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RESTAURANTS - MITIGATING A POSSIBLE NEGATIVE

A stealth job stimulus coming soon!

 

US Census hiring could help mitigate one of the negative MACRO factors affecting the Restaurant Industry.

 

The US Census Bureau has begun hiring for the upcoming decennial census. As seen in the chart below, hiring in earnest will begin in March/April once it is known how many people will be needed to conduct the census. A typical census worker will be paid $15-18 an hour.

 

Many restaurant executives in the QSR segment have cited unemployment trends as cause for sales trends decelerating in the past 3-4 months.  Some help might be on the way.

 

 

Howard Penney

Managing Director

 

RESTAURANTS - MITIGATING A POSSIBLE NEGATIVE  - census


RCL 4Q09 CONF CALL

RCL beat the quarter but 1Q2010 guidance of ($0.09) to ($0.14) excluding the legal settlement gain falls far short of the street's $0.04 estimate. However, investors are focused on higher full year 2010 guidance.

 

 

RCL 4Q09 CONF CALL

 

"Good cost discipline and better than expected revenues have enabled us to end 2009 on a decidedly upbeat note. We're happy to say goodbye to 2009 and pleased to embark on 2010 with an outlook of solid yield improvement, strong cost controls and improving returns to our shareholders.We are also benefiting from the terrific success of our latest Oasis- and Solstice-class vessels. These ships are generating very healthy returns due to high guest satisfaction, excellent revenues and lower operating costs."

- Richard D. Fain, chairman and chief executive officer

 

Guidance

  • Net Yields for 2010: 3% to 6% (3-5% adjusted for currency)
  • 1Q2010: Approximately 2% (flat adjusted for currency)
  • 2010 NCC excluding fuel: flat to slightly up (flat to down slightly adjusted for currency)
  • 1Q2010 NCC excluding fuel: up around 1% (flat to down slightly adjusted for currency)
  • 2010 EPS: $2.00 to $2.20 including $0.39 related to a legal settlement
  • 1Q2010: $0.25 to $0.30 including $0.39 related to a legal settlement

Trend commentary from release

  • "Net Yields were at the upper end of previous guidance due to strength in both ticket and onboard revenues."
  • "Early "wave season" bookings have been encouraging and that since the beginning of September, new bookings have been running approximately 30% higher than the corresponding period a year ago. Current price levels are also ahead of the same time last year across the majority of the company's product groups."
  • "Wave season is off to a promising start. It is still early in the selling cycle for 2010, but our order book is stronger and prices are higher than at this same time last year. We clearly are not at pre-recession demand levels, but we are pleased to see solid yield recovery underway."
  • "As of today booked load factors and average per diems are ahead of same time last year for all four quarters and the full year."

CONF CALL

  • Management sustainably decreased fuel costs per berth by 7%
  • $900MM of liquidity at 12/31/2009
  • Slow and steady improvement in their environment (like that of the economy)
  • Operating cost continue to remain a priority for mgmt
  • Onboard spending on Oasis is handily above average.  Solstice is also "kicking butt."
  • Management went out of their way to emphasize that the ROI on new ships is quite good
  • Excluding Oasis and Soltice class ships yields would still be positive in 2010
  • Slower capacity growth and any new orders wouldn't impact results until 2013 at the earliest
  • Acceleration in booking volumes has started to have a positive impact on pricing. While current price levels are still impacted by the economy, they can better control discounting and in select cases raise prices
  • Recieved financing commitment for 80% of the purchase price for Allure of the Seas
  • Have $770MM of debt maturities which they can easily fund from cash flow from operations
  • International products all experiencing positive momentum.  
  • Outlook for Europe (8 ships) is particularly encouraging.  3 ships in Alaska also booking well. Promising bookings in Caribbean product - but still have limited visibility as they have a lot left to sell. 
  • Eclipse to be delivered in April
  • In Caribbean continuedto see close in bookings in the quarter. 
  • This months European season is looking very strong
  • Bookings are also performing well on non-Solstice class ships in Europe
  • Will continue to operate 3 ships in Alaska
  • Back in the Bermuda cruises after a 7 year absence.

Q&A

  • Oasis was a special case and opportunity - less likelihood that they will have more of them
  • SG&A is likely to be flat to slightly up in 2010
  • Capacity growth in Europe and pricing impact? So far Europe is looking very robust and not impacted by capacity growth
  • What drove the divergence of ticket revenue and onboard revenue?  Ticket revenue tends to be more volatile than onboard. Are seeing positive trends in onboard spending
  • As they have matured in certain new markets, margins on off shore excursions improve
  • Booking window had a slight amount of expansion.  Some premium destinations are seeing an expansion but Mexican cruises saw a contraction
  • Capital spend looks $400MM higher than guided, (offset by gain on derivatives costs)
  • Load factors were about 2% down from 2008 in 2009. Expect load factors to recover a little
  • First quarter yield guidance? Gave prior guidance that it would be positive ex currency, and now it looks flat.
    • "talking about marginal changes" and feel like they are fairly consistent in prior guidance
    • Well, regardless of how management feels, they are clearly missing 1Q2010 expectations
  • Once the second wave of Solstice and Oasis ships come online do they expect any price degradation?
    • So far they aren't seeing any fall off at all
    • Allure of the Seas wasn't delivered until Dec
  • Disney ship? Historically they have seen that their ships add a halo to the market as it legitimizes cruising in general
  • Wave season continues to be very important to them 
  • Pullmantur? Spanish economy continues to be the weakest economy where they are currently operating.  Feel that Pullmantur has yield recovery potentially, but sounds like Pullmantur is still weak prob not accretive in 2010
  • Oasis is seeing more of an increase on ticket yields than onboard
  • Onboard spending is better across the board
  • Legal settlement detail? First $0.30 that were already announced and some deferred aspects to be recognized over several years, however, GAAP dictates they have to take the additional deferred payment in 1Q2010. So they will get $68MM in 1Q2010 and remaining $20MM will be paid on a deferred basis

 


R3: It’s Easy to Tell Who’s in Control

R3: REQUIRED RETAIL READING

January 28, 2009

 

Check out the differences between the income statement/balance sheet trade offs between UA, HBI and H&M.  Excellence, Mediocrity, and Cluelessness.

 

 

TODAY’S CALL OUT

 

One of the first things we do when a company reports earnings is triangulate the income statement and balance sheet vis/vis our SIGMA (Sales Inventory Gross Margin Analysis), which shows us the real health of the print relative to levers pulled on the balance sheet. If you follow our work, then you have, no doubt, seen these on many occasions.  

 

The normal cycle for anyone in retail is to move clockwise on the chart below; Quadrant 1) ‘business is great’, Q2) ‘yeah, our inventory is building, but we’re the best (and cockiest) at what we do and we’re not concerned about building inventory’, Q3) ‘of crud, we were wrong… too much inventory AND no room to hold margin’, Q4) ‘OK, we get it. We’ll clear inventory even if at the expense of margin to put us in the pole position again.’

 

Fewer than 15% of companies in a given quarter will sustain counter clockwise trajectory – which largely means that margins are getting better without a cleansing process first. I can also say that without the cleansing process, for margins to get better it usually means that the company is benefitting from an industry tailwind rather that the company proactively controlling its own destiny.

 

Ironic, then, that the first three SIGMA’s I looked at this morning (UA, HBI and H&M) entirely different movements. UA was clockwise = healthy. H&M was the opposite. And HBI was somewhere in between. I still firmly think these subtleties will set the stage for which names will be on each side of the ‘quality vs junk’ bifurcation in 2010.

 

R3: It’s Easy to Tell Who’s in Control - UA HBI H M SIGMA

 

 

LEVINE’S LOW DOWN 

  • Expect extra scrutiny when trying to promote a “Green” image, especially from bloggers. H&M is currently embroiled in a controversy after some fashion blogs discovered their 100% organic cotton line may not be exactly as advertised. After posting the concerns, the company responded by saying that in fact some of the cotton used in the garments was genetically modified. We expect retailers and manufacturers to remain under the microscope as many are claiming to be “sustainable”, while at the same time failing to verify such claims.
  • Add Hanesbrands to the list of companies looking to make an acquisition. Company management indicated that they are getting more serious about M&A, although debt pay down is still a priority. The company is focused on deals in the $100-$300 million range and they must be domestic given restrictions on the company’s debt. Management also noted that there are no negations currently underway, but that they are beginning to explore potential targets at this time.
  • According to a Neilsen survey, global consumers nearly doubled their time spent on social networking sites, to 5 hours and 35 minutes in the month of December. This compares to 3 hours and 3 minutes in December ’08. Interestingly, Australians spend the most amount of time on such sites, averaging 6 hours and 52 minutes while the average American is spending 6 hours and 9 minutes. Japan is at the bottom of the country list, with the average consumer spending 2 hours and 50 minutes tending to social media.

 

MORNING NEWS 

 

Li & Fung Signs Walmart Deal That May Generate $2 Billion Sales - Li & Fung Ltd. today entered an agreement to supply clothes and other consumer goods to Wal-Mart Stores Inc. that may generate an additional $2 billion of sales in the first year, President Bruce Rockowitz said. Walmart will have the option to acquire WSG Pte, the Li & Fung buying agency involved in the arrangement, after Jan. 1, 2016 according to a statement from Li & Fung, which didn’t set a price for the unit. Rockowitz declined to say if today’s deal would make Walmart the biggest client for the Hong Kong-based outsourcing specialist, overtaking Kohl’s Corp. Li & Fung, which makes more than 60 percent of revenue in the U.S., is accelerating efforts to buy smaller rivals and sign outsourcing agreements to meet a target of $20 billion in sales this year. The company, whose 35 percent gain in market value over the past six months makes it the third-best performer on the benchmark Hang Seng Index, has a $1 billion acquisition fund. Walmart isn’t obligated to any sourcing or shipping volume under the agreement, Li & Fung, the biggest supplier of goods to retailers including Target Corp., Inditex SA’s Zara and Marks & Spencer Plc, said in its statement. “We expect to do about $2 billion in the first year,” Rockowitz said in a phone interview today. Walmart, the world’s largest retailer, will become Li & Fung’s biggest client if it buys $2 billion worth of goods, Marsden said.  <bloomberg.com>

 

Macy’s Said to Be Cutting 1,500 Store-Level Jobs as of March 6 - Macy’s Inc., the second-biggest U.S. department-store chain, is eliminating 1,500 store-level positions effective March 6, two people familiar with the decision said yesterday. Macy’s, based in Cincinnati, is firing department managers and merchandising team managers, said the people, who declined to be identified because the cuts haven’t been made public. Some stores are losing operations managers, and the remainder will be shared across multiple stores, the people said. In addition, full-time stock positions were cut, they said.

Macy’s is standardizing its individual store structure nationwide, which involves eliminating and adding positions, according to Jim Sluzewski, a spokesman. The net result in the number of jobs is not yet known, he said. The move is a continuation of the chain’s process of reducing the number of its regional divisions and adding more local managers to better tailor its merchandise to local markets, Sluzewski said by telephone yesterday when contacted for comment. Macy’s also has been reducing expenses and controlling inventories after sales slowed amid rising U.S. unemployment. It said earlier this month it was shuttering five stores.  <bloomberg.com>

 

Callaway Golf Appoints Board Member - Callaway Golf Company appointed Adebayo O. Ogunlesi to its board of directors. Ogunlesi, 56, is Chairman and Managing Partner of Global Infrastructure Management, LLC, which is a private equity firm with over $5 billion in assets which invests worldwide in infrastructure assets in the energy, transport, water and waste industry sectors. He will begin serving immediately and will stand for election for a full one-year term at the Company's 2010 Annual Meeting of Shareholders in May. Prior to founding Global Infrastructure Management, Ogunlesi spent 23 years at Credit Suisse where he held senior positions, including Executive Vice Chairman and Chief Client Officer and prior to that Global Head of Investment Banking. "Bayo's extensive knowledge and experience advising clients in corporate finance and general business matters will benefit the Board greatly," said Ronald S. Beard, Chairman and Lead Independent Director, Callaway Golf Company. "He is a welcome addition to the Board and we look forward to working with him." <sportsonesource.com>

 

Blue Nile’s founder and key alumni unveil their new private-sale site - After six months of development, two of the founding executives of online jeweler Blue Nile Inc. are formally taking the wraps off their newest venture: Zulily.com, a new private-sale web site aimed at young moms. Zulily.com launched today as a free members-only web site that will sell baby clothes, toddler’s apparel and similar products through limited-time sales, says CEO Darrell Cavens, who formerly was senior vice president of marketing and technology at Blue Nile. The site features merchandise discounted by up to 70% and sold during a three-day event, says Cavens. The first event features products from Origany Inc., a manufacturer of organic cotton and baby alpaca apparel for babies and toddlers, and HandySitt.com, a manufacturer of portable high chairs for children ages six months through five years. Subsequent events will feature merchandise from Lex Modern, a supplier of personalized art, ornaments and handprint kits, and Baby Nav, a distributor and retailer of baby and toddler apparel. “We will feature a great deal of diversity with the brands,” says Cavens. “What we will offer won’t just be what’s found in a typical big-box store.”  <internetretailer.com>

 

JJB Chairman Steps Down, Pinsent Will Join Board - JJB Sports Plc, an unprofitable U.K. sporting goods retailer, said Chairman David Jones resigned, announcing at the same time a 28 percent decline in full-year same-store sales because of a lack of stock. The retailer appointed Matthew Pinsent, the Olympic gold medal-winning rower, and Moss Bros Group Plc Chairman David Adams as non-executive directors. Jones will step down from Jan. 31, the end of the company’s fiscal year, for health reasons, while staying on as a non-executive director, JJB said in a statement today. Total group revenue for the financial year fell 51 percent. Jones said on Dec. 17 that new merchandise worth 75 million pounds ($122 million) would arrive toward the end of January and that would mark “the start of the recovery.”  <bloomberg.com>

 

Aliansce IPO Weakness Shows Bovespa Decline Damps Risk Appetite - Aliansce Shopping Centers SA is raising less money in its initial public offering than the company planned, adding to signs that the worst Brazil stock market drop in three months is damping demand for new shares. Aliansce and stakeholders may raise 673 million reais ($362 million), 20 percent less than the 845 million reais for the initial sale that the company estimated two weeks ago. The shopping mall owner’s initial offering is the first in Latin America’s biggest equity market this year. Metalfrio Solutions SA, the nation’s biggest maker of commercial refrigerators, canceled its planned share sale and M. Dias Branco SA, the biggest maker of cookies and pasta, postponed an offering in the past week as the Bovespa index fell 8 percent since Jan. 6, the worst slump since October.  <bloomberg.com>

 

Cheapest Route to Walmart From China May Skip Buffett’s Railway - Chinese toys and sneakers headed to Wal-Mart Stores Inc. and Target Corp. on the U.S. East Coast may bypass Warren Buffett’s $33.8 billion railway as the expansion of the Panama Canal slashes the cost of shipping them by sea.

The deeper, wider canal will allow A.P. Moeller-Maersk A/S, China Ocean Shipping Group Co. and other lines to ship more cargo directly to New York and Boston instead of unloading it on the West Coast for trains and trucks to finish the journey east. That could save exporters 30 percent, the canal operator said. The $5.25 billion Panama Canal project, scheduled for completion during its centennial in 2014, may take business from ports including Los Angeles and Seattle, and railroads including Berkshire Hathaway Inc.’s Burlington Northern Santa Fe Corp. It costs as much as $1,000 more per cargo container to use trains than ships, said Lee Sokje, a shipbuilding analyst at Mirae Asset Securities Co. in Seoul.

“It is inevitable that railways, such as Burlington Northern, will lose some of their cargo once the Panama Canal is expanded,” said Jee Heon Seok, a shipping analyst for NH Investment & Securities Co. in Seoul. “Many more containers can be moved in a single voyage on a ship than going through the West Coast ports.”  <bloomberg.com>

 

Men's Specialty Stores See Positive Signs for 2010 - After business dried to a drip in the fall of 2008 and continued that way through most of last year, men’s specialty stores experienced a slight rebound in the fourth quarter, providing some hope for the future. Those that managed to survive did so by drastically reducing inventories — some as much as 30 percent — cutting expenses, seeking lower-priced merchandise options to appeal to price-conscious consumers and running more promotions. But according to stores shopping the New York market last week, a minor uptick in sales is still not enough to make them return to the old ways of doing business. Inventories may inch up a bit but will still be down from two years ago, sportswear will continue to gain at the expense of tailored clothing, whose sales have been lackluster at best, and incentives will still have to be offered to lure shoppers. Some of these strategies are counterintuitive for independents, many of whom have cut their teeth on clothing and have always managed to hold firm against promotional pricing. But 2010 is a new year and necessitates an entirely new way of doing business, retailers report, and they’re prepared to do whatever it takes to stay in business. <wwd.com>

 

Shipping: The Year Ahead - While brands and retailers see the pains of the recession easing this year, ocean carriers that get their goods to market are still girding for potentially massive upheaval. Carriers such as Maersk, APL Lines, Evergreen Line and Hanjin Shipping are facing myriad issues that are expected to linger throughout 2010 and beyond, including overcapacity of ships and containers, rising fuel prices and low freight rates. During the annual Textile & Apparel Importers Trade & Transportation Conference held in New York in November, executives from APL and Hanjin stressed their companies had taken all possible measures to reduce their losses. Ships have been scrapped, slowed down, idled for months and had their service patterns altered. Companies are also delaying the delivery of new ships. Still, they expected to see bankruptcy or consolidation among carriers as a result. “There are too many ships chasing too many containers,” said Robert Sappio, senior vice president of Pan American trade for APL Lines. The oversupply was exacerbated by the global recession and as a result ocean carriers failed to maintain freight rates at a level that would ensure survival. This has been particularly evident in crucial Trans-Pacific rates. <wwd.com>

 

Study finds barefoot runners have less foot stress than shod ones - Scientists have found that those who run barefoot, or in minimal footwear, tend to avoid "heel-striking," and instead land on the ball of the foot or the middle of the foot. In so doing, these runners use the architecture of the foot and leg and some clever Newtonian physics to avoid hurtful and potentially damaging impacts, equivalent to two to three times body weight, that shod heel-strikers repeatedly experience. "People who don't wear shoes when they run have an astonishingly different strike," says Daniel E. Lieberman, professor of human evolutionary biology at Harvard University and co-author of a paper appearing this week in the journal Nature. "By landing on the middle or front of the foot, barefoot runners have almost no impact collision, much less than most shod runners generate when they heel-strike. Most people today think barefoot running is dangerous and hurts, but actually you can run barefoot on the world's hardest surfaces without the slightest discomfort and pain. All you need is a few calluses to avoid roughing up the skin of the foot. Further, it might be less injurious than the way some people run in shoes." <physorg.com>

 

 

TODAY’S CALL OUT

 

One of the first things we do when a company reports earnings is triangulate the income statement and balance sheet vis/vis our SIGMA (Sales Inventory Gross Margin Analysis), which shows us the real health of the print relative to levers pulled on the balance sheet. If you follow our work, then you have, no doubt, seen these on many occasions.  

 

The normal cycle for anyone in retail is to move clockwise on the chart below; Quadrant 1) ‘business is great’, Q2) ‘yeah, our inventory is building, but we’re the best (and cockiest) at what we do and we’re not concerned about building inventory’, Q3) ‘of crud, we were wrong… too much inventory AND no room to hold margin’, Q4) ‘OK, we get it. We’ll clear inventory even if at the expense of margin to put us in the pole position again.’

 

Fewer than 15% of companies in a given quarter will sustain counter clockwise trajectory – which largely means that margins are getting better without a cleansing process first. I can also say that without the cleansing process, for margins to get better it usually means that the company is benefitting from an industry tailwind rather that the company proactively controlling its own destiny.

 

Ironic, then, that the first three SIGMA’s I looked at this morning (UA, HBI and H&M) entirely different movements. UA was clockwise = healthy. H&M was the opposite. And HBI was somewhere in between. I still firmly think these subtleties will set the stage for which names will be on each side of the ‘quality vs junk’ bifurcation in 2010.

 

R3: It’s Easy to Tell Who’s in Control - UA HBI H M SIGMA

 

 

LEVINE’S LOW DOWN 

  • Expect extra scrutiny when trying to promote a “Green” image, especially from bloggers. H&M is currently embroiled in a controversy after some fashion blogs discovered their 100% organic cotton line may not be exactly as advertised. After posting the concerns, the company responded by saying that in fact some of the cotton used in the garments was genetically modified. We expect retailers and manufacturers to remain under the microscope as many are claiming to be “sustainable”, while at the same time failing to verify such claims.
  • Add Hanesbrands to the list of companies looking to make an acquisition. Company management indicated that they are getting more serious about M&A, although debt pay down is still a priority. The company is focused on deals in the $100-$300 million range and they must be domestic given restrictions on the company’s debt. Management also noted that there are no negations currently underway, but that they are beginning to explore potential targets at this time.
  • According to a Neilsen survey, global consumers nearly doubled their time spent on social networking sites, to 5 hours and 35 minutes in the month of December. This compares to 3 hours and 3 minutes in December ’08. Interestingly, Australians spend the most amount of time on such sites, averaging 6 hours and 52 minutes while the average American is spending 6 hours and 9 minutes. Japan is at the bottom of the country list, with the average consumer spending 2 hours and 50 minutes tending to social media.

 

MORNING NEWS 

 

Li & Fung Signs Walmart Deal That May Generate $2 Billion Sales - Li & Fung Ltd. today entered an agreement to supply clothes and other consumer goods to Wal-Mart Stores Inc. that may generate an additional $2 billion of sales in the first year, President Bruce Rockowitz said. Walmart will have the option to acquire WSG Pte, the Li & Fung buying agency involved in the arrangement, after Jan. 1, 2016 according to a statement from Li & Fung, which didn’t set a price for the unit. Rockowitz declined to say if today’s deal would make Walmart the biggest client for the Hong Kong-based outsourcing specialist, overtaking Kohl’s Corp. Li & Fung, which makes more than 60 percent of revenue in the U.S., is accelerating efforts to buy smaller rivals and sign outsourcing agreements to meet a target of $20 billion in sales this year. The company, whose 35 percent gain in market value over the past six months makes it the third-best performer on the benchmark Hang Seng Index, has a $1 billion acquisition fund. Walmart isn’t obligated to any sourcing or shipping volume under the agreement, Li & Fung, the biggest supplier of goods to retailers including Target Corp., Inditex SA’s Zara and Marks & Spencer Plc, said in its statement. “We expect to do about $2 billion in the first year,” Rockowitz said in a phone interview today. Walmart, the world’s largest retailer, will become Li & Fung’s biggest client if it buys $2 billion worth of goods, Marsden said.  <bloomberg.com>

 

Macy’s Said to Be Cutting 1,500 Store-Level Jobs as of March 6 - Macy’s Inc., the second-biggest U.S. department-store chain, is eliminating 1,500 store-level positions effective March 6, two people familiar with the decision said yesterday. Macy’s, based in Cincinnati, is firing department managers and merchandising team managers, said the people, who declined to be identified because the cuts haven’t been made public. Some stores are losing operations managers, and the remainder will be shared across multiple stores, the people said. In addition, full-time stock positions were cut, they said.

Macy’s is standardizing its individual store structure nationwide, which involves eliminating and adding positions, according to Jim Sluzewski, a spokesman. The net result in the number of jobs is not yet known, he said. The move is a continuation of the chain’s process of reducing the number of its regional divisions and adding more local managers to better tailor its merchandise to local markets, Sluzewski said by telephone yesterday when contacted for comment. Macy’s also has been reducing expenses and controlling inventories after sales slowed amid rising U.S. unemployment. It said earlier this month it was shuttering five stores.  <bloomberg.com>

 

Callaway Golf Appoints Board Member - Callaway Golf Company appointed Adebayo O. Ogunlesi to its board of directors. Ogunlesi, 56, is Chairman and Managing Partner of Global Infrastructure Management, LLC, which is a private equity firm with over $5 billion in assets which invests worldwide in infrastructure assets in the energy, transport, water and waste industry sectors. He will begin serving immediately and will stand for election for a full one-year term at the Company's 2010 Annual Meeting of Shareholders in May. Prior to founding Global Infrastructure Management, Ogunlesi spent 23 years at Credit Suisse where he held senior positions, including Executive Vice Chairman and Chief Client Officer and prior to that Global Head of Investment Banking. "Bayo's extensive knowledge and experience advising clients in corporate finance and general business matters will benefit the Board greatly," said Ronald S. Beard, Chairman and Lead Independent Director, Callaway Golf Company. "He is a welcome addition to the Board and we look forward to working with him." <sportsonesource.com>

 

Blue Nile’s founder and key alumni unveil their new private-sale site - After six months of development, two of the founding executives of online jeweler Blue Nile Inc. are formally taking the wraps off their newest venture: Zulily.com, a new private-sale web site aimed at young moms. Zulily.com launched today as a free members-only web site that will sell baby clothes, toddler’s apparel and similar products through limited-time sales, says CEO Darrell Cavens, who formerly was senior vice president of marketing and technology at Blue Nile. The site features merchandise discounted by up to 70% and sold during a three-day event, says Cavens. The first event features products from Origany Inc., a manufacturer of organic cotton and baby alpaca apparel for babies and toddlers, and HandySitt.com, a manufacturer of portable high chairs for children ages six months through five years. Subsequent events will feature merchandise from Lex Modern, a supplier of personalized art, ornaments and handprint kits, and Baby Nav, a distributor and retailer of baby and toddler apparel. “We will feature a great deal of diversity with the brands,” says Cavens. “What we will offer won’t just be what’s found in a typical big-box store.”  <internetretailer.com>

 

JJB Chairman Steps Down, Pinsent Will Join Board - JJB Sports Plc, an unprofitable U.K. sporting goods retailer, said Chairman David Jones resigned, announcing at the same time a 28 percent decline in full-year same-store sales because of a lack of stock. The retailer appointed Matthew Pinsent, the Olympic gold medal-winning rower, and Moss Bros Group Plc Chairman David Adams as non-executive directors. Jones will step down from Jan. 31, the end of the company’s fiscal year, for health reasons, while staying on as a non-executive director, JJB said in a statement today. Total group revenue for the financial year fell 51 percent. Jones said on Dec. 17 that new merchandise worth 75 million pounds ($122 million) would arrive toward the end of January and that would mark “the start of the recovery.”  <bloomberg.com>

 

Aliansce IPO Weakness Shows Bovespa Decline Damps Risk Appetite - Aliansce Shopping Centers SA is raising less money in its initial public offering than the company planned, adding to signs that the worst Brazil stock market drop in three months is damping demand for new shares. Aliansce and stakeholders may raise 673 million reais ($362 million), 20 percent less than the 845 million reais for the initial sale that the company estimated two weeks ago. The shopping mall owner’s initial offering is the first in Latin America’s biggest equity market this year. Metalfrio Solutions SA, the nation’s biggest maker of commercial refrigerators, canceled its planned share sale and M. Dias Branco SA, the biggest maker of cookies and pasta, postponed an offering in the past week as the Bovespa index fell 8 percent since Jan. 6, the worst slump since October.  <bloomberg.com>

 

Cheapest Route to Walmart From China May Skip Buffett’s Railway - Chinese toys and sneakers headed to Wal-Mart Stores Inc. and Target Corp. on the U.S. East Coast may bypass Warren Buffett’s $33.8 billion railway as the expansion of the Panama Canal slashes the cost of shipping them by sea.

The deeper, wider canal will allow A.P. Moeller-Maersk A/S, China Ocean Shipping Group Co. and other lines to ship more cargo directly to New York and Boston instead of unloading it on the West Coast for trains and trucks to finish the journey east. That could save exporters 30 percent, the canal operator said. The $5.25 billion Panama Canal project, scheduled for completion during its centennial in 2014, may take business from ports including Los Angeles and Seattle, and railroads including Berkshire Hathaway Inc.’s Burlington Northern Santa Fe Corp. It costs as much as $1,000 more per cargo container to use trains than ships, said Lee Sokje, a shipbuilding analyst at Mirae Asset Securities Co. in Seoul.

“It is inevitable that railways, such as Burlington Northern, will lose some of their cargo once the Panama Canal is expanded,” said Jee Heon Seok, a shipping analyst for NH Investment & Securities Co. in Seoul. “Many more containers can be moved in a single voyage on a ship than going through the West Coast ports.”  <bloomberg.com>

 

Men's Specialty Stores See Positive Signs for 2010 - After business dried to a drip in the fall of 2008 and continued that way through most of last year, men’s specialty stores experienced a slight rebound in the fourth quarter, providing some hope for the future. Those that managed to survive did so by drastically reducing inventories — some as much as 30 percent — cutting expenses, seeking lower-priced merchandise options to appeal to price-conscious consumers and running more promotions. But according to stores shopping the New York market last week, a minor uptick in sales is still not enough to make them return to the old ways of doing business. Inventories may inch up a bit but will still be down from two years ago, sportswear will continue to gain at the expense of tailored clothing, whose sales have been lackluster at best, and incentives will still have to be offered to lure shoppers. Some of these strategies are counterintuitive for independents, many of whom have cut their teeth on clothing and have always managed to hold firm against promotional pricing. But 2010 is a new year and necessitates an entirely new way of doing business, retailers report, and they’re prepared to do whatever it takes to stay in business. <wwd.com>

 

Shipping: The Year Ahead - While brands and retailers see the pains of the recession easing this year, ocean carriers that get their goods to market are still girding for potentially massive upheaval. Carriers such as Maersk, APL Lines, Evergreen Line and Hanjin Shipping are facing myriad issues that are expected to linger throughout 2010 and beyond, including overcapacity of ships and containers, rising fuel prices and low freight rates. During the annual Textile & Apparel Importers Trade & Transportation Conference held in New York in November, executives from APL and Hanjin stressed their companies had taken all possible measures to reduce their losses. Ships have been scrapped, slowed down, idled for months and had their service patterns altered. Companies are also delaying the delivery of new ships. Still, they expected to see bankruptcy or consolidation among carriers as a result. “There are too many ships chasing too many containers,” said Robert Sappio, senior vice president of Pan American trade for APL Lines. The oversupply was exacerbated by the global recession and as a result ocean carriers failed to maintain freight rates at a level that would ensure survival. This has been particularly evident in crucial Trans-Pacific rates. <wwd.com>

 

Study finds barefoot runners have less foot stress than shod ones - Scientists have found that those who run barefoot, or in minimal footwear, tend to avoid "heel-striking," and instead land on the ball of the foot or the middle of the foot. In so doing, these runners use the architecture of the foot and leg and some clever Newtonian physics to avoid hurtful and potentially damaging impacts, equivalent to two to three times body weight, that shod heel-strikers repeatedly experience. "People who don't wear shoes when they run have an astonishingly different strike," says Daniel E. Lieberman, professor of human evolutionary biology at Harvard University and co-author of a paper appearing this week in the journal Nature. "By landing on the middle or front of the foot, barefoot runners have almost no impact collision, much less than most shod runners generate when they heel-strike. Most people today think barefoot running is dangerous and hurts, but actually you can run barefoot on the world's hardest surfaces without the slightest discomfort and pain. All you need is a few calluses to avoid roughing up the skin of the foot. Further, it might be less injurious than the way some people run in shoes." <physorg.com>


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 80.28%
  • SHORT SIGNALS 78.51%

UNEMPLOYMENT CLAIMS DATA SOFTENS - STAY TUNED

Initial claims fell 8k to 470k last week, down from 478k the prior week (revised down 4k). On a rolling 4-week basis, average initial claims rose 9k to 457k from 448k and are up 15k in the last two weeks. While the rolling number remains within the channel of improvement shown in the following chart, it is moving to the upper band of that channel quickly. Given the historical tendency for this seasonally adjusted data to trend up in mid-to-late January we will give it the benefit of the doubt for now that the longer-term trend lower remains in place, but we think the next month's worth of data will be very important. it's definitely time to pay attention.

 

Joshua Steiner, CFA

Financials

 

UNEMPLOYMENT CLAIMS DATA SOFTENS - STAY TUNED - 1.28.10


THE M3: LVS TO RESTART COTAI

The Macau Metro Monitor. January 28th, 2010

 

LVS TO RESTART COTAI IN FEBRAURY macaubusiness.com

LVS announced that it will start construction on sites 5 & 6 right after Chinese New Year, on Feb 14th. According to Tribuna de Macau, Steve Jacobs, LVS's Macau president, said they are now looking to recruit around 10,000 workers to get lots 5 and 6 going again after over a one year halt. The project will be built in three phases with Phase I expected to open June 2011 with  three luxury hotels with around 3,700 rooms and casino facilities with 670 gaming tables and 2,200 slot machines.


ANOTHER SO/SO SUPPLIER EARNINGS RELEASE

BYI met consensus EPS but top line was soft.  We thought they would’ve done better.   BYI did maintain previous guidance, albeit a very wide range, but seemed more cautious on the current Q.

 

 

IGT and WMS beat but the quarters were of low quality.  Both provided somewhat disappointing guidance – IGT didn’t raise despite the beat and WMS provided FQ3 (March) guidance below Street consensus.  BYI was a little different because the company only met consensus but missed our expectations.   However, their quarter was also low quality.  Revenues missed but an very high gross margin on product sales and a low tax rate allowed them to make the EPS number. 

 

BYI reiterated its FY2010 EPS guidance range of $2.30-2.55, although given our view on new/expanded casino openings over the next two quarters, we’re guessing the Street may have to come down off of its $2.44 estimate.  The Street’s $0.65 estimate for the March quarter may be even more at risk – BYI hinted as much during their call.

 

BYI is down 7% since IGT reported last Thursday night so some of the disappointment may be in the stock already.  Even though the important part of the long-term thesis remains new markets and normalizing replacement demand – both very much intact – we’d prefer to see more conservative near-term estimates for BYI and the rest of the sector.

 

So what did we learn from the release?

 

Game sales

  • Similar to WMS (but not IGT) replacements orders were better than expected while new and expansion units were disappointing (we will have another note out shortly elaborating on this issue)
  • Calendar Q4 slot orders for the industry may have been a “catch up” quarter given it’s the last quarter of the fiscal year for most operators and orders from the rest of 2009 were paltry
  • Unlike IGT and WMS, BYI’s international shipments where surprisingly good.  We suspect that a couple hundred shipments to Mexico helped
  • ASP’s were disappointing, but this could be because the units shipped to Mexico are at a lower ASP
  • Margins were very impressive due to reductions in material costs and mix shift towards more video shipments which have slightly higher margins than mechanical reel machines. Conversions kits, while down sequentially where also likely a higher % of the "other mix"

 

Game Operations

  • Placements were below expectations although we agree with management that the timing of new game introductions hurt them this quarter
  • Win-per-unit was also disappointing.  We thought that blaming it on the weather was kind of weak… Robert you’re better than that

 

Other

  • No real revelations on systems
  • SG&A was a little higher than our estimate, but the Dec Q did include $3MM of G2E related expenses
  •  R&D expenses, similar to IGT and WMS, were below expectations
  • BYI’s tax rate was lower, although that’s mostly due to the strong performance of lower tax international jurisdictions(which represented a higher share of profits) as well as higher shipments to Nevada, which also has a lower tax rate.  If international shipments stay strong the lower tax rate could continue in 2H FY2010

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