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LEISURE LETTER (09/16/2015)

Tickers: LVS, MGM, RLJ, FCH, CCL

EVENTS

  • Sept 16: Trump Plaza closes
  • Sept 16: FCH investor meetings in Canada
  • Sept 17-18: CLSA Investor Forum
    • 17th: Genting Singapore, SJM, WYNN
    • 18th: Bloomberry
  • Sept 17: Massachusetts Gaming Commission: Boston Decision by Wednesday
  • Sept 17: PENN at Credit Suisse Small & Mid Cap Conference
  • Sept 17-18: Hedgeye Cruise Pricing Survey mid-Sept
  • Sept 18: Imperial Capital Global Opportunities Conference
    • BYD, PENN, GLPI
  • Sept 18: WYN & VAC at MKM Entertainment, Leisure Conference

COMPANY NEWS

AGI:PM & 678:HK – (GGRAsia) Alliance Global Group Inc noted the first phase of its US$1.1-billion Manila casino project called Resorts World Bayshore (RWB) would be completed by 2018 with construction set to begin within 90 days. RWB will be the fourth casino operator to open in Pagcor Entertainment City.  RWB will include 3 luxury hotels (Okura, Westin Hotels and Resorts, and a third brand yet to be finalized) offering more than 800 rooms, a retail component, a theater, and the casino. The development of Resorts World Bayshore is under Resorts World Bayshore City Inc., soon to be owned by AGI unit Travellers International Hotel Group Inc. Travellers is a joint venture with Genting Hong Kong Ltd., which is also the developer of Resorts World Manila in Pasay City, also currently undergoing an expansion program.

Takeaway: The build out of Manila as a gambling and entertainment destination continues.  GGR growth rates certainly supports it.

 

BEL:PM (GGRAsia) Philippine casino investor Belle Corp said in a regulatory filing on Monday that 3.36 billion shares in Premium Leisure Corp that it already owns will be listed with the Philippine Stock Exchange “some time this week”.

Premium Leisure (formerly known as Sinophil Corp) got regulatory approval to change its name a fortnight ago. Premium Leisure is reportedly pre-marketing a follow-on share offering to expand its investor base.

Takeaway: Very convenient timing as CLSA is the book runner for the placement and CLSA is currently hosting its Investor Forum in Hong Kong this week.

 

LVS – EVP and President of Global Gaming Operations at Las Vegas Sands Rob Goldstein and his wife listed for sale their Southampton NY compound for $28 million.  The Goldsteins acquired the property in 2007 for $14.7 million. 

Takeaway: Is it possible Mr. Goldstein will be assuming greater responsibilities within the enterprise and therefore won't have the time to relax and utilize the property? Given the gaming revenue weakness across Macau and Singapore as well as Mr. Leven's imminent retirement, we believe this to be the case.

 

MGM & 2282:HK (Macau Business & Macau Daily Times) A group of about 200 casino workers from MGM China met with representatives from the city’s Labor Affairs Bureau to complain about the company’s pay and benefit policies and demand better terms of employment.  Workers complained the company will allocate a disproportionate number of labor-intensive live gaming tables to new smoking rooms, and use more electronic gaming machines on the casino main floor – some of these machines allow a single dealer to serve many more players than traditional table games.

Takeaway:  Labor battles continue.  Croupiers and floor attendants view their role as "highly skilled" despite the entry level nature of such roles.  

 

3918:HK NagaCorp (GGRAsia) informed shareholders via HKSE filing, NagaCorp Ltd, the operator of the NagaWorld casino resort in Phnom Penh, Cambodia, says it has commissioned “an independent professional party to review the internal controls of the company and its subsidiaries...with a focus on anti-money laundering”. NagaCorp also said it had engaged another advisor called Political and Economic Risk Consultancy Ltd (PERC), “to assess the investment risks in Cambodia”. The consultant said in its findings published in NagaCorp’s Monday filing, that on a scale of 0 to 10 – with 10 being the greatest risk – its latest survey gives Cambodia an overall risk grade of 5.85. 

Takeaway: Chairman McNally drawing upon his twenty-four years of service with the Federal Bureau of Investigation to help keep NagaCorp in the clear.

 

RLJ – announced that it has acquired the 215-room DoubleTree Grand Key Resort located in Key West, FL for a purchase price of $77.0 million, or approximately $358,000 per key.

Takeaway: Key West a hot market for tourism as well as hotel transactions.

 

FCH –  sold its 446-room Holiday Inn-Toronto Airport and 221-room Embassy Suites Hotel-Indianapolis North for aggregate gross proceeds of $29M in separate transactions. 

Takeaway:  Selling assets = right sizing and focusing the portfolio as well as paying down debt

 

CCL – (Cruise Critic) Princess Cruises canceled Sea Princess' 14-night Fremantle to Brisbane cruise due to 'technical difficulties'. The ship, after arriving in Fremantle on Saturday for repairs and following a cruise from Singapore, experienced problems that affected its ability to cruise at full speed on recent itineraries. While in port, engineers discovered a second, separate technical, issue and Princess decided to bring the ship to dry dock where all repairs will be carried out. Princess gave all passengers a full refund of their cruise fare plus a 100% future cruise credit. 

Takeaway: Ironic and unfortunate timing as The Sunday Times reported that according to passengers, up to 400 people disembarked the same ship on Sunday morning morning with norovirus - which resulted in the vessel getting nicknamed "Pandemic Princess".  

 

Insider Transactions:

MAR – President of the Americas Division, David Grissen acquired 16,000 shares via stock option (with an expiration date of April 27, 2015) for $15.00/share and sold the same shares at an average price/share of $71.09. Additionall, Mr. Grissen acquired 9,840 shares via stock option (with an expiration date of February 10, 2015) for $30.31/share and sold these share at an average price/share of $71.18.  Mr. Grissen now directly owns 54,755 shares of the company’s stock and 1,785 shares via 401(k). 

INDUSTRY NeWS

T8 signal lowered as Typhoon Kalmaegi makes landfall in China (Macau News) 

Issued warning:  "Kalmaegi has made landfall over Wenchang, Hainan Island, and will continue to move further away from Hong Kong. Its associated squally showers will still affect Hong Kong intermittently. Although Kalmaegi is moving away, occasional gales will still affect Macau."

Takeaway:  This won't make things better for Macau in September

 

Macau Safe Haven for Russian Capital (Macau Business) A risk consultant says Russian investors regard Macau as a safe place to put their money, out of the reach of US and EU sanctions imposed on Russia for its interference in Ukraine, Business Daily reports.

Takeaway: Unfortunately, not the headline Macau needs at this moment.

 

Atlantic City - Donald Trump tweets considering saving Trump Plaza and Taj Mahal 

Takeaway:  Vulture buyer in the market

 

Lodging 2015 Corporate Rates – NYU forecasts big bump in 2015 corporate rates. The emerging outlook for 2015 corporate contract room rates in the United States is expected to increase the most since NYU started preparing this forecast with a national average increase of 5.5% to 6.5%.

Takeaway: A stronger than expected tailwind for the lodging cycle and 2015 outlook.


Global Tourism – International tourist arrivals grew by 4.6% in the first half of 2014 according to the latest UNWTO World Tourism Barometer. Destinations worldwide received some 517 million international tourists between January and June 2014, 22 million more than in the same period of 2013. Growth was strongest in the Americas (+6%) followed by Asia and the Pacific and Europe (both at +5%). By subregion, South Asia and Northern Europe (both +8%) were the best performers, together with North-East Asia and Southern Mediterranean Europe (both +7%).

Takeaway: More support for the strengthening lodging cycle.

MACRO

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 (9/16): ICSC, DKS, URBN, WWW, M

Takeaway: ICSC - 3% growth simply 'ok'. DKS loses two executives. URBN feeling the media heat. WWW shuffling the deck. M outlines e-comm strategy.

EVENTS TO WATCH

 

Wednesday (9/17)

PIR - Earnings Call: 4:30pm

 

Thursday (9/18)

RAD - Earnings Call: 8:30am

 

ECOMONIC DATA

 

Takeaway: This marks the second biggest sequential deceleration we've seen in these numbers all year -- +3.0% from +4.0%.  The irony is that if we turned the clock back six months, the industry would have given anything for a 3% comp. Now, after the huge numbers we've been seeing for the past quarter, a 3% reading is simply 'ok'.

 

Retail Callouts (9/16): ICSC, DKS, URBN, WWW, M - 9 16 chart1

Retail Callouts (9/16): ICSC, DKS, URBN, WWW, M - 9 16 chart2

 

COMPANY HIGHLIGHTS

 

DKS - Departure Of COO and EVP of Merchandising

(http://www.sec.gov/Archives/edgar/data/1089063/000108906314000107/dks-20140910xform8xk.htm)

 

  • "On September 10, 2014, Joseph H. Schmidt informed Dick’s Sporting Goods, Inc. of his intention to retire from his position as President and Chief Operating Officer, a role he has held since 2009. Mr. Schmidt has served in several key leadership roles since joining the Company in 1990. Mr. Schmidt will remain with the Company until the end of fiscal 2014 or such other date as mutually agreed to by Mr. Schmidt and the Company. The Company has initiated a search for Mr. Schmidt’s successor."
  • "On September 10, 2014, John G. Duken informed the Company of his plan to retire, effective as of the end of November. Mr. Duken has served as the Company’s Executive Vice President, Global Merchandising since 2012. Mr. Duken joined the Company in 1999 and has held a number of roles in operations, planning & allocation and merchandising throughout his tenure."

 

Takeaway: When is it a good sign when both the COO and head of Merchandising are fired/pushed out/step down on the same day? Never. The reality is that Dick's problems go far beyond these two individuals...but accountability has to start somewhere. We wouldn't touch this stock unless it was on the short side.

 

URBN - Urban Outfitters Features "Vintage" Red-Stained Kent State Sweatshirt

http://www.buzzfeed.com/mbvd/urban-outfitters-features-vintage-red-stained-kent-state-swe#377f885

 

  • "The Ohio university is best known for the 1970 shootings on campus that left four anti-war protesters dead.  Urban Outfitters has pulled the sweatshirt from its website and apologized."

 

Retail Callouts (9/16): ICSC, DKS, URBN, WWW, M - 9 16 chart3

 

Takeaway:  We're all for pushing the envelope as to what is considered socially acceptable from a product and brand messaging standpoint. But this is definitely taking it too far. But let's be real, URBN isn't exactly knocking the cover off the ball right now. Even negative attention is good attention at this point. That's probably what the Urban merchants thought when they braced for the fallout from this product launch.

 

WWW - Wolverine Worldwide Names Rick Blackshaw President of Sperry Top-Sider and Chris Lindner President of Keds

(http://phx.corporate-ir.net/phoenix.zhtml?c=88408&p=irol-newsArticle&ID=1967867&highlight=)

 

Takeaway: The swap between Sperry and Keds is puzzling at face value.  But the bigger point is that this is not a first for WWW. It is part of the company's DNA. Very few executives in the WWW organization have stayed with one brand throughout their whole tenure. Now WWW is applying the same philosophy to the acquired PLG brands, which makes perfect sense.  This is NOT a sign of things going wrong at Sperry or Keds, which we're inclined to think that WWW/Sperry-haters will try to argue. We'll take the other side of that any day.

 

M - Macy’s, Inc. Outlines New Developments in Omnichannel Strategy and Technology

(http://www.wwd.com/retail-news/department-stores/macys-boosts-omnichannel-7913777?module=hp-topstories)

 

  • "Macy’s and Bloomingdale’s to help launch Apple Pay; same-day delivery to be piloted in fall 2014; new POS technology and customer service enhancements in testing; new apps, web functionality and mobile wallet launched; RFID being expanded to fashion categories"

 

Takeaway: Over the past eight years, M has grown its online business at a 32% CAGR, 2nd only to KSS. That channel now accounts for about 15% of total sales - tops in the pier group. Macy’s is the best in the business at driving its financial model, and we’ve got to respect that. But when all is said and done, we simply have a tough time justifying that there’s enough room to evolve the financial model into something that’s meaningfully better than we see today. Margins are tapped and costs are accelerating. That’s not in expectations. But, we have to give credit where credit is due. In this release, M outlines 12 initiatives it has in the works to enhance both the online and in-store shopping experience through technology. Some of them echo the rest of the industry, particularly buy online pick up in store and same day delivery, but for the most part M is leading the charge when it comes to technological innovation.

 

OTHER NEWS

 

ASOS- Trading Statement for the three months ended 31 August 2014

(http://www.asosplc.com/~/media/Files/A/ASOS/results-archive/statement/q4-trading-statement-16-09-2014.pdf)

 

  • "Our UK performance remained strong over the final quarter, with sales increasing 33%. Our
  • International business grew 6% or 14% in constant currency. However, due to the fire at our
  • Barnsley distribution centre, we lost sales during the quarter of between £25m and £30m with a retail gross margin impact of c.200 basis points. After adjusting for insurance proceeds, we expect profit before tax for the year to be in line with market expectations."

 

RSH - RadioShack Appoints Interim Chief Financial Officer

(http://ir.radioshackcorporation.com/phoenix.zhtml?c=84525&p=irol-newsArticle&ID=1967792&highlight=)

 

  • "RadioShack Corporation announced the appointment of Holly F. Etlin as interim chief financial officer, replacing John Feray.  Mr. Feray resigned on September 12, 2014, citing personal reasons."
  • "Ms. Etlin, a managing director of AlixPartners and longtime RadioShack advisor, served as RadioShack's interim CFO from July 2013 to February 2014."

 

AMZN - Amazon Begins Login and Pay in Europe

(http://www.wwd.com/retail-news/direct-internet-catalogue/amazon-begins-login-and-pay-in-europe-7916821?module=Retail-latest)

 

  • "Amazon will today open its Login and Pay With Amazon system in Europe, the streamlined payment and checkout solution that made its debut in the U.S. in October."
  • "The tool allows for consumers to use their Amazon credentials when purchasing from non-Amazon sites, eliminating the need to reregister and input personal information every time a consumer shops at a different e-tailer."

 

SHLD - Sears Borrows $400 Million From Lampert’s ESL Investments

(http://www.bloomberg.com/news/2014-09-15/sears-borrows-400-million-from-lampert-s-esl-investments.html)

 

  • "'Sears Holdings Corp. is taking a $400 million short-term loan from the hedge fund owned by its chief executive officer and largest shareholder, Edward Lampert.'"
  • "'Lampert’s ESL Investments provided $200 million as of yesterday and will fund the remainder on Sept. 30, Hoffman Estates, Illinois-based Sears said in a regulatory filing. The money will be used for 'general corporate purposes.'"

 

ANN - ANN INC. Responds to Engine Capital LP and Red Alder LLC

(http://investor.anninc.com/phoenix.zhtml?c=78167&p=irol-newsArticle&ID=1967923&highlight=)

 

  • "We have met with Engine Capital and Red Alder, and the full Board has had the opportunity to review the presentation of Engine Capital and Red Alder referenced in their press release. "
  • "While the Board appreciates the input of Engine Capital and Red Alder, none of the analyses contained in their presentation is new to the Board.  The conclusions that one draws from these analyses depend heavily on the various assumptions made.  The Board continues in a very deliberate manner and on an informed basis to consider and determine the courses of action that are in the best interests of all of its shareholders."

 

TJX - T.J.Maxx enlists stars for style campaign

(http://www.retailingtoday.com/article/tjmaxx-enlists-stars-style-campaign)

 

  • "This fall, T.J.Maxx is partnering with Erika Christensen and designer Jenn Rogien, who has made headlines for her wardrobe curations for hit TV series such as “Girls” and “Orange Is the New Black,” for a new ad campaign revolving around a woman’s style."

 

GME - GameStop to exit Spanish market

(http://www.chainstoreage.com/article/gamestop-exit-spanish-market?ad=news)

 

  • "GameStop Corp. plans to exit the Spanish market by selling some stores there to U.K.-based video game retailer Game Digital plc, and closing the remaining locations. Under the terms of this proposed agreement, GameStop will transfer ownership of a portfolio of GameStop stores located in Spain with the remaining retail sites winding down in 2014."


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Cartoon of the Day: Angels & Demons

Takeaway: 47% of Nasdaq stocks and 41% of stocks in the Russell 2000 are crashing from their 12-month peak. The long bond? It's up +12% YTD.

Cartoon of the Day: Angels & Demons - Equities devil  bonds angel


LVS: ESTIMATES ARE TOO DAMN HIGH!

Takeaway: Adding LVS to the Hedgeye Best Ideas list on the short side

Jimmy McMillan would be cutting estimates.


 

CALL TO ACTION

We are adding LVS to the Best Ideas list on the short side.  Consensus estimates still need to come down for Q3, Q4 of 2014 and for 2015.  Hedgeye is currently 6%, 7%, and 9% below the Street, respectively.

 

THE SETUP

LVS was a top long idea on the Best Ideas list from 01/31/14 until we removed it on 03/10/14.  We made our Mass Decelerating call on June 13th and highlighted LVS as the most at risk to estimate reduction and stock pressure.  The condition of the Macau market has deteriorated faster than even we expected and while we’ve had lower than consensus estimates for 2H for a while, we feel compelled to lower estimates once again.  Here are our EBITDA estimates versus Consensus.

 

LVS: ESTIMATES ARE TOO DAMN HIGH! - q3

 

We still like the long term outlook for Macau and believe that LVS is very well positioned to capitalize on Macau and Asian growth.  However, with the fundamentals worsening over the near and intermediate term, Mass disappointing more on the margin, and lower estimates, LVS and the Macau stocks look like they should continue to move lower.  Strong Golden Week hotel bookings notwithstanding, October and Q4 offer few catalysts and we fear the difficult market will continue into 2015.


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