LEISURE LETTER (03/16/2015)



  • March 16-19: Cruise Shipping Miami Conference
  • March 19: Galaxy FY 2014 results
    • (), Passcode: 712943


LVS - The St. Regis Macao, expected to open during the third quarter of this year at Sands Cotai Central, is looking to recruit 700 employees. The luxury hotel brand held its first job fair in Macau on Friday. The St. Regis will offer 400 guest rooms and suites, as well as dining venues. 


Takeaway: St. Regis is expected to open Aug 1, 2015.


IGT - High 5 Games is suing IGT alleging breach of contract, trademark infringement and unfair competition stemming from their 2012 licensing agreement. The suit alleges that IGT failed to pay royalties on 81 games that use High 5 content, including features like super stacks, tumbling reels and split symbols.


RCL - Could Ovation of the Class be sailing to China?


LEISURE LETTER (03/16/2015) - rcl  ovation


Takeaway: Two Quantum class ships in China would prove RCL's short-term and long-term commitment to that risky but potentially lucrative market opportunity. 


CCL - Agents have given a resounding thumbs-up to P&O’s newest ship Britannia, with some suggesting it could help the line attract a new clientele.  

  • Phil Evans, managing director of Cruise Nation: “I think it’s also going to appeal to a slightly younger audience that P&O tends to attract. They usually tend to get people in their late 50s, but I think this will appeal to people in their 40s."
    • “I do think Anthem will be perhaps be more family orientated, but the staff at my agency have all said that they feel this signals a new era for cruising for P&O.”
  • Ann Anglesea, managing director of Delmar World in Wrexham: “The size of the ship was noticeable – [at 3,647 passengers] it’s a much bigger ship than we’ve been used to.
    • “It is beautiful, but the ambience of a ship depends on the clients that you have onboard, and I wonder if P&O will be reaching out to a different market share than they have previously had.
    • “I think P&O have got it right. The Retreat area looked exceedingly nice, and the specialty dining will appeal to higher end customers, but the prices are competitive in the market place. Whether there’s enough in the market to fill it though will remain to be seen.”


Takeaway: More praise for Britannia. Attracting a new clientele is a stretch. We are concerned about pricing power for the older ships as the Southampton cruise supply revs up.





Super anti-graft bureau - China is preparing to establish a ‘super’ anti-graft bureau that will investigate high-ranking officials suspected of corruption, Procurator-General Cao Jianming said. The plan for the bureau has already been approved by the central government, said Cao, who heads the country’s Supreme People’s Procuratorate. The new bureau will be staffed by several dozen experienced senior prosecutors and will strengthen the Supreme People’s Procuratorate’s anti-corruption capacities.


Proxy-betting - proxy betting in Manila could "represent as much as 50%of VIP revenue in Manila, versus 5%-10% to in Macau.” (Morgan Stanley).


Takeaway: We have also confirmed Suncity adding junket rooms in Solaire and CoD Manila later this year. This is good news for CoD Manila. We will be getting additional color on the Philippines market later in the month.


Jeju Air-  the leading South Korean budget airline is targeting Chinese gamblers deserting Macau due to the crackdown on corruption initiated by the People’s Republic of China Government, the company’s Chief Financial Officer, Kim Tae Yoon, said. In order to attract Chinese tourists the company is offering popular liquor and cosmetics onboard to lure Mainlanders to Jeju Island, where the company is based. The South Korean island has seven casinos where only foreigners are permitted to gamble.



Cyclone Pam - Several cruise ships have been forced to alter South Pacific

itineraries to avoid category 5 Cyclone Pam which has devastated the island nation of Vanuatu. Cunard’s Queen Elizabeth and Queen Victoria and P&O Cruises’ Aurora, all on world cruises, have had itineraries altered in the region. Holland America Line’s Oosterdam was forced to miss a call into Port Vila in Vanuatu on Friday and instead spent a day at sea to avoid the weather front. 

Other companies forced into making itinerary changes include Carnival Cruise Lines, Celebrity Cruises, P&O Cruises Australia and Royal Caribbean International.





Singaporre private home sales - was nearly halved in February from a year earlier. Developers sold 382 units last month, compared with 739 units in February 2014, according to data compiled by the Urban Redevelopment Authority.


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.

Keith's Macro Notebook 3/16: China | Europe | Oil


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


Takeaway: Easiest comps drives a better week.


There was some improvement this week from last due to a much easier comparison.  DTR of HK$691 fell “only” 22% YoY but the comp was the weakest of the month (-7%).  We still believe the trend is lower and while consensus GGR forecasts have dropped dramatically, EBITDA estimates remain much too high in our opinion. We fear the Street is missing the recent downturn in the grind mass which carries the highest margins of any segment.


Please see our detailed note:

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Link to Report: SHAK: NYC Is Not The Center Of The Universe

  • We are adding SHAK to the Hedgeye Best Ideas list as a SHORT.
  • The market is valuing SHAK at $27 million per system-wide store versus the average store generating approximately $3.5 million in revenues.  This compares to CMG, which trades at $11.2 million per store.  If SHAK can execute at a CMG level and grow into that valuation, it would trade at around $20 per share.
  • Clink the link below to read more about our SHORT thesis.

YELP: Salesforce Productivity?

Takeaway: "Rookies" aren't problem, as YELP suggested at a sell-side event last week. Declining salesforce productivity is likely a secular issue.


  1. SALES REP CHURN MAY HAVE ACCELERATED: Management attributed its declining salesforce productivity to a higher percentage of sales rep “rookies” , which YELP defines as reps hired 6-9 months ago.  A higher percentage of rookies on decelerating sales rep growth suggests elevated churn (at least in 4Q14).
  2. IT REALLY WASN’T THE ROOKIES: If it takes 6-9 month for a sales rep to ramp as management suggests, then we should have seen a 2H14 acceleration in new account growth from its 1H14 acceleration in sales rep hiring.  Unless salesforce attrition was elevated throughout 2014 (which would be a much bigger issue), then rookies can't explain the decline salesforce productivity that occurred throughout all of 2014.  We suspect the bigger issue is Point 3 below.
  3. PRODUCTIVITY LIKELY IN SECULAR DECLINE: YELP’s salesforce (telesales) is already large enough to canvas its entire addressable market in call volume.  Hiring more and more reps to call on the same number of clients is essentially the definition of declining salesforce productivity; only leads to higher call volume for existing prospects.  It also means that YELP's "rookie" problem could become a growing issue from escalating salesforce churn (too many mouths to feed).



Management attributed its declining salesforce productivity to a higher percentage of sales rep “rookies”, which YELP defines as reps hired 6-9 months ago.  We’re not sure what period management’s comments are pointing to (4Q14, or all of 2014), but we estimate productivity has been on the decline throughout 2014.


YELP: Salesforce Productivity? - YELP   New Acct vs. Sales 4Q14 2 


We suspect the more important takeaway is what that means for sales rep retention.  The only way YELP would have a higher percentage of rookies is if its salesforce was growing at an accelerating rate, which wasn’t the case in 2H14 (reps hired in 1H aren’t considered rookies anymore).  That said, it’s likely that YELP's sales rep attrition picked up in 4Q14, potentially 3Q14 as well.



Management suggests that it takes 6-9 month for a sales rep to fully ramp.  If that is the case, then we should have seen a 2H14 acceleration in new account growth following its 1H14 acceleration in sales rep hiring.  In the chart below, we’re comparing YELP’s new account growth against its growth in sales headcount on both a direct and leading basis (e.g. 2Q lead is showing headcount growth from 1Q14 in 3Q14, 2Q14 in 4Q14). 


YELP: Salesforce Productivity? - YELP   New Acct vs. Sales 4Q14 lead


Another explanation could be that YELP did experience a heightened level of sales rep attrition at some point in 2014.  But unless that occurred throughout all of 2014 (which would be a much bigger issue), it couldn't explain the decline in salesforce productivity that occurred throughout all of 2014.  Either way, it doesn't change the fact that YELP hasn’t been able to generate new account growth in excess of the rate that it’s hearing sales reps at any point in 2014. 


If there was ever an admission that YELP’s TAM isn’t large enough to support its model, it would be this persistent decline in salesforce productivity (see note below for our TAM analysis).


YELP: Debating TAM

06/30/14 01:10 PM EDT

[click here]



Hiring more and more reps to call on the same number of clients is essentially the definition of declining salesforce productivity.  YELP’s salesforce (telesales) is already large enough to canvas its entire addressable market in call volume. 


We illustrate this point in the two tables below, which we are flexing by total sales reps and required daily call volume (note: the recurring theme from employer reviews at suggests the salesforce is required to make at least 80 calls a day).


In the first table below, we’re calculating how long it would take YELP's salesforce to call all 14.4M B2C business in the US (see TAM note above).  Based on YELP’s ~1,500 reps making 80 calls daily, YELP’s salesforce could call every B2C business in the US within 120 days.  YELP guided to growing its salesforce by 40% (to 2,100), which will only shrink that window to 86 days.


YELP: Salesforce Productivity? - YELP   B2C call volume


However, we suspect the primary focus of YELP's salesforce is the 2.0M businesses that have claimed a page on their site (since 2008).  YELP probably doesn’t have the current contact info for all 14.4M B2C businesses in the US (YELP licenses business lists from third-parties).  Repeating our analysis above for claimed businesses, the call window shrinks to 12 from 17 days.


YELP: Salesforce Productivity? - YELP   Claimed call volume


In short, adding more and more reps just means increasing call frequency, which naturally has a waning benefit.  We suspect this is the reason why salesforce productivity is on the decline, and why we believe the issue is secular.  We also suspect this will exacerbate YELP's "rookie" problem in the form of escalating salesforce churn (i.e. too many mouths to feed).   



Let us know if you have any questions, or would like to discuss in more detail.


Hesham Shaaban, CFA



LULU Black Book - Fish Or Cut Bait

Takeaway: Please join us 3/24 at 11am ET. We'll walk through the global oppty and survey results to nail down whether to fish or cut bait on LULU.

We’ll be issuing our next Black Book on Lululemon on Tuesday March 24th and will be hosting a call at 11:00 am ET to review our findings.


When we added the name to our Best Ideas list as a Long on June 15 of last year, the decision tree was simple – the Board and ownership structure was near certain to be shaken up, CFO John Currie likely to be pushed out, LULU’s brand perception by consumers (per our survey) had found a bottom, there was a big call option on an LBO, and the Street was capitulating after the stock lost 50% in the preceeding six months.


But today, after a 65% move in nine months (vs 7% for the market and 16% for the XRT) the call needs to be radically different. Simply put, now you’ve really got to believe that this brand has a lot more than staying power. It has to have both the opportunity and the operating plan to back it up. With new CFO Stuart Haselden only being on the job for five weeks, it’s unrealistic to expect him to have made any impact on the operating plan. But the brand opportunity is something we’ve always questioned (at $37, it just didn’t matter).


With that as a backdrop, the crux of this Black Book will be the global opportunity for LULU. In the past we’ve conducted consumer surveys to gauge brand health, but they have beel largely US-centric. This time, our survey looks at competitive positioning in several key markets for LULU, including the US, Canada, the UK, Australia and China. As we’ve learned with other athletic brands, there are dramatic differences in brand perception with even slight changes in geography. That means a different competitive set, and the need for appropriate branding, marketing, and pricing.  We aim to address these factors in our report.


Key Topics Will Include…

1) What is LULU’s addressable market? The sportswear market in the US is a $58 billion industry, but just how much of that market does LULU participate in given its restrictive price points and foundations in Yoga wear. The brand has roots in running and created its own niche in the lifestyle/everyday category. We’ll quantify the market potential based on demographic spending patterns in each country not only today, but 5yrs from now.

2) What’s the market opportunity in the US? LULU currently has 201 stores on its way to 300 in the US. To understand the opportunity of future store growth we need to first understand the demand characteristics of a) the specific local markets where the brand already operates and b) potential un-tapped markets. We’ll then be able to estimate the market share in order to keep productivity rates at current levels.

3) Competition. Yoga wear has become ubiquitous in the marketplace. How does that look on a market by market basis?

4) International. We surveyed consumers across 5 different countries (Canada, US, Australia, the UK, and China) to gauge awareness, athletic participation rates, and purchase history. Each region is at a very distinct point in its developmental life-cycle. We’ll look at the differences by region to gauge LULU’s opportunity as it kicks off its International expansion.

5) Infrastructure. Historically this has been LULU’s Achilles heel. We think that’s primarily due to the weak finance culture within the organization overseen by ex-CFO John Currie. That changes now with Advent/ Michael Casey hire, Stuart Haselden, taking the reins. We will dissect the company’s infrastructure needs in both the US and Internationally as the company builds from $2bil in revenue to $4bil. More importantly, we’ll quantify the capital needed and subsequent margin implications in order to support that type of top-line growth.


Call Details

Dial-In Number: 

Toll Free Number:

Conference Password: 13604247

Materials: Link will be provided prior to call

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