The Perch: SP500 Levels, Refreshed

POSITION: no position in SPY


The SP500 scaled all the way up to its new perch yesterday of 1307. That was a new closing high for this intermediate-term cycle. From here, the view gets a lot steeper. There are no immediate-term TRADE lines of downside support until 1292.


Steeper doesn’t mean this bullish bid can’t be scaled higher. As everyone knows, higher-highs are bullish, until they become lower-highs. Then again, if you use a long-term TAIL duration, we’ve been making lower-highs for 3 years. This entire debate about how much higher from here smells Japanese.


What’s fascinating to me is that if this market scales all the way up to 1340, that it will only be -14% from its all-time highs. That’s not to say it’s going there, but it definitely could. And the more expedited its ascent, the higher the probability that it comes crashing down on everyone who chases it.


For now, we have no position.



Keith R. McCullough
Chief Executive Officer


The Perch: SP500 Levels, Refreshed - 1


In preparation for HOT’s Q4 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from HOT’s Q3 earnings release/call and subsequent conferences.



  • “Both business and leisure travel continue to show strength in the quarter.”
  • “Trends in group business remain robust, particularly in-the-quarter, for-the-quarter bookings. In September, for example, bookings for 2010 were up 19%. As we have entered the back half of 2010, 2011 bookings are picking up nicely. Again, looking at September bookings, revenues for 2011 jumped almost 30%, driven by room-night volumes up 22% and rates up 7%.”
  • “2011 group pace has improved by almost 15 points over the last six months, and is now flat.”
  • “We’re also keeping a tight lid on corporate costs. Headcount is flat over 2009 and will remain flat through 2011. So despite adding new hotels, we expect SG&A spend in 2011 to be similar to 2010 levels.”
  • “We expect to see strong pricing power in the industry, particularly in the gateway cities”
  • 2011 commentary:
    • “We expect corporate rates to be up high single-digits”
    • “Group business in 2011 is also trending well, with strong volumes and steadily improving rate, and the overall trajectory of business appears to have stabilized at current levels”
    • “If the current trends continue, we would expect to deliver worldwide RevPAR growth of 7% to 9% in 2011. With our demonstrated ability to control costs, we expect that this RevPAR growth will result in an EBITDA within the range of 950 to 980 million.”
    • RevPAR composition: “Rate two-thirds, occupancy one-third”
    • “Most of our emerging markets will be lapping some hefty growth from 2010, and we will not have events like the World Expo in Shanghai that helped China. As such, it would be reasonable to expect that the rate of growth will slow down sequentially year over year, and the growth delta between emerging and developed markets will narrow."
    • “EPS range of $1.44 to $1.55"
    • “Owned margins to improve 150 to 200 basis points with a focus on revenue management and continued cost control.”
    • “Our vacation ownership business will be flattish, with a continued focus on cash generation.”
    • “Overhead will only grow 1% to 2%”
  • “I feel very comfortable that we will end the year with EBITDA of 840 to 845 million, which is at the high end of our prior guidance range of 815 to 845 million. We expect 2010 global RevPAR growth at company-operated hotels of 8% to 9% in constant dollars, also at the high end of our prior range… This implies a Q4 EBITDA range of 230 to 235 million.”
    • “I want to point out that our year-over-year comparisons are muddied by a variety of factors in Q4. In our vacation ownership business, we had a large gain from securitization last year, as well as the accounting change. In the owned hotel business, we had some asset sales as you know, and some one-time items that helped our Latin American business last year… we had a termination fee last year. In SG&A, we had higher incentive compensation this year. Also we had some items moving between Q3 and Q4 this year, helping Q3 to some extent and reducing Q4.”
    • “We expect global RevPAR growth at company-operated hotels in Q4 of 7% to 9% in constant dollars.”
    • “We still expect to receive a 200 million-plus tax refund before the end of the year. With the refund, we expect our excess cash balance to climb to 500 million by year-end, and our net debt to be under 2.3 billion.”


In preparation for the LVS Q4 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from LVS’s Q3 earnings release/call, subsequent conferences, and media interviews.



Post Earnings Commentary



  • [Sites 5 & 6] “The bottom line is that we’re satisfied that we’re going to have enough people.”
  • [Galaxy Macau] "It has about 3,300 Macanese workers they’re going to let go between January and February. We have come to an agreement with them that we are going to pick up those workers.”


  • “Our competitor, Genting, believes that junket reps will be approved. I don’t know whether or not they are going to be approved. I personally do not have a confidence level high enough that says it will be approved.”
  • “We are now up to about 260, 270, I believe U.S. in ADR and we are at about 85% occupancy. So I think we ought to be able to do pushing 225 to 250 million in fully ramped up room income. Now we’re getting 600, 700 tour operated rooms a day.  We are getting about 600, 700 FIT rooms a day and it’s going very well. I think that the rooms by the conventions are coming in strongly and steadily.”


  • “We have 650,000 room nights booked for 2011.”
  • “We’re seeing, particularly on the weekends, a pick up over the last several months and we’re seeing an increase in the ADRs on the weekends. And the group business, the conventions and the trade shows will be a catalyst for the midweek occupancy and the midweek ADR to rise.”
  • The attrition rate is still something that comes in, but right on the books, it’s very, very vibrant.  The rate has moved up a little bit, not a lot, in groups because it is still pulled down by the competition for the group market. But I think the group business is back.”
  • “On the table games side, honestly it’s driven primarily by the Asian business anyway. Our high-end business gets more important every day to us, as a percentage mix on the table games side. On the slot side, we’re going to reduce our offer somewhat and be more judicious and hope to fill more from the cash side.”


  • We expect that they are going to submit a draft of a gaming law to the Diet, the Japanese parliament, sometime this session, which is from I think January or February through June. And then they are supposed to have a vote on that before June.”
    • Diet will convoke Jan 24 and will last 150 days


Q3 Conference Call


  • [The month of October] “Adjusted EBITDA on pace to grow an additional 31%....Net revenue is projected to increase 12%.”
  • “The capitalized interest number is around 32 million for this quarter. It will go up probably right through the 4Q of 2011.”


  • “The airport is expanding with an additional runway, but it doesn’t really do us much good because unless you get more lift into Las Vegas, U.S. Air and Southwest and whatever have cut back some of their lift into Vegas, which has caused, I believe it’s something like 800,000 less passengers this year coming into the airport….McCarran can handle more traffic. It’s just a question of getting more planes in.”
  • “LV ADR is lagging. We’re probably in the 180/190 range, so we’re not getting the 200 bucks back.”


  • “I think our market share will be at least equal. We are focusing on the high-end of the market, I believe more so than what Genting is. Genting is doing a very good job at the mass end, by the way, but they’re just not experienced in granting credit, and they really want junket reps, and they’re sponsoring a number of them.”
  • “Gross gaming revenue (tables) reached 8.4 million per day in October.”
  • “Rolling volumes have increased 182% since May to reach 116.3 million per day in October.  At that rate, we will roll 42 billion annually approximately.”
  • “Gross gaming revenue from our mass tables and slots increased 49% since May to reach 3.2 million per day in October.”
  • “Non-rolling drop increased 21% since May to 9.6 million per day in October.”
  • “Slot handle increased 165% to reach 18.3 million per day in October.”
  • “The slot win per unit per day increased 43% since May to reach $517 per unit per day so far in October.”
  • “Our strong belief is that the appropriate measure of our financial performance is EBITDA.”
  • “I can’t see margins going much more than 60%. We’d have to have a very consistent high end of the market return every single day to get beyond 60%.”
  • “EBITDA up 40% from September to October.” 
  • “We expect the occupancies to go significantly higher towards the end of the year. On the retail, we’re still not completely open. All the retail with a possible exception of Louis Vuitton will be open by the end of the year, and it’s starting to ramp not as well as we would have thought in the early going because the construction is going on, but it’ll basically be finished so that will be a contributor in 2011 that we think significantly.”
  • “VIP is pushing 60% of total gaming income….we’re going to make sure we have enough private gaming rooms."
  • “We’ve got about a couple hundred million dollars of receivables outstanding, and we’ve got about a 12% reserve against that and no significant issues to really report.”
  • “Singapores at casino stands about 38%.”
  • “Our expectation is that we should be building up to roughly 300,000 room nights a year on MICE business as we get ramped up. Probably ‘12 we’ll get that. Probably we’ll be lower than that in ‘11.”
  • “‘12 will be a very interesting year because I think ‘12 is where the retail business will really start to move dramatically because the subway system will open that runs right into the retail area. We’re working on some other transportation mechanisms now to get people in there to drive that up as well. So I think by the time ‘12 we should be in a situation where we’re getting the maximum out of the total facility, not counting the casino, of course, which will continue to grow.”


  • “I see the Plaza at the Four Seasons not equaling but starting to approach within a striking range the numbers we’re experiencing at Sands Macao.”
  • [Sites 5 & 6] “We’re still looking at the end of the last quarter of ‘11 to open Phase 1.”
  • “We’ve got a reserve or allowance for collection of about 42% against the gross casino accounts receivable in total. And if you take a look at that after kind of the immediate collections that come right after the end of the quarter, it’s almost 48%.”
  • “We’re hoping to keep the direct business where it is. I think it’s somewhere between 25% to 30%.”

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Athletic Apparel Uptick

The weekly athletic apparel data shows a slight uptick this week as retailers close their books on the fiscal year. The biggest improvement comes from the discount/mass channel with modest sequential improvement reported in the specialty channel. 


Athletic Apparel Uptick - Sports Aparrel Trends

R3: WMT, GPS, LVMH, and Obesity


February 2, 2010




  • With increased focus on Walmart’s ability to take prices higher (or lower) and to clear excess inventory (as per a recent NY Post expose), the company continues to seek out real estate in New York City.  The latest word suggests WMT and Shoprite both have their eye on the same Brooklyn retail center.  Union opposition is already heating up as organized labor is clearly opposed to non-union Walmart.
  • Offense or defense?  The moves at Gap in which the brand now has a new CEO (was former head of outlets), a new advertising agency in NY, a newly created position called Global Chief Marketing Officer, and a new NY based global creative center all come at time when sales momentum appears to have taken a step back.  Change can be good, although we note that traffic driving initiatives have been the key challenge for the brand over the past five years.
  • More than six in 10 American adults (62.9%) were either overweight (36.3%) or obese (26.6%) in 2010, which is essentially unchanged from 2009 as measured by the latest Gallup-Healthways Well-Being Index.  Sadly, a Gallup analysis found that if the 10 most obese US cities reduced their rates to the national average, they could collectively save about $500 million in healthcare costs a year!



Gilt Groupe Teams up With Nicole Richie - Gilt Groupe has teamed with Nicole Richie for a full-price sale event of the celebrity-turned-designer’s House of Harlow 1960 and Winter Kate spring collections. The sale will start Thursday at noon Eastern time and end at midnight Sunday. Gilt in August ventured into uncharted flash sale territory when it offered the Tucker by Gaby Basora and Mulberry collections for Target before the lines hit the mass merchant’s stores. <WWD>

Hedgeye Retail’s Take:  With the supply chain extremely tight, the market for off price luxury apparel and accessories is not nearly as plentiful as it was over year ago.  Expect to see Gilt continue to incubate its full-priced offerings in collaboration with smaller, upscale brands.


Teen Retailers to Opt Out of Monthly Same-Store Sales Reports - American retailing’s monthly same-store sales reporting ritual is about to get hit by a case of empty-nest syndrome. Following reports on January sales this Thursday, the list of retailers participating in the comparable-store routine will get three companies shorter when the three A’s of teen retailing — Abercrombie & Fitch Co., American Eagle Outfitters Inc. and Aéropostale Inc. — end their participation.  Although the move is part of a larger trend among companies seeking refuge from the spotlight of monthly disclosure, the recent developments could be more indicative of precipitous pressure in the teen space, according to analysts. <WWD>

Hedgeye Retail’s Take:  Within the next few years, the 20 or so companies reporting monthly sales will likely opt out as well.  Long a legacy of the industry, but now more of a distraction and fuel for trading volatility, there is very little incentive for a retailer to report on such a frequent basis.


The Ralph Lauren Man - Ralph Lauren’s world just keeps expanding.  At his fall men’s wear preview on Tuesday, the designer showcased what he called a “multilevel sensibility of how men could dress” that created individual statements for each brand while maintaining his overall vision. New this season is a distinct denim collection under the Black Label Denim moniker, as well as an expanded accessories assortment that covers shoes, leather goods and watches. <WWD>

Hedgeye Retail’s Take:   With solid momentum in men’s apparel over the past few months (across the board), Ralph should continue to benefit as one of “the” key resources in the men’s arena.


Prices Paid by U.S. Manufacturers Increased in January - An index measuring prices paid by U.S. manufacturers rose to its highest level since July 2008, according to the latest Manufacturing ISM Report On Business, which is based on data compiled from purchasing and supply executives nationwide.  The Index shows that new orders, production, employment, inventories, prices, exports and imports all grew faster in January then in December. The ISM Prices Index registered 81.5% in January, 9 percentage points higher than the 72.5% reported in December and the highest reading since July 2008. This is the 19th consecutive month the Prices Index has registered above 50%. While 64% of respondents reported paying higher prices and 1% reported paying lower prices, 35% of supply executives reported paying the same prices as in December. <SportsOneSource>

Hedgeye Retail’s Take:  Very much as expected, with rising costs continuing to permeate the broader domestic manufacturing space.  


Direct Marketing Association to Investigate Online retailers - A program designed to reassure consumers about their online privacy is taking effect this week. The Direct Marketing Association, a trade group, says it is ready to investigate marketers that do not display the Advertising Option icon on online ads that they serve to consumers based on their prior online behavior. The icon links consumers to information about online behavioral advertising and allows them to opt out of receiving ads based on their online behavior. The Advertising Option program is a self-regulation effort launched by a consortium of advertising trade groups in October that includes the Interactive Advertising Bureau, the Association of National Advertisers and the American Advertising Federation. As of yesterday, the DMA says it is now enforcing the rules it set out in October. <InternetRetailer>

Hedgeye Retail’s Take:  Is this the end of “cookies” and the contextual banner ad?  Probably not, but this certainly seems like a step in the right direction for consumers looking to keep their online activities private.


Phoenix Footwear's Shareholders Authorize Reverse/Forward Stock Split - Phoenix Footwear Group, Inc., the owner of Trotters, SoftWalk, and H.S. Trask, announced that at a special meeting on Jan. 28 its shareholders approved a 1-for-200 reverse stock split of the company's common stock, to be immediately followed by a 200-for-1 forward stock split of the common stock.  As a result, registered shareholders owning fewer than 200 shares of common stock of record prior to the Reverse Stock Split will have such pre-split shares cancelled and converted into the right to receive cash consideration of 75 cents per pre-split share.  The Reverse/Forward Stock Split will be effective following the close of business on Jan. 31, 2011. <SportsOneSource>

Hedgeye Retail’s Take:   Still not sure this move helps liquidity enough to put Phoenix under a bigger market spotlight. 


LV to open stores in Zhengzhou, China - Aiming at the 100-million population, Louis Vuitton has opened news stores in Zhengzhou, Henan province, China. The huge population and the number of billionaires in the province that reaches the 12th nationwide are the key reasons why the French luxury brand expanded their retail network in the city, according to  the Rupert Hoogewerf Fortune Report in 2010. The survey also show edthat consumption of luxury products in second- and third-tiered cities exceeded those in first-tiered cities both in value and volume for the middle-class. Private enterprises owners, affluent second generation and white collar workers are the main consumers. <FashionNetAsia>

Hedgeye Retail’s Take:   While the biggest cities are clearly important from a strategic marketing standpoint, it’s interesting to note that the actual purchasing power resides more in the second and third tier population centers.


In preparation for PENN’s Q4 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from PENN’s Q3 earnings release/call and subsequent conferences.

Post Earnings Conference Commentary

  • “I think going into 2011, you will probably see our CapEx about the same as it was this year. It won’t go up and in fact, it may go down a little bit. And the reason that is the case is that, over the last decade, let’s say, the price of the slot machine boxes have gone up pretty dramatically. I mean we – I think at the beginning of this decade they were probably in the 8,000 to 10,000 range and now we are looking at boxes in the $18,000 range. And I think that what we’ve decided to do is we’ve started to look a little bit more closely at our slot machine purchases to say, okay, here is what we are paying for the slot machines, here is the type of win per units that we are getting on the slot machines, they are not increasing. And in fact with additional competition that comes on the feature, win per units may go down. And so we have to adjust the number of slot machines that we actually are serious about replacing on a go-forward basis. So that’s why I think with going forward, you will probably see our number, our slot maintenance number about the same, of course slightly less than it is right now.”
  • “Gaming spend per visit and visits... have been pretty flattish on an absolute level for quite some time. I think probably what you’ll see going into the fourth quarter and the first quarter of next year is that those numbers across the country will be flattish for the first time in a long time.”
  • “What we’ve seen with West Virginia is ... numbers sort of rise and then continue to rise, and I think that has been surprising to us. I mean, I think normally when we go and we model these type of expansion opportunities, we think that table games should add about 15% to 20% or maybe 10% to 15% of your total casino win, and this one was closer to 25% for Charles Town and it continues to ramp…. We just recently added in November, a steakhouse there. I am not sure if you saw that when you were on your trip there, but we just added that. And we are – in the spring, we are going to add an entertainment venue as well and I think once we have the full package, I think we’ll be able to even further mine and market that high end table game customer, the Charles Town.”
  • [M resort] “The transfer of ownership... that’s probably going to be a first quarter, maybe early second quarter event.”
  • [Ohio slots] "The new Governor Casich ran on a platform of not increasing gaming taxes. And so when you think about what are your options in terms of reducing the budget there or the deficit, gaming is got to be one of them. And so potentially he is using this study period as a way to sort of shore up his base and find a way where additional gaming at the tracks can be palatable. He may come back and say that it’s not possible. And so I think either way, we’ll probably find out sometime by the middle of this year or by 2011."
  • “We’re encouraged by the fact that some of the numbers that we’re seeing out of some of the major Las Vegas locals operators like Station have been closer to flattish in the third and fourth quarter now on the revenue and EBITDA line rather than the double-digit declines that you’ve seen over the last two or three years. And I think that that’s probably where you stand going forward is sort of flattish to maybe modest inflationary type growth going forward in that market.”
  • [Casino Rama contract] “We’re going to be part of the new management contract there or at least we want to be a player there. We want to be potentially chosen there, and that’s probably an April or May of 2012 event.”

Q3 Conference Call

  • [Margins in Pennsylvania & West Virginia] “I’d be hesitant, though, to say that there’s going to be further improvement going forward from what you saw in the third quarter, given all the noise of the introduction of the new offerings at these two businesses.”
  • “Looking into the fourth quarter, we’re looking at total CapEx for 89.7 million, which we’ve broken down between new projects of roughly 69.3, and maintenance CapEx of roughly 20.4 million.”
  • “Some of the competitors have actually started to pull back [on marketing/promotional spending], noticeably Pinnacle, which we’ve seen in the markets we compete head-to-head with them....which is encouraging to see.”
  • “I certainly believe we’re going to see year-over-year margin improvement in the fourth quarter, Steven, as we continue to do that and fine-tune it. I would be hesitant to go into 2011 that far out until we have more data points into the fourth quarter to talk about how the P&Ls are looking in these businesses, but certainly I’m confident that you’re going to continue to see margin improvement in the fourth quarter.”

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