prev

MGM: THE MACAU IPO AND OTHER

Here are some tidbits regarding MGM's IPO and its junket business. 

 

 

We are hearing that MGM will launch its Macau IPO in late March.  There have also been a couple of recent developments related to MGM Macau.  First, while it appears that SJM and Wynn have reached agreements for Cotai land, MGM has not.  Thus, we believe a future Cotai project will be referenced during the MGM IPO process.  However, the focus will be on the growth – market and market share – and improving profitability at the existing MGM property.  More importantly, we think MGM may have secured the business of the junket operator Ocho, which is moving its room from SJM’s The Grand Lisboa (GL) to MGM after Chinese New Year.  Ocho currently provides up to 20% of GL’s Rolling Chip volume.  This is a pretty big deal for MGM which will help them keep the market share momentum going.  The willingness of junkets to move away from the Stanley Ho empire should continue, to the likely benefit of MPEL, MGM, and Galaxy.


Prices Paid = Inflation

POSITION: long inflation

 

There are obviously a lot of ways to be long inflation (short bonds, emerging markets, or consumer stocks) or just run on out there and buy something that’s, well, inflating in price!

 

I can see how a Keynesian was right depressed when the chart below (ISM Prices Paid) hit its December 2008 low. That was the other side of the printing moneys from the heavens idea that created things like $150/oil. What goes up in terms of a government supported price, eventually comes down.

 

What’s been going up since December 2008 are the prices that business pay for stuff (+353%). If you don’t think that a manufacturer of something with copper or corn in it is feeling this chart, ask them.

 

We’ve long time predicted (2007-2008) that when reflation becomes inflation, that someone gets plugged. In this case, either consumers of end product are going to get it (McDonalds says they are going to raise prices – look how the market took that idea) or the fattened corporate margin is going to get it.

 

There’s a reason why inflation created a very bad margin environment in the 1970’s. There’s no reason why inflation can’t force corporate margins to mean revert from all-time highs either.

 

So when The Ber-nank tells you there is no inflation, remember this – if he didn’t see it in this chart in 2008, he sure as heck won’t see it now.

 

And that, folks, is why the US Dollar or the government policies that back it no longer have any credibility in global currency markets.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Prices Paid = Inflation - 3



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.

R3: JCG, DKS, Social Media, and Egypt

R3: REQUIRED RETAIL READING

February 1, 2010

 

RESEARCH ANECDOTES

  • Just a few days after Vera Wang’s collaboration with David’s Bridal was unveiled, the designer known for all things “wedding” is set to announce a partnership with Zale’s for wedding rings.  Now if only Kohl’s, David’s Bridal, Serta, and Zale’s would all collaborate to the put the head to home merchandise selection under one roof.
  • Another bullish forecast from the NRF, this time with a focus on Valentine’s Day.  Spending is forecast to increase 11% y/y, for an average spend per consumer of $116,21.  Overall, spending on Valentine’s should not be taken likely as the holiday is expected to generate $15.7 billion in sales.
  • Add Macy’s to the list of brands strategically using the pop-up store to promote a new fashion inititiave. In conjunction with the rollout of the company’s Impulse contemporary departments, the department store is opening a temporary boutique in Manhattan’s Flatiron district.  In addition, there is a major subway campaign underway promoting the youthful merchandising effort.

OUR TAKE ON OVERNIGHT NEWS

 

J. Crew Settlement With Investors -  J. Crew Group Inc.’s $10 million settlement of a an investor lawsuit over the proposed takeover by private-equity firms TPG Capital and Leonard Green & Partners LP has fallen apart, a lawyer for the shareholders said.  J. Crew officials undermined a deal in which the clothier agreed to extend the period to solicit competing offers to the $3 billion buyout bid, Stuart Grant, a lawyer for J. Crew shareholders objecting to the buyout, said in a court filing. The accord also included a $10 million payment to plaintiffs.  <Bloomberg>

Hedgeye Retail’s Take:  Perhaps a little more drama to come although it still remains unlikely that an additional bidder will step-up given the ample time that has already passed since the deal was originally announced.

 

Dick's SG to pay $15M to Settle Wage DisputesDick's Sporting Goods Inc agreed to pay up to $15 million to settle a number of class action lawsuits that had alleged a failure to pay overtime and other promised wages, according to a company filing with the U.S. Securities and Exchange Commission. The filing said that on Jan. 28, 2011, the company and attorneys for a group of plaintiffs filed a settlement agreement in the United States District Court for the Western District of New York to settle Tamara Barrus, et al. v. Dick's Sporting Goods, et al., and 22 related wage and hour class action lawsuits that have been pending against the Company and five individual defendants. <SportsOneSource>

Hedgeye Retail’s Take:  Add DKS to list of companies finally making whole on their overtime disputes.  This issue has been common across most of retail, with settlements occurring over the past several years.

 

Inflation in China Not Slowing Down Spending -  Wang Jung is a far more frugal shopper than the other female twentysomethings in her Beijing social circle of office workers. She balks at spending more than 150 yuan (about $23 at current exchange) on a single item of clothing, unless it’s a winter coat or shoes. Even then, she’ll spend hours combing the city’s hidden retail markets looking for the best deals. “I don’t see the point in spending 500 yuan [$76] on something I won’t be able to wear in a year because it’s not good quality,” she said, referring to big-name international retailers like Zara that have become go-to shopping destinations these days for Beijing’s young and fashionable. <WWD>

Hedgeye Retail’s Take:   The key difference in China being that wages are on the rise, which in turn is driving purchasing power increases.  Not so here in the US where inflation will likely put a damper on demand.

 

Upheaval in Egypt Hits Vendors -  The political crisis in Egypt is bringing commerce to a standstill, threatening to dampen consumer sentiment across the region, and forcing textile and apparel manufacturers to create contingency plans. Carrefour SA, the world’s second-largest retailer behind Wal-Mart Stores Inc., said rioters pillaged one of its five hypermarkets in Egypt, but it did not detail the scale of the damage. “The other stores are closed but did not suffer any damages,” a spokeswoman for the retailer said Monday. Carrefour is present in Egypt through its Middle East franchise partner Majid Al Futtaim, which also operates Carrefour stores in Jordan, Syria and United Arab Emirates, among other countries. <WWD>

Hedgeye Retail’s Take:  As far as publicly traded US companies go, Egypt related risk is pretty much a non-event. 

  

Japan Turns to Cheap Chic -  In Japan, the Baby Boomers have given way to the Bargain Bunch. Take Mayu Kawasaki, a 27-year-old retail manager from the southern Japanese city of Fukuoka, who is one careful shopper. “For me, number one is quality and design,” Kawasaki said. “I always want to find something that can be worn or used long term. And second is price, because fashion changes all the time. So if I can get cheap stuff, I don’t feel it’s a waste to use it only for the season.” <WWD>

Hedgeye Retail’s Take:   Given UNIQLO’s roots in Japan, fast fashion or cheap chic is hardly a new concept.  However, a stagnant economy could certainly be one reason why cheap fashion is picking up.

 

Where Are Social Media Marketers Seeing the Most Success? -  More companies in the Inc. 500 are using social media as part of their business and marketing strategies, and they are seeing success and viewing social media overall as more valuable. These firms, which include the fastest-growing private companies, have been using a mix of tactics, with Facebook as the most popular. According to a study released in January 2011 from the University of Massachusetts Dartmouth Center for Marketing Research, 71% of companies used Facebook in 2010, up from 61% in 2009. Twitter, at 59% in 2010, and blogging, at 50%, are also still high on the list.

<eMarketer>

Hedgeye Retail’s Take: Despite the progress, the question still lies with the “effectiveness” of such campaigns.

 

R3: JCG, DKS, Social Media, and Egypt - R3

 


TALES OF THE TAPE: COSI, KKD, WEN, JACK, PEET, YUM, DRI, TXRH, SBUX

Notable news items/price action from the past twenty-four hours.

  • COSI traded strongly into the end of the session to close higher on accelerating volume along with KKD, WEN, JACK, PEET, and YUM.
  • GMCR, SBUX, and CBOU all underperformed as coffee prices continue to make headlines.
  • YUM’s KFC unit is embroiled in a lawsuit with franchisees over grilled versus fried chicken and a judge has decided that the franchisee council, “has the right to engage in a substantive planning, review and approval process”.
  • DRI’s share price gained yesterday, albeit on slowing volume, on the first day of their Investor Conference in Orlando.  Red Lobster and Olive Garden comps were strong. 
  • TXRH was downgraded to Market Perform from Outperform at Raymond James.  The stock declined on accelerating volume.

TALES OF THE TAPE: COSI, KKD, WEN, JACK, PEET, YUM, DRI, TXRH, SBUX - stocks 21

 

Howard Penney

Managing Director


THE M3: JAN GGR; LRT INJUNCTION; HO

The Macau Metro Monitor, February 1, 2011

 

MONTHLY GROSS REVENUE OF GAMES OF FORTUNE DICJ

Jan GGR hit 18.571BN MOP ($2.3BN USD), up 33.2% YoY.


BOMBARDIER FILES INJUNCTION, GOV'T HALTS LRT CONTRACT Macau Daily Times, macaubusiness.com

Macau Transportation Infrastructure Office (GIT) said that it ‘must now suspend’ the Light Rail Transit process, following the injunction filed by Canadian manufacturer, Bombardier--one of the LRT bidders.  “While reviewing the tender documents of the other bidders we have found several issues that require further investigation,” Bombardier spokesman Marc Laforge said.

 

The Macau Government has not filed an appeal.  GIT said it will announce its next step “in due time,” but doesn't believe the injunction will have a great impact on the project, which was awarded to Mitsubishi Heavy Industries.

 

NEW VIDEO ADDS DRAMA TO STANLEY HO'S CASE macaubusiness.com

Stanley Ho's lawyer, Gordon Oldham, has released a recorded video that shows Dr. Ho saying he only suspended legal proceedings against several members of his family to give them a chance to reach a settlement that would return all the assets that he considered stolen, in order to resolve the brawl.  “I give everyone a chance. We call it a misunderstanding so we can start afresh. I want a fair division among my family. I still maintain equality," said Dr. Ho.


real-time alerts

real edge in real-time

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

next