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The Macau Metro Monitor.  November 18th, 2009


MAINLAND VISITORS SPEND MORE macaudailytimes.com.mo

Mainland tourists outspend and outstay most foreign tourists, according to new information from the Statistics and Census Service.  The per-capita spend of Mainland visitors in the third quarter was MOP 3,268, almost twice the average spend of other visitors.  Overall per-capita spend of visitors declined year-over-year by 9%. 


In the third quarter of 2009, per-capita non-shopping spending (excluding gaming expenses) of visitors fell by 12 percent year-on-year to MOP 931, of which expenses on Accommodation and Food & Beverage accounted for 47% and 31%, respectively.

TJX: The Street Knows It

With TJX results out today, we revisit a debate we had on October 20th.  Not a whole lot has changed (stock price or expectations) with today’s solid results and outlook.  The reality is, for the past few quarters the process with TJX is almost like clockwork.  Issue conservative guidance, beat sales month after month, pre-announce upside, exceed earnings by a penny, and reissue conservative guidance.  Underlying all of this of course, is strong demand for TJX’s value offering and commensurate customer traffic gains.  Along the way, we have been quick to point out that the benefits of the “perfect storm” of quality inventory supply coupled with unprecedented consumer demand for “value” have not yet been exhausted.   Today’s results support our prior conclusion, but also make us ask the question “how much better can things really get.”


As a reminder, our October 20th 2009 comments:


Our internal process is one that openly encourages debate when we disagree. That’s when our hit ratio goes up… Here’s our take on TJX.  The bottom line is that big cap, liquid quality in a space that will be beating for the next 3-months is not a place to source shorts -- at least at this price.


Keith: Stock looking to be way overbought now fyi… on the news… I like shorting these for a TRADE.


Brian: Yes, TJX gets put in the ‘quality’ bucket in retail. But let’s not forget that margins are at peak, and we’re coming off an 18-month period that helped off-price retailers like TJX and ROST materially. The preannounced comp was a definite positive, but in looking at the 2 and 3-year trend, there is really no change in trend. If anything, it is slightly negative. The gross margin story here will be short-lived, with one more quarter before the financial profile looks less favorable. I’m not going to get too excited about the company’s announcement about an increase in long term unit growth to 4-5% as we’re already looking at a mature company with 2,700 big box stores.  There are other names I’d short before this one, but there will be a time over the next 1-2 quarters where this will make a lot of sense. If it is overbought on this news, then I won’t argue to stay away.


Levine: Recognizing that the incremental data points on TJX are likely to remain positive, I wanted to make a few points before putting the short TRADE on. 


Key factors to look out for over the next 3 months:  1) EPS guidance way too low, but the Street is obviously tuned in to this, 2) they took up the square footage growth rate for next year to 5% from 4%, which is fairly respectable for a company of this size.  I can’t knock them for investing into strength. And 3) the gross margin compares in Q4 are a joke (last year they got caught like the rest of retail with too much inventory).


On the flip side, the 2 year comp is holding steady but not accelerating.  With that said, this is still one of a few retailers with positive 2 year trends. 


Final note here, is that there may be support from other retail/apparel earnings as they begin to trickle out.  We’re now seeing a handful of positive pre-announcements as well which is likely to build momentum.  To the extent you view this is as a negative to being short, it is probably one of the biggest risk factors in the near-term.


Team Conclusion: Hold off at this price. Big cap, liquid quality in a space that will be beating for the next 3-months is not a place to source shorts.



Fast forward to today and management remains bullish (perhaps increasingly so) and expectations are high.  We are now at the point where the Street simply doesn’t believe guidance and its embedded conservatism.  Let’s use 4Q same store sales guidance as an example.  Management would like the Street to consider that even with the positive commentary on traffic gains and the company’s ability to “keep” its new customers, same store sales are going to decelerate sequentially by 100-300 bps on a two-year basis.  While the math doesn’t tell the whole story, the disconnect between the bullish commentary and the company’s forecast for $0.66 to $0.71 in 4Q does.  Our model is shaking out at $0.89 for 4Q, and we would not be surprised to see the consensus trickling higher as the rest of the Street goes through the same exercise.  Holding the two year trend out of 3Q constant,  we’re expecting comps in the 8-9% range (vs. guidance of 5%-7%) and operating margin expansion of 370 bps (guidance is for +170bps). Recall that last year even TJX got caught with excess inventories (and subsequent clearance) as the overall retail environment went through a dramatic transformation.


Calling the top is a dangerous game, but we continue to inch closer to a time when increasingly elevated expectations can no longer be exceeded.  Earnings are going higher and the Street knows it.  Comparisons remain easy until the Spring and the Street knows it.  Management is stepping up its reinvestment (store growth, marketing, share repurchase, and bonuses) and the Street knows it.  So, while there is still no doubt that 4Q will likely be another quarter of substantial upside, we can’t help but wonder what happens as the same-store sales revert back to “normal” and new peak margins become harder to achieve.


TJX: The Street Knows It - 1


TJX: The Street Knows It - 2


UK Inflation Pops, Note the Compare

A report from the UK Office for National Statistics today showed the country’s Consumer Price Index for October rose 1.5% year-over-year, from 1.1% in the previous month.  This seemingly large jump is better understood within the context of the precipitous fall in energy prices last Fall from manic highs in the summer of 2008 (see chart).


In fact, prices from fuels and lubricants in the UK fell by 0.7% between September and October this year versus a fall of 6.1% a year ago, which was a major contributor to October’s inflationary print. Month-over-month CPI rose 0.2%.


In 2009 we’ve stayed away from (or shorted) countries with financial leverage.  We continue to see headwinds in the UK into 2010 including rising unemployment, ballooning government debt, and a weak Pound for the import-heavy economy (for more see our post “Pounded Pound Breeds Inflation” on 11/6).  The government’s recent decision to bailout RBS and Lloyds for a second time to the tune of 31.3 Billion Pounds and the extension of the BOE’s bond purchasing program by 25 Billion Pounds after printing a contracting Q3 GDP report (-0.4% Q/Q) add support to our bearish conviction.


In our virtual portfolio we remain short the UK via the etf EWU and short the Pound via FXB. 


Matthew Hedrick



UK Inflation Pops, Note the Compare - UK CPI

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Sands China will price Thursday on the Hong Kong Stock exchange.  Here are the offering details:


SANDS CHINA VALUATION - sands china offering details


The valuation range looks reasonable, although only attractive at the $1.34 low end of the range in our opinion.  Based on our numbers, the range on 2010 EV/EBITDA is 13.5-16.0x.  That may look expensive but there are two major considerations.  First, the net debt includes about $2 billion of capitalized costs for Lots 5&6 development without any real EBITDA contribution until 2012.  We believe the initial ROI on this development will struggle to reach 10% but it does have some incremental value.  Second, as we discussed in our notes on the Wynn Macau IPO, Macau does not impose a corporate income tax on gaming profits.  Thus, a 16x taxed equivalent multiple is close to 10x.


To address the first point, we think it is appropriate to look out to 2012 when the first and major phase of the Lots 5&6 development will be open for a full year.  The EV/EBITDA valuation on 2012 is a much more reasonable 9.5-11.0x.  Relative to Wynn Macau (1128.HK), there is very little discount on 2010 and 2011.  However, after giving credit for Lots 5&6 (2012 EBITDA), the Sands China discount is almost 15% from the midpoint of the offering range to Wynn Macau’s 2012 valuation.  We believe that this discount is appropriate. 


Here are the valuation metrics for Sands China:


SANDS CHINA VALUATION - Sands China valuation summary


The following table outlines our view of the value of Sands China.  We think 2012 EBITDA deserves a 14x multiple which would take the taxed-equivalent multiple below 10x.  Fair in our opinion.  Discounting that back three years gives Sands China a current value of $1.51, right in the middle of the offering range of $1.34-1.79 and 13% higher than the low end of the range.




MPEL missed our EBITDA estimate but there were some encouraging signs.  Mass drop was better than we thought in Q3 and November volumes look better than October. 


MPEL put up a sloppy quarter, generating only $56 million in adjusted EBITDA versus the Street at $60 million and our estimate of $66 million.  The shortfall was driven in part by by low hold percentage, primarily in the Mass and slot segments, and lower Rolling Chip and direct VIP play.  Encouragingly, Mass drop was strong, beating our estimate at City of Dreams (CoD) by almost $40 million, or 11%.  See the chart below.






The VIP segment was confusing, obscured by the lack of data.  Direct VIP play is always the wild card.  On the conference call, the company indicated that direct VIP play was 17% of total VIP and the VIP hold percentage was slightly above 3% at CoD.  Total VIP volume at CoD was $9.0 billion, below our projection of $9.8 billion.  We were anticipating a strong hold percentage of 3.3%.  On the surface it appears that volume and lower hold dinged the results pretty significantly.  However, by our calculations direct VIP play was actually closer to 10% of the total and the hold percentage was more in-line with our 3.3% estimate.  We need to get more color but suffice it to say that VIP, in the aggregate, was disappointing.






Going forward, the news is better.  Volumes remain strong and MPEL actually did better in November than October.  While market share took a hit in October, it was partly a function of October being a strong Mass month for Macau and MPEL being positioned as more of a VIP operator.  Grand Hyatt should boost Mass volumes and likely expand normalized hold percentages.  CoD is holding around 16% versus the more mature Mass properties over 20%.


MPEL has a long way to go at CoD, particularly with the increasingly important Mass business.  At least the signs are somewhat encouraging.  The stock remains cheaply valued when compared to the Wynn Macau and the expected range for Sands China with a discount of 30-40%.



 November 17, 2009





With the reporting of HD and TGT this morning (both on the surface better than expected), the inevitable comparisons will now begin between their results and those of their biggest competitors. The SIGMA overlay charts below speak for themselves, highlighting the differences and similarities between how each of these companies has performed over the past several quarters. The consistency in margins is eye-opening for WMT, which has barely budged from a profitability standpoint since the “recession” began.









  • It’s not often that I draw attention to advancements in textile technology, but this caught my eye. A textile “treatment” has been developed that reduces heat build-up and provides UV protection in dark colored textiles. In lab tests, Coldblack finished black garments displayed a 9 degree cooler temperature than a comparable shirt constructed of conventional fabric. The material has been used in some higher-end brands so far, but the potential is widespread for anyone or any product that prefers black over white in the blazing sun!


  • Lowe’s 3Q results were in part driven by a sequential same store sales improvement in 45 out of 50 states. The biggest improvements were noted in states that have been hit the hardest by the housing downturn. Additionally, after 5 quarters “indoor” related products are now out-comping “outdoor” related categories (by a margin of 300bps). Management also noted that while inventory commitments to the trim-a-tree category are planned down this year, sales are off to a “solid” start this season.


  • A few weeks ago it was widely expected that the $99 Blu-ray DVD player would be one of the key items for Black Friday. Now with the recent leaking of Wal-Mart’s Black Friday circular, it appears that they are setting the bar even lower, with a $78 unit. Now granted that price is only available during door-buster hours, but the price is still aggressive especially when considering a similar unit was promoted at $129 over the same event.




PPR Starts African Unit IPO to Raise $1.5 Billion - PPR SA, the owner of Gucci Group, started selling shares in its African unit CFAO today to raise as much as 1 billion euros ($1.5 billion) in France’s first initial public offering for two years. Paris-based PPR is offering 31 million existing shares and may add 4.65 million additional shares for a total of 35.65 million at a price range of 24.80 euros to 29 euros apiece, the Paris-based company said today in a statement. If the over- allotment is exercised, PPR will sell almost 58 percent of CFAO. PPR said it plans to give up majority control of CFAO, which sells cars, pharmaceuticals and consumer drinks in Africa and France’s overseas territories. The retailer said two weeks ago the sale is part of a “reconfiguration” of its businesses, which include Gucci, the Conforama furniture chain, bookseller Fnac, mail-order unit Redcats and a controlling stake in the German sporting-goods company Puma AG. Investors and analysts have speculated that the company may target luxury makers such as Italian jeweler Bulgari SpA.  <bloomberg.com>


Yoox Kicks Off IPO - Internet fashion retailer Yoox Group launched an initial public offering on Monday that could raise as much as 126 million euros, or $187.9 million at current exchange. Shareholders in the Bologna, Italy-based company, which include venture capital firms Balderton Capital, Kiwi and Nestor 2000, are selling 24.3 million shares at an indicative price per share of between 3.60 euros, or $5.37, and 4.50 euros, or $6.71, through the end of November. If demand is high enough, a further 3.65 million shares will go on sale via an overallotment option, known as a greenshoe. Goldman, Sachs & Co. and Mediobanca are managing the placement, which values Yoox at as much as 226.8 million euros, or $338.2 million. Shares will start trading Dec. 3 on the Milan Stock Exchange STAR segment for small companies.  <wwd.com>


Bernanke Signals ‘Extended’ Low-Rate Period May Become Longer - Federal Reserve Chairman Ben S. Bernanke’s diagnosis of a weak U.S. economy and labor market signaled that the central bank’s extended period of low borrowing costs may get even longer. Bernanke said “significant economic challenges remain,” with lending constrained and the jobless rate above 10 percent. Speaking in New York yesterday, he said U.S. asset prices aren’t out of line with underlying values, and central bank policy will ensure that the “dollar is strong.” Treasury two-year notes rose and the dollar weakened as investors reduced bets the Fed will raise interest rates by August. In his most extensive comments on the economy since July, Bernanke repeated the Fed’s Nov. 4 pledge to keep rates low for an “extended period,” and he said forecasters anticipate “moderate” growth this quarter after the 3.5 percent pace of expansion in the prior three months.  <bloomberg.com>


Obama Urges China to Heed Commitment on Currency Appreciation - President Barack Obama called on Chinese counterpart Hu Jintao to make good on a commitment to allow the yuan to appreciate to help prevent trade imbalances that exacerbated the global economic crisis. “I was pleased to note the Chinese commitment, made in past statements, to move toward a more market-oriented exchange rate over time,” Obama said during a joint appearance with Hu after a meeting in Beijing today. America’s trade deficit with China widened to a 10-month high in September, raising concern that the combination of a recovering U.S. economy and a fixed yuan exchange rate against the dollar will worsen global imbalances. China’s dollar purchases to prevent appreciation swelled its foreign-exchange reserves to $2.3 trillion in the third quarter, more than twice as much as any other country.  <bloomberg.com>


Buffett Raises Berkshire’s Wal-Mart Stake, Adds Exxon, Nestle -  Warren Buffett’s Berkshire Hathaway Inc. took stakes in Exxon Mobil Corp. and Nestle SA, betting on the world’s biggest oil and food companies. Berkshire held about 1.28 million Exxon shares and 3.4 million American depositary receipts of Nestle at the end of the third quarter, the Omaha, Nebraska-based company said in a regulatory filing yesterday. The stake in Irving, Texas-based Exxon would be worth about $95 million, based on yesterday’s stock price, while the Nestle holding would be valued at $161.5 million. Berkshire also raised its stake in Wal-Mart Stores Inc., the largest retailer. “Berkshire is increasingly looking for companies that are world-leading brands,” said Tom Russo, partner at Gardner Russo & Gardner, which holds shares in Berkshire and Vevey, Switzerland-based Nestle.  <bloomberg.com>


Strickler Details Obama's Trade Stance at WWD CEO Summit - The Obama administration understands the importance of trade as an engine for economic growth and is committed to brokering sound trade agreements, said Gail Strickler, assistant U.S. Trade Representative for the office of textiles. USTR Ron Kirk “has given me an opportunity to serve the industry I know and love, and this opportunity is something I plan to take full advantage of,” said Strickler, a 30-year textile and apparel industry veteran who has been in her post just eight weeks. Strickler, who is in the position formerly called the special textile negotiator, is the lead negotiator for textile and apparel products and advises Kirk on industry trade matters. Although many in the apparel industry feel there’s a lack of clarity on the Obama administration’s approach to trade, Strickler said the administration is “committed to getting the science of trade right.” <wwd.com>


European Exports Rose Most in 20 Months in September - European exports increased the most in more than a year and a half in September as reviving global demand helped the region’s economy emerge from its deepest recession since World War II. Exports from the 16-nation euro area rose a seasonally adjusted 5.5 percent from August, when they fell 4.1 percent, the European Union’s statistics office in Luxembourg said today. The September increase was the biggest since January 2008 and pushed the trade surplus to 6.8 billion euros ($10.2 billion), the largest in more than five years. Imports advanced 1.1 percent after a 1 percent drop in August. The euro-area economy returned to growth in the third quarter after global governments stepped up stimulus measures and central banks injected billions into markets to revive lending. While Europe’s services and manufacturing industries expanded for a third month in October, the euro’s ascent is threatening to undermine exports by making them more expensive.  <bloomberg.com>


U.K. Inflation Rate Increases More Than Forecast - The U.K. inflation rate rose more than economists forecast in October, climbing for the first time in eight months as fuel costs and air fares climbed.

Consumer prices gained 1.5 percent from a year earlier, compared with 1.1 percent the previous month, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 30 economists was 1.4 percent. On the month, prices rose 0.2 percent.  <bloomberg.com>


Japan Deflation Concern Rises Even as Growth Quickens - The acceleration of Japan’s economy to the fastest growth pace in more than two years masked a slide in prices of goods and services that threatens to temper the nation’s recovery. The domestic demand deflator, a measure of price levels that excludes the cost of imports, fell 2.6 percent in the third quarter from a year earlier, the most since 1958, Cabinet Office figures showed yesterday in Tokyo. At the same time, gross domestic product jumped 4.8 percent, the most since early 2007. Sustained price declines threaten to curtail a corporate- profit rebound that’s already been insufficient to spur a rally in Japan’s shares this quarter. <bloomberg.com>


Money-losing GM to repay aid early, sees 2010 IPO - General Motors said Monday an improving global auto market will allow the struggling auto giant to repay government loans early and move forward toward a 2010 share offering. But the automaker that needed massive aid to avert collapse earlier this year also reported a net loss of 1.15 billion dollars in the period since emerging from bankruptcy in July.

The number one US automaker said it is making progress toward reviving its fortunes, although predicted more losses in the coming months. "The business has performed better than we had expected going into bankruptcy," chief executive Fritz Henderson told a conference call. <google.com>


Fossil's New Retail Concept Focuses on Apparel - Fossil has introduced a new retail design that plays up the brand’s Americana image and puts more focus on clothing. The watchmaker, which has been opening stores rapidly and now counts 360 worldwide, cited strength in direct sales for the quarter ended Oct. 3, when comp store sales rose 6.4 percent, but net sales fell 6.9 percent to $381.4 million. Of Fossil’s 124 U.S. stores, 91 are accessory stores and 33 have both accessories and clothing. Next year, clothing will be added to Fossil’s unit at Covent Garden in London after a renovation and to a new store in Stuttgart, Germany, she added.  <wwd.com>


SG Footwear Acquires Rugged Shark - SG Footwear has acquired all the assets, trademarks, and registrations of the Rugged Shark brand from Gordon Brothers LLC. Rugged Shark, a marine and fishing footwear brand, was founded in 2001. Terms were not disclosed. The footwear is best known for its technical and comfort features targeting a core demographic group of men 25-55. "The acquisition of the Rugged Shark brand adds tremendous equity to our stable of brands with expansion into new channels of distribution," commented Bernard Leifer, President & CEO, SG Footwear. "In addition to immediate growth potential to the boating and fishing enthusiasts, Rugged Shark will be positioned as a lifestyle brand offering significant brand expansion opportunities." <sportsonesource.com>


One-On-One with UA CEO Kevin Plank - “Protect this house." That’s the marketing motto made famous by Under Armour in a series of commercials, which has been adopted by athletes on fields across the U.S. as a spirited rallying cry at their home games. The ads were overseen by Kevin Plank, founder, chairman and chief executive officer of the performance apparel and footwear maker — and a big fan of aggressive dictums, which he inscribes on an oversize whiteboard in his office at the firm’s Baltimore headquarters. “The Under Armour brand is very much like a team brand, and that is the way we run our company,” said Plank, a former University of Maryland football player who founded the company in 1996. “Sales and marketing are like offense; manufacturing and distribution are like defense; finance and I.T. are like special teams. But what you learn in this business is that not just one team is on the field alone, but we’re all on the field at the same time. The companies that will win are the ones that communicate the best.” <wwd.com>


A mixed message on sales—but possibly not so mixed for online retailers - Online retailers looking for clarity as to what to expect for the holiday sales period got a little glimmer of hope today as the U.S. Department of Commerce reported that while total October retail sales were down 1.7% from October 2008, general merchandise sales—the goods that consumers are most likely to buy online—were up 1.5% from a year ago. A big part of the overall decline in sales was the result of lower gasoline prices; sales at gasoline stations were down 15% year over year. The average nationwide price of gasoline was about 90 cents a gallon less this October than a year ago, according to the U.S. government’s Energy Information Administration. Another contributor to the drop was the result of a downturn in home-related purchases—housewares, home furnishings, building equipment and garden materials. Sales of building material and garden equipment fell 16.6% year over year.  <internetretailer.com>


Burberry Raises Dividend as Profit Meets Estimates - Burberry Group Plc, the U.K.’s largest luxury-goods company, raised its dividend for the first time in 18 months after reporting a drop in first-half profit that was no worse than analysts estimated. Shareholders will receive 3.5 pence a share, up 4 percent on the prior year’s 3.35 pence, according to the London-based company, which left the dividend unchanged last year. Net income declined to 56.8 million pounds ($95.7 million) in the six months ended Sept. 30, from 74.8 million pounds a year earlier, the retailer also said today in a statement, matching the average estimate of six analysts surveyed by Bloomberg. <bloomberg.com>


Rossignol Taps IMG Worldwide to Expand Brand - Snow, ski and mountain brand Rossignol has teamed up with IMG Worldwide to extend its licensing into a number of categories. Rossignol is newly independent from previous owner Quiksilver. IMG Worldwide is currently seeking partnerships for the brand in footwear, eyewear, sports bags and other related accessories. "It is a privilege to be handling an important part of the new strategy of this iconic 100-year-old winter sports brand," says Bruno Maglione, IMG Worldwide's executive vice president and co-managing director. < licensemag.com>


Birkhold Joins Lacoste Licensee as CEO - Devanlay U.S. Inc., the licensee for Lacoste apparel, has tapped Steve Birkhold as chief executive officer, effective Jan. 4, succeeding Robert Siegel, who will retire from the company at the end of the year. Birkhold is joining Devanlay from Diesel USA, where he has been ceo since November 2007. This is the second time in the past year Siegel has exited the top job at Devanlay. He originally left the company in December 2008, but rejoined in February when his replacement, Robert Skinner Jr., the former ceo of Kellwood Co., departed after less than two months on the job, citing “differences with the board.” <wwd.com>


Oxxford President Departs - After 11 years at Oxxford Clothes, president Mike Cohen has left the company, reportedly to join competitor Hickey Freeman. Cohen could not be reached for comment at press time Monday and a spokeswoman for Hickey had no comment. Individualized Apparel Group, which owns Oxxford, a brand best known for its American-made customer clothing, has elevated Oxxford veteran Scott Ruerup to executive vice president, effective immediately. There are no plans to name another president. Cohen, who had worked at Polo Ralph Lauren Corp. before joining Oxxford 11 years ago, is said to be taking a job helming the Hickey Freeman brand, the other remaining American high-end suit maker. <wwd.com>


Brazil: Amazon rainforest destruction shows decline - Brazil's National Institute for Space Research (INPE) has reported that the country's Amazon rainforest resources shrank by 7,000 square kilometres from August 2008 to July 2009, the smallest amount of territory lost in the area since 1988. The figure is also better than the Brazilian government's prediction of 9,000 square-kilometres. INPE director, Gilberto Câmara, said: "This is a substantial drop in the rate of decline. It's by far the smallest amount of destruction since Inpe began observing. It gives us great happiness to be able to confirm that the efforts of Brazilian society to contain the destruction of the Amazon has reached such as satisfactory level." <fashionnetasia.com>