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God, Country, Notre Dame (and Under Armour) $UA

Takeaway: At $199, it’s the most expensive authentic college football jersey on the market.

Notre Dame And Under Armour Unveil 2014 Football Uniforms

 

Excerpt from Notre Dame's press release:

 

NOTRE DAME, Ind. -- Inspired in large part by Notre Dame's tradition, and specifically based upon the University's iconic Golden Dome atop the Main Building, Notre Dame and Under Armour officially unveiled the Fighting Irish football team uniforms for the 2014 season. All three versions of the uniform -- home, away and Shamrock Series -- were on display Tuesday afternoon during head coach Brian Kelly's Notre Dame Football Media Day press conference inside the Isban Auditorium at the Guglielmino Athletics Complex on the Notre Dame campus...

 

 

Takeaway from Hedgeye Retail: Under Armour (UA) unveiled the crown jewel from its 10-year, $100 million deal with Notre Dame. (The most expensive deal in collegiate athletics.) At $199, it’s the most expensive authentic college football jersey on the market. Starting to see a trend here? Nike's retails for $135.

 

UA has very little artistic liberty, and we can't see anything that differentiates it from Nike and Adi other than a small embroidered text on the front that reads "God, Country, Notre Dame." Our resident ND alum (Hedgeye macro analyst and former Notre Dame ice hockey captain Ben Ryan) is unimpressed, but we don't doubt that this will be a hit with the masses. Notre Dame has arguably the most loyal fan base in America - last year it was the 3rd highest grossing university in licensed goods sales. Behind UT and Alabama.

 

While you can't argue with the UA mojo right now, at 75X earnings, it's not a stock we're comfortable buying here.

 

God, Country, Notre Dame (and Under Armour) $UA - ND1

 

God, Country, Notre Dame (and Under Armour) $UA - ND2


Retail Callouts (8/21): UA, NKE, DG, FDO, DLTR, TGT

Takeaway: UA - close to deal with KD, unveils ND jerseys. FDO says no thanks to DG. TGT - Canada strategy was a mistake.

EVENTS TO WATCH

 

Thursday (8/21)

  • GPS - Earnings Call: 4:00pm

 

Friday (8/22)

  • ANN - Earnings Call: 8:30am
  • FL - Earnings Call: 9:00am
  • HIBB - Earnings Call: 10:00am

 

COMPANY NEWS

 

UA, NKE - Ball in Nike's court for Kevin Durant

(http://espn.go.com/nba/story/_/id/11384303/kevin-durant-offered-massive-deal-armour-nike-right-match)

 

  • "Kevin Durant's representation Roc Nation Sports informed Nike on Wednesday that he has a deal on the table with Under Armour worth between $265 million and $285 million over 10 years, sources told ESPN.com. The deal includes Under Armour stock and other incentives, such a community center built in his mother's name, whose exact worth will not be known for some time."
  • "Nike's last offer, sources said, would have given Durant a base and a minimum royalty guarantee that would equal no less than $20 million a year."

 

Takeaway: Looks like the Durant to UA talks had some teeth after all. The ball's in NKE's court now, and we doubt they step up to the plate. Over the past few weeks NKE has made some extremely rational decisions on the cost side, saving upwards of $100mm per year by passing on ManU and KD - one of the reasons we moved it to our long bench. Currently UA's basketball business is ~$30mm, and it's marquee athlete, Steph Curry, won't have a signature shoe line until February. Clearly a lot still needs to be done in order to support the type of revenue stream KD is capable of creating, and we have a tough time believing UA is ready. Our original thoughts on the deal below.

 

We'll play along with the conspiracy theory on this one as it pairs nicely with the note we published last night looking at endorsement obligations for both NKE and UA (Link - CLICK HERE). If the KD deal closes with UA at the reported $30mil per, the company would have to generate an incremental ~$275mm in sales to make that margin accretive. Not outside of the realm of possibility, but consider two things. 1) In 2013 the KD grossed $175mm, 2nd only to the Lebron at $300mm. 2) That $275mm is a 75% premium to what UA has done in all of footwear over the past 12mnths. At NKE that's just 1.1%. It may be a brand builder for the company, but without a Nike-esque product and marketing engine behind KD, it's tough to see this benefiting margins in the short term.

 

UA - Notre Dame And Under Armour Unveil 2014 Football Uniforms

(http://www.und.com/sports/m-footbl/spec-rel/081914aab.html#)

 

Retail Callouts (8/21): UA, NKE, DG, FDO, DLTR, TGT - Chart3 8 20 2014

Retail Callouts (8/21): UA, NKE, DG, FDO, DLTR, TGT - chart4 8 20 2014

 

Takeaway: UA unveiled the crown jewel from its 10 year, $100mm deal with Notre Dame. The most expensive deal in collegiate athletics. At $199 it’s the most expensive authentic college football jersey on the market. Starting to see a trend here? Nike's retails for $135. UA has very little artistic liberty, and we can't see anything that differentiates it from Nike and Adi other than a small embroidered text on the front that reads "God, Country, Notre Dame." Our resident ND alum is unimpressed, but we don't doubt that this will be a hit with the masses. ND has arguably the most loyal fan base in America - last year it was the 3rd highest grossing university in licensed goods sales. Behind UT and Alabama.

 

FDO, DG, DLTR - Family Dollar Board of Directors Rejects Proposal from Dollar General Based on Antitrust Issues

(http://investor.familydollar.com/investors-relations/news-releases/Press-Release-Details/2014/Family-Dollar-Board-of-Directors-Rejects-Proposal-from-Dollar-General-Based-on-Antitrust-Issues/default.aspx)

 

  • "Family Dollar Stores, Inc. announced today that its Board of Directors has unanimously rejected the non-binding proposal made by Dollar General Corporation on the basis of antitrust regulatory considerations. In addition, the Family Dollar Board unanimously reaffirmed its recommendation in support of the merger agreement with Dollar Tree, Inc."
  • "The Family Dollar Board, after consultation with its financial and legal advisors who have conducted an extensive antitrust analysis, determined that the Dollar General proposal fails to satisfy this requirement."
  • "Mr. Levine continued, 'I would also like to note that Dollar General’s letter, sent late last night, contained blatant mischaracterizations and did nothing to address the antitrust issues in Dollar General’s proposal.'”

 

Takeaway: We can debunk FDO's reasoning with just one word: Walmart. DG's bid was light at just a 5.5% premium. We have a feeling this is more than just dollars and cents. If FDO truly thinks there are anti-trust issues there is no price tag in the world that would allay those concerns. But, we have a hard time seeing how the FTC would be overly concerned with a dollar store monopoly. First, dollar stores sell things for a $. Second, anything above a buck is a consumable and that market is un-monopalizable. We think this is still far from over.

 

TGT - How Target strayed deep into the red in Canada

(http://www.theglobeandmail.com/report-on-business/international-business/target-cuts-annual-profit-outlook/article20130948/#dashboard/follows/)

 

  • "Instead of opening 124 stores in this country last year, the second-largest discounter in the United States should have launched just five to 10 outlets and 'refined' the operations before rolling out more, chief financial officer John Mulligan said on Wednesday."
  • "'We bit off way too much, too early,' Mr. Mulligan said in a frank assessment of the company’s first foray outside its U.S. home base."

 

Takeaway: We still don't see how TGT makes money in Canada - ever. Consensus estimates are now 35% below the $6bil revenue estimates for 2017 and we are another $1bil+ below that. To get to the company's updated Canada guidance for 2014 calling for just over $2bil in revenue and a -25% EBITDA margin; we have to assume that 2H comps hit 6%, gross margin improves sequentially for the balance of the year (+375bps and +1500bps in 3Q and 4Q respectively), and SG&A declines by over 3%. At the same time as the company tries to fix operations and attract new or lost customers.

 

OTHER NEWS

 

DG - Dollar General Sends Letter to Family Dollar's Board of Directors

(http://investor.shareholder.com/dollar/releasedetail.cfm?ReleaseID=867157)

 

  • "As you are aware, we continued to express our interest in exploring a combination into June of this year. During the June 7, 2014, phone call referenced in the background section of the Form S-4, our representative reiterated Dollar General's interest in potentially acquiring Family Dollar and stated our preference to negotiate directly with the Board of Directors and not in the public media, as might be the case with an activist investor involved, and suggested a meeting with the Dollar General CEO as soon as possible."
  • "That meeting was held on June 19, 2014, just days before the Family Dollar Board decided to enter into exclusive negotiations with Dollar Tree. During the June 19 meeting, although noting that the timing was not optimal for Dollar General, our representatives expressed more than once our interest in exploring a combination with Family Dollar. At no time during this meeting did Mr. Levine indicate that there was a process, that there was any urgency to act or that there were discussions with another potential buyer. In fact, Mr. Levine's response to specific questions posed by our representatives gave us quite the opposite impression. Had we left the meeting with the belief that a sale of Family Dollar was imminent, we assure you that our course of action would have been different."

 

AMZN - Amazon.com Coming to Shanghai's Free-Trade Zone

(http://online.wsj.com/articles/amazon-com-coming-to-shanghais-free-trade-zone-1408532150)

 

  • "Amazon.com Inc. said it plans to set up operations in Shanghai's new free-trade zone, a move that will allow it to sell more merchandise from abroad in China and help boost competition against rivals like Alibaba Group Holding Ltd."
  • "The Seattle-based Web retailer said Wednesday it signed a deal with authorities in the free-trade zone to open the company's global platforms to Chinese consumers, enabling them to import bags and books normally available for delivery only in other countries."

 

Toms Sells Half of Company to Bain Capital

(http://www.wwd.com/footwear-news/business/toms-sells-half-of-company-to-bain-capital-7844001?module=Footwear%20News-Business-main)

 

  • "The brand announced today the sale of a 50 percent stake in its company to Bain Capital LLC, a Boston-based global private investment firm. The transaction is expected to bolster the footwear label's commitment to supporting its global charitable programs."
  • "Financial terms of the private sale have not been disclosed. Founder Blake Mycoskie will retain a 50 percent ownership of Toms."

 

M - Macy's Settles Profiling Cases for $650K

(http://www.wwd.com/retail-news/department-stores/macys-has-settled-racial-profiling-allegations-7843672?module=hp-topstories)

 

  • "Macy’s Inc. has reached an agreement with the New York State Attorney General resolving more than a dozen recent complaints of profiling and false detentions at the Macy’s Herald Square flagship in Manhattan."
  • "Under the settlement, Macy’s will pay $650,000 in costs, fees and penalty to New York State, and has agreed to take several steps to help prevent cases of profiling in the future at Macy’s 42 stores in the state."

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow

Takeaway: Domestic stock funds put up their 16 consecutive week of outflow and are now entering the seasonally weakest period of the year

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period ending August 13th, taxable fixed income flows snapped back to positive territory, eking out a slight inflow of $519 million after the substantial panic outflow of over $8.0 billion the week prior. Intermediate term trends are still intact for taxable bonds with inflow in 25 of the past 27 weeks. Domestic stock funds conversely continue to struggle with another $1.0 billion being withdrawn by investors last week which make it 16 consecutive weeks of outflows with now over $40 billion lost in the category. We remind investors that looking back to 2007, that the average outflow sequence in domestic stock funds has averaged 40 weeks with over $113 billion on average drawn down, so the initial weakness in domestic stock funds could easily run through the rest of 2014 (and into 2015). The equity mutual fund channel is also entering the seasonally weakest part of the year (the fourth quarter), and we recommend that investors avoid Janus Capital (JNS) and T Rowe Price (TROW) with the most exposure to the U.S. stock funds (see our report on why TROW should underperform).

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - chart1 drawdowns


ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - chart 2 seasonality

 

Total equity mutual funds put up a slight inflow in the most recent 5 day period ending August 13th with $225 million coming into the all stock category as reported by the Investment Company Institute. The composition of the inflow continued to be weighted towards International stock funds with $1.2 billion coming into the category offset by the ongoing 16 week redemption in domestic equity funds which totaled a $1.0 billion outflow last week. This draw down in domestic equity funds has now totaled a $40 billion outflow over the past 4 months. The running year-to-date weekly average for equity fund flow is now a $1.5 billion inflow, which is now well below the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual funds had another positive week of production with $1.8 billion coming into the asset class. The inflow into taxable products of $519 million made it 25 of 27 weeks with positive flow. Municipal or tax-free bond funds put up a $897 million inflow, making it 30 of 31 weeks with positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $1.8 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion, but still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow). 

 

ETF results were broadly positive during the week with inflows into both equity funds and fixed income products. Equity ETFs put up a $2.8 billion subscription while fixed income ETFs put up a $2.6 billion inflow. The 2014 weekly averages are now a $1.2 billion weekly inflow for equity ETFs and a $939 million weekly inflow for fixed income ETFs. 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $1.0 billion spread for the week ($3.0 billion of total equity inflow versus the $4.1 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $4.0 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). The 52 week moving average chart displays the declining demand for all equity products (funds and ETFs) for the safety and security of fixed income. 

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart1

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart2

 

 

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product:

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart3

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart4

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart5

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart6

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart7

 

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds:

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart8

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart9

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $1.0 billion spread for the week ($3.0 billion of total equity inflow versus the $4.1 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $4.0 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). The 52 week moving average chart displays the declining demand for all equity products (funds and ETFs) for the safety and security of fixed income. 

 

ICI Fund Flow Survey - U.S. Stock Funds Just Can't Get a Bid - 4 Month Running Outflow - ICI chart10 

 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA


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.

Expert Call: COFFEE PRICES MAY MOVE MUCH HIGHER FROM HERE

Expert Call: COFFEE PRICES MAY MOVE MUCH HIGHER FROM HERE - Call Marketing Image

 

Hedgeye Macro is hosting an expert call TODAY (Thursday, August 21st) at 11:00 a.m. EDT to better understand the developing risks to Brazilian coffee production capacity next year and beyond. Brazil accounts for more than 1/3rd of global coffee production, and the damage from an unprecedented drought in the first three months of 2014 may have caused irreparable damage to a much larger portion of the 2015-16 crop than believed by consensus.

 

Our expert speaker will be Judith Ganes-Chase, founder and president of Ganes Consulting, an independent agricultural softs commodities research and consultancy firm. Judy worked on the sell-side for 20 years before founding J. Ganes Consulting in 2001.

Call Objective:

  •  With irreparable damage from last winter’s ---(BRAZIL SUMMER) drought already manifest, consensus opinion is much too optimistic on Brazil’s production capacity into next year and 2016
  • Lifecycle of the Tree: The idea that above average rainfall can restore soil moisture and rehydrate the trees allowing the lack of vegetative growth to be offset is simply not true. Production estimates for a 2015-16 crop based on the coffee from trees that have not yet flowered are PREMATURE
  • End users may be able to hedge OTC through financial intermediaries, but the assumption that the crop paid for in the future is locked-in and available is an issue. Scarcity may be a problem --> ESPECIALLY OF BETTER GRADES OF COFFEE.
  • Relevant Tickers: CAFE, JO, SBUX, DNKN, MCD, MDLZ, GMCR, THI  

Call Participant Instructions:

Participant Dialing Instructions

Toll Free Number:

Direct Dial Number:

Conference Code: 998836#

Materials: CLICK HERE

 

About Judith-Ganes Chase:

Judy has over 25 years of experience covering the agricultural softs space. Prior to founding Ganes Consulting in 2001, she spent most of her career as a senior softs analyst at Merrill Lynch and Shearson Lehman. Her most recent post was as the Director of News and Research at InterCommercial Markets.

 

 Ms. Ganes-Chase is a contributing member to Elliott Associates, Gerson-Lehrman Groups Council, and Coleman Research Group. She is also a participant in the ICE (Intercontinental Exchange) research program and makes regular contributions to several industry-specific publications: Specialty Coffee Association of America, National Coffee Association, and the International Women’s Coffee Alliance (IWCA).    

 

Hedgeye Macro Team


INDIA, CHINA, AND U.S. HOUSING

Client Talking Points

INDIA

EPI (WisdomTree India Earnings Fund) remains one of our top long ideas. India’s new “management team”, led by RBI Governor Dr. Rajan and Prime Minster Modi, is implementing the kinds of policies needed to structurally elevate India’s growth potential (TREND and TAIL durations.)

CHINA

We continue to think the shaky foundation on which the Chinese economy currently resides will force officials to ease monetary and fiscal policy, at the margins. This should be supportive of industries tethered to China’s fixed asset investment bubble (TREND duration).

HOUSING

Purchase demand declined for a third week, holding below the 170 level for a 6th consecutive week, that is the longest such soft streak since August 1995. The Composite index gained 1.4% week-over-week, buttressed fully by refi activity, which was higher by 2.7%, while Purchase activity declined -0.4%.

Asset Allocation

CASH 54% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 4%

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.

BOBE

The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. We believe activist investor Sandell has identified significant, largely feasible, opportunities to enhance shareholder value.  Particularly, we see tremendous upside value in selling the foods business, transitioning to an asset light model and refocusing capital allocation.

TLT

Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position.  Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.

Three for the Road

TWEET OF THE DAY

GMO labeling measure makes Colorado’s November ballot http://wapo.st/1BCPf9F  via @washingtonpost $HAIN $WWAV $BDBD $BNNY

@HedgeyeHWP 

QUOTE OF THE DAY

Really great people make you feel that you, too, can become great.

-Mark Twain quotes

STAT OF THE DAY

Wal-Mart said it will sell the iPhone 5c for 97 cents and the 5s for $79, down from their regular prices of $99 and $199, respectively.


LEISURE LETTER (08/21/2014)

Tickers: BYD, MGM, PNK, WYNN, CCL

EVENTS

  • Aug 26:  Horseshoe Baltimore Opening
  • Aug 27:  BYI 2Q earnings
  • Aug 28:  Hollywood Dayton Raceway Opening
  • Sept 1/2:  Revel closes

COMPANY NEWS

GTK:IM – said 14 banks have agreed to lend the Company up to $10.7 billion, in part to back its planned acquisition of U.S. slot machine maker IGT (International Game Technology).  The financing will be via a senior bridge loan and will be available to GTECH for 15 months, after which the company is expected to issue bonds to refinance the bridge loan.  GTECH said 45% of the bridge loan would be denominated in euros and the remainder in U.S. dollars. Credit Suisse, Barclays and Citigroup have arranged a syndicate of 11 banks to jointly finance GTECH. Other lenders involved include BNP Paribas, Credit Agricole, Deutsche Bank, Intesa Sanpaolo, JPMorgan Chase, Mediobanca and UniCredit.

Takeaway: Full support by all the investment banks.

 

BYD & MGM – Borgata Hotel Casino & Spa announced seven shows with Emmy and Golden Globe Award winning comedian Jerry Seinfeld, performing at Borgata's intimate 2,500-seat Event Center.  Seinfeld will continue his series through 2016, with tickets on sale this Friday (August 22) for his first show scheduled for Thanksgiving weekend – Saturday, November 29, 2014

Takeaway: Building a schedule of headline entertainment programming in an effort to draw more visitors - and hoping they gamble. 

 

MGM & 2282:HK (GGRAsia) Chief Executive of MGM China Holdings Ltd, Grant Bowie on Wednesday commented that the declaration by Macau’s Chief Executive that the city’s casino operators should provide housing for their migrant workers raises “complex” issues as the SAR struggles with lack of buildable land as well as where to locate such housing.

Takeaway: Mr. Bowie attempting to play nice with Macau's Chief Executive, labor, and shareholders.

 

9776:JP – Konami Gaming, Inc., announced that its award-winning casino management system SYNKROS® has been selected by Canyon Casino in Black Hawk, Colorado, to replace their existing system.  Canyon Casino has more than 400 slot machines, 100 of which operate as coin slots where guests can still appreciate the sound of coins falling into the trays. The casino's available table games include blackjack, craps, and roulette

Takeaway: A notable win for Konami. 

 

1680:HK – In its Q2 2014 financial results, Macau Legend Development indicated the Harbourview Hotel opening will be delayed from Aug 2014 until tentatively in Q4 2014. Additionally, the redevelopment completion of Macau Fisherman's Wharf will also be delayed by one or two quarters as the company awaits the issuance of the superstructure construction license which is expected in Q4 2014. The Legendale Hotel which was targeted for a Q1 2017 completion has yet to obtain Macau government approvals to begin construction.

Takeaway: More development, construction and opening delays and postponements. Galaxy Phase II looks good for its timetable but we have zero confidence that the other Cotai projects will open on time.

  

WYNN & 1128:HK – The Board of Directors of Wynn Macau Ltd approved an interim dividend of HKD0.70 (US$0.09) a share for the six months ended June 30, 2014. The dividend will be paid on September 23. Last year the company had declared an interim dividend of HKD0.50 a share.

Takeaway: With the interim dividend announced, attention will now focus on the size of the year-end special dividend.

 

CCL – starting in October 2015, Carnival will offer 10- to 14-night cruises, a first for the line, out of Baltimore on the 2,124-passenger Carnival Pride. Previously, Carnival only offered seven-night cruises from Baltimore.

Takeaway:  For the Caribbean, the longer-dated itineraries have done better than the shorter itineraries this year.  

 


Insider Transactions:

HST – President & CEO Ed Walter sold 190,000 shares on August 19th at an average price of $22.6115/share and directly owns a remaining 116,568 shares.  Additionally, an Limited Liability Corporation indirectly owned by Mr. Walter also sold 10,000 shares on August 18th at an average price of $22.6489/share and the LLC now owns 90,000 shares.  Beyond the outright 116,568 owned shares, Mr. Walter beneficially owns 436,895 restricted stock share as well as 230,803 non-qualified stock options with expiration dates from January 20, 2022 through January 22, 2024. 

 

CHH – Stephen P. Joyce exercised employee stock options on 11,659 shares of the company’s stock and immediately sold the 11,659 shares on Monday, August 18th at an average $50.69/share via a 10b5-1 program.  The options expiration date was May 2, 2015. Following this transaction, Mr. Joyce now owns 125,763 shares of the company’s stock.  

Takeaway: This was Mr. Joyce's second sale within seven calendar days.  He sold 44,463 shares on August 11, 2014.

INDUSTRY NEWS

Japanese Gambling (Japan Times) – According to research published by the Japan's National Hospital Organization Kurihama Medical and Addiction Center,  4.38 million men, accounting for 8.7%, and 980,000 women, or 1.8%, are suspected to suffer from gambling problems, totaling 5.36 million people or 4.8% of the adult population in the country. The research was conducted along with a survey for alcohol dependence in July 2013. The team interviewed 4,153 adults nationwide chosen on a random basis, and conducted research on gambling and Internet addiction based on international standards.

Takeaway: Suspect timing of this dated study results - seemingly just ahead of the Diet integrated resort legislation debate this fall. 

 

Increased Asian Regional Gaming Competition (GGRAsia) In reaction to the escalating crackdown on official and business corruption across mainland China, several jurisdictions neighboring China, including Japan, Vietnam, South Korea as well as Cambodia and the Philippines, appear to be increasing their efforts and attempts to either enact or liberalize laws to encourage foreign direct investment by casino operators.

Takeaway: The proliferation of gaming across new international markets continues.   

MACRO

Macau Inflation –  According to the Macau Statistics and Census Service, higher rents and the cost of eating out were key contributing factors to Macau's July inflation report of +5.92% year-over-year. On a month-on-month basis, from June to July, prices increased 0.37%.   

Takeaway: Such reports unfortunately give a voice to the labor unions rather than calling on the Macau Government to support policies which support lower inflation.

 

China Economic Slowdown (redux)(WSJ) Highlighted the start-stop nature of China's economy despite Beijing's efforts to intervene with lower interest rates, project approvals and infrastructure spending to keep the economy growing. Yet, the portion of the economy that is most at risk of falling out of the government's control is the property market. Property prices and construction activity continue to fall, posing risks to the banking system, personal wealth and local government finances. The relaxation of curbs against property speculators, already implemented in several cities, may yet have a positive impact. More moves, including easier credit for mortgages and developers, appear likely.

Takeaway: Not all of China macro is looking better.

 

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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