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Podcast: Keith Answers Questions from Institutional Subscribers


Retail Callouts (7/1): ICSC, NKE, WMT, KORS, CHS, Retail Losers

EVENTS TO WATCH

 

World Cup: USA(Nike) vs Belgium(Burrda) - Today 4PM

 

 

ECONOMIC DATA

 

ICSC - Chain Store Sales Index

 

Takeaway:  This was a massive week for sales growth -- the biggest in over four years. Then again, it's comping against a horrible week in 2012 and 2013. The two-year trend is worth looking at this week, which is decent-enough on the margin.  Less notable than the 3.25% 2-yr reading for this week is the steady climb since retail sales hit a trough around week 13. That's when the winter finally passed, and we got back to a normalized sales level -- perhaps with a bit of snap-back.  Not a major statement about the US consumer, but good-enough numbers for the retailers to be staring at  as they enter the last month of the retail quarter.

 

 

Retail Callouts (7/1): ICSC, NKE, WMT, KORS, CHS, Retail Losers - Chart1 7 1 2014

 

 

Retail Callouts (7/1): ICSC, NKE, WMT, KORS, CHS, Retail Losers - Chart3 7 1 2014

 

 

COMPANY NEWS

WMT - Walmart pushes healthy food agenda on Twitter

(http://www.retailingtoday.com/article/walmart-pushes-healthy-food-agenda-twitter)

 

"The Walmart Foundation has kicked off a summer-long initiative to help children and families gain access to nutritious meals and learn healthy-eating habits. Walmart is also collaborating with Chef Lorena Garcia, chef and author with TV appearances on Bravo’s “Top Chef Masters” and NBC’s “Biggest Loser,” to launch the Eat Healthy Together Challenge on Twitter."

"The family-focused initiative includes $15 million in grants that will provide meals and nutrition education to 1.4 million children and families in more than 1,500 communities."

 

Takeaway: Kudos to Walmart on this one -- even though $15mm is chump change to WMT.  The real commitment will come when WMT takes Cap'n Crunch, Capri-Sun, Mallomars, Pop-Tarts, and other foods packed with sugar and high-fructose corn syrup off its shelves. We understand that this would be devastating to the top line -- if WMT is unable to substitute it with the healthy food that it is hitting consumers with on Twitter. But look at CVS -- earlier this year, the company eliminated cigarettes from its shelves. Sales have been pressured, but the stock is up 19%. The market likes companies that make the tough decisions to help consumers lead healthier lives. If CVS can do it, why can't WMT?

 

NKE, ADS - Nike and Adidas Duke it Out Digitally

(http://www.wwd.com/footwear-news/markets/nike-and-adidas-duke-it-out-digitally-7777243?module=hp-fn)

 

"There is little correlation between World Cup sponsorship and social media success for the 2014 games..."

"So what does this mean for World Cup sponsor Adidas? The Herzogenaurach, Germany-based brand, which doesn’t appear to be sponsoring or promoting posts on Facebook, has a “limited overall reach,”"

"Meanwhile, Nike, based in Beaverton, Ore., has gone on the offensive, sponsoring posts that appear in its followers’ news feeds. These posts generate more conversations overall across Facebook and Twitter."

"By focusing on its key roster of players, including Cristiano Ronaldo and Zlatan Ibrahimovic, Nike took a creative approach with short and flashy — and sometimes humorous — videos on YouTube, upping its number of likes and comments 10 and seven times, respectively."

 

Takeaway: The number of times Nike used the word 'Digital' in its latest call = 15. Same statistic for Adidas = 2. Any surprise that Nike is winning?

 

10 biggest S&P 500 winners and losers for 2014 YTD

(http://www.marketwatch.com/story/10-biggest-sp-500-winners-and-losers-for-2014-2014-06-29?pagenumber=2)

Retail Callouts (7/1): ICSC, NKE, WMT, KORS, CHS, Retail Losers - Chart 2 7 1 2014

 

Takeaway: What does it tell you that 70% of the biggest losers YTD in the S&P 500 are retailers?

 

APP - Dov Charney builds American Apparel stake towards 50%

(http://www.ft.com/intl/cms/s/0/2181019e-00eb-11e4-b94d-00144feab7de.html?siteedition=intl#axzz36DL9vLjQ)

 

"Dov Charney, the controversial founder of US fashion chain American Apparel, has managed to increase his stake in the company towards 50 per cent, according to regulatory filings in New York."

"After the bell on Monday, it was revealed exactly how much common stock Standard General, a privately owned hedge fund, had acquired on Mr Charney’s behalf: 25m-30m shares – or a 17 per cent stake in the company."

"Combined with Mr Charney’s existing 27 per cent stake, he now has control of 44 per cent of American Apparel shares, edging him closer to 50 per cent – the critical benchmark at which he can potentially push for his own reinstatement to the board."

 

Takeaway: With an equity value of $153mm, this is not exactly a massive feat. Nonetheless, Charney is likely to get the majority stake he needs to get back in there and run the company he founded.  Unfortunately for the remaining shareholders, this means that there will be an eccentric, volatile, often inappropriate, usually incompetent person who is not only leading the company, but who also controls the Board.  Not exactly a great setup for a long.

 

 

OTHER NEWS

 

Contract Deadline Arrives for West Coast Port Workers

(http://www.wwd.com/business-news/government-trade/importers-rush-goods-ahead-of-contract-deadline-7777778?module=hp-business)

 

"The International Longshore and Warehouse Union and the Pacific Maritime Association are expected to continue negotiating a new contract today — and while the outlook is generally positive, importers are taking the better-safe-than-sorry route. A strike, were it to come, could take a toll of as much as $2.5 billion a day."

"The current six-year collective bargaining agreement is set to expire at 8 p.m. Eastern Daylight Time today"

 

KORS - Michael Kors names Stephane Lafay as President of Asia

(http://www.fibre2fashion.com/news/fashion-company-news/newsdetails.aspx?news_id=165263)

 

"Michael Kors, a global luxury lifestyle brand, announces that Stephane Lafay has been named to the newly created role of President of Asia. He will report to John D. Idol, the company’s Chairman and Chief Executive Officer."

"Mr. Lafay’s appointment, effective July 28th, 2014, reflects the brand’s powerful momentum in the region and its sustained focus on growth. “This is a pivotal moment for the brand as we continue to invest and work to build a strategic roadmap for the Asia region,” says Mr. Idol. “Stephane has a long history of building luxury businesses in Asia. His skills and experience will be a tremendous asset for us going forward.”"

 

CHS - Miki Berardelli to take over as Chico's FAS’s CMO

(http://www.fibre2fashion.com/news/garment-company-news/newsdetails.aspx?news_id=165286)

 

"Chico's FAS, Inc. announces that Miki Racine Berardelli will be joining the company as President, Digital Commerce, Chief Marketing Officer and Executive Vice President Chico's FAS, Inc."

"A dynamic industry leader, Ms. Berardelli is rich with experience and skills that span a spectrum of customer-based strategies and marketing initiatives. She joins Chicos FAS, Inc. from Tory Burch , where she held the position of Chief Marketing Officer. Prior to that, she was Senior Vice President of Marketing at Ralph Lauren."


Launching Coverage on Semiconductors

Launching Coverage on Semiconductors - HE SC launch

 

Hedgeye will be hosting a call today, July 1st at 11:00am EDT to welcome Craig Berger, our new Semiconductor Analyst and Technology Sector Head. Craig will offer some initial comments along with a slide deck highlighting key themes and best ideas in his space.

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 859426#  
  • MaterialsCLICK HERE (Slides will be available approximately one hour prior to the start of the call) 
  • Ping  for more information. 

 

TOPICS WILL INCLUDE:

  • What do key semiconductor revenue, profitability, and cash metrics look like?
  • What is the state of global supply chain inventories?
  • Which chip firms could see outsized dividend hikes, or new initial dividends, in coming quarters?
  • Which chip firms make attractive acquisition targets?
  • What are some interesting long and short ideas in the semiconductor space?
  • With calls on QCOM, INTC, AMD, NVDA, SLAB, IRF, and more 

 

ABOUT CRAIG BERGER, CFA, CPA  

Craig is joining Hedgeye as our Semiconductor Analyst and Technology Sector Head and has spent more than a decade as a semiconductor equity research analyst. Previously, he served as managing director for FBR Capital Markets (2007-2013), Wedbush Morgan (2005-2007), and Smith Barney Citigroup (2002-2005). Craig has won several awards from Forbes and ThomsonReuters, and has numerous media and press interactions. Beyond Wall Street, Craig worked at Intel Corp. (1) in positions of increasing responsibility in the CPU and capital spending finance groups, giving him critical industry insight and experience.


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VIDEO: Keith's Macro Notebook 7/1: Canadian Dollar, Oil, Germany


CORELOGIC DATA FOR JUNE - THE SINGLE DIGIT SLIDE CONTINUES

Takeaway: Home prices increases have decelerated by 410 bps in the last four months. The headwinds should persist for another ~8 months.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 

 

CORELOGIC DATA FOR JUNE - THE SINGLE DIGIT SLIDE CONTINUES - Compendium 070114

 

Today's Focus: June CoreLogic Home Price Report

CoreLogic released its monthly home price report for May/June earlier this morning. Unlike S&P/Case-Shiller, which is a rolling 3-month average repeat sales index,CoreLogic is a single month index released on almost no lag. Essentially, it gives you information three months more current than what you get from Case-Shiller. 

 

CoreLogic estimates that home prices rose +7.7% YoY in June, a deceleration vs the +8.8% in May and +10.0% in April. We show this in the first chart below.

 

Interestingly, in the past few months we've seen material upward revisions to the preliminary estimates for the most recent month-ended. This month, however, the revision was almost non-existent and actually was revised lower. The preliminary estimate for May was +8.9% and the final number came in at +8.8%.

 

Its also worth noting that while sales comps begin to ease through 2H14, price comps don’t really begin to ease until Feb 2015 (hardest near-term comp is Oct which was +11.8% YoY). As such, we think the next 8 months of worsening pricing data will weigh on the housing complex.

 

Our main thesis on housing is that the rate of home price appreciation will slow meaningfully over the course of 2014 and into 2015. Historically, inflections in the rate of HPI or HPD have been major macro drivers of relative positive or negative performance.

 

CORELOGIC DATA FOR JUNE - THE SINGLE DIGIT SLIDE CONTINUES - Corelogic NSA YoY TTM

 

CORELOGIC DATA FOR JUNE - THE SINGLE DIGIT SLIDE CONTINUES - Corelogic exDistressed NSA YoY TTM

 

CORELOGIC DATA FOR JUNE - THE SINGLE DIGIT SLIDE CONTINUES - Corelogic NSA YoY LT

 

 

About CoreLogic:

CoreLogic HPI incorporates more than 30 years worth of repeat sales transactions, representing more than 55 million observations sourced from CoreLogic's property information database. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming), and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate constant-quality view of pricing trends than basing analysis on all home sales. The CoreLogic HPI covers 6,208 ZIP codes (58 percent of total U.S. population), 572 Core Based Statistical Areas (85 percent of total U.S. population) and 1,027 counties (82 percent of total U.S. population) located in all 50 states and the District of Columbia."

 

Joshua Steiner, CFA

 

Christian B. Drake


LEISURE LETTER (07/01/2014)

Tickers: LVS, WYNN, MPEL, MGM, GLPI, ISLE, H, HOT, BEL, RHP, CCL, RCL

EVENTS

  • Thurs July 3: ISCA 9 am Q2 earnings , pswd 69156862

COMPANY NEWS

880:HK / SJM Holdings – (GGRAsia)  According to industry figures, here is the June GGR shares:

  • SJM: 24.9%
  • LVS: 22.0%
  • GALAXY: 21.1%
  • WYNN: 9.5%
  • MPEL: 12.2%
  • MGM: 10.3%

Takeaway: Strong showing by the local, Chinese mass-centric operators.

  

GLPI & ISLE – late yesterday Reuters reported Isle of Capri (ISLE) is in renewed sales talks with Gaming & Leisure Properties (GLPI)

Takeaway: We are EXTREMELY skeptical of such discussions leading to a completed transaction! 


H – Toronto, Ontario-based Westmont Hospitality Group is on the verge of buying the Park Hyatt Washington from Hyatt Hotels Corp. for $100 million or $462,963 per key for the 216-key hotel located at 1201 24th St. NW - near embassy row.

Takeaway: The capital recycling program continues.

 

HOT – is reportedly in talks with the owner of the five-star Nikolskaya Hotel in Moscow to convert the property to a St. Regis Hotel. 

Takeaway: If you can't build 'em, convert 'em - especially in the luxury segment of lodging. 

 

OEH / BEL – formally changed its name from Orient-Express Hotels Ltd. to Belmond Ltd. following approval from shareholders at the 2014 annual general meeting of shareholders held yesterday. Additionally, the Company intends to change the ticker symbol of its class A common shares listed on the New York Stock Exchange from OEH to BEL on July 28, 2014

Takeaway: On April 28, we suggested potential new ticker symbol of "BMD" - it seems simplicity was an overriding factor. 

 

RHP – announced a $14 million expansion and renovation of Ryman Auditorium. The building's historic auditorium, renovated in 1994, will remain unchanged while the renovation will focus on the building's addition, which was completed in 1994.

Takeaway: Building out the non-core lodging amenities similar to MGM's current ancillary development in Las Vegas.

 

CCL P&O and Cunard Line's 6% extra bonus promise (TTG Digital)

P&O Cruises and Cunard (CCL brands) are offering travel agents bonus commission of up to 6% in a new booking promotion.  They are paying the extra commission on selected bookings for departures between September 2014 and June 2015.

 

The lines will be paying the 6% bonus, on top of standard commission of 7.5%, to agents for sales of P&O’s Select Price and Cunard Fare tickets, while agents can also earn an extra 3% commission for bookings of Early Saver fares for both brands.

Takeaway: While we have been seeing more commission incentives lately, CCL's commissions as a % of ticket revenue has been pretty steady this year.

 

RCL - Developing tour subsidiary (Travel Weekly)

RCL has confirmed it is working on a new subsidiary focused on developing and marketing land tours around the globe.  The new company is still in formation, but RCCL has named John Weis, its former vice president of global tour operations, to spearhead its development.

RCCL already offers guests on its three cruise brands thousands of tours in hundreds of destinations. It said the new subsidiary, to be called TourTrek, will operate in 90 countries and will be wholly owned by RCL.

INDUSTRY NEWS

Macau June GGR (DICJ) Macau’s casino revenue fell for the first time in five years in June to HKD26.422 billion (MOP 27.215 bn), down by 3.73% year/year or approx. HKD1.023 billion and also down 15.88% month/month or approx. HKD4.989 billion.

Takeaway: We will receive the monthly details at the end of this week.

 

Singaporeans to Spend More - According to the Visa Affluent Study, affluent Singaporeans are planning to spend more on dining, entertainment and travel this year, and the willingness to open their wallets is being driven by an increased optimism in the local economy.  82% of affluent respondents from Singapore (defined as cardholders that earn more than US$100,000 (S$124,600) in annual income) intend to spend the same or more this year than they did in 2013.

 

Takeaway: A potential uptick for the locals/mass segment at RWS and MBS? We haven't seen mass growth in 2014 yet.

 

New York Upstate Gaming Expansion – following the June 30th deadline for filing a formal application for the four potential licenses, both PENN and CZR completed final applications.  A total of 17 final bids were submitted for the potential four licenses.  The final bids will be evaluated by the State of New York.

Takeaway: Let the marketing and public relations efforts start telling the story for why each sponsor's project is the best option...

 

Mississippi Gaming Expansion – the Mississippi Gaming Commission voted to allow Land Holdings One to begin construction on the Scarlet Pearl Casino Resort, after the company secured the $280 million in financing needed to build the resort. The Scarlet Pearl will be built on property along Biloxi's Back Bay and will have 60,000 square feet of gaming space with more than 1,000 slot machines, a 300 room hotel tower, and a 36 hole miniature golf course.  The property is scheduled to open during Summer 2015.

Takeaway: As soon as one property closes, another property breaks ground to open.  Scarlet is expected to open with around 1,350 slots in 2015.

MACRO

China Macro Data

  • Manufacturing PMI 51.0 vs 51.0 consensus and 50.8 prior - six-month high\
  • HSBC manufacturing PMI 50.7 vs 50.8 consensus and 49.4 prior -- the first reading above 50 this year

Takeaway: June final economic data was in line with "flash" estimates during the month and continued the recent improving trend. 

 

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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