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UA: Business Trend Update

Here’s a follow-up to our earlier note on UA. How is business? Here’s some charts showing both apparel and footwear point-of-sale info for UA. It would be unfair to say that it is getting clocked out there, because performance – broadly speaking – is fine. But when you end the prior quarter with inventories +74%, you need better than “fine”, you need “outstanding”. That’s not in the cards.

 

Versus last year, we’re seeing UA’s share gains in apparel continue to slide – to the point where the latest trends are actually down (we look at this data on a trailing 3-week basis).

 

Similarly, the company is seemingly not gaining traction in footwear. That’s no revelation to the Street at large. But the reality is that UA went out and hired Gene McCarthy – who we’ve thought to be among the best talent in the space – and after 25 months, they still have little to show for it (at least based on product quantity, quality and performance).

 

Will UA get Footwear right? Yes, we definitely think so. But the clock is ticking, and UA is running out of time where the Street will simply give them a pass simply because they have a killer brand. In other words, footwear will cost either time or money – and the Street has little tolerance for either.  

 

We continue to think that there’s a big duration mismatch here. When the short-term investment factors come to roost just as 40% sales growth numbers are incrementally slowing (still stellar, but what matters is on the margin), we think there will be a much better shot to buy UA lower.

 

 

 

UA: Business Trend Update - UA apparel 9 6 11

 

UA: Business Trend Update - UA Compression 9 6 11

 

UA: Business Trend Update - NKE compression product 9 6 11

 

UA: Business Trend Update - UA FW sales 9 6 11

 

UA: Business Trend Update - UA FW 9 6 11

 

Brian P. McGough
Managing Director


REGIONALS: SHOW ME THE GROWTH, MO

Preliminary gaming revenues from one of the riverboat markets shows that August may be another soft month for domestic gaming.

 

 

According to unofficial data, we believe Missouri gaming revenues, adjusted for the closing of St. Jo Frontier Casino, dropped 1% YoY in August—another disappointing month for the “Show-Me” state.   On a sequential revenue basis, Missouri came in 5% light.  We look at monthly sequential revenue based on the previous 3 months, adjusted by a historical seasonality factor. 

 

We won’t get the property details until later this week but we wonder if PNK’s Lumiere and River City properties, which outperformed in July in part to high table hold and easy comps, can continue to show solid growth in a poor macro environment.  Obviously, ASCA maintains the highest exposure to Missouri but we don’t think Missouri will be the only regional market to disappoint.

 

Other riverboat markets may be better, or worse, than Missouri but we want to stress that all riverboats (on a same-store basis), except Louisiana, showed slowing sequential revenue in July.  We have been cautious on regional gaming post Q2 and a weak August would corroborate our bearish stance.

 



MACAU IN SEPTEMBER THUS FAR

Early September forecast of HK$20-22BN, up 35-48% YoY.

 

 

This is hardly worth commenting on but we’ve got data on the first 4 days of September.  Average daily table revenue dropped from HK$747 million in August to HK$690 million.  Hold was probably a little low especially given that Wynn’s market share dropped to 5.4% which is obviously not sustainable.  Galaxy’s share was also unsustainably low. 

 

We do expect September to fall sequentially from August both because August was an amazing month and September is historically a softer month.  Our current projection is for September gross gaming revenues of HK$20-22 billion which would provide healthy YoY growth of 35-48%.

 

MACAU IN SEPTEMBER THUS FAR - sept 


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UA: Definite Net Negative

 

These management changes are definitely the right thing for UA, but they play into our call that you don’t want to own this stock when then the company is hunkering down, retrenching, reorganizing its business, and investing capital to facilitate the next leg of growth. 

 

In another 18-24 months, having a ‘Chief Supply Chain Officer’ and ‘Chief Performance Officer’ might prove to be the best move since they launched Compression Apparel. In his usual ‘take no prisoners’ approach to the business, Kevin Plank very quickly addressed UA’s fulfillment problem.   

 

As for Wayne Marino, let’s not forget that he is a CFO by trade. After doing such a solid job seeing UA through the IPO process, he essentially built the finance organization that exists today. But unfortunately, in a strong sign of the Peter Principle at work, he was elevated to a role (COO) where he was simply ‘average’ as opposed to ‘great.’  He is sticking around for six months for transition purposes. Clearly, this is not a ‘clear your desk and security will escort you out’ situation.

 

We continue to think that there are few businesses in US retail that have the kind of Blue Sky growth that UA has ahead of it. But before we see things like Footwear, International, Retail and Women’s succeed, we’re going to need either more time, capital, and more likely – both.

 

For the long-term holders who own this name because they think it will triple in another 5-years, then check the box and move on – everything is fine and on-track. But the upside/downside risk here for anyone with a shorter duration clearly favors the downside.

 

 

Brian P. McGough

Managing Director

 

 


THE HBM: DNKN, SBUX, DIN

THE HEDGEYE BREAKFAST MENU


Notable macro data points, news items, and price action pertaining to the restaurant space.

 

MACRO

 

Commodities

 

Over the last few months, in particular, foodstuffs have seen prices hold steady while the overall commodity index, as represented in the chart below by the CRB Commodity Index, has declined.

 

THE HBM: DNKN, SBUX, DIN - food vs comd

 

 

QUICK SERVICE

  • DNKN was initiated “Sell” at Goldman Sachs with a price target of $23.
  • DNKN was initiated “Equal-Weight” at Morgan Stanley with a price target of $29.
  • DNKN was initiated “Neutral” at BofA with a price target of $29.
  • DNKN was initiated “Equal Weight” at Barclays with a price target of $27.
  • DNKN was initiated “Buy” at Stifel Nicolaus with a price target of $33.
  • DNKN was initiated “Market Perform” at Wells Fargo.
  • DNKN was initiated “Outperform” at William Blair.
  • SBUX plans on tripling its China store base by 2015 and step up growth in other markets like South Korea, Indonesia, Malaysia, Singapore, Thailand, and Australia by introducing Via Ready Brew.

CASUAL DINING

  • DIN has named Tom Emrey as CFO.  Mr. Emrey joins DineEquity from Universal Studios Home Entertainment.  Prior to Universal Studios Home Entertainment, Mr. Emrey held a number of senior finance positions at Nestle USA.

THE HBM: DNKN, SBUX, DIN - stocks 96

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


THE M3: SANDS INCREASE LOAN TARGET; MPEL MANILA INTEREST; RECRUITMENT; WYNN COTAI; INDIA

The Macau Metro Monitor, September 6, 2011

 

 

SANDS' CHINA UNIT SAID TO INCREASE LOAN BY $200 MILLION TO $3.7 BILLION Bloomberg

Sands China has increased its loan target to US$3.7BN from US$3.5BN.  As well as using the proceeds to refinance debt, Sands China will use the money to fund the completion of the construction of two phases of Sands Cotai Central.  The facility is expected to close at the end of Sept 2011.  About 10% of the loan was sold in general syndication to around 16 banks.

 

PACKER, HO MAY INVEST $1 BILLION IN MANILA CASINO, GAMBLING REGULATOR SAYS Bloomberg

According to Cristino Naguiat, Chairman of PAGCOR (Philippine Amusement & Gaming Corp), James Packer and Lawrence Ho may invest US$1BN in a Manila casino project.  "Discussions are still ongoing with MPEL. I think they're serious," said Naguiat.  

 

The Philippines awarded four gambling licenses in 2008 and 2009.  Each Philippine licensee agreed to invest $1BN over five years.  Three of the four that were given licenses in 2008 to 2009 were a venture between Genting Malaysia and Alliance Global Group Inc., Philippine property developer Belle Corp, and Philippine ports magnate Enrique Razon’s Bloombury Investments Holding Inc.  The 4th licensee may be Universal Entertainment Corp, a Japanese maker of pachinko pinball machines, who started building its project in June and plans to open by 2014, according to Kazuma Ishioka, a Tokyo-based spokesman.

 

Belle and Bloombury have started construction while the rest will begin by 1Q 2012, Naguiat added.

 

SANDS CHINA LOOKING FOR STAFF Macau Business

According to Sands China, around 1,300 job seekers attended Sands' latest recruitment fair in late August.  The August recruitment fair is the second from Sands China this summer, having completed their first in July.  A new recruitment fair is already scheduled for September 28 and 29.

 

WYNN SUBSIDIARY TO PAY LOCAL FIRM US$50 MILLION FOR COTAI LAND Macau News

According to Wynn Macau's interim report, the Wynn subsidiary associated with the Cotai land agreement is Palo Real Estate Co. Ltd., who is subject to a 10% voting interest by Macau businessman Wong Chi Seng in Wynn Macau. The interim report also said that the company was finalizing its Cotai project's scope and budget. 

 

LOCAL FIRMS MULLS INDIA CASINOS Macau Daily Times

According to a Mumbai-based developer, gaming operators from Macau, Singapore and Las Vegas have shown interest in the technology, branding, marketing or even running the gaming operations of his off-shore Casino Royale, based in the state of Goa.  The revenue of Goa casinos has been growing 50% a year since 2008.  Goa and Sikkim are the only two Indian states that allow live gaming.


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