Takeaway: LVS firing on all cylinders and should continue to gain share

While the hold adjusted EBITDA is probably a little lower than that given by management, it's hard to find fault in this strong quarter


"I am pleased to report that our quarterly results reflect both strong revenue and cash flow growth and the steady execution of our global growth strategy.... The prudent management of our cash flow, including the ability to both invest in future growth and to increase the return of capital to our shareholders, remains a cornerstone of our strategy."


- Mr. Sheldon G. Adelson, chairman and chief executive officer



  • Mass table game productivity increased marketably in 4Q in Macao.  Mass table efficiency up 33% to $9,726/win per table per day.  
  • Had 5MM visitors to their properties in Macao in the month of December alone
  • Opened the pedestrian bridge between SCC and FS
  • Retail sales increased by 45% on the second floor of FS since the opening of the bridge. Sales on other levels also increased. 
  • Their RC volume at MBS was their second best month on record. If they held normal, they would have produced $406MM of EBITDA
  • The Parisian will be their 4th property on the Cotai Strip. They have received requisite approvals and are started construction on that site.
  • Retail mall business in Asia generated $110MM of NOI. Think that they are worth $9-10BN. 



  • MBS - the market in Singapore is a very concentrated market so there is a lot of volatility there. They are more focused on the premium mass business there.
  • The $406MM doesn't adjust out for the $24MM charge in the quarter so the actual normalized EBITDA would have been $430MM
  • Sheraton Tower is 100% booked for CNY. All of their properties are 100% booked for CNY.  They think that they will continue to gain share in that market.  Very bullish on Macau.
  • Timing on sale of the retail operations?  They have made no decision in terms of timing on a disposition of the mall real estate. Still have a long way to go on building that business. They are planning on doing another shopping center in Macau. Stand alone 300,000 SQFT mall plus more space at the Parisian. Only reason to move faster is if they thought that the cap rates were going to change. They can sell the existing retail and then have an agreement to sell the future real estate at a pre-determined cap rate. 
  • Is Singapore VIP getting more concentrated or less in terms of players? It remains unchanged. They do see some growth on the premium mass side. They want to move to a more tourist mix of business away from locals.
  • The payment cycle on receivables in Asia is just a longer cycle than in Vegas.  They feel comfortable with their ability to collect. The Singapore region is the toughest place to collect and they don't have that junket buffer. Collected $12MM of the $16MM in the drop this past Q. Reserve is almost 30% of the receivables balance.  Want to get the reserve to about 35%. Collections have been very consistent. Collect 95-97% of amounts outstanding when you go out 6 months. 
  • Venetian Macau had some renovation disruption from the work at the Piazza club - they had 29 fewer active rolling tables. Tough to say if they recaptured that business at their other properties. Don't think that the 29 tables out of service had a big impact on the Q. That property remains the jewel of their portfolio.
  • How to think about the hold % in the Singapore? Still thinks that 2.7-3.0% range is appropriate for MBS - they use the mid-point of the range. Only difference is that the market in Macau is just much deeper. Singapore is just a more volatile market.
  • What was the $24MM tax assessment in Singapore for? 1/3 of the assessment pertains to 2011 and the balance is to 2012.  The 2012 assessment doesn't all pertain to 4Q obviously but the full year.
  • What are they doing to continue to drive table efficiency in Macau? Only at Venetian do they feel the balance between VIP and mass is right.  They have an opportunity to do a lot better across the rest of their portfolio. Focus on the Peninsula is premium mass. At Four Seasons they are doing amazing on the premium Mass tables. Also need more slots there.
  • SCC: Has the lowest win per unit there but should see dramatic improvement with the opening of additional rooms. Their room, food and gaming operations put them in a strong position to do better. They are one of the players in the true "mass" business. That's a great business for them. They have basically a monopoly in that market given their table count.
  • There will be no conclusion about the growth of tables in the years to come. No firm commitment on who will get how many tables at any of the new build casinos. It will be some period of time before the government makes any firm commitment.They are confident that the government will treat them fairly as everyone else. They already own the land on Lot 3. 
  • Goal is to keep growing in Singapore. It's hard to know exactly how large. There is a large tourist market that they can tap. 
  • They are of the opinion that most US markets are either saturated or over saturated. 
  • Have people in Japan on a constant basis. 
  • All of the restrictions are on live tables; none on ETGs and slots. Reception is very favorable to ETGs and they keep getting better. They are very bullish on ETGs. Estimating an all in cost of $2,6BN for the Parisian. Of that they will use $700MM of SCL cash and the rest will be financed. 2013: $400MM, 2014: $1BN and 2015: rest in 2015. 
  • They are still building up their reserve balance from the current 29% to a goal of 35%. 
  • The Chinese people are curious about foreign locations so they believe that the Effiel Tower Design will be very well received. (Felix Wang at Hedgeye very much agrees with this assertion).  The only place that the Chinese want to get to more then Venice is to Paris. They think that the Parisian is even better designed than the Venetian.



  • LVS missed 4Q estimates due to a miss in Singapore and Vegas, offset somewhat by a big beat in Macau
  • "The Company's Board of Directors increased the...quarterly dividend by 40% to ...$0.35 per share payable in March of 2013"
  • "The quarter's adjusted property EBITDA and EBITDA margin were unfavorably impacted... by lower table games hold (approximately $90.2 million adjusted property EBITDA impact), as well as an additional $24.0 million property tax assessment at Marina Bay Sands."
  • Sands China: Net revenue of $1.97BN and Adjusted EBITDA of $620MM
    • Venetian: net revenue of $843MM and adjusted EBITDA of $331MM (3.25% hold)
    • FS: net revenue of $296MM and adjusted EBITDA of $90MM (2.68% hold)
    • SCC: net revenue of $491MM and adjusted EBITDA of $108MM (3.13% hold)
    • Sands: net revenue of $315MM and adjusted EBITDA of $83MM (3.29% hold)
  • MBS suffered from low hold of 2.14%
    •  Net revenue of $717MM and adjusted EBITDA of $302.5MM
  • Vegas: net revenue of $308MM and adjusted EBITDA of $53MM (17% hold)
  • Capital expenditures:  $386.5 million, including construction and development activities of $243.7 million in Macao,$117.4 million in Las Vegas, $21.3 million at Marina Bay Sands, and $4.1 million at Sands Bethlehem.


We like this company but are less sold on the stock.


Panera Bread’s shares have been among the worst-performing in quick service restaurants over the last 6 months.  As the chart below illustrates PNRA shareholders have been suffering; until recently, PNRA was the only QSR stock with a negative return over the last half-year (YUM has also slipped into the red on a six-month basis).  Considering this, alone, suggests that perhaps the stock is worth buying.  We believe the fundamentals say “not yet”.  Besides, depending on the duration one takes into account, any narrative can be told.   Since early 2011, the stock is up roughly 60%.


PNRA BREAD NOT QUITE BAKED - pnra underperformance



Fundamental View


One of our chief concerns with Panera Bread is its ability to continue to generate positive traffic over the next three quarters.  Over the past four years, comp growth has increasingly depended on pricing.  1Q13 is facing a difficult compare versus a year ago when weather boosted same-restaurant sales by 200 bps.  We believe that 1H13 consensus expectations may be overly optimistic from a same-restaurant sales perspective.  The company continues to build its marketing effort and we expect a similar increase in 2013 to that of 2012 to-date.  The company’s catering business can potentially capture incremental traffic but we think there is a limit to how additive this initiative can be.  The greatest source of leverage for the company is the marketing budget.  By raising its marketing spend as a percentage of sales, PNRA can drive incremental traffic.  With marketing at a mere 1.5% of sales, there is room to run before the company falls in line with industry norms.  Guidance for 2013 is for that number to rise from 1.5% in 2012 to 1.7%. 


With the average check at (roughly) $10 for lunch, Panera is now competing with the casual dining chains that are pushing lunch price points at $6-$7. 




PNRA BREAD NOT QUITE BAKED - pnra cumul px traffic



While there are plenty of positives to draw on, the fact that capex is growing so rapidly (with sequential acceleration), while sales growth seems to be rolling over, is a cause for concern.  The company continues to generate strong Returns on Incremental Invested Capital but sequential deceleration has not historically been a good sign for stock price performance.   If sales growth continues to diverge from capex growth, returns will continue to decelerate.  We will be watching this name closely through 4Q12 EPS but, for now, ROIIC and our macro team’s quantitative model (below) indicate that it is premature to be long this stock.



PNRA BREAD NOT QUITE BAKED - pnra sales vs capex growth






Howard Penney

Managing Director


Rory Green

Senior Analyst



In preparation for WYNN's 4Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • "Our volumes in Las Vegas are satisfactory and improving slightly, ever so slightly. And we've been enjoying the advantages of being a niche operator so our average rates are higher. And we're satisfied with our hotel, food and beverage, and gaming results under the circumstances, considering what's going on in the country."
  • "We feel the strain of competition in certain areas like a high-limits slots where our brethren at Cotai have done a very nice job in their high-limit slot rooms, which has caused us to revisit our high-limit slot area and that will be fixed shortly where we'll be, as usual, prettier, I hope, than the other guys....It should be finished, hopefully, by Chinese New Year next year, by February, March next year."
  • "We all know that credit has tightened in the marketplace [Macau] and so I think we've been probably more prudent than we had been in the past. And we've always had a conservative philosophy and we continue that. Consequently, our collection rates haven't suffered."
  • "We have a brand new stunning junket space that is going to open [the 1st week of November]."
  • "We're giving away as much in promotional allowances in a casino as we can afford."
  • [Daily Macau opex run rate] "I see that [$1.2MM]  as what I would call a pretty steady run rate."
  • "We're not under pressure with labor at the moment in our foundation work. But we're not in that heavy period that you're familiar with,  when you're pouring concrete and when you're using hundreds and hundreds of electricians and plumbers and sheet-rockers and concrete finishers. Then the people on the job start to get to 2000-3,500 people a day. Right now the foundation can't absorb that kind of labor. So we don't have any problem, nor do I see us having a problem in the next 12 months."
  • "You are seeing more credit from the junket operators, everyone's feeling a little better than they were a few months ago and it's reflected in the region....what I can tell you is things feel stable in Macau."
  • [Wynn Cotai[ "We think that we're going to start by the end of November, next month, the actual pile, the caisson construction."
  • [Cotai financing] "Most of the spending (75%) will be from mid-2014 till mid-2016 like most projects. So we actually have enough capital on hand to finish the project today. Could be some further financings just for balance sheet optimization in 2013 or 2014, but today we're in really good shape."

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In preparation for BYI's F2Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.



  • “Our North America replacement units sales were up year-over-year reflecting what we believe is a refocus by operators in investing in their casino floors and an increase in ship-share resulting from our improved content.”
  • “Cash Connection, which ended the quarter with 1,216 units, up 591 units from last quarter. Our ending WAP-installed base increased by 26% over the June quarter and 94% versus last year.”
  • “The game orders coming in after the show have been very encouraging.”
  • “Bally Mobile continues its strong momentum and has now grown to approximately 6 million users. Thanks to the measurable ROI, these mobile applications are generating for our customers, we are seeing significant growth, both in new customer acquisitions, which has grown by more than 50% year-over-year, and in the delivery of new features for existing customers.”
  • “We reached an internal milestone with GREASE and Michael Jackson, each crossing the 750 WAP and NAP placement target by a comfortable distance. MJ and GREASE remain two of our best performing WAP products.”
  • “The pipeline of new WAP and premium titles due for release continues to be very strong and will include some very well known Bally and third-party brand names including Beach Boys, NASCAR, Pawn Stars, Hot Shot and Tiki Magic.”
  • “We shipped 175 VGT units to Illinois during this quarter and have signed deals for over 4,000 VGT units in this market. We expect the entire rollout to take about two years to complete. As the distribution channel has consolidated, we now expect a higher mix of these missions to be outright sales rather than on lease.”
  • “International game sales units during the quarter were at 743 units, below our expectations, due to various market conditions and product approval timeline delays. Game sales in international regions remain an important growth opportunity for us. We have multiple product development initiatives currently underway focused on these markets.”
  • “The systems implementations in Canada and Africa are progressing well and we are gearing up for the significant implementations there during the coming months. This combined with growing opportunities for iVIEW DM lead us to be quite bullish on systems for many quarters to come.”
  • “We're excited that over the next six to nine months we think we've got some great product roll-outs specifically for those international markets. And of course on the system side of the business starting here in the December and March quarters, we expect some good international growth there from not only some big customers in Africa for example, but also our SDS and Windows. So we're very bullish on international over the next year or two, but you're right, near term some specific market conditions and some product development priorities that we put on domestic market has caused that to slow temporarily.”
  • “We'll point out that although we have high ASP on our game sales, our margin is not as high as some of our competitors due to the opportunity for us as we get more of our new cabinet out there to sell conversion kits that should drive the margins higher.”
  • “In the near team I think we are shying away from a dividend with the thought that purchasing our own stock remains a good investment, making sure that we have capital for acquisition opportunities if they come up. With our broad infrastructure we've now built support service, international infrastructure, the high cost of regulatory barriers, there could be acquisitions that would be near term accretive that we would want to keep some powder for.”
  • “We're very comfortable, our leverage ratio is below 2x, we'd be comfortable with the leverage ratio up to 3x given our high level of recurring revenue”
  • “When you think about openings and expansions, our fiscal 2012, I'd say there were probably about 20,000 new units coming on, 2013 at this point would, I'd say probably two Ohio properties plus one or two tracks, and maybe one of the Louisiana properties and Arizona you're at 20,000 units. Looking out to 2014, it's actually looking pretty well for openings and expansions with the remainder of the Ohio tracks. You could probably put in about 8,000 units, the new California tribal property at 2,500. So FY 2014 for us could be another year where you're looking at 15,000 to 20,000 new opening and expansions alone”
  • “In Mexico, we – there's been a little slowdown for us because they had moved so strongly to some Class III product a year or so ago. And then there was the sort of freezing up after some violence and some uncertainty in the market. That's starting to improve slowly”
  • IL VLT: “The 4,000 odd units we have sold now, I don't think it is front-end loaded; it is fairly even across the 24 months. And it's in fact the other way round, it may be actually light on the front-end because so far if you think about it about 350 establishments have been licensed and about 2,400 are pending, so still a long way to go there in terms of the units. And system connections, we have about 3,000 slot system connections that are signed up for systems and that's not complicated, that will start going live before the end of the calendar year, in fact in the next few weeks or so. And that should proceed in parallel to the game installations. One doesn't come in the way of the other at all.”
  • “We have the belief that our overall operating margin can continue to increase as we leverage revenue growth and margin against what should be a lower percent of SG&A against revenue over time. So, over the mid-term or so, we would hope to be able to get a couple more points in operating leverage”
  • “We expect our systems business to strengthen from this recently completed September quarter due to some of the visibility and some larger installs and also the September quarter can be seasonally slow for customers wanting to put a new system in during some peak season.”

GDP -0.1% in Q4

Takeaway: The advance GDP estimate for 4Q12 printed at -0.1% - the first negative growth quarter since 2Q09.

This note was originally published January 30, 2013 at 10:03 in Macro


Looking across the C + I + G + (E-I) componentry, the callout contrast is the strength between consumption and the weakness across the balance of the other constituents.  Personal consumption, which accounts for north of 70% of total GDP, accelerated sequentially for a net positive impact of 1.52% to real GDP.  The negative outlier was Government Consumption and Gross Investment which went from an outsized positive impact in 3Q12 ahead of the election (+.75% impact, highest since 3Q09) to a material drag, contributing a -1.33% impact to net GDP.


Net-net consumption accelerated, Investment and Net Exports moved to flat from an impact perspective and Government Consumption and Gross Investment served as an outsized drag on the quarter.  All-in, the negative headline print probably belies a more benign reality.  Housing continues to recover, employment trends remain positive, and the high frequency consumer data remains stable-to-better. 


Given these realities, does the market look through a rear-view 4Q GDP number and the negative influence of a government consumption component negatively impacted by odd comp dynamics?  More than likely. As such, we are sticking with our forward looking view that growth is stabilizing, which is validated by the strength in consumer consumption.


As Keith highlighted this morning, from a tactical investment perspective, domestic and global equities are moving to overbought and treasuries oversold, suggesting a near-term opportunity to book some gains and tighten up gross and net exposure a bit.  The current risk range for the S&P500 = 1492-1513


Ping us at if you want to dig deeper into this report.



GDP -0.1% in Q4 - GDP Component Contribution


GDP -0.1% in Q4 - GDP Componenet   Chg




With the inclusion of today’s GDP report, which came in in-line with our expectations for a trip to Quad #3 in 4Q (see chart below), our updated estimate range for 1Q is +1.8-2% YoY and +2-2.3% for full-year 2013.  The slightly lower handoff figure (i.e. 4Q reading) in the algorithm reduced these estimate ranges from +1.9-2.6% YoY and +2.3-2.6%, respectively.


What would get us to walk our estimates down from here (i.e. shift our expectations to the low end of our US growth risk range) would be a continued breakout in energy prices from current levels and a breakdown in the DXY through its 78.11 TAIL line of support. For now, however, an expanding yield spread (+29bps over the past month) augments our call for a move to Quad #1 here in 1Q13 and likely in 2Q13 as well. Expectations around this marginal economic delta should continue to bode well for domestic equities with respect to the intermediate term.





Christian B. Drake

Senior Analyst 


Darius Dale

Senior Analyst




Retail Exchange Fees: Pass-Thru Potential LT Positive

Takeaway: US retailers could now require that consumers pay an extra 1-3% in interchange fees for using plastic. Near-term non-event. LT positive.

Be careful what you pay for. As of this past Sunday, retailers could pass credit card interchange fees to consumers. In 2010 Congress passed legislation that required the Federal Reserve Board to regulate debit card interchange fees, and there was a subsequent settlement in 2012 between Visa/Mastercard and major US retailers about the right to pass along these fees to consumers. The retailers won the right to protect their margin against escalating exchange fees.


Under the settlement, the retailers can pass what they pay to the credit card company along to the consumer, and they need to post signage at the cash register noting their policy. This only applies to credit cards, as debit cards are excluded from the settlement. Furthermore, there are ten states – including some of the biggest – that have laws banning this practice (California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma, and Texas).


This issue really has not gotten much press, which we think is due to the near uniform sentiment by retailers of all types that passing along fees is a bad way of doing business, and they don’t plan on doing so. One retailer equated the 2% exchange fee as being about the cost of utilities – which is pretty much the cost of doing business.


We have no reason to doubt the intentions of these retailers, but we’d critically ask the question – if they have no intent on passing through the fees, then why fight with federal regulators for the right to do so? Our sense is that all it takes is for one or two big retailers to begin to pass through the fees successfully, and others will follow en masse.


Keep in mind that small merchants already do a version of this (and have for a while now), i.e. gas stations typically charge a 10 cent premium for payment by card vs. cash, and many small retailers will post minimum transaction amounts in order to use credit cards.


All in, it’s a slight positive for retail. The size of consumers’ total purchase might not grow if they begin to pay interchange fees, but they’d be directly funding margin with 100% of the fee, which might be too tempting to pass up for a retailer.  Alternatively, retailers could undercut one another by advertising prices that are lower by the amount of the fee and then recoup it at the point of sale.


Again, this is a non-event today. But is an issue to keep an eye on and one that is sure to develop over time. 


Retail Exchange Fees: Pass-Thru Potential LT Positive - checkout


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