Interesting 4Q Comp Diversion

Interesting to see the varied trajectory of comp trends and guidance into 4Q for FL, DKS and HIBB. FL looking washed out, tho I’m starting to like HIBB a lot.

With Dick’s, Hibbett, and Foot Locker all reporting within 24 hours of one another, it was interesting to see the varied trajectory of com trends and guidance into 4Q. Let’s look through 4Q comp guidance on a 1-year basis for a minute. The implied 2-year trend for each company’s 4Q guidance shows that both DKS and HIBB are spot-on with their respective trajectories of -2%. My concern there is that both forecasts suggest a 100-200bp acceleration. FL, on the other hand, is looking for a 300bp deceleration. Yes, it will see a negative FX hit, but not enough to account for such a wide delta from its peers. One thing worth pointing out is that FL’s inventory position remains clean, as it is proactively managing inventories for the first time in at least 3 years from my vantage point.

If you asked me to put on my ‘gaming expectations’ hat, I’m probably going to look toward FL in the upcoming quarter – especially in the face of a 28% decline in the stock on Friday – a disproportionate move in the stock relative to the fundamentals.

Looking out over the next year, however, I’m starting to like HIBB – a lot. Stay tuned for more on that one…

Quote Of The Week: Captain Jack Sparrow

"Have you not. It's very kind of you. But it would seem that as I possess a ship and you don't you're the ones in need of rescuing and I'm not sure that I'm in the mood."
-Captain Jack Sparrow

This quote from Disney’s ‘Pirates Of The Caribbean’ provides a metaphor for “The New Reality.” At a few points in time this week, the S&P500 was down -52% from its 2007 peak, Somali Pirates were holding the Saudi's for ransom, the “Pandit Bandit” was pleading for Citigroup’s mercy, and Big Auto was begging for a government bailout.

“The New Reality” of global trade is quite simply that he with the cash (and the ship) will take what he wants, on his terms, and at his price. Argh!

Chart Of The Week: The Queen Mary

This is one of the most poignant charts in my notebooks. The 60 year chart of long term US Treasury Yields.

An important factor in our "New Reality" investment outlook for 2009 is the thesis that the Queen Mary (see chart) is set up to turn up into the right. Long term US interest rates are unsustainably low, and preventing real US savings in this country to find a bottom. Give liquid investors the ability to earn a real return on their capital, and they will start lending it again - liquidity will follow.

Being prepared for an environment where access to capital continues to be tight as long term cost of capital begins to heighten is critical. The free money days of slapping leverage onto levered long bets are ending, abruptly.

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.45%
  • SHORT SIGNALS 78.38%

US Market Performance: Week Ended 11/21/08...

Index Performance:
Week Ended 11/21/08:
DJ (5.3%), SP500 (8.4%), Nasdaq (8.7%), Russell2000 (11.0%)

November 2008 To Date:
DJ (13.7%), SP500 (17.4%), Nasdaq (19.6%), Russell2000 (24.4%)

Q408 To Date:
DJ (25.8%), SP500 (31.4%), Nasdaq (33.8%), Russell2000 (40.2%)

2008 Year To Date:
DJ (39.3%), SP500 (45.5%), Nasdaq (47.8%), Russell2000 (46.9%)


Bill Boyd and Bob Boughner are the two most influential people at Boyd Gaming. Both recently bought stock. Should we care?

The last time there was a significant cluster of insider buying was in April and May of 2004. The stock more than doubled in 8 months. Management can trade as well. A year later they sold near the top, just before a 25% move down in the stock. Chairman Bill Boyd doubled his money on over 300k shares in a year’s time. Not bad.

I’m not exactly predicting a double in a year just because management bought stock again. However, it wouldn’t surprise me. I’m pretty sure BYD will generate between $1 and $2 of net free cash flow per share next year for a massive 30-60% free cash flow yield on today’s stock price. The stock could double and still yield a compelling 15%, worse case scenario.

The move could happen quickly. Short interest represents 20% of the float. Only 5 out of 19 analyst ratings are buys.

Now or later, there is real value in Boyd Gaming and they are not going bankrupt. It’s encouraging to see that management feels the same way.

Management buys low, sells high

Commodities – Milk prices

According to the cattle network, milk prices are trending much lower than a year ago due to lower cheese, dry whey and nonfat dry milk prices. The October Class III price was $17.06 and will decline in November to around $15.55, nearly $3.70 lower than a year ago. The Class IV price was $13.62 for October and will be around $13.50 for November, about $6.90 lower than a year ago. Milk prices are not expected to improve and could go even lower in the first half of 2009.

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