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Athletic Apparel/FW Notable Divergence

 

Last week, we saw the biggest diversion between weekly athletic apparel vs footwear sales in six weeks, as ASPs in apparel turned down sequentially by 7.4%, and both footwear units and apparel units and ASPs turned up. We’ll stick with the cliché that one week does not make a trend. But it’s definitely worth noting this especially given that the ICSC index turned positive as well, and the yy comparision for apparel is getting easier on the margin.

 

 

Weekly athletic apparel and footwear sales maintain positive underlying momentum following the conclusion of a strong June that was consistent with the rest of retail. While apparel sales reflect a sharp sequential deceleration in both sales and ASPs this week due to challenging one week compares, underlying two-year trends remain steady. Most noteworthy is the continued strength in ASP trends following a more promotional April/May period in footwear at a time when most of retail accelerates discounting ahead of back-to-school. This suggests that margins have likely improved at footwear and sporting goods retailers since May – good for DKS and HIBB, even more favorable for FL and FINL. Here are a few key callouts from the week:

  • Following a consistent stretch whereby athletic specialty retailers have outperformed the other channels, the discount/mass channel was the top performing last week. We expect strong yy sales growth in the athletic specialty channel to resume next week.
  • For reference, in order to keep underlying 2-year trends in apparel constant with results since May, yy sales growth would have to return to HSD – LDD and ASP to LSD growth levels. With compares getting even more favorable in July after this week, we could see an acceleration of sales into quarter end.
  • In apparel, Running (+35%) and All-Performance T-shirt (+24%) categories continue to substantially outperform Compression product (-3%) due in large part to Under Armour diversifying their apparel mix to include non-compression charged cotton product.
  • Interestingly, while regional performance data has been temporarily discontinued by SportScan as they integrate new participants into the apparel sample, retailers commonly mentioned particularly strong sales in the Northeast during June. This is in stark contrast to the underperformance in the NE as reported by SportScan in through May – a notable improvement particularly for DKS, which is over-indexed to the region.
  • Share gains at Nike in both footwear and apparel in recent weeks is the most notable brand callout. In apparel, these gains are coming largely at the expense of UA as sales of charged cotton moderate and Adidas. In footwear, Skechers, Puma, and New Balance continue to lose share to leading brands. As noted, sales growth of Under Armour apparel has decelerated to mid-to-high single-digits in each of the last three weeks following a run of double-digit growth over the past 3+ months since the introduction of its new charged cotton line.
  • As a reminder, monthly footwear data will be out in next week providing additional clarity into sales trends within the athletic specialty channel through the first two months of the 2Q at which time we’ll highlight any changes to our view of expectations.

Athletic Apparel/FW Notable Divergence  - FW App Agg Table 7 14 11

 

Athletic Apparel/FW Notable Divergence  - FW App ASPs 7 14 11

 

Athletic Apparel/FW Notable Divergence  - FW App ASPs T3W 7 14 11

 

Athletic Apparel/FW Notable Divergence  - FW App FW Table1 7 14 11

 

Athletic Apparel/FW Notable Divergence  - FW App FW Mkt Sh 7 14 11

 

Athletic Apparel/FW Notable Divergence  - FW App App Table 7 14 11

 

Athletic Apparel/FW Notable Divergence  - FW App App 1Yr 7 14 11

 

Athletic Apparel/FW Notable Divergence  - FW App App 2Yr 7 14 11

 

Casey Flavin

Director

 

 

 


INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION

Initial Claims Fall 13k - Minnesota Shutdown Adds 11.5k

Initial claims fell 13k last week (22k post the upward revision to last week's data).  Rolling claims fell 3k, but the prior week was revised upward, wiping out last week's 3k gain.  Net/net, rolling claims remain at the same level they were reported to be last week.  However, the decline in reported claims is a positive signal.  Furthermore, 11.5k of the reported claims number was attributable to the Minnesota government shutdown.

 

We also show the initial claims of newly discharged veterans.  Despite the current drawdown in troop levels, veterans' claims are roughly flat YoY and down from their recent peak.  Veterans' claims are reported on a one-week lag, and account for roughly 10% of total weekly claims.  

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - rolling

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - raw

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - NSA

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - veterans

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - fed

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - S P

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - XLF


Yield Curve Tightens WoW

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 3Q is tracking 1 bp tighter than 2Q.  The current level of 254 bps is 13 bps tighter than last week.

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - spreads

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - spreads QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 

 

INITIAL JOBLESS CLAIMS FALL 22K FOLLOWING ABOVE-AVERAGE REVISION - perf

  

Joshua Steiner, CFA

 

Allison Kaptur

 


MAR Q2 COMMENTARY

Not awful but looks like a slight slowdown in RevPAR.

 

 

Relative to whisper expectations, Q2 RevPAR and Q3 RevPAR guidance is probably a little disappointing.  As many of you know, we’ve had been anticipating a June/July RevPAR slowdown based purely on the sequential math of absolute dollar RevPAR and historical seasonality.  Admittedly, we had expected a bigger slowdown which makes us a little more positive on the stocks actually, but only after the Street absorbs the lower expectations.  Assuming our macro view doesn’t get any worse, look for us to get more constructive on some lodging names as we move into late summer.

 

 

MAR 2Q11 Review

Revenue was $2MM lower than our estimate – with fees coming in $8MM light and somewhat offset by owned,  leased corporate housing and other and timeshare coming in $3MM and $4MM better, respectively.  Lower revenues were offset by lower SG&A, taxes, and share count, resulting in an in-line EPS number.

  • System-wide rooms came up short of our estimate because they included Cosmo rooms in the base
  • Fee revenues were $8MM lower than our estimate and $1MM below the low end of company guidance. The miss was across base, franchise and incentive fees – the company blamed lower incentive fees on weak ME and Greater D.C. areas.
  • Owned, leased, corporate housing and other revenue net of expenses ($29MM) was in-line with our estimate and at the higher end of company guidance.  Margins were negatively impacted by a $4MM YoY decline in termination fees.  Branding fees weren’t disclosed.  It appears that food, beverage and other revenues declined 16% YoY – not inconsistent with the 20% decline we saw last quarter – likely as a result of higher rate driven by more giveaways (free internet, free parking, complimentary breakfast, etc)
  • Timeshare sales and services revenue, net of direct expenses of $43MM missed the low end of company guidance by $7MM.  MAR attributes the miss to lower interest income on a smaller mortgage portfolio and higher productions costs as well as a higher percentage of deferred revenue.

Other stuff:

  • G&A of $159MM was $6MM below the low end of company guidance and would have been even lower if not for several ‘one-time’ items
    • $7MM of higher legal fees
    • $5MM payment to the performance of one hotel
    • $3MM of transaction related expenses associated with the spin-off transaction
  • Interest expense of $37MM was also lower than our estimate – MAR sited higher capitalized interest as part of the reason behind the decline

 

EBITDA guidance for the full year was lowered by $20-35MM – driven by

  • $10MM decrease in fees
  • $10MM decrease in net timeshare sales and service revenue (deferred revenue and lower interest on smaller mortgage portfolio)
  • $5MM increase in SG&A

Somewhat offset by

  • $5MM higher net owned, leased, corporate housing and other revenue
  • Lower share count (buyback)
  • Lower tax rate
  • Lower interest expense (higher capitalized interest)

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TALES OF THE TAPE: YUM, SBUX, MCD, RUTH, RT, BWLD, BJRI

Notable news items and price action pertaining to the restaurant space as well as our fundamental view on select names.

 

MACRO

 

The performances of the QSR stock yesterday continue to suggest that business trends continue to remain strong ad that this should be a strong earnings season.  The food processors continue to struggle with high commodity prices.

 

TALES OF THE TAPE: YUM, SBUX, MCD, RUTH, RT, BWLD, BJRI - subsectors 714

 

 

Lower energy prices and a downshift in the domestic economy have taken the edge off U.S. import prices, as they fell 0.5% in June. Imported food and beverage prices fell 1.9% in June, larger than the 0.7% decline in May.

 

This morning, jobless claims were above 400k yet again, coming in at 405k.  While this was below consensus at 415k, and the week prior’s revised 427k, it shows that the employment scenario is still far, far away from improving meaningfully.  4-week rolling claims declined slightly week-over-week but remain elevated at 423k. 

 

TALES OF THE TAPE: YUM, SBUX, MCD, RUTH, RT, BWLD, BJRI - initial claims

 

 

QUICK SERVICE

  • YUM beat expectations on the back of outstanding +18% same-restaurant sales growth in China.  Margins in China were down, however, and the consolidated tax rate was lower-than-usual, providing a boon to earnings.  YRI comps were up +2% and the U.S. comps declined -4%.  The earnings call will take place at 9:15 am.
  • YUM’s KFC was mentioned, alongside KO, as two companies that sent representatives to North Korea earlier this month to discuss opening branches in Pyongyang.
  • SBUX has debuted a new kiosk concept at the JW Marriott Indianapolis.  According to a company release, the new kiosk will feature the full Starbucks menu.
  • MCD has prevented Russian authorities not to double its tax bill by persuading them that its outlets are supermarkets rather than restaurants.


FULL SERVICE

  • RUTH, RT, BWLD, and BJRI all gained on accelerating volume.

TALES OF THE TAPE: YUM, SBUX, MCD, RUTH, RT, BWLD, BJRI - stocks 714

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


THE M3: S'PORE Q2 GDP; MAY PACKAGE DATA

The Macau Metro Monitor, July 14, 2011

 

 

ECONOMIC GROWTH EASED IN SECOND QUARTER 2011 MTI

S'pore Q2 GDP growth slowed to 0.5% YoY, missing analyst expectations of 1.5% growth. On a seasonally-adjusted basis,  the economy contracted by 7.8% QoQ (consensus at -1.9%).  But MTI said, "tourism-related sectors such as hotels and restaurants continued to register healthy growth due to strong visitor inflows."

 

PACKAGE TOURS AND HOTEL OCCUPANCY RATE FOR MAY 2011 DSEC

Visitor arrivals in package tours increased by 2.2% YoY to 582,596 in May 2011.  Visitors from Mainland China (431,562); China (31,321); Hong Kong (25,170) and Republic of Korea (21,055) increased by 2.2%, 47.1%, 23.6% and 43.1% respectively.

 

Total number of available guest rooms of hotels and guest-houses increased by 1,945 (+9.9%YoY) to 21,518 rooms, attributable to the opening of new 5-star hotels.  Hotels and guest-houses received 689,495 guests in May 2011, up by 5.9% YoY, with the majority coming from Mainland China (54.3% of total) and Hong Kong (18.5%). The average length of stay of guests decreased by 0.01 night to 1.5 nights.The average occupancy rate of hotels and guest-houses was 82.0%, up by 4.1% points YoY.



PENN: 5X WOULD BE A TREND

We expect another beat despite flooding in Tunica.

 

 

PENN has been on a hot streak of reporting good results the last 4 quarters; investors liked what they saw and heard from management, pumping the stock up an average of 6% during those four earnings days.  On July 21st, we think we'll see the hot streak continue with a 5th consecutive quarter of good results.  It’s hard to predict another 6% trading day, but if achieved, our Q2 estimates should be a positive for the stock. 

 

For Q2, we are projecting net revenues, EBITDA, and EPS will come in at $714.7MM, $184.5MM and $0.54, respectively.  As the table below shows, this is higher than consensus and company guidance.  The beat would come despite an estimated $5MM hit on EBITDA at its Tunica property from the Mississippi River flooding.

 

PENN:  5X WOULD BE A TREND - PENN2

 

Here are some Q2 highlights and model assumptions for PENN:

  • Q2 sequential market share gains
    • Argosy Sioux City, Hollywood Casino Joliet, Hollywood Casino Aurora, Argosy Lawrenceburg and Argosy Riverside all gained market share on a 12-month rolling basis
  • Table revenues at Charles Town continue to outperform expectations as revenues are now trending well above $12MM/month.  While slot revenues at Charles Town have been disappointing, total win is still +30% YoY.
  • We are estimating 100 bps improvement over last year in property-level margins
  • We believe PENN’s leverage ratio will be at its lowest level since 2009

Currently trading at 8x 2012 EBITDA, PENN appears more expensive than the other regionals.  However, 2012 does not include full EBITDA contribution from its significant developments in Ohio and Kansas.  If we go out to 2013 the valuation drops to a much more attractive 6x.  Although we are cautious on domestic gaming for the 2H of 2011 due to a variety of macro concerns—i.e. low US GDP growth, high unemployment, depressed housing—on a TRADE duration, PENN could have a nice boost as Q2 looks like another great quarter.


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