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More Good News For Retail Supply Chain

Check out the 17% decline in exports out of China for the month of March – the fifth month in a row of export erosion. The chart below showing the 3-month moving average is ominous, showing the sharpest drop in, well…ever.

 

Even if you’re in the camp that China makes up these numbers, the trend here is pretty tough to ignore. This plays right into my theme that China’s efforts to relax VAT taxes and other price restrictions will swing the margin pendulum back into the hands of the US apparel/footwear supply chain. Add that to SG&A cuts, capex cuts, the delta on sales and gross margins getting ‘less bad,’ and what I think are estimates that have largely bottomed.  That makes it tough for me to NOT be exposed to US retail.   Check out my 3/31 post entitled ‘Retail Narratives Don’t Get More Powerful Than This’ for full detail as well as my favorite names.

More Good News For Retail Supply Chain - 4 13 2009 7 20 24 AM

 


WYNN DEFENDS THE TRUE JOB CREATORS

“I think there’s a bias in the government to get a pound of flesh. There’s a meanness against business. The [Obama] administration has a sense of anti-business because of the excessive things that were done on Wall Street” – Steve Wynn

Steve Wynn has a strong case against the anti-capitalist sentiment growing out of Washington.  Wynn Encore created 4,000 new jobs last year in a bad economy.  That’s a huge number, but a mere pimple on the face of Wynn’s historical contribution to the local, state, and national economy.  The man has employed 10’s of thousands of people and is most responsible for turning Las Vegas into a giant economy in and of itself.

Betting against Wynn is never a smart long-term decision.  Short-term might be a different situation.  While we expected Macau to perform better than expected, and it has, Las Vegas was pretty much a disaster for the WYNN properties.  We are projecting $33 million combined for Wynn Las Vegas and Encore, well below the Street at $60 million.  Unfortunately, $33 million may be too aggressive.

The poor Las Vegas performance will pull company EBITDA below the Street estimate of $151 million.  Indeed, we are projecting $129 million with Macau strength partially offsetting the big shortfall. 

 

WYNN DEFENDS THE TRUE JOB CREATORS - wynn q1 projections

 

With the stock up 95% off the March 9th low, there may be some room to fall.  Wynn may lose the Q1 battle but he’s never lost a war.


ASCA: INCENTIVE TO BLOW OUT Q1

I’m looking for a very strong Q1 from ASCA.  The Street is projecting $0.32 and $78 million in EPS and EBITDA, respectively, which look too low.  We believe the numbers could be as high as $0.38 and $82 million. 

ASCA: INCENTIVE TO BLOW OUT Q1 - asca q1 blow out

The loss limit removal appears to be having a greater revenue and higher margin impact on ASCA St. Charles and Kansas City.  ASCA seems to have figured out the marketing fairly quickly which should be on display in the Q1 results.  Importantly, they are probably only in the fourth or fifth inning of the full impact from the removal of the loss limit.  Q1 should also benefit from significant cost cutting with total annualized cost savings at $45 million already achieved by Q4 2008.  We estimate EBITDA margin will expand 80bps year-over-year despite flat revenues and new completion in Vicksburg, Council Bluffs, and of course, East Chicago.

There is an interesting twist to Q1 earnings.  ASCA may be in the market to float some high yield bonds or extend its credit facility so there is incentive to pry open the credit markets.  Recently, the company obtained a favorable amendment to raise the maximum senior leverage ratio in its covenant.  The next issue they must tackle is the maturity of the credit facility in November 2010.

Gaming debt seems to trade at a discount to similarly leveraged sectors.  However, the regional guys such as ASCA, PENN, BYD, and PNK are in much better shape than the Harrah’s, Station, LVS, and MGM’s of the world.  Yet, there seems to be no differentiation between the better credits in the space as the taint of bankruptcies and potential bankruptcies are forcing up yields for everyone.  Therein lies the incentive to post a good quarter to narrow the discount and possibly pave the way to hit the credit markets.

Look for a very good looking quarter from ASCA.

 


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BKD, another positive channel check...


Here Little Sharky, Come And Get It: SP500 Levels, Refreshed...

 

It's 2:45PM here on the Eastern seaboard - what a beautiful day to watch our Sharky jump at the shorts (see chart below).

 

After wrestling above and below the Shark Line throughout the week (thick green line), I think we have ourselves the 3-day confirmation of the TREND that I was looking for here in the SP500. It's a bull Shark!

 

Technology (XLK), Consumer Discretionary (XLY), and Basic Materials (XLB) have been signaling a TREND line breakout throughout the week. The US market is now proving that it can hold higher lows no matter what the Financials (XLF) do. When those Financials get squeezed (like they are today), there isn't much left but a Pain Trade.

 

On an immediate term basis, my next line of SP500 resistance (red dotted line) is 861.

 

Have a great weekend,

KM

Here Little Sharky, Come And Get It: SP500 Levels, Refreshed...  - SPX 

Keith R. McCullough
Chief Executive Officer


Ugly Chart Of The Day: Into The Void...

 

POSITION: Short the UK via the etf EWU

 

We've yet to see positive deltas across our macro factor model for the UK and the recent lack of clarity from Bank of England Governor Mervyn King on monetary policy inspires little confidence for a near-term recovery there. 

 

This year we've had a consistently negative bias on Western Europe, especially with respect to the UK and Switzerland due to their leverage to financial services. We shorted the UK via EWU yesterday and Switzerland via EWL on 4/07. 

 

The decision not to cut confirms Gordon Brown and Co.'s policy of let's "wait-and-see" quantitative easing as the BOE and Treasury move forward with their March 5th plan to print money and purchase 75 Billion Pounds of government bonds and corporate paper. From a monetary standpoint we stand firm with our thesis that the BOE has done "too little too late" to manage the interest rate and now is running out of room to cut.

 

UK data continues to look bleak. Manufacturing dropped 6.5% in the three months through February and declined 0.9% in February M/M. Unemployment, though a lagging indicator, shows a sequential monthly uptick. PPI increased 0.1% in March M/M, or rose 2% on an annual basis, the slowest annual pace in 20 months. February's CPI reading came in at 3.2%, down from 5.2% in Q408; you can expect a sharp decline in inflation this year and next. Should consumer demand not pick up despite downward pressure on prices, the UK could be in for an even longer "wait-and-see" recession. We'll be focused on retail sales, housing prices, and mortgage applications to better understand the depth of the abyss.

 

As the BOE continues to issue and buy-up Treasuries and take on debt the Pound should depreciate; this will benefit exports and push down imports, which should improve the country's trade balance. Yet the Pound has been relatively resilient versus the Euro and USD and despite initial declines after the March 5th announcement, the Pound has traded higher in the last two weeks.

 

The lack of leadership by Brown to instill confidence in the UK's recovery continues to be a decidedly bearish signal for us, one we believe will drag recovery further out on the curve.

 

Matthew Hedrick
Analyst

Ugly Chart Of The Day: Into The Void...  - letzteeeee


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