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DKS: London Calling

There’s opportunity in the stock of Dick’s Sporting Goods (DKS), but it will take a major effort from the company’s management to turn its investment in JJB Sports (JJB) around.

 

Dick’s Sporting Goods made an investment in JJB Sports – the UK equivalent of The Sports Authority – committing up to £30M back in April of 2012. It appears that JJB, which is on the brink of going under, will go under a restructuring plan put together by the two largest debt holders: Invesco and DKS. Both companies will then have to buy all the debt JJB.

 

 

DKS: London Calling - JJBsportschart

 

 

The situation is a bit precarious considering that Europe is undergoing a consumer spending and debt crisis.  But there could be value in this deal in the sense that it will help Dick’s grow its overseas business. Of course the market got excited, rallying shares in London trading. But think about this: shares are essentially flat year-to-date (as of writing), pegging JJB Sports at a value of just under £22 million. 


Fun: SP500 Levels, Refreshed ...

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)

 

Growth Slowing is now something that everyone who was bullish on growth at the end of Q1 not only expected, but then expected people to get “too bearish” on. Fun.

 

In other news, the VIX 14-15 sell signal (for US Equities) remains in play inasmuch as lower-highs for the SP500 does. That said, despite not being confirmed by either our VOLUME or VOLATILITY signals, the SP500’s PRICE signal looks good (above TREND support) until it doesn’t.

 

Across all 3 of our core risk management durations, here are the lines that matter to me most: 

  1. Immediate-term TRADE resistance = 1406
  2. Intermediate-term TREND support = 1375 

If, by some act of gravity, we snap 1375 again, this will no longer be fun.

 

In the meantime, squeeze away.

 

Stay hedged,

KM

 

Fun: SP500 Levels, Refreshed ... - SPX


GMCR: Zero Chance?

On April 5 of this year, Hedgeye Managing Director of Restaurants Howard Penney explained his bearish case for Green Mountain Coffee Roasters (GMCR), which was trading around $40 a share. Here’s the jist of it (and please note our #timestamp):

 

“04/05/12 10:49AM EDT GMCR: THE SLOW DRIP OF THE GREAT COFFEE BUBBLE

When we consider that GMCR has now declined for 10 days in a row and insiders are exiting the stock, it is easy to concoct a bearish story.  The question is: how bearish is bearish enough?  We think the stock could go to $25.”

 

 

GMCR: Zero Chance? - GMCR bleeding

 

 

GMCR makes the Keurig coffee brewing machines, which it has patented. Unfortunately for Green Mountain, that patent is set to expire next month. Penney noted that GMCR has the possibility of going to $25 a share; that came and went. Now we’re at $20 a share and continuing to head lower.  As you can see in the chart above, GMCR has lost 77% of its value over a one-year period. Penney reiterated his bearish stance today. The patent issue, combined with accounting irregularities that came forth this year and increasing pressure from Starbucks (SBUX) makes a tough case for Green Mountain.


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MGM YOUTUBE

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

 

 

YOUTUBE FROM 1Q CONFERENCE CALL

 

LAS VEGAS

  • "It is clear that the underlying trends remain positive."
  •  "We expect convention mix to increase YoY during 2Q [at least +1%], and most notably our convention pace is up significantly in 2013 and 2014. Based on our current booking trends, we expect a mid single digit RevPAR growth in the second quarter."
  • "We expect convention mix to be flat to slightly up year-on-year this year."
  • "We continue to believe that RevPAR growth for the year will be at least mid-single digit with potential upside coming from the in the year, for the year convention bookings and retail segment strength."
  • "The 2012 forecast for the entire company, including ARIA, we expect to exceed 2007 convention room nights [similar to 2011]."
  • "Our MGM Grand room remodel program continues to progress nicely with roughly 2,300 rooms completed and that project is on budget and on time to be completed by September of this year."
  • "Looking out for the next two quarters, room bookings [at Aria] are significantly outpacing last year."
  • "We expect occupancy in the second quarter to be the highest ever for ARIA driven by continued growth in convention business as our world-class convention space continues to gain traction in the marketplace. Convention business is also robust for 2013."
  • [2012 Revpar growth] "It's a combination of both, slightly more occupancy."
  • "We are not anticipating adding any FTE's to any material nature at all for the entire year."
  • [CityCenter margin] "You can expect the margin to be about 25%."

MACAU

  • "Our expansion project on our Level II is underway, and upon completion, we'll have 40 gaming tables which are available from our existing table inventory of 427 units."
  • [Cotai financing]  "We'll look to probably do a $2 billion to $2.5 billion financing package at the MGM China level."
  • ["Normal hold"] "We're seeing that the market is starting to stabilize to the – closer towards that 3%."
  • [New junkets] "We'd like to think that we might be able to accommodate one or maybe two going forward in the next two quarters."
  • "The peninsula is still really strong and most importantly, it yields strong as well."

OTHER

  • 2Q Guidance:
    • Stock comp: $9-10MM
    • Depreciation exp: $230-235MM
    • Interest exp: $275-285MM ($6MM MGM China, $23MM in non-cash amortization).
    • Effective tax rate: 3%


Living On A Prayer

LIVING ON A PRAYER

 

 

CLIENT TALKING POINTS

 

GET A JOB (REPORT)

Friday’s jobs report was basically a can of hope for market participants that were, to quote Jon Bon Jovi, “living on a prayer.” In an election year, this was basically “good enough” for most people to buy. This, despite unemployment rising to 8.3%, revised non-farm payrolls down to 64,000 vs 80,000 prior (for June), and a birth/death adjustment (for July) of +52,000 jobs – the highest on record since July 2000. You can only keep “killing it” for so long, remember. Especially when considering…

 

 

REMEMBER THE VIX?

We certainly do, and right now, it’s hovering at 15. You aren’t going to have rallies like Friday’s going on all the time with the VIX at this level. Every time people start buying between 14-15, in the last 5 years, they get killed. It’s just a matter of fact at this point. Never mind the lack of inflows into US equities on the buyside. A short squeeze is fun for the bulls until it’s not.

 

 

INFLATION EXPECTATION

The commodity players have to love the recent melt up in commodities; corn and gold are really something these days. Net long contracts (read: bets on agriculture) were up +3% week-over-week at a new high of 884,477 contracts. There is the inherent correlation risk between the US Dollar and stock and commodity prices. Again, it is an election year and an overinflated market looks good for the incumbent. Bernanke and Geithner definitely have your back on this one.

 

 

_______________________________________________________

 

ASSET ALLOCATION

 

 Cash:                  UP                    U.S. Equities:    DOWN

 

 Int'l Equities:   Flat                      Commodities:    Flat

                                  

 Fixed Income:  Flat         Int'l Currencies: DOWN

 

 

 

_______________________________________________________

 

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            

 

FIFTH & PACIFIC COMPANIES (FNP)

The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

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

“$BBY gets best bailout” -@Commodity_Bull

 

 

QUOTE OF THE DAY

“Study without desire spoils the memory, and it retains nothing that it takes in.” – Leonardo da Vinci

 

 

STAT OF THE DAY

The Bank of Portugal said on its website on Monday that cumulative borrowing at the end of last month stood at 56.8 billion euros ($70.22 billion) – down 6% for July. An all-time record of 60.5 billion euros was set in June.


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