CNBC VIDEO: Investing Post Japan Earthquake


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

  • MRT said this morning that it may sell the company as part of an effort to enhance shareholder value.  The two largest shareholders of the company, affiliates of Castle Harlan, Inc., and Laurel Crown Partners LLC, authorized the move.
  • PEET shares gained post-market on a story from DealReporter stating that the company has seen takeover interest including from SBUX.  As we wrote in our 2/15 note, “PEET – WHY SBUX SHOULD BUY PEET”, we believe such a transaction would make sense for Starbucks.
  • SBUX said 100 stores in Japan were closed
  • CPKI was raised to Buy from Neutral at Buckingham Research.
  • CPKI gained 4.5% on accelerating volume.
  • CBRL was raised to Buy from Hold at Standpoint Research.
  • CBRL gained 1.2% yesterday, also on accelerating volume.
  • JACK, THI, and KKD all declined on accelerating volume.




Howard Penney

Managing Director

CHART OF THE DAY: The Keynesian Endgame



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Business as usual




  • Gaming revenue for 2010 grew by 67.9% to HK$57.2BN and Adjusted EBITDA grew 113.2% to HK$4.8BN
    • VIP gaming operations revenue: HK$38.9BN
    • Mass table revenue: HK$17.2BN
    • Slot revenue: HK$1.2BN
  • Grand Lisboa Adjusted EBITDA was HK$2.6BN in 2010; and had an Adjusted EBITDA margin of 16.4% based on HK GAAP or 26.4% based on US GAAP calculations
  • "Casino Grand Lisboa’s daily net-win per mass market gaming table increased by 23.5%, net win per VIP table increased by 7.8% and net-win per slot machine increased by 12.2%."
  • "New VIP gaming areas opened on the 38th and 39th floors of the Grand Lisboa in September 2010 and the new Grand Lotus gaming area for premium mass market customers opened in February 2011."
  • 4Q2010 gaming revenue grew 19.3% sequentially
  • "SJM continued to lead in market share of the Macau casino gaming market, with 40.1% of mass market table gaming revenue and 29.5% of VIP gaming revenue, and increased its overall market share to 31.3% from 29.4% in 2009"
  • Cash and equivalents at YE were HK$15.3BN
  • The Board recommended the payment of a final dividend of HK30 cents per ordinary share. If approved, the dividend is expected to be paid on May 18, 2011 to the shareholders of the Company whose names appear on the register of members of the Company on 29 April 2011


  • Especially pleased that they exceeded that of the Macau market in 2010
  • New casino Oceanus has ramped up nicely and new third party model is working well
  • 2011 has started off strongly. Launched new floors at Grand Lisboa
  • Cotai: Currently awaiting the formalization of their license.  They plan on building an integrated resort that will include a state of the art Mass Casino and non gaming facilities
  • Ho family dispute: reiterated that there will be no impact on SJM holdings and no change in management


  • Will there be any change in the Board of Director?
    • No - the number of board members will stay the same
  • Cotai timeline? Land grant must be given first. Once that is approved then the final engineering drawing get done. Traditionally the government lets the market decide who gets to develop first depending on each concessionaire's ability to get financing.  Won't start building until they have an understanding on where the table cap will go in 2 years from now
  • Cost of the project?  There is a shortage of unskilled labor which has caused the minimum wage to rise.  On the technical side - there is also some pressure.  There hasn't been as much pressure on the gaming employee side.  They do have a 5% salary inflation pay raise in place to retain good people.
  • Is 4Q2010 EBITDA a good run rate for 2011 EBITDA?
    • There are no one time items in the 4Q... EBITDA was just a hair above 3Q EBITDA.  So yes its a good base
  • Oceanus: began the year with 269 tables, today its running with a 172 tables and 27 tables at the Jai Lai.  They are doing about 2.5x per table of what they were doing - part of that is due to trimming tables.
    • There are a lot of shared costs between Grand Lisbao and Oceanus which is why they don't break out EBITDA between the properties
  • The premium Mass has been very strong for the first 2 months of 2011 at the Grand Lisboa in 2011 but the hold rate has been very soft as well in VIP.
  • Cotai - they would not raise cash from new stock issuances or convert sales.  They do have over HK$15BN of cash on hand which would take a while to draw down
  • Why was the 4Q EBITDA margin down? There was a greater mix of VIP than Mass. High 3%-4% range is a good range for margin
  • There has been a lot of work and some construction disruption at the Lisboa
  • Don't anticipate that the opening of the Galaxy World will have a large impact on their market share. They are going to be doing a pre-emptive campaign in advance of the Galaxy opening.
  • Are they hitting capacity constraints at Grand Lisboa?
    • During the big holiday periods they are capacity constrained on the main gaming floor but have managed to migrate a lot of that traffic to the second floor.
    • If they add tables they need to remove tables from other properties
  • Any impact from the Japan earthquake?
    • they have very few Japanese players at their casinos


TODAY’S S&P 500 SET-UP - March 16, 2011


The Hedgeye models have all 9 sectors broken from an immediate-term TRADE perspective.  The last time the the models signaled this was in May of 2010. As we look at today’s set up for the S&P 500, the range is 36 points or -0.69% downside to 1273 and 2.12% upside to 1309.



  • MBA mortgage applications index fell 0.7% week ended March 11; purchases down 4%, refis gain 0.9%
  • 8:30 a.m.: Housing starts, est. 566k, prior 596k
  • 8:30 a.m.: Building permits, est. 570k, prior 562k
  • 8:30 a.m.: Producer price index, est. 0.7%, prior 0.8%
  • 8:30 a.m.: Current account balance, est. (-$110b), prior (-$127.2b)
  • 2 p.m.: Geithner talks to House subcommittee on budget


  • Netflix is said to be looking at original programming
  • Portugal’s sovereign credit rating cut two steps to A3
  • GE’s target of broadening its $1 billion nuclear service- and-parts business may be under threat after Japanese turmoil
  • Japanese carmakers start to reopen factories.


As of the close yesterday we have 0 of 9 sectors positive on TRADE and 6 of 9 sectors positive on TREND.  Utilities, Materials and Technology are broken on both TRADE and TREND. 

  • One day: Dow (1.15%), S&P (1.12%), Nasdaq (1.25%), Russell 2000 (0.86%)
  • Month-to-date: Dow (3.03%), S&P (3.42%), Nasdaq (4.13%), Russell (3.90%)
  • Quarter/Year-to-date: Dow +2.40%, S&P +1.93%, Nasdaq +0.55%, Russell +0.98%
  • Sector Performance: - Utilities (1.90%), Tech (1.48%), Financials (1.16%), Healthcare (1.17%), Industrials (0.94%), Consumer Spls (0.88%), Consumer Disc (0.83%), Energy (0.75%), Materials (0.0%)


  • ADVANCE/DECLINE LINE: -1742 (-638)  
  • VOLUME: NYSE 1288.05 (+33.64%)
  • VIX:  24.32 +13.10% YTD PERFORMANCE: +37.01%
  • SPX PUT/CALL RATIO: 1.69 from 1.80 (-6.07%)


Yesterday, treasuries were mostly higher on flight-to-quality buying.

  • TED SPREAD: 22.08 0.101 (0.461%)
  • 3-MONTH T-BILL YIELD: 0.08%
  • 10-Year: 3.33 from 3.36
  • YIELD CURVE: 2.70 from 2.75


  • CRB: 338.14 -3.56% YTD: +1.60%  
  • Oil: 97.18 -3.96%; YTD: +6.08% (trading +1.55% in the AM)
  • COPPER: 413.70 -1.18%; YTD: -4.76% (trading +2.26% in the AM)  
  • GOLD: 1,394.75 -2.15%; YTD: -1.37% (trading +0.28% in the AM)  


  • Commodities Advance, Snapping Four Days of Losses, as Oil Gains on Mideast
  • Rubber Rallies From Four-Month Low in Tokyo as Bridgestone Resumes Output
  • Copper Advances on Prospects for Japan Rebuilding After Quake: LME Preview
  • Sugar Rises on Reduced Concern Commodities Demand May Slow; Coffee Gains
  • Corn Importers in Japan Delaying Purchases After Quake, Unipac Grain Says
  • WHO Says No Evidence of Significant Radiation Spread from Japan Reactors
  • Cotton Advances by Limit as 6.8% Slide Over Past Two Days Attracts Buyers
  • Gold Rises on Decline to a One-Month Low, Concern About Bahrain and Japan
  • Oil Rises as Bahrain Violence Spurs Concern Middle East Supplies at Risk
  • Japan’s Rebuilding Process to Trigger Demand for Rubber, Budhraja Says
  • Hong Kong Moms Empty Shelves of Japanese Baby Formula Amid Nuclear Scare


  • EURO: 1.3977 +0.09% (trading -0.35% in the AM)
  • DOLLAR: 76.328 -0.03% (trading +0.27% in the AM) 


Europe is trading mixed today, with the exception of Eastern Europe.

European inflation accelerated to the fastest in more than two years in February

Moody's downgraded Portugal's long-term debt rating to A3 from A1

  • United Kingdom: -0.67%
  • Germany: -0.15%
  • France: -0.80%
  • Spain: -1.02
  • Italy: -0.70
  • Greece: +1.95%


Most Asian market traded higher. 

Vietnam was the standout to the downside trading down 1.1%.

  • Japan: +5.68%
  • Hang Seng: +0.10%
  • China: +1.19%
  • India: +1.05%
  • Taiwan: +1.09%

Howard Penney

Managing Director

Footwear Looking Good


There are a few datapoints out of the footwear space worth noting over the past 24 hrs. They generally point to continued health in the space, and give us added confidence in our call on Athletic Footwear overall, as well as on Collective Brands (PSS).


First off, NPD data shows that we’re ‘comping the comp’ with +5% growth this February versus +14% a year earlier. Average price point was up +1% for the second consecutive month. Not huge, but more often than not this metric tracks the Gross Margin trends in the space.


The Athletic Specialty space continues to outperform, which definitely synch with recent results out of Dick’s, Foot Locker, etc…  The Family Channel looks good as well, holding steady from recent months. The channel that disappointed was the department stores, which is not a big shocker, and does not concern us. Actually, any weakness in footwear in department stores will only add to the margin pressure we should see as it relates to our call on Apparel for a 4.5pt industrywide margin decline.


Some nuggets out of Brown Shoe (BWS) and DSW:


BWS: This company is pretty much a disaster. Let’s not mistake it as a proxy for PSS – or anything else for that matter. Its wholesale business did not look good, which doesn’t shock us. Famous came in at +4.9% and sequentially unchanged on a 2-year basis, and 1Q comp guidance looks beatable at +low-msd.


DSW: This one had a rather solid quarter, but its guidance suggests a 1,000bp erosion in 1Qcomps. Are they up against some wicked y/y compares? Yes. Do they plan on beating expectations? Yes. But you can’t go guiding to comps like this and expect to walk away squeaky clean.


One thing to note is that it was about a year ago where we saw a 5-6 point negative diversion in comps at PSS vs BWS, DSW, and SCVL. Yes, this also led to PSS getting completely clocked (a painful day for us, a vindicator for the perma-bears, and an opportunity for the opportunist to buy on the capitulation). The point is that we’re about to comp up against those quarters. This is at a point where PSS’ has a better sourced-ratio, and has more boots, toning footwear, and believe it or not, higher prices. We’re not making a bull call on Payless, as we simply like the stability of its cash flow to fund growth in other brands. But let’s not be ignorant or wishful. The stock is going to trade on outsized changes in performances at Payless.


Footwear Looking Good - FW Monthly Trends 3 11


Footwear Looking Good - MonthlyFW SalesByChanl 3 11


Footwear Looking Good - ShoeChain Comp Trends 3 11



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