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LEISURE LETTER (03/02/2015)

TICKERS: RCL, WYNN

 

EVENTS

  • Mar 5: The 3rd Session of the 12th National People’s Congress (NPC), China’s top legislature will convene in Beijing

HEADLINE NEWS

  • RCL - announced today that it has entered into an agreement to sell its cruise ship Splendour of the Seas to TUI Cruises in 2Q 2016. The ship will then be leased to Thomson Cruises, which will operate the vessel. "The ship's sale is in line with our strategic objective of divesting ourselves of older hardware and keeps us firmly on the course to the Double-Double," says CEO Fain. 

Takeaway: One way to deal with cannibalization risk is to sell the underperforming ships. The last time RCL sold a ship, (Celebrity Century Sept 2014) it was at a $17.4 million loss. Splendour itineraries are in Europe and Dubai.

COMPANY NEWS 

WYNN -  “The board decided not to re-nominate Elaine P. Wynn to serve as a director, based on the recommendation of the Nominating and Corporate Governance Committee,” said a company filing. But the document said Ms Wynn intended to nominate herself for election by shareholders even if the board does not support her. The board meeting is on April 24.

 

Starwood Capital/Melia -  announced today that they have established a joint venture that has agreed to acquire a collection of hotels across key resort locations in Spain. The initial portfolio for the joint venture consists of seven well-established beachfront hotels representing 2,933 keys that are currently owned by Melia Hotels International and will continue to be managed by Melia upon completion of the transaction. The properties will be acquired by the joint venture in a transaction valued at €176 million ($198 million), subject to the approval of the European Union Merger Control Office.

 

RCL - A guest on Royal Caribbean's Liberty of the Seas is reporting the ship is experiencing propulsion problems that is forcing the ship to travel at a reduced speed.  As a result of the slower speed, the ship has canceled a scheduled port stop in Ocho Rios, Jamaica and will instead head back home to Fort Lauderdale.

 

The report has not been confirmed by Royal Caribbean yet but the guest did indicate Royal Caribbean is issuing an onboard credit of $100 for inside staterooms and $200 for balcony staterooms for the inconvenience.

ARTICLE HERE

Takeaway: If true, another headache for RCL

INDUSTRY NEWS

Hotel room rates drop for Lunar New Year holidays - The average room rate in Macau’s three-star, four-star and five-star hotels was MOP2,019 (US$252.75) during the Lunar New Year holidays this year, 15.4% less than in the equivalent period last year, the Macau Government Tourist Office says, citing data from hoteliers. 

 

The average occupancy rate of such hotels fell by 6.9% points to 87.5%. The average occupancy rate of two-star hotels fell by 13.4% points to 73.9% and the average occupancy rate of guesthouses fell by 8.6% points to 74%.

ARTICLE HERE

Takeaway: Not a good sign as we wait for the final monthly numbers for February. The only bright spot in Macau was supposedly strong hotel bookings.

 

S'pore Changi Airport- passenger traffic for January 2015 fell 3.8% YoY.

LEISURE LETTER (03/02/2015) - changi

Takeaway: Bad start to new year

MACRO 

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:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.



EVENT: BABA Best Idea SHORT call

Takeaway: Join us for our call Thursday, March 5th at 1:00pm EST. Call details will be posted Thursday morning.

We will be hosting a call outlining our SHORT thesis on Alibaba Group Holdings (BABA).  Since our last call on BABA, we saw validation of the core tenets of our thesis within its last earnings release, as well the emergence of a new trend, which will compound pressure across its model.  

    

Join us for our call Thursday, March 5th at 1:00pm EST as we update our bearish thesis, and why we see 25%+ downside from here.

 

KEY TOPICS WILL INCLUDE  

  • China Can’t Grow Fast Enough: Top-down analysis of the key factors driving e-commerce in China
  • Growth Will Come at a Price: How the China growth story will pressure BABA’s Business Model.
  • Fool’s Gold: Why mobile is not a long-term opportunity, but a secular headwind.
  • Sputtering Tailwinds: Why BABA’s last core growth driver can no longer offset headwinds across its model.

 

CALL DETAILS

We will be posting call details Thursday mornings.  Ping us or email sales@hedgeye.com for more information.  

 

 

 

Hesham Shaaban, CFA

@HedgeyeInternet

 


Keith's Macro Notebook 3/2: Japan | Euro | Oil

 

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


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Retail Callouts (3/2): Mobile Commerce, COST, GME, LL

Takeaway: A look at Global Mobile Commerce over the holiday season.

EVENTS TO WATCH

Retail Callouts (3/2): Mobile Commerce, COST, GME, LL - 3 2 chart2

 

 

HIGHLIGHTS

 

Mobile/Tablet Commerce Stat Pack

 

Takeaway: For the amount of noise we hear about mobile - it's still just a drop in the bucket for most retailers. For the retail space in aggregate over the holiday season, mobile/tablet sales increased in penetration by 500bps and accounted for 22.6% of digital sales. There is one limiting factor however, and that is conversion rate where desktop rates sit at levels 4x smartphones and 1.5x tablets.

Perhaps the more interesting dynamic on mobile is the heavy weighting towards Apple powered iOS devices. Android operating devices account for about 52% of the devices in the US (compared to iOS at 42%), but only account for 22% of mobile sales. The median income of an iOS user is 40% higher than that of Android, but we don't think that explains the big discrepancy between units and sales volume. It has to be centered on functionality, an edge Apple will continue to enjoy especially after it integrates its Apple Pay feature into retail apps.

Retail Callouts (3/2): Mobile Commerce, COST, GME, LL - 3215 chart1

Retail Callouts (3/2): Mobile Commerce, COST, GME, LL - 3215 chart2

Retail Callouts (3/2): Mobile Commerce, COST, GME, LL - 3215 chart3

 

 

OTHER NEWS

 

COST- COSTCO ENTERS INTO A LONG TERM CO-BRAND CREDIT CARD AGREEMENT WITH CITI AND AN ACCEPTANCE AND CO-BRAND AGREEMENT WITH VISA

(http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-newsArticle&ID=2021495)

 

GME, RSH - Report: GameStop bids $2.4 million on 163 RadioShack leases

(http://www.chainstoreage.com/article/report-gamestop-bids-24-million-163-radioshack-leases)

 

LL - Lumber Liquidators linked to health and safety violations

(http://www.cbsnews.com/news/lumber-liquidators-linked-to-health-and-safety-violations/)

 

JWN - Nordstrom Launching Collaboration With Piece & Co.

(http://www.wwd.com/retail-news/department-stores/nordstrom-launching-collaboration-with-piece-co-8237666?module=Retail-latest)

 

JCP, M - Court Rekindles J.C. Penney's Battle With Macy's

(http://www.wwd.com/business-news/legal/court-rekindles-jc-penneys-battle-with-macys-8233964?module=Retail-latest)

 

GPS - Gap names Victoria’s Secret ‘Pink’ creator as new design chief

(http://www.chainstoreage.com/article/gap-names-victoria%E2%80%99s-secret-%E2%80%98pink%E2%80%99-creator-new-design-chief)


LULU - Kit & Ace, the new retail venture from the son of Lululemon Athletica Inc founder, has been resounding success

(http://business.financialpost.com/2015/02/27/kit-ace-the-new-retail-venture-from-lululemon-athletica-inc-founders-son-has-been-resounding-success/)

 

Ron Johnson leads $16M investment in Nasty Gal

(http://www.fierceretail.com/story/ron-johnson-leads-16m-investment-nasty-gal/2015-02-27)

 

LVMH - Louis Vuitton is now a 'brand for secretaries' in China

(http://uk.businessinsider.com/louis-vuitton-losing-sales-in-china-2015-2?r=US#ixzz3TCfLnreh)


MONDAY MASHUP: CHUY, BOBE & MORE

MONDAY MASHUP: CHUY, BOBE & MORE - 1

 

Recent Notes

02/23/15 Monday Mashup: DRI, DFRG & More

02/24/15 DRI: The Transition Is Nearly Complete

02/25/15 DFRG: Going In Short, Redux

02/25/15 DFRG: A Broken Growth Algorithm

02/27/15 DFRG: Thesis Confirmed, Despite the Pop


Events This Week

Monday, March 2nd

  • CHUY earnings call 4:30pm EST

Wednesday, March 4th

  • CCSC earnings call 7:30am EST
  • BOBE earnings call 10am EST

 

Commodities

MONDAY MASHUP: CHUY, BOBE & MORE - 2

 

Recent News Flow

This Morning

  • CBRL downgraded to hold at Miller Tabak with a $150 PT.

Monday, February 23rd

  • DRI appointed interim CEO Gene Lee as permanent CEO, effective immediately.  The search for the next CFO to succeed Bradford Richmond is now underway.
  • BOBE declared a quarterly cash dividend of $0.31 per share, payable on March 23 to stockholders of record on March 9.

Tuesday, February 24th

  • DIN Applebee’s launched a new platform of appetizers – Bar Snacks (double-crunch bone-in wings, pot stickers, churro s’mores, green bean crispers, chips & salsa, soups), Shareables (pot stickers, sriracha shrimp, sweet potato fries, spinach & artichoke dip, brew pub pretzels & beer cheese dip, mozzarella sticks) and Pub Plates (kobe-style meatballs, sweet chile brisket sliders, salsa verde shredded brisket nachos, double-crunch bone-in wings, chicken quesadilla, grilled chicken wonton tacos, boneless wings, crosscut ribs).
  • WEN announced the addition of Michelle Mathews-Spradlin to its Board of Directors.  Prior to her retirement in 2011, Ms. Mathews-Spradlin worked at Microsoft for over 18 years, serving most recently as Chief Marketing Officer and Senior Vice President.

Thursday, February 26th

  • DNKN expanded its partnership with SJM and GMCR by signing agreements for the manufacturing, marketing, distribution and sales of Dunkin’ K-Cup packs at national retailers across North America, as well as online.  Dunkin’ K-Cup packs were previously only available in Dunkin’ Donuts restaurants in the U.S.
  • PZZA downgraded to hold at Feltl and Company.
  • PBPB announced the resignation of Chief Financial Officer, Charles Talbot.  Mr. Talbot accepted a senior leadership position with a firm outside of the restaurant industry.  He will continue to serve as Potbelly’s CFO until his date of departure on March 27, 2015.  An external search for his replacement is underway.

 

Sector Performance

The XLY (+0.7%) outperformed the SPX (-0.3%) last week.  Both casual dining and quick service stocks, in aggregate, underperformed the XLY.

MONDAY MASHUP: CHUY, BOBE & MORE - 3

MONDAY MASHUP: CHUY, BOBE & MORE - 4

 

Quantitative Setup

From a quantitative perspective, the XLY remains bullish on an intermediate-term TREND duration.

MONDAY MASHUP: CHUY, BOBE & MORE - 5

 

Casual Dining Restaurants

MONDAY MASHUP: CHUY, BOBE & MORE - 6

MONDAY MASHUP: CHUY, BOBE & MORE - 7

 

Quick Service Restaurants

MONDAY MASHUP: CHUY, BOBE & MORE - 8

MONDAY MASHUP: CHUY, BOBE & MORE - 9


European Banking Monitor: Swaps Tighten, Greece Kicks the Can

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email 

 

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European Financial CDS - Swaps mostly tightened among European banks last week.  The median change was -8 bps. Greek banks led the move with tightening between -240 bps and -991 bps as further progress was made with the country's recovery plan; Germany's lower house of parliament on Friday approved the bailout extension that Eurozone finance ministers had agreed on the week before.

 

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart1 financials CDS

 

Sovereign CDS – Sovereign swaps mostly tightened over last week. Portuguese sovereign swaps tightened by -19.8% (-33 bps to 135 ) and Italian sovereign swaps widened by 15 bps to 110. Investors' sentiment was boosted by positive progress in Greece with Germany approving the four-month bailout extension.

 

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart2 sovereign CDS

 

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart3 sovereign CDS

 

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart4 sovereign CDSS

 

Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 11 bps.

 

European Banking Monitor: Swaps Tighten, Greece Kicks the Can - chart5 euribor OIS spread

 

Matthew Hedrick

Associate

 

Ben Ryan

Analyst

 

 

 

 

 


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