Takeaway: The USD Index at $79.78 remains well below our long-term TAIL risk line of $81.17 — yes taxing US Consumption.
Takeaway: EBAY/AMZN strong March. NKE NFL price hike. No Americans want to save APP. VFC mgmt gets stronger. But not GES. Greene dips toe in CHS.
EVENTS TO WATCH
- BBBY - Earnings Call: Wednesday 4/9, 5:00pm
EBAY, AMZN - March 2014 ChannelAdvisor Same Store Sales (SSS) for eBay, Amazon, Search and CSE
- March 2014 SSS Results
- Amazon - "Amazon's March SSS came in at 26.2% compared to February’s 23.0%, a strong m/m increase we believe due to the improvement in weather conditions."
- eBay - "eBay's March came in at 17.8% up from January’s 15.0%."
Takeaway: Agreed…good uptick for AMZN, and continued strength for eBay, which shows the healthiest trend of the bunch. But the comment about AMZN sales picking up because of a weather recovery borders on ridiculous. A brick & mortar store MIGHT have a case in arguing that sales were weak in 1Q due to weather. But someone who generates 100% of sales online ? We have a really tough time believing that one.
NKE - Nike raises NFL jersey prices
- "Nike, which makes the official league uniform, has decided to raise prices on two of the three types of jerseys it sells. Nike did not announce the increase in price, but retailers, including the official league online store, started charging more on April 1."
- "The Game jersey, which is the cheapest replica, will still cost $100. But the price of the Limited jersey, which has embroidered twill numbers and letters in place of the silicon printing on the Game jersey, has jumped from $135 to $150. The Elite jersey, which is the closest to what the players wear on the field and boasts being water repellent and has a tighter, tailored fit to the body, went up nearly 20 percent to $295, up from $250."
- "NFL spokesman Brian McCarthy said that Nike and the retailers, not the league, determine the prices. But sources told ESPN.com that it was Nike executives alone who made the decision, implementing the new prices as the minimum prices retailers could sell the different style of jerseys for."
Takeaway: NKE has a monopoly over this market so it can raise prices at its discretion -- presuming that the consumer does not rebel. If only it was that simple for its footwear and apparel business. NKE has successfully taken up price over the past couple years while input costs moderated. Now with commodity costs switching from a headwind to tailwind and very little pricing power left to exercise, we think that the next move on the Gross Margin line is down.
VFC - VF Announces Strategic Leadership Changes to Align Business for Continued Long-Term Growth
- "VF Corporation today announced the appointment of Steve Rendle to the newly created role of Senior Vice President, Americas."
- "Since 2011, Rendle has served as Vice President & Group President – Outdoor & Action Sports Americas. His new responsibilities in the Americas will include leadership of the Outdoor & Action Sports, Jeanswear, Imagewear, Sportswear and Contemporary Brands coalitions."
- "The company also announced the following senior management changes: Patrik Frisk, currently Timberland® brand President, has been promoted to Coalition President, Outdoor Americas, with responsibility for The North Face®, Timberland®, JanSport®, lucy® and SmartWool® brands. A successor to Frisk to lead the Timberland® brand in the Americas will be announced in the coming months."
- "Kevin Bailey, who is currently Vans® brand President, Americas, has been promoted to Coalition President, Action Sports Americas and Vans. In addition to the Vans® brand, Bailey will oversee the Reef® and Eagle Creek® brands."
Takeaway: This is an uncharacteristic management move by VFC. But the reality is that it is probably the best managed company in the business, and we'll think twice (maybe three times) before questioning a reorg of its management rank.
GES - Joseph Gromek Appointed to Guess?, Inc. Board of Directors
- "Guess?, Inc. today announced that its Board of Directors has appointed Joseph Gromek to its Board, increasing the number of directors to seven and bringing the total number of independent directors to five. Mr. Gromek will also serve on the Compensation and Nominating and Governance Committees of the Board."
Takeaway: Our opinion is that WRC was among the worst managed companies in the apparel/retail industry. We didn't have a big problem with Gromek, but the reality is that he was captain of a ship who's only asset belonged to someone else (PVH -- Calvin license). WRC had extensive operations in Europe, which could help GES -- but that's not where they have a problem. It's in regaining relevance with the North American consumer. Not sure how much help Gromek will be there.
APP - American Apparel CEO Finds New Believer Just in Time
- "The American Apparel Inc. chief executive officer, facing a looming debt payment, attracted an investment last month from Swiss firm FiveT Capital AG."
- "FiveT, a Zurich-based firm run by 35-year-old Johannes Minho Roth, bought about half the shares in an American Apparel stock offering, helping the clothing chain pay bills and stave off the risk of default. FiveT is now the American Apparel’s largest outside investor -- second only to Charney -- with an almost 13 percent stake."
- “'He’s a visionary,' Roth said by phone. 'Dov wants to make it his life goal to make American Apparel into a successful company. I have a very positive view on him.'”
- “'We can’t believe how cheap it is,' Roth said. Especially since 'it’s a lot further in the restructuring process than people think.'"
Takeaway: The irony that the blue-blood American Apparel brand isn't saved by an American company is borderline hilarious. Roth definitely sees something that we don't.
CHS - Chico’s Rises After Leonard Green Reports 1.3% Stake
- "Chico’s FAS Inc...rose the most in more than two years after Leonard Green & Partners LP disclosed a 1.3 percent stake in the company."
- The shares climbed 8.4 percent to $16.97 at the close in New York, the biggest-one day gain Feb. 22, 2012...Leonard Green...purchased 2.05 million shares of the company, according to a filing today."
Takeaway: This is probably not the last we hear of Leonard Green with CHS. The reality is that it does not buy 1% of anything -- ever -- without plans to scale meaningfully higher (like 100%). That's what yesterday's 9% move in the stock suggests, at least.
PVH - PVH Corp. Announces Minority Investment in Karl Lagerfeld
- "PVH Corp. announced today that it has become a minority shareholder in the parent company of the Karl Lagerfeld brand. Terms of the deal were not disclosed."
- "This investment will enable PVH to benefit from the growth of this unique brand and includes the right of first offer to license the brand for North America, which has primarily been focused in Europe and Asia."
- "Karl Lagerfeld was part of the Tommy Hilfiger Group until PVH acquired the Group in 2010, at which time it was spun off to the Group’s former shareholders. Other investors in Karl Lagerfeld include Apax Funds, the Chou Group, Mr. Tommy Hilfiger and Fred Gehring, CEO of Tommy Hilfiger."
GPS - Rachel Tipograph Exiting Digital Role at Gap
- "Rachel Tipograph on Friday is stepping down as Gap Inc.’s director of global digital and social media after nearly three years on the job."
Hedgeye CEO Keith McCullough fires away on the non-consensus economic developments which will move markets in the weeks and months ahead. (This is an unlocked podcast from this morning's macro conference call with subscribers.)
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Client Talking Points
The US Dollar got hammered yesterday as consensus comes around to A) #InflationAccelerating and B) the Fed cheering it on (which will slow growth, and get Janet Yellen to get more dovish from here). The USD Index at $79.78 remains well below our long-term TAIL risk line of $81.17—yes taxing US Consumption.
The other side of the Down Dollar trade? Up Yen! #Nice, though not really for the Nikkei which is down -5.3% in 3 days to -11.6% year-to-date as the currency war rocks on. The Nikkei is signaling immediate-term TRADE oversold. Cover some of those shorts here.
Freshly squeezed year-to-date highs for the CRB Index (19 commodities): up +1.2% yesterday to +10% year-to-date (it sure beats being long $YELP, which we’ll host “The Bear” call on today @1PM). Since this Fed has 0% credibility fighting inflation, the long-bond goes up on inflation slowing real growth.
|FIXED INCOME||18%||INTL CURRENCIES||20%|
Top Long Ideas
Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our 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.
Three for the Road
TWEET OF THE DAY
New Zealand, who has been focused on a #StrongCurrency policy, continued higher overnight +7% YTD @KeithMcCullough
QUOTE OF THE DAY
"Respond intelligently even to unintelligent treatment." - Lao Tsu
STAT OF THE DAY
Toyota has announced five recalls, affecting a total of 6.39 million vehicles globally. The recalls cover 27 Toyota models, some made as early as 2004. The announcement affects around 2 million vehicles in North America, which may be experiencing problems with an air bag cable and seat rails. (CNN)
TICKERS: G13.SI, CZR, HOT, LQ, CCL
EVENTS TO WATCH: UPCOMING EARNINGS / CONFERENCES / RELEASES
Wednesday - Thursday, April 9-10
Mid-America Gaming Congress (Columbus, OH)
Wednesday, April 9
SHO Investor Day
Thursday, April 10
HST Investor Day
Monday, April 14
Atlantic City March revenues
GENTING - expects to go before Nevada gaming regulators on May 7th or 8th for the suitability ruling that will bring the start of construction on the Las Vegas Strip’s next super resort, a $2 billion project with an Asian theme.
TAKEAWAY: We are currently in Las Vegas and it would seem the suitability ruling is mere formality as we witnessed construction already underway at the RWLV (Echelon) site.
Macau Legend - Fisherman’s Wharf renewal to finish before 2017 Macau Daily Times
CEO of Macau Legend Development (MLD), David Chow Kam Fai, has estimated that the renewal of Fisherman’s Wharf will be finished before 2017. He revealed that MLD will apply for another 350 gaming tables once the renewal is completed, which will boost MLD’s number of gambling tables to around 500. Currently, MLD has ~140 gaming tables. Chow indicated that the first hotel of the renewal project would be opened in August 2014.
TAKEAWAY: More supply...
CZR - Online Gambling not taking business away from land casinos
Caesars spokesman Seth Palansky told the Press of Atlantic City Tuesday that the company does not believe gamblers logging on to the online sites are staying home to have a flutter instead of traveling to Atlantic City. “We’re finding very similar patterns as other companies. The people online are people that haven’t visited us in a while or are new players altogether,” Palansky said. “We’re not seeing cannibalization.” In the Caesars study many online gamblers are accessing the websites from locations that are just an hour’s drive from the land operations, but they are not the same clientele who usually visit the land casinos.
TAKEAWAY: Not hard to make these conclusions when I-gaming is only $10 million/ month. Borgata remains the leader in I-Poker which we believe is the most important stat.
HOT - sold the Aloft Tucson University to Lightstone Value Plus Real Estate Investment Trust II, Inc for $19 million or $127k per key.
TAKEAWAY: The execution of the asset light strategy continues.
LQ - LaQuinta IPO priced at $17 (below $18-21 price range). Offering upsized from 37.2 million to 38.3 million shares.
TAKEAWAY: Low pricing shouldn't have been a surprise given the multiples for the indicated range.
CCL - AIDAprima delivery to be delayed by 6 months. Seatrade Insider
The maiden voyage will now start from Yokohama, Japan on October 1, 2015. "Mitsubishi Heavy Industries asked us for more time to complete the construction of AIDAprima,’ said AIDA spokesman Hansjörg Kunze. "Although we were surprised by the request, it is nothing unusual for the construction of prototypes," he added.
TAKEAWAY: Shifting berth growth to Q4 2015. Berth count should grow ~3% in 2015.
412,000 Visitors during Ching Ming Festival Macau Daily Times
According to the Macau Public Security Police Force (PSP), the number of Macau visitors hit 412,000, +16.9% YoY. Nearly 70% of the border crossings were made using the border gate connecting to Gongbei in Zhuhai. The Macau Ferry Terminal was the second-most popular checkpoint for both arrival and departure, accounting for some 12% of total numbers.
TAKEAWAY: Don’t blame the holiday (or weather) for the weak early April GGR results
Google Checks In to the Hotel Business WSJ.com
Google had struck a licensing deal that will give it access to technology from hotel-booking software startup Room 77. By adding more photos and reviews to its hotel listings, they increasingly resemble those of OTAs. The idea is to encourage travelers to plan more of their trips directly on Google. In the process Google gets them closer to making a booking, which experts expect will make referrals more valuable, prompting travel agencies and hotel operators to pay more for clicks on Google ads over time. It also encourages more hotel operators to place ads on Google directly, bypassing online travel agencies that charge commissions of up to 25%.
TAKEAWAY: Google has always been a formidable competitor and partner for the OTAs. Is this finally a game changer in the hotel search business? Regardless, it’s negative for the OTAs, particularly for TRIP.
SLS Las Vegas began accepting hotel room reservations
Initial room rates from now through the end of April 2015, include a promotional opening rate of $109 per night on weekdays and $139 per night on weekends. The offer requires a two-night minimum stay and is valid beginning Sept. 1 through Dec. 27.
TAKEAWAY: The SLS Las Vegas is positioned as a luxury, boutique hotel and maybe viewed as a competitive threat to Wynn and Encore. However, the SLS does not appear to offer the same level of amenities as Wynn and Encore. Yet, Las Vegas visitor has demonstrated a willingness to try new properties – especially at a promotional rate.
Cruise Industry Continues to Battle Unfavorable Tides WSJ
According to a Harris Poll surveyed between Feb 10-14, 2014, consumer perceptions of the cruise brands fell relative to January, following norovirus incidents on Caribbean Princess, Explorer of the Seas, and Norwegian Star).
"We've all heard the saying that a rising tide lifts all boats," says Deana Percassi, Vice President and Public Relations Research Consultant with Nielsen, "but the inverse also holds true. In a field as crowded as the cruise industry, bad press for a small handful of brands -- or even a single one -- can have negative repercussions for major players across the board."
A majority of Americans (54%) also agree that they're less likely to take a cruise now than they were a year ago, with this sentiment proving stronger among those who have never taken a cruise (58%) than among those who have (44%).
TAKEAWAY: Not comforting stats for the cruise industry. Although, we've already heard February was a weak month.
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.
Risk Managed Long Term Investing for Pros
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.