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NOVEMBER STILL RED BUT BETTER THAN MODELED

Charts & Bullets:  Better than bad for the regionals in November but December could be ugly


  • Assuming Mississippi revenues come in line with our projection for November, SS revenues for the mature regional gaming markets would be down -1% vs our projection of -3%.  The outperformance was mainly due to Louisiana which reported a 2% gain in SS revenues.
  • The November “beat” offsets the October “miss” relative to our model
  • Illinois was the only laggard as that market was adversely impacted by tornados
  • Based on our projection below, December may surprise investors on the downside 

NOVEMBER STILL RED BUT BETTER THAN MODELED - ss



4.1 Percent

Takeaway: It's the first up week for the US Dollar in six. Keep that Dollar strong.

Boom! A 4.1% US GDP print for Q313. Unbelievable.

 

Remember the call consensus US stock market bears (and Gold Bond bulls) completely missed in 2013? Exactly.

 

#RatesRising mapped US #GrowthAccelerating from 0.14% to 4.1% like a Hedgeye glove. US GDP at this time last year (Q412) was 0.14%.

 

4.1 Percent - drake

 

Epic acceleration.

 

Speaking of growth, it's the first up week for the US Dollar in six. Keep that Dollar strong.

 

4.1 Percent - joke

 

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No E-Cigs For You! NYC Electronic Cigarette Ban Puts Vapors Out On the Streets

Yesterday, New York City’s city council voted overwhelmingly (43 to 8) to prohibit the use of e-cigs in indoor public areas where regular cigarettes are already banned. The Big Apple now joins New Jersey, North Dakota, Utah, and Arkansas which have already enacted similar bans in bars and restaurants. In recent weeks, we’ve also witnessed initial considerations on e-cig policy percolating in Chicago and Los Angeles.

 

NYC’s ban is set to take effect in four months, and follows the city’s recent decision to raise the age to buy traditional tobacco and e-cigs to 21 from 18, and raise the minimum price per pack of traditional cigs to $10.50 (set to take effect in APR/MAY 2014).

 

We view the vote as a marginal headwind to the industry.

 

In particular, the council’s focus was on fears that e-cigs could be a “gateway” to traditional cigarettes, outweighing “harm reduction” arguments. While we think that consumers intuitively understand that e-cigs offer a healthier alternative to traditional cigarettes (it’s the tar that kills you; the nicotine is simply an addictive agent), we think the industry stands to benefit as more science reveals the health benefits of an e-cig over a traditional cig.

 

Despite this obvious hit to the convenience of indoor smoking, we still see health considerations and a lower price point advantage driving the category as Big Tobacco’s focus on the category drives awareness, innovation and growth.

 

Just today, Philip Morris (PM) and Altria (MO) announced e-cig synergies across the two companies, effectively licensing and supplying (perhaps also manufacturing) each other’s brands across the globe. Note that both MO and PM have aspirations for nationwide e-cig distributions by mid-2014, MO under the brand MarkTen and PM with its yet to be disclosed brand.   

 

As we approach year-end, there remains an industry wide expectation that the FDA is set to imminently announce regulatory restrictions on electronic cigarettes. The exact timing? It’s still anyone’s guess. We believe the industry is bracing for regulation that could include:  

 

1) A ban of online commerce

2) Age verification standards at retail

3) Flavor limitations (beyond tobacco and menthol)

4) Health/safety certifications

5) Labeling and marketing requirements

 

We think regulation of e-cigs is positive for the industry so long as it does not, in particular, stifle innovation or price/tax as traditional cigarettes.

 

For a more comprehensive overview of the industry and regulation please see our recent report: “E-Cigs at the Thanksgiving Table”.

 

Bottom line: Despite increasing regulatory headwinds, we remain quite bullish on e-cigs.

 

Matthew Hedrick

Associate


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NKE: Removing Nike From Investing Ideas

Takeaway: We are removing Nike from Investing Ideas.

Editor's note: Shares of Nike have risen almost 23% since Hedgeye Retail Sector Head Brian McGough added it to Investing Ideas on 7/26/13. The S&P 500 is up approximately 7.5% in that time. Please see below McGough's explanation why he is removing NKE from Investing Ideas.

 

NKE: Removing Nike From Investing Ideas - nike1

 

We liked this Nike quarter about as much as we like week-old sushi. 

 

Sure, the quarter definitely had some redeeming qualities, like a solid 13% futures growth rate, a beat on the gross margin line, and really encouraging signs out of Western Europe. But the reality is that the company put up a less than impressive 8% top line growth rate, and managed to translate that into a whopping 4% EPS growth rate.

 

It missed our estimate, and we were hardly aggressive in our assumptions.

 

Maybe we're being a  little hard on Nike, as it has earned its spot as the dominant brand in this space, but the reality is that the company has put together such a fantastic string of results for so long (and has the multiple to match), and putting up a mere 4% growth rate is so….Adidas. 

 

If Nike wants to maintain its standing as one of the preeminent global companies and brands, its going to have to push the envelope a bit more going forward. We wouldn't be buying it here, and might go the other way if it bounces.



Hungry? Check Your Mailbox

With Consumer Staples companies focused squarely on innovation to drive growth, we want to pass along promising (dare I say disruptive) snacking innovation: mail-order snacks.

 

Bloomberg.com published a great article today outlining Graze.com, the Netflix of snacking (its founders are former employees at Netflix U.K.), that will be entering U.S. mailboxes this January after five-years of sales in the U.K. The company has $70M of sales this year and has gotten the attention of Big Food: in fact, General Mills (GIS) launched its own mail-order version in November, named Nibblr.   

 

Similar to the innovation (and investor excitement) we’ve seen around electronic cigarettes for Big Tobacco this year, we see huge runway for mail-order snacking. Both Graze and Nibblr market along Health and Wellness trends, offering an assortment of nuts and lower calorie snacks that the customer can choose from (4 per box at $6), which we think stands to meet both the impulse buyer and those looking to regulate daily calorie intake across a variety of sweet, salty and savory options with an easy-to-use interface.  

 

We would expect to see Big Food jump into the game, including Kellogg (K), Mondelez (MDLZ), and Annie’s (BNNY).

 

Happy Grazing!

 

Matthew Hedrick

Associate


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