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Takeaway: Strong Mass once again offsets weak VIP volumes

Mixed feelings about August 



As we already knew, August GGR grew 6.1% (in US$), in-line with our expectations and above the 1.9% growth in July. After looking through the data, it appears that August was softer than the headline as VIP volumes were worse than we expected but VIP hold was higher.  We continue to think that September growth will be better than August, likely to grow in the low double-digits YoY.  Indeed, we are already hearing that the first weekend in September was very strong.


We estimate that total direct play this month accounted for 6.6% of the market, compared with 6.8% in August 2011.  The total VIP market held at 3.10% vs. 2.91% in August 2011.  Adjusting for direct play and theoretical hold of 2.85% in both months, August revenues would have only increased 1.7% YoY.


The good news is that Mass and slot revenues continue to come in strong, posting 27% and 16% YoY growth, respectively.  The bad news, which should come as no surprise, is that VIP volume was down 6.6% YoY, marking the 3rd consecutive month of YoY declines.  LVS was the only concessionaire to produce YoY growth in Junket RC volume and VIP revenue.


Company-specific Takeaways:



  • LVS led the market in GGR growth, up 42% due in part to the April opening of SCC and the VIP push at Four Seasons
  • LVS held a little below its 12-month average but its VIP volume share of 14.7% was the company’s best share since January 2010
  • LVS posted its second highest Mass share (behind July) since SCC opened
  • Overall, a better month than the headline 19.0% market share would suggest

 Wynn Macau

  • Wynn’s share accelerated in August but that was entirely due to high VIP hold
  • Mass share is holding its own since SCC opened but Junket RC share fell 10bps to 12.2%, the property’s second lowest share since October 2007
  • Despite the high hold, Wynn recorded its 5th straight GGR decline due to slot revs falling 20%


  • MPEL’s GGR fell for the 4th time of the last 5 months.  However, all the losses have been driven by Altira.  CoD has yet to see a month of YoY declines.
  • However, Mass had another strong quarter, up 27%


  • MGM’s strong market share gains this month were driven mainly by VIP volumes
  • Hold was just a bit above its 12-month average
  • GGR was up 1% YoY


  • Galaxy generated the 2nd highest growth of any concessionaire, up 7%
  • YoY growth was once again driven by Mass – up 77%
  • VIP hold percentage was well above normal.  VIP volume dropped 17% YoY – the first decline since February 2009.
  • We think it’s interesting to note that Galaxy Macau’s VIP market share is equivalent to WYNN’s, higher than MPEL’s and not far behind LVS’s portfolio share of 15.9%



Total table revenue growth accelerated from just 1% in July to 6% in August.  Mass revenue growth was healthy at 27%, but lower than the 38% growth rate we’ve seen over the trailing twelve months.  VIP revenues fell 1%, while Junket RC declined 7%, marking the 3rd consecutive month of declines.  As a point of reference, there were 7 consecutive months of decline in VIP RC volume from December 2008 through June 2009; although the dip was more severe than the single digit declines we’ve witnessed to-date.  We expect growth to resume with the opening of Ph2 of Sands Cotai Central.



Table revenues grew 43% YoY, garnering the best growth in the market by a mile.  Sands China’s strong performance in the month of August was aided by an easy hold comparison in 2011.  We estimate that the Sands portfolio of properties held at 2.94%, vs 2.62% last August, adjusted for direct play.  Sands was the only concessionaire to produce YoY growth in Junket RC volume and VIP revenue.

  • Sands table revenues fell 24% YoY, marking the 5th consecutive month of declines.  The good news is that almost the entire YoY decline came out of the lower yielding VIP segment.
    • Mass fell 1% YoY, the propertys’ first decline since Jan 2011
    • VIP declined 35% YoY.  Hold was low and the comparison was difficult.  We estimate that Sands held at 2.61% in August compared to 3.51% in the same period last year.  We assume 9% direct play in August vs. 15% in August 2011 (in-line with what we saw in 2Q12 and 3Q11).
    • Junket RC was down 10%.  This was the 9th consecutive month of YoY declines in VIP RC at the property.
  • Venetian table grew 30% YoY.  Strong August performance was driven by strong Mass win, high hold and a very easy comp on the VIP side.
    • Mass increased 21%
    • VIP grew 39%
    • Junket VIP RC fell 21%, marking the 7th consecutive month of declines at Venetian.  In the 12 month period spanning from September 2008-2009, Venetian saw 10 months where junket RC volumes fell.
    • Assuming 28% direct play, hold was 3.87% compared to 2.22% in August 2011, assuming 24% direct play (in-line with 3Q11)
  • Four Seasons continued to perform well, growing 87% YoY
    • Mass revenues dropped 33%
    • VIP soared 135% and Junket VIP RC rose 139% YoY
    • If we assume direct play of 16%, in-line with 1Q12 and 2Q12, hold in August was 2.81% vs. 2.21% in August 2011 when direct play was 38% (in-line with 3Q11)
  • Sands Cotai Central produced $106MM in August, compared with $135MM in July, $117MM in June, and May's $135MM.  The drop MoM drop off is a result of bad luck in August.
    • Mass revenue expanded to $40MM, $3MM higher MoM
    • VIP revenue of $66MM was the lowest VIP output, post opening
    • Junket RC volume of $2,682MM, increased 2.3% MoM, setting a record for the property
    • If we assume that direct play was 12%, hold would have been just 2.17% - the lowest since the property opened in April


Wynn table revenues eked out 0.4% growth in August, breaking a 4 month streak of YoY declines.  The slight growth produced in August was aided by high hold.

  • Mass growth grew 12%
  • VIP revenues fell 2%
  • Junket RC declined 12%, marking the 4th consecutive month of declines
  • Assuming 8% of total VIP play was direct (in-line with 2Q12), we estimate that hold was 3.39% compared to 3.07% last year (assuming 10% direct play – in-line with 3Q11)


MPEL table revenue fell 5%, winning the prize of worst concessionaire performance.  Although hold across MPEL’s 2 properties was normal at 2.86%, last year's comparison was tougher at 3.00%.

  • Altira revenues fell 41%, due to a 45% decrease in VIP.  Mass fell 1%.  Results were negatively impacted by low hold and a difficult comparison.
    • VIP RC decreased 17%, marking the 9th consecutive month of declines which have averaged -19%
    • We estimate that hold was just 2.06%, compared to 3.15% in the prior year
  • CoD table revenue grew 16%, aided by high hold
    • Mass revenue grew an impressive 32%, while VIP revenue grew 10%
    • RC declined 3%
    • Assuming a 15% direct play level, hold was 3.30% in August compared to 2.91% last year (assuming 15.7% direct play levels in-line with 3Q11)


Table revenue fell 3%, the 4rd consecutive month of declines

  • Mass revs was up 8% offset by a 8% drop-off in VIP revs
  • Junket RC was down 13%.  This was the 7th month of consecutive declines for VIP volume across SJM’s portfolio.
  • Hold was 2.83%, compared with 2.65% last August


Galaxy’s table revenue grew just 7%, but that was enough to win the spot of 2nd best growth amongst the 6 concessionaires.  Mass growth still led the market with growth of 77% which was offset by a 4% decline in VIP growth. Galaxy's hold was 3.51% vs. 3.05% in August 2011.

  • StarWorld table revenues fell 28%
    • Mass grew 35%, offset by a 33% drop in VIP
    • Junket RC fell 28%, marking the 3rd month of consecutive declines
    • Hold was 2.87%, compared with last August’s hold of 3.12%
  • Galaxy Macau's table revenues grew 21%.
    • Mass grew 84%
    • VIP grew 7%, while RC increased 34%
    • Hold was very high at 4.04% vs. 2.98% last year


MGM’s table revenue fell 1% in August.

  • Mass revenue grew 46%
  • VIP revenue fell 9% and VIP RC declined 3%.
  • If direct play was 9%, then August hold was 3.12% compared to 3.32% in August 2011





Despite producing the best YoY growth, LVS was the biggest share loser in August, closing the month at 19.0%, -2.5% MoM.  Despite the MoM drop-off, August's share was still better than its 6 month trailing market share of 18.3% and 2011 average share of 15.7%.

  • Sands' share was 3.6%, down 30bps MoM.  For comparison purposes, 2011 share was 4.6% and 6M trailing average share was 3.8%.
    • Mass share was 5.6%
    • VIP rev share was 2.8%, flat with July
    • RC share was 3.1%, 40bps better than its 6M average
  • Venetian’s share fell 40bps to 8.5%.  2011 share was 8.4% and 6 month trailing share was 7.6%.
    • Mass share fell 40bps to 14.3%
    • VIP share decreased 30bps to 6.3%
    • Junket RC share increased 10bps to 3.9%
  • FS decreased 70bps to 3.1%.  This compares to 2011 share of 2.2% and 6M trailing average share of 4.1%.
    • VIP share decreased 70bps to 3.8%.  
    • Mass declined 60bps to 1.1%, the lowest share since opening
    • Junket RC fell 20bps to 3.7%
  • Sands Cotai Central's table market share fell to 3.4% in August from 4.6% in July.
    • Mass share of 4.6%, marking a property record
    • VIP share of 2.9%
    • Junket RC share of 3.9%, flat with July, and tied with Venetian’s share


Wynn gained 100bps of market share in August, rising to 12.3% due to high hold.  While its August share was far below Wynn’s 2011 average of 14.1%, it was better than their 6-month trailing average of 12.0%.  We expect Wynn’s share to struggle in the face of a ramping Sands Cotai Central.

  • Mass market share was 8.7%, up 80bps MoM
  • VIP market share rose 1.2% to 13.7%
  • Junket RC share fell 10bps to 12.2%, the property’s second lowest share since October 2007


MPEL’s fell 20bps in August to 13.1%, below their 6 month trailing share of 13.4% and 2011 share of 14.8%.  The good news is that the entire share drop was due to losses at Altira, which were primarily hold driven.  CoD’s share expanded in August.

  • Altira’s share grew 90bps to 2.8%, the property's lowest share since July 2007 and well below its 6M trailing share of 3.9% and 2011 share of 5.3%.  Much of the share drop can be attributed to low hold in August.
    • Mass share was flat at 1.5%
    • VIP fell 1.4% to 3.3%, the property's lowest share since July 2007
    • VIP RC share decreased 30bps to 5.2%
  • CoD’s share grew 70bps to 10.1% aided by strong hold.  August’s share was the property's best share since September 2011 and well above its 2011 and 6M trailing share of 9.3% and 9.4%, respectively.
    • Mass market share increased 70bps to 10.4%
    • VIP share grew 80bps to 10.0%
    • Junket RC grew 60bps to 7.8%


SJM was the second largest share loser in August.  SJM’s share fell 1.1% to 25.0% in August.  August’s share compares to their 2011 average of 29.2% and its 6M trailing average of 26.8%.

  • Mass market share fell 1.1% to 30.6%, setting a new record low
  • VIP share fell 1.4% to 23.6%
  • Junket RC share increased 60bps to 27.6%


Galaxy gained 1.3% share in August, rising to 20.2%, above its 6M trailing share average of 19.7%

  • Galaxy Macau share gained 2.8% to 12.6%, aided by record hold of 4%
    • Mass share was 9.7%, relatively unchanged MoM
    • VIP share gained back July’s loss, growing 3.9% to 13.7%- the properties’ second best market share month since opening
    • GM’s VIP market share is equivalent to Wynn’s, higher than MPEL’s and not far behind LVS’s portfolio share of 15.9%
    • RC share fell 30bps to 11.2%
  • Starworld share fell 160bps to 6.6%, the property's lowest share since September 2008
    • Mass share declined 20bps to 3.0%
    • VIP share fell 2.3% to 8.0%
    • RC share fell 1.2% to 9.1%, the property's lowest share since June 2009


MGM was the biggest share gainer in August due to a 60bps increase in MoM hold.  Their share increased 1.5% to 10.4%, close to its 2011 share of 10.5% and above its 6M average of 9.8%.

  • Mass share increased 90bps to 7.5%
  • VIP share grew 2% to 11.1%
  • Junket RC grew 70bps to 10.8%


Slot Revenue


Slot revenue grew 16% YoY to $135MM in August

  • MGM took the top prize for YoY growth of 48% to $22MM.  Interestingly, this is the 3rd consecutive month when MGM had the best slot growth.
  • SJM had the second best growth YoY at 28% to $18MM
  • LVS grew 27% YoY to $38MM
  • Galaxy grew 14% YoY to $17MM, just behind the record they set in January 2012
  • MPEL’s slot revenue grew 8% to $23MM
  • WYNN had the worst YoY performance in slots with a 20% YoY decline to $20MM: 47% below their record of $32MM set in May 2011.  Part of the decrease is likely due to capacity constraints and yield management efforts that have reduced slot counts at the property by approx 7% YoY.







Lower Highs: SP500 Levels, Refreshed

POSITIONS: Short Small Caps (IWM)


The storytelling out there on why the market isn’t going straight down is fascinating. It was in mid-March too. Growth is slowing, globally, at an accelerating rate (inflation policies do that) and the only big part of the bull case that’s left is bailouts.


All the while, like it did in March-April, the broader market continues to make lower-highs on lower and lower volumes. Imagine they took APPL out of the SP500; then the storytelling would get really good.



Lower Highs: SP500 Levels, Refreshed  - spx levels



Across my core risk management durations, here are the lines that matter to me most:


  1. Immediate-term TRADE resistance = 1407
  2. Immediate-term TRADE support = 1401
  3. Intermediate-term TREND support = 1367


In other words, provided that 1401 holds, the market’s range can easily remain tight (1401-1418). That 17 point range is less probable on a close below 1407; and a close below 1401 puts 1367 in play, faster.


Central planning is so exciting!


Keith McCullough

Chief Executive Officer

DG: This Dollar is Not General

Takeaway: $DG’s stock should not be up on this poor quality beat. Underlying trends are getting gnarly.

Here’s the key trend that we think came out of the DG release. Consumables as a percent of sales grew, but at a decelerating rate. In fact, it declined sequentially (on a ttm basis) for the second quarter in a row. Common logic says that this is not that bad given that consumabales tends to be a lower Gross Margin business. That’s true. But it’s also a very big traffic driver. Fewer people coming in the door to buy higher margin items leaves us with slower growth and ‘hope’ that the company can appropriately manage inventory on seasonal items (it’s easier to manage inventory on milk and frozen broccoli than it is socks, backpacks, and Nerf Uzi Waterguns). This gives us less confidence that the company can sustain comps in the 4-5% range – which the Street has pretty much straightlined into eternity.

Oh, and by the way, Food Stamp stats came out yesterday, and participation growth continues to decelerate. Even though the numbers remain high – i.e. seemingly good for dollar stores – keep in mind that the increase in the participation rate from 9% to 15% over the last 5-years has also been a driver of traffic and comp for the dollar stores and other deep discounters. If the rate of participation continues as it is trending today, then it should be negative by year end.


Lastly, our Retail Sentiment monitor, which is a quantitative index of both Sell Side ratings, Buy side ownership/short interest, and insider buying/selling is near peak levels for DG. From a signaling standpoint, you almost never want to be building a position when a company has a sentiment score nearing 90%. In fact, you want to start selling or building short positions. We’d back that up from a fundamental perspective.


DG: This Dollar is Not General - DG ConsMix 2TTM


DG: This Dollar is Not General - SNAP


DG: This Dollar is Not General - DG Sent



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President Obama’s Reelection Chances

As the Democratic National Convention moves into full swing, President Obama's multi-week winning streak comes to a close. While President Obama’s chances of being reelected fell only 10 basis points week-over-week to 59.9% (down from 60% on August 28), it may be a sign that Mitt Romney is making a comeback after last week’s Republican National Convention.


It appears President Obama is on the fast track to another four years in the White House according to the latest results from the Hedgeye Election Indicator (HEI). President Obama’s reelection chances jumped 80 basis points (0.8%) to 59.8% and is fast approaching his peak of 62.3% that occurred back in March. No one knows what the catalyst is, but several weeks of consecutive gains indicate Mitt Romney has his work cut out for him going into September.


Hedgeye developed the HEI to understand the relationship between key market and economic data and the US Presidential Election. After rigorous back testing, Hedgeye has determined that there are a short list of real time market-based indicators, that move ahead of President Obama’s position in conventional polls or other measures of sentiment.


Based on our analysis, market prices will adjust in real-time ahead of economic conditions, which will ultimately shape voters’ perception of the Obama Presidency, the Republican candidates and influence the probability of an Obama reelection.  The model assumes that the Presidential election would be held today against any Republican candidate. Our model is indifferent toward who the Republican candidate is as the sentiment for Obama and for any Republican opponent is imputed in the market prices that determine the HEI. The HEI is based on a scale of 0 – 200, with 100 equating to a 50% probability that President Obama would win or lose if the election were held today.


President Obama’s reelection chances reached a peak of 62.3% on March 26, according to the HEI. Hedgeye will release the HEI every Tuesday at 7am ET until election day November 6.



President Obama’s Reelection Chances  - HEI


Takeaway: $BLMN is facing some difficult headwinds to achieve its goal of expanding EBITDA margin by 300 bps

When Outback Steakhouse went private in 2006, then-Chief Executive Bill Allen extolled the virtues of a private structure, saying, “as a private company, OSI will have greater flexibility to focus on our long-term business improvement initiatives”.  If Don Corleone was being pitched Bloomin’ Brands’ stock, he might say “what have I done to deserve such generosity?” Vito’s reservations, by our speculation, would be rooted in the 300 basis points of margin upside that Bain Capital and Catterton seemingly left on the table when bringing the company public again. 


The prior incarnation of Outback Steakhouse, OSI, in the public markets, was a typical case of a restaurant management team attempting to maintain a growth multiple by overpaying for smaller brands.  The difficulty involved in managing a portfolio of multiple brands as one company ultimately became too great (this may remind you of our thoughts on another casual dining name we are bearish on).


So, is the BLMN proposition analogous to Sollozzo’s solicitation to Don Corleone? Is there a Tattaglia family in the picture? 


While the time the company spent as a private company clearly did not bring around the kind of changes that Mr. Allen suggested it would, the company is under new executive leadership that we believe has credibility with the investor community.  This time around, the players are different and it will be critical that the company’s second stint as a public company does not end in a similar manner to the first.  Still, as things stand, BLMN is a highly-leveraged multi-concept casual dining company that is stating its intention to be a more efficient and focused organization. There is definitely potential for this to turn out poorly.


We will be publishing more on BLMN going forward but for now, we would like to expound on three earnings drivers for the company.



1) 300 bps Adjusted EBITDA margin improvement from cost cutting and sales leverage by end FY14?


Management assured us on the earnings call that the margin improvement would be obtained primarily through Food & Labor efficiencies as well as sales leverage.  Comparing BLMN to major casual dining peers it seems that the margin opportunity is sizeable.  When contemplating how the gap will be narrowed, how attainable the opportunity is becomes less clear.  If it were easy, surely the private operators would have taken that money off the table. The following are our two primary concerns from here:

  • The industry’s outlook, along with BLMN’s mature store base, suggests to us that sustained acceleration in same-store sales is unlikely.  Guidance for 2012 blended same-restaurant sales is 3%.
  • Consumers are likely to face 3-4% food inflation in 2013, according to the USDA.  With labor inflation running at roughly 1-2%, and Food & Labor being the primary source of margin expansion for BLMN, it seems that this goal will be difficult to achieve.

 BLMN: AN OFFER YOU CAN’T REFUSE? - casual dining ebitda margins


2) Unit Growth from Bonefish, Carrabba’s and the International division will drive top line


We are skeptical about aggressive unit growth within the casual dining space, particularly among mature chains, given the macro environment and the demographic outlook for key age cohorts such as those within 55-65 years of age.  Our conversations with industry insiders corroborate this view; it is becoming more apparent that oversupply, stemming from years of restaurant executives being compensated to grow, has become a major issue in casual dining. With this in mind, we will be paying attention to incremental returns as an indicator of the investment worthiness of the smaller chains. Rarely, in casual dining, do multi-brand companies become bigger and better at the same time. 


BLMN: AN OFFER YOU CAN’T REFUSE? - pop growth 55 65



3) Lunch being introduced at Outback will spur same-restaurant sales growth


The company claims to have analytical support to back up its claim that lunch at Outback makes good business sense.  On the surface, it seems to make sense, particularly during weekends but this day part is more competitive and performance during the day-part can often play a key role in shaping consumer perception of the brand.


The argument for attacking lunch seems to hinge on two factors: it’s better than leaving the store dark and it’s accretive to margins on an enterprise level.  However, from the perspective of the Outback brand it’s dilutive to margins as lunch carries lower margin than dinner.   This sales-building initiative, that lowers the margins of the overall business, may not be as beneficial for shareholders as it may first seem. 



There has clearly not been much progress in fixing this company since it was taken private in 2006 and casual dining faces stiff headwinds from a demographic and economic perspective.  It seems to us that the company is dependent on strong sales and an opportunity to implement efficiencies in the P&L.  The macro environment, via a poor jobs market and accelerating food inflation, may make these goals difficult to achieve.  We’re staying away from this name for now.



Howard Penney 

Managing Director


Rory Green











Takeaway: Higher margin slots and Mass significantly outpacing VIP

  • While August VIP improved on July, it was still slightly down
  • Mass continues to crank despite China’s economic difficulties
  • Slots becoming a real contributor to profits



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