The detail was better than the headline



August gross gaming revenues (GGR) increased 57% YoY to $3.1BN.  With the detail in hand, we can confirm that this was a terrific month.  High margin Mass business increased 41% for the 3rd straight month.  Even though VIP hold was higher than last year, VIP volume was the bigger driver, up 58% YoY.  It would be hard to poke holes in this month. 


We estimate that direct play was 6.1% in July vs. 7.5% last year.  Adjusted for direct play volumes, market hold was 2.93% vs. 2.78% last year.  If we normalize hold levels, August growth would have been up 51% YoY.  September will have a tougher hold comparison and therefore, YoY growth rates should moderate somewhat. 


MGM was the largest market gainer in August – helped by an easy July comparison where the company experienced the largest share loss.  Galaxy continued to ramp while Wynn lost the most share.  VIP growth – or the lack thereof – continued to plague LVS with VIP revenue growing only 5% YoY compared to market growth of 64%.  Due to LVS’s continued struggle to attract more junkets, their share hit an all-time low of just 14.2%.


Just looking at Mass, MPEL had the strongest YoY growth (excluding Galaxy of course).  Importantly, MPEL gained share in the Mass business which puts them on track to best our EBITDA estimate for Q3 - already 20% above the Street.  Wynn and LVS also had good quarters on the Mass front.  However, both Wynn and LVS saw slot revenues that were flattish and down YoY, respectively, perhaps indicating saturation in that business. 



Y-o-Y Table Revenue Observations


Total table revenues grew 58% YoY this month, on top of 40% growth las­t August.  August Mass revs rose 41%; VIP revs grew 64%; and Junket RC rose 58%. 


For the 6th straight month, LVS table revenues grew the slowest – at 12%.  Over the 13 months, LVS’s table revenues have grown at roughly 1/3 of the market’s pace.

  • Sands was up 37% YoY, driven by a 54% rise in VIP and 13% increase in Mass
    • Junket RC was up 27%
    • Sands held high in August.  Adjusted for 12% direct play (in-line with 2Q11), hold was about 3.47%, compared with 2.85% hold in August 2010 assuming 14% direct play (in-line with 3Q10). 
  • Venetian was the only property we track to be down YoY in August – with table revenue down 5% YoY.  Mass rose 31%, but VIP revenues plunged 25% impacted by low hold and below average Junket RC growth
    • Junket VIP RC grew 19%
    • Hold in August was 2.3%, based on 21% direct play vs. 3.4% in August 2010 assuming 23% direct play levels.
  • Four Seasons was up 42% YoY, driven by 42% growth in Mass and VIP revenues. 
    • Junket VIP RC grew 14% YoY – the slowest grower in the market
    • Results would have been better if not for low hold, however, last Augusts’ hold’s was even worse.  Assuming 41% direct play (in-line with 2Q11), we estimate hold was 2.1% compared to 1.6% in August 2010 assuming the same direct play percentage.

Wynn table revenues were up 48%

  • Mass was up 53% and VIP increased 47%
  • Junket RC increased 38%
  • Assuming 8% of total VIP play was direct (in-line with 2Q11), we estimate that hold was 3.1% compared to 2.8% last year (assuming 13% direct play – in-line with 3Q10)

MPEL table revenues grew 39%, driven by Mass growth of 72% and VIP growth of 32%

  • Altira revenues rose 44% with Mass up 58% while VIP grew 43%, benefiting from high hold and easy comparisons
    • VIP RC increased 15%
    • We estimate that hold was 3.1% vs. 2.5% last year
  • CoD table revenue was up 36%, driven by 75% growth in Mass and 26% growth in VIP
    • Junket VIP RC grew 33%
    • Assuming a 13% direct play level, hold was 3.0% in August compared to 3.1% last year

SJM revs grew 48%

  • Mass was up 23% and VIP was up 61%
  • Junket RC was up 50%

Galaxy table revenue skyrocketed 146%. Mass soared 240% and VIP rose by 136%.

  • StarWorld table revenues grew 42%
    • Mass grew 40% and VIP grew 42%
    • Junket RC grew 40.5%
    • Hold was high at 3.1% but flat YoY
  • Galaxy Macau's total table revenues were $278MM, 18% higher than July and 74% higher than June’s first full month of operations
    • Mass table revenues fell slightly MoM to $43MM from $45MM in July
    • VIP table revenue of $235MM, increased 23% MoM with RC volume of $7.9BN. Assuming 4% direct play, hold was 3%.

MGM table revenue soared 125%, boosted by healthy RC volumes, high hold and easy comps.

  • Mass revenue growth was 15%, while VIP ballooned 166%
  • Junket RC grew 96%
  • Assuming a direct play level of 8%, we estimate that hold was 3.4% this month vs. 2.5% in August 2010 assuming direct play of 9% 


Sequential Market Share (property specific details are for table share while company-wide statistics are calculated on total GGR, including slots)


LVS share in July fell 30bps sequentially to 14.2% - an all-time low for LVS. This compares to 6 month trailing market share of 16.1% and 2010 average share of 19.5%

  • Sands' share increased 1% to 5%,
    • The increase in share was primarily attributed to a 120bps increase in VIP rev share
  • Venetian’s share dropped 20bps to 7.0% share, an all-time low since opening
    • VIP share fell 70bps to 4.5%, also setting a record low for the property
    • On the bright side, Mass share increased 90bps to 15% - above the 14% average for the trailing 6 months
    • Junket RC remained flat at 4.6%
  • FS share fell 1% to 1.7%
    • VIP share dropped 1.4% to 1.6%
    • Mass share increased 40bps to 2.2%
    • Junket RC increased to 1.4% - up 40 bps sequentially

WYNN lost the most share in August with a 2% drop to just 13.2%. Augusts’ share was below its 6 month trailing average share of 15% and 2010 average share of 15%.

  • Mass market share was held flat at 9.9%
  • VIP market share plummeted 2.8% to 13.9%
  • Junket RC share fell 1.8% to 12.9%, below its 6 month trailing average of 15.3% and 2010 average of 15.2%

MPEL market share fell 1.1% to 14.5%, below their average 6 month trailing share of 15% and 2010 share of 14.6%.

  • Altira share fell 1% to 5.1%, compared to a 5.6% average share in 2010
  • CoD’s share ticked down 10 bps sequentially to 9.2%
    • Mass market share declined 10bps to 10% - still second only to Venetian and slightly ahead of Wynn’s share
    • VIP share fell 10 bps to 9.0%

SJM share fell 60bps to 27.2% in August- the lowest share since August 2009 and below its 6-month trailing average of 30.6% and 2010 average of 31.3%.

  • Mass market share remained flat at 36.1%
  • VIP share fell 1% to 25.3%
  • Junket RC share fell 40bps to 29.8%

Galaxy continued its momentum from Galaxy Macau, gaining 1.3% share to 20.1%, its highest share since August 2007. August share compares with an average share of 10.9% in 2010 and a 6 month trailing average of 12.8%.

  • Galaxy Macau garnered 9.4% market share, up from 8.1% in July
    • Mass market share fell 70bps to 6.3%, offset by a VIP share gain of 180bps to 10.3% and RC share gained 240bps to 10.8%.
  • This marked the 4th straight month of post-GM opening that Starworld continued to gain share - increasing 30bps to a market share to 9.7%, 60 bps above its TTM pre-Galaxy Macau level.
    • Mass market share ticked down 10bps to 2.8% while VIP share rose 170bps to 11.4%

Even in the face of the GM ramp, MGM was the largest share gainer in August – granted this follows a month where MGM lost the most share. MGM’s share increased 2.8% to 10.9%. August share compares with an average share of 8.8% in 2010 and a 6 month trailing average of 10.6%.

  • Mass share declined 60bps to 6.5% but was more than offset by a 4% increase in VIP share to 12.1%
  • Junket RC increased 40bps to 10.4%, materially above the property’s 2010 average of 8.4% but below its 6 month trailing average of 10.7%


Slot Revenue


Slot revenue growth decelerated to 22% YoY in August to $116MM, down 4% sequentially

  • Galaxy slot revenues grew 601% YoY, reaching $15MM due to GM
  • MGM had the second best growth at 35% YoY, but decreasing $1MM sequentially to $15MM
  • SJM’s slot revenues grew 20% YoY to $14MM
  • MPEL’s slot revenue grew 16% YoY to $21MM
  • Wynn’s slot revenue only grew 1% YoY to $21MM
  • LVS slot revenues actually fell 3% YoY to $30MM








Weekly Latin America Risk Monitor

As usual, we’re keeping it brief. Email us at if you’d like to dialogue further on anything you see below. Also, we are always happy to forward along prior notes which may contain additional color on the specific topics/countries you see below.



Dovish monetary and fiscal policy talk (and action, in some cases) is dominating Latin America’s storylines.



By and large, Latin American equity markets had a strong week, closing up +2.7% wk/wk and +3.2% wk/wk on an average and median basis, respectively. Recent moves and speculation around the future of monetary policy contributed heavily to the best/worst divergence: Brazil’s Bovespa Index was up +6% wk/wk on the heels of a -50bps rate cut vs. Argentina’s Merval Index closing down -0.4% wk/wk on currency devaluation speculation.


In Latin American FX markets, the -2.3% wk/wk decline in the Brazilian real (vs. the USD) led the way to the downside, also largely due to the “surprise” rate cut. Conversely, the Chilean peso put on a +1.3% wk/wk move vs. the USD largely due to the minutes of the central bank’s Aug. 18 meeting, which showed that Chilean policymakers consider it too early and too aggressive to cut interest rates in the near term.


In Latin American bond markets, Brazil’s interest rate cut stole the show, facilitating a wk/wk decline of -28bps in Brazil’s 2yr sovereign debt yield. The cut was, however, priced in to some extent, as yields fell just slightly over half of the full extent of the -50bps Selic Rate cut; if anything, Brazil’s bond market was signaling this for at least the last few weeks (2yr sovereign debt yields down -152bps MoM). Brazil’s on-shore interest rate swaps market had a more forceful reaction, with the 1yr tenor closing down -57bps wk/wk.


From a credit quality perspective, CDS broadly declined wk/wk throughout the region, with the suddenly moderate Peru (more on this below) leading the way to the downside on a percentage basis (down -25bps/-14.8%).


Weekly Latin America Risk Monitor - 1


Weekly Latin America Risk Monitor - 2


Weekly Latin America Risk Monitor - 3


Weekly Latin America Risk Monitor - 4


Weekly Latin America Risk Monitor - 5


Weekly Latin America Risk Monitor - 6



Brazil: If it’s not obvious, the key callout from the Brazilian economy last week was the Banco Sentral do Brazil’s decision to cut their benchmark Selic interest rate -50bps, citing a “generalized reduction of great magnitude in the growth projections of principal economic blocs” and “the [hawkish] outlook for [Brazilian] fiscal policy”. Interestingly, there is a great deal of talk surrounding how politicized this decision was, given the enormous amount of blunt pressure recently directed at the central bank by various members of the Brazilian government – including President Rousseff herself. We walk through this dynamic as well as the outlook for fiscal policy in 2012 in great detail in our 9/1 note titled, “Eye On Brazilian Policy: Oh No You Didn’t” (email us for a copy).


Elsewhere in the Brazilian economy, economic data continues to come in rather soft on the margin. Industrial production growth slowed in July to -0.3% YoY (vs. +1.1% prior); industry confidence ticked down in Aug. to 102.7 (vs. 105 prior); manufacturing PMI ticked down in Aug. to 46 (vs. 47.8 prior); capacity utilization ticked down in Aug. to 83.6% (vs. 84.1% prior); and trade balance growth slowed to +$1.5 billion YoY (vs. +$2.2 billion prior).


Chile: The key news out of Chile last week was that, unlike Brazil, the Central Bank of Chile considers it too early to cut interest rates. On the flip side, Finance Minister Filipe Larrain did say the government was “prepared to confront a drop in international demand”, suggesting that countercyclical fiscal policy is being readied in the event global growth slows further. Chile’s fiscal metrics are slightly positive (deficit at 4.5% of GDP; debt at 8.8% of GDP), so there is some headroom for Chilean policymakers to act as a buffer if needed.


The latest Chilean economic data would suggest that need is growing on the margin: industrial production growth slowed in July to +0.7% YoY (vs. +4% prior); industrial sales growth slowed in July to +2.4% YoY (vs. +2.6% prior); retail sales growth slowed in July to +9.6% YoY (vs. +12.5% prior); unemployment rate ticked up in July to 7.5% (vs. 7.2% prior); and total payrolls growth slowed in July to -37.4k MoM (vs. +38.8k prior).


Peru: This we know: growth is slowing – real GDP growth slowed in 2Q to +6.6% YoY (vs. +8.7% prior). This we didn’t: Ollanta Humala’s regime is governing from slightly left of the middle of the political spectrum. While it would be far-fetched for us to label the newly inaugurated Peruvian president as a moderate, we’d be remiss to label the direction of his economic policy as anything substantially left of the center – which is what he initially campaigned just a few months ago.


Perhaps the most left-leaning of all legislation he’s introduced this far is a draft of the 2012 budget, which was recently approved by the Peruvian Cabinet. Still, despite higher spending and higher taxes, the outline calls for a surplus as large as 1% of GDP, suggesting Humala isn’t recklessly Keyneisan when it comes to the government’s fiscal health. On the more economically liberal front, Humala’s government is seeking to pass legislation that would foster the creation of a deeper corporate credit market, exchange-traded funds, and a repurchase agreement marketplace. Additionally, the president looks to garner 1 billion soles ($370 million) worth of private sector investment in government infrastructure projects over the coming months. It’s clear that Humala and his economically liberal team of advisors are putting forth their best efforts to prevent the Peruvian economy from slipping into the pitfalls of socialism – something we happily tip our hats to.


As it relates to the direction of policy in the nearer term, Peruvian Central Bank President Julio Velarde said last week that the bank “stands ready to adjust their interest rate policy if the global economy worsens”. Peru, with a benchmark interest rate of 4.25%, is one of the many emerging market economies which have proactively hiked rates over the last year and have some dry gun powder to use in the event of an economic growth emergency. Peru’s Finance Ministry, led by Miguel Castilla, stated that it is also ready to chip in with a $5.6 billion contingency fund held at the central bank. We’re not sure if this fund intends to use excess FX reserves in a scheme similar to Argentina’s and Venezuela’s. If so, we find fault with this in that a) it’s hard to walk away once the spending spree begins; and b) it’s flat-out highly inflationary (unofficially, Argentine and, officially, Venezuelan CPI readings are both north of +25% YoY).


Argentina: Perhaps a major red flag and the key callout of the week for Argentina is that Argentinean deposit rates are climbing amid widespread declines in interest rates throughout the region. This is due to the phenomenon of Argentine investors/savers pulling pesos out of bank accounts and converting them into U.S. dollars, etc. amid record-breaking capital flight from the country. For reference, the 12.7% interest rate Argentine banks paid for 30-day deposits on Aug. 25 was indeed a two year high.


Elsewhere in the Argentine economy, Vice Presidential candidate and current Economy Minister Amado Boudou came out last week and confirmed that the country won’t accept an audit of its economic data and policies by the IMF, which typically does so annually with each of its member countries via its Article IV consultation. Reading between the lines, this is essentially the Argentine government admitting that the country’s official growth and inflation statistics – which have been widely disputed since the late President Nestor Kirchner replaced Indec employees with political appointees in 2007 – are,  in fact, subject to faulty reporting. This is something to keep in mind ahead of current President Cristina Fernandez de Kirchner’s likely second term and what the impact on actual (vs. reported) inflation would be in the event she pursues a meaningful currency devaluation.


Darius Dale


UA: Business Trend Update

Here’s a follow-up to our earlier note on UA. How is business? Here’s some charts showing both apparel and footwear point-of-sale info for UA. It would be unfair to say that it is getting clocked out there, because performance – broadly speaking – is fine. But when you end the prior quarter with inventories +74%, you need better than “fine”, you need “outstanding”. That’s not in the cards.


Versus last year, we’re seeing UA’s share gains in apparel continue to slide – to the point where the latest trends are actually down (we look at this data on a trailing 3-week basis).


Similarly, the company is seemingly not gaining traction in footwear. That’s no revelation to the Street at large. But the reality is that UA went out and hired Gene McCarthy – who we’ve thought to be among the best talent in the space – and after 25 months, they still have little to show for it (at least based on product quantity, quality and performance).


Will UA get Footwear right? Yes, we definitely think so. But the clock is ticking, and UA is running out of time where the Street will simply give them a pass simply because they have a killer brand. In other words, footwear will cost either time or money – and the Street has little tolerance for either.  


We continue to think that there’s a big duration mismatch here. When the short-term investment factors come to roost just as 40% sales growth numbers are incrementally slowing (still stellar, but what matters is on the margin), we think there will be a much better shot to buy UA lower.




UA: Business Trend Update - UA apparel 9 6 11


UA: Business Trend Update - UA Compression 9 6 11


UA: Business Trend Update - NKE compression product 9 6 11


UA: Business Trend Update - UA FW sales 9 6 11


UA: Business Trend Update - UA FW 9 6 11


Brian P. McGough
Managing Director

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.


Preliminary gaming revenues from one of the riverboat markets shows that August may be another soft month for domestic gaming.



According to unofficial data, we believe Missouri gaming revenues, adjusted for the closing of St. Jo Frontier Casino, dropped 1% YoY in August—another disappointing month for the “Show-Me” state.   On a sequential revenue basis, Missouri came in 5% light.  We look at monthly sequential revenue based on the previous 3 months, adjusted by a historical seasonality factor. 


We won’t get the property details until later this week but we wonder if PNK’s Lumiere and River City properties, which outperformed in July in part to high table hold and easy comps, can continue to show solid growth in a poor macro environment.  Obviously, ASCA maintains the highest exposure to Missouri but we don’t think Missouri will be the only regional market to disappoint.


Other riverboat markets may be better, or worse, than Missouri but we want to stress that all riverboats (on a same-store basis), except Louisiana, showed slowing sequential revenue in July.  We have been cautious on regional gaming post Q2 and a weak August would corroborate our bearish stance.



Early September forecast of HK$20-22BN, up 35-48% YoY.



This is hardly worth commenting on but we’ve got data on the first 4 days of September.  Average daily table revenue dropped from HK$747 million in August to HK$690 million.  Hold was probably a little low especially given that Wynn’s market share dropped to 5.4% which is obviously not sustainable.  Galaxy’s share was also unsustainably low. 


We do expect September to fall sequentially from August both because August was an amazing month and September is historically a softer month.  Our current projection is for September gross gaming revenues of HK$20-22 billion which would provide healthy YoY growth of 35-48%.



UA: Definite Net Negative


These management changes are definitely the right thing for UA, but they play into our call that you don’t want to own this stock when then the company is hunkering down, retrenching, reorganizing its business, and investing capital to facilitate the next leg of growth. 


In another 18-24 months, having a ‘Chief Supply Chain Officer’ and ‘Chief Performance Officer’ might prove to be the best move since they launched Compression Apparel. In his usual ‘take no prisoners’ approach to the business, Kevin Plank very quickly addressed UA’s fulfillment problem.   


As for Wayne Marino, let’s not forget that he is a CFO by trade. After doing such a solid job seeing UA through the IPO process, he essentially built the finance organization that exists today. But unfortunately, in a strong sign of the Peter Principle at work, he was elevated to a role (COO) where he was simply ‘average’ as opposed to ‘great.’  He is sticking around for six months for transition purposes. Clearly, this is not a ‘clear your desk and security will escort you out’ situation.


We continue to think that there are few businesses in US retail that have the kind of Blue Sky growth that UA has ahead of it. But before we see things like Footwear, International, Retail and Women’s succeed, we’re going to need either more time, capital, and more likely – both.


For the long-term holders who own this name because they think it will triple in another 5-years, then check the box and move on – everything is fine and on-track. But the upside/downside risk here for anyone with a shorter duration clearly favors the downside.



Brian P. McGough

Managing Director



Early Look

daily macro intelligence

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.