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Buyem: SP500 Levels, Refreshed

Takeaway: Keep moving – markets are.



Fortunately, I can’t call today’s note by any politician’s name – it’s just another signal that we are tagging the low end of our risk range.


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


  1. Immediate-term TRADE resistance = 1464
  2. Immediate-term TRADE support = 1444
  3. Intermediate-term TREND support = 1419


In other words, keep moving – markets are.



Keith R. McCullough
Chief Executive Officer


Buyem: SP500 Levels, Refreshed - SPX

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


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






  • "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."

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

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

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 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.






Cash:                Flat


U.S. Equities:   Flat


Int'l Equities:   Flat   


Commodities: Flat


Fixed Income:  UP


Int'l Currencies: Down  








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.

  • TAIL:      LONG            



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.

  • TAIL:      LONG



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.

  • TAIL:      LONG







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




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




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. 

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