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In preparation for MPEL's FQ4 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • "City of Dreams has led the way in the premium mass segment, as is clearly evident in the properties mass market table yield which remain well above those of our peers in Macau."


  • "Our premium direct actually grew from last year about 15% to the third quarter, roughly about 20% in COD total rolling volume basis. In fact, on a sequential basis, we grew more than 20% from the third quarter, which is quite substantial, in terms of our premium in-house business."


  • "On track to open in mid 2015."


  • "Preliminary works on Tower Five at City of Dreams which we expect to open sometime in late 2016, early 2017."


  • "Opening is anticipated at be around the middle of next year."
  • "Under PAGCOR's revised gaming guidelines, City of Dreams Manila can now operate up to 365 gaming tables from 242 previously and over 1,680 of each gaming machine and electronic table games."


  • "When 2015 rolls around and Galaxy Phase II and Studio City opens up, we are confident that we will be able to get the required labor that will be necessary to operate the property."


  • "By the end of third quarter September and particularly in October, we see some subsequent improvement on that segment, meaning that from share is actually getting back and also the productivity of per table is improving in that segment."
  • "We look at the liquidity in the last few quarters particularly this year. We only see some improvement in some liquidity."


  • "There is a solution in place that will really neutralize some of the tax issues. But I think they are working it through their government. But again, all four operators are unanimous and working together on this front. So they tell us that they hope to have a resolution sometime end of the year or sometime early next year. So it will be comfortably ahead of when we open our property."


  • "On a luck-adjusted basis, the margin at City of Dreams was up similar to the overall margin, up 200 basis points." "So we got the flow-through on that incremental mass market business as well as having a higher margin within the mass market business."
  • "There were nothing particularly special about our overhead this quarter or call outs. Our provision for bad debt was in line with our normal range."

LO Bulls—Volumes Miss But Outperforming the Industry

We remain bullish on LO over the medium term despite disappointing Q4 cigarette volume results (-1% vs the consensus’ estimate of +1.8%) and sequential slowing sales trends of its e-cig Blu business.  We however continue to expect LO’s profitability to be driven behind its category leadership in menthol and strong Newport brand loyalty, with continued outperformance on volume results versus the industry alongside competitive pricing.


What we Like:

In Q4 cigarette sales (excluding excise) were up +3.6% or +1.4% (including excise) with pricing partially offsetting volume declines.  In the quarter, LO’s -1% volume performance compared to the industry’s decline of -6.2% and on the year was up +0.5% vs -4% for the industry, outperformance that we expect to continue in 2014 as the industry braces for volume declines in the -3% to -4% range.


In the quarter Newport increased its domestic retail market share of 0.8 share points to 12.7%, and grew its domestic retail share of the menthol market to 39.9%, an increase of 1.6 share points compared to the fourth quarter of 2012. Newport’s market share gains continue to be strengthened by Newport menthol in its core geographies. Full-year for Newport volume was up +0.6%


What We Didn’t Like:

Slowing e-cigs trends remain a concern (more below) however we expect Blu to maintain its category leadership and offset losses with the strength of Newport menthol. 


Our Levels:

From a quantitative standpoint LO broke its intermediate term TREND line of $48.68 today. We’d be long term TAIL buyers of the stock closer to its support line of $45.09, or around 4% to 5% lower than its current price. While we see slightly more challenging Q1 gross margin and operating profit comparisons in Q1, Q2 moderates and both Q1 and Q2 have much easier sales comps. We'll look to its presentation next week at CAGNY (2/18 at 5:30pm EST) to get a better sense of its FY outlook. 


LO Bulls—Volumes Miss But Outperforming the Industry - vvv. lo



Update on E-Cigs:

Blu’s Q4 operating income was a net loss of -9MM on sales results that disappointed at $54MM versus $63MM last quarter and market share that dipped to 48% from 49% in Q3. CEO Murray Kessler chalked up the results as somewhat expected given the inventory build associated with adding 30K new stores (now at a peak of 130k stores nationally) selling at a lower price to encourage trialing and adoption of its new rechargeable unit.


Below is E-cig Q&A commentary from Kessler:

  • Outlook 2013 vs 2014: LO had a leading 47% market share of total e-cig industry sales of $1 billion (including internet sales) in 2013. Kessler says he’s bullish that the increase of competition (MO and RAI rolling out offerings in test markets late last year) will “lift all boats” in 2014. He remains committed to sell Blu at a break-even (or loss) over the next few years to win share and band loyalty to support what he says is the greatest harm reduction offering ever presented to smokers. He sees the continued expansion of new rechargeable kits flowing against dollar revenues in Q1 as well, and that e-cigs had about 1% negative impact on cigarette volume in 2013, which could rise slightly in 2014.
  • On Purchase Behavior: He’s encouraged by incidence of repeat purchasing which he expects to grow as earlier e-cig versions were not as good as what’s on the market now and the strategy remains growing the higher margin rechargeable business (razor/razorblade model). Blu’s cartridges account for 30% of sales.
  • On slight slowdown of e-cig category and what is driving it: says slowdown is the nature of a new category and lots of distribution building. He also said that things like vape shops and internet sales are creating a lot of sales that are not being measured/counted.
  • On indoor bans: Kessler sees the bans (most recently in NYC and Chicago) as draconian, however not impacting results as the measures don’t take effect until the April/mid-year time frame. He is unclear how the FDA will act, but said you’re starting to get knee-jerk reactions from the state and municipal level as regulation from the FDA is taking longer than previously expected. 
  • On deeming regulation: Kessler is unclear on the timing of regulation and says if you tax it like traditional tobacco, prevent marketing, and ban indoor use people will go back to traditional tobacco, which is completely backwards thinking in terms of public health.
  • On SKYCIG and international expansion: optimizing portfolio and rolling out in the UK before expanding to other European markets. Will be transitioning SKYCIG brand to Blu and wants to make Blu a global brand. Having purchased SKYCIG it is optimistic it can accelerate its international roll-out by mid-year, versus a much longer runway of 1-2 years had it decide to go at distribution alone without the SKYCIG acquisition.  

Matt Hedrick

[video] Growth Is Slowing (and How to Make Money Off of It)

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 80.46%
  • SHORT SIGNALS 78.35%


Takeaway: Our conviction in the direction of the JPY and Nikkei over the next 3-6M lags far behind our understanding of the [mixed] fundamentals.



  1. Our long-term view on Japan and the “Abenomics Trade” (short yen/long Nikkei) isn’t materially different from our previous strategy update; as such, long-term investors should remain involved in the trade.
  2. With respect to the intermediate-term (3-6M), however, we think any investors who have to meet performance targets on that duration should strongly consider the eight factors we outline below – the net of which leaves us uncomfortably neutral on the yen and Japanese equities with respect to that duration.
  3. Refer to the bullets and charts below for a comprehensive analysis of the aforementioned critical factors, which we think will drive the “Abenomics Trade” over the intermediate term.


The curse of the sell-side: feeling pressure to make a call when your conviction level would suggest otherwise. We don’t run money at Hedgeye, so our stress levels are likely consistently far lower than yours; when I do get stressed out, however, 9 times out of 10 it’s because of the aforementioned curse.


That pretty much sums up our view on Japan.


Right now our research and risk management processes are scoring the odds of a +5% correction on the USD/JPY cross vs. a +5% appreciation at about 50/50 on a 3-6M forward basis. I know, that’s super helpful… probably about as helpful as having a “hold” call on a stock or publishing a strategy note that says, “we’re cautious on the market”.


All told, our long-term view on Japan and the “Abenomics Trade” (short yen/long Nikkei) isn’t materially different from our previous strategy update; as such, long-term investors should remain involved in the trade.


With respect to the intermediate-term (3-6M), however, we think any investors who have to meet performance targets on that duration should strongly consider the following factors – the net of which leaves us uncomfortably neutral on the yen and Japanese equities with respect to that duration (please share any feedback if you disagree with our neutral bias).


RED = bearish for the JPY; GREEN = bullish for the JPY; BLACK = toss-up:


  1. Sentiment: The market is still net short the yen to the tune of 82k contracts (futures + options), but bearish sentiment has receded dramatically in recent weeks as evidenced by the trailing 1Y Z-Score moving from -3.4x in early DEC to +0.2x currently.
  2. Inflation Expectations: Breakeven rates continue to march higher across the curve, with the 2Y and 5Y tenors up +91bps MoM and +46bps MoM, respectively. In the context of the JPY strengthening +1.6% MoM vs. the USD, this signals to us that Kuroda has convinced the market that either the BoJ’s existing QQE program is large enough to meet its strategic economic objectives or that the bank will respond with enough incremental easing to accomplish its goals. Either outcome is bearish for the yen.
  3. “5% Monetary Math”: Lost in the context of the day-to-day news flow are the aforementioned strategic economic objectives the LDP has tasked the BoJ with achieving. In our view, which has been consistent since NOV ’12, such lofty targets all but ensure the BoJ will remain aggressively easy over the long term.
  4. GIP Fundamentals: Not new news, but we continue to think Japanese growth will slow throughout the balance of 1H14. To the extent that weighs on inflation expectations in Japan – which they haven’t yet – we would anticipate broad JPY strength as the market attempts to force the BoJ’s hand. Thus far, JAN data (e.g. slowing Services PMI, slowing Consumer Confidence, slowing Economy Watchers Surveys) suggests Japanese economic growth is, at best, flat sequentially in the YTD. Sequentially flat growth plus sequentially tough compares tend to equate to slowing YoY growth more often than not.
  5. Correlation Analysis: We are the lonely inflation hawks in the YTD and continue to trumpet our non-consensus expectation of continued commodity reflation. Our multi-duration, cross-asset correlation analysis suggests our #InflationAccelerating theme is explicitly bullish for the Japanese yen, provided historical relationships hold.
  6. US Dollar Index Quant Factoring: The DXY is bearish on our TREND and TAIL durations and Janet Yellen’s testimony yesterday did absolutely nothing to assuage our fears that the FOMC will eventually cease tapering and begin to lay the groundwork for incremental easing at some point over the intermediate term. In fact, the only things she said that could be remotely considered positive for the USD is that the bar is set high in terms of deviating from the existing strategy (i.e. they need to see a few months of #GrowthSlowing first) and that the recent EM-related market turmoil wasn’t material enough to alter their expectations for the US economy. Their models have US real GDP growth accelerating from +1.9% in 2013 to +3% in 2014. We are currently down at +2.3% for CY14 (and falling, depending on the timing and magnitude of incremental Policies to Inflate out of the Fed). We have little doubt that the Fed will stop tapering and contemplate easing in 2014; it’s just a matter of when.
  7. USD/JPY Quant Factoring: The dollar-yen cross is now below our TREND line; this is very new. It needs to hold, but if it does, mean reversion support is all the way down at 97.27. Again, we don’t have a strong level of conviction on it holding or not holding below the TREND line. As such, we are content to let the market determine our level of conviction here.
  8. Nikkei 225 Quant Factoring: The Japanese equity market is also now below our TREND line; this is somewhat of a recent phenomenon. The longer this quantitative setup holds as is, the more foreign selling pressure we think will be applied to the index. Since equity volatility tends to be inversely correlated to sentiment, we think domestic Japanese investors are likely to repatriate their foreign assets, at the margins, which is particularly bullish for the JPY. It’s worth reiterating that Japan has a net international investment/GDP ratio of +63%, which compares -24% for the US; Japanese investors have been financing global growth for decades via persistent current account surpluses.


















The ability to function amid elevated levels of cognitive dissonance remains one of the keys to effective risk management. Best of luck out there!




Darius Dale

Associate: Macro Team

$ZQK: Quiksilver Wins Gold!

Takeaway: Great news for Quicksilver in Sochi.



  • Quiksilver athelete, Iouri Podladtchikov, wins Gold in Men's Halfpipe.

$ZQK: Quiksilver Wins Gold! - zqk


Key Takeaway from Retail Analyst Brian McGough

That picture above is worth a thousand words (and considerably more in sales). The board raised the highest is screaming Quiksilver. Take a look at the brief video below I did on ZQK to get additional color on why we like the stock.


Join the Hedgeye Revolution.


In an effort to evaluate performance, we compare how the quarter measured up to previous management commentary and guidance



OVERALL:  BETTER - Certainly not better than consensus back in October when PNK reported Q3, Q4 margins were strong in the face of a difficult GGR environment.  EBITDA actually beat reduced Street margins and in-line with our recent Regional Reversal thesis, the bad was more than reflected in the stock.


PNK 4Q 2013 REPORT CARD - nk



  • MIXED:  January was a very tough month.  Negative impact on EBITDA could exceed more than the $2MM in December.  However, February is off to a better start.  Trip frequency continues to decline with spend patterns stable.  <$100 segment hit particularly hard.
  • PREVIOUSLY:  There is undoubtedly some headwinds regionally.



  • BETTER:  This property continues to set new EBITDA records due primarily to strong margins. Top line was also strong.
  • PREVIOUSLY:  "We experienced a very strong quarter at our L'Auberge Lake Charles property where all time records were set in cable drop, cable revenue and retail revenue. We completed the renovation of our standard hotel rooms and have received very favorable guest feedback."


  • BETTER:  230bps improvement in market share.  Cash revenue was up 15% and F&B was up 32% in Q4.
  • PREVIOUSLY:  "River City is significantly outperforming the market. Our new hotel opened on August 28, completing an $82 million project that included an event center and 1,600-space parking garage. Early results have been encouraging with guests who have stayed in the hotel showing a 37% increase when compared to prior to the hotel opening."


  • SAME:   Belterra Park's construction budget remains $209 million, and is scheduled to open on May 1, 2014 pending required regulatory approvals.
  • PREVIOUSLY:  "We are looking forward to the opening of our newest property, Belterra Park, in May of next year."


  • BETTER:  Market share increased 420bps from prior year and set a new EBITDA record.  There was strong local and regional play. PNK reduced marketing spend at the property and achieved 2nd highest REVPAR.
  • PREVIOUSLY:  "L'Auberge Baton Rouge continues to be a very good story, growing the market while achieving the highest market share since opening at 53.4% in the third quarter. We are seeing the momentum of strong trial continue with over 17,000 new mychoice members visiting the property for the first time in the third quarter. Hotel demand remains high with the property now producing the second highest RevPAR in the combined company. EBITDA margins also are improving as we cycled our first year anniversary in September."


  • SAME:  $26MM of synergies realized at the end of 2014.  Revenue synergies are expected in 1H 2014.  PNK expects to reach $40MM in total synergies by 1Q.
  • PREVIOUSLY:  "Over the course of the first 49 days of the integration, we have implemented synergies that will provide savings throughout our company in excess of $20 million per year. These implemented synergies fall into three categories: public company cost, labor and scale efficiencies.
  • Every day, we continue to make progress and feel very confident on our ability to execute to meaningfully exceed our public target of $40 million in synergies to be implemented by the end of next year.
  • We will be able to achieve that (rest of $20MM) without any revenue. And we will exceed it without any revenue.
  • There is revenue opportunity for the combined company. I mentioned a few, but I'll just elaborate on them, one being the hotel yield automated system. Currently, Ameristar does not have a sophisticated hotel yield system. A second opportunity will be the combining and the unveiling of a new loyalty program in the spring of next year. One other item that I would add to the revenue mix is legacy Pinnacle has an established national casino marketing infrastructure that includes branch offices in key cities like Chicago, Dallas, Houston and others as well as a pretty expansive network of independent reps. We're now going to take that same infrastructure and leverage it across the Ameristar portfolio."