I guess we are not talking about explosive growth, but March was pretty strong and certainly improved sequentially.
Following up to our positive regional gaming note on 3/28/11, state gaming revenue releases have so far confirmed our positive assertions. Illinois, Indiana, Missouri, and Iowa are in and with the exception of the perpetual laggard Illinois, March was a strong month for regional gaming. Our two favorite names our PNK and ASCA and both are poised to beat Q1 estimates quite handily in our opinion.
We are making it a habit to look at sequential revenue adjusted for seasonality instead of just looking at YoY growth given the extreme volatility over the past few years. March 2011 was clearly a solid month on a YoY basis but more importantly was a step up sequentially.
The following charts show the recent trends of the mature regional gaming markets that have already released March gaming revenues. We show actual gaming revenues as well as what was predicted by our model for each month based on the previous 3 months, adjusted for historical seasonality. As can be seen, March was a much stronger month than the model prediction, indicating fairly significant sequential improvement in each of the markets presented.
I could raise serious concerns about the timing and synergy opportunities for Gildan/Gold Toe. But there are strategic benefits, and stocks don't go down when estimates go up. Net/net: It's a positive near-term.
Bull Case For The Deal
Bear Case for Gold Toe
1) The timing of the deal is very suspect, as noted in point #1 above. Examples where companies succeed in buying assets to shield organic revenue from slowing are few and far between.
2) The company has been shrinking. Steve Schwarzman (Blackstone) has been trying to unload this puppy since early 2010 when it was $350mm in sales. Now it is $280mm. This revenue loss was mostly on the private label side – much of which was unprofitable. But overall, we like sales streams that are going up, not down.
3) Schwarzman didn’t want it. Other financial buyers didn’t want it. No other strategic buyers wanted it.
4) Why not pre-announce 2Q results with this deal? C’mon… the quarter ended 12 days ago and the Street’s revenue estimate is for 25% top line growth compared to guidance of 15%.
5) It was pretty clear from management’s comments on the call that Gold Toe is just as wide-open to input costs as Gildan. They are relying on pricing to stick. It might very well stick, but I don’t want to bank on it.
6) Synergies are difficult to bank on.
GIL acquiring Gold Toe for $350mm – assuming no debt.
2010 revs $280mm
Highlights from the Call:
Will report Q2 May 11th
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Nike announced this morning that it is closing down the Denver NikeTown. This is a good thing. For those of you that have not been in a NikeTown, they’re massive flagship stores that do nothing but hemorrhage cash.
That’s probably not an entirely fair statement, as running SOME of these stores -- the ones that are strategically positioned in high-quality, high-traffic locations – help build brand awareness in a way that marketing dollars would otherwise be spent.
NikeTown Denver joins Costa Mesa and Honolulu as the mammoth stores closed over the past several years.
The good news is that this really leaves only one major money-loser – which is NikeTown Portland. Why such a money loser? It disproportionately relies on tourists, as locals are going to know at least someone who works at Nike who can get them gear at the employee store at half price. As it relates to tourists -- although Portland is a beautiful city, it is not a travel destination like New York, Las Vegas or London. But in the end, it’d probably be both embarrassing, and politically unpopular for the company to close down its presence in downtown Portland.
The positive impact here is less than a penny per share. So it really doesn’t move the needle. But it’s the kind of move Nike shareholders should want to see. Most importantly, it does NOT signify a shift away from retail, but rather a step toward profit.
Positions in Europe: Long British Pound (FXB); Short Spain (EWP)
If nothing else, the European discourse in recent weeks has proven out Keith’s Keynesian Endgame thesis – European leaders will continue to throw money and more favorable loan terms at member countries to prevent the failure of any one country, and therein preserve the structure that unifies unequal countries that share a common currency. This, along with the recent hawkish stance of the ECB and 25bps interest rate hike on April 7th, has been bullish for the EUR, currently pushing against $1.45 versus the USD.
With Portugal’s bailout imminent (in the neighborhood of €50-80 Billion), Greece’s fiscal issues are bubbling back to the surface. This weekend at a meeting of European finance ministers in Hungary, German finance minister Wolfgang Schaeuble re-stoked the fear trade by saying that Greece may need more capital and/or more favorable loan terms to return to fiscal health. The statement in and of itself comes as no great surprise – remember that Greece’s debt as a % of GDP is expected to ramp to 159% in 2012, and we’re of the camp that PM Papandreou and Co. will come well short of their target to reduce the country’s deficit from a high of 15.4% of GDP in 2009 to 3% by 2014 – yet the Greek equity index ATHEX was pounded down a full -2.6% on the news today.
This weekend’s meeting also opened up the prospect of a further restructuring of Greek government debt, with EU Economic and Monetary Commissioner Olli Rehn saying, “We have a solid plan. It is based on a very careful analysis of debt sustainability”. Translation: let’s fill up the trough. And this follows the already generous terms of the country’s €110 Billion bailout, which were amended last month to include repayment in 7.5 years instead of 3 and a cut to the interest rate of 100bps to around 3.5%.
Hedgeye’s weekly European Risk Monitor shows that Greek bank swaps (in particular) pushed higher after improving on the margin last week (see chart below). Sovereign CDS spreads show a near-term downward inflection in risk for Ireland and Portugal, while on the TREND Greece pushes higher as Spain and Italy wane (chart below).
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