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JCP: 'Less Horrendous' = Positive on the Margin

Takeaway: Perma-bears will pounce on this ugly sales disclosure. We share LT concerns, but definitely view it as a 'less bad' event.

The way we see it, this JCP sales preannouncement is positive on the margin for the stock, although the perma-bears will attempt to argue otherwise.

 

By no means is a -16.6% sales comp good. In fact, it's pathetic given that JCP went up against an -18.8% in the same quarter last year. It suggests that the two-year comp eroded sequentially from -18.7% in 4Q to -24.7% in 1Q.

 

But the reality is that…

a) The company beat our expectation for a -20% comp decline. This is the first time in six quarters the company did not miss our estimate.  

 

b) JCP noted that over 500 stores were under construction -- something that is 100% valid. We all knew this headed into the quarter, but it was impossible to gage the precise impact on the comp. Could it have been -10%? Yes. -25%? Yes.  No one knew then, and no one knows now. It's pretty tough to drive comp when there are more workers swinging hammers than ringing cash registers.

 

c) As expected, Ullman threw Johnson under the bus -- again (the first time being with last week's  'mea culpa' ad campaign on YouTube). Simply put "this sales weakness is because of the old management's sales strategy -- and we're working on implementing a new sales strategy". People will give Ullman a pass.   The irony is that even if Johnson were still at JCP, sales would start to get sequentially better in the wake of the Home Department redesign. Nonetheless, Ullman will take the credit as things improve. We don't fault him for that as much as we do failed boardroom politics leading to Johnson getting sacked (we've been vocal about our view that Johnson shouldn’t have been fired -- at least not yet).

 

It's important  to note that the release said nothing about inventories or earnings -- and as we all know looking solely at sales, inventories or earnings without considering the other factors is very dangerous in retail. But given that this number was disclosed in connection with its term loan financing transaction, we'll assume that if inventories were overly bloated or gross margins were  decimated (ie on par with what we saw in 4Q), the company would have given at least some indication. Goldman would probably have made sure of that.

 

When all is said and done, this result is in line with our view that the wind is at JCP's back over the near-term.  That said, we can't comfortably get on board with the stock because we have absolutely no clue what the long-term strategy is here (or have faith that the correct strategy will be implemented). Under Johnson, we knew the plan -- even if it was a stretch -- but with Ullman, the best we can surmise is that it will return to being one of the most promotional department stores in the country -- but with a slightly better product offering.

 

JCP – bearish TAIL (21.48 resistance); bearish TREND (17.95 resistance)

  


SINGAPORE Q1 2013 REVIEW

Singapore’s gaming revenues declined 3% YoY in Q1 2013 to S$2BN as market hold was 2.32%, compared with 3.48% in Q1 2012.  Market hold since Q2 2010 (MBS opening) has been 2.87%.   If we use 2.87% to normalize VIP revenues in Q1 2013 and Q1 2012, GGR would have been S$2.25BN, up 20% YoY.   

 

Rolling chip volume growth hit 39% YoY in Q1 2013 to S$43.7BN (US$35.5BN), continuing the momentum from the 53% surge seen in Q4 2012.  By comparison, Macau RC volume in Q1 2013 grew only 4% YoY to US$220BN.

 

SINGAPORE Q1 2013 REVIEW - s1

 

MBS gained 8% points QoQ in net gaming revenue share to 60.3%, a new high.  

 

SINGAPORE Q1 2013 REVIEW - s2

 

Total property EBITDA experienced its 4th consecutive YoY decline to S$747 million, falling 24% YoY.  MBS’s EBITDA share jumped 14% points QoQ to 65.8%.

 

SINGAPORE Q1 2013 REVIEW - s3

  

Mass revenue was up 5% YoY as hold reached 23.80% (hold in 1Q 2012 was 22.49%).  RWS gained 2% points QoQ in share to 52.4%.

 

SINGAPORE Q1 2013 REVIEW - s4

 

Mass drop fell for the 3rd consecutive quarter YoY, declining 1% to S$2.75 BN. Market shares were roughly unchanged QoQ.  In general, Mass market drop has been range bound from S$2.5-$2.8 BN since 2Q 2010.

 

SINGAPORE Q1 2013 REVIEW - s5

 

Slot win slipped 3% YoY to S$336 and slot win per slot per day fell 4% YoY to S$733.  RWS gained 1.8% QoQ in slot win share. 

 

SINGAPORE Q1 2013 REVIEW - s6


TRADE OF THE DAY: YUM

Today we bought Yum! Brands (YUM) at $68.29 at 9:36 AM EDT in our Real-Time Alerts. Buying back one of the go to names in big cap Consumption (on red). Hedgeye Restaurants Sector Head Howard Penney remains bullish on YUM's intermediate-term TREND research.

 

TRADE OF THE DAY: YUM - YUMTOTD


Early Look

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Broken: Gold Levels, Refreshed

Takeaway: Gold failed to recapture my 1st line of resistance (1492) and remains in a Bearish Formation (bearish TRADE, TREND, and TAIL) as a result.

This note was originally published May 07, 2013 at 12:02 in Macro

I’m getting a lot of client questions about Gold today. I focused on it in my Early Look note this morning, but there was nothing new there – and that’s the point. Gold is broken. And that’s not new either.

 

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

 

  1. Long-term TAIL risk line = 1681
  2. Intermediate-term TREND resistance = 1579
  3. Immediate-term TRADE resistance = 1492

 

In other words, after bouncing to another lower-high in the last few weeks, Gold failed to recapture my 1st line of resistance (1492) and remains in a Bearish Formation (bearish TRADE, TREND, and TAIL) as a result.

 

Keith R. McCullough
Chief Executive Officer

 

Broken: Gold Levels, Refreshed - gold

 


Strong Dollar, Strong America

US economic growth continues to move forward with better-than-expected employment numbers and a booming housing market going full speed ahead. Growth is the primary catalyst that's driving the S&P 500 to new all-time highs each week and helping the US dollar appreciate in value. Year-to-date, the PowerShares DB US Dollar Index Bullish ETF (UUP), which we buy when we want to get long the US dollar, is up +2.52%. As long as economic recovery in the United States continues, the US dollar is quite capable of gaining strength. That in turn drives down the price of commodities, including crude oil (OIL) and gold (GLD), which helps drive growth via consumption.

 

Strong Dollar, Strong America - UUPYTDPERF


TAP: Q1 Misses & Lots Of Issues

This note was originally published May 07, 2013 at 13:49 in Consumer Staples

This morning Molson Coors Brewing Co. (TAP) reported first quarter 2013 earnings per share (EPS), missing consensus by $0.04 ($0.30 versus $0.34) and coming in light on revenues as well.  It’s a seasonally unimportant quarter, but it would be refreshing to see some business momentum, anywhere.  We suspect the bulls will say that the weather was crappy (it was) and that the Maple Leafs are in the playoffs (they are, for the time being) but we still think that ’13 consensus is too high even if the company continues to not have to pay any taxes (tax rate in the quarter was 11.5% versus 17.3% in the prior).



What we liked:

  • Very good free cash flow (FCF) quarter despite higher levels of capital spending  - FCF per share was $0.27 versus $0.09 in the prior
  • Continued pricing momentum in Canada (constant currency sales per hectoliter +1.0%)
  • Strong cost savings in Canada were able to somewhat offset input costs and impact of deleveraging
  • Strong pricing in the U.S. – sales per hectoliter +3.0%

What we didn’t like:

  • STRs in Canada -1.4%
  • Lower earnings versus consensus even with tax rate favorability
  • Fixed cost deleveraging driving increases in constant currency COGS per hectoliter of 6.0% in Canada
  • 1.0% volume decline in European business

The basic theme in the release is lower volume, better price/mix and higher COGS per hectoliter offset by costs savings.  Unless volume trends improve (unlikely in the U.S. and Canada in the near-term, in our view) or cost trends improve (likely, in our view, though not in the near-term), we struggle to see how the company can deliver consistent operating income growth.  Consequently, it remains on our least preferred list.

 

TAP: Q1 Misses & Lots Of Issues - TAPYTD


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