As we expected, Great Canadian missed the Street's revenue estimate but beat on margins. Most of the call was focused on growing the business in the current state of the economy and use of free cash flow


"Great Canadian's results for the first quarter of 2010 present a mixed outlook for the year ahead. Many of our properties continue to witness the impact of a challenging economy.  While visitation levels have remained relatively robust, our patrons across Canada have become more conservative in their entertainment spending.  Throughout 2010, we will continue to improve every customer-facing facet of our business.  This is the most cost effective route to both recovering those revenues lost during 2009 and generating new growth."

- Ross J. McLeod, Great Canadian's Chairman and Chief Executive Officer



  • "The year-over-year revenue decline was due to the impact of the challenging economy, the mandatory February closure of Hastings Racecourse during the Winter Olympics, and the effect of the weakened U.S. dollar on the Great American Casinos’ revenues.  These declines were offset by a revenue increase of $1.8 at the River Rock Casino Resort."  
  • "Boulevard is currently facing challenges from both a competitor's facility and disruption related to provincial highway enhancements, in addition to the pressure the economy has placed upon its patrons.  We have already begun to address these challenges, and Boulevard will remain an area of focus over the coming quarters."
  • "The Canada Line and River Rock's recent redevelopments have created significant growth in both visitation and gaming volumes at that property.  Increased efficiency allowed this growth to translate into an impressive improvement in River Rock's EBITDA."


  • The provincial highway construction project causing access issues at Boulevard will be completed in 2013 and will likely continue to cause disruption at the property. Working on property enhancements at Boulevard to offset some of this disruption.
  • Moncton Casino opened in New Brunswick in May and may impact Nova Scotia (this property is over 200km away).


  • EBITDA margin guidance in light of the property enhancements that they are planning to implement at Boulevard and across other properties?
    • Will try to deliver similar types of performance. Mgmt basically avoided the question
  • Share buyback?
    • Thinking about it, but there is nothing that they can disclose. Doesn't sound like a decision has been made
  • Competition at Boulevard?
    • Cascades is being more aggressive
    • Quite a bit of construction that is impacting the traffic flow
  • Liquor license at Naniamo
    • They received the license last week and hope it helps on the margin - but won't be a game changer
  • Flamboro downs?
    • What is the risk that they don't renew the license.  OLG has been looking for a new CEO.  There are about 8 licenses that are in a wait and see mode as a result of the vacancy in the office.  It would be expensive for the province not to renew the license given that they receive the bulk of the revenues from the operation.  The OLG has rolled over every racetrack license that has come up for renewal thus far.
  • 1Q2010 is probably indicative for what they seeing going forward for F&B  revenues at Georgian Downs.
  • Hotel revenues at River Rock - is up y-o-y but not benefiting from the Olympic business as it did in the 1Q.
  • Gateway margin comparison - how much room is left?
    • Results at Gateway were achievable before they introduced amenities to their properties.
    • Basically when they had slots in a box, those 50+ margins were achievable not at a "full service" property
  • Capex: $10MM development and $7MM of maintenance for balance of 2010
  • Timeline on cash buildup before returning it to shareholders?
    • Don't want to leave themselves without options or flexibility.  So they will be patient on deploying that cash. Unclear when that happens.  But they are very focused on creating shareholder value.
  • They just paid down the line.  So it's not like they have a lot of cash laying around today - what they have is being used for working capital.  It will accumulate from here.  They are comfortable with their current leverage ratio. They aren't focused on any M&A opportunities.
    • They did hint at being keenly interested in the master redevelopment in Ontario if the law changes to allow table games
  • Boulevard - recently did a refresh of the casino
  • the BC gaming market has changed from a build it and they will come because of under penetration. BC is now a mature market that is fairly saturated and they need to start thinking outside of the box to generate incremental dollars and traffic. Just hired a new marketing person to cultivate new business.
  • Why didn't interest expense decrease when they paid down their debt this Q?
    • Lower interest income in the current Q vs. prior quarter.  The other issue is that they are no longer capitalizing interest.  Thinks that current net interest expense is a good run rate.
  • Higher stock comp?
    • Result of higher stock price (y-o-y) but lower number of options granted so it's valued higher under Black Scholes formula.
  • River Rock is benefiting from the Line opening but also improvements at the property. The Line continues to get more traction in the market place. 
  • Will they be investing more marketing dollars in Nova Scotia to offset any potential impact from Moncton?
    • They are already did a refresh and have some programs in place but think that there will still be an impact initially.
  • How much cage cash does the business require: $4.6MM at the end 1Q2010 + $15MM provided by the BCLC.

SP500 Risk Management Levels, Refreshed

The SP500 bounced where it should have. Now it’s doing its best to close above the intermediate term TREND line (1143).


I see the potential for 2 high-probability scenarios playing out from here: 

  1. If the market can hold today’s intraday gains, there is no significant resistance until the dotted red line in the chart below (1168). From 1168-1188 there is significant resistance and each line in that range would establish a series of lower-highs. On the margin, lower highs are bearish. 
  1. If the SP500 fails to hold and close above the intermediate term line (1143) throughout this week, there is no reason to believe that the SP500 won’t test its prior closing YTD low of 1110. As of 1PM EST I am currently registering 1107 as downside support. On the margin, lower-lows are also bearish. 

Under each of these scenarios, The Risk Manager says you should be making sales today on strength. We’ve sold 3 long positions out of our Virtual Portfolio (CIT, BBBY, and PRSP) and sold our trading long position in SPY to take our Asset Allocation to US Equities down from 6% to 3%. We have not started to re-short stocks or ETFs yet.



Keith R. McCullough
Chief Executive Officer


SP500 Risk Management Levels, Refreshed - S P

JNY: More Fuel To The Fire

Here’s more context suggesting that 1) the Stuart Weitzman deal was entirely driven by Irving Place, and 2) the company is likely near peak margins.


Based on the feedback thus far, we struck a chord somewhere along the line with our JNY note this weekend. Footwear News has also since published what I thought was an insightful interview with Stuart Weitzman. Here are some excerpts that add fuel to the fire. Check out the full article at for additional context.


FN: Why was now the right time for a deal?
SW: It wasn’t necessarily the right time or the wrong time for me. It was obviously the right time for Irving Place Capital.

Hedgeye Retail: This was entirely driven by what the private equity partner wanted – or needed.


FN: You’ve been looking to hire a new CEO and other top executives. How will this deal affect the search?
SW: If Jones can lead me somewhere, that’s great. I haven’t yet found the [people] I want, and maybe they have resources that can give me more opportunity to choose. ... With or without an association with Jones, I have to start passing a lot of this [work] along to talented people. [I’m the CEO, chief creative force and chairman], and I shouldn’t be wearing all these hats. We have the same officers running the major parts of the company as we did many years ago, and we’re [nearly] 20 times bigger. We [have been] stretched thin.

Hedgeye Retail: Find me any fashion brand that hit a point where it was ‘stretched thin’ with resources and had too few executives wearing too many hats that was NOT operating at peak margins. Seriously… being ‘stretched thin’ equals running near max utilization. To maximize throughput, you need to invest in more talent. Is JNY up to the task?


FN: Your wife, Jane, is a big part of the company. Will the deal affect her role?
SW: Certainly not. She’s EVP and handles special projects, particularly in public relations events and accessories.

Hedgeye Retail: Remember when LIZ bought Juicy and noted how vital the founders (incl Gela Nash-Taylor – wife of John Taylor, bassist from Duran Duran) were? Where are they now?


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

PIIGS Package, and other Charts

Position: Long Germany (EWG)


With Europe’s €750 Billion loan package facility headline news (and rightfully so), below are two incremental charts we’re looking at.


1. Piling on Debt, has consequences, including inflation.  While Europe’s loan package mutes the immediate term threats of contagion across Europe, it does not excuse Greece (or the other PIIGS) from issuing the necessary austerity measures to cut its deficits.


PIIGS Package, and other Charts - g1


2. German exports received a boost in March, rising 10.7% versus the previous month. As part of our Q2 Theme Sovereign Debt Dichotomy, we’re bullish on Germany, especially as a weaker Euro benefits exports.


PIIGS Package, and other Charts - g2


Matthew Hedrick


The Macau VIP segment for LVS has not been keeping up with the market. Some of this is deliberate, most of it is not.



Macau market Rolling Chip (RC) volume increased a whopping 76% y-o-y in April.  LVS, on the other hand, could only muster a 10% increase in RC.  The Venetian actually experienced a 23% decline in RC but pulled a rabbit out of its hat in the form of high hold % (and maybe higher direct play) to increase VIP revenue 22%.  Even in Q1, LVS failed to keep up.  Market-wide RC grew 75% in Q1 while LVS and Venetian only expanded 29% and 11%, respectively.


The chart below shows the pretty consistent erosion in LVS RC market share since December of 2008.




So what’s going on?  Here are some thoughts:

  • SJM market share push – We first highlighted this on 02/08/2010 in our note, “MACAU: A MARKET SHARE BATTLEFIELD?.”  SJM embarked on an aggressive market share push with many of its properties and rooms on 5% franchise structure which is very attractive to the junkets.  Moreover, the company has targeted the LVS junkets.  SJM has been on a steady market share climb since September 2008, increasing its RC market share 1,400bps to a 2 ½ year high of almost 35% in April.
  • City of Dreams commission hike – Despite a 1.25% commission cap agreement with The Venetian, we are hearing that CoD is actually paying many of its junkets a higher rate.
  • Triads – I thought these guys went away peacefully when Macau opened up the casino industry.  Yeah right.  The media attention lately on LVS alleged ties with a Triad backed junket does not go over well with regulators.  If LVS is pretty smart, and I think they are, they will be very careful to pull away from any even remotely shady junket.  I don’t think those junkets necessarily want the attention either and they may distance themselves from the American operators.  Look for Wynn and LVS to continue to experience VIP share degradation. 
  • CoD addition to the market – This is partly to blame for LVS’ RC share loss but only a small part.  CoD garners only about 8% of the market and a lot of that comes from MPEL’s own Altira property.
  • Shift to Four Seasons – Four Seasons is on a ramp but since inception, that property has only generated about 17% of the VIP turnover as Venetian.
  • More direct play – Here is the positive take away from the bunch.  The Venetian has absolutely been trying to cultivate this business.  With player rebates in the 0.77%-1.05% range (or 28-34% of the table hold rate) versus junket commissions of 1.25%, direct play is much higher margin.  The chart below shows direct play as a percentage of RC for Venetian and Sands.  Clearly, Venetian is on the upswing and that is deliberate.  Higher direct play will usually eat into VIP but the net will be a positive because of the higher margin.



LVS has clearly stated that it intends to be primarily a non-junket Macau operator.  Over the long-term that should be a positive and we are quite constructive on the long-term competitive positioning of LVS.  However, LVS currently remains very reliant on VIP.  In 2009, we estimate 48% and 39% of Venetian Macau’s net table revenues and table profits, respectively, were generated from VIP.  When market VIP growth slows – we think post May – near-term investor growth expectations may have to be ratcheted down for LVS.

R3: AdiBok Strikes Again

Easily the most notable quote over the weekend came from Adidas’ CEO Herbert Hainer as it relates to the Toning category and impact on Reebok. “The explosion of growth in this [toning] space in such a short period of time eclipses nearly everything I have witnessed in the industry over the last 25 years, and we are well on track to sell at least 5 million pairs of toning footwear in the U.S. alone this year.” Worldwide, Hainer forecast that as many as 10 million pairs of toning product could be sold, up from a prior forecast for 5 million pairs as the Reebok toning product is gaining traction with recent advertising launches in Germany, Russia and the U.K.


What I’m not going to do is sit here blindly and deny the growth of this category, regardless of my personal bias as to how ridiculous the category is, and how hard I laugh when I see Joe Montana on TV advertizing Skechers Shape-Ups for men.  The fact is that the growth is real – for now – and Adibok is benefitting. This is happening at the same time we head into World Cup, which disproportionally helps Adi – at least until they need to anniversary it next year. Remember that Adi’s strategy is to endorse the event to sell the ‘official’ product of the World Cup. Other brands – like Nike and Puma – could care less about selling ‘official product’ that is worn by a ref, but care more about using the event as a platform for growing their business in outer years.


So if you own Adi, be happy. The trends continue to work in your favor. Take outsized growth in ‘toning,’ what may or may not be a sustainable category, add to World Cup – and layer over a German-engineered cost structure. That’s pretty nice as it relates to profit growth trajectory this year. But ‘this year’ is the key part of the phrase. Sustainability is a massive question mark.


- Brian McGough





  • A recent study by Comscore suggests consumers are less brand loyal than they have been in years. As an example, 57% of consumers surveyed buy the brand of toothpaste they want most vs. 67% only two years ago. In the apparel category, 15% fewer consumers “bought the brand they want most” in March 2010 vs. March 2008. Clearly trading down has had a major impact on brands in just a very short two year time frame.


  • After rumors that famed London department store Harrod’s was for sale, it seems this is now a reality. Over the weekend it was reported that Harrod’s was sold for $2.2 billion to Qatar Holding, the private equity arm of the Qatar royal family. At two times revenues, the purchase price is certainly eye-opening for a single store operation (albeit a very big one).


  • With Mother’s Day now over, it was estimated that Americans spent just shy of $15 billion on gifts for mom’s big day. The holiday ranks second only to Christmas as an occasion for which to give a gift.




R3: AdiBok Strikes Again - 5 10 Retail Calendar




Consumers polled by Big Research last month on their shopping habits appeared to be in the mood for shoes: All but one of the top 10 footwear stores registered an increase in market share from the previous year (all figures based on April y/y change in market share):

  1. Walmart - 11.5% (up 0.7% y/y)
  2. Payless ShoeSource - 9.8% (up 0.3%)
  3. Kohl's - 5.1% (down 0.1%)
  4. DSW - 3.8% (up 0.7%)
  5. JCPenney (up 0.3%)
  6. Macy's (up 0.3%)
  7. Kmart (up 0.6%)
  8. Foot Locker (up 0.2%)
  9. Target (up 0.7%)
  10. Famous Footwear (up 0.2%)



Broder Bros., Co. reported first quarter 2010 net sales were $153.5 million compared to $151.7 million for the first quarter 2009.  Loss from operations for the first quarter 2010 was $3.3 million compared to $6.9 million for the first quarter 2009.  Net loss for the first quarter 2010 was $6.0 million compared to $14.8 million for the first quarter 2009. First quarter 2010 gross profit was $26.9 million compared to $25.0 million for the first quarter 2009.  The increase in gross profit was due to higher unit volumes and improved gross margins.  First quarter 2010 gross margin was 17.5% compared to 16.5% in the first quarter 2009.  Consistent with management's expectations, the Company began to regain lost market share during the first quarter 2010.  The Company's unit shipments were 4% better than the prior year compared to a 3% increase in overall industry unit shipments as reported by STARS.    <>


Nordstrom Rack Outlet Concept to Debut in NYC - Nordstrom may one day open a full-line store in Manhattan, but on Tuesday, it will open a Rack unit at One Union Square South, marking the Seattle-based retailer’s entry into New York City. It’s a logical move, given the nation’s mind-set for trading down. It also gives Rack a high-profile location, right on busy 14th Street, and a leg up on competitors such as Saks Off 5th, Lord & Taylor, Talbots and Neiman Marcus, which are getting more aggressive in the outlet arena, as well as Bloomingdale’s, which is opening its first four outlets this summer and fall. Macy’s also is considering an outlet strategy  <>


China’s trade surplus shrank 87 percent in April from a year earlier as imports grew faster than exports because of stimulus-driven domestic demand.  The surplus of $1.68 billion, reported by the customs bureau on its website today, compared with a deficit in March. Imports gained 49.7 percent. Exports rose 30.5 percent, topping the 28.9 percent median estimate of 30 economists in a Bloomberg News survey.  <>


Multichannel bookseller Borders Group Inc. said today it’s taking online pre-orders for its Kobo eReader for delivery as early as June 17. Also coming soon: A new e-book store on, Kobo apps for ordering e-books through mobile devices and PCs, and in-store Area-e shops for downloading e-books. Borders is offering the Kobo eReader for $149.99, compared to $259 for Inc.’s similarly sized Kindle e-reader. The Kobo eReader, which will come pre-loaded with 100 classic books, can carry up to 1,000 book titles; the Kindle carries up to 1,500 while the larger Kindle DX, priced at $489, can handle up to 3,500 titles. Mike Edwards, Borders Group’s interim president and CEO, says its Kobo eReader is just the first of several e-readers the retailer plans to offer.  <>


Retailers joined with the overall economy in adding jobs in April, offering evidence of an improved economic outlook. Specialty apparel retailers added 8,600 jobs last month compared with March to employ 1.39 million, the U.S. Labor Department reported Friday, while department stores expanded payrolls by 300 jobs to employ 1.48 million. “The gains in retailing employment are consistent with a recovery [in] spending at retail chains,” said John Lonski, chief economist for Moody’s Investor Services. “The improvement in private sector employment is consistent with a lasting upturn of consumer spending. Going forward, consumer spending should grow.” Clothing stores helped spur an increase in retail industry employment of 12,400 jobs, said Sandy Kennedy, president of the Retail Industry Leaders Association. The employment figures came on the heels of mixed same-store sales reports from retailers on Thursday, she noted. “Today’s jobs report is yet another reminder of the complex challenges the U.S. economy faces as it moves toward recovery,” Kennedy said. Nationwide, employers added 290,000 jobs, the largest increase in four years and the fourth straight month of job gains. Yet the unemployment rate rose to 9.9 percent in April from 9.7 percent the previous month.  <>


Jockey International Discusses Strategy - Like other heritage brands that have struggled with the tough economy over the past two years, Emma said Jockey is focusing on its most important assets: brand integrity as well as its 134-year-old franchise of men’s, women’s and children’s underwear at retail. Ramping up investments in design and marketing are strategies that have clicked for the privately held company, which generates estimated annual wholesale sales in excess of $300 million.

WWD: How does Jockey differentiate itself from the competition?

E.E.: We focus on innovation and newness and want to stay a step ahead as it relates to fashion. We offer value — it’s built into the product. We have not allowed ourselves to get involved in the promotional frenzy. There’s been a lot of pressure to deviate but we have not deviated from our 25 percent off [seasonal sales]. A lot of companies are doing 40 percent off. We feel that’s a mistake.  <>


Deal Activity in Outdoor Equipment - Clarus Corporation has signed definitive merger agreements to acquire, in two separate transactions, Black Diamond Equipment, Ltd., the manufacturer of equipment for rock climbers, ice climbers, alpinists, and freeride skiers; and Gregory Mountain Products, Inc., the manufacturer of technical backpacking and related mountaineering products. The aggregate purchase consideration, prior to adjustments, for both acquisitions is approximately $135 million.  <>


Spanx Innovation Continues - Building on its recent forays into women’s swimwear and men’s products, shapewear company Spanx is keeping the momentum going with a new category launch today: control tops that can be worn as ready-to-wear. The collection, called On Top and In Control, consists of eight styles — including a long-sleeve turtleneck, V-neck and crew neck, a three-quarter bateau-neck top and four sleeveless designs. Priced from $68 to $118 at retail, the tops will launch exclusively on Sara Blakely, founder of Spanx, said the company is developing additional outerwear products and the next launch will be “a new take on a classic item.”   <>




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