We don't have a huge call in front of HOT's Q1 release but we do have a few thoughts. We've also included management's forward looking comments from their Q4 release and conf call.



“While it’s tempting to extrapolate the most recent trend all the way through 2010, we think it would not be prudent to do so this early in the year for several reasons. Firstly, we lap the steepest declines in the first two quarters. Comparisons get somewhat tougher in the second half. Second, GDP growth right now is above trend, with inventory replenishment, fiscal and monetary stimulus. Will this be sustained as we enter the back half? Countries like China, India, Australia, and Brazil are all taking steps to prevent their economies from overheating. Could things cool down a bit in some of our fastest growing markets? And finally, we’ve taken a massive hit on rates. What will be the pace of rate improvement? It’s too early to tell.”

-  Vasant M. Prabhu, Executive Vice President and Chief Financial Officer, Starwood Hotels 


Vasant's comments from the last earnings call where more conservative than the typical HOT commentary.  Given the recent STR numbers and guidance from MAR, the commentary is likely to be more bullish on HOT's coming earnings call this Thursday.  We expect that HOT will meet raised Street expectations and raise guidance for the balance of the year. Our revised 2010 Adjusted EBITDA estimate is $785MM, $35MM ahead of HOT's guidance and $25MM ahead of the Street. However, at north of 16x EBITDA does it really matter?





  • “Looking ahead, it’s safe to declare that our headwinds of 2009 – luxury brands, owned hotels, global footprint, and even foreign exchange – will soon be tailwinds.”
  • “Just like prior cycles, ADR improvements will lag the general environment.”
  • “We expect 2010 to be the third-straight year of 8%-plus gross unit additions.”
    • Comments from Barclay conference on 3/25: "We’re targeting mid-single-digit growth on a net basis in 2010."
  • “Leisure travel continues to rebound after the depths of 2009. Group is improving, with new leads up in the mid-teens. Business travelers have returned, as witnessed by improving Monday-to-Thursday occupancies. New York, a good leading indicator, saw occupancy levels of roughly 88% in Q4. That’s just short of the peak of 88.5% in 2007.”


  • “Based on what we see unfolding today, we expect worldwide company-operated REVPAR to be between flat and plus 5% in 2010 and REVPAR at our owned hotels to be roughly flat year-over-year.”
    • In developed markets, we do not expect much growth. North America could be flat to down 3% and Europe only up modestly, flat to up 3%.”
    • “Positive REVPAR growth will be driven by emerging markets, Asia, Latin America, the Middle East, and Africa, where we earned more than 40% of our fees in 2009.”
  • “We expect owned REVPAR to be flattish, down 2% to up 2% in local currencies. Occupancies are likely to be positive, but rates will stay negative. With flat REVPAR and occupancies up, we will need to continue to work hard to limit cost growth. Our intent remains to offset wage and expense inflation with various productivity and procurement programs, as we did in 2009. However, 2010 will be another year of declining owned EBITDA.”
    • You should assume that there is another year of somewhere in the range of 10 to 15% declines in owned EBITDA”
  • “With salary adjustments, incentive compensation resets, the negative impact of the weak dollar, and a couple of other items moving in the wrong direction, SG&A in 2010 will be up 3 to 5%.”
  • On an operating basis, our vacation ownership business will be down 40 million or so versus 2009. 23 million of the reduction would be from securitization gains, which we will not have in 2010 due to the change in accounting rules... As a result, interest income this year will be 15 to 20 million lower. This 40 million or so decline in vacation ownership operating results is offset by a 40 million add-back from the adoption of FAS 166/167.”
  • “At the midpoint of the zero to up 5% REVPAR range and the plus two to minus 2% range for owned hotels, baseline company EBITDA would be $750 million. Each point of REVPAR adds or subtracts 15 million in EBITDA. For an apples-to-apple comparison to 2010, you have to adjust 2009 down by around 20 million for asset sales and the de-flagging of the Sheraton Manhattan.”
  • “Our D&A… is down about 10 million or so due to asset sales. Our book interest expense is up by about 20 million from the accounting change. With a 22% tax rate, the 750 million scenario for EBITDA translates to $0.63 of EPS.”
  • “In 2010, we’ll spend 250 million in hotel capital. Investment capital spending will be 100 million, as we undertake some ROI projects which were on hold. Maintenance and IT spending will be 150 million, as we step up spending on technology.”
  • “SVO will generate over $150 million in cash flow, more than adequate to cover capital deployed at Bal Harbour. Bal Harbour capital is estimated at 140 million but could be lower as we receive deposits from additional condo sales. Both inquiries and contract activity at Bal Harbour have picked up meaningfully after the turn of the year”
  • “Assuming we receive 200 million plus from the tax refund, after paying dividends and before any additional asset sales, debt should come down another 100 to 200 million by the end of the year.”
  • Net pipeline additions in 2010?
    • “Yeah, if you say about 80 hotels opening, we would say exits are probably in the – hopefully in the 25 to 30 range. So a net 50 with an average of about, let’s say, 300 rooms. So that would give you 15,000 rooms a year on a base of 300. So it’s about 5%.”


  • “Guests are coming back to luxury. With higher occupancy, REVPAR for this segment was down roughly 3%. Regionally, Asia Pacific stood out, with REVPAR plus 1%. Yes, folks, you heard correctly, that was plus 1%. But it does include 600 basis points of foreign exchange tailwind.
  • “We exceeded our REVPAR expectations as late breaking, in particular corporate transient, business was stronger than we had anticipated around the world, and the recovery trend accelerated as the quarter progressed.”
  • “In North America, REVPAR improved from down 11 to 12% in October-November to down 6.5% in December and down 3% in January at company-operated hotels. This pace of improvement was entirely driven by occupancy, which went from being flat to up one point in December, to up over six points in January. And most of the occupancy increase was driven by weekday room nights, which grew 6 to 7% in December and January. Leisure transient room nights remained consistently positive, offsetting group declines. Rate continues to lag, but periods of compression in December and January allowed us to improve rate realization from negative 12% in October to negative 9% in January.”
  • “Local currency REVPAR at company-operated hotels in Asia went from negative 10% and 6% in October and November to positive 7% and 12% in December and January, a 20-point swing over the past four months, as occupancy jumped from up three points to being up nine points, while the rate decline in local currency moderated from minus 14% in October to minus 7% in January. The recovery was broad-based across Asia, led by China. The only market that lags is Japan. Powering the recovery was in-the-quarter, for-the-quarter business up 20% in transient and up over 60% in group over the last year.”
  • “Europe, Africa, and the Middle East REVPARs were down 2% in December-January after being down 12% in October-November. Once again, occupancy turned positive and rate declines moderated.”
  • “South America is coming back strongly as H1N1 effects fade, but Mexico, which is tied closely to the U.S., remains weak.”
  • “In our vacation ownership business, the trend towards stabilization continued. Tours and close rates are holding up; pricing is under some pressure.”

GS: Risk Management Update . . . It’s Math

When it comes to GS, we aren’t trying to be anything other than right on this stock. Our role as The Risk Manager is to tell you where this stock has the highest probability of going in the immediate term; not to pander to the many friends we have who work at Goldman Sachs. This isn’t about them. This is about re-regulating the financial system.


Today you are seeing lower-lows in the stock (post the SEC charge) on another day of heavy volume (16M shares traded as of 1130AM EST). Below the $151 line of support we issued last week is no quantitative support to $142.89/share (green line in the chart below).


Interestingly, GS’s credit default swaps are widening by almost +13% today to 162 basis points. While this isn’t in the area code of Bear/Lehman days of 2008, on the margin it’s certainly not a bullish development.  The chart of Goldman CDS is outlined below.


As we have highlighted in the past, keeping abreast of the credit default swap market can be a great leading indicator for what will happen in the equity markets. Or currency markets, as the case may be.


On April 19th we highlighted a similar point in a note titled, “Keep Your Eyes on Greek CDS . . .”, which emphasized the Greek CDS had expanded to levels similar to February of this year.  Since that date, the Greek stock market has declined 7.7%.


The point is not to pile on with the Goldman bears, but rather just to highlight a risk factor when thinking about the equity of Goldman. 


Citadel’s Chief, Ken Griffin, just explained risk management in two words to an awestruck crowd at the Milken Institute today – “it's math.”


Well done, Ken. And thank you.




Keith R. McCullough
Chief Executive Officer


GS: Risk Management Update . . . It’s Math - GS1


GS: Risk Management Update . . . It’s Math - GSCDS2



A few quick takes on the new Starbucks layout in SoHo.


During the Starbucks earnings call last week, Chairman, President and Chief Executive Officer Howard Shultz encouraged listeners to check out the new design of their Spring Street location in SoHo.  For those of you who haven’t had the chance, see the photos below.  For me, the layout certainly had more of a “coffeehouse” feel than the typical Starbucks.  Cliff Burrows said on the 2Q10 Earnings Call that this location is a great example of the “more comprehensive refresh” that Starbucks is carrying out.


In addition to the new interior, the Spring Street location was also heavily promoting Clover coffee which, paradoxically, I was told takes longer to prepare but hasn’t increased wait times on average. While I didn’t get a lengthy explanation of this reasoning, the spacious bar area may help reduce congestion and allow customers seeking a convenient morning cup of coffee to get through the store at a reasonable pace. Of course, this may not be the case at less spacious stores.









Rory Green



Howard Penney

Managing Director

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R3: In Defense of Thy Customer


April 26, 2010





In a rare move on Friday, VF Corp took an equity stake in one of its UK retail partners, Blacks Leisure. While the stake itself amounts to 5% of Black’s shares outstanding or approximately a $2 million position, the move is more interesting from a strategic viewpoint than a monetary one. After all, Blacks is the largest outdoor retailer in the UK and likely one of The North Face’s largest UK customers. In fact, if you scan the Blacks’ corporate website you’ll notice frequent references to the brand.


Without going into the long history of Blacks and its troubles over the past couple of years (the company is the midst of a major turnaround, closing doors, in need of capital, and has previously rejected a takeover from rival Sports Direct which owns 28.5%), the move is clearly aimed at keeping this 300+ door retailer alive. Importantly, the 5% acquired from exercising of warrants strategically fends off Sports Direct from attempting another takeover attempt. Yes there is a soap opera-like dynamic underpinning the UK sporting goods and outdoor marketplace, but one thing is sure. VF Corp has picked sides here and is willing to spend what amounts to little more than a rounding error for the $9+ billion apparel manufacturer to keep its business and brand presence alive in the UK. And, as with any soap opera, this story may still yet have more twists and turns on the horizon.


Eric Levine






- In an effort to cater to the female NFL fan with a bit of fashion, Victoria’s Secret Pink will be rolling out a licensed apparel initiative for the upcoming season. The studded jerseys were showcased on Victoria’s Secret models over the weekend at the 75th NFL draft.


 - Expect some buzz from Louis Vuitton’s June marketing campaign, which comes to market just before the World Cup. The print ad photographed by Annie Leibovitz includes soccer legends Zinedine Zidane, Diego Maradona, and Pele all playing foosball in a Madrid Café.


- Aside from being one of the most important digital marketing platforms to emerge in years, Facebook is about to become a viable ecommerce enabler as well. Through an application called ShopFans, brands and retailers will easily be able to set up shop to take advantage of the social network. Users will be able to promote sales, new products, and likes/dislikes to their friend lists, all contributing to a new era in “viral” commerce.





R3: In Defense of Thy Customer - Calendar





Affluent Young Shoppers Aid Luxury Market - Affluent young shoppers helped limit the damage to the luxury sector last year and set it on a course for recovery earlier than other parts of the economy. According to recent transaction data from American Express Business Insights, global luxury spending in 2009 showed signs of a rebound, and even growth. Despite a 20% decline in U.S. luxury spending last year, consumer purchases during 2H 09 increased almost 10%. Following up on that rebound, they spiked just over 20% in February and March of this year. This stabilization in luxury spending is part of a global trend, in which emerging economies such as India and Brazil have bounced back vigorously. Luxury spending in Japan and Australia was up 5% in 2009, and jumped 18% in February and March. In the European Union, which declined 15% last year, it increased 14% in February and March, according to American Express data. <>


Crocs Back Makes Moves - With a new marketing campaign, two flagship stores opening next month and a fresh assortment of product, Crocs Inc. President and CEO John McCarvel is optimistic about 2010. “We have a great line of product and we have a really good vision for where the brand is going,” said McCarvel. “With great product, coupled with an edgy, fun and a little bit different ad campaign, you get a reaction. What we’ve seen so far has been very positive. We’ve been happy with [the response].”  <>


R3: In Defense of Thy Customer - Crocs image


Bill Ackman Selling Stake in Sears Canada - William Ackman’s Pershing Square Capital Management will sell its stake in Sears Canada Inc. to Sears Holdings Corp. for almost $560 mm. The companies said Friday that Pershing Square had agreed to off-load all its roughly 18.7 mm shares of Sears Canada common stock, representing about 17.3% of shares outstanding, for 30 Canadian dollars a share. The sale, expected to close on Tuesday, boosts Sears Holdings’ stake in its Canadian unit to 90.4%. <>


European Footwear Looking For Late Spring Sales - After a slow start, European shops are looking for spring sales to pick up as temperatures rise. Many retailers polled last week said that while the economic situation is still causing concern, they expect this season to be better than last, and that renewed interest in lower heel heights is helping to drive sales. Overall, sales at the retailers are up, but customers have waited for the weather to improve before shopping for new styles. In Paris, the delayed start to spring also has had an impact in an already difficult climate.  The winter was cold and the economic situation was not good and there are fewer people traveling. In Germany, which has had one of Europe’s strongest economies of late, retailers said sales have been brisk so far this season, despite the weather. <>


Whirlpool Corp Boosts Annual Forecast - Whirlpool Corp., the world’s largest appliance maker, said it will earn $8 to $8.50 a share in 2010, higher than its earlier estimate of $6.50 to $7 a share. Analysts surveyed by Bloomberg had estimated profit of $6.83 on average. <>


VFC's Reef Introduces Coastal Cruisers - Reef is introducing Coastal Cruisers for spring ’11. The lightweight slip-ons can be worn with or without laces and have a soft EVA sockliner with built-in arch support. The footbed is a textured, pebbled EVA known as the “Wax Texture Cushion.” Coastal Cruisers retail from $50 to $55 and will hit shelves in January. Additionally, Reef is teaming up with Acai Roots, a company that manufactures Acai berry goods from the Brazilian Amazon, to create a sandal collection called the Ah-sy-ee. The shoes will be embellished with the seeds of the Acai berries and feature vibrant tropical hues, metallics and animal prints, as well as elements such as buckles, coins and wood. <>


Nine West Inks Deal with Joss Stone - Nine West Vintage America is getting a little help from across the pond. The label has signed Grammy Award-winning, British R&B singer Joss Stone to produce a fall ’10 capsule collection. Stone will collaborate with Nine West Creative Director Fred Allard on the project, with proceeds benefiting Soles4Souls. Shoes in the line will retail for $70 to $120, according to Stacy Lastrina, chief marketing officer for Nine West’s parent company, Jones Apparel Group Inc. <>


TSA Investing in Real Estate for Future Store Expansion Push - The Sports Authority promoted Lon Novatt to senior vice president real estate, effective immediately. In this role, Novatt will continue to oversee all activities related to the company's real estate initiatives. <>


PLCE Building Management Team - The Children’s Place is building up its senior team to fuel new strategies being orchestrated by president and chief executive officer Jane Elfers, who took the reins in January. Next month, Natalie Levy joins the chain as senior vice president of merchandising. She was Ann Taylor’s senior vice president and general merchandise manager, and before that held the same title at Lord & Taylor, overseeing proprietary brands for women’s sportswear, accessories, men’s and children’s.  Dina Sweeney, a 26-year veteran of The Children’s Place, has become senior vice president of outlets, a new position. Barrie Scardina has been named senior vice president of planning and allocation, and was previously Liz Claiborne’s vice president of retail operations. Last month, Larry McClure was named senior vice president of human resources. <>


UK Clothing Company Jack Wills Comes to the US - Jack Wills, the 11-year-old British clothing label whose laid-back designs play on the raffish style of British college students, is set to plant its flag in the U.S. Today, the label, which does men’s, women’s and homeware collections, opens its first American store in a former speakeasy on Martha’s Vineyard, while next month a unit will open in a former hardware store on Nantucket, followed by a boutique on Newbury Street in Boston in July. <>


Retail Industry Pleased with 34th St. Pedestrian Only Plan - The retail industry generally applauded plans by the Bloomberg administration to turn part of 34th Street into a pedestrian-only area and change the flow of traffic on the reainder. Under the 34th Street plan, cars would be banned between Fifth and Sixth Avenues, although two-way bus service would operate on one side of the street. The plan calls for general traffic traveling in one direction — west of Sixth Avenue toward the Hudson River and east of Fifth Avenue toward the East River. <>


PE Firm Triton Bids on German Department Store Karstadt - Private equity investment firm Triton put in a bid for the German Karstadt department group as the deadline for bidders neared its end on Friday. It is the only offer received for the 120-door retail unit of the insolvent department store, catalogue and travel group Arcandor. Karstadt is comprised of 86 department stores, 26 sports stores and eight bargain centers employing 25,000. <>


Lane Bryant Makes More News with its Risqué Ad - Lane Bryant may have been trying to get Americans to redefine female beauty, but the brand got into an ugly war of words with two networks to make its case. By week’s end the retailer rang up millions of dollars of free exposure for an ad that had yet to even air as Fox’s The O’Reilly Factor, CNN’s Showbiz Tonight, NBC’s Today show, The Huffington Post and the Drudge Report, among other places, covered the story. In portraying itself as a defender of larger women, the brand also got to redefine itself as a purveyor of dowdy apparel to one whose image revolved around a voluptuous woman in a red bra. The controversy kicked off after Lane Bryant claimed Fox and ABC resisted efforts by the plus-size clothing company to place the Zimmerman-created ad, promoting the company’s Cacique line, on American Idol and Dancing With the Stars. The Columbus, Ohio, company accused the two networks of a bias against larger women since those nets requested editing of the spots and wouldn’t give Lane Bryant the TV placement time it wanted. <>


Best Buy’s y/y Traffic Rose 108% in March - Best Buy attracted 15.43 million visitors to its web site in March, a 108% increase from the same month a year earlier, Nielsen Online reports. <>



The Macau Metro Monitor, April 26th, 2010


Sands China Ltd. will seek shareholder approval for an Equity Buyback at its Annual General Meeting to be held on June 19, 2010. Under the program, the company will repurchase 10% of its issued share capital.



Secretary for Transport and Public Works Lau Si announced that there will be an open land auction, 30,000 square foot parcel, and industrial building revitalisation measures to increase the supply of small to medium sized residential units. The winning bidder will be allowed to construct more than 500 small to medium sized residential units, which are little bigger than the economic housing standards. The government is also wants to promote rebuilding old, single-ownership industrial buildings for residential use.



CEO Chui says the government will “unswervingly” uphold the employment rights of Macau workers and come down “heavily” on illegal workers and their employers under the newly created Law on Employment of Non-Resident Workers. Officials will continue to make laws and regulations to further regulate the ratio between local and imported workers, and the withdrawal of imported labor and set up supervisory groups, Chui said.





The Forgotten Truth

“It is a simple but sometimes forgotten truth that the greatest enemy to present joy and high hopes is the cultivation of retrospective bitterness.”

-Robert Menzies


Retrospective bitterness might be the last way to describe how Australians have regarded their former leader. Born in 1894, Sir Robert Menzies founded the Liberal Party of Australia and, after winning his second election in 1949, he went on to become the longest serving Prime Minister in Australian history.


In 1942, Menzies delivered one of the most important speeches of his career. It was called “The Forgotten People.” Current Australian Prime Minister, Kevin Rudd, often referenced this generation of Australians ahead of the 2007 federal election. Here’s an excerpt from that historical Menzies speech:


“I do not believe that the real life of this nation is to be found either in great luxury hotels and the petty gossip of so-called fashionable suburbs, or in the officialdom of the organized masses. It is to be found in the homes of people who are nameless and unadvertised, and who, whatever their individual religious conviction or dogma, see in their children their greatest contribution to the immortality of their race.”


Nameless and unadvertised, officialdom in America today is not. If we didn’t reach the record heights of political hubris in 2007, we are going to blow up this Bubble in US Politics as big as we can here in 2010. Unfortunately, Crocodile Dundee himself may not have a knife large enough to pop it, until it’s too late.


Today, we are going to grope around for answers as to whether or not this stock market rally is sustainable and whether failed politicians continue to perpetuate our long term issues. Our problems don’t start with asking ourselves whether American capitalism is dead, but where our principles went in trying to define it.


Australian central bank Chief, Glenn Stevens, isn’t going to win a popularity contest at the G-whatever meetings. Nor does he care. He is a realist  and a risk manager who reminds the people of Australia that “present joy and high hopes” for their country shouldn’t be solely measured by the ticks of their stock market. To have sustainable prosperity, everything starts with  The Forgotten Truth that inflation crushes the forgotten people.


Between new  home sales exploding to the upside for the month of March (+23.8% year-over year growth) and US Producer Prices (PPI) for March coming in at new sequential high of +6% year-over-year, last week’s growth and inflation data in the US was a lot higher than the “double-dip” crowd has been forecasting. When money is free, it’s amazing how much higher demand for things you can buy with those moneys can go.


Although this was March data, the real-time price data for April continues to inflate as well. Never mind that the SP500 has inflated +80% from its March 9th, 2009 low. This stock market is still -22.2% cheaper than the most levered up price (based on the most levered up domestic consumption and housing numbers), in US history. What a deflation deal!


There isn’t an inflation chart in my entire global macro playbook that hasn’t V-bottomed at this point, so I guess if you are going to be bullish and dovish all at the same time up here, you better be taking the government’s word for it because the forgotten people of America don’t buy it. Despite the SP500 being up a monstrous +15.1% since February the 8th, last week’s ABC/Washington Post consumer confidence reading registered a new low at minus 50. Oh damn that Forgotten Truth.


For those of you who believe that some levels of inflation are marked-to-market in the commodities that you either pump into your cars or children’s mouths, you saw the leading indicator for anything that needs to be moved around in this world shoot up another +3.2% week-over-week to close Friday’s trading to $85.12/barrel. At the same time, Gold is starting to bust an inflationary move to the upside again, adding another +1.5% week-over-week as well.


All the while, US Treasury bond yields continued higher last week with the short end of the curve moving up to 1.07% on 2-year yields. As much as Ben Bernanke wants you to believe that he’ll never raise interest rates, Mr. Macro Market is seemingly trying his best to move rates higher on his own.


There is only 1 week left in April and we are on the record with a call for April Flowers bringing May Showers to the US stock market. While that might irritate the odd perma-bull who still truly believes in buy and hope (that the Fed never stops purging its citizenry’s savings for the sake of the selected ones), I’m ok with that. My topside intermediate term overbought target for the SP500 is 1214, so I will be shorting the SP500 (if it’s up) sometime in the coming days.


That doesn’t mean I don’t love America. It just means I love my family, my firm, and the capital I have preserved for them. I am proud to be part of “The Forgotten People” who never had to fire anyone, point fingers, or ask for a bailout. We were the bears turned bulls of 2008-2009 who won’t chase the SP500 up here. We are now more comfortable being long Germany, Oil, and Aussi dollars.


The last time the bearish side of the US Institutional Investor sentiment survey was this low (17%) was 1987. I guess that means The Forgotten Truth is only another one of those days that “no one could see coming” away - except from New Haven and Australia.


My immediate term support and resistance lines for the SP500 are now 1205 and 1220, respectively.


Best of luck out there today,



The Forgotten Truth - new home sales


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