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European Banking Monitor: Portuguese Risk Rises

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

 

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European Financial CDS - European bank swaps were broadly tighter again last week, declining by an average and median of 5 bps. One of the few outliers was Banco Espirito Santo of Portugal where swaps rose 10 bps W/W and are up 69 bps M/M, currently at 569 bps. This reflects the overall deterioration in the Portuguese sovereign market. 

 

European Banking Monitor: Portuguese Risk Rises - z. banks

 

Sovereign CDS – Portuguese sovereign swaps should be monitored closely as they have risen 95 bps in the past month, to 533 bps. In the last week, Italian, Spanish and Portuguese sovereign swaps widened by 6, 2 and 22 bps, respectively. Meanwhile, French, Irish and Japanese swaps tightened 1, 3 and 3 bps, respectively. The US and Germany were unchanged. All the countries we track now have swaps higher on a M/M basis.

 

European Banking Monitor: Portuguese Risk Rises - z.sov1

 

European Banking Monitor: Portuguese Risk Rises - z. sov2

 

European Banking Monitor: Portuguese Risk Rises - z.sov3

 

Euribor-OIS Spread – The Euribor-OIS spread was unchanged last week at 13 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

European Banking Monitor: Portuguese Risk Rises - z. euribor


CASUAL DINING TRENDS REMAIN WEAK

Takeaway: We’ve been bearish on the casual dining sector since early June, and the latest data doesn't change our opinion.

This note was originally published September 09, 2013 at 11:36 in Restaurants

We’ve been bearish on the casual dining sector since early June and, on Friday, Black Box gave us a look at August sales trends which showed little improvement from an ugly July.

 

Black Box reported that August 2013 same-restaurant sales declined -0.2%, while comparable traffic trends declined -1.9%—both metrics accelerated 70 bps and 30 bps on a sequential basis, respectively.  These estimates come against August 2012 comps of +1.0% and -1.1%, respectively.

 

Malcolm Knapp also released his August 4-week estimates this weekend.  Knapp-Track casual dining same-restaurant sales declined -1.7%, while comparable guest counts declined -3.1%.  These results come against full 5-week August 2012 comps of +1.0% and -1.2%, respectively.  Knapp will release his 5-week August estimates later this week.

 

Currently, consensus estimates for the 24 casual dining chains we track in the space are for 3Q13 same-store sales growth of +1.2% (excluding the DRI brands) versus +1.7% in 2Q13.  For the first two months of 3Q13, Black Box has reported same-store sales of -0.6%.

 

With September traditionally being a difficult sales month given the back-to-school trends, it is unlikely we will see a significant uptick in same-store sales.

 

The following companies saw SSS revised down over the past month: BWLD, CBRL, DRI, EATRT.

 

The following companies saw SSS remain unchanged over the past: BJRI, CAKE, DIN, RRGB, KONA, RUTHTXRH.

 

 

CASUAL DINING TRENDS REMAIN WEAK - BBOX chart1

 

CASUAL DINING TRENDS REMAIN WEAK - BBOX chart2

 

CASUAL DINING TRENDS REMAIN WEAK - BBOX chart3

 

 

 


MACAU OCTOBER BLOWOUT?

Takeaway: Still like LVS - the operator growing its market share

That’s the feeling on the ground.

 

 

Macau’s recent run has been outstanding – double digit YoY gross gaming revenue (GGR) increases monthly since January and accelerated growth over the summer.  September is off to a great start and we are looking for high teens growth.  What could be the next catalyst?  How about a record month in October, but not just a record?  There are some market participants who feel that Macau could grow by 30% YoY.

 

Our own forecast currently calls for 18-22% YoY growth.  However, that projection is solely based on carrying the recent monthly GGR levels forward with a seasonal adjustment.  Following some calls to Macau, we’re starting to believe our estimate could be low.

 

Strong junket and high end Mass bookings for the October holiday are fueling the optimism.  Some are suggesting GGR of HK$35.0 billion which would crush the hold-aided record month of March 2013 of HK$30.4 billion.  We’re not ready to go there yet but HK$32.0+ (+20% YoY) seems likely, +25% doable, and 30% possible.

 


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CASUAL DINING TRENDS REMAIN WEAK

We’ve been bearish on the casual dining sector since early June and, on Friday, Black Box gave us a look at August sales trends which showed little improvement from an ugly July.

 

Black Box reported that August 2013 same-restaurant sales declined -0.2%, while comparable traffic trends declined -1.9%—both metrics accelerated 70 bps and 30 bps on a sequential basis, respectively.  These estimates come against August 2012 comps of +1.0% and -1.1%, respectively.

 

Malcolm Knapp also released his August 4-week estimates this weekend.  Knapp-Track casual dining same-restaurant sales declined -1.7%, while comparable guest counts declined -3.1%.  These results come against full 5-week August 2012 comps of +1.0% and -1.2%, respectively.  Knapp will release his 5-week August estimates later this week.

 

Currently, consensus estimates for the 24 casual dining chains we track in the space are for 3Q13 same-store sales growth of +1.2% (excluding the DRI brands) versus +1.7% in 2Q13.  For the first two months of 3Q13, Black Box has reported same-store sales of -0.6%.

 

With September traditionally being a difficult sales month given the back-to-school trends, it is unlikely we will see a significant uptick in same-store sales.

 

The following companies saw SSS revised down over the past month: BWLD, CBRL, DRI, EATRT.

 

The following companies saw SSS remain unchanged over the past: BJRI, CAKE, DIN, RRGB, KONA, RUTHTXRH.

 

 

CASUAL DINING TRENDS REMAIN WEAK - BBOX chart1

 

CASUAL DINING TRENDS REMAIN WEAK - BBOX chart2

 

CASUAL DINING TRENDS REMAIN WEAK - BBOX chart3

 

 

 

Howard Penney

Managing Director

 


Kohl's: A J.C. Penney Problem?

Takeaway: We think KSS stole as much as $800 million in sales from JCP. JCP wants it back. Succeed or not, JCP will inflict damage on KSS as it tries.

This note was originally published September 06, 2013 at 09:18 in Retail

Conclusion: We think that KSS stole as much as $800mm in sales from JCP last year. JCP wants it back. Succeed or fail, JCP will inflict damage on KSS that is not appreciated.

 

We’d been assuming for much of the past year that the primary beneficiaries of JCP’s share loss have been Macy’s and GPS (Gap and Old Navy US). At face value, the sheer dollar shift in 2012 supported this thesis. But our recent work has presented us with new data that make us think we’ve been negative on the wrong names. Specifically, we recently conducted an extensive consumer survey to understand why consumers have shifted dollars away from JCP, and where the share has gone. And the big winner (and soon to be loser) turned out to be Kohl’s. Macy’s came in at number two, but by a wide margin. Gap looked surprisingly good.

 

Survey Says: As outlined in the chart below, consumers claim that almost 19% of items that they shifted away from JCP are now being purchased at Kohl’s. The math is pretty simple. $4.3bn in sales lost * 18.6% share shift = $800mm.  But the obvious counter-attack is “That can’t be right. KSS has been putting up horrible numbers – that’s way too high as KSS only gained $475mm in net sales in 2012”. It’s a logical question, and we’d ask the same one.

 

But our sense is that what’s actually happening is that the $475mm sales gain includes upwards of $800mm in sales gains from JCP.  In other words, sales on an organic basis were likely down at JCP last year by several hundred million.

 

We understand that there is sampling error associated with every form of survey – ours included. But we should note that this is not a typical ‘ask a bunch of people at the Garden State Plaza Mall what they think’ kind of survey. We put this up any other one out there.

 

Even if you do want to adjust for sampling error, these numbers are still so high that we can raise a very large red flag for anyone modeling KSS’ comp or Gross Margin out over the next 1-2 years. Customers are never easy to win back, but we surveyed how consumers would respond to pricing, promotions, private label and remodels, and we feel pretty confident that KSS is going to have a problem on its hands.

 

Stores Shopped Instead of JCP (blue column) vs Items Dispersion of Where Items Where Purchased (Gray)

Kohl's: A J.C. Penney Problem? - shareshift

Source: Hedgeye Research

 

Share Gain From JCP By Income

Kohl's: A J.C. Penney Problem? - share2

Source: Hedgeye Research


MACAU STILL ROLLING TO START SEP

LVS off to another good start

 

 

For the first 8 days of September, daily tables averaged HK$924 million, up 17% from the comparable period in September of 2012.  Our full month GGR (includes slots) YoY growth projection remains at +15 to 19%.  September is a seasonally slower month than August.

 

It’s way too early to discern any sustainable market share moves but we remain encouraged by LVS’s strong start to the month.  On the whole, we expect LVS to continue to gain share.  MGM’s share is unusually low to start the month.  No doubt, hold is to blame.

 

MACAU STILL ROLLING TO START SEP - maca 1st wk sept

 

MACAU STILL ROLLING TO START SEP - macau atdr


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