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In preparation for MGM's F2Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.



  • "CityCenter's overall leverage is just above 5 times. Tremendous progress in the improvement of the capital structure at that joint venture."


  • "Remains on schedule for opening in the first half of 2016."


  • "In Maryland, we have been preparing our RFP for Prince George's County, which we will submit by the end of next week." 
  • "In Massachusetts, we are honored by Mayor Sarno's confidence in selecting MGM to bring a world-class urban resort to Springfield. This is an important milestone in the process as the project now seeks City Council approval after which a referendum is possible as early as July, and then ultimately, we will compete at the state level for the Western Region license."
  • "In Toronto, we and our partner, Cadillac Fairview, believe in our vision for an integrated resort in Toronto and we continue to work towards that development opportunity."


  • "Visitation to Las Vegas remained strong and macro trends are improving here helping to drive the recovery."
  • "It appears to us that Las Vegas, the market hit hardest by the recession, is nicely recovering and that its performance will likely outstrip the existing regional markets for the foreseeable future."
  • "Our luxury properties continue to lead the way in the market, driven by increased convention room nights and the continued success of the high-end casino business."
  • "Organizational changes were made to streamline international and national marketing teams to better service our customers and drive profitability."


  • "Room revenues and ADRs increased by about 2% in the quarter. While occupancy was down slightly, occupied room nights increased by 1% at our Strip properties as the remodeled rooms at the MGM Grand are now on line."
  • "We are seeing strong returns on our room remodel investments as evidenced by Bellagio and MGM Grand where we were able to maintain high occupancy levels and drive increased room rates."
  • "We always knew the second quarter would be a little bit easier comp."


  •  "Looking forward at the second quarter, we expect a strong convention calendar, which will drive RevPAR to be up approximately 2% year over year."
  • "The convention business in Las Vegas this year will be okay. It won't be great citywide, but next year is a big year citywide. So, when you have the kind of citywides we're predicting in 2014, that will accrue to the benefit of, of course, Mandalay, but also to the properties that need Mandalay to have that business Luxor, Excalibur and also because of the LVCBA Circus Circus. So the cores this year are doing well, but I would expect next year with a better convention business citywide that they will do better."
  • "On the convention side, of course, our leisure properties with significant convention space mainly sold out in peak season have a much easier time at raising rates."


  • "MGM China also put in place a regular dividend distribution policy for up to 35% of its annual profits to be paid semi-annually. The board will also consider, going forward, special dividends from time to time."


  • "Our wholly-owned domestic CapEx guidance for the year remains at roughly $350 million, and that includes the amounts for this year of the recently announced projects at Monte Carlo and New York-New York.  We expect corporate expense to continue to be in the $40 million to $45 million range per quarter and our stock compensation and depreciation expense in the second quarter is estimated to be consistent with the first quarter. We estimate that our gross interest expense for the second quarter will be approximately $220 million, which includes about $7 million in interest at MGM China and $8 million in non-cash amortization expense."


  • "We continue to see growth in the food and beverage with a very strong quarter in catering and banquets driven by growth in the convention segment and recent dining enhancements to the property such as Javier's Mexican restaurant."


  • "Vdara's EBITDA continues to improve as occupancy grows and is now approximately 86%. We are also finalizing construction plans to convert the Silk Road restaurant space into approximately 5,000 square feet of additional meeting and convention space. And we expect this to drive both occupancy and rate with completion scheduled for the fourth quarter of this year."


  • "We've actually seen in the last few months some pickup particularly in the remaining Mandarin inventory in terms of sales."


  • "We're encouraged to see not only our premium area such as our supreme and platinum lounges continue to perform well but also our general main floor product produced record results."


  • "The seat capacities and especially in the summer is going to be up a few percent, which is very positive for us. Anything looking beyond two to three months, it's really hard to look at since the airlines are constantly changing their programs."


July GGR grew 20% YoY to HK$28.63 billion (US$ 3.69 billion).  Volumes were the driver of the strength and all segments performed well.  Mass, VIP, and slot revenues increased 32%, 16%, and 11%, respectively.  VIP hold percentage was normal versus slightly below normal hold percentage in July 2012.    We estimate that including direct play, VIP hold was 3.02% versus a normalized 3.00%.  With normal VIP hold in both periods, GGR growth would have been 17%.


Here is the detail:




Total table revenue grew 20% YoY.  Mass market growth continued its streak of around 30% growth rate, up 32% in July. VIP volume rose 12% while VIP revenue gained 16%.



Table win grew 28%, lead by 96% growth at SCC.  Mass revs remained strong at 43% while VIP RC grew 15%.  Including direct play, we estimate that LVS held at 3.4% in July compared to 3.3% last July, assuming direct play of 16% vs. 22% last year.  

  • Sands climbed 9%
    • Mass grew a meager 3%, lowest growth since August 2012
    • VIP revenue rose 15%
    • Sands held at 3.4% vs 2.8% in the same period last year.  We assume 10% direct play in July vs 8% in July 2012.
    • Junket RC fell 9%
  • Venetian grew 7% 
    • Mass increased 21%
    • VIP revenue fell 5%
    • Junket VIP RC gained 8%
    • Assuming 28% direct play, hold was 3.3% compared to 3.7% in July 2012, assuming 30% direct play 
  • Four Seasons gained 14%
    • Mass revenue gained 30%
    • VIP revenue grew 11% but Junket VIP RC declined 10%. July hold (assuming 15% direct play) was 3.7% vs 3.0% in July 2012 when direct play was 16%.
  • Sands Cotai Central rocketed 96% higher
    • Mass jumped 183% to $104MM, a new monthly high 
    • VIP revenues grew 63% 
    • Junket RC volume of $4.3BN, up 64% YoY 
    • If we assume that direct play was 10%, hold would have been 3.4% 


MPEL gained 20% in table revenues.  Mass continued to be white-hot at 58% (1st in the market) while VIP growth was 7%. We estimate that MPEL held at 3.0% vs 2.9% last July.  Estimated direct play was 10%, in-line with last year.

  • Altira table revenues grew 4%.  Mass and VIP both rose 4% 
    • VIP RC declined 1%
    • We estimate that hold was 2.7%, compared to 2.5% in the prior year
  • CoD table revenues grew 26% YoY
    • Mass increased 67%, continuing its impressive streak of strong YoY double-digit gains since the property opened
    • VIP win grew 8% and RC grew 10%
    • Assuming a 14% direct play level, hold was 3.1% in July compared to 3.1% last year (assuming 15% direct play)


Wynn table revenues grew 8%, the worst performer in the market

  • VIP revenues grew 3%, while VIP RC increased 9% 
  • Wynn held at 2.8% (assuming direct play of 8%) vs 2.8% last July (assuming direct play of 10%)
  • Mass revenues gained 29%


MGM had the strongest performance in July, growing 32% in table revenues. 

  • We estimate that hold was 3.0% adjusted for direct play of 7% vs hold of 2.6% last year assuming 8% direct play
  • VIP RC and Mass grew 15% and 32%, respectively


Galaxy table revenues increased 26%.  VIP revenues gained 22% while RC volumes grew 8%.  On the bright side, Mass growth was strong at 40%.  Hold was 3.2% in July 2013 vs. 2.9% last year.

  • StarWorld table revenues rose 11%
    • Mass soared 69%
    • VIP gained 4%.  
    • Junket RC rose 7%
    • Hold was 3.2% vs 2.9% last year
  • Galaxy Macau's table revenues grew 43%
    • Mass had another great month at 40% growth
    • VIP rebounded strongly at 44% growth
    • Hold was 3.4% vs 2.7% last July


Total table revenue grew 12%, with mass and VIP growth of 11% and 13%, respectively. RC volume gained 17%.  SJM held at 2.8% vs 2.9% last year.



SEQUENTIAL MARKET SHARE - June to July (property specific details are for table share while company-wide statistics are calculated on total GGR, including slots):



Market share gained 240bps to 22.8%.  July’s share is above its 6-month average of 21.0% and better than its 2012 average share of 19.0%. 

  • Sands' share was flat at 3.5%.  For comparison purposes, 2012 share was 3.9% and 6M trailing average share was 3.2%.
    • Mass share dropped 30bps to 5.1%
    • VIP rev share was unchanged at 2.8%
    • RC share was 2.3%, -10bps MoM 
  • Venetian’s share gained 20bps to 8.0%.  2012 share was 7.9% and 6 month trailing share was 8.3%.
    • Mass share decreased 10bps to 13.4%
    • VIP share was unchanged at 5.4%
    • Junket RC share declined 20bps at 3.7%
  • FS gained gained 130bps to 3.5%.  This compares to 2012 share of 3.7% and 6M trailing average share of 2.9%.
    • VIP was rocketed 170bps higher to 4.4%
    • Mass share gained 70bps to 1.7%
    • Junket RC gained 20bps to 3.2%
  • Sands Cotai Central's table market share gained 110bps to 7.5%, which compares to the 6M trailing average share of 6.1%.
    • Mass share fell 20bps to 9.2%, a new high
    • VIP share climbed 150bps to 6.7%
    • Junket RC share fell 30bps to 5.7%


MPEL grew 60bps in share in July to 13.2%. Its 6 month trailing share is 14.3% and their 2012 share of 13.5%.  

  • Altira’s share fell 50bps to 3.3%, below its 6 month trailing and 2012 shares of 3.8%
    • Mass share gained 10bps to 1.2%
    • VIP lost 80bps to 4.2%
    • VIP RC share gained 40bps to 4.9%
  • CoD’s share fell 80bps to 9.8%, above the property’s 2012 and 6M trailing share of 9.4% and 10.3%, respectively.
    • Mass market share slipped 10bps to 12.3%
    • VIP share fell 120bps to 8.6%
    • RC share dropped 100bps to 7.7%


Wynn GGR share was 10.2%, flat MoM.  2012 average share was 11.9% and their 6M trailing average share has been 11.0%.

  • Mass share was gained 140bps to 7.7%
  • VIP share tumbled 70bps to 11.1%
  • Junket RC share gained 10bps to 12.1%


MGM’s market share dropped the most among its peers - 150bps to 9.5%, below its 6M and 2012 average of 9.9% 

  • Mass share tumbled 140bps to 6.6%
  • VIP share dropped 140bps to 10.5%
  • Junket RC slipped 130bps to 10.4%


Galaxy's share gained 60bps to 19.9%, above its 2012 average and 6-month average share of 19.0% and 18.5%, respectively

  • Galaxy Macau share improved 70bps to 11.6%
    • Mass share lost 30bps to 10.3%
    • VIP share improved 110bps to 12.2%
    • RC share gained 90bps to 11.6%
  • Starworld share was flat at 7.6%
    • Mass share gained 50bps to 4.1%
    • VIP share dropped 10bps to 9.2%
    • RC share gained 90bps to 9.9%


SJM share lost 10bps to 24.4%, below their 2012 average of 26.7% and their 6M trailing average of 25.3%

  • Mass market shares gained 10bps to 26.6%
  • VIP share lost 10bps to 24.4%
  • Junket RC share rose 60bps to 28.1%


Slot Revenue


Slot revenue grew 11% YoY to $154MM in June

  • GALAXY had the best YoY growth at 33% to $21MM
  • LVS grew 22% to $47MM
  • MPEL gained 11% to $26MM
  • MGM was flat at $25MM
  • WYNN dropped 2% to $21MM
  • SJM had the worst YoY slot performance, -5% to $14MM




This note was originally published July 24, 2013 at 13:11 in Restaurants

We remain bullish on Starbucks at current levels.



Despite the stock trading at the high end of its historical consensus forward earnings and cash flow multiples, we believe there is more upside in store.  The bullish factors we are focused on include rapid unit growth in China, expansion into new segments of the global food and beverage industry and a commodity tailwind that appears to be getting stronger.


There is still significant leverage in the SBUX business model.  In 3Q13, SBUX is estimated to report 23.3% EPS growth ($0.53) on 12.9% revenue growth.  In 2Q13, the company reported 27.5% EPS growth ($0.48) on 11.3% revenue growth.


One of the biggest risks to SBUX is sentiment, as SBUX is currently the highest ranked stock in the Hedgeye Sentiment Monitor.  In 2Q13 SBUX raised its full-year EPS guidance to a range of $2.12 to $2.18.  With sentiment high and expectations likely baked into estimates, it is difficult to envision a significant upside surprise in 3Q13 earnings.


Short-term trades are difficult to call from a fundamental perspective, but the bullish long-term TAIL remains the best play in the restaurant space.  



Sales Trends

Same-store sales are estimated to be 6.1%, -0.5% and 9.2% in the Americas, EMEA and China, respectively.  All regions, barring EMEA, are expected to have slowed on a 2-year basis. 


We suspect that the EMEA region will report a same-store sales number down 2-3% and will be one of the biggest disappointments of the quarter.


China is comparing against a significantly easier comparison (12%) in 3Q13 versus 2Q13 (18%).  Having no edge on what the sales trends look like in China, we would suspect that there is risk to the downside due to the current macro fundamentals in China.


Consensus expectations for same-store sales in the Americas are at 6.1%, which would be a slight sequential improvement over the 6.0% reported in 2Q13.  However, this would suggest the 2-year trend is slowing sequentially, by 40bps, to 6.6%.  All told, Starbucks’ Americas business is one of the best positioned chains in the restaurant industry. 


HEDGEYE – There are a number of initiatives under way that could drive additional traffic and check (technology, food and juice) and allow for above average sales momentum for the immediate-term. 








Operating margins improved 180bps in 2Q13 and the expectations are for them to improve another 120bps in 3Q13.  We suspect that the Americas will be the biggest driver of margin improvement, with operating leverage provided by the scale and synergies among digital, card, loyalty, mobile and social platforms.


HEDGEYE – We believe that the coffee tailwind will benefit SBUX for the next two fiscal years.





Food Cost Trends

The coffee tailwind is only three quarters old and we have no reason to believe SBUX will face any significant margin pressure from other commodities.


HEDGEYE – We suspect SBUX will realize a multiple year benefit from a decline in food costs.





Store Operating Expenses

SBUX continues to leverage the store operating expense line.  Strong top line momentum, in addition to an intense focus on store operations (labor and waste utilities management), is giving the company significant leverage on this line.


HEDGEYE – While nothing lasts forever, we believe that the strong traffic trends in the U.S. indicate that the customer experience remains very positive.






Highlighted in the chart below, 77.4% of analysts rate SBUX a Buy, 19.4% rate SBUX a Hold, and 3.2% rate SBUX a Sell.  Sell-side sentiment regarding the stock remains very high.  Further, short interest in the stock is only 1.18% of the float.


HEDGEYE – Sentiment is high, but where else can you turn to for global growth in the restaurant space?






At 15.0x EV/EBITDA SBUX is trading significantly above its QSR peer group trading at 12.4x EV/EBITDA.  With YUM’s ongoing issues and MCD facing a secular downturn, it is not surprising that SBUX is trading at a premium multiple to both companies. 


HEDGEYE – We suspect there could be a correction in valuation.  However, the most important question remains: How much upside is there to EPS?







Howard Penney

Managing Director



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European Banking Monitor: Broad Improvement

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .




European Financial CDS - Last week saw large improvements in French, Greek, Italian, and Spanish swaps. In fact, the only company that saw swaps rise was Sberbank of Russia, where swaps backed up another 14 bps to 238 bps. Sberbank swaps have become increasingly tethered to the outlook for oil prices.


European Banking Monitor: Broad Improvement - ww. banks


Sovereign CDS – Last week saw another across-the-board tightening in sovereign credit default swaps. Spain, Italy and Portugal led the improvement with declines of 15 bps, 12 bps and 11 bps, respectively. Ireland and France followed with 8 bps and 5 bps. The U.S., Germany and Japan were all tighter by 1-2 bps. 


European Banking Monitor: Broad Improvement - ww. cds 1


European Banking Monitor: Broad Improvement - ww. cds 2


European Banking Monitor: Broad Improvement - ww. cds 3


Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 13 bps.


European Banking Monitor: Broad Improvement - ww. euribor

Bullish: SP500 Levels, Refreshed

Takeaway: Bears will be bitter.



These market corrections are huge. I opened the day net short (4 LONGS, 5 SHORTS) because Friday’s close was immediate-term TRADE overbought. SPY dropped a whopping -0.35%, then rallied back to its all-time high on another bullish #GrowthAccelerating data point.


ISM non-manufacturing (i.e. the bulk of the US economy) accelerated to 56.0 in JUL vs 52.2 in JUN and some of the components within the report ripped (New Orders 57.7 vs 50.8 last month, and Business Acvivity 60.4! vs 51.7 last month). Bears will be bitter.


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


  1. Immediate-term TRADE resistance= 1714
  2. Immediate-term TRADE support = 1693
  3. Intermediate-term TREND support = 1630


Higher-lows, higher-highs, and accelerating US growth data looks just about right. Don’t forget that’s what Gold and Bonds have been discounting now all year. Growth as a style factor within equities is ripping too (Top25 EPS growers in our SP500 model = +7.3% m/m and +26.8% YTD).


Don’t fight the data – and keep moving out there,



Bullish: SP500 Levels, Refreshed - SPX

E-Cigs: What’s Big Tobacco Saying?

Takeaway: A brief review of Big Tobacco’s Q2 earnings call commentary on electronic cigarettes.

This note was originally published July 30, 2013 at 12:44 in Consumer Staples

Below we’ve collected Big Tobacco’s Q2 earnings call commentary on electronic cigarettes. A common thread among the big four (LO, RAI, MO, PM) is excitement to participate in the category, focused investment behind it, but cautious optimism on the runway for e-cigs as a category and general uncertainty on just how the FDA will regulate e-cigs in the future.


E-Cigs: What’s Big Tobacco Saying? - ecig


LO led the group in terms of bullish sentiment on claims of strong incidence of repeat trialing (conversion) of e-cigs, whereas the others suggested conversion rates still remain low or that it’s too early to measure results. 


Big Tobacco’s push into e-cigs began last year, and of the big four, LO was the first out of the gate purchasing Blu last April. As we show in the table below, both RAI and MO are launching their e-cig versions this month and next month, while PM commented that it may have ambitions to get in the market in 2016/17. 


E-Cigs: What’s Big Tobacco Saying? - hedpic


Lorillard’s e-cig Blu holds the number one dollar share of the total e-cig market at ~40% followed by NJOY (private) at ~30%. Across the xAOC channel (= all channels excluding convenience), the leading brands include: Blu (44.5%), FIN (20.6% share), Mistic (11.7% share), and NJOY (10.8% share).


U.S. e-cigs sales were projected at $150MM in 2011, $500MM in 2012 ($300MM across retail channels and $200MM over the internet), and are estimated to be around $1-2B in 2013. Currently e-cigs represent 1% or less of the portfolio of any Big Tobacco company, however we think there is a huge runway for converters in the $90B annual tobacco industry and believe e-cigs may be the first truly new consumer product in the markets in many years. They offer a compelling alternative to traditional cigarettes and offer the consumer a much different experience than a nicotine patch or gum.


The involvement of Big Tobacco in the category should continue to lend credibility to e-cigs and accelerate growth; we expect e-cigs to be margin-enhancing to the combined cigarette category for Big Tobacco and 2014 to be a breakout year for them, having tested the waters in 2013.




E-cigs were a hot topic on the call. LO reported that Blu achieved net sales of $57MM in the quarter with over a 40% retail market share. In the quarter it added its e-cigs to 30K retailers to bring its total to 110K retailers.


LO said Blu’s topline grew year-over-year, but was flat sequentially due to the rollout of its new rechargeable kit. LO only sold rechargeable Blu units in 2 of the 3 months out of the quarter as it took one month to draw-down inventory of its old model before the June 24th launch of its new model to replace the older version.


LO, unlike RAI or PM, was very bullish in its commentary on repeat purchases of its e-cig, and confident that although the new rechargeable kit is sold at break-even for the company, the razor-razor blade model of the kit-cartridge will prove profitable.  As of Q1 2013 (no update on the call), disposables accounted for 51% of its e-cig sales. We believe the company will be pushing to expand its more profitable rechargeable business at the expense of less profitable disposables, and we think the new rechargeable is a catalyst for this shift, and should be margin enhancing as distribution and investment behind the brand expand.


Feedback according to CEO Murray Kessler on e-cigs from retailers is very positive given the opportunity for higher margins versus other tobacco offerings.  On who is switching to e-cigs, Kessler offered up it’s typically users of less tar cigarettes. He added, this is another reason why he expects less cannibalization with its full-flavored menthols or even its new Newport non-menthol Golds.  




The company looks to continue to invest in its e-cig brand Vuse in the back half. It opened its earnings call by underling that it’s excited that Vuse is expanding into its first major market, Colorado. In the Q&A, the company noted that Vuse will grow to have a commanding presence in the e-cig market, already out in 500 retail stores in the first week, with a flavor profile it calls superior to its competitors.


On industry trends, it claims it’s too early to talk about the consumer response, but said retailers are extremely positive. It noted that while e-cigs have strong trialing, so far the conversion rate is low. RAI also said that while its products may have product displays at retail locations that are available to the customer, the actual product is located behind the counter and access is clerk-assisted.



Responding to questions if E-cig have any impact on cigarette volumes this quarter, management gave no color beyond that e-cigs are having some impact. It noted that they’re thinking about what the size is now and what it can be down the road and there is a lot that has yet to be resolved: what the regulatory structure could be, and depending on that, the impact on the size of the category. Further they’re not sure about what excise taxes may be.


On playing catch-up to LO with its MarkTen, the CEO said we're still in the early days in the e-vapor category, and he’s confident that MarkTen will be a strong player in the category.  He added that MO’s strategy remains to maximize the core business while taking appropriate steps forward with innovation. He said, in e-vapor category we want to learn our way in.


On marketing plans for MarkTen the CEO noted that because the products contain nicotine, they’ll put appropriate warnings on the product, which it will bear despite the fact that it is not currently regulated by the FDA. It’s target audience is adult smokers and vaporers, and noted that the company will take the appropriate steps so that the product doesn’t reach an unintended audience.




In the Q&A there were a couple questions on E-cigs. CFO Olczak kept his words brief but said that the market is difficult to estimate, and he doesn’t think it is more than 1% of the industry, which itself might be a high estimate. He believes demand and interest overall is much stronger in the U.S. than in Europe and that what’s distinguishing the category is its lower price points versus traditional cigs, and that the taste profiles don’t compare. He cannot size up if the category will be one with staying power, or one that is a fad. Finally, he hinted that PM could get involved in the market in 2016/17.


Matthew Hedrick
Senior Analyst 

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.48%
  • SHORT SIGNALS 78.35%