R3: Easter Shift and More

What a difference one month can make.  After blowout results in March in which everything went right for retailers, April was a letdown.  Chalk it up to poor planning, “normal” weather, the Easter shift, and a pull forward in demand for seasonal apparel.  Is the consumer dead (again) after one month? Absolutely not.   However, the perfect alignment of March’s positive factors are going to be hard to replicate in the near-term absent another leg up in consumer demand.   All said, April appears to have been a case where expectations ran a bit wild coming out of March and for most of the month were probably fairly accurate.  However, momentum did ultimately slow from the solid trend we had seen over the prior 6 weeks leaving the mall and strip centers with a dose of reality.


April Recap:


Upside to expectations: M*, LTD, JWN, KSS*, FRED, URBN, COST


Inline: TJX*


Downside to expectations: GPS*, ROST, ANF, AEO, ARO*, BKE, HOTT, WTSLA, ZUMZ, BONT, DDS, JCP, SKS, SSI, BJ, TGT*, SMRT


*Raised Guidance



Eric Levine





  • Nike noted that it’s NikeID custom program has been very successful and has grown to become a $100 million annual business worldwide. Considering each pair is individually designed by the consumer, this is an incredibly large business built on a pair by pair basis. Management also noted that some stores with ID studios on premise are seeing approximately 20% of sales generated from the custom effort.


  • Kenneth Cole noted that it’s launch of Reaction sportswear, an exclusive men’s apparel line for Macy’s, has been met with enthusiasm in advance of the product hitting the floor. In fact, the initial plans for a 150 door rollout at launch have now been expanded to 200, even before a single piece of apparel has been sold.


  • As fast fashion retailers have gradually taken market share from more traditional branded retailers as well as higher priced designer offerings, their efforts have largely been centered on apparel, footwear, and accessories. However, Top Shop has just rolled out a line of color cosmetics at modest price points. While it’s still too early to declare the demise of the cosmetic counter at the local department store, it’s certainly worth watching this trend.




R3: Easter Shift and More - 5 5 Retail Calendar




JNY Acquires Stuart Weitzman - Jones Apparel Group inked a deal to acquire 55 percent of shoe and accessories firm Stuart Weitzman Holdings for an initial payment of about $180 million to the current owners, including Irving Place Capital. Weitzman, who will be the principal owner of the remainder of the company, will continue on as executive chairman. The selling shareholders will receive additional cash payments at the end of 2012, based on a formula that determines the value of the business at that time. Irving Place took a stake in the company in 2005. Jones will fund the transaction with cash on hand or other alternative financing. The deal is expected to be accretive to earnings, exclusive of accounting adjustments. Last year, Weitzman’s revenues totaled about $193 million.  <>


Sean John Exclusive in Macy's - Sean John, has inked a transformative deal with Macy’s Inc., similar to the one Hilfiger signed in 2007. Beginning with the spring 2011 season, Sean John men’s sportswear will be only available at Macy’s stores and on, as well as in the Sean John flagship on Fifth Avenue in New York and eight Sean John outlets. The first exclusive product will begin hitting 400 Macy’s doors even earlier, in October, and Macy’s executives believe distribution will expand to almost all of its 850 stores in coming years. “We started a relationship with Macy’s 11 years ago. They truly supported us from Day One and now we are taking our relationship to the next level,” said Sean “Diddy” Combs at the Standard Hotel Wednesday morning, where the deal was unveiled. If Macy’s is excited, the likes of Dillard’s, Bon-Ton and Belk — plus specialty stores such as Man Alive, Jimmy Jazz and Underground Station — won’t be. Sean John men’s sportswear — which, according to Sean John president Dawn Robertson, accounts for more than half the firm’s $525 million in retail sales — will be pulled out of those stores.  <>


Coach's First Men's Store - The brand’s men’s sales are dwarfed by those of its women’s products, but Coach wants to rectify that. A major part of that plan is the opening of men’s-only stores, the first of which will be unveiled Friday at 370 Bleecker Street in Manhattan, joining men’s powerhouses Ralph Lauren, Marc Jacobs, Black Fleece and Tommy Hilfiger on the trendy West Village shopping strip. That platform is a 550-square-foot jewel box of a store that incorporates many Coach signature elements but tweaked in a masculine way. For example, instead of the color scheme being grounded in white with brown accents, the men’s store reverses the hues, using mahogany as the primary focus. The floor is an end-on-end fir that mimics the original in the company’s headquarters on 34th Street, as does the exposed duct, which is also found uptown. Coach’s cantilevered shelves, in dark brown here, are used to display the small leather goods, business and travel accessories for which the company is known. The store also carries an assortment of canvas boat shoes and flip-flops along with nylon and leather jackets. Swimwear is also offered. In total, 30 percent of the mix is exclusive to this store and includes such items as graffiti-printed canvas totes and the leather cuffs with metal hardware. The company will also use the store as a testing ground for new products as it seeks to grow its men’s business, which is much smaller than women’s.  <>


Uniqlo’s Same-Store Sales Disappoint - Fast Retailing Co., Ltd. said Thursday that Uniqlo’s same-store sales slumped 12.4 percent in April, marking their second consecutive month of decline. The company blamed unusually cool temperatures for slow sales of spring and summer items. Uniqlo’s March comps slid 16.4 percent- a development that caused Fast Retailing’s shares to shed almost 11 percent of their value on the stock market the day after the news was announced.  <>


L&T Men's Business Revamped - The senior vice president and general merchandise manager of men’s for Lord & Taylor is overseeing a major renovation of the flagship’s 37,000-plus-square-foot men’s store that is expected to boost sales by 30 percent annually when completed this fall. “The men’s business has a lot of opportunity here,” he said during a walk-through of the main and 10th floors at the landmark Fifth Avenue building. “So far we’re up 28 percent for the season, but I’m not too excited. We gave up a lot of business over the past several years and it’s time to get it back.” Right now, men’s accounts for 12 percent of L&T’s annual sales of $1.2 billion, a figure that is lower than many of its competitors, whose men’s sales can be as high as 20 percent. And Greller is feeling the pressure. The flagship, too, lags many of its competitors in productivity, bringing in only around 11 percent of the company’s annual sales. Saks Fifth Avenue’s flagship, for example, accounts for 19 percent of its volume of $2.6 billion.  <>


Saks Fifth Avenue Off 5th Concept Expanding - Saks Inc. plans to grow its Saks Fifth Avenue Off 5th concept this year with new stores in Pittsburgh, Portland, Houston and the Raleigh/Greensboro region of North Carolina. The firm is also renovating its store in Riverhead, N.Y. The new and updated stores will mirror the firm’s Orlando prototype store, featuring a “luxury in a loft environment” with open floor plans, moveable fixtures and brighter lighting. The doors will also have updated offerings in the jewelry, shoes, sunglasses and skincare areas.  <>


Dress Barn Expands into Canada - Dress Barn Inc., after decades of quietly building a business with a price-conscious, conservative shopper, is raising its profile. The Maurices and Justice chains, acquired in 2005 and 2009, respectively, are planning to expand to Canada next year. The Dress Barn division is remodeling stores, eyeing mall locations in a switch from its strip-center concentration, displaying younger fashion and planning e-commerce for fall. And, collectively, Dress Barn, Maurices and Justice, executives say, represent a triple play of value that will continue to capitalize on consumers’ trading-down mind-set and steal market share. “Maybe people were used to shopping a department store or some fancy specialty store. Now they try us and say, ‘This is nice and it’s an attractive price,’ ” said David Jaffe, president and chief executive officer of the $2.5 billion Dress Barn Inc. “I use the Starbucks analogy. Two years ago, everybody had to have a Starbucks. Now, maybe they get their coffee from Dunkin’ Donuts, McDonald’s or the cafeteria.”  <>


Hermes Results Indicates Improved Demand for Luxury Goods - Hermes International SCA, the French maker of luxury handbags and silk ties, said first-quarter sales rose 19 percent, surpassing analysts’ estimates, on demand for leather goods in Asia. Revenue increased to 507.7 million euros ($648 million) from 428.4 million euros a year earlier, the Paris-based company said today in a statement. The average estimate of eight analysts surveyed by Bloomberg was 464.8 million euros. The luxury-goods industry is recovering from its worst slump on record as consumers spend more on designer apparel and accessories, and distributors increase orders. Last month, the fashion and leather-goods business of LVMH Moet Hennessy Louis Vuitton SA reported an 8 percent increase in first-quarter sales, excluding currency shifts, while Gucci Group NV, PPR SA’s luxury unit, had a 4.7 percent gain.   <>


Rasta Treads - Anthony L&S Footwear has been granted an exclusive license to create Marley Footwear for Marley & Co. The back-to-school collection will feature eco-friendly footwear for men and boys, retailing from $29.99 to $129.99. The shoes will be available this June/July at mass market retailers and specialty boutiques worldwide. A portion of the proceeds from sales will be donated to charity. Marley & Co.'s brands include Tuff Gong, Catch A Fire, One Love, Three Little Birds, Marley Coffee, The House of Marley and Relics of Antiquity. In February 2009, Hilco Consumer Capital and the Bob Marley family partnered to handle the musician's licensing and retail ventures. It's the 65th anniversary of the iconic musician this year.  <>





"In what is traditionally Orient-Express' quiet quarter, it was pleasing to see revenues begin to show growth, with system-wide same store local currency RevPAR growing at 5%, underpinned by growth in Rest of World of 16%. The Company has ended the quarter well positioned for growth and of course, we are now moving into our strong trading season. Our 2011 goals remain unchanged. We are focused on maximizing revenue, continuing sales of non-core assets and developed Real Estate, with the aim of continuing to reduce net debt to within an acceptable range of 4 to 5x EBITDA." 

- Paul White, President and Chief Executive Officer of Orient-Express Hotels




  • Owned Hotels same store RevPAR was up 5% in local currency and up 12% in US dollars
  • Most PeruRail services to Machu Picchu have resumed. It is estimated that it will be possible to make the entire journey from Poroy station in Cuzco to Machu Picchu by rail from July 2010, subject to favorable weather conditions enabling completion of the track repair work.
  • The Peru hotels joint venture was out of compliance with financial covenants in a loan agreement of the joint venture amounting to $27.8 million. Discussions with the banks are ongoing and an ultimately successful
  • The closure of European airspace due to the eruption of the Eyjafjallajoekull volcano in Iceland in mid-April caused travel chaos and resulted in lost revenue estimated at $0.8 million to the end of April.
  • Awarded GBP7.7 million ($10.5 million) in a legal action to protect the "Cipriani" trademark
  • Completed sale of Lilianfels Blue Mountains in Australia for AUD21 million ($19.3 million)


  • Bookings pace is strong
  • Madeira REVPAR down 30% YoY... should see recovery later in 2010
  • As REVPAR grows, we see occupancy growth as key driver in 2010
  • Margins
    • Large negative impacted from FX; should see it flatten out over the course of the year
    • net-net: EBITDA margin down 2%;
  • Strategy
    • Can't cut costs further; revenue will drive results now
  • Employee costs will begin to rise with inflation going forward
  • Port Cupecoy; 21 out of remaining 99 units had been sold as of April 2010; expect that 78 remaining units will be sold by 2012
  • Outlook
    • As of April 30, 2010:
      • Overall Bookings Q2 +19% YoY; Q3 +15% YoY;
      • Europe Q2: +22% YoY; Q3: +12% YoY;
      • US: Q2 +14%, Q3: +38%--driven by Washington and Charleston
    • Trains and Cruises: 70% of annual budget is already on books; 80% of VSOE is already on books.
  • Debt/EBITDA: 9.9x (includes $78 MM debt from Sicilian acquisition); excluding this acquisition leverage would be 8.8x
  • Debt coverage ratio: 2.4x
  • Debt Maturities: 2010- 57MM; 2011- 525MM
  • Net debt repayments: 15MM in Q
  • Expected cash taxes of $12-14MM (for 3Q); for FY 2010: $20-22MM
  • Market interest for CMBS much stronger
  • Will renew credit facility: L + 350bps

Q& A

  • In Madeira- no local Portuguese business.
  • Booking window: starting to lengthen; although it is still far from 2007 levels
    • Curuso in Italy: 63% YoY bookings higher.
  • Two new Italian hotels:
    • Bookings in-line; Sant'Andrea sold out for first week;
    • Improving room stock; Sant'Andrea turning rooms into suites; 3MM euros more investment for next winter.  Have $11MM more investment in property.
  • Expenses in-line with local inflation
    • fixed-cost model for luxury business
    • may contract slightly in US with occupancy higher
  • Overall, as much as 80% of REVPAR will be driven by occupancy.
  • EBITDA expectations for 2010:
    • Higher expectations than 3 months ago
    • Peru: $2.5MM cost in Q2;
  • M&A: Need to see US domestic market to open up again
  • In 2009, biggest source market that is down was the UK;
  • Biggest thing to keep an eye on is recovery of UK traveler: 20-22% of business
  • Hotel RE market transactions
    • In Europe, not much distressed sales; not much opportunity; low interest rates
    • In US, a lot of distress sales but not much interest at any property; need to see a "special" property i.e. Sicily properties.





Hyatt reported very strong numbers this morning.  The biggest upside surprise came from the huge owned RevPAR number- which of course carried through to better EBITDA on the owned portfolio.  Below are some of our thoughts on the less obvious stuff in the quarter.

  • Hyatt reported $112MM "Adjusted" EBITDA which included an $8MM settlement related to a vacation ownership property.  We would argue that this should be deducted from "Adjusted" EBITDA as it's not recurring in nature. 
  • Hyatt's Adjusted EBITDA also includes $16MM of "other income" which is comprised of "below the line stuff" which is simply not "core" to their business and in our opinion "noise"
    • "below the line stuff ": Interest income, gains on marketable securities, income from cost method investments (not JV's), FX gains/losses, debt settlement costs, provisions for hotels loans, etc
  • Owned EBITDA of $82MM includes $14MM of JV EBITDA, which implies that clean EBITDA from Owned and Leased hotels was $68MM in 1Q2010 compared to $54MM in the 1Q2009 - an impressive improvement
    • EBITDA margins on owned and leased increased 2.1% on a 9.8% increase in RevPAR that was completely occupancy driven
    • CostPAR decreased 5.3% y-o-y after declining 2.1% y-o-y in 1Q09.   The comparisons become more difficult going forward as 2Q09-4Q09 had 6.0%, 7.8%, and 5.4% declines in CostPAR
    • Looks like F&B and other revenues grew about 6% y-o-y
  • At current rates, currency will continue to positively impact Hyatt's results until 4Q
  • Management & franchise fees were actually a little below our expectations
    • North American Full Service RevPAR was a bit lower then we estimated, while Select Service & International were better 
    • Base fees were as expected, but they were a bit lower as a % of estimated mgmt revenues
    • Incentive fees were $2MM light of our estimate and were flat y-o-y after being up 4.2% last quarter
    • The implied costs associated with the global management and franchise business were flat y-o-y at $12MM. Margins were up to 79%. 
  • SG&A was up a lot more than inflation.  As a reminder, adjusting out the Rabbi Trust numbers, clean SG&A was $246MM last year.

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Trichet: He Who Sees Inflation

No surprise with Jean-Claude Trichet keeping rates unchanged this morning, but definitely a surprise to some of the US economic doves who are living in the myopia of the moment that there are no global inflation pressures.


Trichet said 3 things on inflation:

  1. Inflation is higher than he expected (oil prices cited as leading indicator)
  2. Global inflation pressures continue to mount and “may increase”
  3. “Price risks tilted to the upside.”

Now this view is an easy one to have. All you need are live Bloomberg quotes on your analytical machines. Its also a view that can and will change – because prices do. Our views on deflation in 2009 supporting a bullish stock market environment and our current bearish views on US stocks due to inflation are direct outputs of the direction of one factor – price. As prices change, we will.


Piling Debt upon Debt upon Debt to solve for these European liquidity issues will also end in long term inflation. See chapter 12 of Reinhart/Rogoff for empirical data supporting the view that accelerating long term inflation will continue to be the result of a world that’s resorted to printing fiat currencies.


Keith R. McCullough
Chief Executive Officer


Trichet: He Who Sees Inflation - 1


GC 4Q09 "YouTube"




  • "February 2010 revenues in BC declin[ed] by 7.6%, when compared to last year.  In January 2010 for comparison, BC revenues were essentially flat, when compared to January 2009."
  • "In the most recent fourth quarter, weather was fair and construction disruption was minor, yet consolidated revenues were basically at the same level as last year.  So the burden of the weakened economy continues to weigh upon our markets."
  • River Rock Commentary:
    • "Since it commenced operation last August, the Canada Line has grown River Rock’s average visitation by approximately 20% with a commensurate increase in slot coin-in of approximately 10%."
    • "Table drop, slot coin-in and visitation witnessed double-digit improvements when compared to February 2009.  Unfortunately though, the benefit of these increases was offset by a table hold percentage of 14.9%, well below River Rock’s historical average."
  • "The results produced since View Royal’s redevelopment last year have been disappointing to-date, we believe it has mitigated what would otherwise have been a more significant decline."
  • Vancouver Island margin sustainability at 61.8%?
    • "With the expansion that we had at View Royal, we were actually disappointed with that to be quite honest...we feel comfortable with that EBITDA margin that’s there and hopefully can continue to sustain that going forward."
  • "The expansion at Georgian Downs has also been less successful than anticipated."
  • "We anticipate that our development CapEx for 2010 will be approximately $15 million while an initial $10 million will be devoted to maintenance."
  • "Revenue growth would enhance the EBITDA margin and incremental revenues at the margin are fantastic for us.  And on slots, they have 80% margin, on table games, which has some labor, they’re going to be 55%, 60% margin"



  • "Georgian Downs added 400 new machines with a further 150 to follow by the second quarter".
  • "In Nova Scotia, we’ll refresh approximately 500 games by the end of April, replacing more than 50% of those properties’ offerings.  The refresh product will both assist in attracting new patrons and better satisfy existing ones."
  • "In February....we reengineered River Rock’s main gaming floor both to better present the Canada Line facing entrance and create 8,000 square feet of additional gaming space within the property’s existing footprint.  This allowed River Rock to increase its slot and table capacities by more than 15 and 10% respectively."
  • "Across our portfolio, we are beginning to develop more structured and effective patron tracking and rewards
    • "River Rock recently introduced patron gaming funds.  These accounts allow players to electronically transfer funds directly to the property and are one of several privileges we are now extending to River Rock’s VIP patrons."
    • "We’ve also established a dedicated area of the property for slot VIPs and introduced a slot VIP program."
    • "At Boulevard, we have recently augmented our VIP table business."
    • "In order to publicize all three of our improvement initiatives, Great Canadian will amplify its marketing efforts throughout the year.  Although this will generate minor increases in operating expenses, we will utilize the targeted approach and communicate with our patrons in a way that they see value."


We take the data on its merits as it comes in. Initial claims fell 7k last week to 444k from 451k (revised up 3k). This brought the rolling four-week average down by 5k to 458.5k. While this marks the third consecutive week of improvement the fact remains that at 444k, claims are still where they were in late 2009, 4-5 months ago. We've been highlighting for the last few weeks the fact that a divergence has emerged between claims and XLF performance. For now that remains the case, although XLF has given back 6.6% in the last 15 trading days, so the divergence appears to have narrowed (albeit for unrelated reasons, i.e. Greece/EU concerns).


We remain concerned that without significant improvement in claims, a leading indicator, there can be no meaningful improvement in unemployment, a lagging indicator. By extension, without improvement in unemployment it will be difficult for credit costs to return to what are considered "normalized" levels. At a minimum, a return to those normalized levels will be delayed. Remember, for unemployment to fall meaningfully, initial claims need to fall to a sustained level of 375-400k. We remain 45-70k above that level - roughly where we've been for five months now.


As a reminder around the census, we had been bullish on the lift the census would add going into its peak employment months.  However, now that we're into May, it's time to start focusing on the drag it will create on the backside.  




The following chart shows the raw claims data.




The following chart shows the census hiring timeline.  If the past two cycles are an appropriate model for this year's census, we should start to see Census employment draw down as we move into June, creating a headwind for employment.




Joshua Steiner, CFA


Allison Kaptur