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PENN F3Q 2014 EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

 

Please see our note:  http://docs.hedgeye.com/HE_PENN_F2Q_10.22.14.pdf



Promotional Email From Retailers

Takeaway: Our retail team looks at the latest promotional email offerings from retailers.

If you're like us, you probably noted a severe uptick in promotional emails from brands and retailers over the past few weeks. That's expected, as this is the time of year when retailers transition from fall to colder-weather merchandise. In other words, an uptick in promo emails happens every year.

 

We track these pretty closely, and at least for the month of September there are some interesting changes in promo emails versus last year. Before we hit on callouts, let's be clear that it's tough to make conclusions around the year/over year trends -- for some brands with new product launches, it might be good to have more promotional campaigns.

 

For retailers with no square footage growth, it's probably bad. Also, this says nothing about the depth of the discount offered by the email. Nonetheless, we use this as one of many tools not just to draw the right conclusions, but to ensure that we're asking all the right questions to the companies.  Here are some thought.

  1. RL: The 40% uptick yy makes sense to us as the company is launching the Polo label on a much broader scale. That was not in place last year.
  2. Tory Burch: The interesting point is not the change in the business, but the fact that the company only had three promotional emails in the month of September. We'd argue that this is way too low. Definitely an opportunity to promote the brand better as it preps for the inevitable IPO.
  3. Coach: Only 10 emails in September compared to 18 a year ago. Definitely something we like to see for a brand that has become so grossly over-distributed.  Bullish on the margin.
  4. Kate Spade: 10% decline vs last year. Does not strike us as the kind of trend you'd see for a company that is worried about hitting numbers. Bullish on the margin.
  5. Urban: Trends look much better at Urban. Not quite at Anthro.
  6. Kohl's: had a fairly dramatic year-year increase (27%). This might be driven by lower email outreach in 2013 due to its e-commerce hiccup. But if we look back to 2012 -- when it had a nearly identical store base -- the company had 23 emails. Net/net, this is probably bearish on the margin.

 

Promotional Email From Retailers - chart2


MUB: Adding iShares Muni Bond ETF to Investing Ideas

Takeaway: We are adding MUB to Investing Ideas.

We are adding MUB (iShares Muni Bond ETF) to Investing Ideas today.

 

From Hedgeye CEO Keith McCullough:

 

Now is not the time to chase U.S. equity market beta. It’s time to double down on precisely what we told you do at the end of September.

  1. Buy the Long Bond (TLT and EDV)
  2. Short Small/Mid Caps (IWM)
  3. Buy Munis (MUB)

Alongside bullish on XLP and XLV (larger cap liquidity), that remains what we call the #Quad4 Macro playbook.

 

MUB: Adding iShares Muni Bond ETF to Investing Ideas - Munis


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 80.32%
  • SHORT SIGNALS 78.48%

Retail Callouts (10/22): KATE, COH, KSS, JWN, RL, URBN

Takeaway: Taking a look at email promotional cadence for Sept. Bullish for KATE and COH. Negative on the margin for KSS.

EVENTS TO WATCH

 

Wednesday (10/22)

SKX - Earnings Call: 4:30pm

 

Thursday (10/23)

CRI - Earnings Call: 8:30am

UA - Earnings Call: 8:30am

CAB - Earnings Call: 11:00am

KER-FR - Earnings Call: 12:00pm

DECK - Earnings Call: 4:30pm

AMZN - Earnings Call: 5:00pm

 

COMPANY HIGHLIGHTS

 

Promotions

If you're like us, you probably noted a severe uptick in promotional emails from brands and retailers over the past few weeks. That's expected, as this is the time of year when retailers transition from Fall to colder-weather merchandise. In other words, an uptick in promo emails happens every year.

 

We track these pretty closely, and at least for the month of September there are some interesting changes in promo emails versus last year. Before we hit on callouts, let's be clear that it's tough to make conclusions around the year/over year trends -- for some brands with new product launches, it might be good to have more promotional campaigns. For retailers with no square footage growth, it's probably bad. Also, this says nothing about the depth of the discount offered by the email. Nonetheless, we use this as one of many tools not just to draw the right conclusions, but to ensure that we're asking all the right questions to the companies.  Here are some thoughts…

  1. RL: The 40% uptick yy makes sense to us as the company is launching the Polo label on a much broader scale. That was not in place last year.
  2. Tory Burch: The interesting point is not the change in the business, but the fact that the company only had three promotional emails in the month of September. We'd argue that this is way too low. Definitely an opportunity to promote the brand better as it preps for the inevitable IPO.
  3. Coach: Only 10 emails in September compared to 18 a year ago. Definitely something we like to see for a brand that has become so grossly over-distributed.  Bullish on the margin.
  4. Kate Spade: 10% decline vs last year. Does not strike us as the kind of trend you'd see for a company that is worried about hitting numbers. Bullish on the margin.
  5. Urban: Trends look much better at Urban. Not quite at Anthro.
  6. Kohl's: had a fairly dramatic year-year increase (27%). This might be driven by lower email outreach in 2013 due to its e-commerce hiccup. But if we look back to 2012 -- when it had a nearly identical store base -- the company had 23 emails. Net/net, this is probably bearish on the margin.

 

Retail Callouts (10/22): KATE, COH, KSS, JWN, RL, URBN - 10 22 chart1 new3

 

Retail Callouts (10/22): KATE, COH, KSS, JWN, RL, URBN - 10 22 chart2

 

 

KATE - Swiss Watch Exports Rise 2.8%

(http://www.wwd.com/accessories-news/watches/swiss-watch-exports-rise-28-7992721)

 

  • "Exports to Hong Kong rose 3 percent, breaking a four-month falling streak, as pro-democracy protests failed to make a dent on the month’s data."

 

Takeaway: The situation in Hong Kong is clearly a concern for luxury retailers. But, we'd point to the 3% growth in Swiss Watch exports for the month of September; the first positive data point we've seen in the past 5 months. The number by itself doesn't say much about sell through/ performance to plan, etc., but its encouraging to see that demand hasn't dried up all together. We're not overly concerned in regards to Kate Spade. The company closed on the acquisition of Globalluxe on Feb 12th. That includes Hong Kong, Macau, Taiwan, Singapore, Malaysia, Taiwan, and Indonesia. Globalluxe sales of Kate Spade were $44mm in 2013. About a quarter of their stores are in Hong Kong.  That’d equate to about 1.5% of Revenue if it went away entirely. But that’s probably not going to happen. Let’s say it’s off by 50%. We’re talking 0.8% hit to sales for a company that’s otherwise growing 40%.  For KATE in aggregate, we're really not worried.

 

SKX - Legendary Drummer and Recording Artist Turned Style Icon Set to Appear in Relaxed Fit® Footwear Campaign

(http://phx.corporate-ir.net/phoenix.zhtml?c=80336&p=irol-newsArticle&ID=1979282)

 

  • "The world’s most famous drummer—Ringo Starr—will be bringing his legendary talents and style to SKECHERS where he’s set to appear in the footwear company’s global marketing campaign for SKECHERS Relaxed Fit footwear. The new multimedia campaign featuring Ringo will begin in Spring 2015."

 

Takeaway: We know Ringo is a legendary recording artist. We did not get the memo that he turned into a 'Style Icon'.

 

 

OTHER NEWS

 

FINL - The Finish Line names Sato president

(http://www.chainstoreage.com/article/finish-line-names-sato-president)

 

  • "Samuel M. Sato, formerly president, Finish Line brand, has been named as president, The Finish Line Inc. The board of directors also elected him to the board, filling the Class II director position previously held by Bill Kirkendall."
  • "Sato joined Finish Line in March 2007 as executive VP and chief merchandising officer."

 

AMZN, ASOMY - Asos dismisses Amazon takeover talk

(http://www.theguardian.com/business/2014/oct/21/asos-amazon-takeover-talk)

 

  • "Asos chief Nick Robertson has swept aside rumours that the online fashion retailer is about to be swallowed by Amazon, declaring the internet company was not his 'dream partner'."

 

CROX - Crocs, Inc. Announces Management Team Changes

(http://investors.crocs.com/phoenix.zhtml?c=193409&p=irol-newsArticle&ID=1979759)

 

  • "Crocs, Inc. announced several key management changes. These changes include the appointment of Bob Munroe to general manager of Crocs Americas region; Greg Sullivan to the new role of senior vice president of global business transformation; Scott Yuan to general manager of Greater China; and Michelle Poole to senior vice president of global product creation and merchandising."

 

Merger between Prada Holding B.V. and Gipafin S.à.r.l.

(http://www.hkexnews.hk/listedco/listconews/sehk/2014/1022/LTN20141022003.pdf)

 

  • "PRADA S.p.A. is pleased to announce that Prada Holding B.V., the Company’s immediate holding
  • company, will be merged by incorporation into Gipafin S.à.r.l., Prada Holding B.V.’s
  • sole shareholder. Upon completion of the Merger process, Prada Holding B.V. will cease to exist and Gipafin S.à.r.l., the Company’s new immediate holding company, will be re-named as 'Prada Holding S.à.r.l.'"

 

APP - American Apparel Brings Back Creative Director

(http://www.wwd.com/retail-news/people/american-apparel-brings-back-creative-director-7994097?module=hp-topstories)

 

  • "Sources said the company has rehired Iris Alonzo as senior creative director with a mission to protect and evolve the brand and help restore some normalcy to a difficult situation."
  • "American Apparel fired Alonzo shortly after founder Dov Charney was ousted as chief executive officer in June."

 

KER - Kering Names Gianluca Flore Brioni CEO

(http://www.wwd.com/menswear-news/retail-business/brioni-appoints-new-ceo-7993120?module=hp-topstories)

 

  • "On Tuesday, the French group said it had tapped Bottega Veneta executive Gianluca Flore as Brioni’s new chief executive officer, effective Nov. 1."
  • "It was the second appointment in as many days made by Marco Bizzarri, the former ceo of Bottega Veneta, who in July took up a new post as ceo of Kering’s luxury couture and leather goods division. As reported, former Stella McCartney and British Fashion Council executive Sarah Crook is to become ceo of Christopher Kane, effective Nov. 17."

 

Gilt Names Chief Marketing Officer

(http://www.wwd.com/retail-news/direct-internet-catalogue/gilt-names-chief-marketing-officer-7991937?module=Retail-latest)

 

  • "Gilt.com has named Clay Cowan chief marketing officer, effective Nov. 10. He succeeds Lizzie Francis who left the company in August." 
  • "He will report to Michelle Peulso, chief executive officer of the Web site."
  • "Cowan was formerly senior vice president of Global Digital for Starwood Hotels and Resorts, where he oversaw global strategy, management, and revenue for the Web, mobile, digital marketing, and social. Prior to that, he was vice president of e-commerce and digital marketing for Sports Authority."


LEISURE LETTER (10/22/2014)

Tickers: CZR, PENN, GLPI, H, MAR, RLH

EVENTS

  • Oct 22: ALGT Q3 earnings 4:30 pm http://ir.allegiantair.com
  • Oct 23:
    • RCL Q3 earnings 10 am
    • PENN Q3 earnings 10 am
    • LHO Q3 earnings 10 am "LaSalle Hotel Properties"
  • Oct 24: PEB Q3 earnings 9 am
  • Oct 28:
    • GLPI Q3 earnings 10 am
    • HOT Q3 earnings 11:30 am , code "10325720"
    • MAR Q3 earnings 5 pm , ID "59390131"
  • Oct 29: H Q3 earnings 11:30 am code "95150754"
  • Oct 30:
    • HST Q3 earnings 10 am
    • MGM Q3 earnings 11 am , pw "6307991"
    • BYD Q3 earnings 5 pm , pw "8021592"

COMPANY NEWS

CZR(GGRAsia) wants to build what one of its executives calls “the world’s first fly-in integrated resort” next to Manila International Airport (pictured) in the Philippines. Steven Tight, president, international development for Caesars, said the firm is willing to spend US$1 billion on the project. According to Mr. Tight, “What I think is most exciting about the opportunity is to create what I suppose would be the world’s first ‘fly in’ integrated [gaming] resort, where you could fly your plane right onto the property and have access directly to the resort, without having to deal with the traffic and other complications of Manila itself.” The resort would be aimed at VIPs and premium mass players, with an element of non-gaming targeted at locals, Mr Tight said.

Takeaway: CZR desperately needing an international presence. While not a 'fly in' casino, Resorts World is already right next to the airport.

  

PENN & GLPI– Nearly two weeks after leaving Sioux City, the former Argosy riverboat casino arrived safely at its new home, Mike's Inc., on Monday in Wood River, Illinois. A subsidiary of Penn National Gaming Co. then sold the boat and its other Sioux City assets, including two barges, to Mike's Inc. 

Takeaway: Despite removing the vessel from the Sioux City riverfront, the clean-up and deconstruction continues.

 

H (financialpost.com) is close to selling two additional hotels, including the 346-room Toronto Park Hyatt and the 644-room Hyatt Regency Vancouver.  

Takeaway:   We estimate the potential sale price of the Toronto Park Hyatt at $180-$200 million and the Hyatt Regency Vancouver at $270-$300 million for a combined sales price of $450-$500 million.  Kudos to Hyatt for their aggressive pursuit of the asset light strategy and selling assets to willing buyers and supportive capital markets.

 

MAR – Atlantis Paradise Island in Nassau, Bahamas, can now be booked through Marriott International's booking channels. Atlantis in July joined Autograph Collection, Marriott's upscale collection of independent hotels. The 3,400-room Atlantis is the largest hotel in the collection.

Takeaway: We look forward to commentary from MAR management regarding the booking trends at this very large, destination asset and the power of the MAR booking channel.

 

RLH – announced the launch of a new upscale hotel conversion brand targeted for the top 80 U.S. urban markets. Hotel RL is a full-service, lifestyle brand. RLHC anticipates announcing the first addition to Hotel RL before the end of the year and plans to open or convert more in 2015.

Takeaway: Every hotel operator must have a lifestyle brand these days. 

INDUSTRY NEWS

Macau Inflation (DSEC) The annual rate of consumer price inflation was 5.82% in September, the lowest in 8 months. The slowdown in food and non-alcoholic beverage prices was the cause.  This, despite another record increase in housing and fuel costs for the citizenry.

Takeaway: CPI remains stable but labor costs will go higher, much higher.

  

New Jersey Examining Real Money Skill-Based Gambling (Courier Post) The state Division of Gaming Enforcement says it is seeking game developers’ proposals to conduct real-money gambling on skill-based games, which would make New Jersey a nationwide laboratory for a betting phenomenon many have predicted will become the next big thing. Game developers would have to partner with one of Atlantic City’s eight casinos, in the same way that Internet gambling providers must do. And like online gamblers, players of real-money skill games must be physically located within New Jersey’s borders. (New Jersey can approach other jurisdictions about multi-state gambling compacts if there’s enough interest.) Nevada is considering a similar plan, and other countries, including England and Mexico, are testing similar technology.

Takeaway:  We've consistently highlighted the demographic headwinds for regional gaming and the slot companies.  Skill-based gaming has been the solution we've often pointed to and we'll be monitoring this closely.

 

NY Online Gaming (igamingplayer.com) A new online campaign called Let NY Play, which urges lawmakers in the Empire State to legalize online poker for cash, originated with MGM. 

 Though the games are still illegal, the pot is huge:  a study by MGM estimated that New Yorkers bet as much as $110 million in illegal online poker games. If the games were legalized, the study said, it could mean $50 million to $80 million in annual taxes for the state, and an additional $80 million from selling licenses to operate the sites.

Takeaway: MGM trying to get a share of NY gaming without a brick and mortar casino. 

 

Obama to Host Tribal Nations Conference– President Barack Obama will host the 2014 White House Tribal Nations Conference at the Capital Hilton in Washington, DC on Dec. 3. The conference will provide leaders from the 566 federally recognized tribes the opportunity to interact directly with the President and members of the White House Council on Native American Affairs. Each federally recognized tribe will be invited to send one representative to the conference. This will be the sixth White House Tribal Nations Conference for the Obama Administration, and continues to build upon the President’s commitment to strengthen the government-to-government relationship with Indian Country and to improve the lives of Native Americans

Takeaway: Expect a push for faster processing times of requests for tribally owned, but off-reservation land to be placed in trust -- which then affords the opportunity for additional off-reservation casino development.  

 

US Travel Trends in Q4 2014 – Booking data from Expedia shows that 21 million Americans are expected to fly from October through December. Of the top 10 destinations for air travel, 50% are warm-weather destinations and 30% are cold-weather. The most highly-shopped hotel destinations during the 2014 holiday season can be found in warm-weather destinations, including:

  1. Orlando, Florida;
  2. Cancun, Mexico;
  3. New York City;
  4. Riviera Maya, Mexico; and
  5. Punta Cana, Dominican Republic.

Takeaway: Sun and sand remain hot go-to destinations and nice to see renewed interest in New York City. Las Vegas is outside the top ten.

 

Countries Barring Income Travel from Ebola-stricken Counties – A number of Caribbean countries are moving to prohibit incoming travel from Ebola-affected countries including Liberia, Sierra Leone and Guinea, including the Federation of St. Kitts and Nevis, St. Lucia, Jamaica, Trinidad and Guyana.

Takeaway: Setback for these destination locations.

MACRO

Chinese Home Prices - He Keng, former deputy-director of the NBS and legislator with the National People's Congress, said China should avoid mortgage-backed securities because they were at the heart of the US subprime crisis. He also noted Chinese home prices should be allowed to fall an average 30% before the government steps in.

Takeaway: Hedgeye's Macro Team noted most Chinese mortgages are at LTV's of 30% to 40%.  Regardless, a 30% drop in residential real estate would certainly dampen consumer spending and economic growth and negatively impact Macau.

 

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  We're seeing bottoms up slowing in Europe cruise pricing in our monthly survey. Europe has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely. Following CCL's earnings release, we recently turned negative on those stocks based on the negative European thesis. 

 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is 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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