As it turned out, IGT was more than just the safe play



"Our second quarter results reflect the advances we are making towards moving IGT to a position of greater financial strength.  We continue to demonstrate the leverage in our operating model with strong performance in profit margins.  Although we remain in a challenging environment, the near and long-term outlooks for the Company are improving and we look forward to reporting our progress in coming quarters."

- Patti Hart, President and CEO of IGT




  • Revenues: $492MM and EPS of $0.23
  • Guidance raise:
    • $0.84-$0.90 (excluding the 4 cents favorable impact from certain adjustments)
  • Games Ops:
    • Revenue per unit: $53.62; $3.24 increase sequentially and $2.66 increase YoY
    • Install base: 57,100; 400 sequential increase
    • "Improvement in per unit yields offset a lower installed base compared to the prior year, down largely due to removals from Alabama charitable bingo facilities and conversions of leased games to for-sale units in Mexico."
  • Product Sales:
    • 10,200 recognized unit sales
      • NA: 5.7k; International: 4.5k
    • 10,000 units shipped
      • NA: 5.3k (1.5k new and 3.8k replacement) ; International: 4.7k (2.3k new; 2.4k replacement)
    • ASP: $13.4k
    • "The Company recognized 10% more units in North America while International units were down 12% year over year."
    • "The increase in gross margin resulted from improvements to both the geographic and product sales mix combined with product cost efficiencies, such as lower obsolescence and rework costs."
  • "On April 18, 2011, IGT executed $250 million notional value interest rate swaps that terminate on June 15, 2019, which effectively exchange the remaining fixed interest payments on our 7.5% Bonds due 2019 for variable rate interest payments based on six-month LIBOR plus 409 basis points set in arrears with payments due on June 15 and Dec. 15 of each year"


  • Visibility remains limited and they continue to expect macroeconomic pressure in the second half. Expect that their current trends of modest growth to continue for the balance of the year and into next year
  • Feel very optimistic about their international prospects
  • Had a higher mix of mega-jackpot games in the quarter
  • Game ops yields should continue their moderate improvement assuming normal seasonal trends continue
  • 82% of their games are variable fee in game ops
  • NA ASP increases are reflective of the competitive environment
  • Expect ASPs to rebound modestly from this quarter's levels but for margins to remain under pressure for the rest of the year, mostly due to mix
  • SG&A increased due to i-gaming initiatives and higher incentive comp. Expect SG&A to increase modestly for the remainder of the year.
  • New $750MM facility replaced their existing facility providing a lower borrowing rate and extended term. Their interest expense will be $13.5MM annually as a result.  The swap will save another $7MM of interest expense.
  • Their new facility will allow them to:
    • invest in their interactive space
    • enhance their international game distribution
    • enhance their content offering
  • 500 Centerstage games on order
  • Have over 33% of their install base on their new G33 platform
  • Expect their international unit sales to keep pace with their NA sales for the balance of the year. Expect game ops placements internationally to remain strong.
  • Still see a big opportunity in i-gaming internationally
  • Game operations G33 box is allowing them to deploy games in just a few hours at a lower cost to them. Placements of G33 boxes increased 16% to date and they have 3,000 more boxes in order
  • Centerstage is performing well. Sex in the City is performing well. Dark Knight, Hangover, Ghost busters all scheduled to be released soon.
  • Overall coin-in was down 4% YoY but up 15% on a per machine basis
  • They are still very much in a promotional environment for replacement units.  To help offset these promotions, they have continued to reduce their production costs but simplified their products and processes.
  • Increases in their IP revenue also contributed to their margins this quarters
  • Systems revenues have grown in the high single digit range YTD.


  • WAP mix in their install base?
    • Have seen their WAP base stabilize and improve recently
    • New content is the biggest drive to the improvement but the return to normal seasonal trends is helping
  • Gun Lake was the most notable new shipment
  • Margins in product sales will be around 52% domestically for the remainder of the year
  • Working to keep their R&D expenditures flat. Redeployed their systems workforce to China earlier this year which is helping them keep costs down.
  • Any changes in NA pricing throughout the quarter?
    • ASPs that they experienced were a combination of mix and promotional activities.  MLD was only 37% of their mix.  There were 1500 units that slipped from lease ops to for sale at very low ASPs (Mexico). Hence they expect a pick up in ASPs for the balance of the year.
    • They are seeing some of their competitors price aggressively, but feel like their promotional activity is reasonable
  • Their spending on i-gaming internationally isn't a big portion of their spend. Going forward, they will link their spend on i-gaming with the growth in the revenue from that business. They will likely spend more on R&D next year.
  • Guidance raise is due more to margin expansion and cost control vs. revenue growth
  • They increased their resources in their China R&D center from their US center to reduce costs
  • Working on more localized theme product to grow share in Asia. Also making sure that their systems products are appropriate for that market. Expect their Asia group to gain share in 2012.
  • Going forward they will move more of their R&D dollars to online and applications
  • Don't think that there is that much elasticity to lowering prices
  • Expect MLD's as a % of sales to be up in the back half
  • Replacement sales? At the low end of their guidance, they assume that things remain flattish and at the high end that there is some modest pick up as well as some improvement in game ops.
  • Will focus on taking share on the slot side in Asia instead of focusing on electronic table games


MCD reported 1Q results this morning and, while the initial glance was encouraging, the upward revision in the firm’s FY11 commodity inflation outlook is weighing heavily on the stock.


MCD is an impressive organization that creates value for its shareholders, jobs for the economy, and serves billions of people globally.  I have been bearish on the stock since December and released a Black Book to that effect in January.  While March comps in the U.S. exceeded my expectations, as well at consensus, concerns about margin sustainability – concurrent with a likely slowdown in comparable restaurant sales growth – are coming to the forefront. 


MCD reported global comparable restaurant sales growth of 3.6% for 1Q11.  The March numbers showed strength in the U.S. with comps coming in at +3.0% versus consensus at 1.7%.  MCD took a 1% price increase in early March and will likely take more this year.  Europe, in spite of austerity measures being implemented across the continent, saw comparable restaurant sales growth of 4.9% in March (consensus +3.2%) and 5.7% in the quarter.  The company also took a 1% price increase in the first quarter.  APMEA was slowed somewhat by the impact of the disaster in Japan as March comparable restaurant sales eked out a 0.5% gain year-over-year (+2.0% consensus), rounding out 3.2% growth for the first quarter. 









While comps exceeded expectations, on aggregate, restaurant level margins declining for the first quarter since 1Q09 (prior to that it had been 3Q05!) was what generated the most attention.   With compares becoming more difficult as the summer progresses, gaining leverage over operating costs will be difficult.  In addition, management raised its FY11 guidance for its food cost basket from +2 to 2.5% in the U.S. and +3.5 to 4.5% in Europe.  It seems almost certain that a significant price increase will be necessary to absorb this inflation.  While MCD pointed to its track record of not having raised prices since last 2009, it is important to note that commodity costs were deflating until recently for MCD; a price increase will be necessary at some point in 2011.  As the chart below shows, the decline in margins brings MCD out of the “Nirvana” quadrant – positive comps and margins – for the first time since 1Q09.





On the ability to “manage through an inflationary environment”, management assumed a defensive tone on the call, referencing 2008 as an example of the company successfully navigating an inflationary environment.  While this is true, I believe the point I made regarding the overdependence on beverages is applicable in this instance.  Frappes and smoothies in 2Q and 3Q proved to be high-margin items for MCD and, coupled with year-over-year commodity favorability, were highly accretive to the company’s bottom line.  Furthermore, the beverages were highly effective sales drivers.  Per our MCD Black Book, we estimate that frappes and smoothies counted for 5.7% and 5.9% of the 2Q and 3Q10 comps, respectively.  For reference, 2Q and 3Q10 comps for the MCD U.S. business were 3.7% and 5.3%.  If our estimates are correct, MCD U.S. excluding frappes and smoothies, declined on a same-store sales basis in 2Q and 3Q10.  The initiatives being rolled out this summer, namely strawberry lemonade and an additional flavor of smoothie, have big shoes to fill. 


The MCD franchise system is more robust than any other in the business.  However, as was pointed out on the earnings call, it is easy to keep a franchisee happy with growing market share and increasing margins.  It will be interesting to see how franchisees will react to the ever-expanding menu and increasing commodity costs, all the while attempting to maintain the low prices that corporate aligns the brand with. 


The sentiment around this stock shows just how high expectations are for the stock.  These expectations are difficult to meet and, in 2Q and 3Q of 2011, McDonald’s has a tough few months ahead of it.  Guest counts, long the lifeblood of the company’s comparable sales growth, are likely to be negatively impacted by any steep price increases.  Inflation looks like it is almost certainly going to require a steep price increase on the part of the company.  This is certainly the most interesting period for this stock in the last seven years.





Howard Penney

Managing Director

Oh, Brazil…

Conclusion: We continue to think Brazil's central bank simply isn't doing enough to fight inflation and, for the first time in this current cycle, we think that policy makers are risking a substantial loss in their credibility by refusing to be more proactive in reigning in accelerating inflation and its associated expectations.


Position: Bearish on Brazilian Equities for the intermediate-term TREND. Bearish on Brazilian real-denominated debt for the intermediate-term TREND.


Let’s cut right to the chase; even though Brazil’s central bank hiked its benchmark Selic rate +25bps yesterday, we continue to think they simply aren’t doing enough to fight inflation and, for the first time in this current cycle, we think that policy makers are risking a substantial loss in their credibility by refusing to be more proactive in reigning in accelerating inflation and its associated expectations.


While yesterday’s move came as no surprise to Brazil’s interest rate futures market, it did surprise consensus expectations of another +50bps hike, which would’ve been the sixth in the past year. Simply put, we don't find the central bank's "wait & watch" approach prudent in the face of accelerating inflation and accelerating inflation expectations.


Oh, Brazil… - 1


At the time, we attributed the Bovespa’s late-March bounce to the fact that our Brazilian Stagflation thesis (which we introduced back in November) had become consensus – meaning that as supply of incremental sellers dwindled, short-covering and valuation buying would support the market. Moreover, the central bank’s rhetorical easing off of the tightening pedal at the end of the month also helped boost Brazilian equities a bit further.  Specifically, Tombini & Co. stated that the cost of reducing CPI to its target range of 4.5% +/- 200bps in the current year was “too great”, and that they would postpone tightening efforts into 2012.


As we continue to warn, however, just because a central bank is done tightening doesn’t mean that inflation is no longer an issue. Simply put, Brazil is not China in this regard. One of the reasons we’re long Chinese equities in the Virtual Portfolio is because we think that Chinese CPI has topped out or will likely top out in the next couple of months, due to China’s proactive monetary policy over the last 15 months.


Contrarily, as we explicitly warned in November, Brazil’s monetary policy has been more reactive in nature, and, combined with today’s retreat in the severity of tightening, we expect Brazilian consumer and producer prices to surprise to the upside over the next couple of quarters. Cheap valuations aside, that’s not good for Bovespa margins. Economically speaking, that’s not good for Brazilian growth as higher prices stymie consumption growth and inflate the deflator by which real GDP is calculated.


With aggregate consumption at 81.7% of GDP in 2010, higher prices and higher interest rates certainly have the ability to meaningfully depress Brazilian growth rates by slowing household spending and straining the government’s budget. Based on our analysis of consensus reactions to the recent “budget cuts”, the latter point is an underrated issue that has the potential to add further upward pressure on Brazilian interest rates. As we called out in a report on March 3 titled “Brazil: One Step Forward; Three Steps Back”, the supposed budget cuts were rife with misleading accounting and/or flat-out bad assumptions regarding subsidies, etc. Net-net, we think the Brazilian central government could wind up missing its deficit reduction target in 2011. Brazil is not unlike India in this regard.


As we outlined a few weeks back in a March 30 post titled, “What’s Next For Brazil?”, one of the few things that remain supportive of the Brazilian economy is persistent real strength, and we continue to remain bullish on the currency for the intermediate-term TREND – particularly vs. the USD. If, however, the Brazilian government is able to finally implement a successful plan to weaken the real (after several months of failed attempts), that could potentially pose a systemic risk to the Brazilian economy from an inflation/inflation expectations perspective. We continue to wait and watch for more signs of Big Government Intervention on this front.


All told, we are jumping back on the bearish side of Brazilian equities after a brief, but cautious pause. The combination of reactive, rather than proactive, monetary policy and the potential for a marginal deterioration in fiscal policy is likely to keep inflation on the up-trend over the coming quarters. We were correct to warn clients in January (see report: “Time to Buy Brazil?”) that the Bovespa was not a feasible play on inflation on the long side this time around and we continue to affirm this conclusion.


Oh, Brazil… - 2


The confluence of slowing growth (topline deterioration) and accelerating inflation (margin compression) relative to consensus already bearish forecasts is likely to make the “cheap” Bovespa look expensive when earnings forecasts start to be revised down to economic reality.  Moreover, the likelihood that the central bank is going to have to re-accelerate tightening measures in the latter half of the year continues to make us bears on Brazil’s bond market as well.


Happy shorting and happy Easter.


Darius Dale



Oh, Brazil… - 3

Early Look

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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 Week Ahead

The Economic Data calendar for the week of the 25th of April through the 29th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - weeek


“He came to town like a midwinter storm… but all he had come for was having some fun.”



Conclusion: While the global cotton situation can be characterized by tight supply relative to demand, we would advise you not to buy this soft commodity at this time. Production is rebounding, consumption is decreasing, and historical analysis lend credence to our view that aggressive forecasts for stockpile rebuilding are actually not that aggressive after all. Thus, we do not see current prices as a buying opportunity.


“Stay long of The Bernank’s Inflation,” has been one of our more successful themes over the past 3-6 months, and with the USD setting up for may be an expedited move to the downside over the next 8-10 weeks, we’re been looking to increase our exposure to certain commodity markets. Cotton, in particular, has been one of the commodities we’ve been bullish on for the last couple of quarters, so we put our up-and-coming intern Freddy Masotta to the test with the following question – “should we be buying the dip in the cotton market?”


 With cotton futures trading slightly above $166.00, cotton has made a nice run over the past twelve months while riding an inverse correlation of -0.80 to a sinking US Dollar. In total, the numbers are staggering: cotton is up +29.2% YTD and +114.4% over the last twelve months while the US Dollar Index is down -5.9% and -8.3%, respectively.Over the past three weeks, however, the correlations have changed. Cotton is down -11.8% over the past month and currently has a three-week positive correlation of 0.64 with the greenback. Though not what we’d consider statistically significant, we would be remiss not to remind you that the US Dollar remains quantitatively bearish across all three of our key investment durations: TRADE, TREND, and TAIL. As the inverse correlation between the two is firmly broken, we viewed this as a unique opportunity to delve into cotton’s supply and demand fundamentals.




On the supply front, production is expected to pick up for five out of the world’s seven largest cotton producers in the 2010/11 season. India, the United States, Brazil, Central Asia, and Australia should all make significant rebounds and see their cotton production increase by double-digit percentages over their disappointing 2009/10 levels; as a whole, global production is estimated to increase by 13.6% during this season. However, China and India, the world’s largest and fourth largest cotton producer, respectively, are likely to face production declines. This will mark the third time in as many years that China’s cotton production has declined.


One concern on the supply front is the -27.8% drop off in the world 2010/11 beginning stock, but production this year seems to be sufficient enough to make up for the majority of this decrease. It is also important for investors to keep in mind that it typically doesn’t take more than a couple of years for ending inventories to refill. And given the severe weather incidents that plagued the last planting season (flooding in Australia, drought in China, freezing in Latin America, etc.), the “comps” for this projected rebound in supply are easy to say the least.


The main driver on the demand side has been China. The surging demand in China presents a legitimate concern in regards to the global cotton market and supply and demand fundamentals. China faces restricted supplies from all sources in 2010/11 and will likely be constrained by a lack of foreign exports. Further, declining area and weather problems in China are likely to reduce production to a five year low. This, coupled with tight beginning stocks, probably has bulls everywhere licking their chops. We argue, however, that this is likely priced in at current levels – especially given cotton’s massive run-up YTD. In addition, China’s cotton consumption is forecast to decline by 6% in the 2010/2011 season, while, globally, cotton consumption is expected to decrease between -1% to -2% as global clothing brands delay purchases into the latter half of the calendar year (courtesy of the Hedgeye Retail team).


We believe cotton could continue to correct from here, as the aggressive production and consumption numbers presented in the 2011 USDA Cotton Outlook appear quite feasible when analyzed with a historical lens. While total supply is expected to decrease by -0.4% this season, consumption is expected to decrease by a greater amount in the 2010/11 season, falling -1.6%. Needless to say, we urge caution to any investor thinking about buying the dip in the cotton market.


Darius Dale






R3: JNY, Groupon, GPS, Puma, TOY and Luxury



Jones Group one of bidders for Jimmy Choo- report - Clothing maker Jones Group Inc  is one of three potential buyers for upscale shoe and handbag maker Jimmy Choo, Dow Jones reported, citing people familiar with the matter.A spokeswoman for Jones Group, whose brands include Nine West and Jones New York, declined to comment on the report. Jones Chief Executive Wesley Card told Reuters in February that his company was looking to buy brands that would help extend Jones' reach, particularly into overseas markets. "Acquisitions are an important part of our growth strategy," Card said at the time. Last year, Jones bought high-end shoemaker Stuart Weitzman.Bahrain-based Investcorp INVB.BH and German luxury company Labelux Group have made a joint offer for Jimmy Choo, while U.S. private equity firm TPG is also in the process, according to the Dow Jones report <Reuters>

Hedgeye Retail’s Take: Let me get this straight…JNY potentially competing against middle-eastern oil money and deep-pocketed German Lux group for iconic brand Jimmy Choo. JNY does not have the wallet for this. It hasn’t even paid off Stuart Weitzman deal in full yet (deferred purchase price and ownership structure).  The fact that JNY is aggressively going after more deals speaks to the state of its base business. If not for strength in its Jessica Simpson line (sustainable???), JNY would be pre-announcing – again.


Groupon gets hyper-local - Groupon has acquired Pelago, creator of location-based check-in service Whrrl. The deal is the latest sign that the daily deal space is converging with geolocation, making it possible for businesses to present offers to consumers based on where they are. The move comes a little more than a month after LivingSocial, Groupon’s primary rival, began testing a mobile app feature that lets consumers search for deals within a half-mile radius of their current locations. In announcing the acquisition, Groupon CEO Andrew Mason praised Whrrl’s platform, which allows users to share recommendations for activities and places to go. When others heed that advice the recommender earns “influence points.” Brands and merchants can encourage consumers to visit the promoted bricks-and-mortar locations by offering contests and prizes to people who check in at those locations. <InternetRetailer>

Hedgeye Retail’s Take: There’s no way Groupon could afford to go on a roadshow looking for a $20bn valuation with the competitive gap narrowing. This move was pure defense – but it will probably work.


Michael Kors, Valiram Group Team Up - As part of its plan to expand in Southeast Asia, Michael Kors Inc. has partnered with the Valiram Group to bolster business and open stores in Malaysia and Singapore. The first freestanding Michael Kors store in Malaysia is scheduled to bow in August in the Pavilion Kuala Lumpur. The 3,500-square-foot boutique will showcase ready-to-wear, handbags, small leather goods, footwear, eyewear, watches and fragrances from Michael Kors, Kors Michael Kors and Michael Michael Kors. The debut of the company’s first Singapore boutique is also slated for August. It will be housed in Scotts Square, a luxury shopping center opening later this year in the city’s busy downtown shopping district not far from the Grand Hyatt and Marriott hotels. <WWD>

Hedgeye Retail’s Take: Great example of how easily scalable great brands are into new geographies, and how the brands (content) are ultimately more valuable than the retailers (distribution). One has limited growth, the other is blue sky.


 “Luxury triangle" of brands to be landed in Shanghai - The 3,000-sqm Austen Branded Goods City is scheduled to open this year in the Gubei New Area, Shanghai, setting the site up as the city's new shop window on major European branded goods.  The 30-plus brands moving into the mall in Gubei New Area are all showing luxury goods of top quality, including Weill, one of France's oldest fashion brands, Lauren Vidal, a designer label on sale in Paris' Lafayette department store, and Italian brand Tricot Chic is also well-known, for its bright colours and feminine styling. Austen City is not expected to adopt a business model characterised by exclusive buy-outs or distribution. Rather, it will be directly involved in shop design, production, marketing and after-sales services of the brands on offer. Constituting a second leg of the triangle is 180-year-old Takashimaya, one of the largest department store chains in Japan. The group's first store in China is to be in Gubei, on a business area of 40,000 sqm. <FashionNetAsia>

Hedgeye Retail’s Take: Ditto on the Michael Kors comment. When you’ve got the content, you’ve got the growth. Period.


Gap Streamlines its International Operations - Now that Gap Inc. is out to conquer the global business-to-consumer e-commerce market and other retail venues, the chain retailer is rolling all of its international operations into a single unit and putting one executive in charge. Gap, No. 23 in the Internet Retailer Top 500 Guide, is consolidating all of its foreign e-commerce and store programs in Europe and China under a new unit to be headed by Gap Europe and strategic alliances president Stephen Sunnucks. Gap’s streamlined international operation will include 530 stores across 30 countries. Gap in the past two years also has launched e-commerce operations for shoppers  in Austria, Estonia, Belgium, China, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia Slovenia Belgium, Spain, Sweden, the United Kingdom, and elsewhere. <InternetRetailer>

Hedgeye Retail’s Take: This makes perfect sense. While the investment community at large is focused on Gap’s inability to comp – especially in the US – the International chess board is being set, and GPS is accelerating stock repo in the interim. Don’t bet against this one.


Nordstrom eyeing Hudson Yard - Nordstrom Inc. is eyeing the massive Hudson Yards project under development on the far west side of Manhattan where it could open its first full-line store in the city. After years of combing Manhattan for a site and considering a number of alternatives, the Seattle-based department store chain is “looking at the potential of Hudson Yards,” said a source. “They’re in discussions with Related Cos.,” developer of Hudson Yards, a 26-acre commercial and residential project to be built over the rail yards near the Hudson River located between 30th and 33rd Streets and 10th Avenue and the West Side Highway.  “It’s fair to say they’re interested and considering it, but nowhere close to any kind of deal or commitment,” the source added.  Nordstrom is also considering other sites in Manhattan, but Hudson Yards seems like its best bet given the enormity of the project and its ability to provide Nordstrom’s space requirements of at least 180,000 to 200,000 square feet, a parcel extremely difficult to find in Manhattan, particularly in an area dense with upscale shoppers. <WWD>

Hedgeye Retail’s Take: Huge potential win, and huge potential waste of capital.


Puma Opens Eco-Friendly Concept - As Europe’s activewear giants race to clean up their act on the sustainability front, Puma on Wednesday inaugurated its revamped Boulevard de Sébastopol flagship, combining high-tech interactive features with eco-friendly materials for merchandising and decor. Materials included energy-efficient lighting and FSC-certified sustainable wood, while clothes hangers are made from cornstarch.

The store’s new look is urban and colorful, however, with exposed concrete walls, video screens, loud comic-inspired wallpaper, puma cat-shaped coat pegs in the changing rooms and clusters of green and red poufs. Old-school metal sports-room lockers used as merchandising units come decorated with sports trophies. Local artist collective 9eme Concept collaborated on the store’s design.  A red joypad wall on the first floor carries 32 iPads loaded with interactive content for customers to play with, such as Puma’s new iPad and iPhone Life Scoreboard application, where users can vote on a flow of open questions pitting two subjects — such as Mac versus PC — against one another, and then check the scores. <WWD>

Hedgeye Retail’s Take: Very interesting idea, and great way to stay fresh with a younger audience.


Toys ‘R’ Us Expanding e-Commerce  - One way Toys ‘R’ Us Inc. is supporting its burgeoning e-commerce program is by opening its first dedicated distribution center for fulfilling Internet orders. This July, Toys ‘R’ Us, No. 37 in the Internet Retailer Top 500 Guide, will open a new 300,000-square-foot distribution center near Reno, NV. The center, which will eventually employ about 120 workers and another 230 part-time workers during the peak holiday season, will fulfill orders for and “As more consumers enjoy the simplicity and ease of online shopping, Toys ‘R’ Us continues to invest in e-commerce enhancements to advance customer service and satisfaction across all shopping channels,” says CEO Larry Storch. “We believe the facility will play an important role in further accelerating our company's online business growth and order fulfillment.” <InternetRetailer>

Hedgeye Retail’s Take:  It seems odd that such a seasonal business would require a fully allocated DC that would add to cost structure year-round. This puts pressure on the company to knock their e-commerce strategy out of the park.


Underwear Sales Heat Up in Men's Retail - Forget simple white briefs: Men’s underwear has discovered fashion and technology. The sector has been growing rapidly on the back of those two trends, which is part of the overall boom the men’s wear market has seen across all categories following the depths of the recession. A plethora of bold colorblocking and oversize logos and advances in high-tech temperature-regulating applications that keep the wearer cool and comfortable are expected to continue to propel sales this fall. In the three months ending February 2011, the men’s underwear market generated sales of $1.24 billion, up 13 percent from the three months ending February 2010. In the 12 months ending February 2011, men’s underwear sales generated $3.9 billion, up 8.6 percent from the same year-ago period, according to The NPD Group.  <WWD>

Hedgeye Retail’s Take: Great for Warnaco (CK Underwear), and opportunity for Hanesbrands (which competes at the lower end of this market).


Shoemakers Urged to Avoid Competition Over Low Prices - Low-priced shoe exports to the EU may cause further trade penalties, warned the Local Shoemaking Association after the recent removal of EU shoe anti-dumping duties.  More shoe orders from the EU were received after the removal of duties which resulted in a drop in export prices. However, industry experts indicate worries over a new round of competition over prices, stressing that this might result in new penalties to be imposed on shoe exports. <FashionNetAsia>

Hedgeye Retail’s Take: Be careful what you wish for.

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