Wynn Macau's market share gain and overall growth in December was impressive. New junkets and higher direct play contributed to the upside.
Wynn Macau generated approximately $5.2 billion in VIP junket rolling chip volume in December of 2010, up 71% over December 2009. This is a staggering number for one property and is the second highest month ever recorded by Wynn slightly behind only May of 2008. And that's not all of it. Wynn's house junket contributed another estimated $600 million in turnover.
Hold percentage was somewhat higher than last year, but not by much. We also estimate that Wynn's direct play generated significant growth over last year. Total VIP revenue (including the house junket) increased 85%. Total VIP market share climbed a whopping 570 bps from November to 18.7%, while Wynn's overall market share (including Mass) grew to 16.5% from 12%.
So in addition to higher direct play, what drove the increase? During December, Wynn Macau had 10 junket rooms at the property, operated by 9 different junkets (including Wynn's house junket). Apparently, two of the newer operators moved quite a bit of business over from Starworld and some smaller Macau casinos. Indeed, Starworld's VIP rolling chip market share declined 170 bps, Galaxy in total fell 140 bps, and SJM in total fell 170 bps. Meanwhile, Wynn's two largest junkets maintained the current book of business at around $1.3 billion each.
Is the move sustainable? Maybe, November also showed a marked sequential increase in VIP chips share, up 260 bps. November stopped a fairly consistent share degredation following the 2009 peak in May.
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In classic partisan style, political pundits are now debating whether or not the unemployment rate is a lagging indicator. Many politicians don’t do math. That’s why this is only a political debate. The peak unemployment rate is now in the rear view.
October’s 10.2% unemployment rate will be looked back on as just that, the peak for this part of the cycle. While this morning’s 10% rate was in line with November’s reported unemployment rate, the probability in our macro model continues to climb that we will be seeing a 9% rate in the coming months.
As our new Financials Sector Head, Josh Steiner, wrote in a note earlier this week titled, “Census Hiring An Added Credit Tailwind for 2010”:
The US Census bureau has begun hiring for the upcoming decennial census. Hiring in earnest will begin in March/April once it is known how many people will be needed to conduct the census. For those unfamiliar, the census survey is mailed out to every household in America, and census workers are needed to canvas those homes in which the census is not mailed back. So, from a hiring standpoint, it would be best if no one completed the mail-in version of the census. Census worker pay is $15-18 an hour if any readers are interested in moonlighting.
In the last census in 2000, the mail-in response rate was 67% and the census department is hoping for a comparable result this time around. This 67% response rate led to the hiring of 530k workers - or close to half Wal-Mart’s US workforce. The response rate in 1990 was 65%, roughly the same, and there were 335k workers hired for the job. This time around the expectation is that 1.2 million people will need to be hired to conduct the census, according to the head of census recruiting. With a number that large, expect census hiring to begin to generate a perceptible hiring tailwind this Spring and run through the summer.
If you are on the side of the bet that the unemployment rate is setting up to make higher-highs from here, that’s what makes a market. Both the bond market and stock market are telling you that the Depressionista bet remains the wrong bet.
Tops are processes, not points. However lagging this economic reality may be, it is far easier for me to see the peak point for America’s unemployment rate in the rear-view today than it was yesterday.
Keith R. McCullough
Chief Executive Officer
Today’s UK Producer Price Index report further reminds us why we want to steer clear of this economy in our portfolio. In particular, the Input Price Index jumped 6.9% in December from a year earlier, one indicator to us that further upward consumer inflation (CPI) should be expected over the next months as producers pass along inflated costs to consumers. With annual CPI at 1.9% and UK GDP still struggling to show growth—quarter-over-quarter it was down 20bps in Q3 ‘09 and annually it fell 5.1%--broader fundamentals continue to look challenged in the UK.
Taking a step back it comes as no great surprise to see the UK report such inflationary figures. Not only has the country imported inflation through the depreciation of the Pound versus the USD and Euro, which bottomed just about one year ago, but the benefit of lower energy prices that we were seeing in July, August and September on an annual compare are now in the rear-view mirror. Input prices for materials and fuels began their rise in October at +0.4%, followed by 4.0% in November.
With the recent UK news flow including calls of no-confidence on PM Brown’s leadership to conflicting discussions on bank bonuses and compensation packages for its all-important but struggling financial industry, we remain vigilant of the fundamental and structural issues ailing the UK. In Europe, we’re currently invested in Germany on the long side via the etf EWG in our model portfolio.
If last year is a good indication of what to expect, I am assuming that most of the news flow out of the two conferences will be more qualitative than quantitative.
Next week will be a busy week for restaurants. Between the Cowen and Company Consumer Conference earlier in the week and the ICR XChange Conference starting mid-week, we will hear from the management teams of about 25 public restaurant companies and a handful of private restaurant companies as well. Domino’s is also hosting an investor day on Wednesday.
Last year, BJRI, TAST and CPKI preannounced 4Q numbers in conjunction with these conferences (KONA preannounced 2 years ago). We already got BJRI yesterday after the close. For the most part, the balance of the companies presenting did not put out any press release on the days leading up to the conference last year, except to give the time and date of their presentations.
If last year is a good indication of what to expect, I am assuming that most of the news flow out the two conferences will be more qualitative than quantitative. I wish I had counted the number of times management used the word challenging last year so that I could compare it to this year and use it to gauge the current demand environment versus last year. I am only half serious, but I do think the general tone of next week’s presentations will be more telling than anything else.
We heard from SONC, CKR and RT already this week so I am not expecting anything incremental out of any of these companies’ presentations.
Instead, I think the trends discussed by all of these companies this week will help to dictate the line of investor questioning next week. Specifically, I think investors will be interested in hearing about the current environment as it relates to the level of industry discounting, average check declines, regional performance (particularly in Texas), QSR’s slowing trends, the impact of weather on trends in December, whether the improvement in November casual dining trends has held up and whether we are yet getting closer to demand recovery.
Last year, PFCB’s Co-CEO Bert Vivian gave one of the more memorable presentations as he provided what I viewed as a rather dire outlook for the casual dining industry. PFCB will be presenting again next week and although the company’s press release does not specify which executive(s) will be at the conference (I am hoping for Mr. Vivian), I will be listening to see if there is any change in the company’s tone. Below I included some of Mr. Vivian’s comments from last year.
I am not expecting any one company to make as many colorful and telling comments as Mr. Vivian did last year, but I think all of the presentations together should provide us with a better idea of how the industry is faring. I am looking forward to learning this year’s new favorite word among restaurant management teams…my guess is volatile.
PFCB – NEW CO-CEO PROVIDES A DIRE OUTLOOK FOR CASUAL DINING
Bert Vivian, PFCB’s new co-CEO as of earlier this month, presented at an investor conference this morning and spoke rather generally about current trends in casual dining. While his commentary is entertaining, he did not paint a very optimistic picture.
Below are some of his comments (I am paraphrasing):
Casual dining has been ugly and it is going to continue to get uglier.
The lights went out on December retail same-store sales…This is not just a retail problem.
Yesterday, RUTH reported that comparable sales declined over 18% for the fourth quarter. Don’t be surprised by these types of numbers. Whatever numbers you are expecting for the industry should most likely be ratcheted down.
During the fourth quarter, particularly in December, people had a reason to go out shopping. When people are out, they occasionally also go out to eat. We see no reason for people to go out in 1Q. It is going to be a cold 1Q in retail and restaurants. There is nothing to change people’s behaviors in the next few months.
This is a tough sales environment. 2009 for our group is going to be a throw away.
There is no need to be in a hurry with this group. There is nothing we see that makes us think business is going to take off any time soon.
The casual dining group’s decline in development in 2009 is likely going to stretch out into 2010 because once the hammers stop, it is tough to get them going again. (This might have been the most positive thing Bert said as it relates to really fixing one of the biggest fundamental problems facing the group as a whole).
Below are some of Bert’s more positive comments:
In the past, PFCB has used its free cash flow to build new restaurants. With the slowdown in development, this is not going to be true for this year and most likely for the next few years. What do we do with our free cash flow? (Bert answered his own question, saying that PFCB will most like use its cash to pay down debt and buy back shares.)
The sun will shine again on this group…We just don’t know when.
The current market cap of all of the higher-end steak players combined suggests that people are not going to eat steak anymore…I am going to continue to eat steak.
People are going to continue to eat out. The casual dining business is not going away. There are going to be casualties, but there are also going to be survivors. 2009 is going to be a tough year, but PFCB will be one of the survivors and should come out a stronger company.
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