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The Macau Metro Monitor, April 26, 2012




  • Construction of Phase 2 began in 1Q 2012. Scheduled to open mid-2015.
  • Funding HK$16BN through a combination of existing cash and cash generated from operations and debt.  Does not intend to issue equity.
  • Phase 2 will include:  
    • Over 1,300 additional hotel rooms & suites: 
      • JW Marriott (1,100 rooms)
      • Ritz-Carlton Macau (250 suites)
    • Gaming: 30k sqm, up to 500 tables & over 1,000 slots
    • 45 additional F&B outlets
    • Over 65k SQM of retail space/ +160 retail shops
    • Meeting, event and banquet space to accommodate 2,000 more patrons


According to Jornal Tribuna de Macau, the Cotai land grant contract between Wynn Macau Ltd and the Macau government will be closed next week, with final approval of the land concesssion on Monday, April 30. 

Jornal Tribuna de Macau says the public announcement of the deal may not be immediate.  Both parties will likely wait for the contract to be published in the Official Gazette, which is expected to happen in the second week of May.














Initial jobless claims for the week ended 4/21 came in at 388k versus 375k expectations and 389k the week prior (revised from 386k). 


THE HBM: DNKN, BKC, CAKE - initial claims



Commentary from CEO Keith McCullough


Most Read (Bloomberg) = “Bernanke Prepared To Do More”, #sad – but our profession continues to beg for Dollar Debauchery:

  1. US Dollar – last I checked, nothing happened in Iran yesterday or on the demand side of oil other than the Buck Burning during Bernanke’s presser. This morning, you see the follow through on that as Oil and Gold push toward lower-highs.
  2. ASIA – you’d think Dollar Down = everything up, especially Tech related Asian Equity markets. Nope. Taiwan -0.55% and KOSPI up 0.1%; both remain bearish TRADE and TREND in our model which is interesting, to say the least. Hong Kong and Singapore Export demand is tanking y/y at -7% and -5% respectively for (March prints).
  3. EUROPE – 1-day squeeze and European Equities are reminded that AAPL isn’t in their indices; straight back down this morning with Spain crashing again (ie down -22% from the Feb top). DAX failing right at my intermediate-term TREND line of resistance (6688) and that’s probably the more impt callout on the margin. UK has stagflation w/ $119/brent.


Re-shorted the SP500 as we were waiting on the 1394 re-test.




THE HBM: DNKN, BKC, CAKE - subsector





DNKN: Dunkin’ Brands reported $0.25 EPS ex-items versus $0.23 consensus.  Comps for Dunkin’ Donuts U.S. came in at 7.2%, with international comps growing 2.3%.  Baskin-Robbins U.S. comps grew 2.1% with international comps growing 7.6%. Management guided to U.S. comps for Dunkin’ Donuts of 4-5%.


BKC: Burger King announced an agreement Wednesday with the Humane Society of the United States to switch to eggs from hens not kept in cages, and to only use pork products from pigs also not kept and bred in small cages.





CAKE: Cheesecake Factory missed on the top line with Cheesecake Factory concept comps coming in at 2.6% versus 2.7% consensus. Grand Lux was the big disappointment with comps of 0.3% for 1Q versus 2.8% consensus.  The company beat on EPS, however, reporting $0.37 versus $0.36 consensus thanks to operating margin coming in at 6.9% versus 6.6% consensus.


THE HBM: DNKN, BKC, CAKE - cake pod1


CAKE: Cheesecake Factory was upgraded to outperform from market perform at Raymond James.  The price target is $34.





Howard Penney

Managing Director


Rory Green




Branch Rickey uttered those words but while luck didn’t put LVS in Macau and Singapore, it sure helped the quarter.



“Has a Company ever played this lucky?” – Hedgeye Client


This question was posed to me last night by a valued client.  I guess the answer is, maybe in percentage terms but certainly not in dollars.  Probably not even close.  But the reality is that it wasn’t luck that put LVS in a position to make an estimated $145 million off of luck alone, in one quarter.  It was amazing foresight and execution that got LVS into the two greatest gaming markets in the world.  Where else could you generate the kind of volumes that could produce more EBITDA from a luck swing than LVS makes in total in Las Vegas?  That’s more than WYNN and Encore makes and about the same as Bellagio, MGM Grand, and Mandalay Bay combined.


In total, LVS amassed $1.1BN of property level EBITDA which is indeed a fantastic number.  Thankfully, some of us can still do math, no matter how many times the management skirted the hold question.  Luck played quite a hand in this quarter’s headline number.  By our estimation, high hold across LVS’s portfolio benefited EBITDA to the tune of a cool $145MM and net revenue by $235MM. 


That said, there were plenty of bright spots in the report, but it’s always a question of expectations.  With the stock action leading into the opening of SCC, the bar seems to have been set high.  The company spent a lot of time talking about their potential Spain project which does scare us a lot.  We think that will be the lowest ROI project the company has invested in for a long time.  We would’ve preferred more discussion of SCC.  While way too early to make any determination of the ultimate success of SCC, luck has been looking for payback as table hold at SCC looks low in the first few weeks of operations.  LVS’s share in Macau has actually dropped post-SCC. 






Macau revenue and EBITDA were 1% below our estimate.

  • We estimate that hold helped segment results by $40MM of EBITDA and $114MM of net revenue
    • Rather than use the magic 200 moving day average, we used each properties’ VIP hold since opening  to calculate VIP impact and the TTM average for Mass hold impact
    • Excluding the most recent quarter, Sands and Venetian have historical VIP hold rates of 2.92% while FS has a historical hold of 2.69%
  • Direct play was $6.4BN or 20% of RC, which we estimate was up 37% YoY
    • Sands:  11%
    • Venetian:  27%
    • Four Seasons:  16%
  • Junket RC volume was $26.5BN, compared to $21.9BN in 4Q11 and up 33% YoY.  All of this growth came from Four Seasons.  Venetian was flat YoY while Sands was down.
    • Four Seasons Junket RC grew to $10.7BN from $2.4BN in 1Q11
    • Venetian Junket RC was flat at $10BN
    • Sands Junket RC fell 23% to $5.7BN YoY
  • We won’t know what happened to commissions until next quarter, but we do know that rebate rates were up across the board
    • FS:  36.9% or 1.04% vs. 24.9% or 0.97% in 1Q11 (drop vs hold %)
    • Venetian:  35.1% or 1.01% vs. 31.4% or 84bps in 1Q11
    • Sands:  not a fair comparison because of the massive hold differential
  • Fixed costs were up high single digits to teens
  • Mall revenues were indeed pretty awesome.  Even without base rents  we saw huge YoY increases.
  • The addition of EGT’s resulted in very impressive growth in slot handle.  Unfortunately, EGTs also have lower win %s.


  • High hold helped the property blow away even our likely Street-high estimate.  However, no matter how LVS tried to massage it, hold of 3.58% is about as normal as the Phoenix Coyotes winning a playoff series.
    • Excluding this quarter, MBS’s historical hold has been 2.83%
    • We estimate that EBITDA got a +$80MM boost from high hold
  • Rebate rate increased to 1.28%
  • We’re not convinced that the Singapore is poised for significant growth
    • Slot handle hasn’t grown since 3Q11 – it's actually been down the last 2 quarters (albeit just slightly)
    • Mass drop hasn’t moved in 4 quarters – stuck between $1.12 and $1.2BN            


  • Too bad no one cares about Vegas anymore because numbers were pretty good
  • Hold did benefit EBITDA by roughly $28MM - 3 year average hold in Vegas has been 18%
  • Slot handle and table drop hold likely exceeded everyone’s expectations as well
  • Looks like Sands continues to be rational with promotional spending
  • 4.5% rebate and promotional expenses decreased to just 12.5% of GGR from 18.8% in 1Q11 and 15.3% in 2011
  • Operating expenses, excluding  taxes, increased 10% YoY to $256MM

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LIZ: Quick Hit


Top-line trends look good in LIZ’s 1Q results with earnings coming in shy by a dime due to less aggressive cost reduction measures. Kate came in stronger than expected reaccelerating underlying 2-year comps reflecting in part the added holiday boost and management reaffirming F12 EBITDA targets. The story is pressing forward here…


Some additional callouts:


-          Brands Comp Trends:

    • Kate came in strong up +38% in 1Q posting a +73% comp in March ahead of the high end of our expectations reflecting a sequential acceleration in the 2-year comp in both March and 1Q reflecting in part the added holiday boost.
    • Lucky comps came in up +21% - slightly below our expectations of +24%, but still well within the range we expected. 2Q will be the brand’s toughest compare of the year so we expect a deceleration in comps over the near-term and our modeling +12% for the year.
    • Juicy comps came in -4% as expected. I’m sure we’ll hear more about the latest line on the call, but sounds like early results are still positive.
    • The absence of an April comp update suggests that management will likely run through the impact of the holiday shift. As we highlighted in our preview, Lucky is likely running negative in April and Kate could be low double-digit to slightly negative even depending on the magnitude of the shift. This will be one of the key focuses of the call.

-          Outlook

    • F12 EBITDA targets of $125-$140mm were reaffirmed. The absence of a revision here is net positive given the company’s history.

-          Corporate Expense Initiative:

    • We expect more detail from Bill and the team regarding the timing of cost reductions. Aside from the April brand update, this is another key focus for the call, but given Q1 progress, we expect more aggressive cuts over the balance of the year.


We’ll have more after the call at 10am EST. The dial-in number is with pass code 72892664.


Casey Flavin




Credibility's War

This note was originally published at 8am on April 12, 2012. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“Indeed, policies such as competitive currency devaluations risk unleashing a wave of destructive protectionism.”

-Dennis C. Blair, US Director of National Intelligence (February 2009)


On my flight back to New York last night I was reviewing my institutional client meetings in Denver and Kansas City and thought to myself, God help us all if Ben Bernanke continues to engage in this currency war against US Consumers and Savers.


Since the word war is not one you want to bark out loud on a US flight, I decided to keep it to myself and keep thinking. Jim Rickards’ recent book, Currency Wars, provides an excellent historical perspective on why using that word didn’t come out of thin air.


In addition to the aforementioned quote from the US Director of National Intelligence, Rickards starts Chapter 3 “Reflections on a Golden Age” (page 37) with the following quotes:

  1. “We’re in the midst of an international currency war.” –Guido Mantega, Finance Minister of Brazil (2010)
  2. I don’t like the expression currency war.” –Dominique Strauss-Khan, Managing Director IMF (2010)

Well, I don’t like DSK and I couldn’t care less what he, or any of his conflicted and compromised cronies of the Keynesian Kingdom, think about our expressions. American Patriots, Unite. We are fighting for the credibility of our currency.


Back to the Global Macro Grind


If there’s ever been a morning where the currency war is on the tape, it is this morning:


1.       FED – in a central planning speech in NYC last night, Bernanke’s pandering Fed Head from San Francisco, Janet Yellen, said “I consider a highly accommodative policy stance to be appropriate in present circumstances.”  (must be hard times at Facebook – great depressions perhaps in Southern California too?)


2.       BOJ – mincing zero words on currency war, the Bank of Japan’s equivalent of Bernanke, Masaaki Shirakawa, stated plainly that “The BOJ will pursue powerful easing.”


Powerful words from un-elected, but very powerful and politicized people.


The Japanese Yen, of course, went down on that – but the US Dollar didn’t. Why? That’s simple – this is war. As I am sure Einstein would agree, Credibility’s Currency War amidst the 3 major fiat currencies of the world (USD, EURO, YEN) is relative. For politicians at least, it’s a short-term race to the bottom.


Plenty of the Fed’s excuse makers say “there’s a difference between correlation and causality.” That must be a one-liner they are teaching at Western business schools or something because it certainly doesn’t apply to what’s actually going on in markets right now. We have plenty of causality (monetary policy) and plenty of correlation risk – ask anyone who trades in real-time.


A simple illustration of long-term causality is in our Chart of The Day. This is The Policy To Inflate Mechanism of Keynesians:

  1. 10-year chart of the Federal Reserve’s Balance Sheet (Total Assets/GDP)
  2. 10-year chart of the ECB’s Balance Sheet (Total Assets/GDP)
  3. 10-year chart of the Bank of Japan’s Balance Sheet (Total Assets/GDP)

What you’ll quickly notice in this chart is that one of these lines (Japan’s red line) is not like the others. That’s because Japan, under the un-qualified academic advice of Paul Krugman in 1997 to “Print Lots of Money”, actually listened to the Keynesian and went on, and on, and on with  “Quantitative Easing” until 2006.


Why did the BOJ stop printing money in 2006?


Take a wild guess. Because the said elixir of Quantitative Easing did not work.


Subsequent to 2006, both the ECB and Fed (the blue lines in the chart) decided to start acting Japanese, printing moneys in 2007 and 2008, respectively. Since then, the currency war between Europe and the United States of America has gone on, and on, and on.


The only people that I know that think this Keynesian experiment (with other people’s money) gone bad is going to ultimately end well are people who are paid to be willfully blind to its economic gravity.


To suggest that this 10-year chart of money printing and explicit Policies To Inflate has nothing to do with all-time record highs in food and energy prices (2008-2012) is a professional embarrassment.


If you want a solution to this Global Economic mess, it’s the Monetary Policy, Stupid. There has never been a country, in world history, that has debauched their currency’s credibility and achieved long-term economic prosperity.


So, next time you hear someone like Janet Yellen, Ben Bernanke, or some other conflicted and compromised European or Japanese politician tell you that this time is going to be different – please remind them, for the sake of our kids, that never is a long time.


My immediate-term support and resistance ranges for Gold, Oil (Brent), US Dollar Index, Japanese Yen (vs USD), Euro/USD, and the SP500 are now $1618-1666, $119.04-122.64, $79.61-80.26, $80.03-83.12, $1.29-1.32, and 1355-1391, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Credibility's War - Chart of the Day


Credibility's War - Virtual Portfolio