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I’d like to have some of what Steve Wynn was eating during the conference call last night.



WYNN served up a tasty quarter and whet our appetites with hints of an impactful upcoming Board meeting.  A smorgasbord of issues will likely be discussed at the meeting including a special dividend, whether to pull out of the MA and PA bidding, and potentially moving corporate headquarters to Asia (just our guess).  


WYNN’s long-term prospects in Asia are delicious:  Potential new menus in Japan, Taiwan, and South Korea, and the Cotai project that could open before Chinese New Year in 2016.  Moreover, WYNN also announced a Phase II in Cotai.  Over the near-term, Wynn Macau is finally hungry for potential market share gains in the Mass market.  While the overall continued strength of Macau was discussed, management’s recent aggressive push into the Mass business was not.


We think Wynn Macau will be more aggressive promoting its Mass business, something it really hasn’t done.  Macau management was enhanced recently with some Mass focused personnel.  Consistent market share losses have been a key tenant of the WYNN bear thesis.  Any reversal will likely be rewarded by investors.  As can be seen in the following chart, September produced a Mass revival for Wynn Macau.  Our sources indicate that the property should show further gains in October and likely for the rest of the year.




Strong quarter and outlook 




  • On their way to having their best year
  • Wynn Palace on schedule for CNY 2016 but by 1H 2016 at the latest
  • Planning for phase 2 for Wynn Palace - will introduce a revolutionary product
  • $1 BN cash at parent company; after tender at Wynn LV, they'll have $250MM
  • Macau: >$1.8BN cash and $1.55BN  revolver - plenty of capital
  • Las Vegas:  positive trends in 4Q as well as 2014; continuing with same momentum as they've had in previous Q
    • Conventions trending very well
  • WYNN board meeting: Nov 4/5- will discuss special dividend possibility
  • Encouraged about MA but very challenging, complex situation there; timelines change frequently
  • Like idea of hotels with casinos
  • Adding 2 major junket areas at Wynn Macau (southwest corner); they will be done by CNY 2014
  • Wynn Diamond will include the Wynn  Diamond coliseum of 15,000 seats, it will include an  all suite Wynn Diamond hotel that will be directly related 1,300-square foot feet at the premium mass  market and above.
  • Will consider social/virtual gaming opportunity
  • High hold (direct business) impacted Macau by $10-15MM
  • Vegas:  F&B revenues may have been hurt by new competition from Hakkasan but Wynn emphasized the need to protect the bottom line, not top line
  • No comment on Japan
  • Macau: usual rooms out of service in 3Q; remodel will be done in few weeks-remodel is more about retaining existing customers than attracting new customers

CRI: DON'T Build A Position Here

Takeaway: There's a lot of warning signs right now with CRI. The company has been executing, but PLEASE, don't build a position here.

We didn't like this CRI quarter one bit. In fact, with the exception of good growth in e-commerce, there wasn't a single thing we liked.   To be clear, we were negative on this name last year,  and though we were mostly right on the model, we couldn’t have been more wrong on the stock.  Though we continued to have a serious bias against the sustainability of the business model, we kept our discipline and (painfully) threw in the towel on our short. Congratulations to all of you that rode this horse from $50 to $75 over the past year.  Lesson learned for HedgeyeRetail.


All of that said, there's no shortage of reasons for selling your position today. Consider the following…


1. Here's the elephant in the room: CRI  borrowed an extra $400mm in debt to repo $454mm stock (thus far). We ordinarily would give a company credit for such a buyback, but to execute on such a big program when Margins are at peak, your stores are comping down, inventory is building, and your stock is at an all-time high???   We're sure it went through an exhaustive corporate governance process, but quite frankly, we're surprised that any board let it get past the goalie.


2. At face value, the growth algorithm looks good -- until you get to SG&A. On a GAAP basis, earnings were down for the second quarter in a row. We know no one cares about GAAP anymore, but hey, it's the REAL earnings of the company.  Even excluding all special charges, earnings only grewby 9.5% -- well below the rate of revenue.


3.  Wholesale Carters was the star. Kinda.


4.  Carter's Retail put up slammin' revenue numbers as well -- up 16% in aggregate, but 8.9% when we exclude e-commerce.  The comp was up only 0.5%. But get this…they're on track to open 66 new stores for the year. Can someone explain to me why a company is growing 14.5% square footage while its stores are not comping. This is a little reminiscent of Coach (but not as pathetic).


5.  As good as a 15% retail top line number is, it's hard to get excited about it when EBIT grows 500bp slower.


6.  Dot com looked really good for CRI, but keep in mind that its still only 7% of brand sales. Other premium brands are 2x that rate. The good news for CRI is that the new DC in Atlanta will help keep this growth rate in gear.


7.  In wholesale Carters, the Brand printed 6.4% EBIT growth on a whopping 15.6% top line performance.  Clearly it did not play the promotional game wisely this quarter. The company noted an ad shift into the quarter, as well as some air freight expense. If we assume that all of this  a) actually happened, and b) was about $7mm, then margins were about flat versus last year.


8.  Osh Kosh Wholesale: Down double digits for the fourth quarter in a row, with operating profit clocking in at a whopping $2mm. In fact, if you add up all the EBIT generated by Osh Kosh Wholesale over the past five ears, you come up with an embarrassingly low number -- $15mm. It's not getting better.


9.  Retail Osh Kosh put a better foot forward by NOT shrinking its revenue base for the first time in 8 quarters.  That said, it was entirely due to e-commerce, as the base stores comped down by 4.3%.


10.  Here's a comment we don't get...

Management: "We continue to see strong demand for our brands in international markets. Our growth in the quarter was largely driven by our business in Canada. The decline in earnings reflects the start-up costs in Japan."

Hedgeye: Why don't we get it!  Comps were -3.6% in Canada, -6.4% for Bonnie Togs, and -1.3% in the co-branded stores (the latter is billed as CRI's saving grace in Canada).



CRI: DON'T Build A Position Here - CRI FIN

 CRI: DON'T Build A Position Here - CRI Sigma


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

CL Organic Growth Continues to Impress

We remain positive on CL as it remains one of the few companies in HPPC delivering robust organic sales growth, globally. FX headwinds are impacting results and sentiment but, over the longer-term, we expect the stock to outperform.



3Q13 Thoughts


Colgate reported another slight top-line miss, the second in a row, but managed earnings to $0.73, which was in line with consensus estimates.


In our view, the most substantial positive, which bodes well for the longer-term potential of the company, was the ongoing top-line resilience in emerging markets. The negatives included a stronger-than-expected FX headwind and sequential volume deceleration in the United States.


Even with expectations pinned at the high end of the company’s (reiterated) EPS guidance range of 4.5-5.5%, we believe long-term upside in earnings potential will attract investors over the next three years. The company offered initial EPS guidance for 2014 of positive double digit growth, which should continue to justify its premium multiple.


Over the long term, we continue to see CL as one of the best stocks in personal care on the long side. On a relative basis, versus its peers, we believe the stock is less vulnerable to a rising rates environment, given its growth profile and future prospects. Additionally, there is plenty of room for sentiment to improve, particularly on the sell-side (3rd least-liked stock in HPPC on the sell-side).


CL Organic Growth Continues to Impress - hppc sentiment



What we liked from the CL 3Q13 release

  • EPS met consensus expectations
  • Organic growth came in at 6%, a solid number despite being slightly below the Street
  • Continuing strong performance in EM’s – taking share across categories
  • Commodity outlook remains benign
  • Gross margin expansion despite a sequentially tougher comp (chart below)
  • US EBIT margin improvement accelerated in 3Q to +370 bps, resulting in 31.5% margin
  • Hill’s organic sales of 6% surprised to the upside


CL Organic Growth Continues to Impress - CL Gross Margin



What we didn’t like from the CL 3Q13 release

  • EBIT year-over-year growth of 1.2% versus 1.5% sales growth
  • FX continues to be a substantial drag on earnings
  • LatAm EBIT margins declined once again


Rory Green

Senior Analyst


Ben + Gold = Love?

Takeaway: A breakout over $1345 would be explicitly bullish.

I sold the US equity open yesterday. I’ll sell it again today. US #GrowthAccelerating is ending. For now anyway.


This is the first time in at least a year that I'm actually considering buying Gold. Now that’s not because I've got religion about it, or anything like that. It's just that my signal is stabilizing for the first time in a year.


We need to see $1316 hold. A breakout over $1345? That would be explicitly bullish.


Ben Bernanke should be so proud of himself. Slow-growth investors, unite!


Ben + Gold = Love? - BFF


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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





  • BETTER:  HOT delivers a beat driven by better margins on their owned & leased business and stronger fees growth.   Buybacks and the steady quarterly dividend were also a bonus although not a surprise. 






  • SLIGHTLY BETTER:    Absence of new supply has allowed occupancies to reach record levels and keep RevPAR steady in the 2-3% range.  Mgmt  expects that to continue.  They had a good summer in Spain and strenght in Eastern Europe.  They are optimistic regarding 2014. 
    • Turning to Europe, the economic picture is still anemic overall. But as before though, our business is holding up pretty well. We attribute this to tight supply and our ability to bring in global suppliers to Europe – global travelers to Europe with SPG, and our global sales team.
    • Europe is steady but sluggish, as it has been for the past couple of years. 
    • We expect this 2% to 3% growth rate to continue into Q3 as leisure travel looks good for the summer and we may benefit from Ramadan ending earlier in August.


  • BETTER:  EBITDA of $19MM was ahead of 3Q guidance and HOT raised its 2013 net cash flow forecast to over $200MM from $175MM previously.
  • PREVIOUSLY: At the end of the quarter, we only had 22 condos left to sell or close. We have been raising prices and recent square footage rates have exceeded $1,500. Unfortunately, this gift will stop giving by the end of the year since we will be sold out. We are raising Bal Harbour profit expectations by $20 million to $110 million, and cash flow to at least $175 million


  • BETTER:  HOT repurchased approximately 2.73MM shares for $180.7MM.  Subsequent to the end of the quarter and through October 18, 2013, HOT repurchased an additional 1.14MM shares for $75.9MM.  In addition,  HOT's Board of Directors has an annual cash dividend of $1.35.  There will be quarterly dividends starting in 2014. 
  • PREVIOUSLY:  We will also discuss moving to a quarterly dividend starting in 2014. Stock buybacks remain a priority. 


  • SAME: North American RevPAR came in at 5.8% in 4Q, driven by strong transient revenues (up 8-9%), leisure travel and corporate demand
  • PREVIOUSLY:  North American REVPAR has been growing at about 6% through the first half and we are projecting that this will continue with rate accounting for 80% of the increase.


  • SAME: Group pace remains in the mid-single digits and expect rate increases in the high to mid-single digits
  • PREVIOUSLY:  Group pace for 2014 and 2015 is currently tracking in the mid-single digits. 


  • SAME:  Transient revenues were up 8-9% in the quarter
  • PREVIOUSLY:  Transient demand, especially corporate travel has remained robust. Helped by record low supply, occupancies hit new peaks. 


  • SAME:  RevPAR declined to under 1% this Q.  Owning to political turmoil, Egpyt and Syria dragged down performance.  UAE had a good quarter.
  • PREVIOUSLY:  Middle East: We expect growth rates in Q3 to tick down in this region for a couple of reasons. Egypt, which was recovering nicely, is impacted by the recent turmoil and Saudi Visa restrictions are sharply reducing Ramadan-related travel. Things are expected to recover as we enter Q4.


  • WORSE:  REVPAR only grew 1%, below previous expectations.  Strength in Mexico was not enough to offset weakness in Brazil. 
    • With the crisis in Argentina and now a slowdown in Brazil, Latin America has struggled this year. Brazil was down 6% in the quarter, but by the demonstrations, a slowing economy and the impact of major renovations at the Sheraton Rio, which remains in the same store set. Mexico is helping mitigate some of this as it grows from increasing business activity as well as the return of the American vacationer.
    • As we enter Q3, we lap 16% declines in Argentina last year, so we might actually see Latin American REVPAR grow 5% to 6%.


  • WORSE:  Mgmt is disappointed with results.  Assume that RevPAR growth will be in the 2% range in 4Q.
    • In China, REVPAR growth continues to track well below the expectations we had at the start of the year.
    • As we enter the second half, we begin to lap the slowdown in China last year.  As such, we expect REVPAR growth will pick up a bit to the 2% to 4% range.

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