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Covering SPY: SP500 Levels, Refreshed

POSITION: Long Financials (XLF), Short Consumer Discretionary (XLY)


Short green, cover red. That’s what we do within a proactively predictable trading range. Intermediate-term tops are processes, not points.


To be clear, the Quantitative Risk Management view is quite often different than the Fundamental Research View. Over the course of my career, I have learned to rely on both. Fundamentally, I think consensus is coming our way on inflation slowing growth. Today’s Sector divergence (Energy up, Consumer down) speaks plainly to $122/barrel oil’s anticipated impact on real (inflation adjusted) GDP growth.


Back to the Quantitative Risk Management view, here are the lines in my model that matter most: 

  1. Immediate-term TRADE overbought = 1363
  2. Immediate-term TRADE support = 1353
  3. Intermediate-term TREND support = 1273 

If 1353 doesn’t hold, I think we go lower, faster. If 1353 holds, I think we bounce, again, on low volume, to another lower long-term high.


Scenarios, probabilities, and ranges. That’s what we do too. The process hasn’t changed, time and price have.




Keith R. McCullough
Chief Executive Officer


Covering SPY: SP500 Levels, Refreshed - spx.02.22.12


Genting and Singapore market growth coming into question.



Adjusting for a whopping 3.9% hold, this quarter was quite a disappointment.  Combined with LVS’s relatively weak performance at MBS, Q4 confirms what we have suspected for a while now – that Singapore is no longer a rapid growth market, unless more rooms are added or junkets are approved.  Combined, the Integrated Resorts in Singapore grew GGR 12% YoY but declined 6% sequentially.  The lackluster 4th quarter results were not even that good since market hold was a record 3.6%, compared to an average of 3.0% over the last 2 years.  If the market held at 3.0%, the sequential decline would have been 14% and YoY growth would only have been 3%.  The lack of commentary of how spectacular January/CNY was this year by either IR suggest that 4Q results may be the new norm. 


Aside from disappointing results, the most interesting new news today was that Genting clearly has been doing some serious development work – including raising financing for a new project  which it will likely announce in 2H2012.  If we had to guess, the project(s) are in either Vietnam or S. Korea, since Japan legislation and approval is still a while away.  Of course the US is also a likely possibility, but we think that that is less likely.



Genting Singapore Q4 Detail:


While we have not spoken with Genting management yet, here are some of our preliminary observations on the quarter.  We estimate that gross gaming revenue (“GGR”) was S$899MM, which is in-line with management’s assessment of garnering 47% GGR share

  • VIP gross revenue of S$465MM and net VIP revenue of S$286MM
    • 52% of GGR and 44% of net casino revenue of S$645MM
    • RC volumes of S$12BN, down 26% sequentially and 44% YoY
    • Hold of 3.9%
    • Rebate rate of 1.32%
  • Gross mass table revenue of S$282MM and net mass table revenue of S$225MM
    • We estimate gaming points were S$47MM or 3.4% of our estimated drop
    • Estimated drop of S$1,375MM and win of 20.5%
  • S$152MM of revenue from gaming machines (slots & EGTs)
    • Estimated handle of S$3BN
    • Estimated win % of 5%
  • S$254MM of rebates, GST & Gaming points
    • GST: S$48MM
    • VIP Rebates: S$159MM
    • Mass gaming points: S$47MM
  • Non-gaming revenue of S$138MM
    • Hotel room revenue of S$34MM
    • F&B and other revenue of S$22MM
    • USS revenue of S$81MM
  • Total expenses of S$377MM
    • Gaming taxes: S$83MM
    • Estimated fixed expenses: S$185MM – in-line with 3Q11


Bullish call. One time items held back Q4 (corporate expense). 2012 setup looks very favorable.



“2011 was a year in which we achieved many goals: operationally, strategically, and financially.  Operationally, we enhanced our customer experience through targeted reinvestment in our properties and improved relationships through our M life customer loyalty program. Strategically, we acquired a majority interest in MGM China and began expanding our brand presence in key markets throughout the world, particularly Asia.  Financially, our revenues and margins have improved year over year increasing our cash flow and strengthening our financial profile. Going forward we expect to build off of these strategies to grow our company and maximize shareholder value.”


- Jim Murren, MGM Resorts International Chairman and CEO



  • Better then expected FIT and leisure booking led to better than guided to RevPAR
  • Believes that as MGM improves their balance sheet, great benefit will accrue to shareholders
  • This past week they launched M Life for their non-gaming amenities across their resorts and launched their new website. Thinks that this will be a big driver for their Las Vegas business
  • Excited about their strategic relationship with ASCA, extending their reach into the regional markets. Will have more of these types of relationships to report in the coming quarters
  • Think that MA will be a great potential market for them
  • They are looking at other regional markets where they can invest small sums to increase their database and leverage their brands to the benefit of their Strip properties
  • They will have a Bellagio on the Bund in Shanghai. Have a property opening in Beijing and Chengdu later this year
  • Feel that they are in as good position as anyone if / when online gaming happens in the US
  • Continue to manage their expenses. MGM Grand YoY improvement was largely due to better group mix.  
  • Group mix was 14.7% in the quarter
  • Leisure and FIT segments are up 9% in the 4Q
  • Casino trends continue to improve and international volumes continue to improve
  • 4Q domestic rated play also improved
  • Saw volume and win increases in both tables and slots for the first time since 2007
  • MGM Detriot had its best quarter and year since opening
  • $113MM of capex and $12MM in MGM China this quarter
  • Expect to spend $350MM excluding MGM China in 2012
    • Room remodel at MGM Grand
    • Room remodel at Bellagio
    • Conversion / start of Michael Jackson show
    • Blue Man Group show
  • Corporate expense higher than usual. One time costs regarding outsourcing their IT costs. Expect their corporate expense to moderate and to be in the mid $30MM in the 1Q12
  • 1Q12 Guidance:
    • D&A: $235-240MM
    • Interest: $274MM ($24MM in amortization and $6MM from MGM China)
    • Stock comp: $10MM
  • Lowered interest rate and extended maturity through the refinancing at CC
  • Closing of facility redo in a week or 2, expect a reduction of borrowing costs of roughly 150bps
  • CityCenter:
    • Aria: Casino revenue increased 27%, hotel revenues increased 24%. Slot revenue increased 21% YoY.
      • Benefited by $6MM in high hold
      • Room revenues benefited by higher % of convention room nights
      • 100% of their planned convention room nights are already booked for 2012
      • Negotiating to have the Cirque show to be replaced with Michael Jackson
      • They are updating some of their dining options
      • Will host the Michael Jordan golf tournament in March
    • Crystals: 86% leased. D&B mens and women's stores opened this year. Channel's swimwear store opening soon
    • Total monthly lease revenues of $751,000; 405 units
  • MGM China
    • 2 new Junket operators opened this quarter
    • RC grew 29%
    • Mass drop grew 13%
    • Slot handle grew 35%
    • $45MM of capex in 2011 and $85MM in 2012 ($45MM will build out some undeveloped space on the second floor)
    • Cotai plan: 500 tables, 1600 rooms and costs about $2.5BN
  • Seeing great returns on the room remodel at Bellagio and MGM Grand
  • The event calendar is a big driver of visitation for them
    • Mayweather - May
    • Pacquiao - June
    • Madonna
  • The first quarter will be the toughest ADR comp, but think that RevPAR will be up 2-3% and then improve throughout the year - especially in the 2nd quarter. 



  • Resort fee helped them by a few percent in 4Q, but that's largely anniversaried at this point going forward.  Excluding resort fees, they would have been up just over 10%. Cash ADR was up 8.6% in the quarter.
  • MGM Grand margins - flat year over year? Impacted by room renovations
  • Bellagio hold was up YoY but held well.  Was hitting on all cylinders
  • MGM China - impact of SCC opening?
    • Feel like they will be able to sustain their positions. Will be interesting to see how the other properties on Cotai will do.
  • Flow through worse in 4Q?
    • Due to seasonality 4Q is never as good as 3Q. 48% flowthrough is one of the best flow-through levels that they've had.  Part of that is lower occupied room nights in the 4Q than other quarters.
  • I-poker?
    • Several options at the Federal level - there are still several pieces of key legislation that need to be passed
    • Murren thinks it will be passed at the Federal level this year
    • States are also "fervently" working on their own legislation and they are prepared for that scenario although they prefer Federal legislation
    • They will be one of the first horses out of the gate when something passed
    • Champions for Federal approval in the House?  No comment - but he does think that there is broad based support in the House as well as the Senate, which views this as a key law enforcement issue.
  • Additional levers to reduce leverage? 
    • More FCF as property improves
    • Cash from trust in NJ with the sale of Borgata ($180MM)
    • Additional dividends from MGM China
    • CC will also be a deleveraging JV
  • Projecting same convention room mix as what they ended in 2011 for 2012 with better in the year for the year bookings.  2013 and 2014 looks incredible strong so far.  Same bodes for Aria. 
  • When will they get some meaningful contribution from international hotel management hotel contracts?
    • They are already starting to make money in China - MGM Grand in Sanya just opened. Get $1000/night over CNY
    • They also have Brandco - getting $30MM from fees from MGM China vs. just $12MM last year
  • Think that their high end properties will continue to perform well through out the year
  • Gaming is coming back in Vegas.  Table play is coming back and slot business is strong.
  • Think that 2012 will see a more broad based recovery at their properties not just on the RevPAR side. 



  • Wholly owned resorts:  "The overall table games hold percentage in the fourth quarter of 2011 was near the high end of the Company’s normal range of 19% to 23% and was near the low end of the Company’s range in the prior year quarter.  Slots revenue increased 3% compared to the prior year quarter."
  • MGM China's Board announced a $400MM dividend which will be paid to shareholders of record on 3/9/12 and distributed on 3/20/12. MGM will receive $204MM of the dividend
  • MGM China:  "The increase was driven by year-over-year increases in volume for VIP table games, main floor table games, and slots of 29%, 13% and 35%, respectively. VIP table games hold percentage was slightly above our expected range of 2.7% to 3.0% in the current and prior year periods"
  • CityCenter: "Aria’s table games hold percentage was approximately 240 basis points higher in the current year quarter compared to the prior year quarter"
  • "In December 2011, the Company borrowed an additional $778 million under its senior credit facility to increase its capacity for issuing additional secured indebtedness. As a result, the Company had a higher than normal cash balance at December 31, 2011 of $1.9 billion, which also included approximately $720 million of cash and cash equivalents related to MGM China."
  • Debt: $13.6BN including $3.3BN drawn on the R/C. In January they repaid the $778MM borrowed in Dec of the R/C and had $957MM of available borrowing capacity
  • "As previously announced, the Company is seeking amendments to its aggregate $3.5 billion senior credit facility to, among other things, extend the maturity of loans held by consenting lenders from February 21, 2014 to February 23, 2015. Lenders holding approximately 62% or $2.2 billion aggregate principal amount of the credit facility have elected to extend the maturity dates of their commitments. Extending lenders will receive a 20% reduction of their previous credit exposures, unless waived by such lenders. In addition, extending lenders’ loans will be subject to a pricing grid that decreases the LIBOR spread by as much as 250 basis points based upon collateral coverage levels and the LIBOR floor on extended loans would be reduced from 200 basis points to 100 basis points.  The closing of the amendment is subject to customary closing conditions and is expected to occur by the end of this month."

Daily Trading Ranges

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TJX Q4 Callouts

TJX reported Q4 results in-line with its recent preannouncement of $0.62 vs. $0.62E this morning. While there isn’t a whole lot in terms of surprises to report re the P&L, TJX’s SIGMA move is the clear highlight ahead of the call at 11am with sales outpacing inventories and margins expanding – a shift worth noting and bullish relative to the rest of the companies that have reported over the last two days (see our note "Retail:Tuesday's Foursome").   

Here are some callouts from the release regarding Q1-to-date trends and F13 expectations:

1)     Inventories:

  • Sales growth +11% outpaced inventory growth up +7% (down -5pts seq) for the first time in 5qtrs
  • On a per store basis inventories were up +3%, less than expected
  • The company’s purchase commitments are down yy putting TJX in the driver seat as it relates to excess inventory that will be coming into the discount channel from the mid-tier providing a tailwind to the discounters (e.g. TJX and ROST).
  • “Inventoriesare lean as we begin the year, which positions us very well to flow fresh spring merchandise to our stores.”

2)     Outlook:

  • Outlook in-line with expectations with upside likely in Q1 based on Feb-to-date trends.
  • “We enter a new fiscal year with considerable momentum in our business and are off to a very strong start in 2012. With favorable weather patterns in February, comp store sales are trending toward a 7% increase for the month.”
  • Q1 Outlook $0.45-$0.47 (vs $0.46E) predicated on comps +2%-4%. (up +7% so far in Feb.)
  • F13 Outlook $2.21-$2.31 (vs $2.27E) predicated on comps +1%-2%; including $0.07 from 53rd week

3)     Repo:

  • Company spent $400mm to repurchase shares in Q4;  expects to spend $1.2-$1.3mm in repo’s in F13 accounting for 5% of outstanding shares. New SRA up to $2Bn

4)     Home Category:

  • TJX’s HomeGoods posted a +10% comp matching TJX Europe as the strongest performers this quarter consistent with yesterday’s commentary re strong performance out of the Home category from WMT, M, and HD.

TJX Q4 Callouts - TJX


Casey Flavin





In preparation for ISLE's FQ3 2012 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • Completed the sale of Grand Palais Riverboat, Inc. including the smaller of the Company's two riverboats in Lake Charles to Bossier Casino Venture LLC for $15 million.  Concurrent with the sale the Company has consolidated its operations onto the remaining larger riverboat and will operate with 1,262 slot machines, 40 table games and eight poker tables.


  • "We will finish interior upgrades to the Grand Palais Casino in Lake Charles in the middle of December and are finishing completing the designs for the refurbishment of our Lake Charles Hotel."
  • "We've already commenced the re-brand of our Vicksburg facility to our Lady Luck brand, a $4.5 million project that we expect to be substantially completed shortly after the end of our fiscal year. We are also pleased with our progress in Cape Girardeau and are approximately one year away from our anticipated opening day."
  • "We expect capital expenditures of around $60 million in the last half of the year with approximately half of that going in Cape Girardeau."
  • [Davenport] "We are currently still having conversations with the city's preferred developer, although that process has slowed.  As a result, we have opened up that process to have conversations with some other potentially interested parties."








The ICSC chain store sales index remained consistent with modest spending growth and continued seasonal volatility.  Last week, the index gained 3.0% (4 week moving average is now 0.7% vs -0.4% last week), reversing the prior week’s -2.0% decline. Year-over-year improved modestly to 3.2% from 2.8% (4 week MA improves to 3.4% from 3.3%).  Unusually warm weather and Valentine’s day helped to offset rising gasoline prices.


Comments from CEO Keith McCullough


Finally, Top 3 Most Read (after Greece at #1) = Oil Rising at #2 and China Slowing #3 – the rest of the world didn’t cease to exist!


  1. GROWTH – pick your overnight economic data point, from German PMI slowing sequentially in FEB to 50.1 vs 51 JAN to Taiwan Exports dropping -8.6% y/y in JAN, I think we’re just getting started here. What happens on the margin m/m matters most. Inflation, from these levels, slows growth.
  2. INFLATION – Italian CPI +3.2% y/y JAN (stagflation), India CPI pops to +7.7% JAN vs 6.6% DEC, and Hong Kong CPI up to 6.1% JAN vs 5.7% DEC –these are all JAN numbers that don’t include this rip in the CRB Index, Oil, etc in FEB.
  3. YEN – complete meltdown on our immediate-term TRADE duration w/ the Japanese Yen in free-fall, accelerating to the downside this morning to 80.16 vs USD. At the same time, short-term UST’s are spiking above my TREND line of 0.26% and 10s are above the critical 2.03% line this morn. Big sov debt maturity spike in Japan in March.

Got Sov Debt risk in Japan and the USA? Just when everyone stopped thinking running deficit and debt levels like this didn’t matter? These are risk mgt questions that don’t have tidy answers, unfortunately. I get paid to ask them when markets do.






THE HBM: PZZA, CAKE, TXRH - subsecotrs




PZZA: Papa John’s reported 4Q EPS of $0.65 versus $0.62 consensus.  Comps missed, coming in at 1.7% versus 4.3% consensus for North American system-wide comparable sales.  EPS guidance for 2012 was reaffirmed $2.33-2.43 versus consensus $2.44.




JMBA: Jamba gained +6.1% on accelerating volume yesterday.




CAKE: Cheesecake Factory reported a low quality beat.  Favorable tax and an extra week were essential to the $0.53 4Q EPS number versus $0.52 expectations.  The outlook for unit growth was also altered as some opening dates have been pushed out.  The guide down for 1Q and lack up guide up on the full year, despite raising FY12 comp guidance, were the two main points that drove the stock down post market.  See our CAKE post from this morning for further details.


CAKE: Cheesecake Factory was reiterated “Buy” at Sterne Agee.  The PT remains $36. 


TXRH: Texas Roadhouse reported 4Q EPS of $0.18 versus consensus $0.16.  Comparable restaurant sales came in at +5.6% in 4Q.


THE HBM: PZZA, CAKE, TXRH - txrh pod1







CBRL: Cracker Barrel gained 4% on accelerating volume yesterday after strong earnings before market open.

KONA: Kona continues to get hit on strong volume.





Howard Penney

Managing Director


Rory Green



Early Look

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