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For the sixth month in a row, the employment data released this morning by the Bureau of Labor Statistics were positive for Quick Service restaurant stocks. 


The data, detailed in the chart below, shows that the 20-24 year old age cohort saw month-over-month employment growth of +3.6% versus +2.3% in December.  Unemployment in this demographic, a key source of traffic for QSR companies, is extremely high on an absolute scale but this acceleration in employment growth for young people is - on the margin - positive. 


MCD, SONC, JACK, BKC, YUM, and WEN have all mentioned unemployment among younger age cohorts as being a primary impediment to same-store sales growth over the past year or so. 


While the preponderance of the news of late has not been positive for QSR, specifically as it relates to commodity cost headwinds, this data point is positive on the margin.




Howard Penney

Managing Director


The Macau Metro Monitor, February 4, 2011



Resorts World Sentosa will distribute a special lump sum payment for 3,000 staff, over and above the overtime pay for LNY.  RWS has said that nearly 150,000 people have visited its attractions over the Lunar New Year holidays.  Meanwhile, MBS said the first day of the Lunar New year saw more than 235,000 visitors pass through.  A spokesman for Marina Bay Sands added that The Shoppes at Marina Bay Sands was one of the few retail destinations that opened throughout the Lunar New Year.




R3: WMT, KCP, JCP, and ANF


February 4, 2010



  • In a marketing driven, fashion world sometimes it’s just better to remain silent.  Yesterday, Kenneth Cole used poor judgment by Tweeting that the “uproar in Cairo” is a result of the people hearing the company’s new Spring line is now available.  The backlash has already begun in full force, with the creation of a parody Tweet feed called KennethColePR which mocks the original statement.
  • Duane Reade and Walgreen’s watch out.  A new drugstore hybrid concept called Prime Essentials is about to open in NYC with high hopes of becoming a citywide chain.   The store looks to combine traditional drugstore offerings with groceries as well as home goods.  The first location opens in Tribeca next month.
  • According to a Harris Poll, 34% of Americans have no retirement savings and 27% have no personal savings.  Eighteen months ago the same survey produced modestly lower results, with 30% indicating no retirement savings, and 22% with no personal savings.



New York City Council Holds Wal-Mart Hearing - Wal-Mart Stores Inc. declined to attend Thursday’s New York City Council hearing on how its stores affect small businesses and communities, but it dropped off a petition with 30,000 consumers’ signatures in support of opening units in the five boroughs.  The hearing was spearheaded by City Council speaker Christine Quinn, a vocal critic of Wal-Mart, who is bent on preventing the retail giant from entering New York City.  Wal-Mart has yet to identify a site in New York, but has expressed interest in Gateway II, a shopping center near Jamaica Bay in Brooklyn that doesn’t require City Council approval.

Pasted from <WWD>

Hedgeye Retail’s Take:  We wonder if the media is taking this subject to new highs while at the same time WMT is methodically plotting its moves behind the scenes to amicably enter the NYV market.  While the issues at hand are union and job related, the reality of lower prices in one of the most expensive markets in the world may be overlooked by those who have actually never shopped a supercenter.


Low Inventories Hit January Comp-Store Sales - January exhibited the balancing act retailers face for all of 2011: keeping inventories lean, but not so low that they lose sales. Unfortunately, many stores last month cut back too much — and the harsh winter weather didn’t help matters. The International Council of Shopping Centers said retailers logged a 4.8 percent jump in comparable-store sales, which generally bested analysts’ estimates of a 2 to 3 percent rise. But it was clear some stores went into the month light on inventory and came out on the other end light on sales. <WWD>

Hedgeye Retail’s Take:   It would be hard to find a retailer complaining that they ran out of goods by the end of the holiday clearance season, only to come into Spring clean.  More interesting is that this scenario played out after what some viewed as a disappointing December. 


Modern Bride enters JC Penney's - Within the past week, Modern Bride bridal jewelry shops have popped up inside more than 1,000 J.C. Penney stores, recasting the category with a fresher, younger image and extending the retailer’s strategy of partnering with publishers in nontraditional ways. Modern Bride magazine was shut down in fall 2009, but Penney’s licensed the name from Condé Nast believing it still conveys brand authority. Penney’s executives also said the Modern Bride name could be seen in other wedding-related businesses, but didn’t specify. The assortment includes engagement rings and wedding bands for 24- to 30-year-olds

Pasted from <WWD>

Hedgeye Retail’s Take:   With marriage rates mostly consistent from year to year at around 2 million couples, it’s notable to see so much effort being put into the refreshing/reinventing the bridal business.   Recall that JCG, URBN, David’s Bridal, and now JCP are all upping the ante with new merchandising efforts.


BJ’s Surges as Board Decides to Explore Options, Sale - BJ’s Wholesale Club Inc. surged the most in almost three months after saying its board has decided to explore strategic options, including a possible sale.  The Westborough, Massachusetts-based retailer has hired Morgan Stanley as its financial adviser, according to a statement today. The company had a market value of about $2.35 billion as of yesterday’s close. BJ’s hired the investment bank last year after receiving an offer from private-equity firm Leonard Green & Partners LP, three people with knowledge of the matter said at the time. <Bloomberg>

Hedgeye Retail’s Take:  Now the question shifts to deal or no deal?  Clearly Sara Lee must give some pause to those who believe a sale is imminent. 


Gains Expected for Cosmetics- Mass cosmetics are on a roll. On the heels of 4 percent sales increases for 2010, retailers and manufacturers are confident the category is poised for another year of growth, possibly even outpacing last year. They cite expansion into global markets and heightened consumer confidence as the main drivers.  Carmen Bauza, vice president of beauty for Wal-Mart Stores Inc., said, “The customers are feeling enough is enough. We’ve dealt with this [recession] for two years and they’ve been able to manage through this environment. Customers have learned to manage their finances and to manage their priorities.” Bauza speaks from experience. She and other Wal-Mart employees are expected to live on a budget for a period of time so they know how far a dollar actually stretches.< WWD>

Hedgeye Retail’s Take:  While a bottoming in the consumers wallet may be in part the reason behind a mass cosmetics improvement, the quality of the products being sold at Mass may also be a driver as well.  Anyone notice the sales-assisted departments at TGT or CVS lately?

Canada's Aritzia Arrives in New York - As American retail’s migration north continues — Target recently said it will open stores in former Zellers units — Canadian retailer Aritzia is heading in the opposite direction.  A temporary location on the third floor of 524 Broadway and Spring Street will debut Sunday, a precursor to Aritzia’s permanent 10,000-square-foot bi-level unit opening in May.  Aritzia, a vertically integrated multilabel retailer for women ages 18 to 35, produces eight proprietary brands with names such as Wilfred and A Moveable Feast. All are designed in-house and are far from basic. “They’re there to stand on their own as individual brands and to complement the other brands,” said Brian Hill, chief executive officer. <WWD>

Hedgeye Retail’s Take:   A competitor to Scoop and Searle arrives on their home turf. 


Acushnet Sales Process Begins - Morgan Stanley has sent out marketing materials and non-disclosure agreements for the sale of Acushnet, the parent of Titleist or Footjoy, according to a report on CNBC. The number of potential suitors include Nike, Adidas, Callaway, Cleveland/Srixon parent Sumitomo Rubber and Mizuno. Callaway would likely have to partner with a PE firm to make an acquisition, the article stated. The first round of bidding will complete in late February. If bidding is less than desirable, an IPO-based spinoff of Acushnet could be the end result. <SportsOneSource>

Hedgeye Retail’s Take:  The interesting scenario surrounding this sales process lies within the fact that the potential buyers are amongst a very small group.  With very little growth in the industry overall, it will be interesting to see which strategic buyer views scale as a key driver of success despite that fact that owning multiple brands is likely cannibalistic.


The web grows almost six times faster than stores for Abercrombie - Sales were up across the board for specialty apparel retailer Abercrombie & Fitch Co. last year, but the Internet grew nearly six times faster than stores. For the fiscal year 2010 ended Jan. 29, Abercrombie, No. 65 in the Internet Retailer Top 500, reported:E-commerce revenue grew year over year 41.3% to $352.5 million from $249.4 million in fiscal 2009 and total sales increased year over year 18.5%. <InternetRetailer>

Hedgeye Retail’s Take:  E-com sales now top out at 10.2% of total, which puts the company in line with the historical averages for retailers with direct businesses. 

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TODAY, FEB. 4, 2011 10AM EST


Valued Client,


5-10 minutes prior to the 10 AM EST start time please dial:

(Toll Free) or (Direct)
Conference Code: 569781#


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Join Hedgeye's CEO Keith McCullough and Managing Director Daryl G. Jones, who will be joined by Yale Professor Charles Hill for a discussion of recent events in the Middle East and an analysis of the major risks associated therein. The topics being covered will include: 

  • What are the sources of the Jasmine Revolution? How important is inflation?
  • Is the Jasmine Revolution going global? If so, where should we look next for popular upheaval?
  • How will a change in Egyptian leadership (shift in power to the Muslim Brotherhood) shape U.S. influence in the region?
  • What is the future of the Arab and Israeli relationship?
  • Are their implications as it relates to Iran and nuclear proliferation?
  • As these events unfold, how will they impact global markets?  

Please contact if you have any questions. 



The Hedgeye Macro Team

This electronic mail transmission contains confidential information intended only for the person(s) named. Any use, distribution, copying or disclosure by any other person is strictly prohibited. If you received this transmission in error, please notify the sender by reply e-mail and then destroy the message.


With normal hold, MBS would’ve missed the Street.  Relative to estimates, Singapore is no longer the positive outlier and that is the crux of our thesis.



LVS posted a strong Q4, at least relative to consensus.  The problem is that whisper numbers were higher.  With an 18x EV/EBITDA multiple, estimates need to go significantly higher to grow into the multiple.  That is the issue we have with this stock.  For the first time in 5 or 6 quarters, our estimates are not 20% or so higher than consensus.  In fact, if hold was normal across its Asian properties, LVS would’ve missed the consensus EBITDA projection.


Absent from the conference call discussion was the high hold, although management did volunteer a lot of commentary regarding the low hold at Four Seasons.  In terms of our expectations, the high Mass and VIP hold at MBS was not anticipated.  We estimate it contributed almost $20 million of incremental EBITDA.  Even with the high hold, the upside to our estimate was only 1% at the property which leads credence to our view that EBITDA upside may be restricted to Macau and there are better ways to play Macau.

Las Vegas

Vegas revenues of $310.6MM were 2% below our estimate while EBITDA of $80.6MM was$3MM better than our estimate.  As mentioned on their conference call, Sands has implemented a shift in strategy in Las Vegas by cutting promotional spending and comps.  While this negatively impacted RevPAR stats, this strategy seems to be paying off on the bottom line.

  • Promotional spending as a % of GGR declined to 18.4% this quarter from a 32% average YTD run rate.  We’re guessing that the lower occupancies and GGR were negatively impacted by this decline.
  • Total operating expenses increased 11% YoY to $230MM (compared to $232MM in 3Q10) and $207MM in 4Q09



On an aggregate basis, higher than normal hold across Mass and VIP revenues benefitted Macau revenues and EBITDA by $16MM and $18MM, respectively.


Sands revenues of $319MM were $2MM above our estimate while EBITDA of $93.4MM was $13MM better than our estimate. 

  • While net gaming revenues were spot in-line with our estimate, non-gaming less promotional spending was $2MM better.  Promotional spending declined to 3.4% of net casino revenues from a YTD average of 4.2%
  • Normalizing for slightly high hold, revenues would have been $14MM lower and EBITDA would have been $2MM lower
  • Direct play was 15%, up from 14% the last 2 quarters
  • While we won’t know until the Sands China quarterly release is out, we suspect junket commissions were lower this quarter
  • Fixed costs were also $5MM below our estimate

Venetian revenues of $661.5MM were 0.6% above our estimate while EBITDA of $235.6MM was 10% better than our estimate. 

  • Direct play decreased to 19% of total VIP RC from a range of 21-24% YTD. We assumed that the direct play would be in 23% - in-line with the last 2 quarters, which is why our hold rate assumption was 8bps lower.
  • If we were to use the mid-point of LVS’s normal VIP hold of 2.85%, revenues and EBITDA would have been $17MM and $3MM lower, respectively
  • Mass drop only grew 6% YoY, lagging Macau mass market table revenue growth of 31%. Mass hold of 28.2% almost 4% above the prior 7 quarter average.  Using the prior 7 quarter average, gaming revenues would have been $36.5MM lower and EBITDA would have been impacted by about $22MM
  • Net gaming revenues were $12MM below our estimate but were more than offset by higher non-gaming and lower promotional expenses
  • Same with Sands, we suspect junket commissions were lower this quarter at the Venetian
  • Fixed costs were also $5MM below our estimate

Four Seasons revenues of $92MM were 13% below our estimate while EBITDA of $12.2MM was $9.6MM lower than our estimate. 

  • Direct play was 54% - higher than the 43% we had estimated.  As a result, hold was a lot lower than our 2.17% estimate – which accounts for the majority of the EBITDA miss vs. our estimate
  • Low VIP hold negatively impacted revenues by $60MM and EBITDA by roughly $14MM.
  • Mass drop appears to have plateaued at $99MM since 1Q2010.  Mass hold of 33% was 8% above the 11 quarter trailing average of 25%.  Using the 11 quarter average, revenues would have been $8MM lower and EBITDA would have been $5MM lower.
  • Net net hold issues negatively impacted revenues by $52MM and EBITDA by $9MM


MBS revenues of $558MM were in-line with our estimate, while EBITDA of $306MM was 1% better.

  • While slot handle was better than we estimated, mass drop and VIP RC were weaker
    • RC volume actually decreased by 21% QoQ
  • “Normal” VIP hold of 2.85% would have negatively impacted revenues by $21MM and EBITDA by $10MM
  • “Normal” Mass hold would’ve negatively impacted Mass EBITDA by $8-10MM
  • Non-gaming revenues were $3MM higher than our estimate while promotional was $3MM lower
  • Rebates were 1.31% ( flat to 3Q)
  • Fixed expenses were $153MM (vs. $148MM in 3Q)


Notable news items and price action over the past twenty four hours.

  • Kraft’s lawsuit over Starbucks’ plan to end an exclusive distribution agreement will receive expedited review from the U.S. Court of Appeals for the Second Circuit.  SBUX says that Kraft violated several provisions of the pact, like properly stacking shelves with its coffee, which allows it to end the deal. SBUX is trading well despite commodity pressure.
  • GMCR gained on accelerating volume following strong earnings results after the close on Wednesday.  This was a day in the sun for GMCR but SBUX, in my view, will take more and more of their market share as time goes on.
  • CHUX reported its sixth straight quarterly loss as higher commodity and operating costs weighed on margins.  4Q revenue came in at $183.5m versus an expected $185m.  The company guided to revenue of $260-$266m for 1Q versus consensus at $267.4m.
  • DRI increasingly likely to buy a new chain over the next couple of years, according to Janney Capital Markets.  California Pizza Kitchen, BJ’s Restaurants, and Yard House are three of the chains mentioned in the report.  DRI might buy something, but not any time soon.
  • BWLD appointed James Schmidt to the newly-created position of chief operating officer, with immediate effect.
  • WEN is the best performing QSR stock over the past week and up every day since the analyst meeting on big volume.
  • DPZ declined on accelerating volume.  The stock received some publicity lately with SAC buying shares but we see three quarters of difficult top line compares and cheese prices up 33% YTD and 19% YoY.
  • MCD releasing sales on 2/8.  The company guided to 4-5% global same-stores sales.  The USA continues to slow, Europe accelerated sequentially and APMEA slowed sequentially.



Howard Penney

Managing Director

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