January revenues up 34% YoY
It looks like January table revenues will come in at HK$17.4 billion. After adding in an estimate for slots, total gaming revenues will fall short of our HK$18.5-19.0 billion estimate at HK$18.2, up 34% YoY. Business slowed in the last week more than we thought in the lead up to Chinese New Year. In terms of market share, Wynn continues to suffer from low hold and we are hearing LVS held pretty well the past week. MPEL’s share actually grew from an already healthy clip and looks like the most interesting stock in the group. Here are the numbers:
R3: REQUIRED RETAIL READING
January 31, 2010
- American Express is taking the commercialization of NY’s Fashion Week to new heights this year. As a cardholder, you are now entitled to buy a ticket to your favorite designer show for as little as $50. Paying a little more gets you a meet and greet as well. With costs on the rise, perhaps the organizers are looking to generate a little income as an offset?
- Two major bridal launches will take place over the next couple of weeks. First up is the collaboration between David’s Bridal and Vera Wang called White. The items in the collection are expected to price between $600 and $1400. Up second, is the long-awaited URBN bridal concept called BLDHN which launches in online-only form on February 14th. The brand’s first prototype store is expected later in the year.
- With much of 2010 focused on private/flash sale websites and early 2011 hyper focused on all things Groupon, it’s worth pointing the recent winner of the Fashion Group International rising star in retail award. This year’s winner is Rent The Runway, a site that allows women to rent couture for single usage. With costs escalating and fashion changing at an exhaustive rate, perhaps this will be the next trend in “Rentailing”.
OUR TAKE ON OVERNIGHT NEWS
American Apparel Could Breach Debt Covenant - It’s crunch time once again for Dov Charney, chief executive officer of American Apparel Inc., who has made a habit out of living on the edge, financially and otherwise. The company, which has most recently courted controversy by featuring explicit drawings of topless women in its advertising, faces a key financial test today — a minimum consolidated earnings before interest, taxes, depreciation and amortization covenant in its loan agreement with Lion Capital, which will be tested monthly this year. <WWD>
Hedgeye Retail’s Take: While the media loves to focus its attention on Dov Charney’s extravagant image, the rapid expansion across the globe in almost every major high rent district is the culprit here. And, with cotton at all time highs it’s hard to envision the monthly “tests” being passed with consistency.
Retailers at Cobb Show Still Struggling - Huge discounts from the major retailers bit into holiday business for most specialty stores shopping the Cobb Show here last week, and they haven’t recovered yet. “The urban market didn’t do well because the big stores were dumping their goods,” complained Neil Rama, co-owner and buyer of Brite Creations in Atlanta. “The smaller stores can’t do that.”“The holiday season was our worst in 40 years,” said Khair Askar, owner of New York Men’s Clothing in Boynton Beach, Fla. “We were giving away merchandise — selling at very low prices, and business still wasn’t good.” <WWD>
Hedgeye Retail’s Take: While it’s no secret that holiday was promotional, it certainly appears that this has taken a disproportionate toll on the little guy. Not only was there pricing pressure, but inventories now remain tight in the supply chain as cost pressures mount.
Boot Sales Rise on Record Snowfall - Record snowfalls blanketing the Northeast have been a boon for the footwear business. Retailers across the region told Footwear News boots, in particular, are marching them out of an otherwise slow season. “Snow is like heaven — it’s actually the best thing that could happen at this time of the year because January and February are usually sale periods with real markdowns,” said Danny Wasserman, owner of Tip Top Shoes in New York. <WWD>
Hedgeye Retail’s Take: Perfect timing for record snow as clearance activity has been kept to a minimum in the boot category. Even more impressive is that this marks the third year in a row of a strong boot season, a trend that very rarely occurs.
Barney's new era - One of the most-watched acts in fashion is beginning to play out: Mark Lee's reinvention of Barneys New York. The highly regarded Lee has been Barneys New York's chief executive officer for only four months yet already has made sweeping changes in the retailer's senior fashion ranks and overhauled its creative leadership. On Friday, the retailer tapped a new vice president and fashion director, Amanda Brooks, former creative director of Tuleh and a Vogue contributor. And more changes are said to be on the horizon. <WWD>
Hedgeye Retail’s Take: With an ever increasing focus on more contemporary designers over the past several years it will be interesting to see what changes truly make their way one of the world’s most iconic luxury retailers.
Steve Madden Plots Betsey Johnson's Growth - Rather than wait out the still-stalled economy, Steve Madden is on the hunt for new labels and is ramping up Betsey Johnson’s business. Last fall Steven Madden Ltd. took over a $48.8 million loan to Johnson’s firm and absolved it in exchange for ownership of the brand’s intellectual property. Madden is so comfortable with the designer’s stewardship that he will be at a Las Vegas shoe show instead of her Feb. 14 runway show at Lincoln Center. <WWD>
Hedgeye Retail’s Take: With portfolio of growing brands beyond shoes, Madden is quickly becoming a meaningful player in the moderate priced fashion space. It’s likely we’ll see exclusive collaborations with major department stores as part of the strategy to drive stable volume in these growth brands and categories.
Demand in China for polyurethane materials on the surge - Demand on polyurethane materials for making footwear soles will be growing substantially if the EU's anti-dumping duty on Chinese leather shoes can be ended at the end of March this year, according to China Leather Industry Association. The shoe production and export will increase definitely if the duties are removed, said industry expert. Leather shoe production dropped significantly as EU anti-dumping and trade protection from Brazil, Argentina, Peru and Ecuador against Chinese shoes. <FashionNetAsia>
Hedgeye Retail’s Take: Footwear inflation potentially on the horizon? Or will production from China actually drive prices down?
E-retailers win tax ruling in Colorado - Colorado isn’t going to get the help it hoped for from online retailers in collecting sales taxes on web purchases made by state residents, at least not now. A federal judge in Denver has granted a preliminary injunction against parts of a Colorado law that require Internet and catalog retailers to provide the state with information including an annual report providing the amount of sales to individual Colorado residents. The ruling came in a lawsuit filed by the Direct Marketing Association, a trade group for direct-to-consumer retailers and marketing companies. <InternetRetailer>
Hedgeye Retail’s Take: While the battle to collect state sales tax from online retailers appears to have met some obstacles in Colorado, don’t expect the issue to go away anytime soon. The technology is in place to make the collection process seamless and state budget gaps are not likely to disappear anytime soon.
Carrefour Rises on Report Retailer Mulling a Split - Carrefour SA advanced in Paris trading after a French newspaper reported that the world’s second-largest retailer may be split into three parts to boost the value of its shares. The stock rose as much as 3.3 percent to 35.10 euros and traded at 34.70 euros as of 12:05 p.m. in Paris. The company, with the backing of shareholders including Bernard Arnault, may create separate stock-exchange listings for its Dia discount chain and real-estate units, Le Figaro reported, without saying where it got the information. Florence Baranes-Cohen, a spokeswoman for Carrefour, declined to comment. <Bloomberg>
Hedgeye Retail’s Take: Bigger doesn’t appear to be better, at least for the moment. Likely much more to come from this speculation in the coming days.
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.
Notable news items/price action from Friday’s trading session.
- DRI will be webcasting their Analyst and Investor Day(s) on Monday and Tuesday in Orlando, Florida.
- The Independent (London) ran a story on beef prices hitting the US restaurant business over the weekend.
- SONC and JACK declined on accelerating volume during Friday's session.
- SBUX has defeated Kraft’s bid to prevent it from ending a distribution agreement with the company. US District Judge Cathy Seibel disagreed with Kraft’s submission that it faced “irreperable harm” if Starbucks was allowed to terminate the agreement.
- SBUX CEO and founder Howard Schultz is reported to have been paid $22m in 2010, a 45% rise from his 2009 compensation.
- SBUX declined on accelerating volume on Friday.
- Coffee prices hit their highest level since 1997 in New York and reached a 28-month high in London on signs that demand will continue to outstrip supply.
- YUM featured in a South China Morning Post article this morning regarding KFC’s success in China. KFC’s staggering success and outperformance of peers in the market is lauded, but the article cautions overdependence on one market and cites higher regional minimum wages and food inflation as two potential headwinds for YUM China.
- WEN outperformed much of the restaurant space on Friday after its Investor Day took place on Thursday, rising 0.6% on accelerating volume.
- BWLD outperformed its casual dining peers on Friday, gaining 1.4% on accelerating volume.
- KONA also saw its share price rise on accelerating volume. KONA is the best performing restaurant stock over the 30-day and 60-day durations.
Financial Risk Monitor Summary (Across 3 Durations):
- Short-term (WoW): Neutral / 2 of 10 improved / 2 out of 10 worsened / 7 of 10 unchanged
- Intermediate-term (MoM): Positive / 7 of 10 improved / 1 of 10 worsened / 3 of 10 unchanged
- Long-term (150 DMA): Positive / 4 of 10 improved / 3 of 10 worsened / 3 of 10 unchanged / 1 of 10 n/a
1. US Financials CDS Monitor – Swaps were mixed across domestic financials, tightening for 17 of the 28 reference entities and widening for 11.
Widened the most vs last week: MTG, MBI, AGO
Tightened the most vs last week: CB, XL, AIG
Widened the most vs last month: MTG, PMI, RDN
Tightened the most vs last month: LNC, MET, HIG
2. European Financials CDS Monitor – Banks swaps in Europe were also mixed, tightening for 19 of the 39 reference entities and widening for 20.
3. Sovereign CDS – Sovereign CDS rose 14 bps on average last week, reversing their sharp decline of the last several weeks.
4. High Yield (YTM) Monitor – High Yield rates held close to flat last week, closing at 7.93 on Friday.
5. Leveraged Loan Index Monitor – The Leveraged Loan Index showed no sign of slowing its ascent, closing at 1612, 8 points higher than the previous week.
6. TED Spread Monitor – The TED spread rose slightly last week, ending the week at 16.4 versus 15.3 the prior week.
7. Journal of Commerce Commodity Price Index – Last week, the index held flat, closing at 33.2 on Friday.
8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds. Last week yields rose 16 bps.
9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices. Spreads fell early in the week before rebounding somewhat to close at 193, 5 bps below the previous Friday’s close.
10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production. Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion. While Australian floods and oversupply have been pressuring the Index, it has fallen 33% so far this year and is down 60% from its most recent peak.
11. 2-10 Spread – We track the 2-10 spread as a proxy for bank margins. Last week the 2-10 spread narrowed just slightly to 278 bps.
12. XLF Macro Quantitative Setup – Our Macro team sees the setup in the XLF as follows: 1% upside to TRADE resistance, 0.4% downside to TRADE support.
Joshua Steiner, CFA
This note was originally published at 8am on January 26, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“Man’s tongue is soft, and bone doth lack; yet a stroke therewith may break a man’s back.”
Sputnik was a Russian space program that launched its first satellite into orbit on October 4th, 1957. A month later, since the Russian translation for the word literally means “travelling companion”, the animal rights folks from Siberia sent a female dog named “Laika” along for the ride.
Notwithstanding that Sputnik was originally designed to carry nuclear weaponry, I found it somewhat ridiculous altogether that the President of the United States tried his best to say this country is having its “Sputnik moment” last night, with a straight face.
No mention of the US Dollar. No mention of inflation. Just space dogs and spending…
There is no doubt that we have an outstanding orator leading this country. When it comes to differentiating between Bush and Obama, that might be it – both of them are all about Big Government Intervention, Big Government Spending, and Big Time US Dollar Debauchery – Obama just makes government “investing” (spending) sound a lot more hopeful.
Hope is not an investment or risk management process.
Back to the interconnected global market’s take on this, the most important real-time market quote I was watching throughout last night’s speech and this morning’s Global Macro trading (which includes currency and bond markets) was the US Dollar Index.
Sputnik, we have a problem. The Bone is Burning again.
As a reminder, given that a country’s currency reflects the overall health of its economy (including employment), monetary policy (including inflation), and fiscal strategy, both the President of the United States and the Fiat Fools who advise him are best served watching what America’s currency is doing both into and out of this speech (down for 4 of the last 5 weeks into it).
Here’s your real-time price and risk management update for Obama’s Burning Bone (quoted down -15bps this morning at $77.80):
- Immediate-term TRADE line of resistance = $79.64
- Intermediate-term TREND line of resistance = $78.66
- Long-term TAIL line of resistance = $81.62
In summary, this means the Burning Bone is bearish (broken) across all 3 of Hedgeye’s core risk management durations (TRADE, TREND, and TAIL). This is not good. And I’ll be selling my US Dollar long position today as a result (we bought it on November 4th when fiscal reform was being promised).
Remember, for some people, the inflation is good.
As Ludwig von Mises said in Argentina in 1959, “if one devalues the currency and the workers are not clever enough to realize it, they will not offer resistance against a drop in real wages, as long as nominal wage rates remain the same.”
That’s America today. High-Low Society 2.0.
And again, I get it – I am long inflation (short bonds) and I will, alongside America’s affluent, get paid on that today.
- We’re long Healthcare Inflation (XLV), which your government says is only 6.5% of your CPI basket (not a joke)
- We’re long Oil (OIL), which is rallying this morning as the Bone Burns
- We’re long Canadian and Chinese currency (FXC and CYB) which track with a positive correlation to global inflation
But the other HALF of Americans who don’t own a damn thing that’s levered to inflation can take Obama’s Burning Bone to the gas pump this morning and rotate on the idea that this is good for them.
Sure, Washington’s dogmatic aristocracy of policy making thinks they are “clever enough” to pull this off. They must think Americans are as stupid as the “investing” ideas of the 112th Congress. If you call Big Government Spending “good for business”, maybe they’ll all sing sweet nothings to each other around their fire places tonight and pray for Lassie to come home.
*Note: this morning’s weekly readings on the US Consumer confidence (after a +91% stock market inflation):
- ABC Consumer Confidence drops for the 2nd week in a row to minus -44 (versus minus -40 two-weeks ago)
- MBA weekly mortgage applications drop another -8.7% this week (vs. -1.9% last wk) as mortgage rates push higher
In the end, inflation kills stocks and bonds. It’s already killing emerging market stocks and US Bonds. And, yes, Egypt’s +12% reported inflation rate is massively understated by a politically oppressive government and that’s contributing to this morning’s civil unrest.
The Bone Burners will tell you that rising US Treasury Yields this morning (2-year UST yields are breaking out above their immediate-term TRADE line of resistance of 0.61%) are all about “growth.”
The Chinese, Indians, and Brazilians, will tell you that rising Municipal and UST bond yields also have something to do with both Burning Bone driven inflation and US credit quality risk.
As India’s sober central banking Governor, Subbarao, said last night, “monetary policy works most efficiently while dealing with an inflationary situation, when the fiscal situation is under control.”
Sorry, Mr. President – good oration of the speech, but you’re not in the area code of enough spending cuts to keep Sputnik’s Bone from looking like it wants to be buried alongside the already broken promises of America’s Mid-term elections.
My immediate-term TRADE lines of support and resistance for the SP500 are now 1286 and 1295, respectively.
Best of luck out there today,
Keith R. McCullough
Chief Executive Officer
get free cartoon of the day!
Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox
By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.