Video | Process: How to Weigh Probability


During this week’s Fed Day Live show, Hedgeye CEO Keith McCullough offered real-time analysis on the FOMC statement and answered subscriber questions. In this segment, Keith discusses the value of considering Frequentist factors as well as Bayesian inference and highlights the importance of flexibility and being willing to change the game plan. 

Hesham Shaaban: The Prescient Hedgeye Bear Who's Been On a Tear | $YELP $TWTR

Editor's Note: Our Internet & Media analyst Hesham Shaaban has been a bear on a tear. His contrarian calls on Twitter and Yelp are just two of many non-consensus calls he's made which have served investors very well. Here's a quick recap of why it pays to listen to what he's saying.


Related tickers: YELP, TWTR, BABA, P, WTW, EHTH


Hesham Shaaban: The Prescient Hedgeye Bear Who's Been On a Tear | $YELP $TWTR - z bear

*  *  *  *  *  *  *

Just over a year ago, Hesham explained on HedgeyeTV why he's bearish on YELP for the long term. Shares are down over -30% since.

he echoed his concerns again to Charlie Gasparino on Fox business last month. the stock is down -10% since his appearance.

Here's a cartoon. We like cartoons (and our cartoonist). A lot.

Hesham Shaaban: The Prescient Hedgeye Bear Who's Been On a Tear | $YELP $TWTR - Yelp cartoon 02.06.2015

Here's a bonus piece of unlocked research Hesham wrote on YELP articulating his BEARISH CASE. He's written a lot more. We just wanted to give you a little taste. CLICK THE WAD OF CASH TO READ IT.

Hesham Shaaban: The Prescient Hedgeye Bear Who's Been On a Tear | $YELP $TWTR - Z CASH


On a related note...

here's a screen grab of a report he sent to our customers earlier this week ... ahead of Twitter's bomb. You can click the image to enlarge. (We'd show you the whole thing, but our customers wouldn't like that and we have families to feed.)

Hesham Shaaban: The Prescient Hedgeye Bear Who's Been On a Tear | $YELP $TWTR - z twtr


Here's another cartoon. Did we mention we really like cartoons?

Hesham Shaaban: The Prescient Hedgeye Bear Who's Been On a Tear | $YELP $TWTR - twitter cartoon 04.29.2015


And last (but certainly not least)

Here's an abridged excerpt from yesterday’s Morning Newsletter written by CEO Keith McCullough discussing Hesham's myriad non-consensus calls. It's definitely worth the read. (While we're at it, it probably makes sense to shell out the dollar a day it takes to subscribe to our Morning Newsletter too.)


Excerpt from Keith McCullough's Morning Newsletter:


During yesterday’s meeting, circa 3:15PM, one of our analysts slammed his laptop and left the room in a frenzy…one of our Hesham Shaaban’s Best Short Ideas, Twitter (TWTR) was blowing up!


Fat finger on the pre-market close release. Stock down 18% in a New York minute. Halted. #Boom!


And the Hedgeyes smiled.


There’s something about building an independent think tank that prides itself in SELL ideas that gets me up in the morning. As most of you know, building a repeatable #process on the short side is not an easy thing to do. That’s why we’re doing it…


…While you can criticize Shaaban for literally never having presented a Best Long Idea (yet), he’s nailed the following names to the proverbial NHL playoff boards in the last 18 months (i.e. since we let him start publishing on his own names):


  1. Weight Watchers (WTW)
  2. eHealth (EHTH)
  3. Pandora (P)
  4. Yelp! (YELP)
  5. Alibaba (BABA)


In other words, what he really needs next is to get run-over in one of these things. Because no analyst I have ever worked with stays this good (on the short side) for this long, in an up market!


I obviously don’t want the man to get crushed. But reality is that everyone gets tagged in this business, eventually – and that’s how we all learn. But if you listen to Shaaban talk through his ideas, he’s constantly talking about not only what he doesn’t know… but what the management teams he follows don’t know either.


*****To learn more about how you can access Hesham's research ping


Takeaway: Absent corporate activity (see HOT), it appears that lodging stocks will only go up on guidance hikes


  • India economic growth in 2015 could exceed China
  • On pace to grow global system by ~8% in 2015, including 10k Delta rooms. Net of deletions, system size should grow 7%
  • Worldwide basis: MAR has 4.5% room count share
  • 100 largest markets: has 6.4% room count share
  • In largest most valuable markets, share of rooms under construction is ~16%
  • Premium RevPAR yield premium fees  
  • Signed deals with nearly 17,000 rooms in 1Q. Expect these new managed
    franchise rooms worldwide will deliver over $38 million of annual
    fee revenue in their third year of operation.
  • Estimate existing contracts have an average of 17 years remaining. The length of MAR's newest contracts average 20 to 25 years.
  • Across the U.S. financing availability continues to ease, particularly for their limited service products.
  • 1Q EPS beat: 1 cent (owned/leased line largely due to strong results in Tokyo) 2 cents of outperformance came from favorable SG&A largely timing
    related. Results partially offset by roughly $0.03 of impairment recorded on depreciation.
  • Better-than-expected incentive fees
  • In North America systemwide transient RevPAR grew 7.0% with
    room rates up 5%. Successfully reduced the volume of special
    corporate business in favor of the greater volume of higher rated
    retail business.
  • Group RevPAR at full-service hotels in North America rose more
    than 5.0% including 4.0% from higher ADR. Demand from smaller
    groups was particularly strong.
  • Systemwide RevPAR at limited service hotels in North America
    increased more than 8.0%; strength in both transient and small
    group demand  
  • Expect continued strong group and transient for North America
  • Full-service hotel group booking pace for the remainder of 2015
    is up roughly 4.0%. (tough 3Q comp)
  • International systemwide REVPAR well ahead of expectations
  • Caribbean/Latin America:  expect RevPAR will increase at a
    mid-single-digit rate with the tough comparison to last year's World
    Cup in Brazil.
  • In Asia-Pacific region, REVPAR: +6.0% with particular strength in Japan and
    India and easy comps in Thailand. 
  • Systemwide RevPAR in greater China increased modestly reflecting strong results in Shanghai; lower RevPAR in Hong Kong. Believe these Asia-Pacific trends will  continue yielding full-year RevPAR growth at a mid-single-digit rate.
  • Europe well ahead of expectations due to strong attendance at group
    events in Germany and higher leisure business in London and
    • Room nights from U.S. travel to our European hotels increased 9.0%
      in the quarter
    • Despite the strong 1Q, expect mid-single-digit growth rate for the full-year.
    • economies of France and Russia are week and central Europe comparisons get more difficult late in the year.
  • MEA: expect mid-to high single digit constant dollar RevPAR growth. Outsized gains in 3Q.
  • Incentive fees: +25% with better-than-expected results at
    Ritz-Carlton and Marriott resorts in Florida and the Caribbean. In
    addition, roughly $3 million of the higher incentive fees were
    related to the timing of incentive fee recognition at one resort and
    $2 million was related to a very strong performance and North
    America limited service hotel.
  • Worldwide 48% of MAR's managed hotels paid incentive fees in the
    quarter compared to 35% in the year ago quarter. In North America 35% of managed hotels paid incentive fees compared to 21% in
    the year ago quarter.
  • Franchise fees: +25% due to higher royalty payments associated with unit growth
  • REVPAR also helped by higher relicensing fees associated with hotel transactions. With a robust hotel resale market, MAR relicensed over 250 franchised hotels during the quarter. Typically the new agreements reflect higher royalty rates than previously and frequently include a commitment to make property improvements.
  • Owned/lease: $5m from Protea, favorable $3m impact from expired leases
  • G&A: declined due to favorable litigation resolutions partially offset by higher guarantee reserves.
  • FX impact for 2015: expect reduction in pretax income $20-25m
  • Repurchased 5.5 million shares during the quarter for approximately $431 million
  • 2Q incentive fees likely flat YoY. Continue to expect strong incentive fees limited service hotels in the quarter there likely to be offset by the impact of full-service hotel renovations and a shift in timing of fee recognition at one resort which benefited 1Q
  • FY 2015: Expect incentive fees will grow in the midteens rate
  • Owned leased and other revenue net of direct expenses should
    increase slightly year over year reflecting higher credit card  branding fees offset by lower termination fees.

Q & A

  • MAR's acquisitions:  essentially flat in 1st year and accretive in future years. 
  • Won't talk about HOT's strategic review
  • Profound differences in MAR's and HOT's recent deals
  • Courtyard on a roll and drove the incentive fee beat
  • NYC supply growth: ~5% in last 4-5 yrs
  • Blended royalty rate: 5.8%
  • More and more limited service hotels earnings incentive fees
  • Peak on limited service incentive fees: $80m (trough: $5m). Last year, they did $20m. Could see $30-35m in 2015.
  • Group bookings in 1Q 2015 for next 12 mth, rates up 6%. For the following 12 months, rates up 5.5% (room night growth of 3.5%)  
  • Inbound travel to US: +1% YoY, European visitors flattish, more business travel than leisure in Q1
  • Including HK, China REVPAR up 1.5%. Exclude HK, up 4.5%
  • 2015: Reiterate mid-single digit REVPAR growth for China. F&B ahead of that target. Will sign fewer deals in China this year. Remain pretty bullish.
  • Will not see much full-service development in Europe
  • Double-digit index gains for Autograph brand
  • MOXY rate higher than Fairfield -smaller room, lifestyle brand
  • Have been aggressive in calling out contract business from our full-service hotels e.g. airline crews. Contract business can often be at a significant discount to the average rate in the full-service hotel because of the way occupancy is moving. Could see that business gets replaced by rack business and will be pretty powerful in driving performance.  
  • FY Delta fees of $12m
  • DC: Downtown modestly negative in Q1 . Suburban modestly positive.  Q2 may be better by a couple of % points. 2016 group bookings doing well. Some growth in govt business but only 1.5% of group.

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Retail Callouts (4/30): KORS, COH, GNC, FL, TGT, AMZN

Takeaway: Debate on Men’s Accessories Rages On. GNC 1Q15 - Not Much To Like Here.


Retail Callouts (4/30): KORS, COH, GNC, FL, TGT, AMZN - 4 30 chart2





The Debate on Men’s Accessories Rages On



Takeaway: The men's accessory market has grown by a 15% CAGR over the past 2-years with the bag market up $900mm in just two years, a 35% CAGR.  That's big time growth in a segment that is just a fraction of the women's market internationally. But, when we juxtapose the big growth with the sales targets coming from brands like COH and KORS in particular, the math just doesn't add up. Each brand has a $1bil sales target on the table. With KORS saying the market would support 500 men's standalone stores. That seems aggressive. Of course, the onus is on the brands to drive a new consumption pattern, and create a market where one does not currently exist.

If we look at the two brands in isolation, KORS seems like it has more of a right to target male customers. Its share of voice and acceptance in categories like watches and ready to wear broaden the appeal and offer multiple entry points. It's not fair to say that COH's $700mm in Men's sales is all 'murses', but that says something about the company's global brand perception.

Is men's an opportunity, absolutely,  especially if it continues to put up the type of top line growth we've seen over the past two years. But, 80/20 rule, women's will still continue to move the needle.


GNC - Not Much To Like Here


Takeaway: Optically, not a great quarter from GNC. Comps were down 4.1%, a  deceleration on the 2yr trend line at the same time the FDA ratched up the heat on supplement suppliers. That's not just a Wall Street thing either, as the investigation made its media rounds in early February. GNC has since been cleared, but no doubt some damage was done. Franchise margins were down over 250bps again in the quarter as Private Label continues to lose volume share to 3rd party wholesale. We have little conviction in the stability of either the top line or margin improvement story over the trend/trade duration.

Retail Callouts (4/30): KORS, COH, GNC, FL, TGT, AMZN - 4 30 chart1





FL - Foot Locker flagship staying at Herald Square



TGT - Target board picks Ecolab CEO Doug Baker for leadership post



TGT - Report: Target tests targeted video tool



LULU - Lululemon Athletica Inc facing calls for board reform, transparency from shareholders



AMZN - Alibaba Secretly Invested In Amazon Challenger



AMZN - Amazon experiments with ad opportunities on Kindle>


KATE - Anna Kendrick Is Mistaken for Lily Tomlin's Meditation Teacher in Kate Spade's New Ad



EBAY - PayPal Brings Its Instant Checkout Service “One Touch” Across The Web



PLCE - The Children’s Place and Activists Likely Headed for a Proxy Fight



U.S. Ports See Costly Delays as Cargo Ships,Volumes Grow



Apple Watch: Faulty Taptic Engine Slows Rollout



NRF supports ‘patent troll’ legislation





  • 15 hotels had significant construction/renovations
  • 1Q portfolio grew market share
  • Transient: +4.5%, strong rate growth
  • Group:  +1% (+8.5%-association business, corporate business was flat despite tough Super Bowl comps)
  • 9% of EBITDA come from international
  • Continue to have positive view on lodging cycle
  • Do not expect 2017 suppy to accelerate meaningfully
  • Lending continues to improve. Pricing has continued to improve
  • Expect mid-teens return on investment opportunities
  • Expect to complete more acquisitions in 2015 than 2014
  • Stock repurchase program effective once they file 10Q this week
  • View stock as attractively priced
  • Replacement costs for portfolio avg $425k/key (well above current trading level of $328k/key)
  • Expect group demand to be solid for remainder of 2015. Bookings in the 1Q 2015 for 2015 was +10% (rate: +8%).  Demand for 3% in 2Q in 2015, (rate: +3.5%) resulting in rev growth of +7%.
  • 2Q Construction impact will be not as severe as in 1Q
  • Expect FX impact to be $25m for FY 2015 ($8m worse than previous prediction in February)
  • Cost-saving initiatives will raise margins higher than what was forecasted in February
  • REVPAR declines: NYC/DC/Houston/Canada
  • Boston: +6% in occu, +9.5% in ADR, +19% in F&B
  • San Francisco:   Driven by strong group (+15%) and transient demand (+12.1% REVPAR). Will continue to be a top market.
  • Phoenix: +15.8% REVPAR; group demand up 27% driven by Super Bowl, baseball spring training. Expect Phoenix to be one of the strongest in the year.
  • Asia:  +11% REVPAR (rate: +9.2%); Australia/New Zealand benefited from Cricket World Cup
  • Outperformers: Los Angeles, San Diego, Florida. Expect continued outperformance in 2Q
  • Embassy Suites Chicago renovation will be completed in May
  • NYC:  Expect positive REVPAR growth in remaining quarters
  • Strong dollar:  No impact on US visitation
  • DC:  Citywide strong for 2016/2017
  • Canada:  -21% REVPAR.  Room renovations expected to be completed in June. Meeting space to be done by August.
  • Euro JV:  strong transient offset softer group business.  Outlet revs up 2.8% offset by banquet revs decline of ~3%. 
  • Eurozone sentiment improved in April
  • Spain/Germany macro forecast raised
  • Utilities: -7.7% YoY
  • Property insuarance: -10.3 YoY

Q & A

  • Positive view on lodging cycle
  • Why Stock repurchase $500m?:  $500m is a good round number
  • Near-term opportunities:  look at Calgary contract which they had renegotiate 
  • They're also looking at international assets, single assets, and smaller deals
  • Potential asset sales:  likely be spread out.  
  • Risks on demand side, not supply side
  • Capital allocation: Could also put out $600m in form of dividend
  • Few large projects that will start later in 2015 that will have renovations in 2016. Feel 2016 renovation by $ amount will be lower than 2015 (more than 10% decrease)
  • REIT consolidation?  hard to predict in near-term
  • $25m incremental revenues will flow through in 2016 and 2017 as a result of the renovation projects
  • DC hotel renovations may be completed in May 2015
  • Looking at meaningful energy ROI project which will reduce their utility costs
  • Try to issue stock if stock price above NAV
  • Have benefited from cap rate compression
  • Trajectory of REVPAR growth by quarter in 2015:  Q4 is strongest. Expect things to improve as they work through the year.
  • Q4 will be strongest in margin growth perspective
  • US travel into Europe up 6-8% YoY in 1Q 
  • Tourists tend to book a little longer out (longer than 60-90 days). 
  • Asian travelers to US (excluding Japanese) are growing 

Keith's Macro Notebook 4/30: Euro | 10YR Yields | Russell 2000

Hedgeye Macro Analyst Darius Dale shares the top three things in CEO Keith McCullough's macro notebook this morning.

Early Look

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