Adibok Getting Toned?

Adibok Getting Toned?


Reebok is Looking Hot in the Toning Category. Does it Matter?

Adibok is shipping every pair it can get its hands on to take advantage of this trend – which will make ‘Easy Tones’ tough to comp against next year. If the company sees any acceleration in backlog or sales in the US near-term, we’ll question the sustainability big time.



Reebok is staking its claim on the growth we’re seeing in the toning footwear category (MBTs, Shape-Ups by Skechers, Avon’ s Curves, etc…) with its Easy Tones product.  How meaningful, you might ask?  After comping down 50% for the better part of 2 years, recent weeks have spiked to +125%. No kidding. As much as we continue to believe that Adibok is a sinking ship, we won’t ignore the facts. Could the recent performance help right buouy the boat? After going the math, the answer is ‘probably not’. 


Here’s the math: 1) Reebok is 20% of total Adidas Group, 2) 45% of Reebok is footwear, 3) 45% of Reebok revenues are in the US (the focus of the toning trend), and Easy Tones are 35% YTD of NPD’s Reebok footwear (60% over that last 6 weeks).  The math says that the Easy Tones could be between 6-9% of Reebok, and 1%-2% of total Adidas group. Reebok is getting a boost on both the top and bottom line as these toning shoes, like Skechers Shape Ups, sell north of the $100 mark which is driving total ASPs through the roof (ie 50%+).



The bottom line here is that this is a positive near term. There’s no doubt about that. But Adibok is shipping every pair it can get its hands on to take advantage of this trend – before either a) it goes away, or b) it gets so crowded that prices come down and margins take a hit. Either way, the ‘Easy Tones’ will be tough to comp against next year. If the company sees any acceleration in backlog or sales in the US near-term, question the sustainability.


Zach Brown



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Just about a month ago at its investor meeting, MCD downplayed the media noise around going national in the U.S. with the Dollar Menu at breakfast, saying that it has been used at breakfast in some markets for some time and is, therefore, nothing new.  Specifically, management stated that in the markets where a Dollar Menu was already offered that the results were directionally consistent with Dollar Menu performance during other dayparts.


Today, it is being reported that MCD will launch a national dollar menu in January, supported by advertising across the U.S. I think this national launch was anticipated by investors, which is why there was so much “noise” around the topic prior to MCD’s November meeting.  If management knew in November that it was going to launch the Dollar Menu at breakfast in January, I find it interesting that management tried so hard to downplay the news, saying it was not new.  It may not be new to some markets, but it is new to the balance of the system in the U.S. 


Don Thompson, president of McDonald’s USA, did say during his presentation at the November meeting that we will learn more about core breakfast initiatives in 2010.  Is this national launch of the Dollar Menu part of the breakfast initiatives?  If so, it is new news.  I think MCD would only introduce the Dollar Menu at breakfast if there was a definite need to do so.  Breakfast is MCD’s most profitable daypart and management would only risk decreasing its margins at breakfast if traffic was under real pressure. 


I think management knew such an introduction would be viewed as a sign of increased weakness in same-store sales trends and would possibly dominate much of the Q&A and coverage of the meeting with investors harping on the issue as to why such an introduction is necessary.


The announcement today, however, is less alarming because the investor community has already had the last couple of months to mull over the possibility of a Dollar Menu at breakfast.  And, we already know that comparable sales trends are weak in the U.S. following two months of reported declines.


If management had not come to a decision over whether to nationally launch the Dollar Menu prior to its investor meeting, then traffic trends at breakfast must have deteriorated rather significantly in the past month, making such a move necessary.  Either way, we know comparable sales trends in the U.S. are under pressure and the Dollar Menu at breakfast will put increased pressure on margins.  I would also think that today’s announcement was not a welcomed one by the entire franchisee community because not all incremental traffic counts are created equal from a margin standpoint.  I view this national launch as a desperate move by MCD and a clear indication of the slowdown in business trends.



She should be a decent new market for the slot manufacturers.  VLT shipments to Italy could commence as early as 2H2010 and could be a nice boost for BYI, IGT, and WMS.



In an effort to raise earthquake relief funds, the Italian government recently passed legislation allowing for the conversion of 14% of the existing AWP machines in the country to be converted to Comma 6B machines, otherwise known as Video Lottery Terminals (VLTs).  Like the AWP games, VLTs will also be operated through a central server.  This presents a market opportunity of roughly 57,000 new machines if all the licenses are purchased.  The cost of each VLT license is 15,000 Euros, equivalent to an aggregate of 850MM Euros of tax proceeds to the Italian government. 


There are ten concessionaires that have the right to bid on the Comma 6B licenses and each concessionaire can only bid 14% of their existing AWP install base.  In their initial indication, all the licenses were spoken for and all 10 concessionaires made the initial 50% deposit in Oct 2009.  They have until March 2010 to confirm the final number of licenses that they want, with the remaining 50% payment due by June 14, 2010.  It’s likely that the final amount of the licenses purchased will end up between the 28,500 that has already been paid for and the full 57,000 amount that is approved. 


The two main issues that will determine the final scope of the market are:

  • Quality of the locations that each concessionaire has
  • Regulation of the secondary market; meaning what happens to the licenses that aren’t bid for, which won’t be decided until March 2010


Once the suppliers are compliant with Italian regulations for VLT operations and the final payment is made, then the concessionaires can start operating the machines.  We see the time line as follows:  1) the testing and approval process with be completed in March, 2) shipping will likely start in 2H2010 and 3) most of the units will be operational by 1Q2011. 


Lottomatica will use its own Speilo machines for its licenses and has an agreement to sell up to 2,000 machines to Gamenet.  Other market players will include:  IGT, WMS, BYI, and Novamatica. 


IGT has a relationship with Atlantis; they will likely announce some sort of agreement over the next few weeks but we suspect IGT will form other distribution partnerships.  BYI has a relationship with many of the players and has provided machines to Cogetch, HBG, and Atlantic, to name only few.  WMS is in discussion with half of the concession holders. VLTs will likely be priced in the $12-13,000 range.


Listed below are the details on the 10 Concessionaires:

  • Atlantis World is the largest with rights to 12,000 VLTs
  • Lottomatica has rights to 10,800 licenses (Spielo)
  • Gamenet has rights to 8,000 licenses
  • Cogetech 
  • SNAI
  • Cisal
  • HBG
  • Cirsa
  • Codere
  • Gmatica


So what are the economics to the equipment suppliers?  Assuming that 75% of the potential 57,000 licenses get purchased in the primary market (meaning that not all the licenses get bought in round one) leaves a market of 43k units.  Taking out Lottomatica’s share, since they will use Spielo, that leaves 33k for the four likely players:  IGT, BYI, WMS and Novamatica.  Assuming equal share – not likely but is the best guess – then that’s 8,250 units per supplier, likely recognized in 4Q2010 or 1Q2011.  Assuming $12.5k pricing and a 40% margin (since the games are Italy-specific and lower priced) = $5k of gross profit per unit or $5MM per 1,000 units.  Here is the impact by company:


  • BYI:  $0.06 in EPS for every 1,000 units sold; 8,250 units = $0.46
  • WMS:  $0.05 for every 1,000; 8,250 units = $0.43
  • IGT:  $0.01 for every 1,000; 8,250 units = $0.08


THE ITALIAN BIRD - suppliers italy 1

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The Haka

“This is the hairy man, who caused the sun to shine again for me.”

 -Haka of the All Blacks


Position: We currently have no position in New Zealand


My colleague and former Yale Tennis star, Rory Green, introduced me to the Haka.  The Haka is a traditional New Zealand dance performed by the Maori, who performed this dance prior to going into war (and also on some other occasions).  The dance is performed by a group that is usually comprised of men and includes vigorous movements, feet stamping, and chanting.  The Haka has also been popularized by the New Zealand Rugby team, the All Blacks, as a way to intimidate their opponents before  a game.  They first performed the Haka in 1884 on their first trip abroad, and have been performing before the start of rugby matches ever since.


For you sports fans, give it a look here at the link below.  It’s pretty cool.


As I was reviewing the global macro news flow from Asia this morning, I was reminded of the Haka after reading comments from Governor Alan Bollard of the Reserve Bank of New Zealand.  He very rationally stated:


“If the economy continues to recover, conditions may support beginning to remove monetary stimulus around the middle of 2010.”


This was an about face from the prior statement in which Governor Bollard indicated rates would stay low into the back half of 2010.  Not surprisingly, the New Zealand currency jumped almost 1.5% on the move.   Bollard pointed to a rebound in global activity, in particular Australia, China and emerging Asia as helping support the domestic New Zealand economy.


Much like the All Blacks do before taking on an opponent somewhere around the globe, Governor Bollard is doing the interest rate Haka.  With unemployment having peaked in New Zealand and house price inflation expected to hit double digits by March, Bollard is making a proactive risk management move to protect against “the hairy man” known as inflation.  The global currency scoreboard is awarding Bollard’s Haka today.


What say you He Who Sees No Bubbles (Bernanke)? Will the New Zealand Interest Rate Haka be answered?


Daryl G. Jones
Managing Director



For the week ending December 5th, Initial jobless claims rose to 474,000, an increase of 17,000 from last week figure of 457,000.  The 4-week moving average was 473,750, a decrease of 7,750 from the previous week's revised average of 481,250. This is the lowest level since October 2008.


The good news is that the number for seasonally adjusted insured unemployment during the week ending Nov. 28 was 5,157,000, a decrease of 303,000 from the preceding week's revised level of 5,460,000.  While the trend may be friendly, the level of the 4-week average is suggesting continued job losses.


This is consistent with the EMPLOYMENT post of 12/08/09 - the numbers reported by the labor department just don’t add up. 


For the USA to see a sustainable drop in the unemployment rate, we need Initial jobless claims to drop below 390,000.  This week’s Initial claims number shoots back above the 4-wk moving average, and puts everything NASTY (to be confirmed by a NASTY confidence reading on Friday and declining presidential ratings) in play. 


Including US Dollar down!


Howard Penney

Managing Director




In an interview with the LV Sun, CEO Murren pitched CityCenter as an attractive property for LV locals. The reader comment section shed some light on the viability of that assertion.



MGM’s CEO gave an interview with Jon Ralston from the Las Vegas Sun this week to discuss the opening of the $8.5 billion project CityCenter on the Las Vegas Strip.  The project is opening in one of the worst economies Vegas has ever seen.  Predictably, Murren is expanding his duration from a “return on investment perspective” to “over a five-or-ten-year period of time”.  I'm sure the ROI analysis will include cannibalization. 


Jim Murren believes that the art and architecture at CityCenter will “inspire” people to the degree that local Las Vegas residents will come to CityCenter.  He contends that locals, himself included, will warm to a property that creates some semblance of a downtown urban environment that Vegas previously lacked.  Murren dispelled the notion that another casino, hotel, mall, or arena is what Las Vegas needs, “but”, he said, “what we could use, what we do need is something to inspire people.  I think the architecture will.  I think the public spaces will”.  MGM has an uphill battle.  Traditionally, locals have preferred the Boulder Strip, North Las Vegas, Summerlin, and Henderson casinos to the more expensive and tourist-orientated, congested Strip.  


The Las Vegas Sun’s online version of this piece, entitled, “Locals will visit Strip to go to CityCenter”, was met with almost universal dissidence from readers via the discussion section below the article.  Most of these responders are undoubtedly Las Vegas area residents so their opinions should not be discounted.  Indeed, they are very telling.  Some of the more notable reader reactions include:


“Umm... inspire them to do what exactly? Spend more money?”


“LOL. And how do you make money from people wandering around enjoying the environment? Last I checked you make a lot more money from the guy sitting in front of the slot machine than the guy sitting on the park bench admiring an obscure piece of art.”


“Honestly, if City Center wants to attract locals, then let us know when Crystals has a Wal-Mart and a Dollar Loan Center on site.”


“Who wants to fight the traffic then park in a garage that is 4 miles from the Casino and walk? Not me… Murren - you are totally out of touch!  All I see with City Center is a big impersonal Monster that I have no intention of entering.”

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.45%
  • SHORT SIGNALS 78.38%