• run with the bulls

    get your first month

    of hedgeye free




February 11, 2010





  • In an effort to satiate demand driven by Fashion Week, Perry Ellis will actually put 10 looks from its Fall 2011 collection on sale via Facebook immediately following the brands show.   You must already be a “fan” to purchase the products, however the sale will open to the public for a limited time beginning on Monday.  The product will be delivered in two months.  If successful, we suspect this may become a new way for brands to test demand well in advance of Fall booking season. 
  • A recent study by Horizon Media reveals that bringing sponsorships onto professional sports jerseys in the US could generate more than $370 million in advertising value.  Not surprisingly he NFL is estimated to represent two-thirds of the untapped potential.  Dallas, New England, and the New York Giants are each estimated to have about $14 million in uniform advertising potential.
  • In an effort to navigate inventory/order flow in the face of greater cost uncertainty over the next 12-months, premium denim brand Joe’s Jeans commented that they are not accelerating the timing of inventory receipts, but instead working with retailers to commit to orders further ahead of time helping to increase visibility. Unlike other premium brands, the company also noted that they are looking to re-engineer their jeans (i.e. shift to lower quality fabrics) to offset cost increases.



Puma  and Undefeated to Release Clyde Collection - This spring, Puma’s Clyde is going Undefeated. German athletic brand Puma is expected to announce Friday that it has partnered with seminal Los Angeles sneaker shop Undefeated for a collection of the brand’s iconic Clyde basketball style.  The first shoes in the collaboration, unisex styles retailing for $110, were designed by Undefeated cofounder Eddie Cruz and will deliver to Undefeated and other top-tier sneaker shops on April 10. A second delivery of $65 styles to the same channel will drop on June 10. Further releases are planned throughout 2011 and beyond.  <WWD>

Hedgeye Retail’s Take:  While collaborations are nothing new in the world of sneakerheads, the focus on basketball from Puma is certainly noteworthy.  While not a strongpoint of Puma’s heritage, we suspect the overall hoops resurgence is influencing this grassroots effort.


American Eagle Speculation about Retail Takeover - American Eagle Outfitters Inc. surged the most in almost two years in New York trading on speculation the Pittsburgh-based teen-clothing retailer may be a takeover target. The shares rose $1.34, or 9.1 percent, to $16.03 at 4:01 p.m. in New York Stock Exchange composite trading for the largest gain since April 2009. “It’s the takeover rumors starting up again,” said Brian Sozzi an analyst for Wall Street Strategies Inc. in New York. A deal would make sense for private equity because American Eagle has “a good brand and generates lots of cash,” he said. The clothier, led by Chief Executive Officer James O’Donnell, faces increasing competition from teen retailers like Abercrombie & Fitch Co. and Aeropostale Inc., both of which reported gains in same-store sales last month.  <Bloomberg>

Hedgeye Retail’s Take:   If every “good brand with lots of cash” was for sale, then we’d be certainly be more bullish on retail.  We point out that at various times over the past four years, AEO has been rumored to be for sale.


Lindsay Lohan Looses Shelf Space  - While Lindsay Lohan’s legal woes are taking center stage once again, the actress’ apparel and accessories brand, 6126, has quietly receded from the shelves of department and specialty stores, according to checks by WWD. Initially a leggings brand, 6126 made a splashy debut in 2008 and 2009 at upscale stores such as Nordstrom, Macy’s, Bloomingdale’s, Neiman Marcus and Limited Brands Inc.’s Henri Bendel, but representatives from those stores said this week they no longer carry the line. <WWD>

Hedgeye Retail’s Take:  With Lohan in the headlines for all the wrong reasons, this hardly comes as a surprise.  Let this serve as a reminder that celebrity licensed product lines are not without risks.  Lohan’s latest theft snafu may actually land her in jail for a prolonged period of time.  Jumpsuit endorsement perhaps?


Stride Rite Lands Marvel License -  Stride Rite has added another big license to its stable. The brand, a division of Topeka, Kan.-based Collective Brands Inc., has signed a multi-year licensing agreement with Marvel Entertainment to create a collection of children's shoes inspired by Marvel's cast of iconic superhero characters, including Spider-Man, Iron Man and Captain America. The collection, available in toddler and youth sizes, will include athletic styles, sport shoes and casual sandals. <WWD>

Hedgeye Retail’s Take:   Good timing with many of the Marvel characters making splashes on the big screen.  We wonder if Captain America shoes will be ready for the July release.


Retailers Switch to iPads from Conventional Kiosks - City Sports and Things Remembered have unveiled a new system from mobile retail software provider Global Bay Mobile Technologies that turns off-the-shelf iPads into kiosks to enhance the in-store experience for shoppers. The iPads are securely mounted to kiosk-like stands throughout the stores. The bottom button on the iPad, which takes users to the iPad home screen, is covered so shoppers can only use the app running on the screen, called iPad Kiosk. The app, linked to a retailer’s information systems via Wi-Fi, can be customized to present any information a retailer selects. <InternetRetailer>

Hedgeye Retail’s Take:    With no moving parts and a relatively low cost, the growth of the Ipad in an enterprise setting is likely to continue.  Check out Square (https://squareup.com/)  which actually turns your Ipad into a cash register. 


Asia Fuels Sales Growth at Prada - Prada Group closed the year with a bang, with sales exceeding 2 billion euros, lifted by gains across all geographical markets. In the fiscal year ended Jan. 31, the Italian luxury house reported revenues of 2.04 billion euros, or $2.69 billion, up 31 percent compared with the year before. In particular, sales in Asia rose 48 percent. At the end of last month, Prada said that it planned to go ahead with an initial public offering on the Hong Kong Stock Exchange.  “These results confirm that the retail network expansion is a winning strategy and exceeding the threshold of 2 billion [euros in] revenues is a target which now allows us to set further challenging goals,” said Patrizio Bertelli, chief executive officer of the company.  <WWD>

Hedgeye Retail’s Take: With less than 18 stores domestically and the company’s plans for an IPO forthcoming, expect to see considerable store expansion domestically this year.


E-Commerce up in 2010 - Total U.S. e-commerce spending reached $227.6 billion in 2010, up 9% versus the previous year, according to the comScore 2010 U.S. Digital Year in Review report released this week. Travel e-commerce spending grew 6% to $85.2 billion, while retail (non-travel) e-commerce spending jumped 10% to $142.5 billion for the year. The annual report recaps key trends in the U.S. digital media landscape, including e-commerce, social networking, online video, search, online advertising and mobile, with an emphasis on how digital marketers can capitalize on these trends in 2011. “2010 was a very positive year for the digital media industry, highlighted by a strong rebound in e-commerce spending , significant innovation and increased demand for online advertising, and an explosion in digital content consumption across multiple platforms,” said comScore chairman Gian Fulgoni. <SportsOneSource>

Hedgeye Retail’s Take: e-commerce outperformance is not new news, but the category is likely to be off to a solid start again early here in 2011 with consumers intermittently housebound in January. At this point, the callout is those companies not participating – HIBB is one of the few retailers that comes to mind that still lack a platform.




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

  • CMG reported strong results for 4Q with comps coming in at 12.6% versus the street at 10.3% and EPS at $1.47 for the quarter versus expectations of $1.30.  Margin volatility and little pricing power means that I have a bearish view on CMG.  The sell-side is cutting ratings this morning, but I see $6.00 in earnings in 2011 and I think 25x is a fair multiple. See my note from this morning.  The stock traded up after hours but has come back down.
  • CAKE reported EPS at $0.36 for the fourth quarter versus expectations at $0.35.  This beat was largely due to a favorable tax rate and the outlook is highly uncertain given the company’s un-hedged exposure to dairy, cheese, and fresh fish.  EPS guidance was reiterated but food costs have risen by $0.05 since initial guidance.  See my post from earlier this morning for more details.
  • PNRA reported earnings at $1.21 versus the Street at $1.18 and raised its 2011 EPS forecast to $4.40-$4.45 versus the Street at $4.35.  The company sees 1Q EPS at $1.06-$1.08 versus consensus at $0.99.  This morning, price targets and ratings are being revised upward.
  • BJRI reported earnings in line with expectations.
  • KONA reported earnings for 4Q after the close.  Same-store sales came in at 6.4% and the company reported a loss-per-share of $0.05.  The company guided to a loss of -$0.04 to -$0.10 per share for 1Q11. 
  • CPKI also reported earnings, printing revenue numbers in line with the Street and beating on the bottom line with EPS at $0.17 versus the $0.10 Street estimate.  Guidance for 1Q was given at $0.03-$0.05 versus the Street at $0.11.
  • In terms of price action, another low-volume day for restaurant stocks.  DIN and KONA gained on strong volume.
  • BWLD and CHUX declined on strong volume, as did CAKE.
  • JACK, SBUX, and YUM traded well on a relative basis, both gaining 50 basis points on good volume. 
  • On its earnings call for 4Q earnings, Kraft said that earnings will fall at least $0.04 if the company loses Starbucks’ business.




Howard Penney

Managing Director


The Macau Metro Monitor, February 11, 2011


Melco Crown has filed a lawsuit against a Vancouver player who has not paid a gambling debt of HK$3.5 MM.  The documents, prepared by Vancouver law firm Blake, Cassels & Graydon LLP, say the player has been “unjustly enriched” and should repay his debt in full, with interest.



According to LUSA, the government has sent a letter to SJM asking for clarification regarding Ho's share transfer.  According to sources, the  government will do nothing until the situation becomes clear and the dispute within Stanley Ho’s family is solved.


Sands China said The Venetian Macao, Sands Macao and the Plaza Macao received more than one million visitors in the first seven days of the new Chinese Year.

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.


The bears will cite lucky play for the monster quarter. Adjusting our Street high estimates for normal hold still leaves a big beat.



Despite ever rising estimates, Wynn handily beat consensus and our Street high estimate.  Don’t even try to attribute the strength to favorable luck.  I’m talking to you bears and shorts (4.75% of float).  Yes, Wynn’s hold percentage was high in Macau.  However, only the high Mass hold should’ve been a surprise to anyone. The high VIP hold was well known and should’ve been in the projections.  It certainly was in our model.


So relative to our estimate, Mass hold was around 5% higher than normal.  Normalizing that would’ve decreased EBITDA by $15 million.  Wynn's Macau's EBITDA came in $34 million above our estimate in Macau - and we were handily ahead of the Street.  That amounts to a great quarter in Macau.  Overall, we were 11% ahead of the street for company-wide EBITDA.  Expectations have certainly risen – we were 20% higher when we put out our preview a month ago– but the quarter was even better than we thought.  Apparently, Hong Kong investors agree as 1128.HK was up 3% overnight vs. the average Macau gaming stock down almost 4%.


Beyond the quarter, there were a few interesting takeaways.  Wynn is obviously holding low in Q1 which isn’t a surprise given the low market share.  Volumes are strong and should get stronger as the property added yet another junket this quarter with two more coming on in Q2.  More intriguing was Wynn’s reference to development on which he wouldn’t comment specifically other than to say he would consider US development.  Corporate expense was up $6MM sequentially which wasn’t related to the design of Cotai.  Hmmm.



WYNN Macau

  • Reported revenues of $912MM beat our estimate by 3% or $27MM and EBITDA of $297MMM beat our projections by $34MM or 13%
  • Casino revenues were $21MM higher while net non-gaming revenues were $6MM better
  • VIP gross revenues were $4.5MM better but net revenues were $17MM above our estimate due to lower than estimated rebate rate of 89bps (28.4% of hold) vs. our estimate of 93 bps or 30% of hold.
    • Direct play as a % of total RC volume was 11% or $3.1BN
    • Direct play grew 54% YoY while Junket RC grew 65% YoY
    • The rebate rate of 89bps was the same as 3Q10, despite hold being 27bps higher
    • If hold was 2.85%, revenues would have been $83MM lower and EBITDA would have been $16MM lower
    • We knew that VIP hold was high and our model reflected that
  • Mass table revenues came in $2.4MM above our estimate
    • While the reported number was very close to our estimate, mass drop grew 18% less than our estimate but hold was a lot higher
    • Assuming mass hold was equal to the 7 quarters trailing average of 22.4%, revenues would have been negatively impacted by $24MM and EBITDA would have been $14MM lower
  • Slot revenues were $1MM higher than our estimate
    • Hold was 0.2% better but handle was $23MM lower
  • It appears that fixed expenses were $20MM below our estimate or $90MM, down from $102MM last quarter but up 15% YoY

WYNN Las Vegas

  • Net revenues of $325MM came in $2.4MM below our estimate while EBITDA of $68MM was $2.6MM below our estimate
  • RevPAR was $5 higher than we estimate – with occupancy 3% lower while ADR was $15 higher
  • Promotional spending as a % of casino revenue declined to 32% compared to 36.5% in 4Q09.  In 2010 promotional spend as a % of casino declined 360bps.
  • 27 tables and 79 slot machines were removed from active service in the quarter, sequentially
  • Table drop only increased 3% vs. our estimate of 7% but hold was 1.5% higher than our estimate
  • Using the trailing 7 quarter average table hold of 21.6%, revenues would have been $5MM lower
  • Slot win was $1MM below our estimate due to a 5.9% decline in slot handle vs. our estimate of a 3% decline

CHART OF THE DAY: The Global Bond Market



CHART OF THE DAY: The Global Bond Market -  chart

The Rookie Trader

Lorri: “So how does it feel to be the oldest rookie in the last 30 years?”
Jimmy: “I don't know... I'm tired.”

-Rachel Griffiths and Dennis Quaid in The Rookie


Alongside “Invincible” (starring Mark Wahlberg and Greg Kinnear in 2006), “The Rookie” (Dennis Quaid and Rachel Griffiths in 2002) is one of my favorite ‘true story’ Disney movies of the last decade.


I’m an athlete, so these are my confirmation biases. I get it. And I’m proud of it. While trading markets may not be a full contact sport, there’s definitely a score and the non-athletes in the game are some of the most competitive people I have ever played with and/or against.


There are plenty of Rookie Trader mistakes that people make in this business. I am certain that I have made all of them, multiple times. Most of the time, that’s the only way a risk manager can mature in this business – by learning with live ammo.


Currently, we have a Rookie Trader learning on the job as he trades America’s balance sheet. Like Jimmy Morris did, he has some of the credentials to play in the Big Leagues. He’s one of the oldest rookies we’ve put in the game. And, if you didn’t notice, on Wednesday in front of Congress, he looks tired.


Tired and old is hardly a bad thing. I’ll still put the original Thunder Bay Bear (my Dad) up against any young buck who wants to try to hold up a retaining wall (we might just have to jack him up with some coffee first!). But tired, old, and inexperienced is not the kind of trader I want at the helm of my firm or family’s future.


Every week the Federal Reserve issues its version of transparency and shows us both the size and components of the Fed’s balance sheet. In the last 2 weeks, this is what Ben Bernanke has been doing – buying bonds, aggressively:

  1. February 3rd – Fed balance sheet assets expanded +$25.9 BILLION week-over-week to $2.47 TRILLION
  2. February 10th – Fed balance sheet assets expanded $31.3 BILLION week-over-week to $2.50 TRILLION

Yes, I am capitalizing the B’s and T’s so that you can hear me now…


Over the same 2-week period, this is what the US Treasury Bond market was doing:

  1. Week of January 31st – 2-year UST yields were up +37% (week-over-week!) to 0.74% and 10-year UST yields were up +10% w/w to 3.64%
  2. Week of February 7th – 2-year UST yields are up another +10% this week to 0.81% this morning and 10s are up +5% w/w to 3.66%

So… what does this mean? drum-roll … The Rookie Trader at the helm of the US Federal Reserve is committing one of the cardinal sins of risk management – he’s getting bigger and more aggressive on the way down!


Again, remember that The Ber-nank’s promise of perpetually low interest rates and that the Quantitative Guessing II (QG2) is the elixir of Big Government Intervention life has A) never been tried before, B) no risk management scenarios in the case that the trade goes against him, and C) no one to tap him on the shoulder and stop him from trading.


When I was given my first book to trade in 2002 (at our hedge fund we called it a “carve-out”), I had 2 bosses and an entire trading desk overseeing everything I did. Stop losses, shoulder taps, personal embarrassment – there were plenty of governors managing my mellon. But this guy has none.


No real-time accountability. No modern day risk management system to stop him out. Nothing.


And this he’s betting with $25-31 BILLION DOLLARS a week!


To put those Burning Bucks in context for you… and yes I realize our entire culture and country is numb to what a US Dollar is worth anymore… pressing a one-way bet with $30 BILLION Dollars a week would be the equivalent of 3 Steve Cohens taking all of their capital and having them all buy the same security, at the same time, with no hedges and no other positions…


Welcome to Centrally Planned America 2.0. with the Rookie Trader starring as your Almighty Central Planner.


In other news this morning, as US interest rates continue to push higher (2-year yields are now up +166% since Bernanke made his QG2 promises of “low interest rates and price stability” at Jackson Hole), I see nothing but price volatility.


1.  Pepsi (PEP) – a $100 BILLION snack and beverage company cut its EPS targets for 2011, and the stock hit a fresh 3 month low on big volume. Management cited soaring commodity costs and uncertainty about when the said US economic recovery will actually be felt by consumers.


2.  Bunge (BG) – a $10 BILLION agribusiness and food service company said it would no longer issue earnings guidance because volatility in the commodity markets have made forecasting increasingly difficult.


3.  Bolivia – a country with 11 million people saw its President, Evo Morales, pull himself from all public appearances as food riots have erupted across the country and Bolivian miners, who are evidently upset, are starting to throw sticks of dynamite at government people.


I know, who cares about Egypt, India, and Bolivia? The Rookie Trader says US Monetary Policy gone bad has nothing to do with what’s happening anywhere in the world, including his home team’s bond market.


My immediate term support and resistance levels for the SP500 are now 1311 and 1334, respectively.


Best of luck out there today and have a great weekend,



Keith R. McCullough
Chief Executive Officer


The Rookie Trader - do1


The Rookie Trader - do2

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.