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Loss of Confidence

“The failure of the Knickerbocker Trust was just the beginning of a more general loss of confidence.”

-Jim Rickards

 

Anyone who has been in this business for more than the last 5 years knows what the biggest problem is for the US stock market – confidence. The People do not trust the financial system and all of its central planning puppetry. Therefore, The People are not giving the asset management community the number one thing they want – fund flows.

 

No Confidence. No Flows. No Volume.

 

That’s not new this morning. Neither is the world’s reaction to the US Federal Reserve’s un-elected Central Planner in Chief’s Policy to debauch the US Dollar in a repeated, but fleeting, attempt to inflate stock and commodity prices.

 

Sure, the price of Oil and Gold are up on the Dollar Down move. But they are up less than they were on Bernanke’s moves to Qe1, Qe2, and Qe3 (Bernanke’s latest war on the American Consumer (and Saver), pushing 0% interest rates on fixed income savings accounts to 2014 was a hybrid Qe3). We don’t think he has an iQe4 upgrade in his bailout bag during the General Election debate.

 

The reason why I used another one of Jim Rickards’ quotes (page 49 of Currency Wars) this morning is that it’s a critical one to consider in terms of why the US Federal Reserve Act of 1913 was established in the first place.

 

I’ll let you read Rickards book to form your own opinion on this, but the upshot of the problem was that NYC bankers, traders, etc. have always had the same problem – at a point, they take on too much risk with other people’s money, and they blow up.

 

In any other business, you’d be accountable for those losses and your business would go away. Post the 1907 Crisis, when banks like Knickerbocker literally blew up, banking and capital markets related companies have worked very hard at making sure that they have an un-elected man at the Fed that they can both appoint and politicize for their own compensation purposes.

 

The Fed was created to bailout banks, not American consumers.

 

Back to the Global Macro Grind

 

While it’s both shocking and sad (but expected), Ben Bernanke was able to get through an entire press conference yesterday without mentioning the words “US DOLLAR.”  What might be an even more glaring national embarrassment was that not 1 American journalist asked him about it either.

 

For those of us who aren’t paid to be willfully blind, here’s how real-time market expectations work:

  1. The Fed’s Monetary Policy drives the direction of the US Dollar
  2. The US Dollar, since it’s the world’s reserve currency, drives real Dollar adjusted expectations in liquid asset prices
  3. The inflation or deflation of asset prices (commodities in particular) drives the slope of Global Consumption Growth

I have my B.A. in Keynesian Economics from Yale. I don’t need a Ph.d in that dogma to explain to me how obvious the relationship is between the US Dollar and its purchasing power. Try it with your own money at home – you’ll get the point.

 

Despite Spain crashing again (Spanish stocks down -22% since February), even the Euro is strong versus the US Dollar this morning. The #1 Most Read Headline on Bloomberg: “Bernanke Prepared To Do More.” And the US Dollar Index is down for the 6th out of the last 7 weeks.

 

Our models show that Global Consumption Growth has never NOT slowed with oil above $96/barrel. Pick your vintage, Brent or WTIC, last I checked nothing happened in Iran overnight either. Prices of $104 and $119 per barrel, respectively, don’t lie; politicians do.

 

Does money printing matter? Does the amount of Dollars (World Reserve Currency) matter relative to World Oil Reserves? Of course they do. In 1990 the ratio of US Money Supply (M3)/Proved Oil Reserves = 4.1x. Today, that ratio = 10.7x. Reversing this factor alone would get you $75-80 oil, and the 99% would love that.

 

Got 1990s? Look at our Chart of The Day, then pull up a long-term chart of Oil – and you’ll see what I mean by Loss of Confidence:

  1. US Consumer Confidence tracked between 80 and 140 during the 1990s (this week it hit 69.2 for April)
  2. US Dollar Index Averaged $92.93 during the 1 expansion (avg GDP was 3.84%, so demand did what to oil?)
  3. Average price per barrel of WTIC Oil during 1 expansion = $18.63/barrel (not a typo)

It’s the US Dollar Stupid. That’s what real people use when they buy gas at the pump. So, if you’re part of a Keynesian crack house in Washington that’s addicted to devaluing the credibility and currency of the American people, shame on you.

 

If you want to try the “counter factual”, get your conflicted and compromised Fed friends to raise interest rates on Sunday night and tell me how many call options on oil you want to buy in front of that.

 

If you want to tell me Oil is up because of Iran, show me something going on in Iran. If you want to tell me Oil is up because global demand is up, show me where growth isn’t slowing.

 

Show me something. But don’t show me another complete embarrassment like yesterday’s Fed Press Conference. The concept of “price stability” (Fed mandate) does include the currency in which prices are paid. The Loss of Confidence in this country is rightly placed.

 

My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, and the SP500 are now $1, $118.64-120.77, $78.97-79.44, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Loss of Confidence - Chart of the Day

 

Loss of Confidence - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – April 26, 2012


As we look at today’s set up for the S&P 500, the range is 17 points or -0.98% downside to 1377 and 0.24% upside to 1394. 

                                            

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 4/25 NYSE 1631
    • Up from the prior day’s trading of 1052
  • VOLUME: on 4/25 NYSE 822.21
    • Increase versus prior day’s trading of 9.32%
  • VIX:  as of 4/25 was at 16.82
    • Decrease versus most recent day’s trading of -7.07%
    • Year-to-date decrease of -28.12%
  • SPX PUT/CALL RATIO: as of 04/25 closed at 1.45
    • Down from the day prior at 2.67 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 38
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.96
    • Down from prior day’s trading of 1.98
  • YIELD CURVE: as of this morning 1.69
    • Decrease from prior day’s trading at 1.72 

MACRO DATA POINTS (Bloomberg Estimates):

 

ECONOMY:

  • 8:30am: Chicago Fed, March (prior -0.09)
  • 8:30am: Jobless Claims, wk of Apr. 21, est. 375k (prior 386k)
  • 9:45am: Bloomberg Consumer Comfort, wk of Apr. 22 (prior -31.4)
  • 10am: Freddie Mac 30-yr mortgage
  • 10am: Pending Home Sales (M/m), March, est. 1.0% (prior - 0.5%)
  • 10:30am: EIA natural gas
  • 11am: Kansas City Fed Manf. Activity, Apr., est 7 (prior 9)
  • 1pm: U.S. to sell $29b 7-yr notes 

GOVERNMENT:

  • House, Senate in session:
    • House Ways and Means subcommittee holds hearing on tax extenders, 10am
    • Senate Banking Committee hears from Housing Secretary Shaun Donovan on the budget for HUD, 10am
    • Joint Economic Committee holds hearing on gasoline prices, 2:15pm
    • Treasury Secretary Timothy Geithner speaks in S.F. about the global economy ahead of annual U.S.-China strategic talks, 4pm 

WHAT TO WATCH:

  • BlackRock said to plan to start a fund with China Investment Corp.
  • Sun Microsystems co-founder Scott McNealy set to testify in Oracle IP trial
  • Mitsubishi said to consider bid for Gavilon Group, joining companies interested in the U.S. grain handler
  • Arch Coal said to be seeking buyers for several of its thermal-coal mines in the U.S.
  • Spotify said to be developing a U.S. Internet radio service that would take on Pandora Media
  • Vivendi said to consider overhaul of company structure that may lead to breakup of company
  • AstraZeneca CEO David Brennan to retire, cut profit forecast
  • Euro-Area April economic confidence drops more than forecast
  • Global earnings: Deutsche Bank 1Q profit falls more than est.; Volkswagen 1Q operating profit beats 

EARNINGS:

    • Aetna (AET) 6am, $1.40
    • Ball (BLL) 6am, $0.59
    • Starwood Hotels & Resorts Worldwide (HOT) 6am, $0.52
    • Iron Mountain (IRM) 6am, $0.28
    • MetroPCS Communications (PCS) 6am, $0.17
    • Potash of Saskatchewan (POT CN) 6am, $0.64
    • Time Warner Cable (TWC) 6am, $1.25
    • Tyco International (TYC) 6am, $0.79
    • Whirlpool (WHR) 6am, $1.08
    • Patterson-UTI Energy (PTEN) 6am, $0.57
    • Bunge Ltd (BG) 6:30am, $1.17
    • Coca-Cola Enterprises (CCE) 6:30am, $0.33
    • Dow Chemical (DOW) 6:30am, $0.60
    • L-3 Communications Holdings (LLL) 6:30am, $1.87
    • Mylan (MYL) 6:30am, $0.50
    • PulteGroup (PHM) 6:30am, $(0.03)
    • AmerisourceBergen (ABC) 7am, $0.81
    • Ametek (AME) 7am, $0.65
    • Colgate-Palmolive (CL) 7am, $1.24
    • CME Group (CME) 7am, $4.01
    • CONSOL Energy (CNX) 7am, $0.58
    • Digital Realty Trust (DLR) 7am, $1.05
    • Entergy (ETR) 7am, $0.75
    • Fidelity National Information (FIS) 7am, $0.51
    • Interpublic Group (IPG) 7am, $(0.10)
    • Moody’s (MCO) 7am, $0.69
    • Altria Group (MO) 7am, $0.49
    • Omnicare (OCR) 7am, $0.77
    • PepsiCo (PEP) 7am, $0.67
    • Raytheon Co (RTN) 7am, $1.16
    • Tellabs (TLAB) 7am, $(0.03)
    • Xcel Energy (XEL) 7am, $0.37
    • Zimmer Holdings (ZMH) 7am, $1.30
    • Goodrich (GR) 7:25am, $1.65
    • Noble Energy (NBL) 7:28am, $1.42
    • Amylin Pharmaceuticals (AMLN) 7:30am, $(0.29)
    • Bristol-Myers Squibb Co (BMY) 7:30am, $0.64
    • Celgene (CELG) 7:30am, $1.13
    • CMS Energy (CMS) 7:30am, $0.41
    • Dominion Resources (D) 7:30am, $0.87
    • Invesco Ltd (IVZ) 7:30am, $0.44
    • JetBlue Airways (JBLU) 7:30am, $0.08
    • Lockheed Martin (LMT) 7:30am, $1.71
    • Mead Johnson Nutrition Co (MJN) 7:30am, $0.78
    • Occidental Petroleum (OXY) 7:30am, $1.92
    • Waste Management (WM) 7:30am, $0.40
    • United Continental Holdings (UAL) 7:30am, $(1.10)
    • Monster Worldwide (MWW) 7:35am, $0.03
    • United Parcel Service (UPS) 7:45am, $1.01
    • Liz Claiborne (LIZ) 7:51am, $(0.12)
    • Avnet (AVT) 8am, $0.99
    • BorgWarner (BWA) 8am, $1.29
    • Kellogg (K) 8am, $0.99
    • Exxon Mobil (XOM) 8:04am, $2.08
    • Cameron International (CAM) 8:10am, $0.55
    • Shoppers Drug Mart (SC CN) 8:28am, C$0.57
    • Vulcan Materials Co (VMC) 8:30am, $(0.44)
    • TransAlta (TA CN) 8:54am, C$0.23
    • Safeway (SWY) 9am, $0.30
    • Amazon.com (AMZN) 4pm, $0.07
    • Expedia (EXPE) 4pm, $0.14
    • Federated Investors (FII) 4pm, $0.39
    • Informatica (INFA) 4pm, $0.33
    • Maxim Integrated Products (MXIM) 4pm, $0.28
    • Principal Financial Group (PFG) 4pm, $0.74
    • Angie’s List (ANGI) 4pm, $(0.26)
    • Clearwire (CLWR) 4pm, $(0.40)
    • Vertex Pharmaceuticals (VRTX) 4pm, $0.53
    • Fortune Brands Home & Security (FBHS) 4:01pm, $0.03
    • Cerner (CERN) 4:01pm, $0.50
    • Axis Capital Holdings Ltd (AXS) 4:01pm, $1.09
    • Coinstar (CSTR) 4:01pm, $1.39
    • MetLife (MET) 4:03pm, $1.29
    • Starbucks (SBUX) 4:03pm, $0.39
    • VeriSign (VRSN) 4:04pm, $0.43
    • Cincinnati Financial (CINF) 4:05pm, $0.41
    • Gilead Sciences (GILD) 4:05pm, $0.93
    • Leggett & Platt (LEG) 4:05pm, $0.32
    • Republic Services (RSG) 4:05pm, $0.42
    • Validus Holdings Ltd (VR) 4:05pm, $0.70
    • Zynga (ZNGA) 4:05pm, $0.05
    • KLA-Tencor (KLAC) 4:15pm, $1.10
    • Western Digital (WDC) 4:15pm, $1.53
    • Eastman Chemical (EMN) 5:06pm, $1.14 

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG) 

  • Mad Cow Case Seen as No Bar to Record Beef Exports: Commodities
  • Natural Gas to Climb as Goldman Sees Output Cuts: Energy Markets
  • Mexico Oil Opening First Time Since 1938 Shows Revival: Energy
  • Mitsubishi, Marubeni Said to Consider Offers for Gavilon
  • Copper Heads for Highest Close in Three Weeks on Supply Outlook
  • Aluminum Appliance Demand in China Little Changed This Year
  • Indonesia Halts U.S. Beef on Mad-Cow Disease, Minister Says
  • Gold Extends Advance on Optimism Fed to Do More to Spur Growth
  • India to Get Normal Monsoon Rain This Year, Weather Bureau Says
  • Farmers at Center of Mad Cow Probe Grumble Over Tainted Image
  • Corn Climbs on Signs of Increased China Demand; Soybeans Gain
  • Sugar Production in Pakistan Seen Climbing on Yields, Group Says
  • Palm Oil Declines as Higher Malaysian Output May Boost Supplies
  • China Said to Plan Increase in Rapeseed Prices to Spur Planting
  • Oil Trades Near Weekly High on Fed; Iran Considers Nuclear Halt
  • China to Phase Out 700,000 Tons of Outdated Copper Capacity

 THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES


US Dollar – last we checked, nothing happened in Iran yesterday or on the demand side of oil other than the Buck Burning during Bernanke’s presser. This morning, you see the follow through on that as Oil and Gold push toward lower-highs.

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


EUROPE – 1-day squeeze and European Equities are reminded that AAPL isn’t in their indices; straight back down this morning with Spain crashing again (ie down -22% from the Feb top). DAX failing right at our intermediate-term TREND line of resistance (6688) and that’s probably the more important callout on the margin. UK has stagflation with $119/brent.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


ASIA – you’d think Dollar Down = everything up, especially Tech related Asian Equity markets. Nope. Taiwan -0.55% and KOSPI up 0.1%; both remain bearish TRADE and TREND in our model which is interesting, to say the least. Hong Kong and Singapore Export demand is tanking y/y at -7% and -5% respectively for (March prints).

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 


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BWLD & WEEKLY COMMODITY MONITOR

Today’s upgrade of BWLD (by an analyst that made a superb call downgrading the company right at the top) centered on the conversation about chicken wing prices turning from “higher prices” to “lower prices” and the impact that would have.  In the same paragraph, in highlighting the sensitivity between the year-over-year change in wing prices and EPS, the report reminded us of the truth: cents per pound do not matter as much as year-over-year inflation for BWLD earnings.

 

Another notion supported by the upgrade was that egg sets and chick placements are lapping last year’s decline and, therefore, are likely to be supportive of moderating wing prices.  That may be true but, pertaining to BWLD; the question is whether or not it will come soon enough to save 2Q.  For two reasons, we do not think it will.

  1. Egg sets will likely not increase, year-over-year, until the last week of the second quarter even under aggressive assumptions. 
  2. Even if we are wrong on #1, the actual supply of chicken does not influence the market for two months.  Egg sets being placed today reflect chickens that will hit the market in the last days of 2Q.  Demand in the summer months is also expected to be strong, according to SAFM. 

Conversation about chicken wing prices moving lower will not change the likelihood that BWLD misses 2Q as costs increase as a percentage of sales and comps decelerate sequentially.  As the chart below illustrates, as of 4/20, the leading indicator of supply – egg sets – is declining ~5% year-over-year.  We expect that line to remain negative through June.

 

BWLD & WEEKLY COMMODITY MONITOR - egg sets wing prices

 

COMMODITY TABLE

 

Overall, proteins moved lower last week while grains, dairy, and coffee moved higher.  Beef prices were hit by the BSE news but it seems that the livestock disease “firewall” in the U.S. food system was effective.  Larry Hollis, beef veterinarian at K-State, commented on CattleNetwork that the particular strain of BSE that was detected in the animal in question is unlikely to involve any transmission to another animal or consumers.  The condition did not, apparently, arise from any feed but rather was naturally occurring and the “firewall” procedures in place worked well to identify this one instance. 

 

Coinciding with the concern around “pink slime” or Lean Finely Textured Beef, the news was certainly not positive for beef prices.  The market today seemed to reflect a degree of stability in beef prices.  Japan, Canada, and the European Union today said that they’ll continue to import American beef.

 

BWLD & WEEKLY COMMODITY MONITOR - commod

 

 

CORRELATION TABLE

 

BWLD & WEEKLY COMMODITY MONITOR - correl

 

 

CHARTS

 

BWLD & WEEKLY COMMODITY MONITOR - coffee

 

BWLD & WEEKLY COMMODITY MONITOR - corn

 

BWLD & WEEKLY COMMODITY MONITOR - wheat

 

BWLD & WEEKLY COMMODITY MONITOR - soybeans

 

BWLD & WEEKLY COMMODITY MONITOR - live cattle

 

BWLD & WEEKLY COMMODITY MONITOR - chicken whole breast

 

BWLD & WEEKLY COMMODITY MONITOR - chicken wings

 

BWLD & WEEKLY COMMODITY MONITOR - cheese

 

BWLD & WEEKLY COMMODITY MONITOR - milk

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 

 

 


CROX: Conference Call Puts & Takes

CROX beat both the high end of guidance and the street by a nickel in Q1 and despite guiding below consensus for Q2, reassured investors this evening on the call that revenues would grow 15%-20% in F12 and earnings would exceed the current street estimate of $1.43.

 

Below are the key deltas relative to forward looking commentary given on the 4Q11 conference call as well as key takeaways from this evening’s call.

 

 

Key Deltas Relative to the Fourth Quarter Call

 

 

Financial Guidance (Headed into this evening’s call):

 

"For the first quarter of 2012, we expect to generate revenues in the range of $263 million to $268 million with EPS estimated in the $0.24 to $0.26 per share range." Both Revenues and EPS exceeded Guidance at $272mm & $0.31 respectively

 

"We expect gross margins to be consistent with last year and foresee an increase in our effective tax rate to 24%. Currency estimates used for the quarter are $1.32 U.S. dollars to euro and ¥77 to the U.S. dollar." Gross Margins improved 70bps YoY

 

"However, as we enter into 2012, the backlog for Europe is down versus the same time last year. " Europe revenues were down 3% (+2% FX neutral)

 

"Moving on to bookings, we ended the quarter with backlog of $307 million, which represents about a 19% growth rate over last year. The 19% increase is on top of a 57% increase from a year ago." Backlog currently stands at +11%


"Of the backlog, orders for Q1 deliveries are up about 18% to $190 million. Orders for Q2 deliveries are up about 21% to $117 million. ASPs in our backlogs are about $18.71 compared to about $16.50 last year." Q1 ASP increased 11% to $19.22

 

 

 

Updated Guidance (Provided on this evening’s call):

 

“Moving on the guidance for the second quarter of 2012 we expect to generate revenue in the range of $335 million to $345 million.” (Note: Consensus: $352.7)

 

We estimate EPS (for 2Q12) into $0.63 per share range, currency estimates used for the quarter are $1.31 to Europe and 82.5 Yen to the U. S dollar.” (Note: Consensus: $0.65)

 

“We still expect full-year sales on a currency neutral basis to increase 15% to 20% over 2011. We pleased with the increase backlog growth in the America and Asia.”

 

“Based on where we are today, we feel comfortable that we will exceed the current first call diluted earnings per share consensus of $1.43 for 2012.”

 

 

 

2012 Store Additions (Headed into this evening’s call):

 

"In 2012 we plan on opening 25 to 50 stores in Asia" On Track

 

"Retail locations in Europe are expected to increase by 20 to 25 in the year. Our focus in the 2012 retail expansion will be to expand stores in northern Europe where our stores are presently concentrated in countries such as Germany, UK, France, Finland and the Netherlands. " Planning 25-35 openings in Europe

 

"We have identified and will open additional sites in the U.K., France and Germany in the second quarter with plans to open 20 to 25 new stores, bringing our total count to 55 to 60 by the end of 2012. In total, we anticipate opening between 80 and 100 net new stores globally in 2012." On Track

 

"Our (wholesale) door count is up modestly in 2012 with expansion to all Kohl's locations for men's and kids products." Continue to gain shelf space and expand doors

 

"In 2012, we will be closing about half of our remaining 50 kiosk locations in the USA Some of these will be converted into stores within the same shopping center but some centers will be exited all together. Moving forward, changes in our retail formats and portfolio of stores will periodically result in certain one time expenses. We expect this to impact Q1 EPS by $0.01 to $0.02 which is included in our guidance. For the full year 2012, we anticipate opening about 25 to 50 stores in the Americas before the kiosk closings." On Track- closed 11 kiosks in Q1 which impacted EPS by $0.01

 

 

 

Key Takeaways from the conference Call

 

Recap of the Quarter:

 

Revenues: +20% (+21% FX neutral, FX impacted Q1 revs by $4.3mm)

  • Comp: +10% (FX neutral)
  • Americas: +9%
  • Asia: +9%
  • Europe: +21%
    • Growth broad based w/new introductions representing 38% of Q1 sales
    • Non clog silhouettes made up more than half of quarterly volume
  • Top performing platforms:
    • Daily Collection
    • Women's flat & wedges
    • Duet sport line
    • cross mesh series
  • Americas: +17% (+18% constant currency)
    • Retail: +25% (driven by larger locations, product breadth, ASP growth and positive comps)
    • Internet: +28%
    • Wholesale: +12%
  • Asia: +40% (+39% constant currency)
    • Japan: growth enhanced due to tragedy last year which resulted in a $3mm delay in sales
    • Retail: +46%
    • Internet: +57% (small base last year)
  • Europe: -3% (+2% constant currency)
    • Wholesale: -7%
    • Retail: +52%
    • Internet: +3% 
  • GM +70bps
    • Benefitted from leveraging infrastructure cost and improved economics of new product launches

 

 

Store Count at End of Quarter:

  • Americas: 190 locations
    • Closed 11 kiosks and remain on track to close 20-25 kiosks this year
  • Asia: 211 stores
    • On track to open 25-50
  • Europe: 38 stores

 

Product Performance:

  • Clogs represented 49% of sales
  • New product intros were 38% of unit sales
  • ASP +11%
  • Unit sales +8%

  

Backlog:

  • Up 11% overall
  • Americas: +12%
  • Asia: +18%
  • Europe: -13%
  • Q2 backlog: +11%
  • 2H backlog: +11%

 

Guidance:

 

  • 2Q12 Revenue: $335-$345 (currency will negatively impact sales by 3% in Q2)
  • EPS: $0.63 (assumes $1.31 USD to Euro)
  • Assumes 22% tax rate
  • Continue to expect full year revenues growth of 15%-20%
  • 1H performance remains on track with Q1 outperforming and Q2 slightly below expectations
  • Comfortable that CROX will exceed current F12 consensus of $1.43

 

Additional Forward Looking Commentary

 

  • Global internet expansion in Japan, Korea, Holland & Brazil slated for completion later this year
  • Expect FX impact to begin in Q2 (55% of business overseas)
    • Expected to impact Q2 revenues by $10mm or 3%
  • Plan to open 25-50 stores in the Americas in 2012
  • Plan to open 25-50 stores in Asia in 2012
  • Plan to open 25-35 stores in Europe in 2012
  • Globally, expect to open 80-100 net stores

 

Q&A Rundown:

 

Expectations for 2H

  • Crossover between Q1 and Q2- first half performance expected to be inline with expectations
  • Q1 & Q2 revs combined are more inline with 1H consesnus
  • Bottom line will be anywhere from $0.01-$0.03 ahead of 1H expectations coming out of Q2
  • More revenue will be driven by direct channel in 2H
  • Expect favorable Gross Margin trends with backlog ASPs up $4

 

Backlog: +11%

  • Main weakness in 2H
  • 2Q bookings above last year so positioned to execute on the "at once" business
  • Q3 and Q4 deliveries are up but slightly lighter on Q4 deliveries at this point
  • In some markets, have not booked orders for Nov and December deliveries
  • Will give an update on Q4 bookings at investor day at the end of May
  • Q4 component of backlog is less important, currently represents ~20% of backlog
  • Q2 and Q4 are typically more "at once" weighted quarters vs. Q1 and Q3

 

Retail Comps:

  • Converting half the remaining kiosks into full price retail stores
  • Comp performance benefited from Easter shift
  • Get more difficult in 2Q reflecting Easter Shift and the Japan Tragedy compare in Q1
  • About 1/3 of comp in America/Asia driven by units, 2/3 driven by price

 

Inventory positions:

  • +10% QoQ and YoY, have adequate outlet channels built up to work through inventory levels if necessary
  • Quality of inventory in Europe and the US and manufacturing facility in Mexico well positioned to capitalize in Q2

 

Gross Margin puts & takes:

  • Benefited from expansion of new product and leveraging COGS infrastructure
  • Controlled products costs in the Q controlling both labor and product costs as well as streamlining the design process to mitigate excess costs 

CROX: Conference Call Puts & Takes - CROX SIGMA


LVS 1Q 2012 CONF CALL NOTES

Huge EBITDA quarter that got over $100MM boost from high hold

 

 

CONF CALL NOTES

  • 40% of annual retail sales are done between Thanksgiving and Christmas. 
  • Will open PH2 of SSC in mid-September
  • Singapore:
    • Mass win per day increased to $4.7MM/ day
    • RC was up 26% YoY
  •  There will be no additional concessionaires in Macau
  • On a daily basis they are always shuffling around their gaming tables in Macau to improve table yields
  • The government committed to give them 400 tables and gave them 200 additional tables so far
  • Spain: They are current planning to build a property over the course of 9 years.  The first phase will cost $8-12BN. 25-35% of that will be equity. So the most that they will have to lay out is $4BN. They will no look at any investments where they don't think that they can make a cash on cash return. Equity goes into the first phase only and then phase 2 is financed with earnings from Ph1.
  • SCC: Only product opening in the next 3 years
  • Lot 3: can hold 3,600 rooms. They are applying to the government to build there. 
  • Galaxy is going to announce a non-gaming hotel and exhibition center for Ph2

Q&A

  • Spain: They are the point where the Board of Directors will opine on a decision. Negotiations are continued with Barcelona and Madrid.  Then there needs to be various legislation set once a location is picked. Thinks that the tax rate will be 'highly' favorable compared to other jurisdictions.
  • Junkets in Singapore? 
    • Junkets reps in Singapore: Cannot share commissions with anyone else - so it takes away incentives to get players. Secondly, they can't give credit. In Singapore, they are really just international marketing representatives.
    • Their field representatives can bring in customers and get paid for bringing in customers
    • They don't see any value in the Junket model of Singapore since MBS already has 100 people that have a similar function working in house
  • Hold impact in Singapore: 200 day moving average was 2.85%
    • By our quick math it was about $80MM.
  • There is no cannabilization in Macau.  Supply creates demand.
  • Impact of CNY in Singapore? 
    • Definitely helped in the quarter, but its hard to estimate seasonality since their operation is fairly new
  • Margins at FS? 
    •  Are these low 20's margin a good run rate? Retail operations decreased by $13MM sequentially so that impacted margins.
    • They did have bad mix on their RC vs. RevShare business and that cost them $10MM. Should have normalized profit of 4x of that in 1Q11.
  • Retail value of their assets is so great that they could pay off all of their debt
  • Unless there is a change to the way the regulations in Singapore are written, they don't see any reason to use the junkets there. Basically junkets are neutered by the law there.
  • They are lobbying the governments in Japan and S. Korea to get the legislation drafted and to get a piece of the action.  There are elections in both countries this year.  They are also looking at Vietnam and Taiwan.  Most governments want to follow the Singapore model.
  • In Spain they will have committed financing before they put a shovel in the ground.  They will not repeat what happened in the past. They are not dependant on the Asian player coming to Spain.
  • Sheldon has recused himself from voting on dividends
  • SCC what's open:
    • Opened all the rooms aside from one junket room- which should be open by May
  • Will start renovations at the Venetian Macao.  The new rooms that they are building are very nice.
  • 3.05% is their 200 day moving average for Macao and Singapore VIP 
    • Even so there was a huge hold benefit this quarter.  We also wouldn't use a 200 day rolling average across 2 separate markets to calculate the "base" hold rate.  We use each properties' historical VIP hold rate to adjust our numbers and calculate impact
  • Given the duopoly nature of Singapore, it almost guarantees them good YoY growth for many years to come

 

HIGHLIGHTS FROM THE RELEASE

  • "We expect to realize additional benefits from our initiatives in the VIP segment in the future, as we roll out additional enhanced VIP facilities and service offerings throughout our property portfolio in Macao."
  • "As Singapore's complementary business and leisure tourism offerings and transportation infrastructure continue to expand, we are confident that Marina Bay Sands will continue to generate outstanding returns for our company."
  • In Las Vegas:
    • "Table games drop was up 27.8% during the quarter reflecting strong baccarat play." 
    • "Stronger group meeting and convention business during the quarter drove a 4.9% increase in cash hotel ADR."
  • "The property's 300-room hotel tower opened on May 27, 2011, and contributed $1.9 million of room revenue during the quarter ended March 31, 2012. The hotel, together with the addition of the retail mall, the first phase of which opened in November 2011, and the events center, which will debut in May 2012, should contribute to future growth of both gaming and non-gaming offerings at the property."
  • "Company's retail malls at The Venetian Macao, the Four Seasons Macao and Marina Bay Sands in Singapore reached $71.1 million for the first quarter of 2012, an increase of 27.3% compared to the first quarter of 2011. Operating profit derived from these retail mall assets increased 25.2% for the quarter to reach $55.2 million."
  • "Pre-opening expenses, related primarily to Sands Cotai Central ...increased to $51.5MM" 
  • "Capitalized interest was $22.1 million during the first quarter of 2012"
  • "Corporate expense increased to $49MM... primarily driven by higher legal fees."
  • The impairment loss of $42.9MM was million related to the closing of Zaia at Venetian Macao.
  • Balance Sheet items: 
    • Unrestricted cash: $4.06BN
    • Restricted cash: $7.3MM
    • Debt: $9.9BN
    • Principal payments (mostly Singapore): $352MM in 2012 and $543MM in 2013
    • Redeemed all of 6.375% Senior Notes due 2015 at a total cash cost of $193.2 million in the Q
  • 1Q12 Capex: $398MM
    • Macao: $305MM
    • MBS: $62MM
    • LV: $22MM
    • PA: $9MM

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