Steiner makes a strategic acquisition of Bliss from HOT



Here are the points from the just ended STNR conference call discussing the Bliss acquisition:

  • WIll help STNR growth their land-based spa and retail presence
  • Will allow them to cross market Bliss & Elemis brands
  • 7 licensed locations; 3 operated locations
  • 175 distribution outlets in the US and 110 distribution outlets internationally
  • Hope to close by year end
  • Bliss is more of an urban brand, so it's complementary to their "resort" presence
  • They cannot take the brand to non-Starwood hotels, but can take Bliss into their cruise ship channel and to stand-alone spas
  • Bliss South Beach and Hollywood, completed by year end
  • They can manage the spas at Starwood hotels, or Starwood can lease the spa's from them going forward
  • Think it will be $0.05 to $0.10 accretive in 2010, hope that they can use their NOL's that they have in the US
  • Not a competitive bid process
  • They will keep most of the Bliss team in house
  • Easy plug in brand for them
  • Cost/Revenue synergies baked into the accretion guidance?
    • Fairly minimal
    • Already started the IT and HR integration
  • Bliss: $85MM of TTM revenues and $5.3MM of TTM EBITDA (net of charges)
    • Distribution 28%, spa revenue 50%, direct retail 22%
    • Bliss margins (within 4 walls) are a little better then STNR's - especially in the way in which they manage their bookings
  • What about normalized EBITDA?
    • No comment, but normalized margins are more like low teens than 6% TTM
  • Will all the W hotels in Starwood's pipeline have a BLISS spa?
    • No
  • Aloft hotels also have Bliss products
  • Bliss customers are a little younger then the Elemis customers
  • Price positioning that allows them to take the product to cruise ships

Fed Hike?

The Prices Paid component of today’s ISM Manufacturing report came in at an inflated 65 versus last month’s elevated reading of 63.5.


We’ve been showing the sequential ramp in the chart below since deflation bottomed in July. This is not a deflation chart.


This is one of the many real-time price indicators that the Fed has been paid to be willfully blind to. Does this mean Bernanke will signal a rate hike on Wednesday? We doubt it. It’s sad, but it is what it is in our conflicted and politicized financial system.



Keith R. McCullough
Chief Executive Officer


Fed Hike? - ISM


Chart of The Week: Volatility Party

Any time we see a breakout above an intermediate term TREND line, its bullish. In this case, for US Equities at least, a TREND line breakout in the VIX is also bearish.


In the chart below, Matt Hedrick and I have outlined the context of what a +38% weekly spike in Volatility looks like. You will note that the VIX is now trading in what we call no man’s land – in between the long term TAIL (36.59) and the intermediate term TREND (24.93).


What’s most interesting about this chart is that since stocks put in their bottom in Q1, a range of 25-35 for the VIX is actually normal.


Provided that the US Government continues to sponsor ZERO percent free money policies and the blowing up and popping of price balloons, I see no reason why this New Reality of a Volatility Party shouldn’t remain.



Keith R. McCullough
Chief Executive Officer


Chart of The Week: Volatility Party - VOL11 2

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The Client is Roaring

Position: Long the Chinese Yuan via etf CYB


“China has been the primary beneficiary of globalization and it has been largely insulated from the financial crisis.” –George Soros, October 30th, 2009


The Chinese Minister of Industry is on the tape this morning suggesting that China’s industrial production could grow 16% in Q4 on a year-over-year basis.  If these numbers are reached, China will see accelerating sequential and year-over-year growth.  In 2008, Chinese industrial output rose 12.9% from 2007.   In 2009 to date, through three quarters, Chinese industrial production is up 8.7%, with acceleration of 13.9% in September year-over-year.  No matter how these numbers are sliced, they are monsters.


In addition, according to both a government sponsored purchasing managers index survey and a HSBC sponsored release over the last couple of days, manufacturing expanded in China at the fastest pace in 18-months.  The Chinese government reported that its purchasing managers index rose to 55.2 in October, which was a full point above September and the eight straight month of gains. 


Clearly, the Chinese economy is accelerating, which is both a function of the recovery of the global economy and the impact of internal Chinese stimulus.  In contrast to Soros’ point above, China did see an economic deceleration this year, though obviously a slowing of double digit GDP growth to high single digit GDP growth is still a favorable outcome.  In support of Soros’ point though, China saw a continued large scale expansion this year when most, if not all, major economies were shrinking.  In the share game of global GDP, the Client has taken her share year-to-date.


In the simple table below, I’ve outlined the reported GDP’s of the globe’s three largest economies this year:


The Client is Roaring - image001


While Soros’ point may be a bit off as China did experience a deceleration  in GDP this year, China clearly has been much more insulated from the financial crisis and has taken serious share in the global economy in 2009.  Recent data points and comments from the government, as outlined above, only support this trend.  The Client continues to ROAR.


Daryl G. Jones
Managing Director 


Earlier today Starwood announced that it sold its Bliss business... what does this mean for the company?



HOT announced that it signed an agreement to sell the Bliss spa business to Steiner Leisure (STNR) for $100MM.  The sales price was almost 4x the initial purchase price (we don't know how much money was invested in growing the business post-acquisition).  Starwood acquired a 95% interest in Bliss in January 2004 for $25MM.  At the time, Bliss operated three stand alone spas (two in New York and one in London) and a beauty products business with distribution through its own internet site and catalogue as well as through third party retail stores. In 2005, HOT acquired the remaining 5% interest for approximately $1MM.


The sales multiple was not disclosed but we're pretty sure it's dilutive, given the lower multiple typically awarded this business and the low interest rate environment.  STNR, which trades at 10x 2009E EBITDA and 15.5x 2009 EPS noted that the acquisition would be slightly accretive to 2010 earnings.  Our guess is that Bliss's EBITDA is in the $8-9MM range.  Bliss revenues are included in "Management fees, franchise fees and other income" line of the income statement and in the "Other" line in the supplemental fee schedule or as the footnote says:  Amount includes revenues from the Company's Bliss spa and product business and other miscellaneous revenue.


From 2005-2008, "Other" fees were $134-140MM. We would guess that the majority of these revenues or "fees" are Bliss related.  Costs and expenses from Bliss products and spas are lumped into SG&A.  As we've been writing about for sometime, a lot of the fee income HOT reports really isn't fee income at all.  This transaction is a demonstration of that. On the bright side, SG&A should come down in 2010 if the recent costs cuts are indeed "permanent" since there should be a decent amount of Bliss-related expense exiting the SG&A line.


The recent improvements in eating out trends do not appear sustainable.  I would say the same holds true for year-to-date restaurant stock price performance.


The following two charts, which look at Personal Consumption Expenditure trends and the spread between consumers eating out versus at home, point again to the fact that restaurant stocks have gotten ahead of themselves in 2009.   The first chart highlights that, yes, eating out trends took a significant turn for the better in early 2009, but the latest PCE data point shows it may only be a short-term lift as eating at home growth again trumped eating out growth in September. 


The second chart shows that although eating out trends did rebound somewhat in 2009, the underlying strength of eating out trends remained strained because on a 2-year average growth basis, meals purchased for off-premise consumption growth continued to outpace eating out growth since October 2007. 


These two charts together show that the consumer has not yet recovered and restaurants are not yet out of the woods.  Restaurants stocks, on average, however, are up more than 70% year-to-date.  I pointed out in late August that many of the industry tailwinds that acted as catalysts for restaurant stock appreciation in late November 2008 would soon become industry headwinds (please refer to my 8/21/2009 post titled “Casual Dining – Now and Then” for more details).  Looking back, I was early on this call, but I continue to believe there is more near-term risk than reward for these names as restaurant demand will continue to come under increased pressure until people stop losing their jobs.  Margins cannot continue to grow with revenues falling.  And, easy comparisons in this environment will prove to be meaningless in 4Q09. 


RESTAURANTS – MARKET SHARE LOSERS? - PCE eating out vs eating in



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