JNY: Short on Sloppy Upgrade

Keith shorted JNY again in the Hedgeye portfolio today. I had three people ping me this morning on the rationale. Each of them had a similar message; “Don’t you think that the cat’s outta the bag?” Simply put, the answer is “No.”


JNY’s Guidance looks like the start of a game of Chinese water torture. Check this out…


“Our goal and the corresponding plans that we have put in place are focused on our achieving gross margins approximating last year. If the business climate deteriorates, we believe that full-year gross margins could decline by 50 to 100 basis points. Comparisons in the first half of the year are more difficult than the back half of the year. We faced near ideal conditions in the first half of 2010 and posted near record gross margin percentages. In 2011, we are facing distinctly different conditions regarding rising product costs and continued uncertain consumer spending as unemployment stays high and the cost of consumer staples continue to rise. Keeping all this in mind, we expect first-quarter gross margins will be down by approximately 200 to 250 basis points and second-quarter margins down about 150 basis points. As we get to the back half, it's much tougher to forecast, but as price increases have a more significant impact and we benefit from tighter controls of inventory, third-quarter margins could be flat to up slightly and fourth-quarter could be up sharply.”


So our interpretation of that is “Margins should be flat, with a hockey stick trajectory leading to a strong finish to the year. But if things erode further, margins could be down by 50-100bps off a record 2010.”


So did they say that “if the unknown occurs in 2H, it will cost us 50-100bps in margin.”


Why not 200bps? Why not 500?


The Street is at $1.37 for the year. We’re having a tough time getting over $1.10.


Brian P. McGough
Managing Director



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 (  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

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.


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.


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

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.