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Underwhelming results and no special dividend.  Not quite what people were expecting.




  • Wynn Resorts reported net revenues of $1.3BN and $381MM of Adjusted EBITDA- in-line with consensus estimates
  • Wynn Macau reported net revenue of $951MM and Adjusted Property EBITDA of $296MM
  • Wynn Las Vegas reported net revenue of $347MM and Adjusted Property EBITDA of $85MM
    • 3.1% of total rooms were unavailable during the quarter due to an air rebalancing project compared to 6.2% last year
    • Entertainment growth of 21% YoY was largely due to revenue growth at the Garth Brooks and La Reve shows
  • "Board of Directors has approved a cash dividend for the quarter of $0.50 per common share. This dividend will be payable on November 16, 2011, to stockholders of record on November 2, 2011."
  • Cash: $1.8BN; Total Debt: $3.1BN ($2.6BN in Vegas)



  • Had a lower hold in Las Vegas, which if normalized would take them back to $100MM of EBITDA vs. $85MM.
  • In Macau, it's not so much about market share but bottom line - which keeps climbing
  • Doing their budgeting on the work that will unfold over the next few years but special dividends are in fact special and there is no certainty about what the board will decide to do going forward.



  • Impact of credit tightening on the VIP segment in China
    • Don't see any change in their business
    • They have never had to increase their reserves because they take adequate reserves
  • Have excess cash in Macau - will go through a financing exercise - combo of bank debt and cash next year 
  • Cash: $1.1BN is offshore and $700MM onshore
  • October trends: "October is gangbusters" 
    • $73MM in Macau so far in October through the 18th
    • In Las Vegas. they are doing about $1.25MM per day
  • Depreciation is a real expense for them.  Eventually if you spend less than D&A in Vegas it catches up to you
  • Promotional activity in Macau.  Usually when a new place opens up, things get more promotional and then come back to normal. 
  • MA & FL are very interesting markets - senses that they are acting in a more stable way which should encourage serious investment in those markets. They are looking at those markets. They are also considering if their brand makes sense in those markets. Feeling very positive in a very preliminary way about MA & FL.
  • Leisure has been pretty stable for them in Vegas - Leisure ADR has improved 21%. Also had another great quarter for convention business. 4Q business is also looking great. 1Q12 is coming in similar YoY for group business for them.  Some people are waiting to get their budgets approved.  March will be a challenge since Con Agra isn't in Vegas. So they may be down on group in the first quarter, but feel like things will be stable for the year.
  • Thinks that there continues to be excess demand than supply in Macau. Thinks that they are in the 3rd or 4th inning of development.
  • They have $30MM of retail profits in Macau per quarter - quite phenomenal
  • Every time a new resort opens in Macau, supply gets fully absorbed. They are not concerned about new supply.
  • Only 1% or less of upscale citizens are coming to Macau right now 
  • No change in days outstanding for credit in Macau
  • Florida perfectly suited for being a destination resort destination.  Miami could be a great destination resort city if done right.
  • Wynn Macau is capacity constrained, but there is an opportunity to optimize business. They manage table limits very prudently. Have a little capacity mid week. 
  • YTD in Macau $956MM, last year $561MM EBITDA - through October 18th.  Even for the month, they are up 30% so far. Headed for another $100MM+ month.
  • Cotai update: The government issues a draft contract - which has been signed. That is usually associated with the final approval stages.  A premium was already set.  They are waiting for the gazetting to happen. They have already submitted their plans to the government. When the gazetting takes place, hopefully they can start construction. In Cotai, their hallways are 8 feet wide and 11 feet high. Laying foundation will take a lot of time. Sometimes they need to fill 92 meters and as little as 78 meters.  Between keystones and pile caps, that's almost 10 months of work.  Once they are done they can build one floor per week. 
  • Doesn't think it's relevant to compare the past timelines to now since the approval process is now taking longer. They are going to be the first stop at the monorail. 
  • It's possible to spends hundreds of millions of dollars on foundation 
  • Why was corporate expense so high? It can be choppy but they should be similar in 2011 to 2010 for FY
  • Low hold in the quarter was due to bacarrat. They come in groups - they had some guys win a few million here and there. This month was off by 3-4% - $15-20MM. It wasn't just one event - they are too big for that. 
  • Market share trend in second week of October?
    • Their market share is up
  • According to Steve, the current table cap has to do with the current tables not for future developments, i.e. those that fall outside the limit

AMZN: Buying

Keith’s comment says it all. “USD up = Strong America on stronger Consumption and Brian McGough is warming up to the Amazon when we can buy it on sale.”


AMZN: Buying - AMZN

UK Recovery Off-Track, Continued

Positions in Europe: Short EUR-USD (FXE)

The UK recovery is off-track, said Bank of England’s Mervyn King today. You think…?


Our thesis remains intact: the UK economy is experiencing stagflation that should persist for at least the next 2-4 quarters in an optimistic scenario. Real growth should remain impaired from domestic austerity that weighs on confidence, spending, and tax receipts, as sovereign debt and banking contagion fears across continental Europe expand and reduce appetite for UK goods and services. (Note: European nations are collectively the UK’s largest export partners).


Further, while members of the Bank’s Monetary Policy Committee voted 9-0 to increase its gilts purchasing program by £75B over the next four months [the BoE bought £200 Billion in asset purchases (QE) between March 2009 and January 2010] and keep its main interest rate at 0.50% in an attempt to will growth, we think the actions may do little to move the needle.


The BoE minutes from the October 5-6 gathering show that consensus believes Q4 growth will be close to zero. We see the UK dipping back into recession, as inflation continues to surprise the BoE to the upside for a protracted period.  Yesterday’s release of September CPI at +5.2% year-over-year, versus 4.5% in August, on a tough +3.1% comp in September 2010, demonstrates the sticky stagflation hampering the economy. Equally, Input Producer Prices continue to drive Output Prices higher, another negative for spending (see charts below).


The components that saw the largest year-over-year moves were gasoline, up +22.3% and alcoholic beverages and tobacco, up 10.0%. Based on September monthly averages of Brent crude on a year-over-year compare, Brent saw a +28.5% gain, a pressure the country can do little to reduce given its dependence on foreign sources. NOV., DEC., JAN., and FEB. Brent comps should could well prove inflationary.  Alcohol and tobacco gains came at the hands of higher taxed for these goods.


The broader UK fundamentals we follow also portend a negative set-up:  PMI (Services and Manufacturing) have yet to confirm a positive uptrend, down around the 50 line for the last months that divides expansion (above) and contraction (below); the Unemployment Rate ticked up 20bps month-over-month to 8.1% in August; Retail Sales remain anemic, at 0.0% in August Y/Y; and housing has yet to show any meaningful improvement.


The downward revisions to Final Q2 GDP, bringing year-over-year growth down 10bps to 0.6% Y/Y and quarter-over-quarter growth down 10bps to 0.1% Q/Q have also contributed to the less-than-rosy outlook (see chart below).


We do not have an active position in the UK in the Hedgeye Virtual Portfolio, but have used the eft EWU as an investment vehicle in the past. 


Matthew Hedrick

Senior Analyst


UK Recovery Off-Track, Continued - 1. UK


UK Recovery Off-Track, Continued - 2. UK


UK Recovery Off-Track, Continued - 3. UK

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Galaxy is scheduled to report their 3Q results in the wee morning hours (at least for those of us in the states) tomorrow, and we’re expecting a pretty strong quarter with bullish commentary about their prospects.  Of course they will be positive since they are holding well in the first half of what should be the biggest month ever in Macau.  However, going forward, market share will moderate with hold and Galaxy Macau is vulnerable to the opening of Sands Cotai Central.



3Q Detail:

We project Galaxy Group will report HK$13.44BN of revenue and HK$2.08BN of EBITDA (US$268MM).

  • We estimate that Starworld will report HK$6.44BN of revenue and Adjusted EBITDA of HK$902MM
    • VIP gross win of HK$5.83BN
      • VIP turnover of HK$179.4BN, up 31% YoY and a 3.25% win percentage
      • 45.5% rebate rate (in-line with last quarter) or 1.48% - this likely includes rebates for Mass play as well
    • Mass win of HK$434MM and slot win of HK$64MM
    • HK$114MM of net non-gaming revenue
    • Variable expenses of HK$5,164MM
      • Rebates and commissions: HK$2.65BN
      • Gaming taxes & premium: HK$2.48BN
    • HK$375MM of assumed fixed expenses
    • Net comparable US GAAP revenue would be HK$3.8BN (netting out of rebates) and would result in a comparable GAAP margin of 23.8% vs. a reported margin of 14%
  • We estimate that Galaxy Macau will report HK$6.54BN of revenue and Adjusted EBITDA of HK$1,188MM (US$152MM)
    • VIP gross win of HK$5.035BN
      • VIP turnover of HK$168.4BN, assuming 4% direct play and a 3% win percentage
      • 33.5% rebate rate (in-line with last quarter) or 1%
    • Mass win of HK$1,045MM and slot win of HK$240MM
    • HK$222MM of net non-gaming revenue
    • Variable expenses of HK$4,754MM
      • Rebates: HK$1.69BN
      • Commissions: HK$470.5MM (25bps/ 10% of win)
      • Gaming taxes & premium: HK$2.46BN
    • HK$600MM of assumed fixed expenses
    • Net comparable US GAAP margin of 24.5% vs. a reported margin of 18.2%
  • We estimate that City Clubs will report HK$150MM of revenue and Adjusted EBITDA of HK$37.5MM
    • Most of City Clubs had miserable hold this quarter – which came in at just 1.9% in 3Q (September was actually negative for 2 properties) vs. low hold of 2.3% last quarter.
    • RC volumes at City Clubs declined 11% YoY – in-line with the YoY decline experienced in 2Q11
  • We estimate that Construction Materials will report HK$310MM of revenue and Adjusted EBITDA of HK$76MM
  • Other:
    • Net corporate expenses of HK$125MM
    • D&A:  HK$269MM
    • Finance costs:  HK$155MM
    • JV share of PNL:  HK$40MM 


In preparation for PENN's 3Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.



Beulah Park gets upgrades, despite possible move to Dayton (10/19/2011)

  • After spending about $700,000 on capital improvements last year, Penn has put another $200,000 into Beulah to get it ready for this racing season.


Post Earnings Conference Commentary (Deutsche Bank AG/UBS Gaming Investment Forum; Telsey Advisory Group Fall Consumer Conference)

  • “We have seen no changes in our business lines over the last 60 days or so, so things are steady as they go, no upside, no downside. It’s been more of the same, and we continue to see out there in the competitive markets a very rational level of promotional spending. So, the message we gave at the end of the second quarter with what we were seeing is very consistent in what we’ve seen so far in the third quarter.”
  • “I’m fairly confident we could go out and raise more capital if we wanted to. Maybe not at 6%, but probably something in the 7%, 7.5% range on a sub debt basis, I think, we could still get done even – if we had to – in this market. Nobody wants to go out when everybody’s in a panic mode.”
  • “We’re on schedule for second quarter ‘12 opening in Toledo. Everything there is very much on schedule...in Columbus, we’re still looking for a fourth quarter ‘12 opening.”
  • [M Resort target market] “There are really four segments of business they’re serving. The biggest and clearly the most distressed is the Las Vegas locals. That continues to be a very aggressive, competitive market that’s just dog-eat-dog. But the other three are showing better signs of life. The group and convention business continues to be stronger than ever. The California drive-in business, which, being the first right-hand turn off of Interstate 15, has been very, very good. And most recently, the introduction of the Penn database, the regional customers that we have coming to Las Vegas, and we now have generated about 6,500 room nights to this point.”
  • [M Resort] "Hotel occupancies have jumped nicely year-over-year, and they continue to show strength. We’re going to be adding about 25,000 square feet of exhibit space to the facility in a tent-like structure that’s going to open up in the first quarter of ‘12.”
    • “We’re going to continue to watch the business, and as we continue to see appreciation in ADR and occupancy, somewhere down the road, we can get comfortable with another room tower. It’s already been master-planned, but we still want to understand the business for a few more quarters before we pull that trigger.”
  • “We spend a lot time in Japan... at least for the moment... efforts in Japan are glacial. It’s just the nature of how they work. It’s a consensus process. We have a very interesting opportunity in Japan should that ever happen; spend a lot of time there, but we’re not holding a lot of breath on it. Korea would be terrific. We’ve been in Korea for actually several years, closely engaged there, just kind of taking the temperature. There’s some reason to think that that may heat up over the next year, so that’s one place as an example where we are paying close attention.”
  • “Yeah, I’m thinking that we’re probably 75%, 80% of the way there in both Toledo and in Kansas, and probably 50% in Columbus, so we don’t see any major deviation on that total spend of $850 million that you just stated.”
  • [Kansas market] “We operate in this market today, so this is one that will actually cannibalize ourselves along with the other participants. We do know that we have people driving from the east past the Ameristar to come to our existing Riverside facility. So it will be a little bit of shift in market share with some additional growth in the market just because you’re reaching further out to the west.”
  • [Ohio VLTs] “It will come with a 33.5% tax rate, but in addition to that there will be a takeout for the horsemen’s purses. So most of you are familiar in cities where we have slots at the racetracks, a percentage of the gaming revenue goes to the horsemen’s purses. Right now from a negotiation perspective and this is a very live issue, it’s going to be somewhere between 5% and 15% which would put us somewhere between 38% and 50% on the all-in tax rate.”
  • “In July, we called the $250 million 6.75% sub notes and the redemption was completed in August and funded with the revolver and cash on hand... We now have $540 million of liquidity with a $160 million balance on the revolver. The cap leases in there where our fee services are relatively immaterial, the cap structure in about $53 million of excess cash. So that’s reflective of the sub-debt call, but not any additional operations beyond 6/30.”


Q2 Conference Call:

  • “When you get into the details of what segments of business are doing what, the only strength we’re seeing is in the VIP segment. The customers spend in excess of $400 a day with us on our casino floors. That is showing some modest growth. Below that, it’s still struggling. It’s not getting, as we’ve seen over the past five or six quarters, any worse, but there’s really no strength in the lower level segments of our business.”
  • “If we see any nice lift in revenue across these regional markets, when the economy does turn in our favor, I think we have cost structures that will yield those improved margin results even above what we’re showing today.”
  • [M Resorts] “We have engaged with the property management there very, very recently and are working on continued refinement of our marketing reinvestment that’s going to roll out in the third quarter there. They continue to look at other areas of costs to take out of that business. And we’re encouraged with what we’re seeing in the general trends there and think there are still more opportunities to improve the margins in that business and hopefully down the road, and we’re not expecting it in the near-term. The Las Vegas locals will get better, and we still have a very bright expectation for very good returns for that investment we made there.”
  • “Relative to Perryville, we really don’t expect much impact from the opening of Anne Arundel. I think Perryville’s impact will come at some point in the future when downtown Baltimore finally gets their casino up and running. That’s really what’s going to have an impact, whatever impact is going to be in Perryville. We really don’t see much impact from the opening next year.”
  • “We’re done in Lawrenceburg. We are working with the city, who has proposed a hotel very close to our casino where we would partner with them and operate it and manage it for them, and be a minority investor initially in that development. That would be the only thing that we’re looking at in Lawrenceburg to add about another 150 to 200 rooms in that downtown Lawrenceburg area. But beyond that, we’ve completed our capital program in Lawrenceburg and we’re going to be prepared for what happens in 2013. Certainly it’s going to have an impact when Cincinnati does open. Again, in Indiana, we have the ability to offer smoking to our patrons on the casino floors, which Ohio will not, which we believe will continue to create an advantage for us, but certainly, it’s going to have an impact when Cincinnati opens in 2013 on Lawrenceburg.”
  • [Grand Falls Casino impact on Sioux City property] “We haven’t seen much effect. There’s been a lot of noise out there in western Iowa. We’ve had a couple of the Indian casinos close due to the flooding, coupled with the opening of the casino in Lyons County. So, it’s tough to say what the effect has been, but as you said the June results in Sioux City were very solid. We haven’t seen any material effect on that operation, which as you said is about 85 miles away from us, affecting our business there yet.”
  • [Capitalized interest] "I think we’re projecting $1.75 million in the third quarter, and then cap interest for the year of $6.2 million."
  • [M resorts depreciation] We’re looking on a going forward basis, depreciation rates at the end should be roughly $1.75 million a quarter.”
  • “First half of the year is generally better in Las Vegas than the second half, but we’re also ramping. And the numbers we’ve given have kind of taken out some of the abnormal one-time type charges on the restructurings, and what-not that we’ve had going on at the M.”
  • “I don’t see anything yet on the slot technology side that’s going to jump start any new sources of revenue out there for us. Obviously, the gaming shows coming up in the fall, and everybody’s going to be introducing new products there. But there’s nothing yet that has been put in front of us that says there’s something new and emerging that’s going to create new segments of business for us.”
  • [Atlantic City] Revel’s going to open up next year. There is some potential for the smaller casinos to open up with the new legislation that was passed in Trenton. I still see that market contracting over the next couple years. Aqueduct is going to open up in the fall. Pennsylvania is still just one year anniversary table games introduction. There’s still product there that I think is dated that needs to go out of the market. It continues to be a market that we don’t have an interest in right now because of all those macroeconomic factors. So, Revel opening will certainly be new and exciting, but there’s still too much supply in the market to cater to the demand levels.”





A HOUSING BOMBSHELL - The issues with employment, housing and policy-induced stock market volatility continue to weigh on economic growth and our overall prosperity.. For the week ending October 14, 2011, the MBA mortgage app composite index fell 14.9% WoW. The purchase index dropped 8.8% reinforcing the downward trend since April. Housing demand continues to struggle as homebuyers remain concerned over further price declines. The refinance index also plunged 16.6%, due in part to a jump up in mortgage rates. 


Headline consumer prices rose 0.3% in September (in line with consensus), but accelerated to 3.9% YoY. The energy index accelerated to 19.6% from 18.5% YoY and food prices accelerated to 4.75 from 4.6% YoY.  Inflation is not raging out of control, but is showing a worrying tendency to stickiness.


As we head into the EPS season the Hedgeye Restaurants Alpha list has MCD, YUM and EAT as LONGS and BWLD, PNRA and DNKN as SHORTS.




Food processing continues to gain ground as we continue to “Deflate The Inflation”.  In that same vein, Keith bought is now long the XLY.  As Keith said yesterday “The US Consumer Discretionary is making a credible threat to establish a bullish TREND as US Dollar strength continues to “Deflate The Inflation”..








Sonic (SONC) 4Q EPS missed estimates and SSS remain challenged.  We cannot get behind the LONG side of this story. Although, comparisons get get very easy next quarter.






Arby's new marketing campaign, featuring the "Good Mood Food" original song, was named one of the worst ads in America by Consumerist.com.  Arby's "Good Mood Food" was listed as an "original jingle that should be junked."


CMG initiated neutral at UBS - We still have CMG missing estimates this quarter by $0.04.


MCD - Janney franchise survey confirms our bullish thesis on MCD




CAKE EPS AMC the bar is set low for CAKE Consensus EPS growth is 2% on 4% sales growth.  That being said, this is going to be a challenging quarter for the company - The trends in California could be an issue


BWLD EPS AMC - the consensus is at $0.59, which represents 25% EPS growth vs 16% in 2Q11.  The revenue growth estimate of 26% also looks aggressive.


CHUX - announced a sale-leaseback of 50 units to STORE Capital, and plans to use the $105 million from that sale, plus cash reserves, to pay off debt. The stock was up 13.9% on big volume.




Howard Penney

Managing Director



Rory Green


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