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Pre-Earnings Call: Look Into Europe

Takeaway: Join us Monday for a pre-Qtr call to review European retail pre-earnings. Tickers include GPS, ANF, KORS, RL, URBN, DECK, GES, TIF, TJX.

Pre-Earnings Call: Look Into Europe - Retail europedial

We’d like to invite Hedgeye clients to participate in a call we are hosting on Monday February 4th to explore the state of retail in Europe in advance of 4Q retail earnings. We’ll be co-hosting the call with Stacey Widlitz of SW Advisors www.staceywidlitz.com where she will give us her view on incremental changes we’re seeing with different brands in Europe, including promotional cadence vs. last year, and general selling trends overall.  When we hosted a similar call with Stacey last quarter, her insights proved correct on GES, GPS and ANF. We’ll revisit those names, as well as the following on Monday…

 

KORS

PVH (Hilfiger)

COH

URBN

RL

DECK

TIF

TJX

LULU

local competition-Debenhams, John Lewis, Next, BHS, House of Fraser

fast fashion (Zara, H&A, Topshop)

 

We encourage you to send any questions in advance to , and we’ll be sure to both ask (anonymously) and answer for you on the call. Stacey will also be available for Hedgeye clients after the call to discuss trends in more detail.

 

We hope you can join us.

 

 


BYI F2Q13 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

  • BETTER: BYI reported a solid quarter which exceeded Street expectations across almost all business lines.  Margins on equipment sales were particularly impressive even without the one time 200bps customer benefit.  Guidance was also better. 

BYI F2Q13 REPORT CARD - B1

 

NA REPLACEMENT MARKET

  • BETTER:  NA replacement units were up YoY for the 7th consecutive quarter.  BYI thinks they had 20%ish ship share in F2Q 2013 - much higher than F2Q 2012's share of 16%.
  • PREVIOUSLY:  “Our North America replacement units sales were up year-over-year reflecting what we believe is a refocus by operators in investing in their casino floors and an increase in ship-share resulting from our improved content.”

WAP INSTALL BASE

  • SAME:  Cash connection had 1,360 units (up 144 units from last Q).  BYI reported 87% growth in the installed base of WAP games. 
  • PREVIOUSLY:  “Cash Connection, which ended the quarter with 1,216 units, up 591 units from last quarter. Our ending WAP-installed base increased by 26% over the June quarter and 94% versus last year.”

BALLY MOBILE PROGRESS

  • SAME:  Bally's Cloud-based Mobile platform has grown to more than 6 million users.   
  • PREVIOUSLY: “Bally Mobile continues its strong momentum and has now grown to approximately 6 million users. Thanks to the measurable ROI, these mobile applications are generating for our customers, we are seeing significant growth, both in new customer acquisitions, which has grown by more than 50% year-over-year, and in the delivery of new features for existing customers.”

IL UPDATE

  • SAME:  BYI shipped 399 Illinois VGT units in F2Q 2013. All of BYI placements in IL have been for-sale so far
  • PREVIOUSLY:  “We shipped 175 VGT units to Illinois during this quarter and have signed deals for over 4,000 VGT units in this market. We expect the entire rollout to take about two years to complete. As the distribution channel has consolidated, we now expect a higher mix of these missions to be outright sales rather than on lease.”

INTERNATIONAL GAME SALES

  • WORSE:  International game sales once again came in below expectations at 787 units.
  • PREVIOUSLY: “International game sales units during the quarter were at 743 units, below our expectations, due to various market conditions and product approval timeline delays. Game sales in international regions remain an important growth opportunity for us. We have multiple product development initiatives currently underway focused on these markets.”

SYSTEMS OUTLOOK

  • BETTER:  Systems revenue increased QoQ as guided by IGT. Gross margins were better than expected. Part of the guidance raise was attributed to better visibility on the systems front.  We continue to believe this segment is undervalued by investors.
  • PREVIOUSLY: “The systems implementations in Canada and Africa are progressing well and we are gearing up for the significant implementations there during the coming months. This combined with growing opportunities for iVIEW DM lead us to be quite bullish on systems for many quarters to come. We expect our systems business to strengthen from this recently completed September quarter due to some of the visibility and some larger installs and also the September quarter can be seasonally slow for customers wanting to put a new system in during some peak season.”

OPERATING MARGIN OUTLOOK

  • BETTER:  operating margins rose to 24% vs 20% in the prior year period. SG&A  declined to 28% of total revenues from 29% last year.
  • PREVIOUSLY:  “We have the belief that our overall operating margin can continue to increase as we leverage revenue growth and margin against what should be a lower percent of SG&A against revenue over time. So, over the mid-term or so, we would hope to be able to get a couple more points in operating leverage”

BYI F2Q13 REPORT CARD - byi244


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FNP: Focus

Takeaway: Getting closer to a sale of Juicy? Regardless of the decision, we think the team has focus. Only good can come from that.

Reuters just noted that FNP is exploring alternatives, including a sale, of Juicy Coture. It says that the company has been having discussions, but has not yet made a decision.

 

This is completely in-line with our thesis on the company, that Juicy has gotten to a point where disposing the asset and paying off debt will allow FNP to focus on its crown jewel – Kate Spade – which is one of the fastest-growing assets in retail. At the same time, it will have Lucky Brand to continue its role as the annuity in the portfolio to help fund Kate’s growth prospects.

 

It’s easy to get hung up on internalizing near-term growth and margin performance – a hundred million in revenue here or there, or margins plus or minus a point or two. That seems like a lot in a given reporting period.

 

But with Kate, the company is en route to adding another $1bn+ in revenue and doubling margins. Will COH or KORS double margins? Not when they’re sitting at 31% and 20%, respectively. In fact, we’d argue that COH and KORS margins will converge closer to 25% over the next 2-3 years.  Kate should get close as well from its current margin rate of around 12% (fully loaded).

 

Kate is doing it right. The company has been investing capital consistently back into building the operating platform to aggressively gain share. Some of that base investment tapers off as the company moves into adolescence. Our point is that in looking at what the company is capable of, think big. This is not about a few points of comp here or there.

 

We know that we sound like a broken record with our bull call on FNP. But quite frankly, it is a great story worthy of being a bull.

 

The company is hosting an analyst meeting for Kate Spade in 1Q where the growth opportunity should be more apparent to the investment community.

 

As for Juicy, we’re often asked “is it really worth anything?”, our answer is ‘definitely’. Think of all the times people chalked up certain consumer brands as being dead. It happened at FNP, actually, when the company owned Mexx – which was a far bigger dog than Juicy. We hate to pick a multiple out of the air in valuing assets, but does 0.5x sales sound in the ‘fair’ category? Sure, it's consistent with past transactions in retail. We wouldn’t be shocked by more. That suggests about $250mm, which could repay 65% of FNP’s debt.

 

(If the table below is tough to read, let us know and we'll send the file).  

 

FNP: Focus  - 1 31 2013 8 03 53 PM


TRADE OF THE DAY: EWS

Today we bought iShares MSCI Singapore Index Fund ETF (EWS) at $13.72 a share at 9:38 AM EDT. This is how you risk manage the range of something you like. Buying Singapore back on red as the margin of safety improves and TRADE and TREND lines of support hold.

 

TRADE OF THE DAY: EWS - EWS


WYNN 4Q 2012 CONFERENCE CALL NOTES

Pretty much what were expecting with the exception of better slot play in vegas and lucky table play.

 

 

CONF CALL NOTES 

  • The day after CNY, WYNN Cotai can begin the main construction (drviing of piles, building the foundation, etc). Process will take 36 months.
  • Not focused on revenue share in Macau

Q&A

  • Wynn Cotai
    • Started construction on Wynn Cotai this week.  They are creating the foundation now.
    • In 2014 and 2015, they will get the structures and the interiors installed
    • No labor issues
  • Like to look at 'Urban Wynn' integrated resort opportunities as opposed to 'slots in a box'
  • Vegas:  feel good about 2013; tracking ahead in room nights and rates. Similar trends in 2014.  Hopeful for a great 1Q given Super Bowl and CNY
  • Not interested in racinos; don't trust slots in box.
  • 75% of $2 billion cash was held at the Macau sub
  • New junkets on 1st floor have been performing very well--they reshuffled 14 tables from elsewhere to increase yield
  • Having a very healthy January in Macau--a $100 million month (balanced throughout all segments)
  • Better margins:  enhancements of service quality and maintenance of the facility; good technological improvements in gaming systems
  • WYNN recently designed a high limit slot room in 3 phases
    • Phase 1 is complete. Phase 2 will begin after CNY and finishing in April.  Phase 3, which includes the addition of private slot suites, will finish in August
    • Will open next week 
  • Sees opportunity in Philadelphia and Boston
  • Spoke with MGM and LVS and the consensus is that China is healthy.
  • 'Murder tough' competition in Macau but healthy
  • WYNN COTAI:  1st spot on Cotai (from ferry and airport); building a Bellagio-like hotel
  • Not too concerned about the smoking ban; all junket rooms have exterior smoking terraces.
  • Continue to grow mass business
  • Confident they will get tables for their Cotai hotel.

 

HIGHLIGHTS FROM RELEASE

  • Adjusted net income: $118.2MM ($1.17 per diluted share)
    • Net income was negatively impacted by a $47.9 million increase in tax expenses due to the timing of the payment of dividends from Macau, stock option exercises and capital expenditures.
    • Declared cash dividend of $1.00 to shareholders as of Feb 28
  • Macau
    • VIP turnover:  down 6.6% to $27.7 billion
    • VIP hold:  2.96%
    • Mass drop:  up 1% to $699.3 billion
    • Mass hold:  31.1%
    • Slot handle:  down 16.4% to $1.1 billion
      • WPD: $635, 15.3% lower
    • REVPAR: $303, compared with $304 last year
    • 504 tables (289 VIP tables, 205 mass market tables and 10 poker tables) and 840 slot machines.
    • Cotai budget: $3.5-4.0 billion
  • Vegas
    • Table turnover:  up 14.3% to $679.4 million
    • Table hold:  26.8%
    • Slot handle:  $758.4 million, up 14.9%
    • Non-casino revenues: $258 million, up 4.6%
    • REVPAR:  $201, up 1.8%
  • Cash: $2.0 billion 
  • Total debt outstanding at the end of the year was $5.8 billion, including $3.1 billion of Wynn Las Vegas debt, $749 million of Wynn Macau debt and $1.9 billion at the parent company.

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 80.65%
  • SHORT SIGNALS 78.63%
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