Low hold impacted Q2 results but hold-adjusted EBITDA was in-line with Street





  • Encouraged by VIP volumes but hold was low
  • 2Q VIP rolling volume +29%
  • Gained share in mass market
  • 2Q Mass gaming revenue +19%
  • S'pore tourist arrivals projected to slow in coming years
  • Monitoring situation in Japan

Q & A

  • Japan:  optimistic but the clarity is not there yet.  1st piece of legislation may be passed by end of 2013 - will know where the IR will be set up.  2nd piece of legislation that may be passed in 2014 will have more details on the structure/regulation on IR.
  • 2Q Hold-adjusted EBITDA:  S$364MM
  • Have earned more than enough to pay the interest on perpetual securities
  • Trade receivables didn't increase despite surge in VIP volume - expanded database and continued to gain loyalty from customers
  • July credit outlook:  no changes yet but still cautious
  • Severe haze impact on EBITDA:  not significant
  • 2Q GGR share:  47%
  • 2Q RC volume share:  49%
  • 2Q Mass/slot share:  47-48%
  • 2Q VIP win rate:  2.5%
  • Net gaming revenue breakout:  30% VIP; 70% mass
  • No increase in commissions
  • Long-term solution to labor issue:  increase productivity; govt helping them with new grants to help with the productivity
  • 3rd IMA:  has not impacted VIP business
  • Combined S'pore mass market:  no revenue growth;  with new regulations put in place, do not believe they will see growth in this segment
    • Local visitors will trend down
    • Overseas visitor growth slowing down
  • Cannot compare with Macau
  • Is S$17BN RC volume pace sustainable?  No guarantees.
  • Mass market revenue growth (QoQ) : low single digit (marginal)
  • Pachislot machine market: US$13 billion
  • Premium mass vs VIP:  VIP (+$100k players), premium mass ($20-100k players)
    • Increased promotional spending on premium mass (free hotel room, etc)
  • Cost cuts:  have reduced employee count by 800 since beginning of year; payroll is biggest expense item
  • Gross VIP/mass gaming revenue mix:  50/50
  • VIP volume in 2Q 2012:  leadership transition did not have an impact since it was in Q4 2012
  • USS ship:  10k average visitation ($83 average spend);  MLP 9k average visitation 
  • Korea:  need to open to locals in order to consider investment there
  • More cautious than Q1 outlook?  track record has always been extremely cautious.  Same level of caution in Q2. 
  • Long-term 15-16MM visitor goal:  thinks that number will come down
  • Mobile bookings increased 20% QoQ
  • Overall visitation has slowed but it hasn't been significant

Beware of Beijing

If you weren’t worried about China, now would be a good time to start. 


China has been the main driver of growth in the region, accounting for nearly 38% of all Asian GDP last year.  Now the Chinese government is acknowledging that growth is in a downturn, publicly forecasting growth in the 7% range – well below the double digits of only three years ago. 


Beware of Beijing - China Slowdown

China’s fixed capital formation grew like Topsy during the expansion years.  But many of these were empty make-work projects designed only to inflate GDP, leaving the country awash in unused airports, unfinished roads and office buildings – and in bank loans for these projects with no revenues.


China’s banks are a loudly ticking time bomb.  Their assets are bloated to an estimated 270% of GDP.  A huge percentage of those “assets” are already in creditor limbo, having secured roads and bridges and tunnels and airports to Nowhere.  China’s banks face a potential crisis as investment in major fixed asset projects declines amid eroding liquidity throughout the financial system.


Rising Rates should hit China’s markets too, pushing Asian rates higher.  This will clobber the region’s capital-intensive economies, many of which expanded capacity specifically to serve Chinese demand.  Rising rates – globally, but especially in the “safe haven” US Treasury market – coupled with a strong Dollar, should punish overvalued Asian currencies, sparking inflation, but in the context of economic decline.  This spells economic trouble, and the potential for social unrest.


Beware of Beijing - china1


Senior analyst and keen-eyed Asia watcher Darius Dale says Chinese policy makers are starting to appear less concerned about a possible domestic asset price bubble.  This could give them more flexibility in some kind of easy-money policy aimed at domestic stimulus.  Any such policy move is likely to be slow to be implemented, and much slower to take effect.  Dale cautions that massive debt rollovers generally sloweconomic growth by sucking liquidity out of the financial system, “diverting incremental credit from productive enterprises.”  Perhaps more crucial is the impact on a fragile economy, which can hamper the creation of a stable economic base by diverting liquidity away from marginally productive business, or from temporarily unproductive ones that are merely trying to weather the economic storm. 


Finally, any debt rollover China’s leaders may contemplate will almost surely not be offset by a significant increase in private savings.  Without China to fuel the engine, Asia’s economic racecar looks to be in for a long pit stop.


(Editor's note: This brief excerpt is from this weekend's Investing Ideas. This particular Hedgeye product is designed for savvy, longer-term investors looking for fresh, long-only stock ideas. Subscribers know immediately when one of our award-winning analysts uncovers a new idea or changes a current one. Please click here for more information.)

TSN - Great Quarter and Outlook

TSN reported impressive Q3 results, beating consensus EPS by $0.09 and recording record sales of $8.7B. The company is seeing the tailwinds of consumers that prefer the relative value of chicken versus other proteins; it has been able to pass on higher input costs to the consumer alongside higher chicken prices, which enhanced its chicken operating margin to 7% in the quarter.  


We like the stock on a pullback (it is up +4.2% intraday vs SPX -0.2%). Our quantitative set-up shows the stock in a bullish formation over the immediate term TRADE and intermediate term TREND durations.


TSN - Great Quarter and Outlook - vv. tyson


Alongside our call for a stronger USD, we see consumption continuing to pick up in the back half of the year, and expect the company’s food service business to benefit from acceleration in meals consumed away from home, especially around QSR promotions. We continue to like its ability to offset price swings through its diversity in protein offerings and geographic exposures and believe that its portfolio plays well in health and wellness trends (proteins over carbs). We expect solid Q4 performance from the company.


Guidance: maintains FY2014 sales of +3-4%, EPS +10%, and expects $500MM of lower feed costs.


TSN - Great Quarter and Outlook - food at home vs food away from home CPI


TSN - Great Quarter and Outlook - chicken breast


TSN - Great Quarter and Outlook - LEAN HOGS PRICES


TSN - Great Quarter and Outlook - live cattle prices


TSN - Great Quarter and Outlook - zzz. comm


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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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