Tickers: RCL, CCL
Macau Legend- Macau Legend Development Ltd’s CEO, David Chow Kam Fai, expects the adjustment in Macau’s gaming market to last for two more years. Chow said Macau’s gaming industry has enough money to see it through the slump in business. Chow failed to answer directly when asked if the government was going to give his company its own gaming licence.
Takeaway: A bearish outlook from David Chow
Genting Singapore- repurchased 5.989 million shares totaling US$4 million, bringing its repurchases to more than 11 million shares. Genting Singapore has said it will repurchase up to 1.224 billion of its 12.084 billion shares.
Takeaway: It will be a busy time for the UK in 2016. Will higher supply affect pricing?
CCL - CEO Arnold Donald has admitted the way the company cut commission in the UK in 2011 was executed poorly. But he suggested agents put customer service above earning potential when booking first-time cruisers.
Donald said the remuneration cuts to 5% were an “honest attempt” to respond to discounting but he conceded the lines, which include P&O Cruises and Cunard, hadn’t got it right.
He said the commission cuts were an attempt to help the trade eradicate discounting but the move had backfired. Now, he added, he was keen to build ties for the future to ensure the success of agents’ businesses and that of the Carnival Corporation brands.
Beijing- The Chinese Security Ministry has continued its hardened stance against corruption in Macau, by warning mainland officials and Chinese business leaders that they would be monitored if they visited Macau gambling enterprises.
The hardened approach to Macau casino enterprises is part of President Xi Jinping’s wider ongoing effort to curve Chinese corruption through the ‘Tigers & Flies’ special taskforce. Xi Jinping wants officials to lead the fight by shunning away from practices associated with corruption (in particular money laundering) such as gambling,
To its financial detriment, Macau has suffered from the Security Ministry’s anti-corruption measures. Asian news sources have reported that the Ministry has the authority to carry background checks on all national gamblers visiting Macau casinos.
Takeaway: A followup to Li Gang's comments earlier in the week.
Las Vegas - Visitors to Las Vegas last year spent an estimated $723 each. Spending per visitor is also up by $33 compared to 2013 with convention-goers spending more than leisure travelers. Jeremy Aguero with Applied Analysis says 2014 represented the highest visitor spending the destination has ever seen on everything but gambling.
China February new yuan loans CNY1.02T vs consensus CNY700B and CNY1.47T in January
Takeaway: A surprisingly positive loan data point. It may alleviate some pressure from the Central government to push for more stimulus.
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.
Takeaway: This quarter should be as good as it gets for HIBB. Don’t get used to it.
We think that HIBB is one of the most structurally challenged retailers out there. But we’re definitely not counting on the company showing its true colors with the print this Friday. This quarter is literally as good as it can get for HIBB. 1) Wal-Mart, from which HIBB draws traffic in its core market, just printed the first positive traffic comp in nine quarters. 2) Athletic retailers like Dick’s and Foot Locker both printed solid comps in the last two weeks (DKS +3.4%, and FL +10%). 3) HIBB went against its second-easiest comp in over five years in the month of January. All-in, the comp for 4Q14 will more likely than not come in ahead of the Street’s 3.2% expectation. Somewhere in the mid-single digits is more likely, with EPS closer to the low $0.70s vs. the Street at $0.68.
So…what does this mean? It means that HIBB is our least favorite type of call. The kind where we say it’s a short, but where estimates in the upcoming quarter are too low. When we hear someone make that kind of pitch, it usually ends up being a really lousy call.
So how and why can we stick with a short call on a name in the face of a likely positive event? A few reasons...
1) Smoking Required. HIBB absolutely positively has to smoke this quarter due to factors above (see charts below). Again, the climate has never been more favorable for a retailer like HIBB. The stock is up 10% relative to the market over the past month. If it does NOT smoke numbers, then it spells big trouble for this company.
2) e-Commerce Hit Inevitable. It’s no secret the company needs to install an e-commerce platform. It should be very expensive – costing 3-5 points in margin over 12-18 months before a dollar in dot.com revenue is recognized. Will HIBB announce that initiative on Friday? We don’t know. It will be some time this year. They’re just prolonging the inevitable.
3) Huge Estimate Gap. The gap in margin between our estimates and the Street’s are simply colossal. This year, we’re 7% below. That’s not huge. But in ’16 we’re at $2.06 vs the Street at $3.33. By the time we get to year 5 of our model, we have HIBB earning $1.35 vs the Street at $4.74. The point here is that if we’re calling for estimates to come down next year by nearly 40%, we’re hardly going to be spooked by a few pennies on the upside.
WMT Traffic – Key For HIBB Comp – Positive For The First Time In Nine Quarters
FL Comp Trends Are Off The Chart. Not Identical Businesses, But Close Enough.
Ditto For DKS – Though Less Positive Than FL. Comp Driven By e-Comm (which HIBB does not have), Brick&Mortar Down
HIBB Monthly Comp Trend Shows The This Quarter Goes Against Second Easiest Comp In Over 5-Years
HIBB – Hedgeye Financial Summary
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.
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Takeaway: Stocks are down a lot but still at July 2013 levels – a time when estimates were higher, the outlook brighter and risks greater.
CALL TO ACTION
It’s been a year since we made the first call of our three pronged short call and we remain bearish on Macau stocks. Yes, the sell side has caught up and most analysts are bearish. While the stocks have fallen a lot, they have only reached July 2013 levels. We’ve made the bear case in many ways over the past year but the purpose of this note is to show that there is downside precedent. In July of 2013, 2015 Street EBITDA estimates were much higher than they are now and the short, intermediate, and long term growth forecast was much greater.
Please see our detailed note:
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