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MACAU TABLE REVS THRU SEPT 26TH

Taking into account the number of weekend days versus weekdays and adding in estimated slot revenues, we project September will come in around HK$14.9 billion or +40% YoY growth.

 

 

Macau generated HK$12.5 billion in table gaming revenues through September 26th, implying +40% YoY growth for the full month of September, per our projections.  Market share trends remained consistent with last week:  MPEL and MGM above recent history and Wynn well below.  We are hearing that rolling chip hold percentage remains low at Wynn and MGM and high at MPEL.  The junket market continues to get more aggressive, mostly in the form of commission advances.  MGM and MPEL, on the margin, are most aggressive while LVS also appears to be extending terms for commission advances.  We will be writing more about this shortly.

 

Below are the September month to date table gaming revenues in Macau through the 26th.

 

MACAU TABLE REVS THRU SEPT 26TH - macau333


A Point is not a Point is the Point

Conclusion:  Finish Line comps were light, but not all points of comp are created equal.  With questions surrounding market-share gains and losses within the mall-based athletic footwear space, we remind investors that a point of same-store sales at Foot Locker represents 3.2 times the revenue dollars as a point of growth at Finish Line.  Same store sales beats and misses simply don’t tell the true market share story, nor are they worth over-analyzing when a product tailwind is building.

 

With the reporting of Finish Line and Nike results lat last week there’s been a large amount of data shed on the athletic wholesale and retail landscape.  On one hand we got confirmation from Nike that the domestic outlook appears to be accelerating over the back half of the year with the reporting of a 14% increase in domestic futures.  On the other hand we got a glimpse of monthly volatility in the mall at retail and the inherent risk of running inventories too low when demand appears to be picking up.  That was Finish Line. 

 

As a result of the data flood, we were also faced with a whole bunch of speculation surrounding the momentum and trends at Foot Locker, athletic retail’s 800-lb gorilla.  As most of you know, we’ve been bullish on the opportunity for FL and its shares going back to February of this year.  Along the way there have been zigs and zags with the quarterly results, but the overall trajectory of earnings, sales, and stock performance has been positive and in line with the thesis we originally laid out.  With each data point, we check our thesis against reality as any analyst would do.  This time is no different, as we’re challenged to rectify the sales miss at Finish Line with a decade-high futures number from Nike.

 

One of the main issues or topics coming out of this week’s results surrounds market share amongst the mall based athletic chains.  We’re often baffled by the Street’s obsession with same-store sales and this time is no exception.  For the first time since we laid out our bullish thesis on FL, we’re now getting questions about possible share gains at the expense of FINL.  For the past year, the question was centered on Foot Locker’s share loss. 

 

However, the reality is, this is not about comps.  All comp points are not created equal.  Given that both FL and FINL are no longer growing their store base, it’s a fairly simple exercise to figure out what a comp point really means for revenue at each company.  It turns out that if you exclude international from FL’s total and look at the domestic business, a point of same store sales is worth about $35 million to the topline ($50 million on a global basis).  At FINL, a comp point yields about $11 million in incremental revenue for the chain.  So in other words, a point of domestic comp at Foot Locker is worth 3.2x the revenue dollars at Finish Line.  Again, not surprising given that Foot Locker is running 2,732 domestic stores to Finish Line’s 667 (productivity accounts for the discrepancy between sales and stores). 

 

The bottom line here is it is entirely possible that Foot Locker may out “comp” Finish Line in their 3Q.  For those “comp junkies” this is good news. We are hearing that apparel is taking hold, and in fact is running up double-digits at the Lady Foot Locker sub-brand.  This is all part of the plan to turn the business around and it is largely on track.  However, the Street is overly focused on one chain winning, the other losing, and using same store sales as the barometer.  In aggregate, the market it robust, the product pipeline continues to improve, ASP’s remain strong, and the comparisons are fairly easy.  We expect both FINL and FL to perform well against this backdrop. 

 

With that said, FINL needs to produce a same store sales result 3.2x as good as Foot Locker’s to maintain market share neutrality.  This is something to watch, especially as FL’s merchandising efforts begin to take hold and the inevitable market share debate rolls on. 

 

Eric Levine

Director


R3: TGT, WMT, BBY, HBI, VFC

R3: REQUIRED RETAIL READING

September 27, 2010

 

With the holiday season fast approaching, much to do with retailers adjusting store locals and formats while the brands are keyed in on marketing and advertising strategies.   

 

 

RESEARCH ANECDOTES

 

- The urban retail landscape is likely to heat up a bit with Target’s announcement that it will pursue a test of a smaller format store, ranging from 60-100k square feet. The company plans to open its first prototype of the concept in Seattle in 2012. Additionally, speculation remains that Wal-Mart is also pursuing a similar strategy that may be announced at the company analyst meeting in October.

 

- According to Adage (the leading source of marketing and advertising news), Best Buy is planning on increasing its TV ad presence this holiday, a move that is counter to industry trends. Ad spend on TV is expected to rise by a low double digit percentage, with the funding coming from a cutback in newspaper inserts and other newspaper ads.

 

- Converse is coming to Manhattan with its first flagship retail store in Soho. Nike is said to be taking the 7,000 square foot former Ann Taylor location on Broadway. The store is expected to be open by the holidays.

 

- As one of the key top-line growth drivers at VF Corp., management clearly noted in a recent meeting that future growth at The North Face would come primarily from growth in new(er) sport categories (e.g. cross country skiing & long-distance running) in lieu of incremental distribution. That said, the brand is growing at key outdoor retailers such as DKS and REI despite increased competitive pressures from Columbia’s new OmniHeat line.

 

- Only a short time after winning space at DG from Fruit of the Loom, Hanesbrands’ sales are already up 30% at the account relative to its predecessor. Providing not only a real-time example of the strength of the brand, the company’s success at DG also serves as a powerful sales tool reflecting the superior productivity of the line for retailers as well.

 

 

OUR TAKE ON OVERNIGHT NEWS 

 

Wal-Mart Offers to Buy South Africa's Massmart for $4.2 Billion - Wal-Mart Stores Inc. , the world’s largest retailer, plans to buy Massmart Holdings Ltd. in a transaction worth about $4.6 billion, entering Africa in its biggest deal in more than a decade. <bloomberg.com>

Hedgeye Retail’s Take: The last continent without a Wal-Mart appears to be heading for EDLP.   While the headlines appear to paint the African opportunity with a broad brush, it’s highly unlikely we’ll see Wal-Mart’s influence makes its way beyond the major urban and developed centers in lower-risk countries.  With that said, this is a sizable investment indeed and one that was needed to make this company truly global.

 

Best Buy Expands Its Buy Online, Pickup In Store Options - Best Buy is bolstering its buy online, pickup in store program with a guarantee that the retailer will make in-stock items available for pickup within 45 minutes of an order being placed. It is also allowing shoppers to pick up items direct from its warehouses. <internetretailer.com>

Hedgeye Retail’s Take: This trend has legs as we see more retailers prescribe to the in-store pickup option. For a retailer with bulky product like BBY, this model makes even more sense as it saves the consumer shipping costs and an additional leg for the retailer easing the load on distribution demand.

 

Converse Jumps Back Into TV - Combining the worlds of basketball and music, Converse is breaking a 60-second TV spot promoting its Star Player Evo shoe, featuring Julius “Dr. J” Erving and Doug E. Fresh along with several well-known skateboarders. The spot will break during this Sunday’s The Family Guy and also will run during the first NBA season opener on Oct. 26, which will feature the Boston Celtics squaring off against the Miami Heat. Though Converse CMO Geoff Cottrill said the brand has advertised on TV recently, including during the MTV Video Music Awards, according to The Nielsen Co., such appearances have been relatively rare. The brand spent well under $1 mm on measured media in the first six months of 2010, zero in 2009 and $5 mm in 2008, according to Nielsen. <brandweek.com>

Hedgeye Retail’s Take: Highlighting its heritage, Nike is obviously stepping up the marketing of its brand – what’s more interesting is the targeted demographic. With Dr. J and Doug E Fresh headlining the spot, the brand is clearly looking to resonate with Baby Boomers since it will be the first time for the majority of today’s youth watching to see the stars of the 70s & 80s in person.

 

Burlington Coat Factory Boosts Comps Through Discounting - Burlington Coat Factory Investments Holdings Inc. saw its losses mount in the second quarter despite increases in net and same-store sales. Gross margin declined to 35.6% of sales from 39.5% a year ago. Burlington Coat Factory saw strong performance in dresses and women’s suits, intimate apparel, accessories, shoes, men’s, and home divisions. Misses, sportswear, juniors and the Baby Depot operation underperformed the company average. <wwd.com/business-news>

Hedgeye Retail’s Take: Further evidence that brand strength is critically important in today’s market, not to mention a functional web presence. It’s safe to say that intimates at Burlington Coat Factory is not exactly destination shopping.

 

NBA Players Have New Jersies from Adidas - NBA players will have a new look on the court this season. Adidas, the league’s official outfitter, unveiled the Revolution 30 uniforms last week, which will be worn by all 30 teams. The brand says the new jerseys are 30% lighter than last year’s and are made from 60 percent recycled materials. Among the changes: The material that makes up the player’s number was switched from a heavier fabric to a breathable mesh. The uniform is the result of four years of research done by Adidas. <wwd.com/footwear-news>

Hedgeye Retail’s Take: After suffering a brief setback when Garnett switched endorsements from Adi to Anta, they’ve given the NBA something else to talk about – great timing given the lightweight trend.

 

P Diddy Plans UK Launch for Sean John Megabrand - Sean Combs, the singer previously known as P Diddy, is to launch his lifestyle clothing brand Sean John in key European markets early next year. <drapersonline.com>

Hedgeye Retail’s Take: Diddy going global – only surprise here is that it hasn’t occurred sooner.

 

Vibram FiveFingers Making Moves - On the strength of its quirky-looking FiveFingers product, the Italian brand has been a standout in a weak economy. In fact, sales have tripled every year since the style's debut in 2006 — and this year, the brand is on course to deliver 1.4 mm pairs of the glovelike shoes, a fivefold increase over the prior year. Vibram's retail customers claim they have runners coming in and buying their second and third pair already. It's a category of footwear that's not going away. About a third of the Vibram business worldwide is in FiveFingers product, with 90% of that done in North America. The company derives the other two-thirds of its business from its components program. To keep pace with demand, the firm expanded to a new office earlier this month, giving it three times the space. On the production front, Vibram has shifted its operations from a single factory in Southern China to five, with one or two more scheduled to be added by the end of the year. Additionally, the company has upgraded its distribution center capabilities and installed a new operating system, which should be able to handle the company's needs beyond $1 billion in sales. At the same time, the brand has continued to unveil new styles, and for spring '11 will introduce kids' shoes. To support the growth initiative, Vibram is now venturing into advertising for the first time. <wwd.com/footwear-news>

Hedgeye Retail’s Take: All this growth on word-of-mouth marketing, just wait until the brand makes marketing efforts official. If you haven’t already, we recommend reading “Born to Run,” the book largely responsible for the accelerating the barefoot trend.

 

The EU Acts to Encourage Cross-Border Shopping - In an effort to persuade consumers in the European Union to shop online with retailers outside consumers’ home countries, the E.U. Parliament this week gave its backing to a trust mark that e-retailers could place on their e-commerce sites to show they meet reliability standards. Bureaucrats and merchant groups still need to hash out the requirements retailers must follow to obtain the mark. But the parliament wants to base those requirements on E.U. law and follow the example of trust mark labels used in its 27 member states. <internetretailer.com>

Hedgeye Retail’s Take: The EU takes note of one of the key growth channels for U.S. retailers.

 

Six Leather Plants in Jiangxi, China to be Shut Down - Six leather-related factories in Jiangxi are being forced to close down by the end of the month as a result of Chinese state programme of eliminating outdated production capacities. <fashionnetasia.com>

Hedgeye Retail’s Take: The latest update as China continues to make its efforts to ‘clean up shop’ public to counter its perception as one of the global economies most hazardous working environments.

 

Sharp Cut in Indian Apparel Tax Refund Rates to Affect Jobs, Exports - Indian exporters are disappointed about the government’s sharp reduction in the rates of duty drawback or tax refund, stressing that such a move will adversely affect employment in industries include apparel, leather and handicraft.  <fashionnetasia.com>

Hedgeye Retail’s Take: Despite its position as one of the largest global economies, the reduction in tax refunds will certainly hamper India’s export economy. Fortunately for most domestic retailers, India has not been one of the primary beneficiaries of the shift out of China relative to southeast Asia countries.

 

 

 


Early Look

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Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

THE M3: PRICE WAR; MORE CHINA PROPERTY CONTROLS; LOWER GAMING EMPLOYMENT; INFLATION; PROPERTY; MBS

The Macau Metro Monitor, September 27th 2010

 

 

PRICE WAR COULD STRAIN JUNKET RELATIONSHIPS Intelligence Macau

IM believes the junket price war could potentially have a negative impact on Wynn.  But IM doesn't think Wynn will raise junket commissions; instead, Wynn may start raising rebates to direct VIP players.

 

CHINA ANNOUNCES RULES TO CURB LAND HOARDING AFP, Bloomberg

The Ministry of Land and Resources and Ministry of Housing and Urban-Rural Development said in a joint statement that developers will be banned from bidding for more properties if they have idle land for more than a year, illegally transferred land, or developed land in breach of agreements. Further tightening land controls is “an important task in continuing to contain home-price gains and promoting a reasonable correction in housing and land prices", they added.


EMPLOYMENT SURVEY FOR JUNE - AUGUST 2010 DSEC

Although the employed population increased by about 600 in the June-August period vs. May-July, employment of the Gaming Sector registered a decrease.  Unemployment rate for June-August 2010 remained unchanged from the previous period (May-July 2010) at 2.9%.  Number of the unemployed decreased by about 200 from the previous period to 9,400

 

INFLATION RATE TO CONTINUE "RELATIVELY HIGH": FRANCIS TAM macaubusiness.com

Secretary Tam expects inflation to remain “relatively high” through the second half of 2010.  “The government will keep an eye [on the inflation problem] and it will set up measures to alleviate the pressure on citizens,” Mr Tam said.  He said there are several external factors that will likely keep pushing the inflation rate up, like the exchange rate between the pataca and the yuan.

 

MACAU GOVERNMENT TO ANNOUNCE NEW MEASURES FOR PROPERTY MARKET THIS WEEK macaubusiness.com

Secretary for Transport and Public Works, Lau Si Lo, will announce curbing measures on the private property market including new mortgage lending rules, changes in the taxation model and in land usage policy, and draft regulation on property agencies and the pre-construction sale and purchase of real-estate units.


MARINA BAY SANDS REDUCES PARKING RATES FROM $8 TO $6 PER HOUR AsiaOne News

A spokesperson for the Marina Bay Sands attributed the reduction in rates to increased availability of parking spaces.


WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE

Last week, 4 of the 8 risk measures registered positive readings on a week-over-week basis while 2 were neutral and 2 were negative.  A summary table is shown below.

 

Our risk monitor looks at the following metrics weekly:

1. CDS for all available US Financials (29 companies)

2. CDS for large European Financials (39 companies)

3. High Yield

4. Leveraged Loans

5. TED Spread

6. Journal of Commerce Commodity Price Index

7. Greek Bond Spreads

8. Markit MCDX

 

WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE - summary

 

1. Financials CDS Monitor – Swaps were mostly negative last week.  Swaps tightened for 8 of the 29 reference entities and widened for 21.    Conclusion: Negative.

 

Tightened the most vs last week: MTG, MBI, AIG

Widened the most vs last week: AXP, PRU, CB

Tightened the most vs last month: JPM, SLM, AIG

Widened the most vs last month: PGR, AGO, MMC

 

WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE - cds US

 

2. European CDS Monitor – In Europe, CDS was nearly all negative.  Swaps tightened for only 2 of the 39 reference entities tightened and widened for the other 37.   Conclusion: Negative.

 

Widened the most vs last week: Greek banks: Alpha Bank, EFG Eurobank Ergasias, National Bank of Greece

Tightened the most vs last week: IKB Deutsche, Caja de Ahorros del Mediterraneo, Svenska Handelsbanken

Widened the most vs last month: EFG Eurobank, Bank of Ireland, DnB NOR

Tightened the most vs last month: Hannover Rueckversicherungs, Bankinter, HSBC Holdings

 

WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE - cds euro

 

3. High Yield (YTM) Monitor – High Yield rates fell slightly last week, closing at 8.40 on Friday. Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE - high yield

 

4. Leveraged Loan Index Monitor – The leveraged loan index rose 4.5 points last week.  Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE - leveraged loan

 

5. TED Spread Monitor – Last week the TED spread rose slightly, closing at 15 bps. Conclusion: Neutral.

 

WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE - ted spread

 

6. Journal of Commerce Commodity Price Index – Last week, the index rose a hair, closing at 15.00 on Friday. Conclusion: Neutral.

 

WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE - joc

 

7. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields fell 51 bps, ending the week at 1105 bps versus 1156 bps the prior week.  Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE - greek bonds

 

8. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads were down last week, closing at 215 versus 227 the prior week.  Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS: FOURTH WEEK IN A ROW WITH MORE POSITIVE THAN NEGATIVE - markit

 

Joshua Steiner, CFA

 

Allison Kaptur


Macro Forces

"The lesson that I have learned is that it isn't reasonable to be agnostic about the big picture."

-David Einhorn

 

There was an article in the Wall Street Journal on Friday that was forwarded to me hundreds of times over. The article was titled “Macro Forces In Market Confound Stock Pickers.” There was nothing particularly new in the article. Everyone who has protected their client’s hard earned capital in the last 3 years gets that macro matters. But what about those who don’t get it? What’s their answer to David Einhorn’s mental flexibility? Do their answers matter?

 

Macro Forces certainly matter. As Risk Managers, it’s our job to both identify their market impact and proactively prepare for their most “improbable” outcomes. I have a great deal of respect for someone like Einhorn because he can skate circles around Captain Stock Picker out there but, at the same time, acknowledge that he needs to continually evolve his investment process to incorporate the macro frontier.

 

If you are a bloodhound who trades merger arbitrage or your job is to be long of the next stock to hit this market’s broadening “rumor mill” of takeout targets, that’s fine. Maybe you don’t do macro until, as Mike Tyson would say, it “punches you in the face.” For the rest of us, “it isn’t reasonable to be agnostic” about global macro market risk anymore. October 1987 mattered.

 

Being Duration Agnostic is also something we evangelize a lot here in New Haven. My sense is that the Buy-And-Hope model of yesteryear isn’t going to be emailed to me 100 times over via a WSJ article anytime soon. Legacy print media has a funny way of being a lagging indicator. All that said, we need to focus intensely on compartmentalizing calendar catalysts that are macro in nature. It’s unreasonable to actively manage risk otherwise.

 

During Friday’s US stock market short squeeze I was also getting a lot of emails asking me when I was going to short the SP500 (SPY). After 3 consecutive down days (Tuesday, Wednesday, and Thursday), the illiquidity rally was broad based and I think the questions were well timed.

 

Unfortunately, I’m not enough of a cowboy anymore to stand on the other side of this market’s intermediate term TREND line and call it anything other than what it became on Friday – what was 1144 resistance in the SP500 is now support.

 

It’s not my job to be bearish or bullish. It’s really not my job to be anything other than a student of whatever it is that Mr. Macro Market throws at me each and every day. There certainly were more bearish than bullish fundamental research data points in my notebook last week but at the end of the week they were all trumped by Mr. Macro’s market price. The US Dollar has been demolished (down 14 of the last 17 weeks) and the reflation trade is back on.

 

To be crystal clear, there are no rules in this game suggesting that the 1144 line cannot become resistance again. The Macro calendar of catalysts for the early part of this week that could easily be construed as bearish are:

  1. Monday: A breakdown close through 1144 on the SP500 combined with a failure of the VIX to breakdown through its critical 20.77 line of support.
  2. Tuesday: A reminder that Housing Headwinds remain in the US economy with the Case Shiller report for July.
  3. Wednesday: An acknowledgement by both Japan (Tankan Survey) and the US (Obama speaks on joblessness) that Fiat Republics are not stable.

Then, of course, you have month and quarter-end on Thursday for the hedge fund business on top of a Chinese PMI report for September that could go either way. No one said that doing macro is easy. The way we all get paid in this business, it shouldn’t be…

 

The Macro Forces that are bullish out there are fairly straight forward at this point:

  1. Prices: The SP500 is up +9.43% for September-to-date!
  2. M&A: Unilever buys Alberto Culver this morning for $3.7B making at least 1 of the 67 rumors of takeouts we are tracking true…
  3. Mid Terms: If you didn’t know the Republicans are going to take the House, now you know.

“Republican House” being on the cover of Barron’s this weekend certainly doesn’t make this a new Macro Force to consider. That’s why we did our risk management call with Karl Rove last month to get ahead of this. As always, the better questions in our risk management lives surround what people aren’t talking about. These factors, too, need to be considered on a Duration Agnostic basis.

 

Whether or not the intermediate term TREND line in the SP500 of 1144 holds or not definitely matters to me in the immediate term. At the same time, out on the long term TAIL, the biggest question is why won’t the US stock market continue to make a series of lower-long-term-highs like the Nikkei in Japan has?

 

There are only 7 countries in the world who have underperformed Japanese equities for the YTD at this point (in order of worst to Japan: Greece, China, Slovakia, Italy, Portugal, Spain, and Ireland). Sadly, in response to another lower-long-term-high in the Nikkei, this morning the Japanese have introduced another 4.6 TRILLION Yen in stimulus. Shame on those who don’t learn history’s lessons. They deserve to lose.

 

My immediate term support and resistance lines for the SP500 are now 1131 and 1150, respectively.

 

Best of luck out there this week,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Macro Forces - nikkei


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%
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