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WYN 1Q14 - EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

 

Q1 2014 CONSENSUS ESTIMATES

 • Total revenues:  $1,195 million

 o Vacation Ownership:  $576 million

 o Vacation Exchange & Rentals $393 million

 o Lodging $235 million

 • EBITDA $242 million

 • EPS $0.75/share

 

MANAGEMENT GUIDANCE

Q1 2014:

  • Adjusted EPS:  $0.72 to $0.75,
  • No share repurchases factored into guidance
  • Lodging RevPAR:  4% - 6%
  • Repurchased 700,000 shares at average $71.02/share through February 13, 2014

Full Year 2014:

  • Revenues:  $5.25 - $5.35 billion
  • EBITDA:  $1.215 - $1.24 billion, organic growth 6% - 8%
  • EPS:  $4.18 - $4.28, 17% - 21% from 2011 to 2015
  • Corporate & Other:  $122 - $125 million
  • Interest Expense:  $113 - $117 million
  • Weighted average diluted shares of 131 million

QUESTIONS FOR MANAGEMENT

  1. Discuss current M&A pipeline and pricing vs. return expectations
  2. View on increasing dividend as compared to growth in free cash flow
  3. With the WYN stock trading near $73/share, what is managements view on stock valuation?
  4. Discuss recent credit trends within Vacation Ownership segment - receivables write-downs, reserves, and impairments?
  5. Plans for a time-share receivables securitization during 2014?

COMMENTARY FROM 4Q CONFERENCE CALL

Lodging Segment:

  • In the Hotel Group, revenues were up 10% reflecting higher RevPAR, adjusted EBITDA increased 3%, offset by nearly $7 million in higher marketing expenses.
  • Domestic RevPAR grew 4.7% in Q4 on the strength of our upscale Wyndham brand, which grew 10.5% for the quarter and 12.4% for the full year
  • International RevPAR continues to run at lower rates due to expansion of our lower RevPAR brands in China
  • Hotel Group will see first ever umbrella marketing program with a national advertising campaign in the spring 2014.
  • Redirecting resources to strengthen Wyndham Rewards Loyalty Program.
  • Increasing incentives for franchisees to achieve enrollment targets.
  • European markets appear to be on the upswing and through January, bookings at each of our European brands were ahead of 2013.

Vacation Exchange & Rentals:

  • Exchange and Rentals revenues excluding FX increased 3% - average exchange members increased 1.6% but revenue per member fell 1.8% while average net price per vacation rental increased 4.4% on flat volume. Introduced dynamic pricing earlier in 2013 at UK cottage and Dutch park segments.

Vacation Ownership:

  • WVO revenues increased 12% and EBITDA was up 19% based on sales of $53 million were up 12%.  Receivables write-offs decreased 12% to $68 million and provisions of $73 million were down from $89 million in the prior year.

Corporate:

  • Foreign exchange negatively impacted quarterly results by $14 million.
  • Our FCF guidance remains at a target of $750mm as stronger business performance will be offset by higher inventory spend (manage inventory spend to $150mm as a five-year average starting in 2011) and the $40mm increase in cash taxes

REMOVING CCL FROM BEST IDEAS

We’re taking CCL off the Best Ideas List as a Long.

 

 

Following a near 20% increase in stock price over the past 6 months, CCL’s valuation of 16x 2015 EPS looks fair.  Near-term risks include:  1) continued choppiness in Caribbean pricing for the industry and 2) increased Macro risks including consumer spending pressure and higher oil.  We remain constructive over the intermediate term as CCL yields should outperform Street expectations as the brand continues to regain lost value and brand rebuilding costs should abate.  


CRUISE PRICING SURVEY: PRE-1Q 2014 RCL/NCLH EARNINGS

Q2 Caribbean pricing remains a headwind for both companies but Europe is a positive offset for RCL

 

 

OVERALL SURVEY SENTIMENT

  • RCL:  Neutral
  • NCLH:  Negative 

 

CALL TO ACTION

We are not expecting much change to RCL’s 2014 guidance but Q2 could be lower than consensus.  NCLH still has the most risk to 2014 yield guidance.  

 

RCL

  • North America
    • As Chart 1 shows, FQ2 sequential pricing jumped into positive territory thanks to a rebound in Alaska pricing (although numbers are skewed due to absence of Celebrity in the Caribbean for May/June).  In the Caribbean, sequential pricing was flat; on a YoY basis, pricing remains lower in the double digits for FQ2 and FQ3.
    • Quantum pricing for Nov/Dec remain unchanged
    • Pullmantur pricing steady

Chart 1

CRUISE PRICING SURVEY: PRE-1Q 2014 RCL/NCLH EARNINGS - rcl1

  • Europe
    • Chart 2 shows strong YoY pricing for FQ2.  In Chart 3, on a sequential basis, there was a price drop in FQ2 but that is more than offset by gains in FQ3 and FQ4.
    • RC brand – pricing up high double-digits for F2Q and high single/low double digits YoY for F3Q-F4Q 
    • Overall, Celebrity pricing improved in late April.  There was some discounting for FQ2.
    • Azamara pricing was mixed
    • Pullmantur pricing showed good growth considering very easy comps.  The Baltic/North Sea regions particularly stand out.
    • Anthem pricing for 2015 remain unchanged

Chart 2

CRUISE PRICING SURVEY: PRE-1Q 2014 RCL/NCLH EARNINGS - rcl2

 

Chart 3

CRUISE PRICING SURVEY: PRE-1Q 2014 RCL/NCLH EARNINGS - rcl3

  • Asia/Australia/South America
    • Slight growth in RC brand and Azamara pricing

NCLH

Chart 4 shows NCL pricing continue to be under pressure for FQ2

  • Caribbean
    • Will the bleeding stop?  FQ2 Pricing continued its descent in late April. 
  • Alaska
    • Pricing stabilized in April.  On a YoY basis, pricing remains modestly lower.
    • NCLH has 10% and 18% exposure to Alaska in FQ2 and FQ3.
  • Europe pricing looks outstanding for the summer
  • Hawaii FQ2 summer pricing was weaker in late April

Chart 4

CRUISE PRICING SURVEY: PRE-1Q 2014 RCL/NCLH EARNINGS - rcl4

 

STOCK VS SURVEY

 

RCL

Survey has suggested mixed signals for RCL in the past 6 months

 

CRUISE PRICING SURVEY: PRE-1Q 2014 RCL/NCLH EARNINGS - rcl5

 

NCLH

Survey has been bearish on NCLH since the 02/12/14 survey

 

CRUISE PRICING SURVEY: PRE-1Q 2014 RCL/NCLH EARNINGS - rcl6


Early Look

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Retail Callouts (4/23): SKX, AMZN, LULU, RSH

Takeaway: Too soon to hop on short-side of SKX? AMZN feeling the weight of sales tax. New LULU copycat with big backers.

EVENTS TO WATCH

 

THURSDAY

  • UA - Earnings Call: Thursday 4/24, 8:30am
  • CAB - Earnings Call: Thursday 4/24, 11:00am
  • DECK - Earnings Call: Thursday 4/24, 4:30pm
  • HBI - Earnings Call: Thursday 4/24, 4:30pm
  • AMZN - Earnings Call: Thursday 4/24, 5:00pm

 

FRIDAY

  • VFC- Earnings Call: Friday 4/25, 8:30am

 

COMPANY NEWS

 

SKX - 1Q14 Earnings

 

Retail Callouts (4/23): SKX, AMZN, LULU, RSH - chart1 4 23

 

 

Takeaway: Clean beat by a sizable margin. DD growth in Wholesale, International, and Retail while taking up price by 5% amounted to the 21% revenue growth rate. The only troubling part of the algorithm was flat dot.com sales which management attributed to low inventory levels. Not alarming given that the company comped 5.6% but interesting given just about every other retailers reliance on that channel over the past 6 months. The company got product right - something that it hasn't consistently been able to deliver on in the past. Sustainability of this momentum is the factor to determine now. Getting in on the short side too soon for the legions of perennial SKX haters could prove very painful.

 

AMZN - Amazon Sales Take a Hit in States With Online Tax

(http://www.bloomberg.com/news/2014-04-22/amazon-sales-take-a-hit-in-states-with-online-tax.html)

 

  • "In one of the first efforts to quantify the impact of states accruing more tax revenue from Web purchases, researchers at Ohio State University published a paper this month that found sales dropped for Amazon when the online charge was introduced. In states that have the tax, households reduced their spending on Amazon by about 10 percent compared to those in states that don’t have the levy. For online purchases of more than $300, sales fell by 24 percent, according to the report titled 'The Amazon Tax.'”
  • "In total, brick-and-mortar retailers enjoyed a 2 percent bump in purchases in states that introduced an online sales tax, while competing online retailers got a 20 percent increase, the study found."
  • "The biggest sales uptick -- 61 percent for big-ticket items -- went to merchants that use Amazon Marketplace. These outfits pay Amazon a fee to offer products through the Amazon website, yet don’t collect taxes. The products are typically available alongside Amazon’s own listings."

 

Takeaway: AMZN is the only retailer that doesn't have to protect its margin, because quite frankly, it doesn't ha. It's never had one mostly because it feels that revenues are more defensible. The 10% pullback in revenues in states where AMZN has started collecting state income taxes is less than we'd expect given the 5-10% price advantage it held prior to the tax laws. At some point Congress will pass a law clarifying this issue, whether it’s the Marketplace Fairness Act or something that looks a lot like it. AMZN can afford to play on a level playing field in the tax arena and still compete on price, but the others who this study points to as the biggest beneficiaries of the share gain don't have that pricing power.

 

LULU - Montreal’s Lole takes aim at struggling Lululemon's market

(http://www.theglobeandmail.com/report-on-business/montreals-lole-takes-aim-at-struggling-lululemon-market/article18116318/#dashboard/alerts)

 

  • "Montreal-based Lole...will open a flagship store in the prominent Soho district of New York this spring as a springboard for expansion to the U.S."
  • "On Wednesday, Lole, which started as a wholesaler and branched into retail in 2010, will announce it is financing its plans partly through an investment from several high-profile backers. They include Quebec’s Desmarais family, members of the Hermes luxury fashion dynasty in France and the Simon family, which founded the largest U.S. shopping centre landlord. The group is buying a majority stake in parent company Coalision Inc. from private equity firm Kilmer Capital Partners, whose interest is dropping from 70 per cent to 20 per cent."
  • The retailer’s parent's long-term target is to increase revenues, which are expected to hit $105-million this year, to $1-billion or more annually over the next several years, Bernard Mariette, chief executive officer of Coalision, said….'It’s good timing,' Mr. Mariette, the former CEO of snowboard and surf specialist Quiksilver, said in an interview. 'Every movement in the competition is an opportunity.'”

 

Takeaway: Big backers stepping in behind another LULU copycat. LULU's competition spans the whole gamut - NKE, UA, GPS joined by a whole host of independents. The big players are the most easy to point to as competition but it’s the competition in aggregate that we are concerned with. We still think LULU has a lot of room to run on the top line, but will have to make its pricing model and/or value proposition more attractive in order sustain its market share -- something it's been unable to do since 2012.

 

OTHER NEWS

 

RSH - Top ops exec departs RadioShack

(http://www.retailingtoday.com/article/top-ops-exec-departs-radioshack)

 

  • "Troy Risch resigned his position EVP of store operations at RadioShack the company disclosed in a filing with the Securities and Exchange Commission on Tuesday."
  • "Risch spent 16 months at the troubled electronics retailer and his hiring in January 2013 was seen as somewhat of a coup since had spent 19 years at Target in various operations roles including EVP of stores."
  • "Risch joined RadioShack under the leadership of former interim CEO Dorvin Lively. However, roughly a month after Risch was hired RadioShack named former Duane Reade and Walgreens executive Joe Magnacca president and CEO to replace Lively."

 

ABF - Primark to Open Stores in America

(http://www.wwd.com/retail-news/mass-off-price/primark-to-open-stores-in-america-7653356)

 

  • "Associated British Foods plc said its popular retail brand...would open stores on the east coast of the U.S. starting next year."
  • "Primark signed a lease for some 70,000 square feet of selling space in the historic Burnham Building, which is currently being renovated, at Downtown Crossing in the heart of Boston, Mass. The site was previously home to a Filene’s department store."
  • "The Primark unit is set to open towards the end of 2015, and negotiations are under way to open more locations in the north east, through to the middle of 2016. The U.S. stores will be supported by warehousing in the region, ABF noted."

VIDEO | Keith's Macro Notebook 4/23: RUSSIA YIELD SPREAD VOLUME


PODCAST | McCullough: Three Risks on My Radar Screen


In this morning’s macro call with subscribers, Hedgeye CEO Keith McCullough discusses three market risks on his global macro radar screen, how to play various markets around the globe, and why investor caution is advised here in the U.S. 



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