DKS: Kicking off 2012


Conclusion: We expect a solid quarter, driven by not only healthy footwear and apparel sales in the athletic specialty channel, but an incremental boost from golf and youth bats. In addition to reaccelerated store growth that got us positive on DKS back in January, multiple tailwinds have since developed that we expect to drive upside in 2012.


TRADE (3-Weeks or Less): We’re at $0.40 for DKS headed into Tuesday’s print before the market open ahead of Street estimates at $0.38E.         

  • We’re modeling comps up +5.5% vs. +4.3%E and sales up 14% vs. +10.5%E driven primarily by footwear and equipment sales.
  • February and March footwear sales in the Athletic Specialty channel have come in strong up mid-teens in support of bullish reads from both FL and FINL. While April is up against a tougher compare, it’s the lowest volume month representing ~25-28% of Q1. We expect sales up LSD-MSD in April suggesting low double-digit footwear comps for the quarter. With footwear accounting for ~20% of total sales, we expect footwear to drive over 2pts of comp.
  • Apparel sales have been tracking at a more modest pace relative to footwear up MSD, which should add ~1pt to total comp.
  • Equipment is the big variable headed in the quarter. Golf continues to come in strong YTD across multiple metrics. With a strong start to the year, continued demand for TaylorMade drivers (Adidas raised its sales outlook due in part to this factor), and favorable weather compares in April, we expect golf to add roughly 1pt to comp. In addition, baseball bat regulation changes that are prompting a replacement cycle this season could account for another 1pt+ of comp.
  • While our top-line expectations are more robust, we are modeling GMs up +40bps only 10bps higher than consensus expectations due to residual cold weather inventory left to be cleared from Q4 as well as a greater sales contribution from lower margin hardgoods. Occupancy leverage will be the primary driver of gross margin expansion.
  • We expect SG&A of $296mm to come in higher than expected ($285mm) reflecting increased store investments offset in part by lower advertising costs.

TREND (3-Months or More):

The product cycle continues to improve while DKS comps are relatively easy. In addition to positive trends in apparel and footwear, there were a flurry of announcements in April that at in isolation don’t mean much, but combine the following a) its purchase of Top Flight, b) acquisition of minority interest in JJB Sports (with call option for majority interest in 1Q13), c) our recent analysis showing a meaningful improvement in its lease duration risk, d) equipment traffic drivers like Bubba Watson’s Pink Ping Limited Edition club come June and baseball bat regulation changes, and you have a series of positive intermediate-term traffic and sales drivers. Many people say that equipment does not matter because of the low margins. But it gets a heck of a lot more profitable when the shopper also walks out of the store with a shirt or pair of kicks. When we plug these factors into our model, it gets us above consensus for not only this quarter, but also for this year ($2.50 vs $2.43E) and next ($3.00 vs. $2.80E).

TAIL (3-Years or Less):

DKS’ recent acquisition of Top Flight, and shift to the UK with a minority stake in JJB Sports is noteworthy. That converts into a call option for a controlling stake in 1Q13. Specialty retail is historically a regional business. DKS might not only evolve into the preeminent national retailer, but perhaps global as well. At $48, DKS is trading at 19x and 16x this year and next year’s earnings toward the lower end of its 10-year range. While our model suggests 20% earnings growth over the next two years with potential for upside from international growth opportunities, DKS probably isn’t going to make you rich here, but we are still positively inclined on the name.

Casey Flavin



European Banking Monitor: CDS Widen

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

Key Takeaways:


* Nearly all European Bank CDS widened last week.  Two of the four big French banks are now trading above 300 bps on CDS, while the major Spanish banks we track are all above 400 bps.  European Sovereign CDS all widened last week as well, with Spanish CDS rising 11.5% to 541 bps. 


If you’d like to discuss recent developments in Europe, from the political to financial to social, please let me know and we can set up a call.


Matthew Hedrick

Senior Analyst





European Financials CDS Monitor – Bank swaps were wider in Europe last week for 37 of the 39 reference entities. The average widening was 5.4% while the median widening was 4.9%. 


European Banking Monitor: CDS Widen - AA. BANKS


Euribor-OIS spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread tightened by 3 bps to 35 bps.


European Banking Monitor: CDS Widen - AA. EURIBOR


ECB Liquidity Recourse to the Deposit Facility – The ECB Liquidity Recourse to the Deposit Facility measures banks’ overnight deposits with the ECB.  Taken in conjunction with excess reserves, the ECB deposit facility measures excess liquidity in the Euro banking system.  An increase in this metric shows that banks are borrowing from the ECB.  In other words, the deposit facility measures one element of the ECB response to the crisis.  The latest overnight reading is €763.12B.


European Banking Monitor: CDS Widen - AA. ECB


Security Market Program – For a ninth straight week the ECB's secondary sovereign bond purchasing program, the Securities Market Program (SMP), purchased no sovereign paper for the latest week ended 5/11, to take the total program to €214 Billion.


European Banking Monitor: CDS Widen - AA. SMP


Matthew Hedrick

Senior Analyst


The Knapp Track numbers for April suggest a slight sequential improvement in casual dining sales trends from March. 


Malcolm Knapp released his Knapp Track casual dining sales numbers for April this weekend.  This release was a departure from Knapp’s usual release, which comes in the form of a longer text report offering different insights into consumer trends during the month concerned; this weekend Knapp released the numbers alone with the text report, presumably, to follow in the coming days.


Estimated Knapp Track casual dining comparable restaurant sales grew 0.8% in April versus an estimated -0.7% in March.  The sequential change from March to April, in terms of the two-year average trend, was 30 bps.  While this is an improvement, the two year average trend is still well below the strength we saw in December through February. 


Estimated Knapp Track casual dining guest counts declined -1.9% in April versus an estimated -3.4% in March.  The sequential change from March to April, in terms of the two-year average trend, was +50 bps.  This is an improvement but the decline in March was so substantial that a more sustained move higher will be necessary to convince investors that traffic can get back to positive territory. 





Besides the broader casual dining group, for Darden and Brinker this result is especially meaningful since those companies’ systems represent a large portion of the unit base from which the numbers are calculated.


Traffic trends remain disappointing; it seems likely that weather was supporting traffic trends for much of 1Q.  Now that the weather impact has dissipated, we are seeing numbers more representative of the true traffic trends in casual dining.


The price action is confirming our CASUAL DINING CAUTION stance we took ahead of 1Q earnings season.  The group’s performance versus the broader market is slowing markedly.  BWLD, however, remains a volatile name and outperformed the market last week by 4%.  We still like BWLD on the short side but there are no catalysts until the company reports earnings on July 26th.  The stock has not been performing very strongly relative to its peers over the last three months; we think consensus is too bullish on FY12 EPS.


APRIL KNAPP TRACK - cd rel spx


Howard Penney

Managing Director


Rory Green



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Gnarly: SP500 Levels, Refreshed

POSITIONS: Long Healthcare (XLV), Short Industrials (XLI)


Friday morning’s bounce was a Selling Opportunity (see 11:44AM EST note 5/11). Today is a wait and watch.


There is no immediate-term support to 1329 and, over the intermediate-term, the mean reversion zone we have been focused on is the long-term TAIL of support down at 1282.


Here are the lines across risk management durations that I am focused on: 

  1. Intermediate-term TREND resistance = 1369
  2. Immediate-term TRADE support = 1329
  3. Long-term TAIL support = 1282 

I see zero irony in this market giving back essentially its entire gain from the January 25thPolicy To Inflate day (where Bernanke arbitrarily pushed 0% policy to 2014).


Quantitative Easing, from here, only spikes oil and slows real consumption growth further. The only way out of this is to Deflate The Inflation in food, energy, etc. so that the 71% (US Consumption as a % of US GDP) can stop slowing and solidify itself (like it did in December and January).


Letting free-market prices clear – I know – the horror of the idea.



Keith R. McCullough
Chief Executive Officer


Gnarly: SP500 Levels, Refreshed - SPX


We are lowering the top end of our May forecast range from HK$29 billion to HK$28 billion. 


Our new range of HK$27-28 billion would represent YoY growth of 14-19%.  This could be seen as a disappointment by investors. 


Average daily table revenues (ADTR) declined to HK$714 million from HK$975 million last week and was below the April rate of HK$773 million.  However, ADTR was 35% above the comparable week last year. 




Sands China had another disappointing week with MTD market share dropping back down to the mid 17s%, in-line with pre-Sands Cotai Central levels.  Obviously, share should be much higher considering that SCC added about 4% to table market share.  Galaxy and SJM are trending above recent share while Wynn and MGM are below.




A new quarterly record 



Singapore gross gaming revenues rose 11% YoY and 9% QoQ to a new quarterly high in Q1 2012.  GGR crossed the S$2 billion mark to S$2.093 billion.  For comparison, Macau GGR grew 1% QoQ and 27% YoY in Q1.  Singapore property EBITDA rose 3% QoQ to S$985MM, also setting a new record.  


VIP RC grew QoQ by 22%, but was down slightly YoY at S$31.7BN and 14% below the market high set in 3Q11. Mass drop and slot handle were up YoY by 4% and 31%, respectively to S$2.8BN and S$6.8BN, however, both categories were down QoQ.  YoY we have seen the number of slots and ETG's expand by 20% to 4,919 and the number of VIP tables expand 15% to 315, while Mass table growth has only been 2% to 855. 


Q1 hold was 3.49%, slightly lower than Q4’s 3.58% but higher than Q1 2011's hold of 3.25%.  Average hold for the 2 IR’s since 1Q10 has been close to 3.09%. 





  • MBS:  52.3%
  • RWS:  47.7%

Net Revenue:

  • MBS:  57.5%
  • RWS:  42.5%

Property EBITDA:

  • MBS:  60.7%
  • RWS:  39.3%

Mass Table Revenue:

  • MBS:  52.7%
  • RWS:  47.3%

Mass Table Drop:

  • MBS:  53.4%
  • RWS:  46.6%

VIP Table Revenue:

  • MBS:  52.3%
  • RWS:  47.7%


  • MBS:  51.1%
  • RWS:  48.9%

Slot Revenue:

  • MBS:  51.2%
  • RWS:  48.8%

Slot Handle:

  • MBS:  45.7%
  • RWS:  54.3% 




SINGAPORE Q1 2012 REVIEW - s pore0


SINGAPORE Q1 2012 REVIEW - s pore2


SINGAPORE Q1 2012 REVIEW - spore10


SINGAPORE Q1 2012 REVIEW - mass rev


SINGAPORE Q1 2012 REVIEW - mass drop 


SINGAPORE Q1 2012 REVIEW - vip rin


SINGAPORE Q1 2012 REVIEW - vip rc