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ZOES: Adding Zoe's Kitchen to Investing Ideas

Takeaway: We are adding Zoe's Kitchen (ZOES) to Investing Ideas.

Please note that we are adding Zoe's Kitchen to Investing Ideas today. We will provide an additional update in this weekend's edition of Investing Ideas.

 

ZOES: Adding Zoe's Kitchen to Investing Ideas - z5

 

According to Hedgeye CEO Keith McCullough:

 

If you have patience in this profession, it's almost uncanny how the things you think you "missed not owning enough of" have a way of mean reverting (correcting). 

 

Last week ZOES announced that CFO Jason Morgan has resigned to pursue other business opportunities.  Mr. Morgan has been at ZOES for eight years, this decision reflects his personal career choice and in the coming days and week it will be clear where he is going.  Importantly, transition to a new CFO will likely not have a material lasting impact on the company's prospects.

 

On the contrary, Mr. Morgan is a very talented restaurant executive and is leaving the company in a very strong position with a deep bench of seasoned financial executives.  Over the coming months James Besch, current Controller will lead ZOES’ financial team as the company begins a formal search for a new CFO.

 

OUR LONG TERM VIEW IS UNCHANGED - We view ZOES as one of the best small cap growth names.  The company is set-up for long-term success for the following reasons:

 

  1. Superior brand positioning
  2. Management philosophy and execution
  3. Unit opening geographic profile
  4. Early-stage average unit volumes and returns

Howard Penney remains The long-term Bull. Buy red,

KM



Behind The Scenes: Hedgeye CEO Keith McCullough On Managing Your Book

 

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GIS | Fundamentally Turning the Ship Around

Takeaway: GIS is staying on our Hedgeye Consumer Staples Best Idea list as a Long, as we look at the great possibilities FY16 will bring.

General Mills has just announced the removal of artificial colors and flavors from its cereal.

 

“We’re simply listening to consumers and these ingredients are not what people are looking for in their cereal today,” Said Jim Murphy, president of the Cereal division. The change will affect roughly 40% of GIS cereals over the next two to three years. Currently, about 60% of GIS cereals are already free of artificial sources and have been that way for years.

 

This move comes as consumers are asking for simpler ingredient decks, with less added chemicals such as Yellow 5. In most cereals you will barely be able to see a difference, but others such as Trix and Lucky Charms may have slightly different colors. 

 

We continue to love the cereal category, and think that GIS is going lead it to greener pastures. This latest innovation by GIS is a big step and they are putting a lot of effort in across the organization to make sure it is done right.  R&D is obviously leading the pack ensuring that quality and taste are not sacrificed in the process of taking out these unwanted ingredients. While marketing will be tasked with delivering the message, educating consumers about the changes and that General Mills has them at top of mind.

 

GIS | Fundamentally Turning the Ship Around - GIS Artificial color chart 1

 

GIS | Fundamentally Turning the Ship Around - GIS artificial color chart 2

 

General Mills is fundamentally turning this ship around as they continue to listen to the consumer. Management continues to impress us with their desire to adapt to the changing taste preferences of consumers. Heading into a very important FY15 Q4 announcement next Wednesday, we are confident in their ability to match consensus or possibly top it by a penny. GIS is staying on our Hedgeye Consumer Staples Best Idea list as a Long, as we look at the great possibilities FY16 will bring.


Under Armour Keeps on Winning (And Winning...) | $UA

Takeaway: Under Armour is not on a winning 'streak.' It's just flat out #winning. Again and again. Now it needs to translate that into dollars.

Just when you thought Under Armour's 2015 couldn’t get any better… 

 

Under Armour Keeps on Winning (And Winning...)  | $UA - z ua spi

 

In the same week that Stephen Curry wins an NBA title, Jordan Spieth wins the U.S. Open.  Spieth's victory marks the first time a player has won the first two majors of the year since Tiger in 2002 and the youngest to win the U.S. Open since Bobby Jones 1923. 

 

Under Armour (presciently) signed Spieth to a 10-year contract back in January, and so far the return -- at least as measured by share of voice -- has been immense. Spieth plastered the UA logo on primetime TV throughout the weekend and even managed to mention Under Armour in an interview immediately following his victory when asked if he had a 5th outfit for a playoff.

 

Shares of UA are up 1.3% today following Spieth's victory.

 

The challenge for UnderArmour at this point is whether the company can monetize these moments when its athletes are in the limelight. Historically, that's where every single brand has fallen down when playing the athlete endorsement game. It's not enough for the athlete to play, win, and advertise the logo all along the way. The company needs to use events like this to establish emotional connections between the Brand and the Consumer.

 

With Nike, we'd argue that its competitive edge in endorsements is not just a function of its huge wallet, but rather its ability to drive this emotional connection -- which clearly drives loyalty and increased sales. In fact, Nike has been known to do this even when it's athletes don't win -- or flat-out lose. This is the one area where we're waiting to see UA shine. If it succeeds in this regard, then 2H and 2016 expectations will prove far too conservative for UA.  


LEISURE LETTER (6/22/2015)

TICKERS: PENN, CZR, HOT, ALL.AX, CCL

EVENTS

  • June 23 - CCL Q2 2015 earnings 10am  
  • June 24 - PENN Opening of Plainridge Park Casino
  • June 25 - AC tax bill 

COMPANY NEWS    

Aristocrat - Aristocrat won a contract to deploy its entire Oasis 360™ solution that includes its full Casino Management System, Professional Services, SpeedMedia™, Oasis ONE LINK™ (bonusing, progressives and poker frenzy), Table Management System and Oasis HALO™ Loyalty (core software, kiosks, mobile app and promotions), subject to regulatory approvals at the Scarlet Pearl Casino Resort in D'Iberville, MS, which is set to open December 2015.

 

Louis XIII - The US$1.1 billion Louis XIII casino-resort is due to open in the middle of next year. “The superstructure was topped out in early June 2015 and excavation of the basement has been completed. Approximately 89% of all construction works have been tendered,” the company said.

ARTICLE HERE

Takeaway: Will Louis XIII get the tables they need?

 

CZR - Omega Advisors liquidated its entire stake of CZR, (roughly 5.1% of the float), according to their 13-G filing last week. 

ARTICLE HERE

 

HOT - The Luxury Collection® announced, in coordination with its owner partners, a $300 million effort to expand and improve its hotel portfolio in North America. The Luxury Collection is investing in marquee hotel conversions and landmark renovations in diverse U.S. destinations, including Key West, Lake Tahoe, San Antonio and San Francisco, as it continues to grow around the world. A milestone year for the brand, The Luxury Collection is on track to surpass 100 hotels in more than 30 countries by the end of 2015. 

 

“Domestic demand for luxury travel is at pre-recession levels, which makes this an excellent time to invest in The Luxury Collection hotels in the U.S.,” said Hoyt H. Harper II, Global Brand Leader, The Luxury Collection Hotels & Resorts. “Additionally, we continue to see increasing demand from owners of independent luxury hotels who find tremendous value in partnering with Starwood to take advantage of our powerful distribution, loyalty and sales platforms. We expect this to be a period of significant growth for The Luxury Collection both in the U.S. and abroad as we sharpen the brand and drive profound consumer awareness around the world.” 

 

CCL - After initially adding faster internet speeds and less expensive packages on three of its ships, CCL has made the offerings available on nine additional vessels, with plans to include the majority of its fleet by October. 

  • Better web access has rolled out on Carnival Freedom, Carnival Breeze, Carnival Sunshine, Carnival Ecstasy, Carnival Sensation, Carnival Paradise, Carnival Fascination, Carnival Victory, Carnival Elation, Carnival Pride, Carnival Imagination and Carnival Inspiration.
  • Included on the list of new, notably cheaper connectivity packages are a $5 per-day package that allows you to connect to social media, such as Facebook, Twitter and Instagram; this choice does not allow access to the entire internet.
  • Meanwhile, AIDA introduced flat-rate Internet plans.  For social media, passengers can access popular sites for 4 euro per day, or 19 euros per week, including Facebook, Twitter, Instagram and WhatsApp.

ARTICLE HERE 

Takeaway: We believe more and more cruise brands will have to upgrade their internet network and offerings to remain competitive.

 

MSC - MSC Cruises, which is coming back to the United States when MSC Divina returns to Miami in November, is aiming to carve out a niche in the market rather than become a major player, according to its CEO. CEO Gianni Onorato said the line was looking to carry "a couple of hundred thousand" passengers across two Miami-based ships -- MSC Divina and new ship MSC Seaside -- by 2017/2018.

 

He acknowledged that the company needed to change its philosophy to succeed with Americans on its second push into the country. "We need to get there with a different proposal," Onorato said. "And we will be doing that by improving the brand, investing in the organization and investing in the product." 

When asked, Onorato said MSC was considering basing a ship out of New York "before 2022" -- when the last of the line's newbuilds are complete.

ARTICLE HERE 

INDUSTRY NEWS

China - China arrests 14 South Koreans for allegedly luring Chinese gamblers to foreigners-only casinos in South Korea, a South Korean official said Friday. Among the arrested are employees from Grand Korea Leisure Co. and Paradise Co., South Korea's top 2 casino operators, and workers at travel agencies in China, according to the official.

 

In February, China’s Ministry of Public Security Deputy Director Hua Jingfeng announced that authorities would pursue and prosecute operators from other countries who had “set up offices in China to attract and drum up interest from Chinese citizens to go abroad and gamble." 

ARTICLE HERE

ARTICLE HERE

Takeaway: This also serves as a warning to other Asian countries (South Korea, Laos, Myanmar, Cambodia, Malaysia, Vietnam, Philippines, and Malaysia) regarding marketing Chinese citizens to gamble. 

 

Hainan Island Typhoon - The first typhoon of the year to hit China was expected to make landfall on or near the southern island of Hainan on Monday.

ARTICLE HERE

 

Vietnam - Vietnam’s Prime Minister, Nguyen Tan Dung, has approved a new location for a proposed casino resort on Phu Quoc Island off mainland Vietnam’s Kien Giang province. The site to be pitched to investors will be at Bai Dai Ecotourism Area in Ganh Dau Commune on the island instead of Bai Thom Commune. Vietnamnet in April reported that no foreign investor had been found for the originally proposed site.

 

The complex proposed for the new site is expected to have 3,000-rooms worth of luxury hotel space, a conference center and a casino with 200 to 400 live tables and 2,000 gaming machines.

ARTICLE HERE

 

Iowa - The Iowa Lottery is seeing big benefits from a special scratch ticket it launched to commemorate the organization’s 30th anniversary. The ticket called “30 Somethings” hit $3.1 million in sales in its first 5 months. Iowa Lottery CEO Terry Rich, says that’s the hottest start ever for a new scratch ticket.

ARTICLE HERE

MACRO

Hedgeye Macro Team remains negative on Europe 

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


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