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Golden Week In Macau

Macau’s Golden Week took place last week and put up decent average daily table revenues (ADTR). ADTR fell in September compared to August, but overall, the story is that gaming volumes are solid but comps are tough. For those of you who are unfamiliar with Golden Week, it is a seven day Chinese holiday which attracts lots of tourists; Macau welcomed 390,683 visitors on the first four days alone. Visitation through Golden Week was up 9% year-over-year (that is an apples-to-apples comparison) and we have reports of strong floor traffic. This bodes well for high margin Mass gaming revenues.

 

Golden Week In Macau  - macau4 normal


HST YOUTUBE

In preparation for HST's 3Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

HST YOUTUBE - hst2

 

YOUTUBE FROM 3Q CONFERENCE CALL

  • "We continue to be encouraged by the positive trends in group business. Group bookings in the quarter for the remainder of the year increased 9%.... and the average rate on those bookings rose by more than 6%. Total bookings for the remainder of the year are now more than 7.5% ahead of last year's pace, and the overall rate for the third and fourth quarters has increased well over 2%, indicating revenue improvement of 10%. We're also seeing the positive booking activity extend into 2013 in both demand and rate, indicating that our group hotels are benefiting from increased business spending and should continue to perform well for the remainder of this year and next."
  • "On the disposition front, we have one smaller asset under contract, which is expected to close in late summer, and we are also actively marketing several additional properties which we expect to close during the fourth quarter. While the sale market is difficult to predict, the guidance assumes we complete incremental sales in the $300 million to $400 million range by year-end." 
  • "It is worth noting that we are seeing great results at our three recently redeveloped hotels: the Chicago O'Hare Marriott, the Atlanta Perimeter Marriott and the Sheraton Indianapolis, where RevPAR is running better than 35% ahead of pre-renovation levels."  
  • "During the quarter, we completed the renovation of the rooms at the New York Helmsley Hotel as a part of the conversion process of this hotel to the Westin Grand Central and have also decided to renovate the lobby and create a new restaurant/bar outlet in the front of the hotel which should be complete by early fall." 
  • Regional RevPAR outlook:
    • "We expect Philadelphia to be a top performing market in the third quarter due to strong group and transient demand, which should allow us to drive pricing."
    • "We expect our Chicago hotels to underperform our portfolio in the third quarter due to lower levels of citywide and group demand when compared to the third quarter of 2011."
    • "We expect our Boston hotels to have a strong third quarter."
    • "We expect our Atlanta hotels to underperform our portfolio in the third quarter due to renovations at the Ritz-Carlton Buckhead and the Four Seasons."
    • "We expect our San Francisco hotels to continue to perform very well in the third quarter as strong demand will allow us to continue to drive rate."
    • "RevPAR for our New York hotels increased 4.8% due to growth in ADR. Results were negatively impacted by the second and final stage of the rooms renovations at the New York Marriott Marquis and the Sheraton New York and a rooms renovation at the W Union Square....We expect our New York hotels to perform better in the third quarter."
    • "Our Miami and Fort Lauderdale hotels struggled in the quarter as RevPAR declined 20 basis points....The weakness was due to less transient and group demand. We expect our Miami and Fort Lauderdale hotels to perform better in the third quarter due to better group bookings."
  • "We continue to see improvements in catering, meeting room rental and audio-visual revenues, as well as reductions in food and beverage cost as a percentage of revenue."
  • "Looking to the rest of 2012, we expect that comparable hotel RevPAR will be driven more by both occupancy and rate growth, but rate growth should be increasingly more important throughout the year. The additional rate growth should lead to solid rooms' flow through even with growth in wage and benefit cost. We expect the positive trends in group demand to continue which should help drive growth in banquet and audio-visual revenues and good F&B flow through."
  • "We expect unallocated cost to increase more than inflation, particularly for sales and marketing where higher revenues will increase cost. We also expect utilities to decline slightly for the full year."
  • "We expected a property tax increase of roughly 8% to 9% this year. At this point, we expect an increase in the 6% area as we have been successful in reducing some of the assessments."
  • "Taking into consideration the acquisition of the Hyatt DC and the expected term loan and the related use of proceeds from the term loan to repay approximately $400 million of debt, our outstanding debt will increase approximately $100 million to roughly $5.3 billion. We will have approximately $760 million of capacity in our credit facility and approximately $150 million of cash and cash equivalents."
  • "We will certainly be pushing for higher pricing next year to reflect the more competitive market conditions."
  • "If trends hold the way they are now, we would probably do a little bit less in special corporate or have fewer special corporate accounts next year – or at least fewer special corporate accounts with less room availability, because we will be recognizing the fact that, number one, we've got more group business on the books, we have higher occupancy and we really ultimately would like to be able to push even more of our business into those more highly rated corporate and premium categories."
  • "We are starting to see an ability to negotiate better cancellation penalties, better attrition clauses and overall better contracts. But....it depends a lot on the hotel....I think what we're seeing this year is ultimately a slight increase in attrition and cancellation fees on a year-to-date basis compared to what we had last year."
  • [2012 group business booked] "It's slightly north of 90%, maybe... 91%, something like that."
  • [3Q vs 4Q REVPAR growth] "I don't know that we necessarily see a big difference in trends between the quarters right now."
  • [Acquisitions environment]  "I'd say expectations have moderated a bit. But clearly we're seeing more activity, more opportunity right now than we did in the beginning of the year, and I think it doesn't surprise me in some ways that that would happen. I think conditions are better. So we didn't try to predict the number of acquisitions that we would get done, but we certainly still are looking to be active. And I would still say that at the end of the day, for the full-year, it is our intent to be a net acquirer as opposed to a net seller in 2012."
  • "I think what we're finding on wages and benefits right now is that we're probably looking at our overall wages and benefits kind of increasing somewhere a little bit north of 3% over the last quarter."
  • "We'd like to buy existing full-service there, because we still feel very good about the overall opportunity in Brazil. And on the select service side, we think that matches up well with the sort of emerging wealth that's happening within the country of Brazil..... I think we could see some incremental investment in some other select service hotels in a couple of the major markets within Brazil. Nothing necessarily imminent, but we are looking at some opportunities there."
  • "The new supply in India is picking up a bit. It's certainly nowhere near the level of what we've seen in China, but I'd say right now, we have a cautious outlook on India."
  • 2H vs 1H Europe REVPAR:  "We generally would expect it to be in line with what we've seen in the first half of the year."
    • "The one market that's underperformed year-to-date has really been Brussels. But we have a sense that that will do a little bit better in the second half of the year." 
  • "We do intend to be an active seller over the next two and three years. And as we are consistent with what we've described in the past, a number of these suburban assets, both in core and non-core markets and airport locations, leaving out the ones that are sort of directly attached to the airport, those are the hotels that would be high on our priority list in terms of hotels that should be sold."

ENERGY: Insider Buying And Selling

We’ve highlighted insider selling recently in financials, now it’s time to focus on energy. Taking a look at oil and gas companies with the most insider buying and selling transactions over the last six months, you can see that the selling heavily outweighs the buying. The metric is total shares purchased as a percentage of the total shares outstanding in order to capture the relative importance of the transactions.

 

 

ENERGY: Insider Buying And Selling  - insidertrades


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

Putting On Risk

PUTTING ON RISK

 

 

CLIENT TALKING POINTS

 

PUTTING ON RISK

There’s always risk somewhere. Be it in the stock market or voting in an election. Risk is a part of our daily lives. So the IMF coming out this morning and stating that it sees an “alarmingly high risk of a deeper global slump,” is a realization of the risk that has been inherent in global markets for some time now. What does that mean for you? To us, it means more of the same that hasn’t worked. We’re still in a recession and multiple rounds of QE haven’t worked. What’s left to try out at this point? When you run out of bullets, you're at risk of being taken down, just like the market.

 

 

EUROPE’S BAILOUT

Europe continues to watch itself turn into an absolute mess. Italian stocks and Spanish stocks continue to fall lower and people still think that these countries aren’t all that bad. What will it take for them to realize the mess they’ve gotten themselves into? The ECB can buy bonds until it’s blue in the face, but is that going to fix the underlying problem? The U.S. and Greece enjoyed kicking the can down the road; does that mean it’s OK to kick the can to others? These are questions that will soon be answered. And in the mean time, we'll watch stocks fall and bond yields climb.

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                Flat

 

U.S. Equities:   Flat

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  UP

 

Int'l Currencies: Down  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

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

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

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

 

UNDER ARMOUR (UA)

This company’s on track to post $3Bn in revenues by ’14 – impressive given a $1.5Bn print in 2011. Perhaps more impressive is the breadth of growth drivers that will get it there – women’s, accessories, new underwear platform etc. in addition to footwear. UA is gaining share in both apparel and footwear quarter-to-date. While some may be concerned over the loss of UA’s SVP/Sourcing we’re 8% ahead of the Street in the upcoming quarter and buyers on weakness.

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

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“#Iran Live: Gold prices soar 25% in a week as officials try to "black out" the figures bit.ly/UOLcim | #p2 #tcot#IranElection” -@EANewsFeed

 

 

QUOTE OF THE DAY

“Forgive your enemies, but never forget their names.” -John F. Kennedy

                       

 

STAT OF THE DAY

Iron ore, Shanghai steel near 2-month peak as demand revives

 

 

 


UA: Getting Bearish on UA

Takeaway: Top line growth -- the sole multiple driver -- is at risk based on our math.

This company needs to beat on the top line to keep its momentum going, but we think that wind is being sucked from its sail. The sole multiple supporter is at risk based on our math.

 

We’re getting bearish on UnderArmour. To be clear, this is a TREND/TRADE call given concerns about the top line, and to a lesser extent, SG&A costs needed to compete in the footwear arena. We think that the long-term TAIL opportunity is largely in-tact, and if our near-term call does not play out, we’ll likely reverse course. But the underlying research is compelling enough for us to get bearish on top line trajectory.

 

Simply put, we think that wholesale sell-in has been growing faster than retail sell-through for too long.

  • By our math, which isolates like-for-like apparel sales by stripping out footwear, International, UA Retail, and e-commerce, UA sell-in to retail has been 20%, 14%, 20% and 28% over the past four quarters, respectively.
  • Those are great numbers. But unfortunately retail sell through was 3%, -1%, 17% and 22% over those same periods per third party POS data services.
  • The latter two data points might seem like a nice rebound, but it’s not enough.  They have not made up for the (-17%) and (-16%) shortfall witnessed at during 4Q11 and 1Q12, respectively. In fact, they added to the shortfall in sell-through.

 UA: Getting Bearish on UA - ua1

  • Our concern about last year lies in the amount of packaway merchandise that still needs to be sold through. During those two time periods, UA’s Gross Margins and Inventories both improved on the margin. With the sell-in/sell-through gap eroding. That’s simply not good. It suggests that excess product was pushed out to retail. 

UA: Getting Bearish on UA - ua2

  • In looking at results from specialty retailers like Dick’s as well as Department stores, it’s pretty clear that they are already heavy cold-weather gear before the selling season really begins due to packaway from last year. Simply put, in the absence of excess vendor support they did not clear out goods last year at bargain-basement prices. They stuck it in boxes in the stock room. Ross Stores and TJ Maxx concur with those thoughts on inventory levels.
  • Two of our industry sources – including one mid-sized private brand – suggest that these trends are not specific to UA, but are pervasive throughout several players in the industry.
  • Basically, this threatens either/or the initial shipment into retail or the first replenishment order – the latter of which happens in the back half of October through the first half of November.
  • We’re not suggesting that revenue will be down. But simply that the Street’s 23% top line growth rate for 3Q, or its 29% rate for 4Q (which would be guidance in the release) are at risk.

 

Another point we’re slightly more concerned about is the success factor associated with footwear. It’s no secret that the footwear initiative at UA is slow to catch. But we think about this a bit different than most. In the end, we think that UA will realize the 6-8% share that most ‘non-Nike competitors’ steadily enjoy. The problem is that the cost of this share will be dramatically higher than the company is currently set-up for. So will UA realize up to $1bn in footwear revenue? It could definitely get there. But it could take the aggregate EBIT margin down by 200-300 basis points along the way. We think that any radical shift in expense structure will take time. But unfortunately, so will a big wad of footwear dollars.

 

Over the past 2 years, UA has had issues impacting margin, and those start getting easier. But all along the way, the market has looked right through ‘em due to the strength in top line growth. Perhaps it puts up good earnings numbers, but our sense is that the risk of a top line miss is not fairly represented in a stock trading at 37x next year’s EPS and 20+x EBITDA. This company NEEDS a top line beat to head higher, and perhaps even to stand still. Short interest might seem lofty at 13% of the float, but UA’s short interest has historically peaked at 3x that level.  It doesn’t give us much confidence either that management has been net sellers of the stock.

 

Management at the Goldman Retail Conference

“So as far as the back half of the year goes, obviously, in addition to our guidance, I think a couple of things that are important to note, is what are some of those things out there in the back half of the year that could change a guidance for us. Two of – the two biggest things we saw was obviously weather, weather plays an important part especially in the fourth quarter and coming out of a warm winter last year not only does that impact how people book their business for this winter, how they plan for this winter, but there is also some leftover stock from last year too, so how that impacts the start of this fall winter season.

 

So, if there is upside in the back half of the year relative to weather being colder than last year that would pretty much be in the fourth quarter for us. The other piece of that as we talked a lot about at our last earnings call, is our E-commerce business, and we talked about some challenges we were having in the front half of this year relative to our conversion rate since we launch the new site last November, and that conversion rate was below last year's conversion rate and the gap was widening during the front half of the year.

 

So, clear the path for E-commerce team, put some quick fixes in place, basics around speed and around easier shop-ability on the site and in the last five weeks or so, we've seen that gap narrowing now for the first time this year versus widening as far as the year-over-year conversion rate. So, that's a good sign for the back half of the year too, but again, E-commerce heavily weighted towards the fourth quarter. So, when you look at the – our guidance in the rest of this year upside, and weather upside for E-commerce business continues to improve, those would be good things for us in the back half, and that it all be weighted towards the fourth quarter.”

 

Read this how you want, but to us it sounds like an incrementally cautious read on 3Q with a ‘keeping our fingers crossed for a few things to go right in 4Q’ position.

 

Simply put, we don’t like UA at $56.60. We putting this one in the bucket of our shorts – along with M, KSS, GPS, SPLS, COH and CRI. As always, we identify the fundamentals. Keith will manage risk around the specific price. 


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 9, 2012


As we look at today’s set up for the S&P 500, the range is 16 points or -0.54% downside to 1448 and 0.56% upside to 1464. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 10/08 NYSE -601
    • Decrease versus the prior day’s trading of 408
  • VOLUME: on 10/08 NYSE 464.24
    • Decrease versus prior day’s trading of -23.48%
  • VIX:  as of 10/08 was at 15.11
    • Increase versus most recent day’s trading of 5.44%
    • Year-to-date decrease of -35.43%
  • SPX PUT/CALL RATIO: as of 10/08 closed at 1.87
    • Down from the day prior at 1.93

CREDIT/ECONOMIC MARKET LOOK:


BONDS – Treasuries start their wk moving back up into the right as 10yr yields drop -5bps to 1.69%; bonds have had #GrowthSlowing right since March. Chasing equity yield/performance is not economic growth.

  • TED SPREAD: as of this morning 25.40
  • 3-MONTH T-BILL YIELD: as of this morning 0.10%
  • 10-Year: as of this morning 1.71%
    • Decrease from prior day’s trading of 1.74%
  • YIELD CURVE: as of this morning 1.46
    • Down from prior day’s trading at 1.49

MACRO DATA POINTS (Bloomberg Estimates)

  • 7:30am: NFIB Small Business Optimism, Sept. est. 93.5
  • 7.45am: ICSC weekly sales
  • 8:00am: IBD/TIPP Economic Optimism, Oct. est. 50.0
  • 8:55am: Johnson/Redbook weekly sales
  • 11am: Fed to buy $1.75b-$2.25b notes
  • 11:30am: U.S. to sell $32b 3-mo bills, $28b 6-mo bills
  • 1pm: U.S. to sell $32b 3-yr notes
  • 4pm: USDA crop-condition reports
  • 8:30pm: Fed’s Yellen at IMF panel in Tokyo

GOVERNMENT:

    • Jury trial begins in SEC lawsuit against Reserve Primary Fund, Chairman Bruce R. Bent, Vice Chairman Bruce R. Bent II, 9am
    • IRS holds hearing on proposed regulations relating to basis of indebtedness of S corporations to their shareholders, 10am
    • FDIC board meets to consider final rules implementing bank stress tests required under Dodd-Frank Act and on large-bank pricing system for assessments, 10am
    • HHS advisory panel meets on informed consent issues in randomized human trials, 8:30am
    • FAA holds meeting of Commercial Space Transportation Advisory Committee to discuss export controls, 8am

WHAT TO WATCH:

  • IMF sees alarmingly high risk of deeper global slump
  • IMF: Most advanced nations progressing at deficit cuts
  • Europe salutes Greek budget-cutting, raising aid chances
  • Apollo seeks to avoid housing-market misfire with Realogy IPO
  • Stress Tests for U.S. Banks Face Vote by First of Three Agencies
  • AT&T shares network with IBM to lure more customers to the Cloud
  • Barclays buys ING’s U.K. unit, adding 1.5m clients
  • U.K. August manufacturing output declines more than forecast
  • Climate change threatens central American corn crop, study says
  • Reserve fund faces trial on SEC suit over Lehman Brothers losses
  • Athens preparing for anti-austerity protests aimed at Merkel
  • Alcoa results in PM mark traditional start to earnings season

 EARNINGS:

    • Alcoa (AA) 4:03pm, $0.00
    • Yum Brands (YUM) After-mkt, $0.97

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

  • Oil Halts Two-Day Drop as Optimism on Greece Offsets Oversupply
  • Milk-Cow Drought Culling Accelerates as Prices Jump: Commodities
  • Copper Consumption in China to Drop for First Time Since ‘08
  • Wheat Climbs on Speculation U.S. to Cut Global Supply Estimates
  • Sugar Rises on Speculation Brazil Supply to Tighten; Cocoa Gains
  • Copper Seen Falling for Third Day as IMF Cuts Growth Forecasts
  • Gold Seen Falling in London as Stronger Dollar Curbs Demand
  • Iron-Ore Swaps Seen Rising Highest Since July on Australia Cargo
  • Climate Change Threatens Central American Corn Crop, Study Says
  • Swiss Target Commodities Secrets Risking $21 Billion Hegemony
  • Iran Oil Sanctions Boosting Returns for Nordic American: Freight
  • Platinum Holdings Signal Further Gain in Price: Chart of the Day
  • Africa, Middle East Most Exposed to Rising Food Prices, IMF Says
  • Oil Halts Two-Day Drop on Greece Optimism
  • Iron Ore Seen Dropping Back to $100 on Worldwide Slowdows

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


ITALY – even if you believe their GDP numbers, they are still horrendous – Italy reports another sequential slowdown in GDP to -2.6% y/y (with +3% inflation, that’s centrally planned stagflation to me); MIB Index broke its TRADE line of support 3 wks ago; now down -6.5% since the Bernanke SEP top

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS

 

JAPAN – down hard again overnight closing down -1.1% (Nikkei down -14.4% since #GrowthSlowing started globally in March); we shorted the Yen again on green yesterday as we expect the Japanese to go full Krugman as the economy slows for the umpteenth time on ZIRP policies that don’t work.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

The Hedgeye Macro Team

 

 

 

 

 


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