Takeaway: ICSC sales doggin it. WMT finally winning in India? Goodbye CWTR. FTC, data security, & TGT. AMZN brings tech to grocery.
EVENTS TO WATCH
- BBBY - Earnings Call: Wednesday 4/9, 5:00pm
ICSC - Chain Store Sales Index
A whopping +1.5% reading for the ICSC numbers this week. Is this for real? We're only had 2 weeks all year where the growth reading has been above prior year levels. Anyone hoping for a snapback of any penned up demand after the nasty winter is getting zero support by these ICSC numbers. As a reminder, this same store sales index is comprised of 80 retailers of different sizes and concepts. While it includes dot.com for those retailers, it does not account for the shift to pure-play e-tailers like Amazon, which could put natural pressure on these numbers. Nonetheless, even accounting for a dot.com shift, these numbers are lackluster.
WMT - Wal-Mart to Launch E-Commerce and Open Wholesale Stores in India
- "Wal-Mart Stores Inc. is launching e-commerce and adding wholesale stores in India to sell to small businesses after shelving its hopes last year to open retail stores in the country. The world's largest retailer by sales plans in the next four years to open 40 to 50 additional wholesale stores in India, adding to its current 20, said Scott Price, chief executive of Wal-Mart's Asia division, in an interview Tuesday."
- "Mr. Price said the Bentonville, Ark., retailer's India-based cash-and-carry wholesale business will also roll out online sales this summer. He said the model will start small, with only one wholesale store posting its products for sale online. Mr. Price added that the store's staff will deliver the goods to the mom-and-pop stores that order them as much as 40 kilometers (about 25 miles) away, he said."
Takeaway: The move to open wholesale stores is brilliant. The reality is that India is a massive marketplace made up of hundreds of thousands of Mom and Pop retailers. The biggest risk for WMT is that it went in with a substantial retail business, and faced massive revolt from the masses who don't want to be put out of business by the big American price cutter. But becoming a buying agent for the Moms and Pops? That makes a boatload of sense.
WWW - Fall Preview: Sperry Top-Sider
- "Sperry Top-Sider continues to tap into its seafaring heritage for fall ’14. The brand updated its signature looks for men with novelty materials, ranging from camouflage to rough-out leathers. Retailing from $60 to $150, the line is available at Nordstrom, Bloomingdale's, Zappos.com and Sperry stores."
Takeaway: The first observation is that the representation of what people consider to be traditional boat shoes continues to shrink. More boots, and more vulcanized shoes -- which is a big opportunity for Sperry (share of vulcanized is less than 1%). Our view is that when people are sitting there waiting for the 'boat shoe cycle' to roll over, Sperry will have come along and built up a vulcanized shoe business that will mitigate any lost sales. All that said, we think the real opportunity for Sperry comes in layering the PLG brands onto the existing WWW international infrastructure. We think there's worst case sales risk in the US of $80mm (excluding vulcanized offset) and $300mm in opportunity outside the US.
TGT - Judge Backs FTC's Authority in Data-Breach Case
- "A federal judge on Monday gave a boost to the Federal Trade Commission's push to police corporate cybersecurity, allowing the agency to move forward with a lawsuit alleging that Wyndham Worldwide Corp. failed to make reasonable efforts to protect consumer information."
- "Monday's ruling focused solely on the FTC's authority to bring its lawsuit. The judge offered no opinion on the underlying merits of the commission's allegations against the company. But the suit could have broad ramifications for the liability of companies whose security systems are breached."
- "The commission alleged that Wyndham failed to employ reasonable data-security measures to protect the information from theft. It alleged there were several information-security problems at Wyndham hotels, including wrongly configured software, weak passwords and insecure computer servers."
Takeaway: Federal courts just gave the FTC the power to regulate cybersecurity. Now the FTC just has to prove that these companies 'failed to make reasonable efforts to protect consumer information.' The merits of this line of prosecution still have to be proved in court, but it is notable for TGT who admitted a few weeks back that its own internal controls failed to act when notified about a potential breach on 12/12/13.
CWTR - Coldwater Said to Plan Liquidation After Bankruptcy
- "Coldwater Creek Inc...is planning to liquidate its assets after a bankruptcy filing that may come as soon as today, according to two people with knowledge of the matter."
- "The company received a so-called stalking horse, a minimum bid from parties that would sell off the retailer’s assets to repay creditors, said the people, who asked not to be identified because the matter isn’t public. The filing would come five months after Coldwater said it was exploring strategic alternatives, including a sale."
Takeaway: Some companies file Chapter 11 in order to buy them time to reorganize and continue on as a viable entity. Others are simply so bad that filing Ch 11 is simply a means to an end. That end can't come soon enough for Coldwater.
AMZN - Amazon enhances online grocery shopping experience with new tool
- "AmazonFresh recently launched a new tool called the Amazon Dash that allows users to scan items or speak the items aloud as part of a new way to shop for groceries without having to go into the store or shop online."
- "A small, stick-like device, the Dash has a built-in microphone that users can use to 'voice search' the thousands of items available through Amazon. The Dash connects to the home's Wi-Fi network and places the item in the virtual shopping cart."
SPD - Mike Ashley surprises City by selling Sports Direct shares worth £200m
- "Sportswear tycoon Mike Ashley turned the tables on the City last night with a surprise sale of shares worth more than £200m. The move came days after investors threw out a bonus scheme that would have handed Ashley £72m of free stock."
- "Prior to Monday's share sale announcement, Ashley owned a 62% stake in Sports Direct with the sale of 25m shares equivalent to around 7% of his holding. His remaining stake is still worth over £3bn. Goldman Sachs said it purchased 25m shares from his personal investment company MASH and was looking to sell them on at £8.50 to £8.70 a share. At the top end of that range the placing would raise £217.5m, however, the investment bank did not reveal the price it had paid for the shares. The shares closed down 3% at £8.93."
WTSL - Kathy Bronstein Exits Wet Seal Board
- "...Kathy Bronstein has resigned from the board of The Wet Seal Inc. Bronstein was ousted as vice chairman and chief executive officer of the Foothill Ranch, Calif.-based specialty chain in February 2003 after an 11-year run. She sued the company for wrongful termination, gender discrimination, emotional distress and other charges and ultimately settled the case, receiving $2.2 million and stock options then valued at about $4.2 million."
- "After leaving Wet Seal, she formed KB Bronstein Consulting and continued to operate the firm upon joining Wet Seal’s board in September 2012."
CA - Motier Buys 6.1% Stake in Carrefour
- "Motier, the holding company of the family that owns Groupe Galeries Lafayette, said Monday it has bought 44.2 million shares in Carrefour, equivalent to 6.1 percent of the French retailer’s share capital."
- "Motier said its acquisition was a long-term investment that reflected its confidence in the growth potential of Carrefour, the world’s second-largest retailer behind Wal-Mart Stores Inc. Motier will also dedicate the necessary resources to developing its core department store activity over the next few years, it added."
SHLD - William Hutchinson to Head Sears' Supply Chain
- "William Hutchinson, vice president of global fulfillment and logistics for Dell Inc., has been appointed senior vice president of Sears Holdings Corp. and president of supply chain for the Hoffman Estates, Ill.-based operator of Sears and Kmart."
- "He succeeds Raj Penkar, who has led supply chain operations since 2011 and will retire on May 31."
SHLD - Adam Levine Adds Women's to Kmart Line
- "Adam Levine...is launching a women’s collection in time for summer to add to his namesake men’s wear at Kmart. The first season, launching Thursday, captures a casual aesthetic that mirrors Levine’s own style."
- "The apparel is priced from $12.99 to $29.99, with accessories from $6.99 to $29.99...The collection will be distributed to 500 Kmart stores across the nation, and is also available at shopyourway.com.""
JNY - The Jones Group Shareholders Approve Merger With Sycamore Partners
- "The Jones Group Inc. announced that, at today's special meeting, The Jones Group shareholders overwhelmingly voted to approve the agreement pursuant to which affiliates of Sycamore Partners will acquire The Jones Group for $15.00 per share in cash, or a total transaction value of approximately $2.2 billion. With today's approval of the proposals by The Jones Group shareholders, The Jones Group Inc. and Sycamore Partners have received all requisite approvals required to complete the transaction. The companies are committed to a seamless transition and expect to close the transaction promptly."
Daily table revenues for April 1-7 averaged HK$866 million this week up 2% from the comparable period last year and down 19% from March 2014. Overall, the slowdown in weekly GGR was consistent with our model projections and expectations. In the near term, we remain cautious due to the increased commentary regarding junket and player scrutiny and regional travel concerns. For April, we are expecting 8-12% GGR growth for the Macau market.
In terms of market share, LVS and SJM were the market share winners this week while Galaxy and MGM were the clear losers. Q1 earnings for the US listed operators look fairly in line with current projections so investor enthusiasm may not match that experienced during the Q4 earnings season. Going forward this year, we believe LVS has the best shot at growing market share while Wynn Macau, MPEL, and MGM could be slight losers.
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Takeaway: Every time you hear someone call a social media bubble stock, “momentum,” drink.
Client Talking Points
No more mo-mo for those expecting the Bank of Japan to get looser than the 60-70 TRILLION Yen per year (“We are not considering any kind of additional easing now” – Kuroda). So, not surprisingly, the Yen is up and Nikkei is down another -1.4% (-3.1% in 2 days to -9.7% year-to-date). Needless to say, we remain bearish on both Japanese growth and equities.
Buy every Bernanke Bubble that imploded in 2013 (Gold, Bonds, Emerging Markets). Brazil is up another +2.1% in a nasty US equity tape yesterday – you gotta love that divergence – and Turkey is up +1% to +9.3% year-to-date. Consensus macro bets are not in the area code of being positioned for this.
Nasdaq is down -6.4% since March 5th. What did the CRB Index (19 Commodities) do on that yesterday? #Nothing. It was flat on the day at 305 as #InflationAccelerating continues to get paid. Gold? It is up +1.2% this morning too, which is cool. Our Q2 Macro Themes call is today at 11 a.m. EST.
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Top Long Ideas
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.
Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.
Three for the Road
TWEET OF THE DAY
#StrongPound $1.67 vs USD - I'll take Carney vs Yellen on protecting the currency all day long @KeithMcCullough
QUOTE OF THE DAY
"Don't be afraid to be unique or speak your mind, because that's what makes you different from everyone else." - Dave Thomas
STAT OF THE DAY
The hunt for missing Malaysian Airlines Flight MH370 is on track to cost hundreds of millions of dollars, becoming the most expensive search in aviation history with 26 countries contributing planes, ships, submarines and satellites. A month into the search for the jet, estimates compiled by Reuters show that at least $44 million has already been spent on the deployment of military ships and aircraft in the Indian Ocean and South China Sea. (NBC News)
TICKERS: 6889.HK, MPEL, 27.HK, 880.HK, WYNN, HLT, CCL
EVENTS TO WATCH: UPCOMING EARNINGS / CONFERENCES / RELEASES
Tuesday-Thursday, April 8-10
- Mid-America Gaming Congress (Columbus, OH)
Wednesday, April 9
- SHO Investor Day
Thursday, April 10
- HST Investor Day
Dynam - Pachinko operator in talks to build Japan casino with Asian partner Reuters
Dynam has already held talks with MPEL, SJM, Galaxy as well as South Korea's Paradise Group and NagaCorp Ltd. Proponents of the bill expect debate to start next month, and aim to pass it before parliament session ends in June. Paradise said it has looked at opportunities in Japan but for now has decided not to pursue them.
Dynam CEO Sato said he wanted to target regional markets outside big cities, such as potential sites in Hokkaido to the north and the southern Kyushu area. That would match Dynam's strategy for the pachinko market. "I think the local area is better. There you can run a stable operation targeting the mass market, with high-rollers accounting for about 10-20% of your business," Sato said.
TAKEAWAY: Japan interest heating up ahead of pivotal debate in May
WYNN - recognized as one of the most trustworthy companies in the United States by Forbes Magazine's "2014 - 100 Most Trustworthy Companies" list.
TAKEAWAY: An appropriate recognition for a premier gaming and lodging operator.
HLT – announced a new strategic supplier agreement with DIRECTV for a new in-room entertainment experience.
TAKEAWAY: The company continue to improve the in-room guest experience.
CCL - Carnival to sail 11-day cruises from Galveston Travel Weekly
Carnival Cruise Lines said that it will offer the Texas market longer cruises for the first time, with four 10- and 11-day sailings between Galveston and San Juan. Carnival said a desire for longer, more varied itineraries was one of the themes that emerged from its series of Carnival Conversations meetings with travel agents.
TAKEAWAY: Whatever you gotta do to tackle the challenges in the Western Caribbean market.
UK Slots - PM David Cameron called for further crackdown on fixed odds betting terminals. He proposed stricter regulations on the machines and limiting clustering of bookmaking shops.
TAKEAWAY: Incremental negative for SGMS
Korea bets on casinos to boost economy Korea Times
Officials from at least 5 local governments - Incheon, Busan, North Jeolla Province, South Jeolla Province and Jeju Province - said they already plan or are considering IRs. Jeju Province runs 8 of the 16 casinos nationwide. It said it plans to build up to 4 additional ones, considering that the resort island has been popular among Chinese visitors for years.
TAKEAWAY: Until local play is allowed, these casinos will be insignificant and pose no threat to Singapore or Macau.
Horse-racing: The amount wagered on horse racing fell 1.92% in March to $964.459 million, despite the addition of one more race day to 388.
TAKEAWAY: Pari-mutuel wagering not immune to sluggish domestic trends
Atlantic City - the 12 casinos that operated in 2013 (the Atlantic Club shut down in January of 2014) posted a collective gross operating profit of $235 million, down from $360 million in 2012. The casinos saw their gross operating profits decline by nearly 35 percent last year.
TAKEAWAY: Despite the current efforts to reinvigorate Atlantic City, surrounding jurisdictions continue to cannibalize Atlantic City.
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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