We Called It: A Slowdown in Mass Business in Macau

Takeaway: Our gaming, lodging and leisure team predicted the deceleration in the mass business in Macau.

The Street’s bullish thesis of Mass in overdrive has grinded to a halt with the release of the July Macau detail.  Mass revenue grew only 17% year-on-year, well below our projection of +24% and consensus of +30%. 


The disappointing Mass performance is in line with our Mass Decelerating theme for the second half of the year but the slowdown is occurring faster than even we thought.


In this video from June 13, Gaming, Lodging and Leisure Sector Head Todd Jordan and Senior Analyst David Benz discuss the likelihood for a slowdown in the mass business.



Cartoon of the Day: Small Caps, Big Problems


Cartoon of the Day: Small Caps, Big Problems - Small cap cartoon 08.06.2014


The Russell 2000 continues to struggle.


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LEISURE LETTER (08/06/2014)

Tickers: CZR, WYNN, H, CCL, NCLH


  • Aug 6:
    • RLJ 2Q 10am:
  • Aug 7:
    • Revel Auction Proceedings
    • MPEL 2Q 8:30am: , pw: MPEL
  • Aug 8:
    • CHH 2Q 10am: , pw: 30848466
    • DRH 2Q 10am: , pw: 153358818
    • AHT 2Q 11am:
    • SHO 2Q 12n:
  • Aug 11:
    • HPT 2Q 1pm:
    • CZR 2Q 4:30pm: 844.231-441, pw: 55917191
    • STN 2Q 430pm
    • HTHT 2Q 9pm: , pw 7103 4558
  •  Aug 12:
    • HMIN 2Q 9pm: , pw HOME INNS


8156:HK – China Vanguard Group Ltd  is paying RMB17.5 million (US$2.8 million) for an electronic marketing and administrative platform, Trans Pacific Associates Ltd. Trans Pacific, a British Virgin Islands holding company, provides interactive electronic marketing and administrative services to the lottery industry in mainland China – including the China Welfare Lottery Center and the China Sports Lottery Administration Center. 


Separately, China Vanguard announced that an indirect non-wholly owned subsidiary had entered into a cooperative agreement with the Shandong Province Sports Lottery Administration Center. The deal covers provision of “lottery solution, sales distribution and other related services”. The company will be paid a percentage of total sales generated. Shandong province recorded RMB12.24 billion of Sports Lottery sales in 2013, ranking second amongst all provinces in mainland china, with a year-on-year growth rate of 15.5%.

Takeaway: A lot of growth in China lottery play.


CZR – The Horseshoe Casino on Russell Street in Baltimore is readying for its opening on August 26. The casino is located a few blocks from M&T Bank Stadium, and will have an outdoor tailgating area that will be used before Ravens games. The casino is expected to be ready for a pair of controlled demonstrations, on Monday, August 18, and Thursday, August 21, where invited guests will be permitted to gamble in the casino, with the proceeds going to charity. The benefiting charities have yet to be announced.

Takeaway: On schedule


WYNN – There’s a state bond bill sitting on Gov. Deval Patrick’s desk that will provide $50 million to clean up the old Monsanto site in Everett if Wynn can’t build a resort-style casino on the property. Revere residents will get the change to argue their points before the last public commission meeting on Monday, the day prior to Everett's final open meeting. The Massachusetts Gaming Commission will make its final decision on the license by September 12. 

Takeaway: Stay tuned.


H – a wholly owned Hyatt subsidiary has completed its acquisition of the 100% of the 210-room Park Hyatt New York for approximately $390 million, inclusive of pre-opening and related costs.  Park Hyatt New York is expected to open later this month.

Takeaway: As discussed during the company's recent earnings call.


CCL/NCLH (kiroTV) – two cruise ships return to Seattle with different issues

The Norwegian Pearl was turned around because of a passenger’s medical emergency.  The Grand Princess experienced a problem with an engine and returned to sit at Pier 91 for almost four hours.


Delays, delays, delays –

  • River Spirit Casino's Margaritaville in South Tulsa won't open until Fall 2016 because of a permit hold up
  • Baha Mar, the $3.5 billion resort, will delay its grand opening until late spring 2015, and will open in stages starting in December. The entire resort was originally to have opened in December.  Darron Cash, chairman of the Free National Movement, blamed the government for failing to implement new gaming laws as a reason for the delay. 
  • Construction on Dan Kehl’s Davenport casino has been delayed because of questionable wording on the project’s development agreement, the Quad City Times reported.

Takeaway:  It's not just Macau/Philippines encountering new project delays. 


South Korea Gaming Expansion (Reuters) Paradise City, a Paradise Co Ltd and Sega Sammy Holdings, joint project near South Korea's main Incheon airport should open in Q1 2017.  Groundbreaking is planned for October.  The joint venture plans to open the first phase of the resort with casino, hotel, shopping, entertainment and convention facilities, at a cost of about 1 trillion won. The phase will include 120 tables, 400 slot machines and 300 electronic gaming tables, small by the standards of mega-resorts elsewhere.  Paradise City will also rely on junket operators to bring in 20-30 percent of its business. 

Takeaway:  Little impact overall as long as S Korea does not ease the local play ban


Atlantic City New Casino Development – Discussions begin today on plans to build an 850-room casino-hotel and 3,000-space parking garage in the city’s Chelsea District.  A.C. Gateway Owner LLC, which is a joint project of Goldman Sachs Mortgage Co. and the real estate investment fund Arefin US Investment LLC, has revived a waterfront-development permit (called a CAFRA permit, for the Coastal Area Facility Review Act) which was originally opened when Hard Rock International attempted a development on the same parcel. The plan at issue calls for phased construction of a casino on land bounded by Pacific Avenue, Hartford Avenue, the Boardwalk and Roosevelt Avenue. A garage would be built on an adjacent tract, near O’Donnell Memorial Park.

Takeaway: We doubt such a new development will see the light of day.


Revel Proceedings – The bankruptcy court overseeing the Chapter 11 proceeding of Revel AC Inc. laid out the following timeline:

July 19: Letters of intent to bid were due

August 4: qualified bids submitted

August 7: an auction, if require

August 8: sale hearing according to a court order.

The auction would take place at the New York offices of the company’s counsel, White & Case, and the sale hearing at bankruptcy court in Camden, N.J.

Takeaway: Expect news very soon.


Trump Atlantic City – Donald Trump filed a lawsuit on Tuesday demanding that his name be stripped from the two Atlantic City casinos, the Trump Plaza and the Trump Taj Maha as Mr. Trump has not been involved in their operations for more than five years. Trump's lawsuit, filed in state Superior Court in Atlantic County, seeks a court order directing Trump Entertainment Resorts to immediately cure what it terms a breach of Trump's licensing agreement with the company or remove his name from the casinos and the company itself. Trump Plaza is set to close on September 16, 2014. 

Takeaway: Mr. Trump attempting to disassociate from the demise of Atlantic City and the properties which bear the Trump name.


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.

Retail Callouts (8/6): UA, NKE, FDO, DG, DLTR, URBN, JCP, TGT

Takeaway: Kevin Durant leaving Nike for UnderArmour is a lot for UA to handle. It validates our endorsement note from last night.



Thursday (8/7)

TUMI - Earnings Call: 8:30am

HSNI - Earnings Call: 9:00am

ADS - Earnings Call: 9:00am




UA, NKE  - NBA star Kevin Durant bails on Nike as Under Armour prepares huge offer



  • "The NBA's Most Valuable Player was supposed to be at Nike Inc.'s Oregon headquarters today. He didn't make the trip. That could be good news for Under Armour Inc., which reportedly is set to offer Oklahoma City forward Kevin Durant a lucrative endorsement deal. Durant's contract with Nike expired last week and he abruptly canceled a scheduled visit to Nike."
  • "Michael McBride, Under Armour's senior manager of sports marketing, today tweeted: 'Wish I could tell everyone what is going on today.' The tweet included a photo of some Under Armour-branded bottled water on a basketball court and a note pad that appeared to be set up for a presentation. It also included four hashtags: '#Future #GoodPeople #Recruiting #Partnerships.'"
  • "That tweet could be referring to anything. But it comes as the New York Daily News reports Baltimore-based Under Armour is ready to pay Durant up to $30 million a year for an endorsement deal. Durant's Nike contract paid him $60 million over seven years."


Retail Callouts (8/6): UA, NKE, FDO, DG, DLTR, URBN, JCP, TGT - chart1 8 6


Takeaway: We'll play along with the conspiracy theory on this one as it pairs nicely with the note we published last night looking at endorsement obligations for both NKE and UA (Link - CLICK HERE). If the KD deal closes with UA at the reported $30mil per, the company would have to generate an incremental ~$275mm in sales to make that margin accretive. Not outside of the realm of possibility, but consider two things. 1) In 2013 the KD grossed $175mm, 2nd only to the Lebron at $300mm. 2) That $275mm is a 75% premium to what UA has done in all of footwear over the past 12mnths. At NKE that's just 1.1%. It may be a brand builder for the company, but without a Nike-esque product and marketing engine behind KD, it's tough to see this benefiting margins in the short term.


FDO, DG, DLTR - Dollar General Said to Explore Family Dollar Bid



  • "Dollar General Corp. is weighing a bid for Family Dollar Stores Inc. that would challenge Dollar Tree Inc.’s $8.5 billion takeover of the discount retailer, people with knowledge of the matter said."


Takeaway: We could argue that a combined FDO/DG may generate more cost efficiencies on the product side due to the overlap in merchandise, and subsequent buying power with vendors. In addition, the real estate profile is more complementary for DG/FDO than many might initially think. That said, the reason the real estate is complementary is that DG has -- for the most part -- very good locations, while FDO's leaves much to be desired. We'd have to argue that synergies would be considerably better here than with DLTR in order to justify paying more than the 11x EBITDA that's already in play.


URBN - Unveils Android App


Retail Callouts (8/6): UA, NKE, FDO, DG, DLTR, URBN, JCP, TGT - chart2 8 5


Takeaway: Interesting that this only available now with such a big part of URBN's business accounting for about 26% of net sales. We hear so much about the importance of mobile, but put into context we think we can explain why this was so low on the priority list. represents about 6% of total retail sales. Mobile and tablets account for almost 20% of that (or 1.1% of total retail sales). 80% of that comes from Apple devices, and only 20% from Android (.2% of total retail sales).




JCP - J.C. Penney opens its first-ever store in Brooklyn on Aug. 29



  • "J.C. Penney Company will open its first-ever store in Brooklyn, further increasing its New York City footprint, on Aug. 29. The all-new 124,000-sq.-ft., single-level store, located in Gateway Center, will provide a look at Penney's updated store model, which includes a new footwear format, an increased focus on jewelry, and new energy efficiency standards."


UA - Former president of ESPN joins Under Armour board



  • "Under Armour announced that George W. Bodenheimer, former president of sports network and entertainment company ESPN has joined the company's board of directors."
  • "Bodenheimer is an ESPN and cable industry pioneer, having served as the company's longest-tenured President from 1998 to 2012, during which time he led an unprecedented period of global growth."


TGT - Target Opens Tech Outpost In Sunnyvale



  • "Target has opened a small tech hub in Sunnyvale, not far from a major tech outpost of its archrival, Wal-Mart."
  • "Target’s new office will consist of 15 to 20 workers for now, with the possibility of expanding to as many as 70, a company spokesman told the Star-Tribune. The hub’s focus will be on online and mobile data analytics and engineering, and will be separate from Target’s Technology Innovation Center, which opened in San Francisco last year."


GNC - GNC Holdings, Inc. Names Michael G. Archbold CEO



  • "GNC Holdings, Inc., a leading global specialty retailer of health and wellness products, today announced that its Board of Directors has appointed senior retail industry executive Michael G. Archbold, 53, as Chief Executive Officer and member of the Board, effective immediately. The Board also announced that Joseph Fortunato, Chairman, President and Chief Executive Officer, is leaving the Company and has stepped down from the GNC Board. Lead Independent Director, Michael Hines, has been elected Non-Executive Chairman of the GNC Board."



Takeaway: The MBA Purchase Applications Index sits at 170 3QTD, down -4.8% QoQ and the lowest quarterly reading since 3Q 1995

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.


*Note - to maintain cross-metric comparability, the purchase applications index shown in the table below represents the monthly average as opposed to the most recent weekly data point.


VANISHING 3Q14 PURCHASE VOLUME - Compendium 080614



Today's Focus: MBA Mortgage Applications

The Mortgage Bankers Association today released its weekly mortgage applications survey data for the week ended August 1st.

The Composite index rose +1.6% WoW.  However, refi activity was the singular source of strength (+3.8% WoW) as Purchase demand slide -1.3% sequentially.


  • Vanishing Purchase Volume:  The Purchase Index printed at 166.5, its fourth straight week at the 160-level.  For context, on a rolling 4-wk average basis, demand is sitting just above the peak weather distortion lows observed in February while average purchase demand for 3Q to-date is currently tracking at its lowest level since 1995.  In short, housing demand as captured by the MBA series – which purports to cover 75% of total application volume – is off to a discretely inauspicious start for 3Q.  
  • Refi & Rates:  Refinance activity increase +3.8% WoW despite rates on the 30Y FRM contract ticking up to 4.35% -  the first increase in 3 weeks.  Refi activity remains down -39% YoY and continues to improve as we traverse through the easiest 2013 comps. 


Summarily, the high frequency housing data continues to corroborate the sea of red currently blanketing our housing compendium.  As we’ve highlighted repeatedly, we’re inclined to remain bearish on the housing complex until the slope of HPI deceleration inflects.


VANISHING 3Q14 PURCHASE VOLUME - Purchase Index Qtrly Ave






VANISHING 3Q14 PURCHASE VOLUME - Purchase Apps LT w summary stats


VANISHING 3Q14 PURCHASE VOLUME - Composite LT w summary stats




About MBA Mortgage Applications:

The Mortgage Bankers’ Association’s mortgage applications index covers more than 75% of mortgage applications originated through retail and consumer direct channels. It does not include loans delivered through wholesale broker and correspondent channels. The MBA mortgage purchase applications index is considered a leading indicator of single-family home sales and construction. Moreover, it is the only housing index that is released on a weekly basis. 



The MBA Purchase Apps index is released every Wednesday morning at 7 am EST.



Joshua Steiner, CFA


Christian B. Drake



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