Takeaway: Below we rank our top read notes from September. Click the note title for access.
TOP 10 MOST READ NOTES: SEPTEMBER 2013
- 9/23/13 – SSS Monitor: Spotting Trends In The Restaurant Industry
- 9/10/13 – MCD: U.S. Sales Disappoint
- 9/11/13 – MCD: Long-Term Picture Tells A Story
- 9/26/13 – PNRA: No Quick-Fix Recipe
- 9/06/13 – MCD: Sales Preview
- 9/12/13 – QSRs: Stepping Their Game Up
- 9/25/13 – MCD: Signs Of Life? Maybe (Maybe Not)
- 9/11/13 – KKD: On Track
- 9/10/13 – The Boomer/Millenial Convergence
- 9/04/13 – KKD: Room To Run
Feel free to contact us if you have any questions, or would like to discuss any of our work in more detail.
Takeaway: Macau momentum continues and we'll stick with LVS, the market share gainer
+21% growth bested pre and end of the month Street projections but September was even better than the headline
September was a darn fine month for the Macau operators. We knew that. What we didn't know was that Mass would be up 36% YoY and Rolling Chip Volume would also be up double digits. VIP hold percentage was actually a little below normal and last year. We will try, but it’s hard to poke many holes in this fabulous month. Even slots were up 13%. For October, we’re thinking that the high end of our GGR forecast of 20-25% might be the right number. As a market share gainer, LVS remains our favorite Macau play.
General / Market
- Compared to our detailed top down forecast, VIP volumes came in a lot better, mass volumes were a little better while slots were a little weaker.
- Raw hold for TTM declined for the first time in a while to 3.19% from 3.21%. Trailing 24M remained at 3.18% while historical stayed at 3.12%
- Even slots participated, posting the 3rd highest monthly YoY growth of the year
- LVS properties exhibited the best market growth in VIP and slots. MPEL had the best growth in Mass, and SJM & MGM bested LVS for VIP RC growth
- VIP hold % was slightly below normal but well above last year - 2.80% vs. 2.26%
- The LVS properties grew faster than the market in all facets of the business: Mass, Junket volume, VIP volume, and slots
- GGR share dipped from July and August but that was hold related; junket volume share was the 2ndhighest ever for the company
- Mass share was the lowest in 6 months
- Junket volume share was the 2nd highest since Jan 2010.
- Lowest growth of 6 concessionaires
- Worst Mass growth
- Worst RC volume growth
- Held well above normal on Rolling Chip but only a little higher than last September’s hold
- Rolling Chip share was one of the lowest ever at 11.3%, down 110bps sequentially - 70bps below the all-time low of 10.6% in September 2007, and 70bps and 50bps below their 6M average and TTM average share, respectively
- Mass share increased 110bps sequentially but was in-line with the 6 month and TTM average
- Held high but had a difficult YoY comp
- Best Mass growth of the 6 concessionaires, offset by the worst VIP growth driven by YoY declines in RC volume at Altira
- Mass revenue share was noticeably below recent trend - 60bps below the 6M and 20bps below TTM trailing average. Although in MPEL’s defense, this kind of dip (1.3%) isn’t unusual. Interestingly we have seen dips in MPEL’s mass share with rebounds in October since 2008
- 1.0% decline April with a 1.5% bounce back in May
- 2.2% decline in Jan with a 2.6% jump in Feb
- 1.8% decline in Sept 2012 with a 1.1% increase in October 2012
- While up sequentially, junket volume share continues to trend lower compared to the 6 and 12 month trailing average
- We are becoming increasingly concerned with share losses in mass and Junket volume
- MPEL gained the most slot market share this month and has remained the distant 2nd in terms of market share behind LVS in this category for 4 consecutive months and for 11 of the last 14 months
- Held well below normal on junkets play and YoY comparisons were exasperated by high hold comparisons last September
- MGM’s junket volumes took the top prize for growth in September and at 49% marketed the properties’ best growth rate in 2 years.
- At 12%, Junket RC also set a record for all-time high market share
- Mass growth at 22% decelerated from the prior 6M and 12M TTM rates of 33% and 31, respectively
- Hold was normal but ahead of last year’s September
- Galaxy was the largest MoM market share gainer, but market share was in-line with their trailing 6M and 12M average
- YoY GGR grew 24% YoY, the 2nd highest in the market
- Galaxy’s slot growth went negative for the first time in 32 months
YOY TABLE OBSERVATIONS
Total table revenue grew 21% YoY. Mass market maintained its high growth at 36%. VIP volume rose 19% while VIP revenue gained 16%.
LVS led the market in table win at +51%. Mass revs soared 51% while VIP RC grew 23%. Including direct play, we estimate that LVS held at 2.8% in September, higher than last September's 2.3%, assuming direct play of 17% vs. 22% last year.
- Sands fell 16%, similar performance to August 2013
- Mass grew 16%
- VIP revenue fell 34%, while RC fell 37%
- Sands held at 3.3% vs 3.3% in the same period last year. We assume 10% direct play in September 2013 vs 8% in September 2013.
- Venetian grew 42%
- Mass increased 29%
- VIP revenue grew 57%, reversing two months of declines
- Junket VIP RC gained 40%
- Assuming 28% direct play, hold was 3.1% compared to 2.6% in September 2012, assuming 30% direct play
- Four Seasons gained 68%, best performance since September 2012
- Mass revenue soared almost 146% on a comp of -27%
- VIP revenue grew 52% and junket RC rose 14%. September hold (assuming 15% direct play) was 2.5% vs 1.85% in September 2012 when direct play was 16%.
- Sands Cotai Central rocketed 157% higher for the 2nd consecutive month
- Mass jumped 126%
- VIP revenues grew 184%
- Junket RC gained 61%
- If we assume that direct play was 10%, hold would have been 2.6% vs 1.4% in September 2012 when direct play was 9%.
MPEL gained 18% in table revenues. Mass growth continued to excel at 71% while VIP growth was 4%. We estimate that MPEL held at 3.1% vs 3.2% last September. Estimated direct play was 11%, in-line with last year, but up sequentially.
- Altira table revenues fell 8%, 1st decline since Feb 2013
- VIP revs dropped 11%
- VIP RC fell 6%
- Mass gained 25%
- We estimate that hold was 3.3%, compared to 3.3% in the prior year
- CoD table revenues grew 30% YoY
- Mass increased 77%, continuing its impressive streak of strong YoY double-digit gains since the property opened
- VIP win grew 12%, while RC grew 15%
- Assuming a 16% direct play level, hold was 3.0% in September compared to 3.1% last year (assuming 15% direct play)
Wynn table revenues grew 8%
- VIP revenues and RC both grew 7%
- Wynn held at 3.4% (assuming direct play of 8%) vs 3.3% last September (assuming direct play of 10%)
- Mass revenues gained 15%
MGM table revenues grew 19%
- We estimate that hold was 2.6% adjusted for direct play of 7% vs hold of 3.1% last year assuming 8% direct play
- VIP RC and Mass grew 49% and 22%, respectively
Galaxy table revenues grew 24%. VIP revenues gained 19% while RC volumes grew 10%. On the bright side, Mass growth was strong at 42%. Hold was 3.1% in September 2013 vs. 3.1% last year.
- Starworld table revenues gained 16%
- Mass soared 70%
- VIP gained 8%.
- Junket RC rose 17%
- Hold was 2.7% vs 3.0% last year
- Galaxy Macau's table revenues jumped 27%
- Mass had another great month at 44% growth
- VIP gained 21%
- Hold was 3.5% vs 3.2% last September
Total table revenue grew 11%, with mass and VIP growth of 20% and 6%, respectively. RC volume gained 25%. SJM held at 2.6% vs 3.1% last year.
SEQUENTIAL MARKET SHARE - September relative to August (property specific details are for table share while company-wide statistics are calculated on total GGR, including slots):
Market share slipped 70bps to 22.0%. September’s share is above its 6-month average of 21.8% and better than its 2012 average share of 19.0%.
- Sands' share gained 60bps to 3.2%. For comparison purposes, 2012 share was 3.9% and 6M average share was 3.1%.
- Mass share gained 50bps to 5.0%
- VIP rev share gained 70bps to 2.3%
- RC share lost 10bps to 1.9%
- Venetian’s share was unchanged at 8.6%. 2012 share was 7.9% and 6 month trailing share was 8.4%.
- Mass share decreased 150bps to 13.0%
- VIP share increased 110bps to 6.6%
- Junket RC share gained 50bps to 4.7%
- FS gained lost 70bps to 3.1%. This compares to 2012 share of 3.7% and 6M trailing average share of 3.4%
- VIP fell 110bps to 3.4%
- Mass share was unchanged at 2.4%
- Junket RC was unchanged at 3.5%
- Sands Cotai Central's table market share fell 60bps to 6.7%, which compares to the 6M trailing average share of 6.6%.
- Mass share fell 60bps to 8.6%
- VIP share fell 70bps to 5.7%
- Junket RC share gained 30bps to 6.3%, its highest share ever
MPEL lost 60bps in share in September to 13.8%. Its 6 month trailing share is 14.4% and their 2012 share was 13.5%.
- Altira’s share gained 10bps to 3.4%, below its 6 month trailing share of 3.6% and 2012 share of 3.9%
- Mass share rose 10bps to 1.2%
- VIP was unchanged at 4.4%
- VIP RC share fell 60bps to 4.1%
- CoD’s share lost 80bps to 10.3%, above the property’s 2012 and 6M trailing share of 9.4% and 10.7%, respectively.
- Mass market share lost 130bps to 11.6%
- VIP share lost 50bps to 9.6%
- RC share gained 110bps to 8.4%
Wynn GGR share was 11.4%, down 20bps MoM. 2012 average share was 11.9% and their 6M trailing average share has been 10.8%.
- Mass share jumped 110bps to 7.4%
- VIP share lost 90bps to 13.4%
- Junket RC share dropped 110bps to 11.3%
MGM’s market share lost 70bps to 9.6%, above its 6M and 2012 average of 10%
- Mass share was flat at 6.9%
- VIP share fell 120bps to 10.6%
- Junket RC gained 40bps to 12.0%
Galaxy's share gained 130bps to 18.4%, below its 2012 average and 6-month average share of 19.0% and 18.5%, respectively
- Galaxy Macau share was unchanged at 10.7%
- Mass share fell 60bps to 9.7%
- VIP share rose 30bps to 11.2%
- RC share lost 40bps to 9.9%
- Starworld share gained 120bps to 6.7%
- Mass share gained 70bps to 3.9%
- VIP share gained 140bps to 8.1%
- RC share slipped 10bps to 9.2%
SJM share gained 80bps to 24.7%, below their 2012 average of 26.7% but back above their 6M trailing average of 24.4%
- Mass market shares jumped 170bps to 28.2%, the biggest gainer in the market
- VIP share gained 50bps to 23.9%
- Junket RC share rose 10bps to 28.3%
Slot revenue grew 13% YoY to US$136MM in September
- LVS had the best YoY growth at 42% to $47MM
- MPEL gained 13% to $26MM
- MGM gained 7% to $20mm
- WYNN lost 3% to $15MM
- GALAXY lost 6% to $15MM
- SJM had the worst YoY slot performance for the 3rd consecutive month, -8% to $13MM
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Takeaway: FLASHBACK: We're adding WWW to our Best Ideas.
This note was originally published April 18, 2013 at 12:02 in Retail
(Editor's note: As you can see above, Hedgeye Retail Sector Head Brian McGough added WWW to Hedgeye "Best Ideas" back in April. The stock is up almost 30% since then. To subscribe to Hedgeye research click here.)
Conclusion: We're adding WWW to our Best Ideas list and think it's a 2-year double. We think that the prevailing bear case is weak and backward-looking, and that WWW has a little bit of everything that's needed for a long to attract new money and grind higher over a multi-year time period. Aside from having a high quality management team and a very consistent long-term track record, we think that new market share opportunity on a consolidated cost structure and asset base will accelerate organic growth, while taking incremental margins and returns higher. The ensuing cash flow will be used to de-lever, which provides a powerful kicker to propel earnings growth into the 20-30% range. Ultimately, we think that WWW has 3 to 1 upside/downside over the next 12/18 months.
The outline below is a summary of our investment case. We plan to release a Black Book with a deep-dive analysis over the next two weeks.
The bear case on WWW is simple. The company started to see a slowdown in its core footwear business, so it went ahead and did a transformational acquisition by paying a steep price for Collective Brands’ PLG division potentially near the peak of the cycle for its largest and most defendable brand – Sperry. Other brands like Saucony and Keds have upside, but are not in the 'great' category like Sperry arguably is. On top of that, the stock is trading at a high teens multiple on the company’s guidance. There are two realities associated with this bear case. 1) Most of it is correct. And 2) all of it is irrelevant.
First off, let’s look at the sentiment on WWW and all agree that people are more bearish on the name than we’ve even seen in the modern history of the company (ie even in the years not displayed by this chart). We’re likely seeing some covering on today’s print, but it still leaves the name in record bearish territory according to our sentiment monitor.
Secondly, we think that this bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and RNOA. Specifically, our math suggests that in the three years following the initial acquisition year (where there will be outsized accretion) we should see the following…
a) The addition of over $700mm in revenue – split fairly evenly between the Performance and Lifestyle groups.
b) $150mm in incremental EBIT (20% incremental margin on top of the 8.4% reported last year).
c) The asset base should remain relatively flat over that time period at about $3bn. The cash cycle can, and should, come down 20-30% from 2012 levels. There’s no reason why this business should have 115 days inventory and DSOs of over 60.
d) Over that same time period, interest expense should come down by 40% as WWW uses free cash to repay debt. As a result we should see shareholder’s equity double from $644mm ($13 per share) in 2012 to $1.3bn ($27 per share) in 2016.
e) Importantly, RNOA should climb from 10% up to 16%, with steady improvements each year. Admittedly, the one catch is that this is a company that once had returns of 30%. The PLG deal changed that – likely permanently (or at least for a very long time). Nonetheless, returns have bottomed and are headed up systematically. It's very important to note that it's near impossible to find an example where a company's RNOA roadmap went up (margins improving) and to the right (turns improving) simultaneously without the stock meaningfully outperforming peers.
In the end, we’re modeling 30%+ growth in earnings over each of the next two years, and 20%+ at a sustainable rate for at least the next three years. Our estimates are only 5% ahead of consensus this year, but by the end of our modeling time horizon (2016) we’re 25% ahead of the Street.
At the end of the day, this is probably one of the best managed and most consistent companies in retail. Accretion is ahead of plan, inventories are in very good shape, and though there is admittedly a permanent impediment to achieving asset turn levels WWW saw prior to the deal (acquiring as opposed to growing organically), WWW has a multi-year platform from which to grow. Add on accelerated cash flow generation and subsequent debt paydown, and we think that this story has legs (look at HBI over the past year – it’s the mother of deleraging stories. We’d put FNP in a deleregaing bucket as well – at least as it relates to expectations for proceeds from its asset sales.)
The stock is hardly washed out – we get that. But the reality is that this for a high quality globally diversified portfolio that has consistent 20-30% EPS growth and improving returns we don’t think that arguing a high teens multiple is a stretch. 18x our 2014 estimate of $3.55 gets us to a $64 stock, or 36% above current levels. Take that out to 2015 and 2016 and we’re looking at $75 and $95, respectively. When we juxtapose that alongside 15x ehat we think is a worst case $2.50 in EPS power, we’re looking 3 to 1 upside/downside over the course of a 12-18 months.
WWW SIGMA: Inventories are extremely clean, which has continued bullish implications for gross margins.
Keith McCullough – CEO
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Jonathan Casteleyn – Financials
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