As you already now, May gross gaming revenues (GGR) increased only 9% YoY.  Hold was not a factor but lower than expected VIP volumes were the main culprit to the soft month.  We believe the timing shift of the Dragon Boat Festival and May’s rainy weather played a role but not enough to explain the shortfall.  June looks like another high single digit growth month to us – probably not a catalyst for share appreciation.


The bad news is that VIP revenues grew only 2%.  May VIP hold percentage of 2.93% (adjusted for direct play), compared with 2.90% last May.  The good news is that Mass performed exceptionally well, up 36% YoY and 6% MoM.  Galaxy was the big winner, massively outperforming the market on VIP (despite near normal hold) and a stable mass business.  On the other hand, MGM massively underperformed across their VIP, Mass and Slots businesses.


Here are some takeaways:



  • Mass revenues grew 36%, slightly below the average growth for the last 12 months.
  • VIP Rolling Chip (RC) volume and VIP revenues both decreased 2%
  • RC volume grew at the slowest rate since October 2012 when RC volume contracted 5
  • Slot revenue increased 6%, up from +4% in April but below the 9% average for the last 12 months.
  • Assuming consistent hold in both periods, GGR would’ve grown 9% YoY




  • GGR grew 21% YoY, up from 13% in April but slower than the 32% growth for the last 12 months.
  • VIP revenues increased 4% and RC dropped 13% YoY as compared to VIP revenue growth of 18% and RC growth of 15% for the last 12 months.
  • The LVS properties held just above normal on VIP
  • Mass grew 45%, the highest of any gaming operator during May
  • Market share was above trend in Mass and Rolling Chip volume



  • GGR dropped by 4%, significantly slower than the 14% growth for the last 12 months.
  • VIP revenues decreased 16% and RC dropped 17% YoY as compared to VIP revenue growth of 11% and RC volume growth of 16% for the last 12 months.
  • The RC contraction of 17% has not occurred since the 22% contraction in March 2013 and the 18% drop in July 2012.
  • WYNN held high on VIP
  • Mass growth was 36%
  • Slot revenue grew 29%, the market leader in May



  • YoY GGR growth dropped a shocking 11%, a rate not seen since the 18% contraction in October 2012
  • VIP revenues decreased 22% also the lowest since October 2012
  • RC declined 15%.  MGM’s RC business could be under more pressure if Wynn Macau decides to get more aggressive on commissions advancement to junkets
  • MGM held low in VIP
  • Mass growth was 31%
  • Slot revenue dropped 11%, the worst performance among the operators.
  • The weak VIP business pushed market share below recent trend



  • GGR dropped 1% YoY and follows April’s 4% decline, a two consecutive month contraction not seen since July and August 2012.
  • VIP revenues contracted 17%, due to weakness at Altira
  • Held low on VIP
  • RC volume contracted 23% following April’s down 21% – we’ve been hearing decreased play from “casual” junkets
  • Mass grew 35%, just below the market



  • GGR increased 24% YoY
  • VIP revenues increased 25%, based on market leading results from Galaxy Macau
  • Rolling chip volume increased a massive 30%, again driven by Galaxy Macau
  • VIP hold was almost normal
  • Mass grew 28% - as compared to 37% for the last 12 months.
  • Slot revenues dropped 8%


LEISURE LETTER (06/05/2014)

Tickers:  ALL.AX, IGT, HST


  • Thurs June 5: REITWeek, New York, NY
  • Thurs June 5: Russian Gaming Week 2014
  • Thurs June 5 - Todd in Vegas for slot suppliers mgmt meetings
  • Thurs June 5 - 4:30 pm MTN earnings
  • Mon June 9 - HTZ earnings
  • Tues June 10 - HLT lock-up expiration
  • Tues June 10 - Thurs June 12: Bally Systems User Conference
    Mohegan Sun
  • Thurs June 12 - Blackstone Investor Day 8:00 am


Aristocrat – installed their Oasis 130 Casino Management System, which replaced a competitors system, at the Mono Wind Casino located in Auberry, California.

Takeaway: Good win for Aristocrat, likely a loss for IGT


BYI – announced it has entered into a definitive agreement to acquire Dragonplay Ltd., a leading online social casino company headquartered in Tel Aviv, Israel, with top-grossing applications for Android, as well as a significant presence on Facebook and Apple iOS. Total consideration includes approximately $51 million in upfront cash, plus the amount of net working capital, payable to Dragonplay’s shareholders in exchange for all of the issued and outstanding equity, and approximately $49 million in additional earn-out consideration and employee retention payments over the next 18 months subject to Dragonplay meeting certain financial performance targets. Bally expects to fund the transaction from cash on hand and proceeds from its revolving credit facility.

Takeaway: We now know why BYI recently increased the size of its corporate credit facility.

IGT – the Company's DoubleDown Casino launched a soccer-themed slot game, Final Goal, featuring a customizable game experience, where players select their favorite soccer team based on one of sixteen country flags, fifteen paylines, a soccer-themed bonus and scatter symbols, and 3x5 spinning reels in the bonus spins game. Players can collect free spins and multipliers by shooting at the goal line. The penalty kick bonus game is triggered by spinning three, four, or five bonus symbols.

Takeaway: DoubleDown continues to increase content and deepen its market reach. Dare we say that DD is turning out to be a solid acquisition. 


Bloomberry - Manila's Bloomberry in talks with Japan firm on casino tie-up (Reuters)

According to CEO Enrique Razon, Bloomberry is in talks with a potential Japanese partner for a license if and when a Japanese gambling law is passed. for what could be the company's maiden overseas venture.  


Razon also said the company is studying opportunities in Macau, which may open application for new licenses in 2020.  The company is also considering further expanding its Solaire casino-resort in Manila to include three new hotel towers with 1,500 rooms and a 15,000-seat events area.  The planned expansion, which is subject to market demand, would raise Solaire's gaming tables to 650 from 360 and nearly double its electronic gaming machines to 3,000, making it the largest integrated resort worldwide.  Solaire is set to open in November its $400 million expansion featuring more VIP gaming sections and a mall, theater and another hotel, with the extension having a total gross floor area of 200,000 square metres.

The company will add 1,300 staff for its new phase, as it expects to increase its share of foreign junket operators to 70% given the opening.

Takeaway: Another player in Japan.  By expanding, Solaire is preparing for CoD Manila's entry during Oct Golden Week.


HST – is asking Chicago for a zoning amendment that would allow development of 750,000 square feet of new office space and a 3,000-space parking garage, on owned land adjacent to the Chicago Marriott O'Hare. Host's plans show three office buildings of up to 18 floors surrounding the parking structure, all of which would be built along the west side of the hotel. Last year, Host completed a $40 million renovation of the Chicago Marriott O'Hare, in which it eliminated 211 rooms.  An outdated portion of the existing hotel likely would be razed to create extra land for the office development, according local real estate contacts. A Host predecessor acquired the Chicago Marriott O'Hare in 1997 as part of a six-hotel, 3,054-room portfolio deal, paying a total of about $240 million for the portfolio properties.

Takeaway: The surburban office vacancy rate in the O'Hare submarket was 24.5% during Q1 2014.  So, unless this all three of the proposed office buildings are build-to-suit rather than speculative development, we are skeptical of the immediate ROIC to shareholders. 


LEISURE LETTER (06/05/2014) - Host Ohare Marriott

Image: Google Maps 


Insider Transactions:

MAR – J W. Marriott, Jr. sold 20,834 shares of stock on Monday, June 2nd at an average price of $61.38 and now owns 188,229 shares.


SHO – CEO Kenneth Edward Cruse purchased 4,000 shares of stock on Tuesday, June 3rd at an average price of $14.79 and now owns 671,430 shares.


WYN – VP Nicola Rossi sold 4,000 shares of the stock on Monday, June 2nd at an average price of $74.10 and now owns 11,069 shares.


RCL – COO Adam M. Goldstein sold 4,869 shares on Monday, June 2nd at an average price of $55.14 and now owns 370,724 shares.


Macau Money Laundering(SCMP) a story about the illegal cash transfer business directly reports ICBC and Bank of China were involved in the acceptance of illegal cross border dirty money on behalf of Macau based merchants.  The illegal cross border cash transfer transactions violate three laws:  1) related to the use of mobile payment devices not registered in Macau but in the mainland; 2) when a third-party company in the mainland clears the transaction; 3) when a state-run banks give “the green light” and accept funds coming from the mainland through these POS machines.

Takeaway: Now we know the reason for the crackdown on the illegal handheld devices. 


Macau Smoking Ban – the Macau Government released dispatch 141/2014 which outline the new smoking ban rules.  The dispatch indicates gaming operators can ask the Gaming Inspection and Coordination Bureau and the Health Bureau for authorization to establish smoking lounges "in areas that are of limited access to specific games and gamblers".   However, the Gaming Inspection and Coordination Bureau has yet to define "limited access" and thus it is unclear if this terminology applies to VIP as well as premium mass gaming areas. The smoking ban will begin on October 6, after October's Golden Week holiday.

Takeaway: The burden falls back on the Gaming Inspection and Coordination Bureau to decide if premium mass will be non-smoking.


Hong Kong Gaming Boat to be sold – Macau casino investor Success Universe Group Ltd has indicated it will sell its 55% interest in M.V. Macau Success, a casino cruise ship that operates out of Hong Kong, due to rising costs. The cruise ship business posted a profit of approximately HK$0.5 million in 2013 compared with approximately HK$2.9 million in 2012. The M.V. Macau Success is a nine-deck cruise ship, operating on a daily basis from Hong Kong to international waters. The cruise ship was built in 1974 and motors under a Bahamian flag. It features a casino and entertainment facilities, with a total capacity for 660 people and more than 200 passenger rooms.

Takeaway:  Old, costly ship being sold


Outbound Chinese Tourism – Business Monitor International (BMI) forecasts Chinese tourists will rise 50% between 2014 and 2018, growing at a rate of 10% per year. The actual and already huge market of 88.1 million mainland tourists traveling abroad will stretch to 122.5 million in 2018. BMI forecasts In 2018, Hong Kong will receive more than 60 million mainland tourists, 50% more than the 41.6 million estimated for this year.  Hong Kong will capture more than half of all Chinese tourists traveling outside the country in 2018, while Macau will attract 22 million mainlanders in the next five years, around 20% of all the Chinese outbound traveling market.

Takeaway: Strong long term trends for the mass business in Macau. 


Only 1% of norovirus outbreaks are on cruise ships, says CDC (Travel Weekly)

According to the Centers for Disease Control and Prevention (CDC), norovirus outbreaks most often makes headlines when they happen on cruise ships, but these only account for about 1% of all reported outbreaks.

Takeaway:  Does CNN know about this?


China GDP – the IMF cut its 2015 economic growth forecast for China to about 7%, but urged authorities to avoid further stimulus measures and concentrate on curtailing financial risks instead


China Macro – HSBC services PMI 50.7 in May vs April's 51.4, the May result was the lowest in four months


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

New Best Idea: Short DFRG

We are adding SHORT Del Frisco’s Restaurant Group (DFRG) to our Hedgeye Best Ideas list.


DFRG develops, owns and operates three fine dining restaurants: Del Frisco’s Double Eagle Steak House, Sullivan’s Steakhouse, and Del Frisco’s Grille.  The full-service steakhouse company currently operates 40 restaurants in 20 states and primarily caters to the high end consumer.  The stock is up 36.8% over the last 6 months.


DFRG is a high-conviction short given slowing trends, concerns over the core business, rising commodity costs, positive sentiment, valuation, and more.  Our sum-of-the-parts analysis suggests significant downside.


We will hold a conference call Thursday, June 12th at 11am EST to discuss the key points of our thesis and field questions.  Hedgeye Restaurants subscribers will receive both the report and conference call dial-in information on Thursday morning.


For more details email



Howard Penney

Managing Director


Fred Masotta


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.

One-Way Central Planning Train

Client Talking Points


$1.35 is my long-term TAIL risk line for the EUR/USD. A dovish Fed meeting is next.


Down Euro move into the news = Up Dollar, Down Commodities (for a whopping 2.5% one-month correction in the CRB Index from its +12% year-to-date highs). EUR/USD holding $1.35 = buy more commodity. #InflationAccelerating.


The yield had its dead cat bounce to 2.59%, but remains below all lines of Hedgeye resistance so I’d be buying A) more inflation protection (TIP) and B) moar slow-growth bonds (TLT) or C) anything that looks like a bond.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.  

Three for the Road


“The storytelling on why we need moarrr central-planning-cowbell is so absurd now that it’s funny.” @KeithMcCullough


"What you lack in talent can be made up with desire, hustle and giving 110% all the time." – Don Zimmer, the legendary baseball great who passed away last night at the age of 83.


4:36, the time in overtime that the LA Kings' Justin Williams flicked past goaltender Henrik Lundqvist to give the Kings a 3-2 victory over the New York Rangers in Game 1 of the Stanley Cup Final at Staples Center on Wednesday night. (Los Angeles Times)

Retail Callouts (6/5): JCREW, PVH, ASOS, COST, VNCE, Breach Survey

Takeaway: JCREW miss calls out why Drexler was trying to sell. Lot's of hope in PVH's guidance. COST/hi-end crushes it again. Survey on data breaches.



Key Call Out Of The Day Belongs to a Company That's Not Even Public -- J.CREW


J CREW 1Q14 Earnings

"Revenues increased 5% to $592.0 million, with comparable company sales decreasing 2%."

"Gross margin was 38.7% compared to 44.7% in the first quarter last year."

Selling, general and administrative expenses were $195.2 million, or 33.0% of revenues, compared to $178.4 million, or 31.6% of revenues in the first quarter last year.

Operating income was $34.0 million, or 5.7% of revenues, compared to $73.6 million, or 13.1% of revenues, in the first quarter last year.


Takeaway:  This quarter was a disaster for J Crew. If you didn't know why Mickey Drexler was trying to unload this company to Fast Retailing four months ago, now you know. If you didn't know why Fast Retailing pulled out of the bidding a month later, now you know that too. This is a serious ding to Drexler's otherwise  bullet-proof credibility.



PVH - 1Q14 Earnings

Takeaway: The company's Heritage brands were the big reason behind the EPS shortfall and guide down. The big question in our minds is how PVH gets to such an aggressive (20%+) ramp in EPS growth for the remainder of the year after being down 23% in the first quarter. Inventories look like they are in decent shape, and we just saw the fourth consecutive quarter of margin contraction, which PVH will now start to anniversary. That's at least not bearish. But for a company with this little momentum, we're extremely cautious about the 'easy margin compare' game. There's no fundamental reason why margins can't be down again and again, and again.


Retail Callouts (6/5): JCREW, PVH, ASOS, COST, VNCE, Breach Survey  - pvhsigma



COST - Costco Wholesale Corporation Reports May Sales Results



"Inflation in gasoline prices had a positive impact on comparable sales for the four-week period, but a negative impact for the thirty-nine week period; foreign currencies had a negative impact for both periods. Excluding these effects, comparable sales were as follows:"


Retail Callouts (6/5): JCREW, PVH, ASOS, COST, VNCE, Breach Survey  - cost


Takeaway:  COST just put up good 3Q numbers a week ago, so today's news is no surprise. But the fact is that the headline beat again -- 6% comp vs 4.5% expectations.  If anything, this is another sign that the high-end consumer is doing just fine -- in start contrast to the WMT's and TGT's of the world. Yes, COST is hi-end, even though so many people wrongly lump it in with WMT. COST average customer income is $100k.


VNCE - 1Q14 Earnings

- Net Sales increased 32.4%

- Operating Income increased 174%

- Diluted EPS increased to $0.04

- Company raises guidance for fiscal 2014


Takeaway: Good numbers out of VNCE. But truth be told, 6 months out of the gate it should be crushing expectations.  This is hardly a KORS-like trajectory. That might be a tough one to compare it to, but when you come racing out of the IPO gate, trade at a 28x p/e all while selling $300 silk blouses, you'd better be outcomping Costco by more than 500bp.




ASOS - Asos Warns on Profit



Shares in Asos PLC dropped by more than 40% in early trading Thursday after the online fashion retailer warned full-year profit would fall short of forecasts because of the strong British pound, higher promotional activity and infrastructure investments.

"In an unscheduled trading statement, Asos reduced its [EBIT] guidance to 4.5% from 6.5% for the current financial year after the strong pound resulted in a slowdown in international sales growth to 17%..."

"Australia was the company's biggest international territory six months ago but now has fallen to third place, with about 8% of total sales. International retail sales account for 62% of total sales. Total retail sales increased by 25%, with U.K. sales up 43%, in the period."

"The strong pound meant that customers in some territories have faced price increases of more than 25%, and the company said it used promotions to try offset the worst of it."


SKX - Skechers Signs Matt Kuchar for GoGolf Line



"Seven-time PGA Tour winner Matt Kuchar will be the face of the GoGolf line, Manhattan Beach, Calif.-based Skechers USA Inc. announced today."

"Kuchar, who is currently ranked fifth in the world, will have a signature shoe line and will represent the brand in global TV, print, outdoor and digital ads under the multiyear agreement."


Alibaba - Alibaba Buys Half of Soccer Team



"E-commerce giant Alibaba Group said Thursday it has bought a 50 percent stake in China's reigning soccer champions Guangzhou Evergrande Football Club for approximately 1.2 billion yuan, or about $192 million, diversifying its investment portfolio beyond retail and logistics."


VNCE - Vince Names Natalie Ratabesi Creative Director



"Natalie Ratabesi, who stepped down as creative director of Philosophy last month, has been tapped as creative director of women’s design at Vince, the contemporary sportswear firm. She begins June 16 and will relocate from Milan to Vince’s design studio in Los Angeles."

"Ratabesi’s initial input will be seen in the women’s pre-fall 2015 season."

"Prior to becoming creative director of Philosophy in October 2012, Ratabesi held key design roles at houses including Christian Dior under John Galliano, Oscar de la Renta, Gucci and Ralph Lauren, where she did two tours and became senior creative director."


AMZN, WMT - 24% of Americans stopped buying online because of breaches



"A USA TODAY survey finds that almost a quarter of Americans have at least temporarily stopped buying online because of security concerns."

"A full 24% of those surveyed said they had stopped buying anything online in recent weeks because they were concerned about the safety of information they might put online."

"Most surprisingly, 56% said they had cut back on the number of Internet sites they used and were only going to large, well-known companies they were confident were safe."

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