LEISURE LETTER (07/28/2014)



  • July 29: 
    • WYNN 2Q 8:30am ; pw: 67663320
    • NCLH 2Q 11am ; pw: 63063248
    • IGT 2Q release
    • GLPI 2Q call 10am
  • July 30: 
    • MGAM 2Q earnings
    • MAR 2Q call 10am : , pw: 59383825
  • July 31:
    • HST 2Q call 10am:
    • BEL (OEH) 2Q call 10am: , pw: 68627603
    • H 2Q call 11:30am:  , pw: 21721745.
    • BYD 2Q call 5pm:  , Passcode: 2654057
  • Aug 1:
    • HLT 2Q 10am: , pw: 67361605


GTK:IM – signed a seven-year contract with the Tennessee Lottery which it expects to yield $130 million in total revenue. Under the deal, a unit of GTECH will provide new lottery systems and related services starting from April 2015. The contract includes one seven year extension. GTK will provide a system with 5,500-terminal capacity able to expand to 7,500.

Takeaway: GTech wins another lottery contract!


MGM – MGM Hakkasan Hospitality CEO Neil Moffitt has recently been on a media tour touting the benefits of the relationship between MGM Resorts and Hakkasan Hospitality including the potential MGM Resorts to "kick start its non-gaming hotel business." MGM Hakkasan Hospitality will focus on the design, development and management of luxury non-gaming hotels, resorts and residential offerings under the Bellagio, Hakkasan, MGM Grand and Skylofts brands in key international gateway cities and prime resort destinations across the globe. 

Takeaway: Another crack at the non-gaming hotel business...  


PENN & GLPI – The Iowa Supreme Court late on Friday ordered the Argosy Sioux City riverboat to close by 5 p.m. on Wednesday, July 30, 2014.  The very brief ruling by the Court read "After consideration of the papers filed, the court denies the application for stay. The emergency stay previously entered by this court shall be lifted at 5:00 p.m., July 30th, 2014."

Takeaway: With this ruling, PENN is operating without a valid gaming license in the state of Iowa for Argosy Sioux City.  Barring some miraculous legal maneuver, the property will close rather than risk compromising its other properties and gaming licenses.  Expect a one time charge during 3Q14 for the shuttering and removal of the boat.


PNK – despite Orange Capital's media blitz regarding PNK shares being undervalued.  From June 13th through July 1st, Orange Capital sold more than 232,000 shares for nearly $6 million in proceeds.  However, Orange increased their stake from 3.67% to 4.16% due to the purchase of call options, sale of put options, and an initiation of a swap contract.

Takeaway: Voting with their pocket book.


SNOW – Intrawest Resorts Holdings’ lock-up period will expire on Wednesday, July 30th. Intrawest Resorts Holdings had issued 15,625,000 shares in its public offering on January 31st. Following completion of the IPO, approximately 60.1% of our outstanding common stock will be held by the Initial Stockholders -- or about 27,049,200 share are subject to lock-up. 

Takeaway: More equity coming soon.


Japan Gaming (Nikkei) – The Japanese Diet is considering levying entry fees on its citizens while foreigners would be allowed to enter for free when casinos open in Japan.  According to Nikkei, the fee would be less than $100.  In addition, Tokyo governor has strengthened his anti-casino rhetoric and reports say MPEL has given up on Tokyo.  Nikkei also says Japan may approve 3 casinos based on the Singapore model, with Yokohama a strong candidate, given its cruise line center.

Takeaway: The Singapore Model is coming to Japan. 


Revel – with the upcoming auction close at hand, local media reports indicate potential bidders include: Seminole Indian Nation which owns the Hard Rock franchise, Carl Ichan who owns Tropicana, and Caesar’s Entertainment, which is planning to close Showboat in little more than a month.  If Caesar's was successful in buying Revel, it could be viewed as an asset trade up for Caesar's. 

Takeaway: More soon...August 6th is the auction date.


On Line Gaming in Canada – Atlantic Lottery Corporation, operates lottery games in Atlantic Canada. It is owned jointly by the four Atlantic provincial governments: New Brunswick, Prince Edward Island, Nova Scotia and Newfoundland and Labrador. Atlantic Lottery recently announced it will revisit the prospect of online gambling for the province. 


Takeaway: An interesting development and possible internet gaming expansion. 


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.

Retail Callouts (7/28): FDO, DLTR, TGT, WMT, NKE, WSM, VFC, RSH

Takeaway: DLTR/FDO call the top of the cycle? TGT price-matching in Canada - bad move. NKE Parker’s not so big pay cut. WSM keeps exec team sharp.



Retail Callouts (7/28): FDO, DLTR, TGT, WMT, NKE, WSM, VFC, RSH - Ideas 7 28 2014 8 42 42 AM




Wednesday (7/30)

KER - Earnings Call: 12:00pm

WFM - Earnings Call: 5:00pm


Thursday (7/31)

GIL - Earnings Call: 8:30am

SHOO - Earnings Call: 8:30am




DLTR, FDO - Dollar Tree, Inc. to Acquire Family Dollar Stores, Inc. to Create North America’s Leading Discount Retailer



  • "Dollar Tree, Inc., the nation's leading operator of discount variety stores selling everything for $1 or less, and Family Dollar Stores, Inc., a leading national discount retailer offering name brands and quality, private brand merchandise, today announced that they have entered into a definitive merger agreement under which Dollar Tree will acquire Family Dollar in a cash and stock transaction. The value of the consideration is $74.50 per share, a 22.8% premium over Family Dollar’s closing price as of July 25, 2014."


Takeaway:  Dollar Tree is clearly a superior company to Family Dollar -- though admittedly that's the equivalent of comparing a Pug to a Bulldog.  DLTR has an SG&A structure that is 3 points higher than FDO, and yet its EBIT margins are double FDO's, and it has ROE and ROIC that are both 50% higher. The deal price of 11x EBITDA is lofty, though it's fair to assume that we'll see DLTR run the FDO stores dramatically better. We'd love to stay biased on the short side with this one, but there's likely a couple of years worth of outsized EPS growth for NewCo (which is called Dollar Tree) as the merger plays out. The bottom line is this…if we're certain about one thing, it's that we've got to be near the top of the cycle when two retailers like this decide to merge at such a hefty price.


TGT, WMT - Target to match grocery prices from anywhere in Canada



  • "Starting July 29, Target will match grocery prices from any other store in Canada. That means you can take a flyer from a grocery store in Moncton and your Halifax Target will match the produce price."
  • "Coupon expert Gail Quigley says a bit of online research can save $100 a month for savvy shoppers."


Takeaway:  The last thing TGT should be doing is matching prices on groceries for all other retailers. The reality is that if it wants to play the price game, WalMart, which has 3x as many stores in Canada,  will crush it like a bug. This move comes just a week after TGT Canada told its vendors that it wants 2% discount on all purchases. This kind of action probably does not mean that the business is beating plan. Near-term trends aside, the strategic implications here are simply not good. Target shouldn't be competing on price. It should be competing on quality -- that's where it has a realistically defendable niche.


NKE - Mark G. Parker's Total Pay at Nike Declines



  • "Mark G. Parker, the president and chief executive officer of Nike Inc., saw his total compensation for fiscal 2014 dip 4.8 percent to $14.7 million from $15.4 million in fiscal 2013."
  • "Parker’s base salary slipped 3.7 percent to nearly $1.6 million."


Takeaway: We don't know where we stand on Parker…either a) the guy is one of the best CEOs in retail, or b) he is simply the best personality fit for an extremely eccentric, yet effective organizational structure. Either way, something tells us that Parker is perfectly fine making ONLY $14.7mm last year.


WSM - Williams-Sonoma, Inc. Announces Executive Promotions, New Roles Position the Company for Continued Growth



  • "Williams-Sonoma, Inc. announced several strategic organizational changes to position the company for continued growth. The announcements were made by Laura Alber, President and Chief Executive Officer."
  • "Chief Marketing Officer Pat Connolly will assume the position of Chief Strategy and Business Development Officer."
  • "Chief Information Officer John Strain has been promoted to the position of Chief Digital and Technology Officer. In this new role, Mr. Strain will assume additional responsibility for the company’s digital and direct marketing efforts."
  • "Dean Miller has been promoted to the position of Chief Operating Officer."


Takeaway: Whether you like WSM or not, it's tough to argue that it has one of the best management teams in the business. After all, its been an incubator for Restoration Hardware to source virtually all of its Executive team. Seriously, of the top six executives at RH, only one was not born out of WSM.  More moving pieces at WSM means more people for RH to lure away with a bigger stock-based paycheck.




TGT - Take a Tour of the New TargetExpress



  • "Store team leader, Karl Anderson, gives us a tour of the first ever TargetExpress store."


VFC, REI - United Students Against Sweatshops Organizes Protest Against REI



  • "Students and community members held protests Saturday at over 30 REI locations across the country, which led to the arrest of 20 activists at a Rockville, Md., store for nonviolent, peaceful protest."
  • "The protesters, organized by the United Students Against Sweatshops, were holding a national day of action in protest against REI's refusal to sever ties with The North Face. The protesters are upset that the apparel brand's parent, VF Corp., has not signed the Accord on Fire and Building Safety in Bangladesh."


RSH - RadioShack Gets Notified That It’s Out of Compliance With NYSE



  • "RadioShack Corp., the struggling electronics retailer, was notified by the New York Stock Exchange that it’s out of compliance with requirements because its stock has traded below $1 for 30 straight days."
  • "Under the exchange’s rules, RadioShack has six months to get back into compliance by boosting its stock price to at least $1 on the last trading day of the month and having an average closing price at that level over a 30-day period, according to a statement yesterday."


VFC - Timberland promotes Stewart Whitney as new Brand President



  • "Timberland, a leading global outdoor lifestyle brand, announced that Stewart Whitney has been promoted to brand president effective October 5, 2014. Whitney, who has successfully led Timberland’s growth in the Asia Pacific region since 2008, will report to Patrik Frisk, who has held the position since the brand’s 2011 acquisition by VF Corporation."

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Client Talking Points


The big breakout off our signal continued overnight with the Shanghai Comp up another +2.4% (it’s up +6% since @Hedgeye TREND breakout on 7/21). We published an institutional research note last week outlining our #bullish view on China. Both our quantitative signals and fundamental research now support buying China. This stance is in stark contrast to our previous view.


Potential for a sustained bullish to bearish TREND reversal here is real. The DAX is down -0.3% this morning, but below @Hedgeye TREND resistance of 9789 is the more important risk management point. Most European Equity markets look no different.


Front month VIX snuck back above @Hedgeye TREND support of 11.94 on Friday. We’re watching that closely as the asymmetry in volatility, across asset classes, is epic by any historical measure. This is in line with our third Q3 Theme:  #VolatilityAsymmetry. Meanwhile, the Russell 2000 is down -5.3% since July 7.

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


RUSSIA: trading system down another -1.9% this morn to -12.2% YTD $RSX



In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you.

-Warren Buffett


The CRB Food Index is up +19.7% year-to-date with Coffee up +52.9% year-to-date.

Young Gotze's Got Game!

This note was originally published at 8am on July 14, 2014 for Hedgeye subscribers.

“Football is a simple game; 22 men chase a ball for 90 minutes and at the end, the Germans always win.”

-Gary Lineker


I’m flying to London this morning, so I figure that if North Americans reading this don’t know who Gary Lineker is, the investors I am meeting with in the UK tonight will! Lineker still holds the English record for goals at the World Cup with ten.


The OT winner yesterday was only Mario Gotze’s 2nd career goal at the World Cup, but that’s because he is only 22 years old. He and his sniper teammate Andre Schurrle were the only two players on the team who were born after Germany’s unification.


As times change, people and countries do. The spirit of selfless teamwork displayed by the German side was something all of Germany should be proud of this morning. Alongside a passionate veteran effort, Germany empowered its youngest players to lead. There’s a lot to learn from that.


Young Gotze's Got Game! - goal


Back to the Global Macro Grind


Who are your best up and coming people? Do you foster a meritocracy where they can thrive? Or are you more or less set with a traditional hierarchy? How about your investment process? How often does it evolve? Does it embrace change?


If the boomer generation’s US political establishment was a soccer team, here’s how some of its media represents it:


"Ever since Cantor lost his primary, a lot of people are scouring the map, saying: Which House incumbent will be next to fall? Well, don't hold your breath. I was checking in with sources in both parties this week and Democrats say they don't think any of their incumbents will lose primaries.” –John King, CNN


It’s a good thing that politicians in both the Republican and Democrat party who have lost the trust of The People have it all figured out. But what if Hedgeye’s forecast for #Q3Slowing takes hold, both the US Dollar and Bond Yields fall, and domestic growth expectations fall alongside them?


Do you think 2015 will look any different from a political perspective? Or do you think America’s younger people (my generation and Millenials) will let un-elected bureaucrats at places like the Fed (and the IRS) continue with these tired, old, slow-growth Policies To Inflate?


Right when everyone didn’t think it could happen, that’s precisely what happened last week:


  1. US Dollar Index was down for the 3rd out of the last 4 weeks and remains below our TAIL risk line of $81.19
  2. US 10 Year Treasury Yields fell another 12 basis points to 2.52% (that’s -51 basis points for the YTD)
  3. US Domestic Growth Stocks (Russell 2000) got tagged for a -4% loss, putting it back in the red for the YTD


I know. When it’s mid-July and the Russell 2000 is down YTD, that means everything growth is ripping. Right. Got it. And Brazil looked mint against Germany too.


Back to reality… On the other side of domestic growth expectations being marked down last week:


  1. Slow-growth Utilities (XLU) had another up-week in a down equity market, closing +0.8% to +12.8% YTD
  2. #YieldChasing REITS jammed Americans with new all-time highs in rents, +1% on the week to +16.3% YTD
  3. Gold and Silver were up another +1.4-1.7% to +11.2% and +10.4% YTD, respectively


Yep, we’re talking big time bull market now – in growth slowing expectations!


At the same time, US Equity Volatility (VIX) ripped off its most asymmetric long-term TAIL line of support (VIX 10) closing the week +17.5%. But no worries… Janet Yellen is going to say everything is just dandy at her semi-annual-central-planning testimony to Congress this week.


Or will she?


I don’t think Yellen will be as bullish about the US economy as Old Wall Street’s estimates are for “year-end” bond yields and US GDP growth to accelerate. Don’t forget that at the last Fed meeting she took down her US growth estimates. Since then, real US consumption data has deteriorated.


Yellen isn’t a young baby boomer. She was actually born on the front-end of the boomer cycle (1946). She and I probably think about economics, markets, and risk as differently as Gotze does about Germany, post the Berlin Wall coming down.


I’m not saying that older generations are all wrong. In fact, many of the most thoughtful investors I meet with are boomers (born 1946-1964) and are more adamant about changing monetary policy than I am!  If Americans want to start winning again, they need to change the players they have on the field.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.49-2.59%

SPX 1953-1985

RUT 1149-1175

DAX 9599-9868

VIX 11.51-12.67

USD 79.71-80.31

WTIC Oil 100.03-104.13

Gold 1316-1342


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Young Gotze's Got Game! - Chart of the Day

July 28, 2014

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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 80.43%
  • SHORT SIGNALS 78.34%