is up 10% in the quarter.”
  • [Caribbean capacity for 2011] “The Caribbean is up 7% in the first quarter, 10% for our North American brands. The second quarter is flat, the third quarter is down 8%, and the fourth quarter is down 11%. And as we go throughout the year, the Caribbean is about 50% of our total capacity in the first quarter, stepping down to 36% in the second and 22% in the third and finishing the year at 27% in the fourth quarter.”
  • “Given the current booking and pricing momentum, taken together with the price increases from business already on our books, we are currently forecasting that fleet-wide local currency revenue yields in the first half of 2011 will be higher YoY. And this factors in the lower Caribbean pricing.”
  • “In terms of fleet expansion for 2011, we have four ships scheduled for delivery, the Aida Sol, at the end of March of 2011, the Carnival Magic, at the end of April 2011, the Seabourn Quest in late May and the Costa Favolosa in late June.”
  • “Our capacity increase in 2011 is estimated to be 5.4% for the full year. Breaking that down by quarters, it would be 6.7% in Q1, 4.9% in Q2, 5% in Q3, and 5.1% in Q4. With the delivery of the four ships in 2011, our European brand capacity will be close to 40% of our overall fleet capacity, which is a target we set out after the completion of our merger with P&O Princess in 2003.”
  • “With estimated CapEx of $2.5 billion in 2011, we are forecasting that 2011 will be the first year for driving significant free cash flow in our business, and as cash flow increases, and our CapEx slows in future years, free cash flow is expected to further increase.”
  • “For the full year 2010, the midpoint of our earnings guidance is now $2.50 per share, which is $0.30 higher than the midpoint guidance of $2.20 a share we established back in December of 2009 at the start of the year. The major factors causing the earnings increase in 2010, looking at it with some perspective right now, are higher ticket yields of approximately $0.23 a year, higher onboard yields of $0.05 a share, lower costs of $0.21 a share, and positive one-off items of $0.08 a share. Fuel and currency, on the other hand, affected earnings negatively by $0.27 a share. And this all nets out to a plus $0.30 over our original guidance.”
  • “We do expect 1 to 3% fuel consumption efficiencies per year over the next couple of years.”
  • “All-in costs [per berth] are 20-25% lower than they were at the peak.”
  • “I believe our 2012 deployment will have a little bit less as a % of capacity in the Caribbean, but it’s only on the margin that you can really do it.”
  • “The strategy is to stay in China and to continue to build it, but we will take a little bit of a blip downward in 2011 and then come back with a larger ship in 2012, with the view that it will then be a profitable business with us, with that larger ship.”
  • “I think we are very encouraged that 2011 will be a good Alaska season.”

4Q 2010

  • “For the fourth quarter of 2010, close-in pricing has been strong, especially for North American brand bookings. As a result, pricing has held up quite well and fourth quarter local currency yields continue to strengthen versus last year at the same time.”
  • “For 4Q, our capacity is up 5.8%. 1.4% in North America, and 10.7% in Europe on a fleet-wide basis. With very little inventory left to sell in the quarter, occupancies are in-line with a year ago with local currency pricing running nicely higher.”
  • “North American brands in the fourth quarter are 50% in the Caribbean, up from 45% last year, with all the other itineraries individually below 10%. Occupancies for North American brands in the fourth quarter are slightly ahead YoY with pricing also nicely higher.”
  • “Late fourth quarter bookings for North American brands continue to be strong and yields have shown gradual improvement week-on-week. By the time the quarter closes, we expect North American brand revenue yields to increase in 3-4% YoY.
  • “For European brands, they are 72% in Europe itineraries, down slightly from 78% last year for the fourth quarter, with all other itineraries individually under 10%. European local currency pricing is also higher YoY with occupancies at approximately the same levels. We are currently forecasting an increase in European brand local revenue yields in the fourth quarter by approximately 2%, which is a very positive result considering the 11% increase in capacity for the Europe brands during the quarter.”
  • “Fleetwide revenue yields to increase in the range of 2.5 to 3.5% on a local currency basis and lower by 1 to 2% on a current dollar basis as a result of the strengthening dollar during this period. Costs excluding fuel are expected to be down 1 to 2% on a local currency basis and on a current dollar basis, lower by 5 to 6%.”
  • “EPS expected to be $0.32-0.36. This includes the impact of unfavorable currency and fuel costs of $0.07 per share in 4Q, and compares to the $0.24 per share in 4Q 2009.”

1Q 2011

  • “I think demand is more of a challenge [in Q1] than in the other quarters.”
  • “The impact of the lower Caribbean pricing will be felt more significantly in the first quarter when our Caribbean capacity is greatest, and to a lesser extent, in the second quarter when Caribbean capacity is reduced.”
  • “European yields will be stronger than North American yields in the first quarter, also as the result of the lower Caribbean prices.”
  • “On a fleet-wide basis, 1Q 2011 local currency pricing is higher YoY with occupancies running slightly behind a pattern similar to what we experienced in 4Q.”
  • “For North American brands, they are 66% in the Caribbean, up from 62% in the prior year and 11% in the Mexican Rivera, which is about the same as the prior year with the balance in various other itineraries. Winter Caribbean pricing is lower than a year ago on lower occupancies. Mexican Rivera pricing is nicely higher from the lower levels we experienced a year ago on higher occupancies; pricing across all other itineraries is higher on slightly lower occupancies. Taking all itineraries together, including the Caribbean, pricing is currently in-line with last year.”
  • “Looking at our European brands in 1Q, they’re 25% in Europe itineraries, 23% in the Caribbean, down from 29% the prior year and 18% in South America, which is about the same as in prior year, with the balance in various other itineraries.”
  • “Local currency pricing across all European itineraries is higher YoY on slightly higher overall occupancies.”
  • “Fleet-wide revenue yields for the first quarter of 2011 will be higher, in the 2% range, driven largely by strong forecasted increases in European brand pricing, net of a small decline in North American pricing, largely the result of the lower pricing environment in Q1 and the very competitive Caribbean winter market. Current dollar pricing at today’s exchange rate is forecast to be slightly down YoY.”

2Q 2011

  • “On a fleet-wide basis, second quarter 2011 local currency pricing is higher YoY with occupancies in-line with the previous year. For North American brands, they are 55% in the Caribbean, about the same as last year, but 11% lower than in the first quarter of 2011. The balance in various other itineraries all individually under 10%.”
  • “Currently, pricing for North American brands in the second quarter is higher than a year ago with occupancies currently in-line with last year.  Similar to the first quarter, Caribbean pricing is lower in the second quarter, but improved from the first quarter. And pricing across all other North American brands’ itineraries is higher YoY.”
  • “61% in Europe itineraries, up from 57% a year ago with the balance in various other itineraries. Similar to the first quarter, local currency pricing for European brand cruises is running nicely higher YoY. Occupancies are slightly down from the prior year levels which given the 8.5% capacity increase for Europe brands is quite acceptable, especially given the higher pricing currently being achieved.”
  • “Fleet-wide local currency revenue yields in the second quarter of 2011 will be higher for both North American and European brands.”





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 80.46%
  • SHORT SIGNALS 78.35%