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Stanley Ho is being treated in intensive care following surgery to remove a blood clot.  A “business associate” is cited as saying that Mr. Ho had an accident at home and injured his head, but this has not been confirmed.  Family members continued to arrive at the hospital yesterday while the news also sent shares in his two flagship companies down.  Shun Tak Holdings fell 2.81% to HK$5.88 and SJM Holdings dropped by 4.54% to HK$3.15.


Restaurants - The EARNINGS Surge

Everybody and their brother know that restaurants are facing very easy comparisons in 4Q09 and that the stocks should react favorably in that environment.  This is consensus thinking at its best.


To see the magnitude of the improvement in profitability, we added together the bottoms up reported/expected earnings for the FSR sector and charted the sequential quarterly improvement.  As seen in the chart below, earnings have gotten better each quarter since 3Q08 on a YOY basis with the declines moderating through 2Q09.  Based on current street estimates, investors are expecting nearly 10% EPS growth for the FSR group in 3Q09 and about 38% growth in 4Q09.


Restaurants - The EARNINGS Surge - FSR Quarterly Earnings


As I pointed out in an earlier post, investors are reacting differently to 2Q09 earnings reports relative to what we saw following 1Q09 results.  In both quarters, we have seen continued sales weakness combined with significant cost cutting translate into big earnings surprises.  Following 1Q09 earnings reports, we saw a big positive move in most restaurant stocks whereas post 2Q results, we have seen stocks move lower (please refer to my July 24 post titled “Restaurants – Earnings Fatigue” for more details).  


Part of this varying stock performance can be attributed to the changing trend in top-line numbers from 1Q09 to 2Q09.  In 1Q09, most of the FSR companies experienced a significant improvement in comparable sales growth from 4Q08. In 2Q09, although earnings continued to get sequentially better, sales deteriorated somewhat from the prior quarter and on a 2-year average basis did not look much better than 4Q08.


Restaurants - The EARNINGS Surge - SSS 2 year average


Even with most FSR stocks declining on the day following their reporting 2Q09 numbers, FSR stocks, on average, are up 13% in the last month and 2% in the last week.  As we get through 2Q earnings, investors are looking past recent sales trends to 2H09 and consensus has built in significant sequential improvement in profitability for the FSR sector.  My guess would be that most analysts have “positive” same-store sales growth built into their earnings models for 4Q09.


What if that does not happen?  We will learn more as we hear more from the companies that have yet to report 2Q earnings but the early read on 3Q is less than positive.  For most companies thus far, sales slowed sequentially through the second quarter and have remained soft into the early part of 3Q.  In 2Q, some companies blamed sales weakness in May and June on the fact that we were lapping the stimulus money from 2008.  This stimulus impact decreases going forward.  For reference, same-store sales growth for the FSR group as measured by Malcolm Knapp was +0.6% in May 2008, -1.9% in June 2008 and -3.9% in July 2008.  The current comparable sales outlook for July is similar to that of June and that is on easier comparisons, which points to continued deterioration in 2-year average trends. 


Based on recent company commentary about July, positive comparable sales growth in 4Q09 is not a given.  In this type of environment, easy comparisons are no longer meaningful so current earnings expectations may be aggressive.  That being said, the significant cost cutting initiatives for the FSR group were implemented largely in 1Q09 and will benefit earnings for the balance of the year.  This combined with the expected commodity deflation will help to offset sales misses.  But, as we are seeing following 2Q09’s better than expected earnings, restaurant stocks will react also to top-line trends as comparable sales growth is a significant indicator of a concept’s health.  And, I am not sure positive same-store sales growth is in the cards for the balance of the year. 


Also, I’m going out on a limb and saying that the “cash for clunkers” car program is a net negative for the restaurant industry.  If consumers are taking on more debt to buy a new car than there is less money for them to spend elsewhere like eating out.

Monkey Bars: SP500 Levels, Refreshed...

Make no mistake, I can swing from these bars as willingly as the next monkey. As long as the Buck Burns, you’re going to see plenty other primates chase one another right on top of this high wire however. It’s getting crowded up here. If the US Dollar flinches to the upside, everything priced in those dollars will fall down.


Across durations, this market is bullish – but bullish is as bullish does, and for the first time in 12 trading days I can quantify a slowdown in price momentum within a 25-50 basis point range. Remember, tops are processes, not points – all we can do is monitor the math, real-time, in order to give us signals.


This morning, my macro model was spitting out an immediate term resistance level of 1,004. After today’s fits and starts, the rally monkeys can’t get me to go much higher. In the chart below I have outlined 1,005 as my new line if immediate term TRADE resistance (dotted red line).


Immediate term TRADE support bumps up to 985 (dotted green line). When/if we selloff, that’s your new yellow banana.


Keith R. McCullough
Chief Executive Officer


Monkey Bars: SP500 Levels, Refreshed...  - monkey12


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Picture of The Week: Timmy!

Poor Timmy is being re-regulated by the laws of his own gravity. He is who he is – a squirrel hunter on a mission to protect the legacy of De Investment Banking Club.


It’s not new news anymore, but the context of yesterday’s news that Timmy blew up on the ladies (Sheila Bair and Mary Shapiro) for not cooperating with the proposed rules of De Club is rather striking. Bair, in particular, doesn’t believe the Fed should have the almighty powers of everything oversight/risk management. Meanwhile Geithner wants to hurry through some reactive reforms and say he accomplished something before he gets fired.


Yes Timmy, President Obama is watching you – his approval ratings aren’t hitting new lows as the market hits new highs solely because of him.


The New Reality is that we have a Secretary of the US Treasury who has no qualms watching the Buck Burn (the US Dollar is hitting new lows again today). The long term credibility issues of the US Financial System continue to manifest in a currency price that’s marked-to-market every day. Market’s don’t lie; but some of these people really do.


Shame on you Timmy. You could learn a lot from Sheila Bair if you had it in you to listen while you hear.



Keith R. McCullough
Chief Executive Officer

(picture courtesy of Getty Images)

Picture of The Week: Timmy! - timmy

US Consumer: To Save, Or Not To Save...

This morning’s US Personal Consumption and Savings stats provided a little shock and awe to the “US Consumer is going away” camp’s short thesis. I shorted the XLY (Consumer Discretionary) ETF yesterday, so I am not particularly enthused with this report myself. Thankfully, I am not in the consensus “savings are going to be the death of this country” camp.


My call on the Savings rate being a headwind for consumer stocks was a 2007-2008 Macro Theme. It was born out of an expectation for the savings rate to go from zero to somewhere in the mid-single digits. Today, if you had a dime for every economist or strategist who is whining about the consumer saving every nickel they earn, you’d be earning a good keep. AFTER the last reported US Savings rate hit a 14-year high, you started hearing that clanging monkey sound of rear-view looking consensus.


Today, what is a monkey to do? Well, now that the savings rate just dropped from that 14-year high of 6.2% right back down to 4.6% I suppose you can hope no one saw the number. Or hope that sequential decelerations on the margin don’t matter to markets. Ah, but hope dear short selling friends is not an investment process.


In the chart below you’ll see the dangers associated with straight-lining consensus fear into a perpetuity. Yes, the American consumer should save more. Yes, they are saving more. Yes, they probably will save more than 5%. But in no way shape or form should you expect them to save at the rate they did in the 1970’s.


Why is that Mr Macro Monkey? Well, I think that’s pretty simple. If you give an American a ZERO rate on their savings. How much do you think they are going to save? While he wasn’t popular on Wall Street, at least Paul Volcker got the conservative American saver a return on their hard earned capital.


Some things are that simple. Give an American banker free moneys, he’ll pay himself a bonus. Teach Americans to save, and you’ll pay this country’s investment pipeline for life. Savings and Investment are interrelated. One perpetuates the other – ask the Chinese about that.



Keith R. McCullough
Chief Executive Officer


US Consumer: To Save, Or Not To Save...  - PS



Total table revenue in July grew 3-4% y-o-y, driven by 7% growth in the VIP market and a 5% decline in Mass. City of Dreams ramped nicely after a soft start and drove the market VIP growth.


Crown, MGM, and Galaxy were the clear winners this month and the only operators whose properties experienced positive table revenue growth.  Crown’s gains were a function of City of Dreams (CoD) ramping up and very high hold at CoD following disastrous hold in June. While both LVS and SJM where both down this month, at least SJM had weak hold to blame.



  • Mass tables were up 1% y-o-y. LVS continued to remove mass tables from all three of its properties this quarter.  We estimate that total mass tables at LVS declined 28% y-o-y
  • VIP tables up 17 y-o-y, primarily driven by the additions at Four Seasons, WYNN, CoD, MGM and somewhat offset by reductions at SJM


Y-o-Y Property Observations:

LVS table revenues down 10%

  • Sands was down 1%; Mass was down 38% offset by a 54% increase in VIP win
    • VIP RC decreased at Sands (~25%),  however hold comparisons were very favorable
    • Venetian saw decreases on 17%; Mass down 14% and VIP down 19.4%
      • VIP would have been worse  if not for better hold
      • Four Seasons had negative hold on its VIP RC in July (~1%), volumes were up slightly from June levels
      • Slot revenues increased 16%

Wynn table revenues were down 3%

  • Mass was down 17%, offset by a 2% increase in VIP
    • Driven by higher RC volume; note that WYNN has materially increased the # of VIP tables in 2009

Crown table revenue up 19%

  • Altira was down 53.6%, RC volumes were down over 45%
  • As speculated by the media, CoD had a big month, generating 129MM of revenues
    • $107MM came from VIP win (so much for being a mass property)
    • This huge July number is not likely to be repeated, as it appears that hold was indeed the primary driver. We estimate that high hold added approximately 37MM of revenues to the property

SJM table revenue was down 6%

  • Mass was up 10% while VIP was down 19%
    • VIP decline driven solely by weak hold, RC was up

Galaxy table revenue was up 17%

  • Starworld continued to perform well with table revenue up 31%, driven by a 47% increase in VIP revenues despite weaker hold

MGM table revenue was up 36%

  • Mass revenues were down 9%, but VIP revenue was up 52%, more than offsetting mass weakness


Market Share:

-LVS share dropped to 20.9% from 25.4% in June

  • Sands share remained consistent at 8.6%
  • Venetian & FS share dropped to 12.3%  from 16.8% in June
    • Most of the drop was driven by VIP down 5.5% to 9.9% from 15.25% in June

-WYNN share was up to 14.5% vs 13.7% last month

-Crown market share practically doubled to 17.8% due to the strong performance at CoD

-SJM share took a big 7% hit in July, ending at 23.8%, driven by a big drop off in VIP revenue

-Galaxy at 10.6% lost some share this month compared to 12.8% share last month

-MGM had a large gain of 400bps, as its share jumped to 12.4% - all driven by VIP revenue


JULY GOT HOTTER IN MACAU  - macau july total

JULY GOT HOTTER IN MACAU  - macau july mass

JULY GOT HOTTER IN MACAU  - macau july rc turnover

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