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LEISURE LETTER (06/23/2014)

Tickers:

EVENTS

  • Tuesday June 24:  CCL F2Q CC;

COMPANY NEWS

 

MGM – On Friday, the Company announced workers started removing scrap metal and other materials from inside the Harmon tower, the initial steps which began the dismantling of the structurally flawed Harmon tower. 

Takeaway: The clearing of a valuable piece of Las Vegas Boulevard real estate...what will replace the Harmon Tower? 

 

PENN – Argosy Sioux City embarks on a last-ditch effort to save the embattled riverboat casino. Recall, the Iowa Racing and Gaming Commission ordered Argosy Sioux City casino to shut down July 1 because its state gaming license has expired. Argosy parent Penn National Gaming asked the five-member IRGC to suspend its own order and allow the boat to remain open until resolution of Argosy's lawsuit that challenges that decision and a series of other IRGC actions related to the Argosy license. The IRGC will hear arguments and testimony from Argosy attorneys at a special meeting that begins at 8 a.m. Wednesday at Prairie Meadows Racetrack and Casino in Altoona. The commission is scheduled to render a decision upon conclusion of the hearing.  A formal rejection by the IRGC, would exhaust Argosy's administrative appeals, something that must happen before the company can pursue its emergency stay of the IRGC's order in Iowa District Court the following day.  Judge Eliza Ovrom will hear oral arguments on Argosy's request beginning at 8:15 a.m. Thursday in Des Moines.

Takeaway:  The next steps of the Sioux City debacle

 

LVS / 1928:HK – Sands Macao received the first Macau installation of a Bitcoin exchange kiosk on Friday.  

 

WYN – SkyNews reported that WYN made the £6B ($10.21B) preliminary offer for IHG, which IHG's Board of Directors subsequently rejected. 

Takeaway: Could WYN's core growth be slowing and new management is looking for a creative way to financially engineer growth?

 

NCLH - (Travel Agent Central) Guests who book a new Hawaii cruise reservation, from June 22 through June 30, 2014, will receive up to $100 to spend on board, plus guests who book a Hawaii Cruise Tour will receive an additional $200 to spend on board.  

Takeaway: Another Hawaii promotion - no surprise given lower pricing YoY.

 

Property Transaction

Various media outlets are reporting Goldman Sachs sold the 2,941-room LVH (Las Vegas Hilton) to Westgate Resorts for $150 million in a transaction that will be finalized by the end of the month.  Westgate has plans to convert the LVH into a time share property.  Westgate currently owns the Westgate Flamingo Bay resort, which opened in 2001. It sold its interest in the Westgate Planet Hollywood, which opened in 2010, to Resort Finance America LLC, which in turn appointed Hilton Grand Vacations to rebrand the property.

 

Insider Transactions

MTN - CAO Mark L. Schoppet sold 10,000 shares of stock on Thursday, June 19th at an average price of $75.58 and now owns 5,214 share.

INDUSTRY NEWS

Illegal World Cup Ring in Macau Busted (Macau Business) The Macau police have dismantled an illegal betting network suspected of collecting MOP5.1 billion (US$645 million) in wagers during the opening stages of the football World Cup, including a single wager of HKD40 million (US$5.1 million) Police raided a hotel in Macau's ZAPE area on Thursday, arrested 26 people and seized computers, mobile phones and over HK$2 million (US$258,029) in cash.

Takeaway: This was nearly one week's Macau GGR allegedly gambled on the World Cup just through this betting ring! Maybe the VIP biz ain't so bad...

 

Macau Visitation - (DSEC) Overall May Macau visitation rose 8% YoY to 2,525,026.  Mainland visitors increased by 14% YoY to 1,699,778; Mainland visitors traveling under the Individual Visit Scheme rose substantially by 21%, at 727,356.  Visitors from Taiwan, the Republic of Korea and Japan increased by 23%, 20% and 18% YoY, respectively  while those from Hong Kong decreased by 8%.  The average length of stay of visitors was 1.0 day

 

LEISURE LETTER (06/23/2014) - mva

 

Takeaway: Solid visitation numbers despite the decline in HK visitors. Very short-term stays (1 day) still the norm.

  

Changi - (Changi Airport Group) Singapore's Changi Airport passenger traffic rose 2% YoY to 4.369 million. 

 

LEISURE LETTER (06/23/2014) - mva2

 

Takeaway: At least visitation isn't negative.

 

Brisbane Casino Bid (Bloomberg) Hong Kong jewelery shop chain owner Chow Tai Fook Enterprises Ltd, Hong Kong property developer Far East Consortium International Ltd and Australia’s Echo Entertainment Group Ltd will jointly bid to build a casino in the northeastern Australian city of Brisbane. According to Echo Entertainment, each of the Hong Kong companies will own 25% of the joint venture.  Last month, the government of the state of Queensland shortlisted Echo Entertainment and Chow Tai Fook build a casino-resort at Queen’s Wharf in Brisbane. Chow Tai Fook founder Cheng Yu Tung, is a long-standing investor in SJM’s parent company Sociedade de Turismo e Diversões de Macau SA.

Takeaway: A strong and viable contender for the license.

 

Reportable Transactions – A Federal District Court in California has ruled that US Citizens must report offshore gambling accounts over $10,000 for tax purposes.  Companies handling such accounts, PokerStars, PartyPoker and FirePlay, are functioning as banks, and thus fall within the definition for a reportable account, the court ruled

Takeaway: The US tax and off-shore funds crackdown continues.

 

New York Racinos Secure New Operating Rules – New York racinos will get to stay open until 6 a.m. and offer additional free play to slot customers for up to 15% of their play, up from the current limit of 10%.

Takeaway: A modest positive for NY racinos.


Portugal & Online Poker – Portuguese government approved a new bill to regulate online poker, casino games, and sports betting.  The bill, now requiring only the national assembly’s approval to be finalized, paves the way for games to go online in the European country by the end of the calendar year. The Portuguese bill will necessitate the appointing of an authoritative body to review applications and provide licenses to entities wishing to become part of the new online gaming industry.  Such a body will also audit licensed companies going forward to ensure they are operating according to the new regulations.

Takeaway: A small but previously not mentioned market discovers online gaming. 

MACRO

China HSBC June Flash Manufacturing PMI - Chinese HSBC June flash manufacturing PMI came in at 50.8 vs the final reading of 49.4 in May, and market expectations for 49.7.

 

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.


YELP: Short Best Idea Update Call

Takeaway: We are hosting the update call this Wednesday at 1pm EST. Dial-in information will be provided on Wednesday.

YELP: Short Best Idea Update Call - HE IM YELP cartoon

 

Hedgeye's Internet & Media Team, led by Sector Head Hesham Shaaban, is hosting an update call to their SHORT Yelp (YELP) Best Idea.  The update will provide a review of our thesis with incremental data and analysis; notes from our call with YELP management, and our rebuttal to the push-back on our thesis. 


The conference call will be held on Wednesday, June 25th at 1:00pm EDT detailing our thesis and fielding questions at the conclusion of the call.

 

KEY TOPICS WILL INCLUDE:  

  • Short thesis with incremental data & analysis
  • Notes from our call with management
  • Rebuttal to the push-back on our thesis
  • Why YELP isn't a viable acquisition target

 

CALL DETAILS

Attendance on this call is limited. Please note if you are not a current subscriber to our Internet & Media research, there will be a fee associated with this call. Ping for more information.

 

INTERNET & MEDIA SECTOR 

Hesham Shaaban oversees the Internet & Media Sector for Hedgeye Risk Management, which was recently launched in 2014. Before joining Hedgeye, Hesham worked as a private equity analyst at Viscogliosi Brothers following equity research roles at Cerulean Capital and Maxim Group. Hesham received his CFA charter in 2008, and graduated from Northeastern University in 2004.   



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Retail Callouts (6/23): HE Retail Ideas List, LULU, ASOS, NKE, JCP, WMT

Takeaway: LULU: Wilson making noise at the board level - 3 ways to win, 1 to lose.

HEDGEYE RETAIL IDEAS LIST

 

Retail Callouts (6/23): HE Retail Ideas List, LULU, ASOS, NKE, JCP, WMT - ideas

 

EVENTS TO WATCH

 

Wednesday (6/23)

  • BBBY - Earnings Call: 5:00pm

 

Thursday (6/24)

  • NKE - Earnings Call: 5:00pm

 

Friday (6/25)

  • FINL - Earnings Call: 8:30am

 

COMPANY NEWS

 

LULU - Lululemon Founder Fights for Company Control

(http://online.wsj.com/articles/lululemon-founder-fights-for-company-control-1403459190)

 

  • "Lululemon Athletica founder Dennis 'Chip' Wilson is working with bankers at Goldman Sachs as he weighs options for shaking up the company's board and gaining more influence over the yoga gear maker's operations, people familiar with the situation said."
  • "The founder could launch a proxy fight to win additional board seats or partner with a private-equity firm in a buyout, another person familiar with the matter said. Alternatively, he could sell his stake, this person said. So far, Mr. Wilson hasn't made any decisions on further steps, said a different person familiar with his thinking who wouldn't elaborate on what is under consideration."
  • "Lululemon's board has sought advice from bankers in response, another one of the people said. The board hasn't been asked to act on a specific proposal from Mr. Wilson, and nobody has approached the board about possibly buying the company, the person said."

 

Takeaway: We added LULU to our Best Ideas list immediately following the company's latest disappointing quarter. Our rationale is NOT because this is a great company executing on a great growth plan.  Quite the opposite…it is that it is an outstanding brand that should see change to help it realize its true underlying growth potential.  With Wilson making noise at the Board level, we see three ways to win, and one way to lose. 1) Chip wins the board (at least it stops all the infighting -- win), 2) Chip wins the board and appoints himself CEO (that's the one thing that will cause us to pull the plug on this idea faster than you can say 'Down Dog'), 3) Chip orchestrates a buyout (shareholders win), or 4) Chip sells his stock (shareholders win BIG). We'll be hosting a conference call later this week to review our call. 

 

OTHER NEWS

 

ASOS - Retailer Asos Resumes Taking Orders After Warehouse Fire

(http://online.wsj.com/articles/retailer-asos-resumes-taking-orders-after-warehouse-fire-1403501268)

 

  • "British online fashion retailer Asos PLC started taking orders again early Monday after a fire at its main warehouse in northern England destroyed about of fifth of the stock at the site."
  • "The fire broke out late Friday at the distribution center in Barnsley where Asos said it held around 70% of its £159 million ($270 million) in inventory. Based on those figures for the end of May, the fire destroyed around £22 million in Asos products."
  • "Asos said it had taken down its website after the fire late Friday night ripped through four floors of the company's warehouse."

 

NKE - Trout becomes second MLB star with Nike shoe deal

(http://msn.foxsports.com/west/story/mike-trout-shoe-deal-makes-history-062014)

 

  • "Mike Trout... became the first MLB player since Ken Griffey Jr. to have his own signature Nike shoes."
  • The kicks are going for $140...the line also includes gear like batting gloves, wristbands and hats."
  • "Check out the new Nike Lunar Vapor Trouts below, in stores on July 12…"

 

Retail Callouts (6/23): HE Retail Ideas List, LULU, ASOS, NKE, JCP, WMT - chart2 6 23

 

JCP - JCPenney Announces Closing of $2.35 Billion Credit Facility

(http://ir.jcpenney.com/phoenix.zhtml?c=70528&p=irol-newsCompanyArticle&ID=1941736&highlight=)

 

  • "J. C. Penney Company, Inc. announced today that it has closed its new $2.35 billion asset-based senior secured credit facility, comprised of a $1.850 billion revolving line of credit and a $500 million term loan. The new facility replaces a $1.850 billion credit facility that was scheduled to mature in April 2016 and provides better pricing terms than the previous facility."
  • "Ed Record, Chief Financial Officer of JCPenney, said, 'We proactively pursued this new facility to extend the maturity several years and further enhance our liquidity position, particularly during periods of peak working capital needs.  We are pleased with the improved pricing terms of this facility as well as the support and confidence from our banking partners.'"

 

WMT - Wal-Mart Canada Names Dirk Van den Berghe

(http://www.wwd.com/retail-news/people/wal-mart-canada-names-dirk-van-den-berghe-7747839)

 

  • "Wal-Mart Canada...on Friday named Dirk Van den Berghe president and chief executive officer. Van den Berghe will begin on Aug. 1, reporting to Shelley Broader, who was recently promoted to president and ceo of Wal-Mart Stores Inc.’s EMEA region, which comprises the retailer’s operations in Europe, the Middle East, Africa and Canada."

 

NKE - NIKE, INC. NAMES REENIE BENZIGER VICE PRESIDENT OF GLOBAL APPAREL

(http://nikeinc.com/news/nike-inc-names-reenie-benziger-vice-president-of-global-apparel)

 

  • "NIKE, Inc. today announced the appointment of Reenie Benziger as Vice President of Nike's global apparel business. Benziger will be responsible for the creation and production of all Nike apparel product globally.
  • Benziger moves from her current role as VP/GM of Global Young Athletes…"
  • "Carl Grebert, a 17-year Nike veteran, replaces Benziger as VP/GM of Global Young Athletes...Grebert most recently served as VP/GM of Nike Japan."

 

CA - Carrefour to Buy Dia France

(http://www.wwd.com/business-news/mergers-acquisitions/carrefour-to-buy-dia-france-7752536)

 

  • "French retailer Carrefour SA has agreed to acquire Dia France, the French discount store chain operated by Distribuidora Internacional de Alimentación SA of Spain, three years after opting to spin them off."
  • "...Carrefour would acquire the more than 800 stores for an enterprise value of 600 million euros, or $816 million at current exchange. Carrefour said stores total about 5.9 million square feet and generate sales of 2.3 billion euros, or $3.05 billion, in 2013."
  • "Carrefour spun off the stores in 2011 as part of a larger plan to sell numerous assets following a drop in operating profits in its home market."

MACAU: PLACEHOLDER ON PLACEHOLDER

The latest Macau figures show table revenues at the familiar average of HK$775 million per day for last week (HK$5.425 billion for the week), exactly in-line with the comparable week of 2013.  As such, we don’t believe the number can be relied upon.  Our GGR expectation for flattish YoY growth for the full month of June remains.  

 

As you’ve probably read, there was a major bust of an Asian world cup betting ring, most of it in Macau.  Some of the arrests were apparently made at Wynn Macau where participants were operating out of one or more hotel rooms there.  We are hearing that players’ agents for one or more of the big junket operators were involved.  Here is a link to one of the articles: 

 

http://edition.cnn.com/2014/06/23/world/asia/macau-illegal-betting-world-cup/index.html?eref=edition

 

It is our belief that junket volumes in June were negatively impacted as sports bets were redirected from the VIP tables.  The size of the illicit betting volumes is uncertain but it does appear to be sizeable.  Normalize the world cup activity and low hold, which we heard during my trip to Macau last week, and June may not have been that bad of a month for the casinos.  In addition, VIP volumes, while still weak, may not be as bad as the weekly numbers suggest.  The trade may be higher from here on these stocks.

 

MGM and SJM are outperforming thus far in June in terms of market share while Wynn and MPEL remain below trend.  MPEL may have more exposure to squeezed junkets than the other concessionaires which could be contributing to its weak share.  For Wynn we have downgraded our expectation for a more expansive credit policy with junkets.  Wynn looks to remain conservative in its approach given the uncertain environment.  

 

MACAU: PLACEHOLDER ON PLACEHOLDER - mm1

 

MACAU: PLACEHOLDER ON PLACEHOLDER - mm2


LONG XLE & XLU

Client Talking Points

COMMODITIES

The CRB Index (19 commodities) and CRB Food index powered fresh year-to-date highs last week of +11.8% and +22.8%, respectively. Oil is higher again this morning and even Copper is trying to breakout as Gold holds @Hedgeye $1285 support.

ENERGY (XLE)

But but the SPX is up; yep, powered by Energy +2.6% to +14% year-to-date (and Utilities +2.2% to +14.5% year-to-date) last week as U.S. Consumer Discretionary (XLY) continues to eat it (-1.1% year-to-date); inflation slows real consumption growth; we continue to like long XLE + XLU; short XLY.

DUBAI

Pardon? Stock market down -6.2% this morning and has fallen -18% since June 1st. We don’t think the commodity complex has the energy side of the Middle East trade wrong; neither do the locals.

Asset Allocation

CASH 10% US EQUITIES 6%
INTL EQUITIES 12% COMMODITIES 24%
FIXED INCOME 30% INTL CURRENCIES 18%

Top Long Ideas

Company Ticker Sector Duration
HOLX

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.

OC

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.

LM

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

TWEET OF THE DAY

U.S. GDP for Q114 should be revised to anywhere b/t down -1.5%-3%, depending on what inflation # the govt makes up

@KeithMcCullough

 

QUOTE OF THE DAY

“The privilege of a lifetime is being who you are.”

-Joseph Campbell

STAT OF THE DAY

Fance's June PMI slows again to 47.8 vs 49.6 last month.


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