Takeaway: With slight variations, our proprietary cruise pricing survey has proven to be an accurate forecaster of gross yields.



A backtest of our cruise pricing database for RCL and CCL shows consistency in predicting actual gross ticket yield for both Carnival and Royal. Directionally and in identifying pricing pivots, the model has performed spot on. The only criticism can be that the model tends to slightly overestimate CCL ticket yields while slightly underestimating for RCL. The differential from our model could result from geographical mix and occupancy trends. Regardless, the results support the efficacy of our pricing survey.

SURVEY database

We track YoY and sequential pricing for ~13,500 ship itineraries spanning across 8 geographic regions for CCL, RCL and NCLH.   Prices are compiled twice monthly during Wave Season.

the test

For CCL and RCL, we ran a backtest covering the time period from October 2012 to August 2014, wherein we aggregated the pricing change for all the itineraries in a particular region and weighted them according to an operator’s deployment mix.  For example, for Carnival’s F2Q 2014, the Caribbean accounts for ~37% of total fleet-wide capacity for F2Q.  The 37% weighing is split between the price changes for the Carnival brand, Princess, and Holland America for Eastern and Western Caribbean itineraries.  


We then compared the YoY change in the operator-reported gross ticket yields with our capacity-weighted price YoY change beginning with Q2 2013.


As the charts below show, our survey is very accurate in measuring ticket yields although the model tends to be biased in different directions for RCL and CCL.  There could be two reasons for this bias:  1) RCL had a greater presence in Asia-Pacific than CCL had in 2013-2014, and also experienced stellar results in this newer market.  Asia-Pacific accounts for the smallest portion of our survey and YoY volatility in Asia pricing can be very high as ships frequently move from one market to another.  2) Since we do not track occupancy, RCL may be showing more improvement in occupancy YoY than CCL.  But since most ships sail close to full occupancy, this should be less of a driver going forward.


FQ1 appears to be an anomaly.  For RCL, the differential may have been due to a weaker than expected yield performance from the Caribbean and some voyage cancellations in FQ1.  For CCL, a greater impact from better ticket prices for the Carnival brand in FQ1 could have nudged yields higher than we estimated.






Based on the latest pricing trends, we believe CCL will post better than expected gross ticket yields while RCL will meet raised investor ticket yield expectations for FQ3.  We will have a cruise pricing update later this week.

Cartoon of the Day: Burp!

Takeaway: Keep moving out there – risk does.

Cartoon of the Day: Burp! - small cap burp 09.15.2014

"With the Russell 2000 down for the 2nd straight week to -0.3% for 2014 YTD, that’s why I still like staying net short (for long onlys its called underweight) one of the most obvious bubbles in America right now – small cap stocks that trade at 50x trailing earnings, with no liquidity," wrote Hedgeye CEO Keith McCullough in today's Morning Newsletter. "In other #bubble news, at 30x revenues and $220B in market cap, you’ll have plenty of liquidity in AliBubble (BABA) this week!"


Capital One Financial – What’s In Your Portfolio? | $COF

Takeaway: Steiner says the bullish thesis on COF looks strong into year end.

Hedgeye Financial sector head Josh Steiner says COF’s August results, released this morning, are a dose of steroids for his already strong bullish case for the stock. 


While the delinquency rate edged up a mere one basis point (1/100th of a percent) over the average for the last seven years, loan growth for August, as measured month-over-month, came in at three times the seven-year average. 

Steiner says credit quality appears to be holding stable, which means investors should view the latest spike in consumer borrowing in light of the latest bullish Consumer Confidence figures: people are borrowing more because they are earning more – or expect to – not because they are running out of options. 


Steiner says the bullish thesis on COF looks strong into year end.

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Q&A: McCullough Answers Questions on Gas Prices and the Fed

Oversold: Russell Levels, Refreshed

Takeaway: You also have a bullish catalyst (for both stocks and bonds) on Wednesday. If Yellen is dovish, that is…



Now that the Russell 2000 is back down to -1.3% YTD, people will sell. Sadly, that is what the momentum chasers do. But don’t be sad. Be glad. And capitalize on it.


Across our core risk management durations, here are the lines that matter to me most:


  1. Intermediate-term TREND resistance = 1181
  2. Immediate-term TRADE support = 1149
  3. Long-term TAIL support = 1124


In other words, if all you’ve done all year long is fade the Russell (both ways – buy low, sell high) and bought sub 1124, and sold > 1181, you like my jokes.


You also have a bullish catalyst (for both stocks and bonds) on Wednesday. If Yellen is dovish, that is…


Keep moving out there – risk does.



Keith R. McCullough
Chief Executive Officer


Oversold: Russell Levels, Refreshed  - RUT Index YTD Levels Refreshed


Monday Mashup: SBUX, LOCO and More

Investment Ideas

The table below lists our Investment Ideas as well as our Bench -- a list of potential ideas we are watching closely.  We intend to update this table regularly and will provide detail on any material changes.


Monday Mashup: SBUX, LOCO and More - 11

Notable Callouts

  • We removed short BNNY from our Investment Ideas list after the GIS bid.
  • Our short call on SBUX was featured in Barron's this weekend in a column titled "The Problem With Starbucks."
  • We are hosting a Best Idea call this Thursday, September 18, 2014 at 11am EST to run through our short thesis on SBUX and field questions.

Recent Notes

09/08/14 Monday Mashup: BLMN, PLKI and More

09/11/14 New Best Idea: Short SBUX

Events This Week

Monday, September 15th

  • YUM Investor & Analyst Conference Day 1

Tuesday, September 16th

  • YUM Investor & Analyst Conference Day 2

Wednesday, September 17th

  • DNKN Investor & Analyst Day
  • CBRL earnings call 11:00am EST

Chart of the Day

Coffee prices are up +52.5% YTD and +39.5% YoY.


Monday Mashup: SBUX, LOCO and More - chart2

Recent News Flow

Monday, September 8th

  • BAGL appointed Frank G. Paci as President and Chief Executive Officer.  Interim CEO Michael Arthur will continue to serve on the company's Board of Directors.  Mr. Paci most recently served as President and CEO at McAlister's Deli and has held prior roles at The Pantry, Pizza Hut and Burger King.
  • RRGB announced it will open its newest restaurant in New York state (Horseheads, NY)  on September 22nd.

Tuesday, September 9th

  • DIN introduced its new "Waffullicious Waffles" which will be available for a limited time.
  • MCD reported disappointing August comps as global same-store sales fell -3.7%, led by -4% and -14.3% declines in the U.S. and APMEA regions, respectively.
  • BJRI increased its existing unsecured revolving line of credit to $150 million from $75 million and announced the opening of its newest restaurant in Denton, TX.
  • KKD announced a greater Maryland and Washington DC area development agreement with Monument Restaurant VII for the development of 20 new Krispy Kreme shops over the next several years.

Wednesday, September 10th

  • YUM increased its quarterly dividend by 10.8% to $0.41.

Friday, September 12th

  • DRI Starboard released its transformation plan for Darden Restaurants in a 294 page slide deck.  If enacted, the activist believes its plan could unlock $19-38/sh in value.  This excludes the potential value that could be unlocked through an Olive Garden turnaround.
  • SBUX 6.2 million share block trade was priced at $75.15 through BoA.
  • LOCO celebrated the grand opening of its newest restaurant in Sacramento, CA.

Sector Performance

The SPX (-1.1%) outperformed the XLY (-1.3%) last week.  In aggregate, casual dining and quick service stocks outperformed the SPX.


Monday Mashup: SBUX, LOCO and More - chart3

Monday Mashup: SBUX, LOCO and More - chart4

XLY Quantitative Setup

From a quantitative perspective, the sector remains bullish on an intermediate-term TREND duration.


Monday Mashup: SBUX, LOCO and More - chart5

Casual Dining Restaurants

Monday Mashup: SBUX, LOCO and More - chart6

Monday Mashup: SBUX, LOCO and More - chart7

Quick Service Restaurants

Monday Mashup: SBUX, LOCO and More - chart8

Monday Mashup: SBUX, LOCO and More - chart9


Howard Penney

Managing Director


Fred Masotta


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