prev

PENN 2Q REPORT CARD

In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance

 

OVERALL

  • SAME:  There wasn't much change in guidance (it was just a little better) and the quarter was generally in-line.  Given the pessimism, however, PENN performed quite well.  

PENN 2Q REPORT CARD - penn

 

CONUSMER BEHAVIOR

  • SAME:  has not gotten better but not getting worse on consumer spending behavior

PROMOTIONAL ENVIRONMENT

  • MIXED:  In the Kansas City market, ASCA, CZR, and to a lesser extent, ISLE have been very aggressive in preserving their slot business but PENN is not going to be undisciplined in its reaction.  LV locals promotional market has been slightly more rational than a few months ago.  
  • PREVIOUSLY:  "There's rational promo environment out there."

CANNIBALIZATION

  • SAME:  Cannibalization, overall, was in-line with management projections.  Maryland Live! has adversely impacted Charles Town and Penn National properties.
  • PREVIOUSLY: 
    • "It's clear that the cannibalization immediately is not as strong as what we've been indicating in our previous thought process. So that doesn't mean that the cannibalization doesn't happen. It just seems to be a little bit more delayed than we had in our original numbers."
    • "Maryland Live! versus Charles Town, I mean, certainly we are incorporating a bit of that. We think that the cannibalization, original cannibalization thoughts may have been a little bit accelerated in terms of the immediate impact. So we have pulled that back just a little bit."

M RESORTS/ BOULDER STATION

  • WORSE:  LV locals market remains sluggish 
  • PREVIOUSLY:  "We started to see a little bit of improvement in the Boulder Station numbers for the Las Vegas locals....continue to show improvement to the overall performance in the M. But again, we're still early on in this, and it's going to take a couple more quarters going forward into this year and into next year for this to completely take hold. So we're off to a decent start this year, but there is more to come."

BATON ROUGE MARKET OUTLOOK

  • SAME:  L'Auberge Baton Rouge will be a 'disaster' for the Baton Rouge market
  • PREVIOUSLY:  "I think there is going to be very, very modest growth in this market, and I do think there is going to be significant cannibalization of the two existing casinos that are in that market. So we don't anticipate that there is going to be a good story in Baton Rouge once Pinnacle does open there. So we think the market is fairly well saturated and there will be modest overall growth. Probably not too different than what you're going to see in Atlantic City with the Revel opening that just occurred, given how saturated that market is, we see similar kind of effect in Baton Rouge. So we're preparing for lower business volumes and therefore ready to adjust our cost structure to accept a new paradigm of business levels."

UA: Full Speed Ahead

Under Armour (UA) reported better-than-expected Q2 earnings this morning. That’s good for them because we expressed concern over a full blown sell off like Chipotle (CMG) or Nike (NKE) experienced when they reported. Instead, as of writing, the stock is up over 11%.

 

The company has solid growth and beat the Street consensus on multiple metrics including revenue, operating margin and an overall improved balance sheet. But the real story here is footwear. 

 

 

UA: Full Speed Ahead - UA Footweartime

 

 

Under Armour has tried twice before with footwear and has essentially fallen flat. After all, who needs another Reebok/Nike/Puma/etc., right? This time around, with the introduction of their Spine Technology, used in the Spine line of running shoes, revenue is off to a solid start.

 

Footwear revenue came in +44% vs. +26% though only 12% of sales. This is where they have the biggest opportunity given they’ve fallen short on the execution and design side in the past. Now they’re crushing it and they just released their best product yet which is just starting to drive sales. Consumers are definitely getting excited about UA sneakers.

 

Keep in mind footwear is at a lower margin than apparel so as market penetration grows, it will pressure margins but at the same time, UA will offset this as they grow out their direct-to-consumer business vs. wholesale which carries an even higher margin.

 

Another note to keep in mind is that UA will bring the Spine technology over to their professional athletic apparel. Football and basketball shoes will get the Spine treatment soon enough; there’s always room for endorsements from all star athletes, too. 


Heads or Bails?

RIA DAILY PLAYBOOK  

FOR RELEASE ON TUESDAY, JULY 24, 2012

 

CLIENT TALKING POINTS

 

DROP THE BOMB

Moody’s came out last night and lowered their outlook on Germany and the Netherlands’ credit ratings. While Angela Merkel’s AAA rating remains intact, the curtain is being pulled back, revealing that Germany has the same #GrowthSlowing problem as everyone else. Estimates floating around now guess that German Q3 GDP could even turn negative on a year-over-year basis; the consensus is up +0.5%.

 

A SHOW OF HANDS, PLEASE

Our idea of a country being “Too Big To Bail” isn’t some pipe dream we came up with – it’s reality. Bailout mechanisms like the IMF and EFSF only have a finite amount of funds and it’s not exactly trillions upon trillions of dollars either. Spain and Greece go and ask for more money every week, like spoiled children going to the shopping mall.

 

And then there is Italy. Italy has over $1 trillion of debt maturing in the next 12 months. The country will have a tough time with austerity measures, too, we’d imagine. This is a country truly too big to bail.

 

DOLLAR HOLLER

Seriously, holler at the US dollar. As Keith mentioned on The Kudlow Report last evening: get the dollar right and you’re going to get a lot of other things right. We’re bullish on the USD and thus we’ve had a fairly good time watching things like Brent oil, the EUR/USD and gold move lower as the dollar goes higher. The commodities game is basically winding to a close since the Federal Reserve is out of bullets.

 

ASSET ALLOCATION

 

Cash:  Flat    U.S. Equities: Up

 

Int'l Equities: Up           Commodities: Flat

 

Fixed Income: Down     Int'l Currencies: Flat

 

TOP LONG IDEAS

 

JACK IN THE BOX (JACK)

This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.

                                 

TRADE: LONG

TREND: LONG

TAIL: LONG

 

HCA (HCA)

SS volume accelerated in 1Q12 and employment remains a tailwind to both admissions & mix. We expect acuity to stabilize and births and outpatient utilization to accelerate out of 1Q12, while supply cost management continues as a margin driver and acquisition opportunities remain a source for upside.

 

TRADE: NEUTRAL

TREND: LONG

TAIL: NEUTRAL

 

LIFEPOINT HOSPITALS (LPNT)

We continue to expect outpatient utilization to pick up in 2H12 alongside stabilization in acuity with ortho and cardiac/ICD volumes supporting both pricing and inpatient admissions growth. Births should serve as a tailwind into year-end, recent and prospective acquisitions offer some upside to 2012/13 numbers and the in place repo offers some earnings flexibility. With European and Asian growth slowing, we like targeted domestic revenue exposure as well.

 

TRADE: NEUTRAL

TREND: LONG

TAIL: LONG

 

THREE FOR THE ROAD

 

Tweet of the Day: “So this is it. A battle three years in the making. The US Housing Market vs Europe. Good luck, gentlemen. $$” -@ReformedBroker

 

Quote of the Day: “In great affairs men show themselves as they wish to be seen; in small things they show themselves as they are.” –Nicholas Chamfort

 

Stat of the Day: The Russell 2000 has dropped over -5% since July 4, snapping both our TRADE and TREND lines of support.

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

WYN YOUTUBE

In preparation for WYN's 2Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

GS LODGING, GAMING, RESTAURANTS AND LEISURE CONFERENCE (JUNE 4)

  • “We've been generating between $600 million or $700 million of free cash flow or $1 billion of available cash flow because we've stated that we are not afraid to lever up if we have additional EBITDA that will allow us to borrow more and still maintain our bottom of investment grade rating.  So, that's been a heavy focus of our business over the last couple of years.  Also, a heavy focus on growth, all of our businesses are growing and they have different attributes that are growing both domestically as well as internationally.”
  • “Europe represents about 15% of our overall EBITDA.  The largest business we have there is Vacation Rental business… largely focused in Northern Europe.  Our three largest markets for product is the UK, Holland and Denmark, and those three countries plus Germany represent the four main source markets for us. It was very resilient during the last downturn. We continue to see a stable environment for our rental businesses over in Europe. We've said that that's what we expected. When we entered the year, we said that's what we saw through the first quarter after the first quarter call, and now with April and May in the books, we'll see the exact same thing." 
  • “We had expected kind of a mid-single digit VPG growth and we ended up with a, I think, 11% VPG growth for the first quarter. We're not suggesting that that's the pace that we're going to remain at going forward.”
  • “We're continuing to see great growth in that Chinese market. I think we're doing an okay job there. I think we could frankly be doing a better job and that's not a knock on anybody who is doing the effort over there. It's just the opportunity is so large and I think we have the opportunity to even be doing better than we're doing right now.  Super 8, eight is a lucky number in China, so we got lucky with that brand. Wyndham is growing very rapidly. Our pipeline on Wyndham is tremendous. Howard Johnson is actually a stronger brand in its product quality and presence in China than it is in the U.S. Last time I was over in Shanghai and stayed at our Howard Johnson in Shanghai it's a beautiful, beautiful product."
  • "I don't see us ever going back to the model we had before where we were building at a pace of $600 million of build a year in order to fuel the kind of growth that that business was on. Right now, we're spending $125 million a year to finish the development of inventory that we already have on our balance sheet. And that's a pace that we'll be at for the next eight to 10 years. And then after that we may go more heavily on this WAAM model and not even have that much development in the future."

 

1Q CONFERENCE CALL YOUTUBE (APRIL 25)

 

WYN YOUTUBE - WYN2

  • "Vacation Ownership had an outstanding quarter, supported by strong consumer travel in the U.S. and continuing progress in optimizing marketing efficiencies. And Exchange and Rental was highly effective in managing a difficult operating environment in Europe, as well as limited growth in the broader timeshare industry."
  • "Our board has approved an additional $750 million to be added to our share repurchase authorization.  We continue to believe that share repurchase offers a compelling return, and with the $750 million increase as of market close yesterday, we have $940 million available in our share repurchase program."
  • "We expect our European vacation rental business to remain stable overall due to the strength and resiliency of our portfolio of established brands and customer bases as well as our strong experienced management teams."
  • "Since our last conference in September of 2010, there's been an obvious improvement in the mood and outlook of our franchisees and partners. Many of our suppliers saw increased order and lead activity, and almost without exception, the owners and managers I spoke with strongly felt that things were improving. And hotel owners are looking to invest in their hotels as well. So in addition to the numbers we are seeing, this is great confirmation that for us, the lodging and recovery is firmly established."
  • "Wyndham Hotel Group continues to make progress in executing its Apollo initiatives, which is a series of technology projects focused on improving our value proposition to franchisees. Our franchisees will be able to measure our results by the number of direct room nights we deliver to overall bookings, primarily through online strategy. Our goal is to capture the maximum amount of online traffic and then convert these online visitors to stay-in guest. Remember that the launch of our new hotel brand websites and improved content were the first step in our Apollo plan to drive more room nights through our online direct distribution channels. Preliminary results have exceeded our expectations with brand booking increases averaging over 10%."
  • "In 2011, we piloted TripAdvisor ratings and reviews on wyndhamrewards.com. Industry research indicates that up to 50% of consumers will not book a hotel without reading a review. Making ratings and reviews readily available on our own brand sites ensures consumers don't have to leave our site to get that information and ultimately book us. We saw an approximate 30% increase in bookings during the pilot period.  This past quarter, we rolled out TripAdvisor to the majority of our websites and will be fully implemented by the end of May. In conjunction with the rollout, we launched WynReview, a suite of tools and services designed to help our franchisees manage their online ratings and reviews. We expect our affiliation with TripAdvisor, one of the first in the industry, to drive conversions as well as support brand quality."
  • "We are also excited about our new mobile websites. By the end of next year it is expected that more people will access the Internet using a mobile device than a computer. Research indicates that nearly 65% of mobile bookings are made on the day of arrival, many within five miles of the hotel. Based on the narrow booking window of our consumers as well as the distribution of our hotels, we feel this represents a significant opportunity for us to capture the on-road connected traveler." 
  • "In the second quarter, we expect to launch two significant initiatives. First, in North America, we will consolidate 23 Rental websites into a single improved site. Second, in Europe, we will integrate the inventory and reservation platform of our UK cottages, parts and lodges brands into a common property management system, a change the will enable further yield management and operational efficiencies." 
  • "The strength of RCI's technology continues to pay off with online transaction penetration growing to over 40%, up more than 400 basis points from last year."
  • "We recently signed our first WAAM agreement for our WorldMark by Wyndham product. Located in the South Mountain region of Arizona near Scottsdale, our fifth WAAM deal is a purpose-filled timeshare project that will nicely complement our three existing Arizona locations within in the WorldMark portfolio. We expect to start sales on this product in the fourth quarter."
  • "We expect VPG growth to moderate somewhat throughout the year as we lap the rollout of the credit prescreening program. Consistent with last year, we expect to add 27,000 new owners in 2012."
  • "We believe that our Hotel business will have good margin progress by the end of the year – but at least on – at this quarter basis, we had higher marketing spend than we had last year."
  • VOI mix: “It's about 65%-ish upgrades and 35% new owners”

President Obama's Reelection Chances

The polls have been heating up and we have ourselves an official reversal. If you’ll recall, over the last four weeks, President Obama’s chances of being reelected climbed for three weeks straight until holding flat last week according to the Hedgeye Election Indicator (HEI). This week, the President’s odds of being reelected dropped 70 basis points (-0.7%) to 57.1% chance.

 

Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.

 

Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.

 

President Obama’s reelection chances reached a peak of 62.3% on March 26, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.

 

President Obama's Reelection Chances - HEI


THE M3: TYPHOON VICENTE; CHINA JULY LOANS

The Macau Metro Monitor, July 24, 2012

 

 

TYPHOON SIGNAL 8+: VICENTE STRANDS 2,000 PASSENGERS AT AIRPORT AND FERRY TERMINAL Macau Business, Macau Daily Times

Macau raised its typhoon warning to Signal 9 at 2:15am, the first time it was used since 1999.  The Meteorological and Geophysical Bureau downgraded the storm warning at 5:00am.  More than 100 passengers were stranded at the Outer Harbor Ferry Terminal after failing to get onto the final ferry to Hong Kong, and some sources said over 1,800 passengers were grounded at the airport.  Ferry terminals for boats to Macau and China have been closed.

 

CHINA BIG FOUR BANKS ISSUED AROUND CNY50 BILLION NEW YUAN LOANS 1ST HALF JULY WSJ

According to Shanghai Securities News, China's biggest four banks issued around CNY50 billion (US$7.9 billion) in new yuan loans in the first half of July, double that of the same period of last month.  The increase was due partly to banks starting to extend loans for some projects that are aimed at revitalizing economic growth.

 

The four banks--Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd --usually account for 30% of new yuan loans issued by China's whole banking system.  New yuan loans issued by China's whole banking system are expected to be around CNY650 billion in July.

 

Chinese financial institutions extended CNY919.8 billion in new yuan loans in June, up from CNY793.2 billion in May, in another sign of easing liquidity as policy makers try to boost economic growth.

 

 


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

next