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Retail Callouts (6/23): MSO/SQBG Deal, Chain Store Sales Decelerating

Takeaway: Head Scratching Offer for MSO. Retail Sales Decelerate as Summer Compares Get Tougher.

SQBG, MSO - Head Scratching Offer for Martha Stewart Living by Sequential Brands

(http://phx.corporate-ir.net/phoenix.zhtml?c=96022&p=irol-newsArticle&ID=2061377)

Takeaway: At these multiples, 3.3x 2015E EV/Sales and 24x 2015E EV/EBITDA, we're scratching our heads trying to figure out what Sequential Brands thinks its buying. What we see is a company almost 100% dependent on the legacy of a soon to be 74 year old founder and media personality that has been permanently damaged, at least in the eyes of potential licensing partners after the whole M/JCP debacle. The thinking at SQBG has to be that it can layer MSO on to its existing platform, use the brand name to generate royalty revenue, and generate enough cash flow to justify the deal price. But there is serious key employee risk associated with this deal not to mention the fact that the Martha brand name is less relevant than it was five years ago, but far more relevant than it is likely to be in 2020.

 

Retail Sales Decelerate in Week 1 of Difficult 15-Week Summer Comps Stretch

Takeaway: On a 2yr, basis sales accelerated sequentially against a 4.1% reading last year. But, on a 1yr sequential basis there was a meaningful 40bps deceleration equating to the lowest growth rate we've seen in 2015 YTD. And we'd expect more of the same as weekly sales growth rates come under added pressure through September as we comp against a solid Summer of 2014.

Retail Callouts (6/23): MSO/SQBG Deal,  Chain Store Sales Decelerating - 6 23 chart1

Retail Callouts (6/23): MSO/SQBG Deal,  Chain Store Sales Decelerating - 6 23 chart2

 

 

OTHER NEWS

 

M - Macy’s, Inc. to Redeem 8.125% Senior Notes Due 2035

(http://investors.macysinc.com/phoenix.zhtml?c=84477&p=irol-newsArticle&ID=2061461)

 

FL - FootLocker launches video promotion with Under Armour, NBA

(http://www.chainstoreage.com/article/footlocker-launches-video-promotion-under-armour-nba)

 

W - Wayfair plays a different marketing tune

(http://www.retailingtoday.com/article/wayfair-plays-different-marketing-tune)

 

NKE - Nike Ad Salutes Cleveland Fans Despite NBA Championship Loss

(http://footwearnews.com/2015/business/marketing/lebron-james-nike-cleveland-cavaliers-38169/)

 

Alibaba Sells 11 Main

(http://www.wsj.com/articles/alibaba-sells-u-s-subsidiary-11-main-to-opensky-1435027883)

 

MERS Outbreak Hits South Korean Retail

(http://wwd.com/retail-news/trends-analysis/mers-outbreak-hits-south-korean-retail-10162130/)


Sorry Macro Tourists, Real GDP Growth Will Be Less Than You Think

It's a good thing Durable Goods New Orders growth is plunging and the "recovery" in Capital Goods New Orders petered out.

 

Take a look.

 

Sorry Macro Tourists, Real GDP Growth Will Be Less Than You Think - z durable goods

 

Sorry Macro Tourists, Real GDP Growth Will Be Less Than You Think - z capital goods

 

We reiterate our call for the underlying pace of U.S. real GDP growth to slow throughout the balance of the year.

 

Don't be a lazy macro tourist and get sucked into volatile, increasingly useless QoQ SAAR noise. Real GDP growth will be 2% or less in 2015.

 

Sorry Macro Tourists, Real GDP Growth Will Be Less Than You Think -  DemographicYields GDP Surveys

 

Sorry Macro Tourists, Real GDP Growth Will Be Less Than You Think - Bloomberg Consensus GDP Estimate

 

More on this subject... 

Sorry Macro Tourists, Real GDP Growth Will Be Less Than You Think - green


REPLAY | New Best Short Idea Overview with Healthcare Sector Head Tom Tobin

 

Hedgeye Healthcare Sector Head Tom Tobin and Analyst Andrew Freedman hosted a live Q&A segment today to discuss one of their newest Best Ideas: Short $CPSI.

 

In addition, they shared the latest updates to their maternity tracker and implications for related stocks, including $HCA and $MD.


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CHART OF THE DAY: The Canadian Housing Bubble

Editor's Note: Below is a chart and brief excerpt from today's Morning Newsletter written by Hedgeye Director of Research Daryl Jones. Click here to become a subscriber. 

 

For those that follow global residential real estate markets, you probably didn’t have to get up that early to recognize that Canada’s housing market is solidly in bubble territory.   My colleague Josh Steiner pulled together a 130+ page deck last week that went through his short call on the major Canadian banks.  A key component of his thesis was based on the housing market and indebtedness of the consumer, specifically...

 

Click to enlarge

CHART OF THE DAY: The Canadian Housing Bubble - COD


Cock-A-Doodle-Doo

“Be willing to be a beginner every single morning.”

-Meister Eckhart

 

As most of you already know, we are early risers here at Hedgeye.  For better or worse, that’s how it goes when you aren’t the smartest hombres in the stock market operating business.   If you want to stay ahead of the competition, you have to get up earlier and out work them. (Or so we hope!)

 

Lucky for us, there is some credence to this early morning mantra and its relationship to success. Biologist Christoph Randler surveyed 367 university students, asking what time of day they were most energetic and how willing and able they were to take action to change a situation to their advantage.  In a follow up interview in the Harvard Business Review, he offered this conclusion about his study:

 

“When it comes to business success, morning people hold the important cards. My earlier research showed that they tend to get better grades in school, which get them into better colleges, which then lead to better job opportunities. Morning people also anticipate problems and try to minimize them, my survey showed. They’re proactive. A number of studies have linked this trait, proactivity, with better job performance, greater career success, and higher wages.”

 

Not only is there a correlation between success and getting up early, but early risers also are generally happier.  In fact, a 2012 study published in the American Psychological Association journal, Emotion, reported the following:

 

“Early risers are generally happier than night owls. More than 700 respondents, ranging from ages 17-79 were surveyed and asked about their emotional state, health and preferred time of day. Self-professed morning people reported feeling happier and healthier than night owls.”

 

Most importantly, for those of you that are up early and in your office by 8:30am, you can tune in to The Macro Show, which can be found here every day at 830am.

 

Cock-a-doodle-do!

 

Cock-A-Doodle-Doo - 4 rr

 

Back to the Global Macro Grind...

 

For those that follow global residential real estate markets, you probably didn’t have to get up that early to recognize that Canada’s housing market is solidly in bubble territory.   My colleague Josh Steiner pulled together a 130+ page deck last week that went through his short call on the major Canadian banks.  A key component of his thesis was based on the housing market and indebtedness of the consumer, specifically:

 

  • Income growth broadly in Canada has outpaced home price growth by 87% in Canada from 2000 – 2014.  In 2006, at the peak of the bubble in the U.S., this metric was only at 67%;
  • From 2000, home prices in Canada are up 247% versus 176% over the same time period in the U.S.; and
  • Canadian Household debt-to-income ratio is 167% (the highest level ever) compared to 103% in the U.S.

 

The challenge with these extremes of home price appreciation and consumer indebtedness is that the banking system itself in Canada is very concentrated.  In fact, RBC and TD originate roughly half of all mortgages in Canada.  In aggregate, the largest six Canadian banks are 2.1x larger in asset size than Canada’s GDP!

 

There is also a bank that we think is a pure play on Canada going “supernova”.  As Steiner wrote in his presentation:

 

“There isn’t likely to be much, if anything, left of this company once this call plays out. Despite holding the bag on everything subprime, it holds the lowest loan loss allowance of the group and is levered 15x.”

 

If you would like to discuss the thesis with our Financials Sectorhead Josh Steiner or purchase his report, please email .

 

Even as we see a more volatile future in the Canadian economy and likely the Canadian stock market, the U.S. stock market continues to plod along in boring fashion.  According to a report from Bloomberg this morning, the SP500 hasn’t posted a gain of 2% for more than 126 days, which is the longest streak since the one ending in February 2007 (and we know what happened shortly after that!).  Further, the last time the index went without out a 2% move in the first half of the year was 2005.

 

On the topic of volatility, Keith had the following to say on the VIX in his 6am Direct from KM note this morning to subscribers:

 

VIX – the ole “buy everything” call worked, somehow – but this one wasn’t that hard to get right if you had A) a more dovish Fed and B) another Greek bailout right. It’s sad, but front-running predictable central planning behavior works; VIX still range bound 12.29-15.46.”

 

If you get up early and front run the Fed, you are probably having a decent year performance wise.

 

Speaking of the Fed, Jon Hilsenrath from the Wall Street Journal this morning highlighted what we’ve been highlighting for some time now, which is that the Fed’s economic projections are inaccurate at best.   Or as Chairperson Yellen says, they are “fraught with uncertainty.”  

 

On some level, she is correct as the Fed wrongfully predicted that the jobless rate would settle between 5.3% and 5.8% by the end of 2016 and instead it did by December 2014.  Since it’s almost 8am and we’ve been up for a few hours now, we won’t even get into the question of why either Yellen or Hilsy are fixated on such a meaningless stat . . .

 

Finally, in the public service announcement category, Keith will be on a panel at the 6th Annual Inside Alternatives Conference July 13-14, 2015 in Denver CO.  We hope to see you there! Click here to learn more.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.17-2.49% 

SPX 2105-2130 
Nikkei 20102-20839 
VIX 12.29-15.45
USD 94.01-95.62

Gold 1170-1203

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Click image to enlarge

Cock-A-Doodle-Doo - COD


LEISURE LETTER (06/23/2015)

TICKERS: LVS, PENN

EVENTS

  • June 23 - CCL Q2 2015 earnings 10am 
  • June 23 - Virgin Cruises Announcement 11am
  • June 24 - PENN Opening of Plainridge Park Casino
  • June 25 - AC tax bill 

Headline News

Macau Junkets - Portion of hotel bookings for Junkets collapses. VIP gaming promoters seeking to accommodate their clients now book between 30% and 40% of all the city’s hotel rooms vs 80-90% previously.

ARTICLE HERE

Takeaway: More hotel rooms will have to be sold on a cash basis. RevPAR was already heading lower even before the upcoming room supply increases over the next few years, including 25% growth in 2016. 

COMPANY NEWS    

LVS - The Venetian Macau rips up their sporting event contract. Initially scheduled to broadcast big sporting events, the Venetian rescinded the contract on June 19th.  Spokesperson for the Venetian Macau declined to comment on the matter. 

ARTICLE HERE 

 

PENN - Plainridge general manager Lance George reported only minor problems during a trial testing. “The restaurants stressed out at lunch time, in the kitchens and in seating people, but that’s a minor stumble. The machines performed beautifully. We are certainly optimistic about opening for real on Wednesday,” he said.

 

MA Gaming Commissioner James McHugh explained that Massachusetts has the most restrictive gambling law in the country. More casino profits will go into treatment and prevention of gambling addiction than in other states. Slot machines can warn customers when they hit a self-imposed spending limit. There are no free alcoholic drinks. Taxes are higher. And there will be no smoking allowed inside Plainridge or other casinos being developed in Massachusetts. But, at the invitation-only soft opening Monday for the first of those gambling venues, some customers said they like the smoking ban.

ARTICLE HERE

ARTICLE HERE

Takeaway: We expect stronger than projected results from Plainridge following tomorrow's opening. We're projecting $400 win per day per slot, well above the Street, and our estimate could prove conservative. 

INDUSTRY NEWS

Macau Visitors - The DSEC indicated that visitor arrivals edged up from April 2,547,435 to 2,548,562 in May 2015, an increase of 0.9% YoY.

  • Same-day visitors totaled 1,386,839 (54.4% of total), up by 2.6% YoY. The average length of stay of visitors increased by 0.1 day YoY to 1.1 days.
  • Visitors from Mainland China totaled 1,690,987, up by 3.6% MoM but down slightly by 0.5% YoY; those traveling under the Individual Visit Scheme increased by 3.5% YoY to 752,982.  Guangdong visitation was up 2.4% in May.

LEISURE LETTER (06/23/2015) - v1

LEISURE LETTER (06/23/2015) - v2

Takeaway: Visitation broke a losing streak in May but Mainland China visitation remain negative. June is not looking good.

 

Massachusetts - Residents of New Bedford, MA, will vote on a proposed $650 million Foxwood resort casino for the city's waterfront.  Polls open at 7 a.m. Tuesday and close at 8 p.m. Voter approval is critical for the plan to advance in the competition for the state's third and final resort casino license.

ARTICLE HERE

Takeaway:  If approved, it is likely that the proposed New Bedford location would lure people from the Cape Cod region, whereas Plainville will service the Central Mass and South of Boston customer base.  

MACRO

Asia Macro

  • Macau - May CPI +4.93%  YoY, up from +4.51% in April 
  • Singapore - May CPI -0.5% YoY, up from -0.5% in April 
  • China - Flash PMI 49.6 vs. Consensus 49.4 and 49.2 in May

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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