Friday, August 30, 2019

Lone Pine Capital Adds To Dominos Pizza Stake

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding its stake in Dominos Pizza (DPZ).  Per the filing, Lone Pine now owns 5% of Dominos Pizza with over 2.07 million shares as of August 20th. 

This is up from the 1.24 million shares Lone Pine disclosed at the end of June when they established a new stake in the company.  DPZ shares have fallen from a high of $285 at the end of Q2 to recent lows around $226.

As a reminder, Steve Mandel stepped down from day-to-day management of the portfolio and handed those duties off to managers Dave Craver, Mala Gaonkar, and Kelly Granat (though others are also now listed on the SEC filings).

Per Yahoo Finance, Dominos Pizza "through its subsidiaries, operates as a pizza delivery company in the United States and internationally. It operates in three segments: U.S. Stores, International Franchise, and Supply Chain. The company offers pizzas under the Domino's brand name through company-owned and franchised stores. As of August 20, 2019, it operated through approximately 16,300 stores in 85 markets. The company was founded in 1960 and is headquartered in Ann Arbor, Michigan."

Dr. Michael Burry Buys More Tailored Brands, Sends Letter to Board

Dr. Michael Burry of Scion Asset Management has been busy lately.  We previously detailed how he re-built a stake in Gamestop (GME) and sent a letter to the board.  Well, he has now also just filed a 13D on shares of Tailored Brands (TLRD), which he's owned and previously also sent letters to the board.

The new filing indicates Burry has boosted his TLRD position, buying throughout August at prices of around $4.7145 and $4.8282.  In total, Scion Asset now owns 5.1% of the company with 2.6 million shares.  This is up from his previous stake of 1.85 million shares at the end of June.

Dr. Michael Burry Sends New Letter to Tailored Brands Board

Burry also sent a new letter to the board dated August 30th where he addresses rumors that Sycamore Partners had approached the company about an acquisition at around $10 per share.  Burry writes, "We do not know if any of this is true.  However, we believe you must know that $10 per share is not fair value and will not be acceptable to shareholders."

Later Burry goes on to write, "With some urgency, we stand by our letters of August 2nd and 19th. Given the quarter-century lows in the common stock and the severe undervaluation this entails, we believe the best use of funds from the corporate apparel segment sale, in good part or in full, is for a share repurchase.While management is considering asset sales, we would encourage exploring the market for Tailored’s Canadian operations. The Board and management ought to focus resources on its core 1300+ store U.S. operations. Proceeds from a sale of these remaining international operations may also be best used to accelerate debt repayment and stock buybacks."

He's previously sent two other letters to the board which you can read here and here.

Per Yahoo Finance, Tailored Brands "operates as a specialty apparel retailer the United States and Canada. It operates through two segments, Retail and Corporate Apparel. The Retail segment offers suits, suit separates, sport coats, slacks, formalwear, business casual, denim, sportswear, outerwear, dress shirts, shoes, and accessories for men. It also provides women's career and casual apparel, sportswear, and accessories; children's apparel; and alteration services. As of February 2, 2019, this segment operated 1,464 stores under the Men's Wearhouse, Men's Wearhouse and Tux, Jos. A. Bank, Moores, Joseph Abboud, and K&G brands. The Corporate Apparel segment provides corporate apparel uniforms and work wear to workforces under the Dimensions, Alexandra, Yaffy, and Twin Hill brands through various channels, including managed corporate accounts and catalogs, as well as through,, and Internet sites. This segment serves companies and organizations in the airline, retail grocery, retail, banking, quick service restaurant, car rental, distribution, travel and leisure, postal, security, healthcare, and public sectors. The company was formerly known as The Men's Wearhouse, Inc. and changed its name to Tailored Brands, Inc. in February 2016. Tailored Brands, Inc. was founded in 1973 and is based in Houston, Texas."

JANA Partners Buys Bloomin' Brands, FIles 13D

Barry Rosenstein's hedge fund firm JANA Partners has filed a 13D on shares of Bloomin' Brands (BLMN).  Per the filing, JANA now owns 9% of the company with over 7.81 million shares.  This is a brand new stake for the firm.

JANA was buying throughout August at with the bulk of their recent purchases coming at prices of around $16.08 and $16.21. 

The 13D contains the standard boilerplate:

"The Reporting Person acquired the Shares because it believes the Shares are undervalued and represent an attractive investment opportunity. The Reporting Person intends to have discussions with the Issuer’s board of directors and management regarding a sale of the Issuer, divestitures, capital allocation, operations and board composition. The Reporting Person expects to have discussions with the Issuer’s management and board of directors, shareholders and other interested parties relating to such matters."

Per Yahoo Finance, Bloomin' Brands, Inc., "through its subsidiaries, owns and operates casual, upscale casual, and fine dining restaurants in the United States and internationally. The company operates through two segments, U.S. and International. Its restaurant portfolio has four concepts, including Outback Steakhouse, a casual steakhouse restaurant; Carrabba's Italian Grill, a casual Italian restaurant; Bonefish Grill, an upscale casual seafood restaurant; and Fleming's Prime Steakhouse & Wine Bar, a contemporary steakhouse. As of December 30, 2018, the company owned and operated 1,068 restaurants and franchised 164 restaurants across 48 states; and owned and operated 125 restaurants and franchised 131 restaurants across 20 countries, Puerto Rico and Guam. Bloomin' Brands, Inc. was incorporated in 2006 and is headquartered in Tampa, Florida."

Hedge Fund Links ~ 8/30/19

The stock picker versus portfolio manager communications challenge [Harvest]

Good writers make better hedge fund managers [Institutional Investor]

Hedge funds take record short positions against Aston Martin [FT]

Viking Global curbs investor redemptions to aid VC push [FT]

Third Point builds stake in Essilor Luxottica [Reuters]

Quick interview with Michael Burry on Gamestop [Barrons]

Why Mario Cibelli likes GrubHub, Becle & e.l.f. [Barrons]

Notes from a recent trip to China [Cederberg Capital]

Hedge fund Saba Capital spars with BlackRock and Neuberger [WSJ]

A look back: the Bloomberg keyboard [Bloomberg]

Thursday, August 29, 2019

Hillhouse Capital's Lei Zhang Talk at Goldman Sachs (Notes & Video)

Lei Zhang of Hillhouse Capital recently had a talk at Goldman Sachs filmed at the Builders + Innovators Summit in Asia.  Zhang runs one of the most prominent funds in Asia after starting with $20 million from Yale University and now growing into a $60 billion firm.

Lei Zhang's Talk at Goldman Sachs 2019

- He says entrepreneurship is about doing something you love, not doing what's trendy or for the money

- Unbelievable change and opportunities created in China over the past 30 years; highlights Chinese people's drive

- Hillhouse was named after the street at Yale Endowment where he previously worked, but in Chinese it also refers to a high vantage point of being able to see everything.  He says Hillhouse is a blend of eastern and western philosophies: being a long-term investor, being thoughtful, entrepreneurship.  Has 45 people on his team.  "We believe you do the right things, you build your reputation, you stand up for what you believe in... and entrepreneurs will find you."

- On what he looks for in people:  persistence, smart, teamwork.  But he emphasizes empathy and the ability to connect with people who are different from you.  Lifetime learning is also essential and not to learn to make more money but a genuine desire to learn.  Also added humility is a great trait.  He likes entrepreneurs who build a culture like a sports team... it's like family but you want to win.

-  "One of the most exciting things of investing in China is you're always embracing change.  And one of the most fascinating changes in the past has been the consumer internet."  First wave was Baidu, Tencent, Alibaba, but the core was connection (people to information, people, and goods).  Now the second wave is coming "Innovation 2.0" it's not just about connection, it's about leveraging AI, SaaS, lots of vision.  Likened it to the industrial internet.

- Belle shoe retailer was being attacked on all sides (especially with e-commerce from JD and Alibaba, etc).   Hillhouse invested and 3 years later it's seen double digit growth.  For instance, they made changes like put a sensor that could tell them that x shoe was getting picked up a ton of times but no one was buying it, so they can make changes faster.  They also brought in a lean manufacturing process (Danaher).  This helped with inventory so they had less to discount which helped maintain the brand.

-  "In investing at a Hillhouse level, we're always joking the best investment is the investment you don't have to think about (an) exit." 

Embedded below is the video of Lei Zhang's talk:

For more on this manager, we've also highlighted Lei Zhang old lecture at Columbia Business School.

Glenview Capital Acquires More Tenet Healthcare

Larry Robbins' hedge fund firm Glenview Capital has filed a Form 4 with the SEC regarding shares of Tenet Healthcare (THC).  Per the filing, Glenview bought 81,368 shares on August 23rd at a weighted average price of $20.6965.  They now own over 19.43 million shares.

In a previous filing, they also were out buying on August 16th, purchasing 26,456 shares at a weighted average price of $19.8153.

Per Yahoo Finance, Tenet Healthcare is "a diversified healthcare services company. The company operates in three segments: Hospital Operations and Other, Ambulatory Care, and Conifer. Its general hospitals offer acute care services, operating and recovery rooms, radiology and respiratory therapy services, clinical laboratories, and pharmacies. The company also provides intensive and critical care, and coronary care units; physical therapy, orthopedic, oncology, and outpatient services; cardiothoracic surgery, neonatal intensive care, and neurosurgery services; quaternary care in heart, liver, kidney, and bone marrow transplants areas; tertiary and quaternary pediatric, and burn services; and limb-salvaging vascular procedures, acute level 1 trauma services, intravascular stroke care, minimally invasive cardiac valve replacement, imaging technology, and telemedicine access for various medical specialties. In addition, it operates ambulatory surgery and urgent care centers, imaging centers, and surgical hospitals; and offers healthcare business process services in the areas of hospital and physician revenue cycle management, as well as value-based care solutions to healthcare systems, individual hospitals, physician practices, self-insured organizations, health plans, and other entities. As of December 31, 2018, the company operated 68 hospitals, 23 surgical hospitals, and approximately 475 outpatient centers, as well as 255 ambulatory surgery, 36 urgent care, and 23 imaging centers in the United States. Tenet Healthcare Corporation was founded in 1967 and is headquartered in Dallas, Texas."

Dr. Michael Burry Long Gamestop: Sends Letter to Board

Dr. Michael Burry of Scion Asset Management and of The Big Short fame has recently re-surfaced in shares of Gamestop (GME).  He previously owned shares earlier this year but sold out in the second quarter per his latest 13F filing as of June 30th.    However, he has re-established a stake in the company as shares plunged, now owning around 3.05% of the company with approximately 3 million shares.

Burry argues the company should buyback a ton of stock given the limited float.  This has been a popular short among hedge funds which view it as 'Blockbuster 2.0' and recently, as much as 60% of GME's shares have been sold short.

Tae Kim over at Barron's scored a rare interview with Burry on his GME long, which you can check out here.  Burry noted that the new gaming console cycle "is going to extend GameStop's life significantly. The streaming narrative dovetailing with the cycle is creating a perfect storm where things look terrible.  [But] it looks worse than it really is."

Scion's Letter to Gamestop Board

Below is the full text of the letter Dr. Burry sent Gamestop:

"August 16, 2019

Dear Members of the Board,Scion Asset Management, LLC and its affiliates (“Scion”) own approximately 2,750,000 shares, or about 3.05%, of GameStop, Inc. (“GameStop”) common stock.

As mentioned in our previous letter to the board, we have concerns regarding capital management at GameStop. Given recent GameStop common stock prices under $4 per share, we must re-state that GameStop complete the remaining $237,600,000 share repurchase at once and with urgency.

Given the market capitalization of GameStop at $290 million at the close on August 15th, completing the authorization would retire over 80% of GameStop’s outstanding shares. Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis.

The numbers are striking and demand action. We estimate that GameStop now has in excess of $480 million of cash, more than enough to complete the share repurchase authorization and still invest in the business and pay down debt.

Through August 15th, a total of 11 trading days, 50,399,534 shares have traded. At this rate, for the month of August and for the third month in a row, the number of shares traded will exceed the total number of shares outstanding. Because of such high volume, we maintain that GameStop could pull off perhaps the most consequential and shareholder-friendly buyback in stock market history with elegance and stealth.

Shareholders staring at all-time lows in GameStop stock see little evidence that GameStop has effectively leveraged its elite position in the gaming universe as the new paradigm came into clear view over the last five years.

The unfortunate reality is that Amazon, not GameStop, bought Twitch in 2014. Instead, in 2014, GameStop started buying wireless store assets. And in 2017, Amazon, not GameStop, bought GameSparks - while less than a year ago GameStop reversed course and sold its wireless store assets. Shareholders are right to worry.

We expect GameStop’s business will perk up a bit during 2020 and 2021 as the new console cycle, with associated software updates and introductions, finally gets underway. But what is happening now in the stock is about more than late cycle doldrums or even the streaming paradigm – shareholders do not have faith in current management, and have not been inspired by new leadership policies.

Notably, as of July 31st, 2019, Bloomberg reports short interest in GameStop stock at 57,226,706 shares – this is about 63% of the 90,268,940 outstanding GameStop shares at last report.

We submit that when share prices are at or near all-time lows and more than 60% of the shares are shorted despite cash levels much higher than the current market capitalization, lack of faith in management’s capital allocation is the default conclusion.

All of this creates the opportunity to enter 2020 with a dramatically reduced share count along with multi-fold greater impact per share for every single other achievement of management. Consider as just one example that if the turnaround is successful, and if GameStop were able to shrink its shares outstanding to 30 million through the share repurchase, the $157 million dividend that was just eliminated would pay out around $5.25 per share.

The Board deemed up to $6.00 per share a good price for a buyback less than two months ago, and the price of the stock today is nearly half that amount.

We again advise the Board to represent shareholders well, and to ensure the execution of the remaining repurchase authorization in full.


Dr. Michael J. Burry"

Wednesday, August 28, 2019

What We're Reading ~ 8/28/19

The network effects manual: 13 different types [NFX]

A look at Wells Fargo (WFC) [Sabre Capital]

SmileDirectClub's IPO highlights promises, pitfalls for DTC companies [Modern Retail]

How the recession of 2020 could happen [NYTimes]

Framework for evaluating enterprise software companies [Shomik Ghosh]

How Elon Musk gambled Tesla to save Solar City [Vanity Fair]

Streaming video will soon look like the bad old days of TV [Matthew Ball]

LaCroix won the bubble battle, but it's losing the sparkling water war [Bloomberg]

How Uber got lost [NYTimes]

The making of Amazon Prime [Vox]

China internet report [SCMP]

The real story of the brand Supreme [GQ]

Red flags on the WeWork IPO: WeWTF [Prof Galloway]

WeWork as the AWS of real estate? [Stratechery]

Harry Markopolos' write-up on General Electric [GEFraud]

Tiger Global Buys More Sunrun

Chase Coleman's hedge fund firm Tiger Global has filed a 13D with the SEC regarding its stake in Sunrun (RUN).  Per the filing, Tiger Global now owns 20.4% of the company with over 23.93 million shares.

They were out buying shares through mid-to-late August and in total have purchased over 2.01 million shares with the bulk coming at weighted average prices of $14.98 and $15.07.

Per Yahoo Finance, Sunrun "engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. It also sells solar energy systems and products, such as panels and racking, as well as solar leads generated to customers. The company markets and sells its products through direct-to-consumer approach across online, retail, mass media, digital media, canvassing, field marketing, and referral channels, as well as its partner network. Sunrun Inc. was founded in 2007 and is headquartered in San Francisco, California."