Some tidbits that weren’t evident from the earnings release and conference call.


  • North American shipment breakdown:
    • The Gun Lake units shipped in the December quarter but were recognized this quarter (650 units)
    • Woodbine Racino in Canada (~235 units)
    • Ocean Downs (300 units)
    • IGT shipped approximately 340 units to Grand Falls in Iowa but the units won’t be recognized until FQ3
  • International shipment details:
    • Asia: 100
    • Australia: 1,000
    • Europe: 500
    • UK: 1,100
    • S. Africa: 200
    • Latin America: 1,800
  • ASP impact of the sale of leased units
    • Patti Hart misspoke on the call; there were just under 500 leased 8960 platform units that were sold in the quarter – not 1,500
    • We estimate that the impact of the discounted units on ASPs was around $245/unit
    • The units were sold from a number of locations
  • SG&A increase
    • Staffing up in the interactive group - $3MM incremental
    • Latin America - $1MM incremental commissions and salaries
    • $1.7MM restructuring charge
    • $3.6MM bad debt expense – which is elevated from the $1.5-2MM
    • High 80s, low 90s or around the same level as this quarter is a good SG&A proxy for the next 2 quarters 
  • D&A
    • Was a little low this quarter but should trend back up a bit
    • $17-18MM per Q is a good run rate
  • New NA shipments will be down in the back half of FY11; especially in 4Q
  • For International, 21-22k for the year is still a good estimate - Galaxy Macau was not in this quarter's #s but will be for next quarter

European Risk By the Charts

Position in Europe: Long British Pound (FXB)


As we noted in the European Risk Monitor yesterday, Europe’s sovereign debt issues continue to drag and perpetuate headline risk, however the EUR against most major currencies and most European equity indices continue to shake off these threats under the belief that the heavy hand of the EU and IMF will extend to any and every country that needs financial relief.  If we add continued hawkish comments on inflation from the ECB and weak USD policy to this mix, we think these are the main catalyst driving the strength in the EUR-USD. Keith’s models suggest the EUR-USD has immediate term support at $1.44 and resistance at $1.46, so we’re currently at an overbought level.


Risk in Greece and Portugal are the main focal points at the moment. Regarding Greece, discussions surround a potential restructuring of government debt, which we think is a foregone conclusion given the expedient rise in government yields and therefore the severe headwinds in store for future debt issuance and interest payments (see chart of 10YR Greek yields and the other PIIGS below).


European Risk By the Charts - m1


As always, Greece’s fiscal imbalances are glaring and expanding. Debt as a % of GDP is expected to ramp to 159% in 2012, and PM Papandreou and Co. plan to reduce the country’s deficit from a high of 15.4% of GDP in 2009 to 3% by 2014. We’re of the camp that they’ll come up short.


A bailout of Portugal also lingers, with an estimated agreement to the tune of 50-80 Billion EUR set for mid-May. As we present in the chart below, catalysts for this deadline include getting ahead of a hefty payment of government debt (principal and interest) in June (~ 7.1 Billion EUR) and elections for the next government in June.  


European Risk By the Charts - m2


Not unlike in the US, aggregate public debt levels are increasing across Europe, despite such standouts as the UK that is actively tightening spending and enhancing revenue. Today, Eurozone debt as a % of GDP was released for 2010 at 85.1% versus 79.3% in 2009. We pulled the data back in the chart below. We think we could see a significant slope to the year-over-year change of outstanding debt over the next 3-5 years as the periphery struggles to reduce years of fiscal imbalances.


European Risk By the Charts - m3


Matthew Hedrick


Higher Highs? SP500 Levels, Refreshed



If you didn’t know The Bernank is whispering dovishly in these FOMC meetings right now, now you know...


We’ve been making this call for the last 2 weeks, but it’s worth repeating - he will remain Indefinitely Dovish through June. US Dollar crash helmets on. The Inflation trade up into the right. Central planners, unite!


I didn’t and won’t say this will end well, but I will say that higher-intermediate-term highs in the SP500 (on a close above 1343) are going to be bullish for the very immediate-term TRADE (into the actual Fed decision and press conference – yes, press conference tomorrow, Euro style). That’s why I have cut back the gross short exposure in the Hedgeye Portfolio to 9 shorts this morning (14 LONGS, 9 SHORTS).


For the first time since mid-February I am registering what I’ve called the danger zone for US stocks (1) – as in danger that the market pins that price on the donkey, and falls, hard...


Interestingly, but maybe not surprisingly, given that a there is a career risk management exercise at work in the institutional performance chasing game associated with higher-highs, I am registering less than a 2.5 standard deviation overbought zone that’s above my prior 1 zone up at 1.


So, I’ll wait and watch for 1 Short Selling Opportunity prices (those will still be lower-long-term highs). If I don’t get them, I don’t mind. Patience in the face of a US government sponsored Currency Crash (like Q2 of 2008) is required.




Keith R. McCullough
Chief Executive Officer


Higher Highs? SP500 Levels, Refreshed - 10

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.

UA: Don't Rush To Cover

We’ve had several folks ask this morning for Keith’s levels on UnderArmour. Here you have it…

Just broke through significant TREND.

If you’re short the name, I wouldn’t rush to cover.

UA: Don't Rush To Cover - ualevel


Q1 might be a bit of a disappointment for those expecting the start of a big Vegas recovery.  MGM Macau should blow it out.



As we wrote on April 14th, in “The MGM Rollercoaster”, we believe that after management promises of a strong first quarter and Street room rate surveys showing double digit growth, MGM’s Vegas results may fall short of investor expectations.  We’re a little less than 5% below Street for EBITDA for the quarter. 


1Q2011 Detail:


We estimate that MGM will report $1.5BN of revenue and $297MM of EBITDA (consolidated EBITDA less corporate & ESO expense plus JV income) which pans out to be 1% and 5% below Street estimates, respectively.

  • We estimate that MGM’s Las Vegas properties will report $1.1BN of revenues and $225MM of EBITDA, in-line and 3.5% below consensus respectively.  While our RevPAR estimates are likely close to consensus, we believe that growth in casino revenues will be disappointing – up very slightly on average.
    • We assume that RevPAR increases 8.6%, driven by a 5.2% increase in rate
    • While cost controls should be strong, we do expect to see operating costs begin to increase YoY after over 2 years of cost decreases. This quarter should also mark the first quarter of YoY increases in EBITDA.
    • Bellagio: $262MM of revenue and $73MM; 8% increase in RevPAR
    • MGM Grand: $193MM of revenue and $37MM of EBITDA; 5% increase in RevPAR
    • Mandalay Bay: $175MM of revenue and $28MM of EBITDA; 10% increase in RevPAR
    • Mirage: $138MM of revenue and $23MM of EBITDA; 7% increase in RevPAR
  • MGM Detroit estimated at $141MM of revenue and $41MM of EBITDA
  • We estimate that Beau Rivage will report $85MM of revenue and $17MM of EBITDA

Non-consolidated Entities:

  • Borgata: We estimate that Borgata will report $177MM of net revenue and $37MM of EBITDA. MGM’s ownership stake is 50%
  • City Center: Excluding condo sale revenue/and forfeitures, City Center is projected at $241MM of revenue and $42MM of EBITDA
    • Aria: $208MM of revenue and $35MM of EBITDA
    • Mandarin: $9MM of revenue and an EBITDA loss of $1MM
    • Vdara: $13MM of revenue and $1.5MM of EBITDA
    • Crystals: $11MM of sales and $6MM of EBITDA
  • MGM Macau should have another stand out quarter.  We estimate that MGM Macau will report EBITDA of $132MM, down sequentially due to low hold in 1Q compared to estimated hold of 3.1% in 4Q10.  We think that MGM Macau is on track for $550MM of EBITDA in 2011.
    • VIP Table drop $22.5BN and hold of 2.7%
    • Mass table win of $143MM
    • Slot win of $53MM

Other stuff:

  • Corporate Expense: $28MM
  • ESO: $10MM
  • D&A: $156MM
  • Net Interest Expense: $251MM

UA: Not Enough for a $78 Stock


Solid 1Q From UA, as expected. But in-line with our concerns from yesterday, we wonder if it is enough of a beat for a $78 stock? Our sense is that  the answer is No. Working capital change here is absolutely critical. It’s a key stock driver and is eroding at the fastest rate in 13 quarters.


What we liked:

  • This stock needed a beat on a big revenue number. It got it.
  • UA posted +34% growth in a ‘maturing’ US apparel business. New charged cotton business shipped during the quarter and likely contributed more than we modeled. The acceleration on the underlying 2-year run rate is material.
  • Nixing out all the noise behind guidance vs. so-called expectations, the absolute earnings algorithm is exceptional. +36% top line translated into +56% EBIT into +65% EPS. Not many others out there printing those numbers.
  • UA took up guidance – by MORE than the 1Q beat – so early in the year speaks to confidence in 2H numbers.


What we did not like:

  • Of the $0.04 beat, $0.02 is given back in 2Q due to the shift in marketing. So net/net, we’re looking at a $0.02 beat here – which is not huge relative to $78 worth of expectations.
  • Inventories up +68% versus sales +36%. Check out the SIGMA. 24.5 days increase in inventory on hand is the greatest swing we’ve seen since 4Q07 (yes, 13 quarters ago). Days Receivable were up for the first time in  -- yes, you guessed it – 13 quarters. Unfortunately, days payable continues to decline as UA can’t (not surprisingly) push back on vendors – especially with incremental growth coming out of the cotton side of the business. This stock has historically traded on two factors – top line momentum, and working capital changes. Check out the stock from Oct ’07 through 2Q08 – either absolute or relative to the market.
  • The company beat on revenue, missed Gross Margins, and made up for it on SG&A. This is a name that we never ever ever ever want to see make or beat expectations because of SG&A.  There was a $2mm shift in spending from 1Q into 2Q – or about $0.02 per share – which gives us some relief. Also, let’s be fair – I don’t want to beat the company up for leveraging SG&A on a massive 36% top line growth number. If we account for the shift in marketing spend, we’re looking at 34% SG&A growth vs. 36% top line. But the bottom line is that UA has proven that they can translate marketing spend into profitable top line growth, which is a rarity in this business. Given that it is at a critical juncture in its growth right now, we need to watch this one like a hawk.
  • I wouldn’t really call this one a ‘dislike’ but let’s not forget that this is the first quarter where UA has its hats and accessories business in-house instead of with a licensee. That likely accounted for about 6% boost in top line growth right there. These little items need to be considered when we’re looking at a hyper multiple stock.


The bottom line is that I still don’t see how you get paid buying the stock at $78 on $1.60 in EPS with cash flow eroding on the margin.


Putting on my ‘where could I be wrong’ hat, we’d need to get a big jolt in realizing that this company has $4 in earnings power over the next 3-years (5-years is more realistic). That’s about 20x earnings and 10x EBITDA on a 20% long term grower – without penalizing valuation due to having to wait until 2014 to see the earnings.


I think that this company will continue to do the right thing, and invest where it’s warranted in order to enhance long-term value. When it does so, the market tends to get overly punitive. That’s when I’d be more interested in getting involved. Perhaps this quarter is the event. We’ll see.


More to come, if warranted, after the call.


UA: Not Enough for a $78 Stock  - UA S 4 11



Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.