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Looking at recent short interest moves in the restaurant space, it is interesting to note the increase in casual dining short interest versus quick service.  Both have seen increases in this metric, but casual dining continues to be the primary target. 

  • BWLD and EAT saw significant gains in their short interest levels over the past two weeks. 
  • PFCB short interest had been ticking down but the last two readings have shown that investors are continuing to short the stock, even with the short interest at elevated levels.
  • CMG saw an uptick in short interest as inflation concerns impact sentiment around the name.
  • GMCR saw a downtick in short interest over the past two weeks in reported data terms (settlement date 2/15) but I would submit that the recent decline in the share price (-5.65% since 2/15) suggests that sentiment around the name may be changing.
  • PEET short interest was driven higher as the continuing gains in coffee costs got the attention of the investor community.

SHORT INTEREST UPDATE - rest short interest


Howard Penney

Managing Director

Risk Monitor: European Bank Swaps Widen

Position: Long Germany (EWG); short Emerging Market (ESR)


Below we include a portion of a product offering from our Financials’ team, the Weekly Risk Monitor for Financials that tracks CDS across global banks. The table below covers major banks throughout Europe and the trend week-over-week was mostly wider, tightening for 15 of the 39 reference entities and widening for 24, particularly for Greek banks.


Risk Monitor: European Bank Swaps Widen - top1 

Risk Monitor: European Bank Swaps Widen - top2


The European credit markets continue to be an important indicator of risk for us. As the chart of 10YR government bond yields below presents (and in sharp contrast to the continued outperformance of the equity market of the PIIGS year-to-date) yields continue to trend higher, a reflection of the risk premium to own the debt and deficit imbalances of these nations.


Risk Monitor: European Bank Swaps Widen - top3


In the Hedgeye Virtual Portfolio we sold our long position in Sweden (EWD) today with the country immediate-term overbought. We’ll buy back the position on the next pullback. We continue to like the country’s growth profile; proactive rate adjustments to manage inflation (particularly housing related); and believe that the SEK will appreciate alongside rate hikes and as a safe haven versus the uncertainty with the EUR and USD.


We covered our EUR-USD position via the etf FXE on 2/25 with the ECB continuing to signal a more hawkish stance on inflation. We see the EUR-USD overbought for a TRADE (3 weeks or less) at $1.38 with support at $1.36.


We shorted more Emerging Market exposure today via the etf ESR as inflation crushes consumption's growth.


To keep on the calendar:

  • Wednesday (3/3) the EU announces methodology for its second round of bank stress tests
  • Thursday (3/4) the ECB announces its Refi rate decision

Matthew Hedrick

R3: JCP, GOOG, UA, Jimmy Choo


February 28, 2010






  • JCP noted that the company’s collaboration with MANGO is off to good start in locations where the brand is well known by international visitors.  However, they also noted that they are working with MANGO to tweak some of the offerings to help those customers who are not familiar with the offering/price points in an effort to boost familiarity with the brand.  In other words, better performance on the coasts and not so great everywhere else.
  • Keep an eye on the Cosmos, the New York Cosmos that is.  Efforts are underway to revive the legendary NY soccer club that was once the team of Pele.  Interestingly, the brand revitalization (in a very retro way) is in full swing with a collaboration between the team and Umbro recently releasing a 1977 inspired “kit”.  However, the team itself, let alone a stadium to play in, has yet to be determined for the proposed 2013 inaugural season.   This may be one of the more interesting branding experiments we’ve seen in a long time, especially since there’s actually a uniform for a team that does not exist.
  • According to the US Census, total US e-commerce sales were $165.4 billion in 2010, representing a robust increase of 14.8% over 2009.  As a percentage of total retail sales, 2010 put e-commerce at 4.2% up 30 bps from the prior year.  Interestingly, this data suggests an even stronger growth rate than reported by “online” outlets including comScore which suggest total sales increased by 10% for last year.
  • With substantial focus on Under Armour’s endorsement activity of late, it appears the company may have secured another rising talent with the signing of wide receiver Julio Jones last week. Surprising many with his performance at the NFL combine this past weekend, Jones is quickly becoming the talk of the draft and will provide UA with a new face for its fall marketing campaigns.



TowerBrook set for Jimmy Choo sale - The £400m-£500m sale of Jimmy Choo is poised to kick off next week, with information memoranda circulated to more than 10 potential bidders for the luxury shoemaker.  TowerBrook Capital, the private equity group that bought it for £180m four years ago, is exploring strategic options for the business. TowerBrook has not ruled out other options for Jimmy Choo – known for selling stilettos to the stars under the guidance of Tamara Mellon – such as an initial public offering. But a sale is looking increasingly likely. <FinancialTimes>

Hedgeye Retail’s Take:   With much of the press over the past several months centered on a potential IPO (as well as growth initiatives including the company’s men’s launch), a private equity transaction would certainly be a surprise. 


Judith Leiber’s New Line - Judith Leiber is extending its reach beyond Ladies Who Lunch to encompass girls who party, with the launch of Overture by Judith Leiber. The 15-piece line, produced with licensee Accessory Network Group, will be sold in luxury department stores and Judith Leiber boutiques beginning in the fall, and will be priced between $200 and $700. Overture handbags come in jewel tones like violet and blue, as well as a heavy dose of metallics and leopard print. Though manufactured in a different part of the world than Judith Leiber bags (China, as opposed to Italy) the accessibly priced collection displays an unmistakable Leiber thumbprint. Geometric minaudieres are plentiful and encrusted with crystals, studs and agate geometric designs, and come with cross-body straps, while larger suede day bags are accented with delicate studs. <WWD>

Hedgeye Retail’s Take:   In the luxury world of Judith Leiber, this launch represents a major move towards the “mainstream” with price points for the new line being positioned in the triple digits.  Leiber’s traditional price points hover in the thousands, not hundreds.


Chrome Hearts Acquires Eyewear Licensee - Chrome Hearts LLC has acquired Optical Shop International, its decade-long eyewear licensee.  Financial terms of the deal, which closes today, weren’t disclosed. During its 10 years as a licensee, OSI expanded Chrome Hearts’ distribution to nearly 60 countries. Chrome Hearts, which won a CFDA accessory designer of the year award in 1992, will “consolidate oversight in all of its key product categories,” allowing for “more cohesion from a design perspective,” said Chrome Hearts co-owner Laurie Stark.  <WWD>

Hedgeye Retail’s Take:  Expect to see the gothic, rock luxury brand step up its efforts in eyewear now that the brand is complete control over its distribution.


How Will Retailers fare with Google’s New Search Algorithm -  A change this week to Google’s formula for determining search rankings serves as a reminder to online retailers about the importance of including original content on their e-commerce sites. Google doesn’t normally announce tweaks to its search ranking algorithm, and though this change merited a Google blog posting Thursday evening, the details are typically vague. But Google says the changes will affect nearly 12% of searches, and will push sites that the search engine considers higher quality closer to the top of search results. “This update is designed to reduce rankings for low-quality sites—sites which are low value-add for users, copy content from other web sites or are just not very useful,” according to the blog posting from Amit Singhal, Google fellow, and Matt Cutts, a Google principal engineer.   <InternetRetailer>

Hedgeye Retail’s Take:  Sounds like the front page expose of JC Penney’s sketchy search engine optimization tactics have helped to push Google towards making it’s a search environment a more “fair” place.


Strong Demand at CurveNY - The mood was hopeful at the CurveNY trade show at the Jacob K. Javits Convention Center in New York despite worries over skyrocketing costs for raw materials and labor. A demand for fashion merchandise underscored a growing sense of optimism at the three-day fair which closed Wednesday and was bustling with retailers — even the last day when traffic is traditionally sparse. Retailers left orders for immediate deliveries as well as gift-giving items for Mother’s Day. At the same time, volatile market prices for raw materials as well as production and labor costs accelerated commitments for fall-winter 2011-2012 goods.  <WWD>

Hedgeye Retail’s Take: Accelerated commitments is the call out here – a trend we expect to be confirmed with greater frequency over the coming weeks/months. The offset here is the likelihood that some branded manufacturers are likely to maintain an optimistic bent to full-year guidance through the 1H with the 2H setting up for greater volatility if enhanced order activity proves unsustainable.


Sichuan, China Sets the 12th Five-year Program for Footwear Companies - The footwear sector in Sichuan, China has been discussing the content of the forthcoming 12th five-year programme, with an aim to create CNY10 billion of output value and job opportunities of one million people by 2015, reported the China Leather Industry Association.  The programme has been drafted by the Western Shoe Capital Industrial Park and Economics Institute in Sichuan Academy of Social Sciences and comments are being collected.  Before publication, the document will be submitted to the Provincial Economic Commission for verification.  <FashionNetAsia>

Hedgeye Retail’s Take: With the shift of footwear manufacturing towards other Southeast Asian countries underway, Chinese manufacturers will likely target increasing foreign brand interest in ramping sales in the country – particularly athletic brands with an eye on capturing share.


India Ducks the Retail Issue - In the run up to India’s budget, expectations were running high that New Delhi would finally bite the bullet on a crucial item of its unfinished reform agenda: opening the “multi-brand retail sector” – commonly known as grocery stores – to foreign participation. But New Delhi still lacks the spine to take such a decision, despite a growing consensus among policy-makers that strengthening organised retail could be an important tool in battling the persistent food price inflation now seen as one of India’s biggest economic challenges. <FinancialTimes>

Hedgeye Retail’s Take: Clearly not for lack of interest from domestic and other global retailers, it appears that New Delhi is simply delaying the inevitable. However, with food inflation taking hold on the country’s population, it may see increasing pressure from within to open up to multi-brand retailing.


Early Look

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February will finish at a new monthly record.



It looks like February Macau gaming revenues are going to exceed our recently raised estimate of HK$18.5-19.0 billion.  Last week, daily table revenues surprisingly stayed above the HK$600 million per day level.  Not much of a post CNY slowdown here.  Through the 27th, table revenues were HK$18.2 billion.  With a full month of slot revenue and 1 more day of table revenue added, total Macau gaming revenues should come in around HK$19.5 billion, a monthly record despite the shortened month. 


We think the market benefitted primarily from higher volumes, not luck.  Our sources indicate that Mass volumes were also very strong,  which is a huge positive for profitability.  February’s performance is outstanding, particularly considering the slow, pre-CNY start to the month.  The only risk we see now is if Beijing were to apply the brakes but no indication of that yet.


Market shares are shown in the table below.  The only items of note are LVS picking up some share from SJM and MPEL’s share staying elevated and likely above Street projections.




In preparation for the BYD Q4 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from BYD’s Q3 earnings call.



  • “We’re pleased to report that the positive trends we’ve experienced in the third quarter are continuing into October. Given these trends, we expect our fourth-quarter comparisons will be the best of the year.”
  • “So beyond the broader economic recovery, it appears as though Las Vegas is finally beginning its own recovery.”
  • “Improvements in our Las Vegas Locals business is more about increased spend per visit than it is about increased visitation, and increases in spend per visit, or consumer spending, is more about consumer confidence than it is about job growth or housing statistics.”
  • “We firmly believe that increases in consumer confidence can and will have an impact on our business long before the metrics in the housing and employment show significant improvement.”
  • [LV Locals] These trends are improving, and we have started the fourth quarter on a strong note by posting positive comparisons so far in the month of October—[both EBITDA and revenues]
    • “We’re comparing it to October of 2009, so obviously, higher revenue will be generated by higher spend per visit. I don’t know that we’re creating a lot of new customers today, but we certainly have seen customers come back that have been sitting on the sidelines given their own personal economic conditions; so there’s certainly benefit from the lower tier and unrateds as well.”
  • “We expect the fourth quarter interest expense for Borgata, including debt amortization fees associated with the new financing, to be approximately $22 million.”
  • “Our effective tax rate for the quarter was 30%. This rate is lower than last year due to the consolidation of Borgata into our results. We expect the tax rate to be approximately the same for the fourth quarter of this year.”
  • [Capex spending] I would say that the numbers that we had for 2010 are probably good ones to use for 2011”
  • [Revel competition] “Look, in the Atlantic City marketplace right now, there is plenty of capacity and so that any additional capacity will just create additional competition that I think is not needed. So we’d certainly like to see the competitive landscape kind of stay as is and not see additional capacity added to the marketplace.”
  • [Borgata] “We haven’t changed our credit policies. We’ve been always very disciplined around that. We haven’t changed anything really in terms of how – other than our kind of our own normal business practices in terms of promoting. I think the market itself in Atlantic City has gotten more promotional around some of the credit policies and some of the play, but Borgata has largely not participated in that. [Room remodel] probably will occur sometime during calendar ‘11.
  • “When we get into the fourth quarter and then the first quarter, the first being the highest volume quarter of a calendar year, I think you’ll see improvements. As far as direction on marketing, I would say that we’re obviously not going to sit back and ignore what’s going on in the town. I think we want to pay strong attention to and continue to establish customer loyalty that we have, and you’ll see us be as aggressive as we need to be to compete in a very competitive market.”
  • Q: When Pinnacle opens up their site in Baton Rouge, is there a sense of how many customers are coming from that region that you think you would be competing against Pinnacle with?
    • A: Next to none.
  • “I think relative to labor [no increase in expenses], you’re absolutely correct. I mean, obviously, it will impact nominally marketing expense, because as people play more, they earn more, as our programs go. But we are very focused on flow through to the EBITDA line as we see spend-per visit move up.”

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