"Booking trends have continued to improve for both our North American and European brands, particularly for our peak summer season. We are optimistic these positive trends are an indicator of a strong wave season, our heaviest booking period which begins in early January. Given the recent cold weather and snow, particularly in the Northern U.S. and Europe, there is no better time to book a cruise vacation." 

- Micky Arison, Carnival Corporation & plc Chairman and CEO




  • 4Q2010 results:
    • Constant dollar net revenue yields: +3.9% (vs.  guidance of 2.5-3.5%)
    • Gross revenue yields: +1.5%
    • Net cruise costs (ex. fuel): -1.1% (constant $)
    • Gross cruise costs: +0.8%
    • Fuel: +6% to $488/metric ton (YoY) (vs. guidance of $479)
  • "Since last September, booking volumes continued to be strong and prices for those bookings are higher than last year. At this point in time, cumulative advance bookings for 2011 are at higher prices with slightly lower occupancies versus last year.  Based on these booking trends, the company forecasts a 3 to 4 percent increase in constant dollar net revenue yields for the full year 2011."
  • FY2011 Guidance:
    • Net revenue yields (constant dollars): +3-4%
    • Net cruise costs (constant dollars): +1.0-2.0%
    • Net cruise costs, ex fuel (constant dollars): -0.5% to +0.5%
    • Fuel: +$134MM ($527/metric ton) YoY ($0.17/share) which should be partly offset by favorable currency movements ($0.04)
    • Fuel Consumption: 3,450
    • EPS: $2.90 - $3.10
    • Cash from ops: > $4BN; while capital commitments decrease to $2.6BN
    • "We expect to generate significant free cash flow in 2011 and beyond, which should provide us ample opportunities to return additional cash to shareholders over time."   
  • 1Q2011 Guidance:
    • Constant dollar net revenue yields: +1.5 - 2.5%
    • Net cruise costs (ex. fuel): +3-4% (constant $)
    • Net cruise costs (ex. fuel): +3.5-4.5% (constant $)
    • Fuel: $526/metric ton and consumption of 835 tons


  • Higher revenue yields and favorable currency impact each contributed 2 cents to the outperformance in the quarter
  • North American yields saw improvements across the board ex Caribbean pricing which was flat
  • European brands outperformed
  • Net onboard and other revenue yields increased 2% in both North America and Europe
  • The stronger dollar also impacted EPS by 3 cents a share; adding fuel and disruptions, the total impact was $0.13
  • In the future they will report results by the North American Brands and all other brands. 
  • 2011 impact of fuel and currency:
    • 10% change in fuel = $180MM
    • 10% move in FX = $194MM or $0.24
  • Fleet-wide capacity will increase 2.8% in NA and 9.8% internationally (EAA); total is 5.2%
  • They are planning a dividend increase and will make the announcement after board meeting in mid-Jan
  • Bookings QTD have been solid with local ticket pricing running higher
    • Slightly higher in NA (nicely higher ex Caribbean)
    • EAA brands is also higher YoY
  • Top-line revenue guidance of ~9% in 2011
  • 1Q guidance:
    • Capacity: 5.1% higher; 10.8% EAA and 1.7% in NA
    • Higher local currency pricing and flat occupancy
    • Last minute pricing on the first quarter bookings has been strong
    • Only have a small amount of inventory to be sold
    • NA brands: 67% in Caribbean (up from 62% in 2010)
    • Winter Caribbean pricing is slightly lower while Mexican Riviera pricing is slightly higher
    • Pricing at the current time in NA is same as last year
    • EAA brands: 22% in Caribbean, 16% in S. America.  Ticket prices in local currencies are nicely higher YoY on higher occupancy
    • EPS: $0.15-0.19 / share
  • 2Q 2011 Guidance: 
    • Capacity increase: 4.8% fleet-wide; 8.6% EAA and 2.5% in NA
    • Occupancies slightly lower; local prices higher
    • NA: 55% in Caribbean
    • Pricing for NA brands is higher with occupancies slightly lower
    • Caribbean is slightly lower YoY but better than 1Q
    • EAA brands: 55% in Europe
    • Local currency EAA pricing are running slightly ahead but occupancies are a little lower
    • Fleet-wide local currency yields forecast to be up sequentially
  • 3Q2011:
    • 5% increase in capacity: 3.6% in NA and 7.2% in EAA
    • Early indications are that pricing is up nicely with slightly lower occupancy
    • NA: 36% in Caribbean, 25% Europe, and 23% in Alaska
    • EAA brand capacity: 88% in EAA itineraries
    • Still a lot of inventory left to be sold - and much of the results will depend on the strength of wave season


  • No fuel surcharges any time soon
  • Newer ships are 20% more efficient on fuel consumption than older ships
  • Capacity growth in 2011 and 2012--industry wide is about 5%
  • Combined cruise segment they are going to break into 3 segments - the 3rd is the corporate office and a couple of cruise facilities that they own and operate which will be in cruise support
  • Booking pace has stayed the same over the last few weeks. They anticipate that the recent cold weather will help their wave bookings but not seeing any impact right now.
  • See their capacity growing 2-3 ships per year in the intermediate future
  • Dividend: post financial crisis, their board has become more conservative
  • Looking for about 2.5% increase in onboard and other revenue spend - with increases throughout the year as the consumer recovers but they are also adding more onboard features to encourage increased spend
  • Caribbean is holding its own and seems to be getting sequentially better in 2Q2011 vs. 1Q2011
  • FX is weighted a little more than 2/3rds towards the Euro than the GBP
  • The recovery potential for premium is a little greater than for the contemporary brands
  • Norwegian has invested a lot more money in their direct sales program than CCL - their business is so much larger and more diversified that it's not really apples to apples
  • By the middle of 09', the booking window came back to close to historic levels and hasn't really changed. They will never get too far ahead or behind because they would just adjust their yields. No major changes in cancellations.
  • Visibility for next year is very similar to last year
  • South America is doing very well this year after the massive capacity additions last year


TODAY’S S&P 500 SET-UP - December 21, 2010


As we look at today’s set up for the S&P 500, the range is 11 points or -0.65% downside to 1239 and 0.23% upside to 1250.  Equity futures remain range bound in what is expected to be a positive start to trading as the pre-Christmas rally finds further strength.  A reduction in tension on the Korean peninsula and supportive comments for the Euro from the Chinese Vice-Premier Wang Qishan looks to be the main catalyst behind today's positive tone.  With little in the way of macro headlines expected this session, activity is expected to remain light.

  • Adobe Systems (ADBE) sees 2011 rev. at least $4.18b, vs est. $4.08b
  • AOL (AOL) agrees to buy social identity site about me Inc., terms not disclosed
  • Biogen Idec (BIIB) says it has acquired a unit of Neurimmune, which includes worldwide rights to three preclinical immunotherapy programs
  • Darden Restaurants (DRI) sees year sales up 5%-6%, had seen up 5.5%-6.5%; implies rev. $7.47b-$7.54b vs est. $7.50b
  • HCP (HCP) cut FY adj. FFO forecast to $2.17-$2.23 from $2.18-$2.24, vs est. $2.19
  • Jabil Circuit (JBL) sees 2Q core EPS 49c-53c, vs est. 45c
  • Paychex (PAYX) reported 2Q EPS 37c vs est. 35c
  • Pepco Holdings (POM) sees FY 2011 capex $1.09b, FY 2012 $1.18b


  • One day: Dow (0.12%), S&P +0.25%, Nasdaq +0.25%, Russell +0.36%
  • Month-to-date: Dow +4.29%, S&P +5.64%, Nasdaq +6.06%, Russell +7.61%
  • Quarter-to-date: Dow +6.4%, S&P +9.28%, Nasdaq +11.86%, Russell +15.7%
  • Year-to-date: Dow +10.07%, S&P +11.84%, Nasdaq +16.76%, Russell +25.09%
  • Sector Performance: Energy +0.71%, Consumer Discretionary +0.61%, Telecom +0.49%, Materials +0.42%, Financials +0.37%, Utilities +0.37%, Tech +0.07%, Healthcare +0.06%, Industrials +0.01%, and Consumer Staples (0.14%)    


  • ADVANCE/DECLINE LINE: -45 (-391)  
  • VOLUME: NYSE 829.77 (-58.90%)
  • VIX:  16.41 +1.86% YTD PERFORMANCE: -24.31%
  • SPX PUT/CALL RATIO: 1.92 from 2.45%


  • TED SPREAD: 18.62 -1.522 (-7.556%)
  • 3-MONTH T-BILL YIELD: 0.14% +0.03%  
  • YIELD CURVE: 2.74 from 2.72


  • CRB: 324.27 +1.14%
  • Oil: 89.37 +0.87%
  • COPPER: 420.60 +1.13%
  • GOLD: 1,386.50 +1.08%


  • EURO: 1.3122 -0.50%
  • DOLLAR: 80.628 +0.32%



  • European equity markets moved higher despite Moody's placing Portugal's A1/P-1 ratings on review for possible downgrade as comments from Chinese officials backing European actions so far to tackle its debt crisis and the easing of tensions on the Korean peninsula helped sentiment.
  • M&A activity was again a focus with little other significant corporate or economic news.
  • Peripheral debt spreads were pressured by Moody's action and ahead of a Spanish T-bill auction whilst disappointing UK government borrowing data weighed on gilts.
  • All sectors trade higher led by basic resources +1.4% and autos +1.0%.
  • UK Dec GfK Consumer Confidence (21) vs consensus (22) and prior (21)
  • Germany Jan GfK Index +5.4 vs consensus +5.7 and prior +5.5
  • The highest UK public sector net borrowing requirement on record in Nov of £22.8B weighed on the pound


  • In thin trade, Asian markets rose today on eased concern about the situation on the Korean peninsula.
  • Property stocks led China higher (+1.79%), jumping 5% on a report forecasting that urban housing prices could rise 20% next year.
  • Hong Kong followed China up +1.57% on bargain-hunting, but turnover was low.
  • Japan rose 1.51%. Fuji Heavy went up 1% on a report it may build a JV factory with Chery Automobile in China.
  • South Korea moved up 0.83% to a high for the year after North Korea did not retaliate for yesterday’s military exercises.
  • On higher commodity prices, materials stocks led Australia up 0.75%.


Howard Penney

Managing Director



Hedgeye Editorial: Volatility

Below is a thoughtful response from a Hedgeye subscriber on Volatility in reference to a post we published yesterday titled "Interesting Chart: Complacency and Slowing Global Growth".




Please note that I write these comments with the fear of being overly simplistic.  If it is deemed to have any value whatsoever, I am happy to discuss further.

Volatility, like many instruments has seasonal factors that influence their market price.  In my opinion, it is not easy to take away any meaningful information from short term volatility levels around holiday periods, especially the year end holiday season due to its length of time and social importance in many areas of the world.   During this time frame, the increased risk of lower close to close variance coupled with the typically lower intraday volatility creates a much higher risk for volatility traders to hold long options positions.

With regards to the VIX in particular, it has the ability to be very misleading at times due to its short duration.  It only looks at a 30 day time frame, and can be highly influenced by market holidays.  In short, a typical 30 day period has 22 trading days.  Many volatility traders are pricing SPX options with an adjusted number of trading days for the next month, but the VIX calculation is not.   Therefore many traders value the current SPX options at higher volatility than the VIX indicates.

In short, I do think volatility is low and there is some level of complacency.  However a level of 16 in April does not equate exactly to a level of 16 right now.   The volatility term structure, or spread between 30 day and 90 day is still ascending and I would expect the VIX to show an increase in value after the holiday season assuming everything else equal.




Hedgeye Editorial: Volatility - vix

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

R3: WMT, DECK, M, Li-Ning


December 21, 2010





  • Last week was the heaviest in history for online sales, with approximately $5.2 billion spent over the seven day period.  Four of those days registered sales above $900 million.  Not surprisingly, more than 50% of all transactions included a free shipping offer.
  • A NY-centric blog noted once again that UGG stores continue to have lines wrapped around block at pretty much any hour as Christmas draws closer.  While we have observed such lines since late October, it interesting to note that this phenomenon is taking place at all of Manhattan’s locations.  This is occurring despite the fact that the sheepskin boots are widely available across other shoe chains in Manhattan, including a whopping 80 locations carrying the brand within several blocks of the 58th and Madison. 
  • According to comScore, computer hardware is the fastest growing online product category for the holiday season, increasing by 25% from Nov 1 through Dec 17.   Consumer electronics (+22%), Books/Magazines (+21%), computer software (+16%) and toys (+15%) round out the top five categories.  Apparel is noticeably absent from the list.  



Stores Pin Hopes on Holiday Discounts - It’s the holiday homestretch, and stores are betting on deep discounts to propel them to the finish. Retailers are trying to lure the growing constituency of last-minute, channel-shifting, bargain-hunting shoppers. The outlook remains positive, with Customer Growth Partners among the most optimistic research companies, revising its holiday sales projection upward to 8 percent compared with last year, from 5.5 percent just two weeks ago. Profit margins are still a guessing game as retailers promote heavily, with reductions on Wednesday expected to reach 65 percent, from 50 percent at the beginning of the week. Major department stores are said to be planning post-Christmas sales of 75 percent off already-reduced merchandise. It’s clearly easier to be a couch potato or procrastinator this season with the explosion of e-commerce and mobile commerce platforms. Online spending during the holiday period from Nov. 1 through Dec. 17 is up 12 percent versus the year-ago period, according to ComScore. Meanwhile, mobile commerce is expected to grow to $3.4 billion by yearend from $1.4 billion in 2009, a 134 percent increase, according to ABI Research. “Mobile now represents more than 10 percent of our business, whereas 90 days ago it was virtually zero,” said Greg Bettinelli, senior vice president of marketing at HauteLook, a flash sale site. “We released a significant functionality in mid-October, reconfigured our Web site to work better on all mobile devices and relaunched our iPhone app. We’ve seen a huge lift across the board. Consumers can do more because they have the device in their handbag or pocket. This is not a small thing anymore.” <WWD>

Hedgeye Retail’s Take: From our perspective, overall discounting appears to be rational with very little signs of “panic” setting in.  Of course things could change over the next 72 hours but the idea of “hope” seems like a stretch given the solid sell-throughs observed so far.


Some Wal-Mart Vendors Question Strategy - The majority of Wal-Mart Stores Inc. suppliers say Chief Executive Officer Mike Duke and his managers aren’t explaining their business plans clearly enough, according to a survey.  More than half the 139 suppliers surveyed in a study by recruitment firm Cameron Smith & Associates didn’t agree that “senior leadership is aligned behind a strategic vision that is consistently communicated and well understood by the supplier community.” The Rogers, Arkansas-based group surveyed a small sample of Wal-Mart’s more than 60,000 suppliers. To win back shoppers, Duke and new U.S. stores chief Bill Simon changed tactics this year and began restoring thousands of products removed during the tenure of former merchandising chief John Fleming. The company has weathered six consecutive quarters of declining sales at U.S. stores open at least a year, and Duke, 61, has projected “positive” sales for this period. “They are rather frantically returning to past practices by bringing back products and going after their core low-income shopper,” said Leon Nicholas, Cambridge, Massachusetts-based director at consulting firm Kantar Retail, which works with Wal- Mart suppliers. “The big question for a lot of our clients seems to be, ‘Is this going to work?’ So far, it doesn’t seem to be working.” <Bloomberg>

Hedgeye Retail’s Take: This is not surprising given the customer and even some analysts on the Street are also confused about the company’s strategy.  Add in confusion from the vendor community and we still maintain that it will be difficult for WMT to drive a sustainable top-line improvement with only minor tweaks to its merchandising strategy.


Macy's Flagship Bomb Scare - A suspicious package found near the Macy’s Herald Square flagship caused a disruption Monday afternoon when the police closed off Herald Square Plaza and the store’s two Broadway entrances. Macy’s stayed open and was not evacuated. Police cordoned off Herald Square at Broadway from 34th to 35th Streets after receiving a 911 call at 12:38 p.m. regarding a suitcase found in front of the department store. The bomb squad identified the package as a suitcase of clothing, said a police spokeswoman, who added that the area reopened at 2:20 p.m. “We shut down our two Broadway doors at approximately 12:45 p.m. and opened them at 2 p.m. upon NYPD’s direction,” said Elina Kazan, a Macy’s spokeswoman. The Herald Square scare was one of three false alarms Monday in the New York metropolitan area. In the early morning, a section of Terminal A at Newark Liberty International Airport was closed when security officers were said to have found radiation coming from a checked bag. Officials discovered that the radiation came from a computer monitor and the air terminal reopened at about 8:15 a.m.  <WWD>

Hedgeye Retail’s Take: Even an hour delay could prove costly for the flagship store which is amongst the highest grossing locations on earth.  Importantly, shoppers were not deterred once the doors were re-opened and the mysterious suitcase was declared to be “just a suitcase full of clothes.”


Counterfeit Crackdown - Buoyed by alliances with industry and law enforcement, Immigration and Customs director John Morton said efforts to stifle counterfeit goods — a $600 billion challenge worldwide — are getting the needed muscle to be more effective. “To successfully combat counterfeiting, which really has become an international criminal problem, we’re going to have to have a very strong partnership between industry and government,” Morton said in an interview at ICE headquarters here. “[The brands] understand the problem counterfeiting poses better than anyone else. They know their products well. They know how counterfeiters operate, who the counterfeiters are. Working together, we can have much greater success.” Rising worry over the criminal connections of counterfeiters is giving added urgency to the efforts. Possible links between counterfeiting and terrorism are a major concern, said Morton, who wouldn’t discuss specifics. <WWD>

Hedgeye Retail’s Take: It’s good to see domestic efforts are indeed underway at Customs, but that’s only half the battle. It’s worth noting that VF’s management highlighted when it comes to international policing efforts, companies and branded apparel manufacturers typically pool resources in order to address counterfeiting more efficiently. The reality is however, that it simply doesn’t make sense economically to chase smaller players – a concerning fact when considering that might in fact include terrorists.


Beiersdorf to Sell Its Juvena and Möller Brands - Beiersdorf AG will sell its Juvena skin care brand and Marlies Möller hair care line to Austria’s Troll Cosmetics GmbH. Terms of the deal were not disclosed. The announcement Monday came in the wake of a reduced earnings outlook for 2010 that was reported earlier this month by Beiersdorf, the maker of Nivea, Eucerin and La Prairie. Personnel and strategy changes, including the reduction of its makeup business, are also being implemented. Beiersdorf stated it will focus its selective market resources on La Prairie. Juvena and Marlies Möller are managed by Beiersdorf’s Switzerland-based La Prairie Group. “Selling the two brands will allow Beiersdorf to focus its resources within the selective market on developing La Prairie, the global premium skin care brand,” stated Thomas-B. Quaas, chairman of Beiersdorf’s executive board. <WWD>

Hedgeye Retail’s Take: Apparently there is another acquirer aside from Coty in what is quickly becoming the most active industryfor M&A.


Zooey Deschanel Sues Steven Madden- Zooey Deschanel and Steven Madden Ltd. have broken up before even getting started. Deschanel, a darling of indie romantic comedies, has sued the shoe specialist for failing to pay her at least $1.5 million for a planned Zooey shoes and accessories brand. In the lawsuit, filed Friday in Los Angeles County Superior Court, the actress, model, singer and songwriter, who wanted to add a fashion credit to her résumé, said the company orally agreed to manufacture, advertise and sell the brand worldwide for as long as two years. The lawsuit alleged that Madden balked at the agreement to move forward with the brand in October and refused to compensate Deschanel. About three months before, the court documents allege that Madden approved a $2 million up-front payment to Deschanel in order to use her name and likeness, plus a 5 percent domestic royalty fee and a 4.5 percent international royalty fee, before reducing the up-front amount to $1.5 million with her consent.  The lawsuit said Deschanel didn’t seek or obtain competing corporate sponsorships because of her expectation that Madden would market the Zooey merchandise. She was tapped by Coty Inc.’s Rimmel cosmetics brand in March to be a brand ambassador. In October, Deschanel spoke to WWD about her relationship with Rimmel, saying: “I want to be associated with products that are accessible for everyone.” Steven Madden Ltd. did not respond to requests for comment.<WWD>

Hedgeye Retail’s Take: The young actress should chalk this one up as a learning experience and move on – last I checked, the good ol’ verbal agreement hasn’t held up in court in a very very long time.


Li Ning's Orders Weaken - Li Ning Co. said orders for the second quarter of 2011 have fallen 7% in footwear and 8% in apparel. Both apparel and footwear products saw their average retail prices increase by more than 8%. As a result, total order value, based on tagged retail prices, was maintained at the same level as last year. After taking into account the impact by the Group's wholesale discount for distributors, total order value in sell-in terms declined by 6% compared to the same period last year. "With regard to the results of this Trade Fair, we have established the view that, the retail environment for the sporting goods industry this year is faced with heavy pressure. On one hand, the previous growth model of heavy reliance on store openings by the sub-distributors is no longer sustainable; on the other hand, operating costs at the retail level are fast escalating. Given this environment, the operations of the Group's independent distributors were inevitably affected. Their forecasts for growth in the coming year had become more conservative," said Zhang Zhiyong, CEO of Li Ning. <SportsOneSource>

Hedgeye Retail’s Take: Door growth has provided a limited growth opportunity for athletic brands for a couple years now. In fact, the passive nature of this comment is a bit startling, if not telling. Domestic players certainly aren’t going to roll over so for a brand looking to make inroads to the U.S. market by gaining share, it  better be ready to get on offense.



The Huge Threat To Muni Finances That Hardly Anyone...

CHART OF THE DAY: Real Estate Tax Revenue On Decline



CHART OF THE DAY: Real Estate Tax Revenue On Decline -  chart of the day

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%