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Hedgeye Retail: $DSW, $BWS Earnings Wildly Out Of Synch

Takeaway: DSW and BWS have essentially traded places.

Hedgeye Retail: $DSW, $BWS Earnings Wildly Out Of Synch - 1

DSW and BWS Earnings


Hedgeye Retail: $DSW, $BWS Earnings Wildly Out Of Synch - chart4 5 28

 

Hedgeye Retail: $DSW, $BWS Earnings Wildly Out Of Synch - chart5 5 28

TAKEAWAY FROM HEDGEYE’S BRIAN MCGOUGH:

One company missed by 13%, the other beat by 13%.  One comped down 3.7%, and the other comped up 1.3%. One guided up. The other guided down. One blamed weather. The other did not. One SIGMA improved, the other eroded. All else equal, we'd bet that 9 out of 10 people would say that that the company that surprised on the upside is DSW, and the loser is Brown Shoe. But today, they'd be wrong.

 

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Editor's Note: This is a research excerpt from Hedgeye Retail Sector Head Brian McGough. Follow Brian on Twitter @HedgeyeRetail

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Daily Trading Ranges, Refreshed

Takeaway: Either it's “different this time” and the bond market is wrong on growth, or it's not.

Editor's note: This unlocked edition of Daily Trading Ranges was originally provided to subscribers on May 28, 2014 at 7:34 a.m EST. For more information on how you can receive these levels every morning in your inbox click here.  

 

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BULLISH TRENDS

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BEARISH TRENDS

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Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.33%
  • SHORT SIGNALS 78.49%

VIDEO | Keith's Macro Notebook 5/28: UST10YR SENTIMENT SWISSY


LEISURE LETTER (05/28/2014)

Tickers:

EVENTS TO WATCH

  • Monday, June 2 - Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference 

COMPANY NEWS

G13 Genting Singapore – up eight wholly owned subsidiaries in Japan. the Japanese companies – each with a nominal registered capital of JPY2.00 (2 US cents) – include Resorts World Japan Co Ltd, Resorts World Tokyo Co Ltd and Resorts World Osaka Co Ltd, and “will be principally engaged in investment holding, leisure and related businesses”.

Takeaway: Setting the stage to be ready for the casino legislation.

 

9766.JP Konami – once Japanese casino legislation is approved, the company will establish a subsidiary through which it would take a minority stake in casinos in partnership with operators. 

Takeaway: Foreign operators with local partners seems to be the direction this is going.

 

LVS/1928:HK – Waddell & Reed Advisors announced a simultaneous sale of Sands China Limited (1928.HK) and purchase of Las Vegas Sands (LVS) of 16,963,601 shares via Merrill Lynch. 

Takeaway: It would appear Waddell & Reed is seeking exposure to the emerging and growth opportunities of Japan and Korea which would be best expressed via LVS rather than 1928.

 

BEE - commenced a 34M share secondary offering and to use the net proceeds from the Offering to fund the acquisition of the 63.6% ownership interest in the Hotel del Coronado that it does not own from its joint venture partner, to redeem all of the issued and outstanding shares of its 8.25% Series C Cumulative Redeemable Preferred Stock, and for general corporate purposes. Management estimates the to-be-acquired 63.6% interest in the hotel is projected to generate an incremental $19M to $21M of EBITDA for the remainder of 2014. In Q1 of 2014, RevPAR grew 11% at the property resulting in 21% EBITDA growth. 

Takeaway: In February 2011, BEE sold the 63.6% interest to Blackstone as a way to unwind the $630 million loan on the property.  At that time, the del Coronado was valued at $590 million below BEE's acquisition price of $745 million in 2005.

 

RCL - last week, the bailiff in the fjord-side city of Ålesund boarded and seized Independence of the Seas, citing the owner, Royal Caribbean's, failure to pay pilot fees from the previous year. According to The Norwegian Coastal Administration (NCA), which ordered the boat to be seized, Royal Caribbean owed the NCA about 600,000 Norwegian kroner which should have been paid in mid-October last year. Following the seizure, the ship's captain contacted Royal Caribbean immediately and the money was paid to NCA within an hour.

Takeaway: Never mess with the taxing authorities.

 

RCL - entered into an agreement with The Port Authority of New York and New Jersey for RCL to develop the next phase of Cape Liberty Cruise Port in Bayonne, N.J. The $55-million project will include the construction of a new, guest terminal, with 125,000 square feet of check-in, customs and immigration and luggage processing space, as well as a 900-car parking structure and pier improvements. The new facilities will be built adjacent to the terminal currently used to welcome guests and will accommodate the cruise company’s ships, including the Quantum of the Seas and Anthem of the Seas, each to start service at Cape Liberty in November 2014 and 2015, respectively. The new terminal is scheduled to be completed in November 2014.

INDUSTRY NEWS

Australia Gaming Expansion – subject to final environmental and planning approvals, Tony Fung's A$8.15 billion (US$7.53 billion) Aquis project near Cairns and ASF Consortium's A$7.5 billion Broadwater Marine Project on the Gold Coast will receive gaming licenses to build multi-billion-dollar mega-casinos in Queensland. Plans for the Aquis project, which will be 13 kilometers (eight miles) north of the Great Barrier Reef gateway city of Cairns in Yorkeys Knob, include the construction of a casino, nine luxury hotels with 3,750 rooms, and one of the world's largest aquariums.  ASF Group, a Chinese-Australian investment firm listed on the Australian Securities Exchange which was joined in its bid by two state-owned Chinese companies, said its Gold Coast proposal included a waterfront eco-park and a cruise ship terminal.

Takeaway: More competition for the SE Asian gambler, good for new slot sales and we await the highly anticipated Brisbane integrated resorts licenses award as well. 

 

McCarran Airport Traffic - increased 1.7% in April on year-over-year basis as compared to +2.8% in March.

Takeaway: Bulls will blame the slowdown on the Easter calendar shift.  Traffic declined 0.2% YoY in April 2013.

 

McCarran Airport New Service - Frontier Airlines, which currently averages six round trips a day between Denver International and McCarran International airports, will add flights from Washington’s Dulles International Airport and Cleveland. Nonstop service between Washington, D.C., and Las Vegas begins Sept. 8 with four flights a week. Frontier will run those flights Mondays, Thursdays, Fridays and Sundays. Frontier’s Cleveland service will begin Sept. 11 with two flights a week, Thursdays and Sundays. Frontier will fly the routes with 168-passenger Airbus A320 twin-engine jets. Frontier’s current schedule of 39 flights a week to Las Vegas ranks it the 12th busiest carrier at McCarran. The airline flew 137,100 passengers in the first quarter of 2014.

Takeaway: We like to see expansion of long-haul service as such gamblers typically spend more time in Las Vegas as compared to short-haul service from the West Coast.


Iowa Gaming Expansion – The Iowa Racing and Gaming Commission will meet Thursday in Jefferson to visit the site of a proposed new casino, hear a formal presentation and take public comments. A decision won't be made until the commission's June 12 meeting. The proposed project would be a $40 million casino resort with restaurants, a conference center and a hotel on the north edge of Jefferson.

Takeaway: A low probability event, awarding a new license, as Iowa already has 18 commercial casinos and the IRGC recently voted down a proposed casino in Cedar Rapids due to canabalization concerns. 

 

Greektown Casino, Detroit – more than a year after Cleveland Cavaliers owner and Quicken Loans founder Dan Gilbert took control of the casino, the new owner plans to scale back a $150 million renovation plan to work totaling $25 million to $50 million. Greektown is the smallest of the three Detroit casinos by revenue, at 24 percent of the market.

Takeaway: A mature market with little hope for new growth, so minimizing capex makes sense. 

 

Lodging Transcation – Accor announces that its HotelInvest business has agreed to purchase two real-estate portfolios representing 86 and 11 hotels respectively (12,838 rooms) for a total consideration of about €900 million or approx. US$1.228 billion. The first portfolio, representing 86 hotels and 11,286 rooms across Germany (67 hotels) and the Netherlands (19 hotels) has been operated by Accor since 2007 and includes ibis (29 hotels), ibis budget (31 hotels), Mercure (17 hotels) and Novotel (9 hotels) for €722 million. The second portfolio, 11 hotels and 1,592 rooms in Switzerland, Accor has entered into exclusive negotiations with Axa Real Estate. This portfolio has been operated by Accor since 2008 and includes ibis (5 hotels), ibis budget (2 hotels), Novotel (3 hotels) and MGallery (1 hotel) for €188 million.

Takeaway:  One of the first lodging companies to adopt the asset light strategy getting more real estate intensive.   

MACRO

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.

 


MORTGAGE DEMAND SLIDES FOR THIRD WEEK IN A ROW

Takeaway: Mortgage purchase applications dropped for the third consecutive week amid a generally favorable rate environment.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point.

 

MORTGAGE DEMAND SLIDES FOR THIRD WEEK IN A ROW - Compendium 052814

 

Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended May 23. Mortgage purchase application volume slid further this week dropping another -1.1% w/w. This brings the streak of negative sequential prints to three in a row on the purchase side. And while 2Q14 is tracking higher vs 1Q14 by 3.5%, it remains down year-over-year by just over -15%.

 

Activity cooled off on the refi side as well. After recording a few good prints (+4% w/w last week and +7% w/w in the previous week), mortgage refinance application volume was down -1.4% this past week in spite of low rates.  

 

As a reminder, we're more interested in the mortgage purchase volume data as it's the better leading indicator of the direction of housing's momentum, while the refi data is largely a reflection of rates on a coincident basis.

 

Trends in housing demand tend to lead price trends by 12-18 months and, as the first chart below shows, demand recently peaked in 2Q13 and has fallen significantly since. Admittedly, 2Q14 is tracking up vs 1Q14 by 3.5%, but relative to the -19% decline since mid-2013 (and the positive shift in weather) this bounce remains quite minor.

 

The prevailing weakness in demand suggests that as we enter the back half of this year and the first half of 2015 we should see growing downward pressure on the rate of home price appreciation.

 

MORTGAGE DEMAND SLIDES FOR THIRD WEEK IN A ROW - Purchase Index Qtrly

 

MORTGAGE DEMAND SLIDES FOR THIRD WEEK IN A ROW - Purchase   Refi YoY

 

MORTGAGE DEMAND SLIDES FOR THIRD WEEK IN A ROW - Purchase Apps LT w Summary stats

 

MORTGAGE DEMAND SLIDES FOR THIRD WEEK IN A ROW - Composite Index Qtrly

 

MORTGAGE DEMAND SLIDES FOR THIRD WEEK IN A ROW - Composite Index LT w Summary stats

 

 

About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 

 

Frequency:

The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.

 

Joshua Steiner, CFA

 

Christian B. Drake


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