In 2008 and 2009, the company spent significant time rightsizing the cost structure of the business and resetting the business model to improve profitability.  When operated and run properly, COSI participates in a very attractive segment of the restaurant industry - the fast casual segment.  For more than two years, COSI has been an operational disaster and has experienced a significant decline in same-store sales and in its catering business (not surprisingly, PNRA has made this a big initiative). 


Part of the cleaning house process requires fixing the operating model in order to capture incremental sales dollars.  In addition to closing stores, COSI has taken the past 2 years to right-size its economic model.  With that in the REAR VIEW, the focus on incremental customer visits is now the priority.




At the end of 4Q09, COSI had cash and cash equivalents of approximately $4.1 million, and little funded debt.  With the recent sale of 13 restaurants in the Washington D. C. market to Capitol C Restaurants LLC for $8.4 million, announced on April 27, the balance sheet and the operating model were further enhanced.  Capitol C has entered into a development agreement to open six additional COSI restaurants in D.C.  Under the terms of the Asset Purchase and Sale Agreement, $6.4 million of the purchase price was paid in cash at closing, $1.4 million is to be paid pursuant to a three-year note and the balance of $0.6 million is being held in escrow subject to the satisfaction of certain conditions.




The refranchising of the D.C. restaurants is a strong indicator that COSI has turned the operational corner and raised the likelihood that COSI will see accelerating franchised revenue growth over the next 12 months.  COSI opened six franchise locations in 2009 and is looking to accelerate franchise unit growth in 2010.  Specifically, management stated on its 4Q09 earnings call that there has been a lot of interest on the part of potential franchise partners over the past 6-9 months.  To that end, the company said it would begin to make “specific contacts to individuals in various markets” in April and May.  Based on the refranchising of slightly more than half of the company’s D.C. market in late April, those plans are coming to fruition. 


The company’s focus on reducing its cost structure has helped on the food and labor cost lines and these benefits have flowed through to the franchisees.  As margins and returns continue to get incrementally better, franchise growth will follow as the capital markets allow for franchisees to get incremental financing.  With COSI operating 68% of the store base at the end of 2009 (closer to 60% in 2Q10, adjusting for the partially refranchised D.C. market), there are further opportunities to refranchise more stores, thereby raising cash and enhancing the business model.




As of the 4Q09 conference call, management expected to complete the month of March with positive system-wide same-store sales, reflecting positive growth at both company and franchise locations.  For reference, COSI’s 4Q09 call took place on March 29, 2010 so management had good visibility on March results.  Like every other restaurant company, COSI’s trends were “derailed in February” due to the record snow and weather that the company experienced in 100% of its company markets.  It should be noted that the improvement in same-store trends is due largely to increased operational focus as the company recalibrated its marketing calendar for 2010.  COSI shifted its marketing dollars away from the extreme weather months of 1Q and added it to the balance of the fiscal year.  COSI’s 2Q will see the benefit of additional and refocused marketing dollars.  That being said, I would not expect to see a significant pick up in 2-year average trends until the second quarter, though my 1Q10 -1% company same-store sales estimate assumes a moderate sequential improvement in 2-year trends (big improvement on a 1-year basis from 4Q09’s -6.6% as the year ago comp is much easier).  Also helping 1Q10 is the fact that management stated, relative to catering, that it has “started to see some recovery in early 2010 from the economic turbulence of ’09.”  It is important to remember that declining catering sales (-24% in 2009) have put increased pressure on the company’s average check.






Historically, COSI has never done any meaningful marketing outside of an in-store focus on its most loyal customer base.  Management recognized that it must now attempt to broaden the concept’s appeal by extending brand awareness.  The driver of revenue growth over the next year will be (1) increased marketing (2) new day parts and new products (3) focused operations and (4) a new coffee program.    


INCREASED MARKETING - One of the biggest potential drivers of incremental l traffic is increased marketing dollars and a more efficient use of current marketing spending.   With a new advertising agency in place, COSI will increase spending on “out-of-store” media to increase awareness of the brand and drive incremental traffic.  COSI also has a newly designed website, menu boards and a new social media team in place to drive the marketing effort.  The company’s newly revamped website (completed in late 2009) will have the capabilities to roll out online ordering, online catering, and social media promotions in 2010.


CATERING - While catering sales started to recover in 4Q09 (only -13.5% versus -27.5% in the prior two quarters), there is a very large opportunity in catering.  The products and menu are a good fit for catering.  Operationally, COSI has consolidated its catering call center and is now focused on the logistics of improving ordering, packaging, and delivery.  In addition, COSI is going to launch a catering loyalty program in 2010. The company also plans to expand its direct sales efforts, particularly in its urban markets, in order to drive incremental catering sales.  As I stated earlier, management suggested that it experienced sequentially better catering trends in early 2010.


OPERATIONAL FOCUS – At lunch, management is working to simplify its operations in an effort to serve more guests during the high demand lunch hours of the day.  Specifically, management is working toward reducing wait times.  Management commented that its recent initiatives to increase speed have translated into recent sales lifts and an increase in positive responses from its guest feedback tools.


GROWING DAY PARTS AND NEW PRODUCTS- COSI launched 3 new breakfast wraps on March 29 (so more of a 2Q10 sales driver) to help expand the breakfast day part.  The company’s breakfast menu also includes steel-cut oatmeal, breakfast sandwiches; Squagels, unique to COSI and Fruit Parfaits.  In the coming months, COSI is also working to capitalize on its coffee platform and improve its grab-and-go beverage products, which could potentially drive both traffic and margin growth. 




Operating margin declined 170 bps in 2009, excluding asset impairment, store closure and lease termination costs.  The company’s efforts to reset its cost structure, primarily on the cost of goods sold, labor and G&A expense lines, stemmed further declines.  G&A expense, alone, declined nearly 25% in 2009 and 200 bps as a percentage of sales.  With company-owned same-store sales -10.8% in FY09, COSI experienced significant deleveraging during the year on the labor and occupancy expense lines, despite management’s cost cutting initiatives.  To that end, COSI will need to see a return to positive same-store sales growth before we can really see the magnitude of the benefit to the company’s P&L.


As I said earlier, I would expect same-store sales to get better in 1Q10, but the benefit from the increased and redirected marketing spending, combined with the recently launched breakfast wraps, will not materialize until the second quarter.  The YOY operating margin comparison, however, is much easier in the first quarter than in 2Q10, and I would expect COSI to report a nearly 200 bp improvement in margin (though still negative).  It will be important to see how much leverage the company achieves in 1Q10 with significantly better top-line trends (on a 1-year basis).  From there, it will be easier to measure the impact on margins for the remainder of the year based on my assumption for positive same-store sales trends and to gauge what it will take for COSI to return to profitability.  Regardless, I would expect margins to improve in FY10 with the second quarter being the most difficult from a YOY comparison standpoint.


COSI’s FY10 margin will also be helped somewhat by the fact that the company has no plans to open company-owned units, relative to 2 in FY09 and 1 in FY08.  The company has reduced its new unit growth over the last couple of years from 21 in FY06 and 6 in FY07 as it has worked to reset its cost structure and improve in-store unit economics. 


Thoughts on valuation due out shortly…


Howard Penney

Managing Director



Forward looking commentary was typically bullish, although we didn't come away necessarily feeling bullish. Here are our "notes" from the release and conference call.



“We see signs of improvement in the Las Vegas market and expect those to accelerate in the second half of the year and into 2011.  Our forward bookings continue to improve as our convention bookings continue to gain traction." 

- Jim Murren, Chairman and CEO of MGM MIRAGE



  • "CityCenter’s first quarter results were particularly affected by the weakness in the Las Vegas convention market.  We expect Las Vegas visitation to be strong for the balance of 2010 and Aria’s conference calendar is strengthening; therefore, we expect Aria’s occupancy to improve over the balance of the year.  We are unveiling a comprehensive new marketing effort for Aria in the coming weeks with new TV and direct marketing elements.  Now that CityCenter is complete, we are able to use its architecturally unique and highly visual assets in a coordinated global advertising push.” 
    • Well, it's hard to get worse than 63% occupancy.... I'll believe the leverage in this architectural marvel when I see it.
  • "Casino revenue decreased 5%, partially offset by strong baccarat results during the quarter with baccarat volume up 17%."
  • "Las Vegas Strip RevPAR decreased 8% and room revenues decreased 6% y-o-y."
  • MGM Grand Macau reported EBITDA of $71M, since MGM provides no information on this property, below are some of our details
    • Slot win: $24MM
    • Mass win: $97MM
    • VIP win: $322MM … we think that hold was around 3.0%-3.1% assuming 15-20% direct VIP play
    • Unfortunately for MGM, luck has a way of reversing itself and April wasn't so great for them ( for details, see our note "STRONG APRIL, VIP HOLD CONTRIBUTES" published on 5/4/2010)
  • City Center lost $28MM of EBITDA (see our note "CITYCENTER OF DISASTER" from 4/15/2010 for more detail)



  • Las Vegas market-- "stabilizing and improving, convention business critical"
    • Locally, still rugged market.
    • Yielded up room rates half of the time in Q; in April, 70% of the time.
    • Back half of 2010 and into 2011-- we see visitation up; still expect 38MM visitors for 2010.
    • Slot handle strong
    • Gained market share in baccarat in drop and win
    • Market share up (with Aria and without Aria)
    • Entertainment revenues are up YoY
    • Convention room rates: 14.5% of total room mix (flat YoY)
      • Citywide convention business down 5% YoY
      • Attrition rates back to normalized levels
      • Las Vegas: premier destination for conventions
      • Would like normalized convention business mix to be 16%
      • Convention ADR:  $140; leisure ADR:  $80
      • As convention business comes back, should positively impact REVPOR and REVPAR
    • REVPAR in 2Q will be down "mid-to-low single digits"- expect REVPAR in the black for 2H of 2010.
    • Convention bookings in 2011: "very strong"
      • Excluding Aria and Vdara: "highest we ever had"... +20% YoY;
      • Room rates also trending higher
  • MGM Resorts International name change:
    • Coincide with launch of new loyalty program; it will be tiered
    • "We have the best assets in industry"-- deliver this message through loyalty program
  • In-house marketing team have grown
  • Building market share in gaming business in LV, Detroit, and Mississippi.
  • City Center
    • Trends moving sequentially in right direction;
    • Occupancy in 1Q disappointing relative to other established resorts
    • Customer awareness improving dramatically
    • Seeing occupancy improve on sequential basis


  • Borgata contributed 7MM operating income in 1Q
  • Cash: $441 MM as of 3/31/2010
  • Convertible bond offering: 1.12 billion
  • Stock compensation: 9-10MM for Q2
  • Depreciation expense: 165-175MM for Q2
  • Gross interest expense: 264MM (250 MM cash interest, no captialized interest); 280-290MM (no capaitlized interest ) for Q2.
  • City Center EBITDA: Vdra - 4.1MM, Mandarin 6MM, Crystals gained 1MM
  • Aria acquired 8.2% of LV gaming market; table drop on par with Bellagio; non casino rev: 84.1MM; January 56%, February 63%, March 70% occupancy; combined occupancy 64%, 194 ADR (199 ADR for Bellagio); booking trends improved for transit and convention customers; May occupancy should be 80%; Convention % of total bookings: 23,000 room nights (21,000 peak for Bellagio); lead volume increased by 300% YoY; 160,000 room nights in 1Q; for 2011, 46,000 room nights convention - 174% YoY; amortizing expense: 8.2MM... FTE down to 6,000; 2.5MM amortization of small equipment and start-up supplies
  • Vdara - in March, property lost ~2.5 MM....  lost 300K in April.
  • Crystals - 56% in 1Q occupied by tenants for business use.  65% occupancy for Q2. 82% should be occupied by year-end.  Expect Veer Tower closings in May 2010.



  • Cost-cuts on labor side were permanent: FTEs down 4% in YoY; occupancies were relatively high; does not expect labor to move up materially; FT component - flat to down for rest of year.
  • 1.2 billion of debt maturing in October that was not extended.
  • Aria room nights available: 358k in 1Q; mid-week occupancy--mid-70s; low 90s for weekend occupancy.
  • For Aria, occupancy or rate improvements?
    • Have been able to hold the rate in 1Q
    • right now, ramping up occupancy; for May, expect 80%; can't achieve 100% because of mix issue.
    • lack of convention business in 1Q--but starting to build.
  • Hired a bank to put toward offering documents for Borgata; document gone out to qualified buyers; process is professionally managed by Boyd; not in a fire-sale.
  • Aria Occupancy rate for April: 69%
  • MGM Macau IPO: late 3Q, early 4Q
  • Hospitality business: 11 Management agreements/ 6 letters of intent: 17 hotels, 6000 hotel rooms/resort (e.g. Egypt, India, Chinese JV); should achieve 100MM in revenues annualized in 5 years.
  • Vietnam: 50 year agreement there; evaluating that market further.
  • Receivables up 50% YoY: receivables due from City-Center (residential component); up to 244 condo proceeds - 200 MM condo proceeds element of completion guaranteed; nothing gaming oriented.
  • Macau: "pretty solid 1Q"; lowered marketing costs; competitors have opened up....increased traffic as a benefit; 60,000-70,000 sq ft of space for further development--want to enhance main gaming floor;
  • Macau net rev: 412 MM in 1Q, (262 MM 1Q 2009)
  • Perini suit: 150MM at low end, 300 MM at high end of legal impact;
  • Vdara rooms in inventory: 864 rooms (out of 1,525) are operated as hotels; remaining apartments are under contracts; by mid-summer, 175 units will close as residences.
  • No future developments in Macau before table cap restriction. 
  • Convention nights booked:  at end of 1Q, 865,000 rooms booked for 2011 (compares to 700k booked for 2010), excludes city center ; Q3--should expect positive YoY rooms booked Q4--may be down YoY rooms booked; Q2--room revenue and room nights should be up YoY.
    • Room rates for conventions: for 2010, similar to 2004-2005 room rates; room rates for 2011, similar to 2007 room rates.
  • Don't expect CC 1Q results as run rate going forward.
  • For CC: Are not pushing rates higher until occupancy gets to 90s; right now, ADR 180-190 at Aria--little bit more at Mandarin--little less at Vdara.
  • Vdara should turn the corner - had been dragging down results at CC EBITDA.
  • All components of CC should be making money by end of Q2.
  • CC starts to make money at 75% occupancy.
  • Baccarat: gaming mix is higher; market share in LV bacc is 38% (with Aria, 46-47%), year ago, market share is 37.5%.

SP500 Risk Management Levels, Refreshed

There is a lot going on out there today, so I’ll keep this to the point.


I am starting to register a series of lower-highs in term of immediate term TRADE lines of resistance (1192 and 1186). On the margin, that’s bearish. All the while, immediate term volume and volatility studies continue to support our call for May Showers in US Equities. We have been calling for a correction, not a crash.


All that said, every market correction finds its level of support. In the chart below, we show that both the immediate and intermediate term TRADE and TREND lines of support are converging between 1144-1152. If this market is going to have a slingshot rally, it should do it after testing this range.


If the SP500 doesn’t hold 1144, watch out below.



Keith R. McCullough
Chief Executive Officer


SP500 Risk Management Levels, Refreshed - S P

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.



“During the first quarter, transient demand increased at many of our hotels around the world. While room rates continue to be under pressure, particularly in North America, we are encouraged by year-over-year increases in occupancy in most markets. On the group side, we have begun to see greater booking activity, but we continue to have limited visibility on future business due to short-lead times and smaller-sized bookings."

- Mark S. Hoplamazian, president and chief executive officer of Hyatt Hotels Corporation



  • "Our owned and leased hotels demonstrated margin growth during the quarter, as a result of strong operating performance, expense management, and because two properties experienced significant gains due to renovations in prior periods."
  • Expect to open more than 25 properties, across all brands in 2010
  • Owned Hotels commentary:
    • RevPAR +9.8% (8.1% ex. FX).
      • Occupancy +760 bps, -2.8% ADR (-4.4% ex. FX).
    • "Strong performance at the Company’s international owned and leased hotels contributed significantly to the revenue growth"
    • Hotel Mar Monte (197 rooms) was added to the portfolio this Q and Hyatt Regency Boston was sold for $113 million (H also retained a mgmt contract on the sale)
  • North American Management & Franchising commentary:
    • Revenue flat y-o-y, while EBITDA was up 3.3% y-o-y
    • Full Service RevPAR -2.2%
      • Occupancy +370bps, ADR -7.9%
    • Select Service RevPAR + 2.6%
      • Occupancy +870bps, -10.7% ADR
  • International Management & Franchising commentary:
    • Revenue +23.1% (16.7% ex. fx benefit) and Adjusted EBITDA +16.7% (9.1% ex. fx benefit)
    • RevPAR +18.7% (9.6% ex. fx benefits)
      • Occupancy +800 bps, ADR +3.6% (-4.3% ex. FX benefits)
  • SG&A increased by 30%, and 12% adjusting for the rabbi trust, as a result of increased bad debt expense and higher professional fees
  • 2010 Guidance:
    • Capital expenditures: $270 to $290MM, "inclusive of broad-scope renovation projects at five owned properties. The Company anticipates that renovations at these properties will cause displacement beginning in July 2010, resulting from a reduction in daily room inventory of approximately 400 rooms on average per day during the second half of 2010."
    • Depreciation and amortization: $285 to $295MM
    • Interest expense: $55 to $60MM


  • Expanding into markets that they are under penetrated is a high priority for them
  • As construction loans are difficult to come by, they are selectively helping owners by providing them with some capital in the form of key money and sliver equity
    • Will be allocating more effort to helping grow their franchise and management pipeline - through a combination of debt and equity investing
  • Increased number of new openings by 5 in 2010 (from 20 to 25) due to some conversions and accelerated time line of openings
  • Over the next 5 years they expect to enter 15 new markets, and are particularly keen on India
  • The $8MM settlement was related to a development dispute
  • Transient demand has continued to strengthen across all their segments
    • Transient revenues were up across all 3 sectors
  • Group nights sold increased 3% y-o-y
  • Over 1/3 of the owned hotel increase were due to ramp in International hotels. In particular there were 2 hotels that were ramping up in 1Q09
    • 50% of the 220 bps margin improvement was due to easy comps at 3 new hotels that were still ramping at 3 of their hotels in 1Q09
  • Expect that their costs will continue to increase in the balance of the 2010, driven by inflation
  • Management & Franchise - NA segment:
    • Transient room nights increased 9% but rates were down 7%
    • Volume of group room night sold increased, but revenues were down mid single digit due to lower rates
    • In the quarter for the quarter bookings were much higher and cancellations back to normal
  • International Mgmt & franchise
    • Asia is benefiting from ramping hotels that have opened over the last 12 months
    • Lift in business in Shanghai also helped them
  • Income taxes: expecting 38%. International blended 20%
    • Their income tax rate increased in the quarter due to timing of payments


  • Owned hotels color
    • 3 ramping assets include: Hyatt West Hollywood converted to Andaz, Grand Cypus and Vancouver asset
    • Only so much they can do to mitigate costs going forward due to occupancy driven RevPAR growth and inflation
    • 2 regions that performed very well were EMEA and Asia/ Pacific (not just for owned)
  • Internationally transient is the primarily driver of revenue growth
  • Seeing more investment opportunity then before - although they aren't the traditional buy/sell arrangements. Have various forms of ownership in assets. In terms of timing and pace, there just isn't much that has gotten done to date
  • $8MM settlement gain was included in the cost line because they treated it as a recovery in the cost of sales.
    •  Don't care how you classify it - its not recurring and its a catch up payment
  • Would consider buying bank debt. Most of the deals that they are looking at are structured deals
  • Key issue for them in growing their pipeline is the lack of financing and figuring out how to deploy capital and provide key money most efficiently to do so
  • Construction dislocation last year? 
    • Grand Cyprus and conversion of West Hollywood to Andaz.  Andaz opening in Jan 09. Grand Cyprus ran mostly in the 1H2009 - and there weren't an enormous amount of rooms in the 2Q
    • Bottom line the comp was much easier in the 1Q vs. 2Q and in the 2H they will have a drag due to renovation disruption
  • Amortization of deferred gains are $2-3MM annually for them
    • Compared to over $80MM for HOT
  • 12% increase in SG&A - 50% of which was bad debt charge driven. Balance was increased compensation and cost of being a public company. See the upward trend being maintained
  • JV Debt $517-$520MM of debt - will be in the Q they file later today
  • Group color:
    • In the year, for the year bookings have gone up dramatically.  Partly driven by people being hesitant in making longer term decisions
    • Need a real economic recover to lengthen the booking cycle
    • Transient demand has really increased and if that trends continues and available rooms contract as a result, groups may be more willing to book further out

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.

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.