UA: Basketball Trickling Out

Pictures of the Under Armour signature Brandon Jennings basketball shoe continue to trickle out in different colorways. See the Foot Locker exclusive below. The price point is right on this shoe at a penny under $100. The risk associated with attempting a Nike-esque price point and failing would be a disaster for UA. So the approach is to keep the price point reasonable, and keep allocation extremely tight this fall. We still think that footwear will be more additive to the top line that the consensus estimates suggest.


Does that mean that we'd chase the stock here? No. But with the Street so far below the actual earnings (by 25% in 2011) we could see why it looks so expensive. Mind you, people that fought us at $20 on this though it was too expensive. Same thing at $30...and then $40. Anyone looking to short UA based on valuation could continue to be very very frustrated.


The caveat? If the company's spending on athletes goes up given the recent chain of events in the endorsement world (NKE/NFL, Tom Brady wearing Under Armour cleats on Monday night football), then we could potentially be looking at a situation not unlike the Superbowl Ad 2-years back. We don't think that's likely. But as it relates to stock drivers, that's now near the top of the list.


UA: Basketball Trickling Out - 10 14 2010 12 22 02 PM



October 14, 2010


A new VAT tax on consumer products under consideration in Washington could add more than a few pounds to the Consumer Cannonball theme we’ll be discussing tomorrow.



As a reminder, we will be hosting call on “The Retail Aftermath” tomorrow at 10am exploring who wins and losses in a Consumption Cannonball scenario. Please contact sales at if interested. 





- A look back at the Target/Ackman proxy battle reveals that the process doesn’t come cheap.  All in, it was reported that the cost of Target’s defense was $11 million.  Ackman also acknowledged his costs in the fight amounted to $10 million.  At similar levels (assuming the same type of tactics are used), JCP is looking at legal and banking fees of about $0.03 per share.


- Teens are highly skeptical about their privacy when it comes to search engines and social networks.  A whopping 88% of teens aged 15-18 believe search engines monitor their browsing habits in order to sell advertising tied to their interests.  A slightly lower amount, 79%, believes that social networks also monitor their online behavior in an effort to target advertising. 


- In what might be a sign of a revival at New Balance, sales turned positive for the first time in nearly 3-years according to our weekly NPD runs. While much of the recent growth is likely due to the brands participation in the toning category, it’s at least worth noting as the brand has fallen off most radars in terms of relevance over the last 2-years.





Ralph Lauren Unveils Its First Women's Flagship - Ralph Lauren now has two Madison Avenue mansions. The designer will today unveil his first women’s flagship — an imposing, 22,000-square-foot Beaux Arts building at 888 Madison Avenue that was built from scratch across the street from his Rhinelander Mansion. Just like his first flagship, which is now a men’s-only store, the new women’s one has all the ingredients to become a retail icon. Polo declined to disclose sales projections for the store, or the cost of building it, though industry sources estimate a project of this scale would cost in the region of $40 million to $50 million. <>

Hedgeye Retail’s Take: Following the unveiling of Ralph’s flagship men’s stores across the street just last month, focusing service and assortment on only one customer only will have its advantages in these two locations. More importantly, the collective ‘Madison Project’ has now officially shifted from a liability to one that’s generating revenue.


Calvin Klein Expanding Rapidly in Hong Kong - With two new shops in two days and high-profile visits by executives and the brand’s creative director, Calvin Klein put on a show of strength and ambition in Hong Kong. Ck Calvin Klein officially opened its eighth ready-to-wear store in the city, a two-level, 4,000-square-foot flagship in Central that is its largest in the region. Adding additional arsenal to the expansion of the brand in the region, Warnaco Group Inc., opened a combined Calvin Klein Jeans and Calvin Klein Underwear shop at Elements that is expected to generate updwards of $1,000 per sq ft. Calvin Klein began operations in Greater China about 15 years ago and now has 20 Calvin Klein Underwear and 13 Calvin Klein Jeans stores in “well-penetrated” Hong Kong, but Gromek said there is room for more with another 8 to 10 stores to open over the next 2 to 3 years. Still, those numbers pale in comparison to the number of Jeans and Underwear shops in China — 100 doors directly operated by Warnaco and another 250 run by third-party partners. <>

Hedgeye Retail’s Take: China remains a substantial growth opportunity for retailers…surprise, surprise. More notable here is the fact that come August 2011, PVH takes back the license in China at which time you can expect buildout plans in the region to accelerate.


Bon-Ton Fights Back - While Macy’s continues to flex its muscle as a national department store chain with high-profile exclusives and proprietary brands, local retailers aren’t prepared to roll over and play dead just yet. Those that remain are reaching into their arsenal for ammunition of their own, whether it’s designer associations or aggressive marketing plans designed to appeal to customers seeking that hometown department store experience. In the past few weeks, The Bon-Ton Stores Inc. revealed its license and design agreement with Tharanco Lifestyles LLC and John Bartlett for Bartlett to take over the design of its Consensus private label men’s apparel and accessories collection. This followed on the heels of a deal a few days before, when Bon-Ton contracted with Casual Male Retail Group Inc. to supply big and tall men’s apparel through the store’s e-commerce site and, beginning in the spring, a limited number of its stores. <>

Hedgeye Retail’s Take: The shift towards fewer albeit more exclusive partnerships across retails continues to take shape. Good for retailers, not so much for marginal designers.


Wal-Mart Bolsters its Fulfillment Offerings - Wal-Mart Stores Inc. says that on Thursday it will expand a pilot that allows consumers to purchase items online and have them shipped for free to a FedEx Office location. The retail giant also announced that later this month it will expand a test that allows consumers who place an order online to pick up that item the same day from nearly 800 Wal-Mart stores in large metropolitan areas throughout the United States. The “FedEx Site to Store,” which has already launched in Los Angeles and Boston, will expand to FedEx Office locations in New York, San Francisco, Chicago and Washington, D.C. Wal-Mart worked with FedEx to choose locations that are not near a Wal-Mart bricks-and-mortar store, says a company spokesman. <>

Hedgeye Retail’s Take: As expected, the FedEx program is rolling out across the country further expanding the retail giants’ reach within a car ride of 98% of the American population.


The North Face Tests Geo-Fencing Technology - The North Face is currently testing geo-fencing, as the retailer has rolled out the strategy across each of its 31 locations in recent months. Geo-fencing allows stores to offer an opt-in "auto check-in" service to their patrons, no matter if they use a smart phone or regular cellular device. While quick-serve brand Sonic and retailers American Eagle and REI have tested the concept in single markets, The North Face is one of the first to take the idea to a national scale. <>

Hedgeye Retail’s Take: After testing the market back in February, TNF has aggressively rolled out its pioneering geo-fencing program, which enables it to feed nearby customers texts with product, promotion, and program updates only after opting into the service. Yet another conversion enhancing technology you can expect to see more of from retailers in 2011.


CHRS CEO Fogarty Steps Down - James Fogarty, who brought a career of turnaround experience with him when he joined Charming Shoppes Inc. as president and chief executive officer 18 months ago, has stepped down from the post and from the firm’s board. Anthony Romano, currently executive vice president of global sourcing and business transformation, has been promoted to chief operating officer. The company’s brand presidents and top department heads will report to Romano while Spencer Stuart works with the board on the search for a new ceo. <>

Hedgeye Retail’s Take: The ‘plus-sized’ consumer remains one of the most elusive segments within retail to crack. Fogarty wasn’t the first, and he certainly won’t be the last to fall victim to the endeavor.


NRF Releases Study on Potentially Devastating Effects of a VAT Tax on Consumer Products - Amid rising concern in the retail community that policy makers in Washington are considering a new add-on tax on consumer products to reduce the federal deficit, the National Retail Federation released an economic study on Wednesday showing retail spending would drop by $2.5 trillion over 10 years with the tax. The study’s key findings include a projected drop in retail spending of $260 billion, or 5%, in the first year and a $2.5 trillion decline in spending over the next decade; an estimated reduction in gross domestic product for three years; an estimated loss of 850,000 jobs in the first year, and a reduction in real income for working Americans.The NRF plans to submit the economic analysis, conducted by Ernst and Young LLP and the economic research firm Tax Policy Advisers, to the President’s National Commission on Fiscal Responsibility and Reform, which is preparing recommendations for Congress by Dec. 1. The commission is expected to consider significant changes to federal entitlement programs, defense and nondefense spending, and the tax system, including the possibility of a new and controversial federal value-added tax, or VAT, to address the federal deficit in the short term and long term.


Hedgeye Retail’s Take: Layering a VAT of this proportion on top of the Consumer Cannonball scenario would certainly hamper growth prospects across retail. The upshot here is that given the speed at which Congress moves, the Cannonball scenario is likely to start playing out before any bill is passed on the VAT.


Bangladesh Leather Exports Increase 50% - Bangladesh leather exports have jumped 50% during the first two months of the financial year from July to August, with all segments performing well. The breakdown showed that Bangladesh exported finished leather grew 58.4%, footwear grew 33.2%, and leather bags and purses grew 204.5%. <>

Hedgeye Retail’s Take: Luxury bags continue to drive leather demand ahead of the holidays with many brands short inventory.


European Risk Abates on Strauss-Kahn’s Back?

Conclusion: European CDS spreads come in alongside insurance from the international community to backstop sovereign debt in Europe and the IMF potentially plays the role of global currency arbiter. In the Hedgeye Portfolio we’re long Germany (EWG) and short Italy (EWI).


October-to-date we’ve seen sovereign CDS spreads in Europe come in, an indication of declining risk, which on the margin is positive for the region (see chart below). Here’s a quick look at the improvement in CDS spreads for a select group of countries October-to-date:


Greece  -97bps

Ireland  -47bps

Portugal  -37bps

Spain  -34bps

Italy  -26bps

Iceland  -12bps

UK  -9bps


European Risk Abates on Strauss-Kahn’s Back? - neuste


Importantly, both Ireland and Portugal are trading around or below the 400bps line, a line we’ve found to be a critical breakout line. One read-through on this marginal improvement is the increased insurance from international players, in particular the IMF and ECB, that they’ll backstop any potential sovereign debt risk in the region by such means as adjusting repayment schedules, forgiving debt, and extending bargain-basement borrowing rates.  Consequently, investors appear more willing to take on European debt, despite the continued poor state of many countries balance sheets, especially those of the peripheral PIIGS.


Take a look at the rhetoric from international players regarding Europe’s sovereign debt in recent days:

  1. Greek officials are doing “exactly what they need to do” to rein in spending and meet the benchmarks set out as a condition of aid…and there’s “no reason for default.”  -Dominique Strauss-Kahn, chief IMF.
  2. The IMF has mechanisms to “prolong packages” for countries receiving assistance and is “thinking” about it for Greece, though nothing has been decided.  -Lorenzo Bini Smaghi, ECB executive board member.
  3. “The fund’s options include lengthening repayment periods, replacing shorter-term with longer-term loans, and agreeing to a new program when the current one comes to an end.”  -Simonetta Nardin, a spokeswoman for the IMF.

Concurrently the IMF is restructuring the fund’s governing structure to give emerging-market nations a bigger voice in decision making. Also, with currency tensions the focus of this year’s IMF and World Bank annual meetings, we could see the IMF take on a greater role as the arbiter of global currencies, a move that could appease and take the tension off increased strain between the US and China over the valuation of the Yuan.  This policy shift towards giving the IMF a far heavier hand in international governance could be a slow moving train, or maybe just wishful thinking, nevertheless a development to keep your eye on. 


Another positive sign from Europe today came via Italy’s successful debt auction of 5.5 Billion EUR ($7.7 Bill.) in which yields across maturities fell versus the prior auction of similar maturity, which is positive on the margin, especially given Italy’s high public debt as a % of GDP at 115.2%. Here’s what Italy’s auction yielded:


€3.5 Billion due June 2015 with a yield of 2.53% versus 2.69% on Sept. 13.

€1.15 Billion due 2037 with a yield of 4.53% versus 4.91% on June 11. 

€846 MM due 2023 with a of yield 3.98% versus 4.43% on July 14.


From a fundamental standpoint we’re forecasting slower growth in Europe into year-end and in 2011 as austerity measures cool growth. We’re currently long Germany via the etf EWG and short Italy (EWI) in the Hedgeye Portfolio. The German economy continues to power forward and stands out among its European peers from a fiscal perspective.  


Matthew Hedrick

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.


Market share gains drove the recent strong appreciation in the stock but delivering on the bottom line could drive the next leg.



As we wrote about on September 29th in “MPEL: COULD THEY FINALLY BEAT A QUARTER?”, we think that MPEL, indeed, should beat the quarter - finally.  Despite the recent move up – more due to market share gains – negative sentiment persists on “the guys that can’t shoot straight”.  We think that changes this quarter.  Now that we have our hands on the property level detail of September in Macau, here’s how MPEL can produce a $117MM EBITDA quarter versus the Street at $100MM.


3Q2010 Detail:


Our EBITDA estimate for City of Dreams (CoD) of $105MM is 21% ahead of the consensus

  • CoD’s table revenue share increased to 10.6% this quarter compared to 7.1% in 2Q2010 and 10.0% in 3Q09.
  • Opened 3 additional junket rooms in July; reallocated tables from Mass
  • We estimate net casino revenues of $485MM and total net revenues of $496MM
    • Assuming 18% of VIP play is direct, we estimate that Rolling Chip (RC) volume increased to $15BN, and at a 3.2% hold, we estimate that gross VIP table win was $480MM
    • We assume a 90bp rebate rate and a 1.33% commission rate (due to a greater percentage of CoD’s business coming from revenue share deals – roughly 40%)
    • Mass table win of $110MM and slot win of $30MM
  • Total variable expenses (taxes, gaming premium, junket commission in excess of rebate, and bad debt) of $313MM
  • Total fixed costs of $60MM compared to $55MM last quarter
  • The opening of the Dragone show added a few million dollars of expenses to the quarter. 
    • The incremental cost of the show is $125/day which will hit expenses in the 4th quarter.  
    • The theatre has 2,000 seats, 8 shows a week and tickets are going for $75-80 (before comps and discounts)

We estimate that Altira will report $21MM of EBITDA compared to consensus of $25MM

  • Altira should report net revenues of $197MM – basically all from the casino
    • RC volume of $9.4BN at a 2.8% hold should produce gross VIP table win of $263MM
    • We assume a rebate rate of 87.5bps and a 1.3% total commission rate
    • Mass table win of $17MM
    • Variable expenses totaling $152MM and fixed costs of $21MM compared to $26.6MM last quarter

We estimate that Mocha slots will report $25MM of revenue and $6MM of EBITDA, in-line with consensus.


Other stuff:

  • $15MM of corporate expense
  • $62MM of D&A or $81MM when you include amortization of the gaming subconcession and land use rights
  • $20MM of net interest expense
  • EPS of $0.03


Initial Claims Rise 13k (17k After Revision)

Initial claims rose 13k last week to 462k (rising 17k before the upward revision of last week’s data).  Rolling claims came in at 459k, an increase of 2.25k over the previous week and the first increase in the series in seven weeks. All told, claims remain in the same band they’ve occupied since the start of the year. It bears worth repeating that claims need to be in the 375-400k range before unemployment can start to fall. For reference, we pointed out last week the curious fact that of the claims revisions over the past 24 weeks, 23 were revised higher (more claims) the week after. We calculated that the odds of that happening randomly were one in 699,000. This week, claims from last were ("surprisingly") revised higher by 4k bringing the running count to 24 upward revisions out of 25 instances. For those curious, the odds of 24 in 25 going higher are one in 1.34 million.






Our firm continues to expect a further economic slowdown relative to the first half of the year and into 2011 that will keep a lid on new hiring activity as management teams focus on cost control. We're seeing anecdotal signs of this in the Financials recently.


In the table below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.




Joshua Steiner, CFA


Allison Kaptur


TODAY’S S&P 500 SET-UP - October 14, 2010

As we look at today’s set up for the S&P 500, the range is 29 points or -2% downside to 1155 and 0.5% upside to 1184. Equity futures are trading above fair value but below earlier peaks as the market attempts to build upon a four day long rally. The dollar remains under pressure on QE2 speculation and after Singapore widened its currency trading band to combat inflation. September PPI and weekly jobless claims are the main macro focus, while quarterly earnings from Google after the close.

  • Apollo (APOL) withdrew its financial forecast for 2011, citing fewer new students and regulatory scrutiny.
  • Cash America (CSH) 3Q EPS beat est.
  • Constellation Energy (CEG). EDF may develop new U.S. nuclear plant on its own following a dispute with Constellation.
  • Everest Re (RE) sees 3Q adj. EPS below ests. Due to losses from catastrophe.
  • Lennar (LEN) had its credit rating cut to B+ from BB- by S&P.
  • Universal Forest Products Inc. (UFPI) 3Q EPS ex. items missed ests.
  • Yahoo! (YHOO).  Yahoo! working with Goldman Sachs to help defend against possible takeover approaches, said three people familiar with the matter. AOL has talked with private-equity funds including Silver Lake about a possible bid, two people familiar with the matter said.
  • ZAG (ZAGG) lifted 2010 rev. growth forecast to 70% from 30%.


  • One day: Dow +0.69%, S&P +0.71%, Nasdaq 0.96%, Russell 2000 +1.50%
  • Month/Quarter-to-date: Dow +2.86%, S&P +3.23%, Nasdaq +3.07%, Russell +4.49%
  • Year-to-date: Dow +6.41%, S&P +5.65%, Nasdaq +7.58%, Russell +12.96%
  • SECTOR PERFORMANCE: Industrials +1.65%, Materials +1.60%, Energy +1.22%, Tech +0.81%, Consumer Staples +0.85%, Healthcare +0.71%, Utilities +0.38%,Consumer Disc +0.15%, Financials 0.09%.


  • ADVANCE/DECLINE LINE: +1532 (+1175) - breadth expanded for the past three days
  • VOLUME: NYSE - 1270.40 (+37.62%)  - accelerating for the past  two days  
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Williams Cos +9.79%, Yahoo +5.54% and Monsanto +4.67%/Marshall & Isley -4.20%, Intuitive Surgical -3.86% and Analog Devices -3.50%.
  • VIX: - 19.07 +0.74%% - YTD PERFORMANCE - (-12.04%)
  • SPX PUT/CALL RATIO: - 1.27 from 1.79 -29.19%%


  • TED SPREAD - 16.43 -0.304 (-1.818%)
  • 3-MONTH T-BILL YIELD 0.13%
  • YIELD CURVE - 2.09 from 2.07


  • CRB: 299.74 +0.64% - up 6 of the last 8 days
  • Oil: 83.01 +1.64% - BULLISH
  • COPPER: 382.05 +0.82% - OVERBOUGHT - a 27 month high
  • GOLD: 1,369.85 +1.67% - BULLISH


  • EURO: 1.3949 +0.59% - BULLISH
  • DOLLAR: 77.071 -0.38%  - BEARISH




  • European Markets: FTSE 100: +0.02%; DAX: +0.51%; CAC 40: (0.01%)
  • European markets extended yesterday's gains following Asian markets higher with major indices attaining 3-week highs.
  • Mining shares started on a strong note as metal prices traded higher helped by a weaker US dollar with gold touching a record high, however market gains were tempered by mixed corporate results as heavy-weights Roche and LVMH disappointed.
  • Sovereign bonds eased as equities moved higher and ahead of supply from Italy.


  • Asian Markets: Nikkei +1.9%; Hang Seng +1.7%; Shanghai Composite +0.6%
  • Asian markets followed Wall Street up today.
  • Resource shares led Japan up; all 33 sectors rose, but major banking stocks lagged the market in light of JPMorgan Chase’s (JPM) doing the same yesterday.
  • Yahoo Japan and rose 6% and 1%, respectively, on talk of a buyout of Yahoo (YHOO).
  • Chinese banks and resource stocks led Hong Kong higher.
  • South Korea went up after the central bank kept interest rates unchanged; roughly half of economists had expected a 25-bp increase.
  • Tech stocks rose after Intel (INTC) beat expectations.
  • Early gains were pared, but banks and property stocks were strong in China as the central bank injected money into the country’s money market.
  • Singapore lagged the region on news that the city-state’s Q3 GDP fell (20%) q/q vs consensus (18%). The Monetary Authority of Singapore also surprised the market by tightening policy, saying it will slightly increase the slope of and widen the trading band of the Singapore dollar.
Howard Penney
Managing Director

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.