Q4 estimates going higher


Following the receipt of the December detailed numbers for Macau, we are adjusting our Q4 property estimates higher for Galaxy, LVS, MPEL, MGM, and WYNN as follows:




Certainly, hold played a big role in the estimate hikes.  In December, MPEL was the only company that held below its normal level.  Nevertheless, Mass growth was strong across the board in Q4 and Mass drives profitability.


We’ve updated the consensus as best as we could but you resourceful buysiders probably have a better consensus estimate than we do.  Nevertheless, we believe we are above consensus EBITDA estimates for all of the Macau operators with the exception of Wynn.  MPEL looks like it will generate the largest beat in percentage terms.



Takeaway: December was never the issue for us but hurdles remain for Q1

December was never the issue for us but hurdles remain for Q1



As we suspected, high VIP hold contributed significantly to December’s strength.  Rather than the 20% actual YoY growth, we estimate that if hold was normal, GGR would’ve gained a still strong 13-14%, slightly above our original 12% projection.  We have to estimate Direct VIP play so hold % is also an estimate.  Mass growth was once again impressive – up 32% and in-line with the recent trend.


Every operator held above normal on their VIP business.  We also suspect that Mass hold % was above normal for the market and particularly for MGM.  With the exception of Wynn, each operator also generated significant YoY growth in GGR.  Wynn’s VIP rolling chip and VIP revenue both fell YoY although the property eked out a 4% gain in Mass.  Not surprisingly, Sands China’s properties generated the best YoY growth at 52% but MGM’s 34% growth was surprising although certainly hold-aided.


Here are some observations before we put out our more detailed note:


Direct play adjusted hold was 3.18%

  • The highest since we have been tracking direct play #s (May 2010). 
  • If hold was 2.85%, then growth would have been 13-14% vs. 20%

Actual numbers came in better than projected

  • Mass:  +3% better
  • Slots:  +10% better
  • RC volume:  +3% better- actually improved almost 5% YoY – best growth since Feb 2011

Company Observations

  • Sands China
    • Gained 20bps of share.  We estimate that they held at 3.14% - high but in-line with the market this month
    • Unlike last month, the driver behind share gains was VIP RC share.  Mass share declined MoM.
    • For the 6th month in a row, Sands YoY GGR growth led the market at 52% led the market.  Mass grew 48%, which is impressive, but only earned LVS 4th place behind MGM, MPEL, and Galaxy this month.
    • VIP growth was the strongest among all 6 concessionaires for the consecutive month at 55%, and VIP RC growth also led the market for the 7th consecutive month at 46%
  • Wynn Macau
    • Wynn continued to struggle this month with GGR 10%- the worst performance of the 6 concessionaires
    • Estimated hold was 3.1%, below the market but above normal
    • Wynn was the biggest loser in term of market share this month losing 1.8% to just 10.3%
    • The loss in market was driven by losses in the VIP RC share which fell to just 10.8% - the lowest point since November 2007
  • MPEL
    • MPEL had a pretty good month, considering that they were the only concessionaire that held below 3% this month. 
    • GGR growth was 13% and market share only dipped 20bps to 13.5%.
    • Impressively, MPEL’s Mass revenues grew 56% YoY - just behind Galaxy for the top spot
  • MGM
    • A very strong month, party driven by high hold of 3.55%
    • GGR growth was 35% which earned them 2nd place behind LVS
    • Mass revenues grew an impressive 51%, coming in 3rd place behind Galaxy and MPEL.
    • VIP chips grew 10% YoY, ahead of the 9% market growth
    • Market share bounced back to 10.9%, above the company's 6-month and 2011 average
  • Galaxy
    • Galaxy’s share increased to 18.2%, up 2% MoM, the largest market share gainer in December
    • Galaxy held high in December, at an estimated 3.39% across their two properties
    • However, December marked the 5th month in a row where their VIP RC growth was negative. Galaxy was only one of two concessionaires that experienced YoY declines in VIP RC growth in December.
    • Galaxy took the top spot for Mass growth at 59%, with strong growth across both of their owned properties
  • SJM
    • Held their ground with GGR growth of 18% and normal hold of 3.03%
    • Mass growth was 9% YoY and VIP RC growth was 12%







The Economic Data calendar for the week of the 7th of January through the 11th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.






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Gold Short - Staying With It

Takeaway: Gold is now confirming that it is in a quantitative Bearish Formation.

This note was originally published January 04, 2013 at 11:19 in Macro

POSITIONS: Short Gold (GLD) and Gold Miners (GDX)


The bear case for gold just got a lot better this week.


Gold (and Bonds) do not like it when the slope of growth moves from slowing to stabilizing. Why would they? That’s the end-of-the-world type stuff.


From a long-term perspective, we think Gold is a bubble that’s already popping. We only make that claim when something is making a series of lower long-term highs (see the chart below).


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


  1. Intermediate-term TREND resistance = 1699
  2. Long-term TAIL resistance = 1671
  3. Immediate-term TRADE resistance = 1665


In other words, Gold is now confirming that it is in a quantitative Bearish Formation (bearish TRADE, TREND, and TAIL).


Since it’s way over-owned by Institutional Money Managers who had never owned if before (ostensibly because they were bullish on growth and other productive assets at the time), and the fundamentals (Global Growth and US Employment Growth stabilizing) are confirming our quantitative signal, we are staying with it.


If you’d like our longer form bearish research notes on Gold that we published in Q412 under our Q4 Global Macro Theme “Bubble #3”, let us know.




Keith R. McCullough
Chief Executive Officer


Gold Short - Staying With It - GOLD

Higher And Higher

Stocks have had an impressive run over the last three months with some equity indices (Russell 2000) hitting new highs after the post-fiscal cliff rally. Interestingly enough, we’re back at the same levels that were seen during the Bernanke Top (mid-September). With the current bullish sentiment in the market, making higher-highs and returning to 2007 pre-crisis levels is a reality that could soon be upon us.


Higher And Higher - image001

FINL: Credibility Does Not Care About Valuation

Takeaway: The last thing that FINL needed was another knock to its credibility. That's what it got, and we can't identify near term redemption.

Our view on FINL following this morning’s results and call remain unchanged. We think management has a credibility issue and in the absence of any substantive catalysts believe the stock will be range-bound over the near term.


A few thoughts to consider:


  • Tarnished Management Credibility: In addition to a poorly timed (and tested) e-commerce platform transition just before the holiday selling season, management has also been slow to respond to the industry mix shift in footwear from running to basketball resulting in more aggressive promotional activity, which is expected to continue through 4Q. FINL is in “show-me-mode” for the time being. Recall that they initially lost credibility after jumping head first into ‘2012 as an investment year’ back in the spring of 2012. The latest debacle does not help.
  • The Play Here is Long FL: The clear call out of the FINL quarter is confirmation of category divergence between running (decelerating) and basketball (reaccelerating). With FINL over-indexed to running and the trend running away from them (pun intended), we think FL is the clear play here.


FL is not immune by any means as it also carries running product, but we expect over-indexing to basketball to drive meaningful outperformance relative to FINL and industry. During the quarter, basketball was up mid-teens while running was down –MSD at FINL. While FL has underperformed in sympathy with the group recently, we expect a near-term rebound reflecting a more robust product mix and underlying business performance. Our biggest concern with Foot Locker is that FINL gets to the point of irrationality with its promotional cadence for a protracted time period. We think that the vendors would have little patience for this, but such pressure from the brands will last only so long.

  • NKE Considerations: NKE is also one of our top long ideas. With much of the basketball success attributed to Nike product lines, we expect continued success for the brand in 2013 in a case of the tail wagging the dog.


It was highlighted that consumers are becoming more sensitive to price at the higher-end such as NKE’s Air Force Max. As expected given the timing of increases last year, ASPs came in up +7.8% for the quarter and growth is expected to decelerate to up +MSD in 4Q. While we expect this trend to weigh on the rate of growth in athletic footwear over the coming year, it will have a greater impact on the footwear retailers (FINL and FL) who will be forced to pass it forward more than on the brands themselves. Our sense is that FINL was not talking to the investment community when it made the comment about consumer price sensitivity – it was talking to Nike. They are attempting to negotiate price via the quarterly conference call.

  • Macy’s Deal: Despite the e-commerce interruption, there appears to be little changed regarding the timing or structure of deal as a result. While most likely unrelated, the Macy’s pilot stores will be rolled out in Feb-Mar versus earlier plans to rollout in Dec-Jan. The rest of the store rollouts will start in April as originally planned.



All in, despite FINL trading at an attractive valuation, the absence of positive catalysts over the near-term suggests a meaningful move higher near term is unlikely given the that the name is in a ‘show me’ mode. Instead, we think NKE and FL are considerably more attractive both on a relative and absolute basis over the coming year. NKE remains our top pick.



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