Takeaway: PNK should handily beat Q4 Street estimates and 2015 is off to a strong start in the regional gaming markets.

In line with our positive regional gaming call today:  "REGIONAL GAMING MOMENTUM TO CONTINUE", we are removing the PNK short from the Hedgeye Best Ideas List.


Takeaway: We’re above the Street for Q4 earnings for BYD, PENN, and PNK and the release of January gaming revenues should continue the trend.


We’re not ready yet to call a V-shaped regional gaming recovery but due to a variety of factors, the numbers look a lot better. Q4 earnings for BYD, PENN, and PNK should all handily exceed Street estimates. Moreover, January should prove to be the best month in regional gaming since well before the “Great Recession” began in 2008. Low gas prices, easy polar vortex weather comparisons, and maybe a little macro are all contributing. The stocks look like buys into earnings and the release of January gaming revenues.


Please see our detailed note:


Takeaway: We’re releasing 2 Black Books – Deep Dive on FL and HIBB. Our Athletic Book focused on the Industry/Theme. This dives into the short ideas.

We’re going to release two Black Books over the next two weeks. One on Foot Locker this  Thursday, January 22nd at 11:00 am ET. And the other on Hibbett next Monday, January 26th at 1:00 pm ET.  Dial-in info is below.  Since we launched our 90-page Athletic Black book in late December, our Short Call on Foot Locker has been something of a lightning rod, accounting for a disproportionate amount of our call volume. Since then, we’ve seen several Sell-Side downgrades on FL, the latest because of a ‘Slowdown in Basketball’, which we think misses the mark and understates the downside in this financial model in the intermediate-term and long-term. Simply put, the ‘newly bearish’ out there are simply not bearish enough. Conversely, people are not as focused as they should be on HIBB, which has major downside in the model.


Unlike in our Athletic Black Book, where we had just a few slides on each company, we’ll be doing a thorough deep dive into every line item and business driver for FL and HIBB. 


Here’s Just a Few of the Topics We’ll Hit On For FL/HIBB


1) Store footprint potential vs what we see today.

  • FL cannibalization analysis by region and by mall, and why it’s biggest competitor is actually itself.
  • HIBB overlap analysis with Dick’s, Academy, and Sports Authority – how much quality growth is left?

2) Productivity

  • Opportunity to take productivity higher via mix, with all else equal.
  • Trends in pricing vs mix, and why it leaves little upside in the model from here.
  • Productivity and profitability if ‘Nike ratio’ shrinks – either by design or by misfortune.
  • Impact of category (basketball, running, etc…) trends on productivity.

3) e-commerce.  One of our key points is that store sales (barring 6% industry growth) will never grow again. In that regard…

  • What is each company’s installed investment base to facilitate e-commerce growth going forward.
  • How do consumers use the retail site as opposed to going to the Brand directly.
  • What are ‘free shipping’ trends in the Athletic space, and what are the ensuing margin implications for each company.
  • Which retailers have the greatest risk as Nike goes more direct? When and where should we see it?
  • We’ll quantify the AMZN risk for each retailer.

4) Ken Hicks was a bigger force inside FL than the market is recognizing. But FL is not in trouble because he left, he left because FL is in trouble.


5) What SG&A levers can both companies pull if the gross profit algorithm rolls.


FL Call Info (Thursday 1/22, 11:00 am ET)

  • Toll Free Number:
  • Toll Number:
  • Conference ID/Password: 13598538
  • Materials: CLICK HERE

HIBB Call Info (Monday 1/26, 1:00 pm ET)

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 733316#
  • Materials: CLICK HERE

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

January 20, 2015

January 20, 2015 - Slide1



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January 20, 2015 - Slide6 

January 20, 2015 - Slide7

January 20, 2015 - Slide8

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My Crystal Ball

This note was originally published at 8am on January 06, 2015 for Hedgeye subscribers.

“It’s far better having an approximate answer to the right question, than an exact answer to the wrong question.”

-John Tukey


Tukey was one of the most important mathematicians of the 20th century. The probability man died in 2000 and the only knock on him is that he went to Princeton. Yes, he was a Bayesian. He was also a Bell Labs guy. That’s where they asked the right questions.


The Global Macro question remains: will global #GrowthSlowing + #Deflation matter to both the US economy and its stock, bond, currency, and commodity markets? If you thought yes, then how so? Oh, and how did you position for that?


After rubbing it this morning, my crystal ball (my wife got me one for my birthday – no joke, a real one) says A) yes, it mattered and B) it translated into both crashing global long-term bond yields and commodity prices. “So”, let’s keep re-positioning…


My Crystal Ball - 78


Back to the Global Macro Grind


Re-position? Yes, as in rotate. With the UST 10yr Yield tapping the 1%-handle this morning:


  1. Book some gains in those Long Bond (TLT, EDV, BND, MUB, etc.) holdings
  2. Re-position some of that capital into oversold US consumption equities
  3. And send your Old Wall broker an email that says your crystal ball guy said to :)


In Hedgeye Asset Allocation terms (re-positioning = rotation of the allocation!), that means:


  1. Taking net Fixed Income down from max allocation to an asset class (1/3 of my capital) to +28%
  2. Taking net US Equity asset allocation up from +3% on December 29th, 2014 to +10%
  3. Do nothing in International Equities and/or Commodities


No, I don’t want to chase Gold up here. I haven’t told you to engage in amateur knife catching crude oil contests for the last 6 months either. My net asset allocation to #deflation (Commodities) = 0% because the answer to THE question mattered.


“Net” – what does that mean, net?


Net (and in rate of change terms) is how I think. Not because my crystal ball told me so (remember, I didn’t have one until today!), but because that’s how I learned, at a young age in the hedge fund business, to manage risk.


I know having longs and shorts isn’t for everyone. And it really shouldn’t be. On the short side in particular, at least 2/3 of hedge funds don’t do the hedging thing very well, don’t forget.


We are better than bad at that – and we also don’t tell our long only investors to chase tops. That’s why I referenced December 29th, specifically. If you are in the business of compounding returns and dynamically allocating assets, that day mattered because:


  1. The SP500 was 70 handles higher than yesterday’s 2020 close, at an all-time closing high of 2090
  2. The yield on the 10yr US Treasury was 2.25%


If you are a portfolio manager of anything Fixed Income or US Equities, THE question that day was:


  1. BUY
  2. SELL


As all of you veterans of the risk management gridiron know, sometimes doing nothing is the best answer. But, unless you are in the business of low-fee generating-passive-asset-management, sometimes you do need to BUY or SELL!


“So”, as the Old Wall analysts like to say, on December 29th:


  1. If you bought more Long Bond (TLT) exposure, the 10yr Yield just had a 12% move from there (1.98% last)
  2. If you bought more SPY (there was a big fund flow into it that week), you just lost -3.3%


“So”, crystal ball says you wanted to have done 1. And not 2.


The other thing crystal ball is telling me this AM is don’t short the Russell 2000 today. #Pardon? Yes. You heard it from whatever this transparent ball is that I am rubbing this morning first! Do not short the IWM because:


  1. After another swift -3.1% correction, the Russell 2000 is signaling immediate-term TRADE oversold
  2. The inverse of that beta trade (VIX) is signaling immediate-term TRADE overbought at 20.59
  3. Hedge Fund Consensus is short the Russell (IWM) vs long SPY


Back to the “net” concept. If you want to earn your keep in 2 and 20 land, it’s usually best to not be pressing the lows on the short side of your net exposure in a crowded macro short.


Rather than rant any further this morning, here’s a 2 minute video explaining why “I Would Not Do What Hedge Funds Are Doing” in what was one of our best Global Macro short ideas 1-year ago today:


Crystal Ball just told me to stop there. #Cool. I’m already starting to like this thing.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.97-2.16%

SPX 2017-2051

VIX 16.26-20.59
Oil (WTI) 48.45-54.15

Gold 1166-1217

Copper 2.73-2.84


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


My Crystal Ball - 01.06.15 chart


Takeaway: Worse than expected, the latest week's results has us cutting our January forecast again.

An analysis of the latest weekly Macau numbers

call to action

The third week of January displayed continued deterioration in already soft table revenues.   We're now forecasting full January GGR to fall 15-21% YoY.  That's a bad month but looks even worse when considering that January 2014 is the easiest comparison until June.  Despite a basing in the Macau stocks, the fundamentals continue to worsen with no visibility of a turn.

the latest numbers

The weekly numbers are out for last week and they aren't pretty, albeit against a difficult comparison.  Daily table revenues averaged HK$689 million, down 31% from the comparable week of last year.  Unfortunately, January 2015 faces the easiest comparison (+7% in January 2014) until June, yet table revenues are trending down 25% month to date.  Due to an easy comparison in the last week of January, the YoY decline should lessen.



market shares

Wynn Macau, MPEL, and Galaxy continue to outperform here in January.  Relative hold percentages are likely playing a role.  Wynn may also be benefiting from bad luck the last 2 months which from the player's perspective would mean good luck and a lucky place to visit.  LVS is really struggling and we suspect the elimination of phone proxy betting is contributing.  We wouldn't be surprised to see LVS and/or Wynn Macau reinstate proxy betting.  Stay tuned.



2015 forecast

We don’t expect to see positive growth in GGR until Fall 2015, absent any big hold months.  




We remain generally negative on the Macau operators but acknowledge the potential for another relief rally immediately following earnings.  MPEL looks like a potential winner - or at least a non-loser - this earnings season and remains the only Macau company where we are projecting a beat, albeit very small.  We remain below the Street for 2015 for all of the Macau operators, despite the recent estimate reductions.

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