Daily Trading Ranges, Refreshed

Takeaway: SPX hits all-time-bubble high on one of the lowest volume days of the decade, while the Russell falls again.

Editor's note: This unlocked edition of Daily Trading Ranges was originally provided to subscribers on June 3, 2014 at 7:46 a.m EST. For more information on how you can receive these levels every morning in your inbox click here.  


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Takeaway: DG - margins an issue. COLM closes acquisition of Prana. NKE shakes up category leaders.




FIVE - Earnings Call: 4:30pm



PVH - Earnings Call: 9:00am

VNCE - Earnings Call: 9:00am




ICSC - Chain Store Sales Index


Takeaway: A little sign of life, but numbers still below 2013 readings. Through the first 22 weeks of this year we've had 8 weeks above last years numbers and 14 below. The average beat = 63 bps and average miss = -120 bps.


RETAIL CALLOUTS (6/3): DG, ICSC, COLM, NKE - chart1 6 3




DG - 1Q14 Earnings


Takeaway: All in, not a disaster of a quarter for DG despite the penny miss. At least the company comped positive, while the more discretionary retailers are struggling to keep their heads in positive territory.   Margins, however, were concerning, as mix and occupancy deleverage hurt Gross Margin, while SG&A growth of 8.8% further pressured EBIT margins. At least inventories remain reasonably controlled. But one thing that concerns us is that that this was an 'easy margin compare'. This is the fifth consecutive quarter of margins being down year/year. That doesn't set a good precedent for the next few quarters.


RETAIL CALLOUTS (6/3): DG, ICSC, COLM, NKE - chart2 6 3


COLM - Columbia Sportswear Company Completes Acquisition of prAna Lifestyle Apparel Brand



  • "Columbia Sportswear announced that at midnight, May 30, 2014 it successfully completed its previously announced acquisition of prAna Living LLC for a purchase price of $190 million in cash, subject to customary post-close working capital adjustments."
  • "Purchase price of $190 million, subject to customary post-close working capital adjustments, equates to approximately 13 times prAna's projected 2014 EBITDA."
  • "PrAna will remain headquartered in Carlsbad, California as a wholly owned subsidiary of Columbia Sportswear Company and will continue to be led by current CEO Scott Kerslake, who will report directly to Columbia president and CEO Tim Boyle."


RETAIL CALLOUTS (6/3): DG, ICSC, COLM, NKE - chart3 6 3


Takeaway: Price seems a bit rich, but we have to ask if COLM could enter this category on its own. We think the answer to that question is no. Prana helps COLM diversify its cold weather offering and gives it instant exposure to the women's yoga market. Overall good acquisition for COLM getting a brand with solid distribution but limited awareness.




NKE - Nike Promotes Craig Zanon to Lead Expanded Men's Training Category 



  • "Nike, Inc. announced a number of general management changes within key Geographies and Categories across its global business. The changes are designed to continue to drive the company’s global growth while further strengthening and diversifying its leadership bench."
  • "In an effort to continue to focus and accelerate growth across Nike’s training business, Craig Zanon will now lead an expanded and elevated role in the Men’s Training category as VP, GM of Global Men’s Training. Zanon, currently VP, GM of Global Basketball, has held a range of senior management roles in the US during his 23-year career with NIKE."
  • "Michael Jackson will take the lead in the Basketball category as VP, GM of Global Basketball. Currently VP, GM of North America Basketball…"
  • "Marc van Pappelendam, currently VP, GM of UK & Ireland becomes VP, GM of Central & Eastern Europe...Jim Reynolds becomes VP, GM of Japan, transitioning from his current role as VP, GM of Russia…"


BURL - Burlington Stores, Inc. Announces Appointment of Thomas A. Kingsbury as Chairman of the Board and Formation of Nominating and Corporate Governance Committee



  • "Burlington Stores, Inc. today announced that Thomas A. Kingsbury, the Company’s Chief Executive Officer and President, has been unanimously elected by the Board of Directors to be Chairman of the Board."


WMT - Price competition causes historic lows in market growth



  • "The latest supermarket share figures from Kantar Worldpanel, published today for the 12 weeks ending 25 May 2014, show a slowdown in grocery market growth to 1.7% – the lowest level for at least 11 years.* Supermarket price competition is prompting another drop in the level of grocery price inflation to 1.2%."



Takeaway: CoreLogic today released its May HPI report, which showed further marked deceleration in the rate of home price growth nationally.

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. 




Today's Focus: May CoreLogic Home Price Report

CoreLogic released its monthly home price report for April/May earlier this morning. Unlike S&P/Case-Shiller, which is a rolling 3-month average repeat sales index, CoreLogic is a single month index released on almost no lag. Essentially, it gives you information three months more current than what you get from Case-Shiller


CoreLogic estimates that home prices rose +8.9% YoY in May, a deceleration vs the +10.5% in April and +11.1% in March. We show this in the first chart below.


Our main thesis on housing is that the rate of home price appreciation will slow meaningfully over the course of 2014 and into 2015. Historically, inflections in the rate of HPI or HPD have been major macro drivers of relative positive or negative performance.








About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."


Joshua Steiner, CFA


Christian B. Drake


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

VIDEO | Keith's Macro Notebook 6/3: INDIA UST10YR RUSSELL2000


Client Talking Points


Dr. Raj continues to pound the pig right up the middle with rates at 18 month highs – stronger currency deflates the inflation tax on the people, and consumption growth accelerates. The BSE Sensex is up +0.3% to +17.8% year-to-date. #Winning policy.


The yield bounces to lower-highs yesterday but who cares? They’re back down this morning and remain in what we call a Bearish Formation with the TAIL risk line of resistance up at 2.61%. US #ConsumerSlowing alongside Housing.


The Russell 2000 is down -0.5% on Friday. Down another -0.7% (with the SPX up on no volume) again yesterday to -6.6% since March and -3.1% year-to-date. Stay with the process and short that US domestic growth proxy instead of consensus-crowded SPY.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road


UK Home Prices +11% y/y in May vs +10.9% in April (rate of change still beating USA in 2014) #StrongPound @KeithMcCullough


"The greatest mistake you can make in life is to be continually fearing you will make one." - Elbert Hubbard


The Seattle City Council unanimously passed an ordinance that gradually increases the minimum wage in the city to $15, which would make it the highest in the nation.

LEISURE LETTER (06/03/2014)

Tickers: LVS, 1928.HK, MPEL, BEE, LHO


  • Tues June 3: Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference, New York
  • Tues June 3: NYU Int'l Hospitality Industry Conference, New York
  • Tues June 3: Midwest Gaming Summit, Rosemount, IL
  • Tues June 3 - Thurs June 5: REITWeek, New York, NY
  • Wed June 4 - Thurs June 5: Russian Gaming Week 2014
  • Thurs June 5 - Todd in Vegas for slot suppliers mgmt meetings
  • Thurs June 5 - 4:30 pm MTN earnings
  • Tues June 10 - HLT lock-up expiration
  • Tues June 10 - Thurs June 12: Bally Systems User Conference
    Mohegan Sun


1928:HK & LVS – The Dragon's Palace High Limit Area is now open at Sands Cotai Central.  This newest prestige area at Himalaya Casino features 74 baccarat tables, two Sicbo tables and four private gaming rooms. Minimum bets are HKD 1500/3000/5000/10000 (depending on tables), with a maximum bet limit of HKD3Million.  In addition, The Dragon's Palace provides daily pass-around canapés, refreshments and a dining area with a comprehensive menu.

Takeaway:  Widely anticipated and recently discussed on LVS's Q1 earnings call, the newly built premium mass area is now open. 


MPEL – confirmed on Tuesday a hotel management agreement with Hyatt for the hotel at City of Dreams Manila.  Melco Crown Philippines said the Hyatt would feature 365 guestrooms, two food and beverage areas, a fitness centre, VIP lounge, and outdoor swimming pool and is targeted to open in October 2014 to coincide with China's Golden Week holiday. 

Takeaway:  As expected 


BEE – increased guidance for full year 2014 Comparable EBITDA and Comparable FFO/fully diluted share to reflect the closing of the common equity offering, the acquisition of the remaining 63.6% interest in the Hotel del Coronado (expected to close in early June), and the redemption of the 8.25% Series C Cumulative Redeemable Preferred Stock (expected to be completed in early July) -- comparable EBITDA $230-$250M vs prior guidance $210-$230M and comparable FFO $0.59-$0.68 vs prior $0.57-$0.67.

Takeaway:  The upward revision was expected but the magnitude of the positive revision was larger.  The company is finally on the road to stronger financial results. 


LHO – entered into a definitive contract to sell the Hilton Alexandria Old Town for approximately $93 million with proceeds from the transaction used to reduce borrowings on the Company's Senior Unsecured Credit Facility. The Company acquired the hotel in May, 2004 for $59 million. The Company expects the transaction to close during June 2014. The transaction is subject to customary closing conditions.  Additionally, LHO initiated the process to redeem its $58.7 million, 7.25 percent Series G Preferred Shares. Official notice of redemption will be given at a later time. The redemption is expected to close early July 2014.

Takeaway:  Generating positive returns for shareholders both with asset sales and paying off preferred debt. 


MSC Cruises - Boosts commission pay to 25% (Seatrade Insider)

MSC Cruises USA's has announced a 60-day Balcony Bonanza Cash-Back booking incentive for all MSC Divina Caribbean seven-night and 10-night sailings between Aug. 2 and Dec. 20.  Effective today, MSC Cruises USA is paying 5% commission on all pre-paid special services pre-booked by agents on behalf of their clients.  In addition to the current commissionable shore excursions, hotel packages, transfers and airfare, this now includes spa treatments, specialty restaurants, beverage packages and stateroom celebration packages, among others.  MSC will continue to pay 10% commission on pre-paid cruise insurance coverage.


Takeaway:  This follows Celebrity's temporary commission incentive yesterday.  While good for agents and maintaining good relationships, we wonder if these actions could be attributed to Caribbean pricing pressures to some extent.


May GGR - (DSEC, GGR Asia)

Macau May GGR rose 9.3% YoY to MOP 32.354 billion (HKD 31.411 billion, USD 4.051 billion).  According to industry figures compiled by GGRAsia, market shares are as follows:  LVS (23.2%), SJM (23%), GALAXY (21.2%), MPEL (12.8%), WYNN (10.5%), and MGM (9.3%).

Takeaway: Disappointing May numbers well below our forecast. Please see our separate note today.


Japan – "Japan Industrial Revival Plan" the 60-page draft outline of Prime Minister Shinzo Abe's growth strategy promises to overhaul corporate governance, promote technology and attract private investment.  However, issues still not addressed in the preliminary draft include whether Japanese corporations will be allowed to own farmland, reforms to the labor arbitration process as well as a policy position regarding legalizing casino gambling.  The policy plan will form the basis of Abe's "third arrow" reform update due to be announced later this month.  

Takeaway:  Abe has endorsed casinos last week so we're not worried about the lack of gaming language in the "third arrow" policy plan. Timing remains elusive. 

Cambodian Border Casinos negatively impacted – Statistics from the Cambodian authorities indicate the number of people passing through the Thai-Cambodia border crossing per day has declined from an average of about 1,500 prior to the military coup to about 700 on Monday.  The Cambodia-based company called Crown Resorts Co with three casinos in Poipet receives more than 200 Thai visitors per day.  However, following the military coup, the number of Thai visitors has fallen to just over 100 per day. The drop in visitation is due to fears the Thai army may impose capital controls which would result in devaluation of the Thai baht similar to the 2006 devaluation.

Takeaway:  A potential headwind to NagaCorp's NagaWorld casino.


Amex survey – (Seatrade Insider) 

American Express travel counselors are booking more cruises this year than last and report demand or interest in river cruising is skyrocketing. However, clients are waiting for future price cuts and many ask for on-board credits. And most agents are focused on getting repeat customers to cruise, rather than drumming up new business. The most typical challenge to closing cruise sales is customers waiting for the price to drop (42%), less spending on vacations (36%), interest in land-based tours and vacations (34%), negative publicity surrounding cruising (34%) and customers booking online (29%).


Takeaway:  Not a good sign for cruisers' attempt to raise prices


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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