Bill Critical for Ailing Retailers

The President signed a bill Friday that includes an important provision for struggling retailers that likely flew under the radar since it’s more broadly recognized for extending the home buyer tax credit. The primary difference for retailers compared to the original stimulus package in February is that 1) larger businesses (above $15mm in revenues) are eligible and 2) it extends the loss carryback from 2 to 5 years for losses suffered in either 2008 or 2009. A quick screen reveals nearly two-dozen retailers that could benefit from this legislation; however, the cash realized will be material only to a select few. Given the lack of clarity of the exact accounting of the bill, we are not attempting to quantify the exact cash infusion anticipated, but merely flag those who are likely to benefit the most.


The companies that have been lobbying Congress for the loss carryback provision since February such as Liz Claiborne, Pier 1 Imports, and Office Depot are some of the retailers poised to benefit. Based on our screen of companies with either substantial losses in 2008, or over the LTM, and substantial earnings and therefore tax expenses paid from 2003 to 2008 we have identified several others including DDS, CHRS, TLB, ZLC and CROX.


Again, these aren’t the only companies that will benefit from this new legislation, but given recent liquidity concerns are likely to benefit the most from this added stimulus.



Casey Flavin






Read on for property details of a very strong October in Macau. LVS and SJM were the big market share winners, MPEL and WYNN the losers. 



As expected October continued the three month pattern of double-digit growth in  Macau.  October table revenues grew 44% y-o-y and 14% sequentially.  Of course October '09 had the benefit of two new properties, City Of Dreams (CoD) and L'Arc; and the benefit of an easy comp (October '08 table revenues were down -6%).  October VIP revenues grew 47% y-o-y and Mass was also strong at 37% y-o-y growth.


The big winners in terms of market share were Venetian/Four Seasons, SJM, Galaxy and MGM.  Losing the benefit of high hold in August, MPEL's share dropped back to earthly levels, and WYNN's share continues to be impacted by new supply.  Read on for property level details.



Y-o-Y Property Observations:


LVS table revenues up 34%

  • Sands was up 2.6% driven by a 6% increase in Mass and VIP growing 1%
    • Junket VIP roll decreased 5% at Sands, more than offset by direct VIP play (which doesn't get captured in reported VIP RC) or hold %
  • Venetian was up 52% with VIP increasing 82% and Mass increasing 15%
    • Junket VIP roll was up 57%
  • Four Seasons was up 130% y-o-y and up 30% from a seasonally slower August
    • Mass revenue increased 74% while VIP climbed 150%.  VIP roll was up 200%



Wynn table revenues were up 4.8%

  • Mass was up 26.5%, offset by a 1% decrease in VIP



Crown table revenues grew 50%, with both properties down from a strong and lucky August

  • Altira was down 30%
    • VIP roll was only down 5% but hold was weak once again at roughly 2.2% (note that Altira has a very small direct play business so the Junket RC is close to total RC at the property)
  • CoD table revenue was down 34% sequentially.  September benefited from very strong hold at the property which inflated win
    • Mass continued to ramp growing 20% m-o-m to $22MM
    • Junket VIP roll fell 3% sequentially.  Hold looks like it was weaker from August's high, but there could also have been growth in direct VIP play



SJM continued its hot streak, with table revenues up 74%

  • Mass was up 57% and VIP was up 86% 
    • As we mentioned last month, SJM had the benefit of L'Arc opening September 21st and we believe that SJM revenues should continue to stay strong with the addition of Oceanus in either December or early January



Galaxy table revenue was up 44%, mostly driven by a 50% increase in VIP win.  Mass was up 6%

  • Starworld continued to perform well with table revenue up 59%, driven by 66% growth in VIP revenues and 8% growth in Mass win



MGM table revenue was up 52%

  • Mass revenues grew 16%, while VIP grew 68%
  • Junket roll was up 45% 



Market Share:


- LVS share increased to 23.7% from 19.6% in September

  • Sands' share increased slightly to 8.4% from 8.3% in September
  • Venetian & FS share increased to 15.3% from a low of 11.3% in September

- WYNN's share decreased to 11.9%, the lowest share month since Wynn's opening


- Crown's market share plummeted to 11.9%, from a 17.5% high in September


- SJM's share ticked up to 31.6% from 31.5% in September


- Galaxy's share increased to 12.8% up from 10.6% last month


- MGM's share increased to 8% from 7% in September

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The Economic Data calendar for the week of the 9th of November through the 13th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.  




Bathroom Plasma, No More: Consumer Credit

Position: Short US Consumer Discretionary (XLY)


From Parts Unknown (our new Sector Head for Financials who we have yet to announce)…


Here’s a look graphically at Consumer Credit (updated for today’s 3pm data).


If a picture tells 1,000 words, then the song remains the same. It’s the second chart that’s actually more telling though. A full year after Lehman revolving credit is grinding to a halt at the second fastest rate in the last 12 months.


Further evidence that the consumer is (a) getting weaned off easy money by the still cash-strapped banking system, (b) voluntarily electing to save in lieu of buying the plasma for the 3rd bathroom.


Keith R. McCullough
Chief Executive Officer


Bathroom Plasma, No More: Consumer Credit - JS1


Bathroom Plasma, No More: Consumer Credit - JS2



A Pounded Pound Breeds Inflation

Research Edge Position: Short UK (EWU), Short British Pound (FXB)


When we speak of “imported” inflation we’re talking about the relationship between the strength of a country’s currency versus the price of goods and services it imports. With respect to the UK, an import and service based economy, the depreciation of the British Pound since mid ‘08—which we’ve named The Pounded Pound—has bred inflation (for both Producers and Consumers) as the depreciation in the currency has not only diminished purchasing power for its citizenry at home (as more money is needed to chase goods and services), but it has also reduced purchasing power versus its primary import partners. Finally, the global appreciation in the price of oil, denominated in US dollars and therefore boosted by the inverse correlation of depreciating USD (without consideration of supply and demand dynamics), has inflated energy costs for importing nations like the UK.


Therefore, with the depreciation of the Pound and the rise in oil prices (a major cost component for Producers), it comes as no great surprise to see a sequential and annual rise in the UK Producer Price Index.  In fact, Input Prices, the materials and fuels manufacturers buy, rose 2.6% in October versus the previous month, while Output Prices, or what manufacturers sell, increased 0.2% sequentially or 1.7% Y/Y. The take-away here is (see chart below) that cost inputs are trending positive and upward in the UK, while outputs have remained positive, but stable over the last year. This price inflation should compress margins for Producers, costs that will eventually be passed on to the consumer.


If the above rhymes, we must also mention that UK Consumer Price Index, in aggregate, has declined over the last months, from 1.6% in August Y/Y to 1.1% in September.   This decline can be attributed to a sluggish economy, still searching for growth with Q3 GDP registered at -0.4% Q/Q, annual declines in energy costs, and rising unemployment, all of which should put pressure on broader fundamentals. Further we hold that with the Treasury continuing to print money, including issuing a second wave of bailouts to RBS and Lloyds to the tune of 40 Billion Pounds this week, and the BOE expanding its bond purchasing program while keeping rates steady at a historic low of 0.5% will sustain a weak Pound, which should encourage inflation.   


In our virtual portfolio we remain short the UK via the etf EWU and short the Pound via FXB.  We expect to see continued underperformance in UK fundamentals. With the economy looking to return to moderate growth by the end of the year, Producer Inflation may remain a major headwind over the intermediate term. 


Matthew Hedrick



A Pounded Pound Breeds Inflation  - UK PPI OCT



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