Editor's note: This unlocked edition of Daily Trading Ranges was originally published April 2, 2014 at 8:22 am. For more information on how you can receive these levels every morning in your inbox click here.
Takeaway: As we look at today's setup for the S&P 500, the range is 24 points or 0.98% downside to 1854 and 0.30% upside to 1878.
Takeaway: Odd statement by new UA running head. MKS snubs US retail market. EBAY goes same-day delivery. New Balance grows faster than NKE and AdiBok.
UA - 3 Questions for Under Armour's Fritz Taylor
Takeaway: That last answer 'footwear needs to wait for apparel' is logical for a company like UnderArmour, but the reality is that it is probably the wrong answer. The best companies (Nike) run apparel and footwear product creation in tandem. The chronic underperformers (Adidas) run the business in a series circuit (first apparel then footwear in AdiBok's case). Again, that's probably ok for UnderArmour where footwear is still in its infancy. But this process will need to evolve if UA wants to be considered a real footwear company.
EBAY - eBay Signs Retail Chains to Same-Day Delivery Service
Takeaway: eBay has recruited a pretty powerful list of partners in its push to build same-day delivery capabilities. This is brick and mortars response to AMZN's local express. Pretty easy sales pitch for EBAY as it gives retailers the opportunity to pool resources to compete with Amazon. Only thing that remains to be seen is if this courier based logistics network can scale to support the potential demand from bigger boxes.
MKS - Marks & Spencer plans massive international expansion
Takeaway: Marks & Spencer is a quality retailer by most measures, and the International expansion makes a lot of sense. Though the most interesting takeaway for us is that it wants to grow in most major markets that are NOT the US. How's that for a statement by a major International retailer with over 1,000 stores that it thinks that the US is overstored?
New Balance - New Balance Sees Double-Digit Growth in 2013
Takeaway: This is really impressive for New Balance. We don't often hear much about its growth due to the fact that it is private. But 14% sales globally on a base of $2.5bn ain't half bad. One thing we'd note is that NB has been aggressively growing its own retail presence, which boosts the top line to an even greater degree relative to having a pure wholesale model. But it's quality growth nonetheless. Looked at a different way, it outgrew Nike and Adidas.
Japan Dept Stores' Sales Surge Ahead of Tax Hike
DDS - Wells Fargo and Dillard’s Announce New Credit Card Agreement
FDO - Family Dollar Expands Food Assortment
PERY - Carmine Petruzello Exits Perry Ellis
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The VIX closed < 14.72 Hedgeye TREND yesterday. Looking at front month Volatility on the equity side, we’re going to get an oversold signal here. On our immediate term TRADE duration the VIX will be oversold around 13.01. That means that the equity market is immediate term TRADE overbought. Consider that immediate term signal within the inverse relationship that is Volatility versus Price in the S&P 500. The immediate term TRADE overbought line for the S&P 500 is 1888.
One of our favorite Emerging Markets right now, the BSE Sensex continues to shine +0.5% to +6.8% year-to-date. This continues to work in the face of not only some political reform, but the currency not going down in a blazing ball of fire anymore. What you get here in India this morning is another positive divergence versus the region. You’d rather be long India on the equity side. Dr. Raj continues to deliver. Hedgeye macro analyst Darius Dale has been all over this one.
Oil remains bearish TREND Hedgeye with Brent down hard at $104.65 this morning, which for the consumer, who’s getting plugged by inflation, is a very good thing.
|FIXED INCOME||15%||INTL CURRENCIES||22%|
Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In out view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration. The first survey tool measures 3-D Mammography placements every month. Recently we have detected acceleration in month over month placements. When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner. With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.
Construction activity remains cyclically depressed, but has likely begun the long process of recovery. A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating. Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms. As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.
Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.
Norway, another country that doesn't do 0% rates of return for Savers, sees unemployment drop to 3.5% @KeithMcCullough
"Do what you feel in your heart to be right for you’ll be criticized anyway." - Eleanor Roosevelt
Sporting a "Luck of the Jedi I Have" T-shirt, a California retiree stepped forward to claim a $425 million Powerball jackpot a month and a half after he bought the winning ticket. B. Raymond Buxton was grabbing lunch at a Subway inside a convenience store when he decided to buy a second ticket on Feb. 19. It was that second ticket — a $2 impulse purchase — that hit it big. (CNBC)
A disappointing March could put Q1 regional casino estimates at risk following a nice bounce in the stocks.
CALL TO ACTION
Weather adjusted trends have improved since December but March could be a step back. Q1 estimates look at risk to us and may become evident as the regional states begin releasing March revenues next week. Even though Q1 estimates came down for BYD, PENN, and PNK, we think more downside remains. Stocks have bounced nicely off the bottom so be aware.
On February 4th, we called for a regional reversal and turned positive on the regional gaming operators based on better than expected January monthly regional trends and better February results. Weather impacted January and February results but the 2nd derivative was still positive. As a result, the regional gaming operators garnered investor attention. Tax refunds and the promise of realized pent up demand during March pushed the stocks up to a mid-March peak - PENN peaked up 16%, PNK +29% and BYD +45% vs the S&P 500 Index up 8% from our Feb call.
Additionally, after the close of the financial markets March 10, Elliott Management disclosed it owned 5.28 million shares of BYD as well as an economic exposure of approximately 2.05% of the common stock outstanding via derivative agreements. Since then, Elliott Management and its founder, Paul Singer, have been tight lipped regarding their intensions and plans – likely driven by the licensing nuances of the gaming industry.
Investors and the sell-side believe earnings, especially 1Q14 EPS, have stabilized. Since our Feburary 4th pivot call, regional gaming stocks have outperformed, led by BYD +32%. While the regional gaming stocks have retreated modestly since mid-March, downside remains, especially if the March regional revenues come in soft and disappointing as we expect. We believe 1Q14 and FY2014 earnings could be subject to further negative revisions.
As seen below, our early regional forecasting algorithm predicts March regional gaming revenues will decline 7%, as sequential deceleration from weather impacted results from February.
Two large regional states are tracking below what we believe is consensus thinking for March. With only one day left in the reported month, Missouri SSS GGR looks like it will close March down 7-8% and Pennsylvania SSS slots falling 5-7% YoY. Remember that February fell 7% in Missouri and 8% in Pennsylvania - so not much improvement sequentially despite awful weather in February. Moreover, expectations may be for flat or even better regional GGR YoY given higher tax refunds and pent-up, weather related demand carryover from February. Neither our model nor the early evidence suggests March regional GGR is close to flat.
Bad demographics should continue to pressure regional gaming revenues. Younger generations are simply not interested in slot machines. We’ve written extensively about this secular headwind so we won’t rehash here. However, these volatile stocks can move significantly on data points – especially negative, reversal or contra-psychology inflections.
TICKERS: LVS, MPEL, BEE
Friday, April 4
Tuesday-Thursday, April 8-10
Wednesday, April 9
Thursday, April 10
LVS – the unfinished $600 million St. Regis condominium tower between The Venetian and Palazzo may soon come back to life. The company recently studied converting the tower into a time share complex, a third hotel-casino, as well as a simple expansion to The Venetian and Palazzo.
TAKEAWAY: In a town that is experiencing a strong economic recovery, idle real estate doesn’t stay dark for long. LVS maintains a number of value levers.
MPEL – will begin hiring 8,000 workers to staff its Studio City by end of 2014. MSC on track to open mid-2015.
TAKEAWAY: Affirming a mid-2015 opening continues to be encouraging. Should give MPEL a first mover advantage among the new properties.
Okada Group - Century Properties Group Inc has sought court intervention to stop Japanese gaming tycoon Kazuo Okada from scrapping their agreement to develop a portion of the $2-billion Manila Bay Resorts in Entertainment City. In a disclosure to the Philippine Stock Exchange, the property firm of former ambassador Jose EB Antonio said it filed on Monday a petition for interim measures of protection before the Regional Trial Court of Makati against the Okada Group.
TAKEAWAY: The Okada controversy continues...
BEE – announced it closed on the sale of its Marriott London Grosvenor Square Hotel for $207.7 million or $877K/key. Net proceeds from the sale are about $97 million after the company pays off property level debt of $111 million. Additionally, the company announced it closed on the acquisition of its 50% remaining interest in the 649-room Fairmont Scottsdale for total consideration of $149.1 million including $58.5 million of debt.
TAKEAWAY: The Comany is finally achieving the stated goal of reducing leverage to below 5x net-debt to EBITDA.
OCEANIA – Oceania will completely refurbish its three R-class ships by June 2014 Cruise Critic
The 684-passenger Regatta, Insignia Regatta, Insignia and Nautica will receive some of the most popular features already found on the line's O-class ships Marina and Riviera. The $50 million investment begins this month with Insignia's dry dock in Marseille.
TAKEAWAY: We wonder if an IPO is still in the works
Viking River Cruises CEO Has No Interest in IPO or Selling to a Cruise Corp Skift
Viking is in the midst of an enormous expansion. 18 Viking ships were inaugurated late last month, 10-12 more river longships will be introduced in 2015 and up to 5 ocean liners will be under construction over the next 5 years. Viking founder and Chairman Torstein Hagen said each new ship cost approximately $35 million to build.
Despite investment coming in from at least three banks including UBS and KFW, neither an IPO or acquisition are what Hagen says wants for his 17-year-old company at this time. “I don’t wish it upon my colleagues to be owned by a large cruise company. We don’t foresee any capital need. I don’t see a purpose in being a public company," said Hagen.
TAKEAWAY: The competition from the river cruises are for real and should not be taken lightly.
Macau - Zero-fee tours continue to operate Macau Daily Times
Despite a recent Chinese Tourism Law aimed at shutting down such operations in Oct 2013, the zero-fee tours continue to be widespread. The alleged purpose of zero-fee tours is to promote inexpensive travel packages. However, such tours often require clients to shop at designated stores and spend required minimum amounts at each shop.
TAKEAWAY: Inflates visitation numbers relative to gambling revenues.
Package Tours and Hotel Occupancy Rate for February 2014 DSEC
As the Lunar New Year fell in February this year, visitor arrivals in package tour totaled 851,000 in February 2014, +5% YoY. Visitors from Mainland China totaled 645,000, +7% YoY, with 312,000 coming from Guangdong Province; meanwhile those from Taiwan (59,000), the Republic of Korea (38,000) and Hong Kong (36,000) recorded decreases.
There were 99 hotels and guesthouses operating at the end of February 2014, providing 28,000 guest rooms, -1% YoY. The average occupancy rate of hotels and guesthouses surged by 15% points YoY to 92%, with 5-star hotels leading at 93%. The average length of stay of guests increased by 0.1 night YoY to 1.5 nights.
TAKEAWAY: CNY shift helped...
Maldives - The Economic Ministry reports that investment opportunities will be opened for the five mega projects planned to be developed in the Maldives. The five mega projects that will be open for foreign investment at the forum will be: project to develop Ihavandhippolhu as an economic zone; Project to develop 'I-Heaven' and Ibrahim Nasir International Airport (INIA); project to develop Hulhumale at its second phase; project to change the current commercial harbour to Thilafushi and its development and the project to extract fuel and gas from the Maldivian region.
TAKEAWAY: Interesting to us how the Maldives is attempting to remake itself in the face of global warming and rising ocean levels...
Kansas Gaming - House Bill 2272, which was introduced by state Sen. Jacob LaTurner, would lower the investment requirements for a casino in the Southeast Gaming Zone. Similar legislation passed the Senate 28-10 earlier this session. The current casino licensing requirements are $225 million with a privilege fee of $25 million. The new HB 2272 legislation would lower those costs to $50 million and a privilege fee of $5.5 million which are similar to the requirements for the casino built in Dodge City, Kansas.
TAKEAWAY: A southeast Kansas casino represents another threat to the State of Missouri gaming.
Massachusetts Gaming - If Mohegan and Suffolk Downs are awarded a casino license, their project completion could be delayed by months after the state ruled in favor of a do-over for the project’s environmental impact study. The new casino plans were ruled to be so different from the original that state officials would need to see a new set of reviews for traffic and other impacts. The project was originally supposed to be located mostly in Boston, but was quickly moved to Revere after East Boston residents rejected the plans in a November referendum.
TAKEAWAY: The political and legal jockeying continues...
Mississippi Gaming - developers of the Scarlet Pearl Casino in D'Iberville were unable to meet the 5 p.m. deadline Monday to close on the financing for the $250 million resort. Developers of Hemingway Casino at the Gulfport Harbor face a deadline at 5 p.m. today to complete their financing of a $112 million casino. Scarlet Pearl -- and Hemingway Resort if it misses today's deadline -- must go back through the entire review process with the Gaming Commission and meet the new, more stringent development requirements. Scarlet Pearl may qualify under the new rules because it has the required 300 hotel rooms, along with an elaborate 36-hole miniature golf course, an event center and other amenities. The Hemingway Casino in Gulfport doesn't have enough rooms under the new regulations. It is proposed as a 205-room luxury hotel rooms operated by Hemingway Hotel and Resorts and based on the life of author Ernest Hemingway. It also is 5,000 square feet short of the minimum of a 40,000-square-foot or larger casino.
TAKEAWAY: Financing low ROI projects is never easy.
Wisconsin Gaming - local media reports the State of Wisconsin agreed to pay a Michigan law firm up to $1.5 million to study the proposal made by the Menominee Tribe to build a casino on the property left vacant by a defunct greyhound racetrack in Kenosha.
TAKEAWAY: Regardless of the decision by the Wisconsin Governor regarding the proposed Kenosha casino, this issue seems destined for litigation in the court system. Maybe that's why the Governor retained a law firm to conduct the gaming study.
LODGING M & A - Sotherly Hotels bought the upscale 326-room Georgian Terrace Hotel from Fremont Realty Capital for US$61 million. Average price per key was $187k.
Hedgeye remains negative on consumer spending and believes in more inflation. Following a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive.
TAKEAWAY: We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.
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