Daily table revenues averaged HK$1,107 million this week up 28% from the comparable period last year. The strong finish should bring March GGR to grow 11-12% YoY, including slots. Overall, this growth rate was in line with our model projection and indicative of consistent demand from the recent trends of December and January/February. For April, we are expecting mid-teens GGR growth for the Macau market.
In terms of market share, WYNN and Galaxy were the market share winners this month while MPEL and MGM were the clear losers. Q1 earnings for the US listed operators look fairly in line with current projections so investor enthusiasm may not match that experienced during the Q4 earnings season. Going forward this year, we believe LVS has the best shot at growing market share while Wynn Macau, MPEL, and MGM could be slight losers.
In this morning’s macro call with subscribers, Hedgeye CEO Keith McCullough discusses global markets and warns, “We’re watching a market do everything that you don’t want it to be doing. And consensus is not worried about it.”
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Takeaway: In the most recent week, domestic equity mutual funds had drawdowns with fixed income taking the baton as the more stable asset class.
Editor's Note: This is a research note originally published March 27, 2014 by Hedgeye’s Financials Jonathan Casteleyn & Joshua Steiner. For more information on how you can subscribe to Hedgeye, please click here.
Investment Company Institute Mutual Fund Data and ETF Money Flow
In the most recent week, while fixed income inflow wasn't historically impressive considering the significant inflows in the beginning of last year, bonds have clearly been the more stable asset class year-to-date considering declining equity trends especially within domestic equity funds recently:
Total equity mutual funds produced the first week of net outflow in 6 weeks with $968 million of net redemptions, a deceleration from the $3.1 billion inflow the week prior. The $968 million outflow was caused by domestic fund losses during the most recent 5 day period ending March 19th, with $3.8 billion flowing out of U.S. equity funds versus $2.8 billion that flowed into international stock funds. The 2014 running weekly average inflow for equity mutual funds is now $4.3 billion, an improvement from the $3.0 billion weekly average inflow for 2013.
Fixed income mutual funds continued improving fund flow trends for the week ending March 19th with $2.4 billion flowing into all fixed income funds. The breakout of improving bond fund inflow amounted to $2.2 billion into taxable products and a $237 million inflow into tax-free or municipal products. The inflow into taxable products this week was 6th consecutive week of positive flow and the inflow into municipal or tax-free products was the 10th consecutive week of positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $1.5 billion weekly inflow, an improvement from 2013's weekly average outflow of $1.5 billion but a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow).
ETFs experienced positive trends during the week, with a very strong week of subscriptions into stock ETFs with $10.1 billion in net inflow with bond ETFs experiencing a slightly above average inflow of $1.3 billion for the 5 day period. The 2014 weekly averages are now a $620 million weekly inflow for equity ETFs and a $926 million weekly inflow for fixed income ETFs.
The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $5.4 billion spread for the week ($9.2 billion of total equity inflow versus the $3.8 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.2 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.4 billion (negative numbers imply more positive money flow to bonds for the week).
Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.
Most Recent 12 Week Flow in Millions by Mutual Fund Product
Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds
The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $5.4 billion spread for the week ($9.2 billion of total equity inflow versus the $3.8 billion outflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.2 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.4 billion (negative numbers imply more positive money flow to bonds for the week).
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Client Talking Points
The Yen is selling off into month-end, signaling immediate-term TRADE oversold at $103.29 versus the US Dollar. Meanwhile, the Nikkei is signals immediate-term TRADE overbought in kind at 14,857. As growth data in Japan continues to slow, this is a good spot to short the Nikkei to start your Q2.
Consumer price Tax Cuts go to #StrongCurrency countries. The Italians are ringing the register on that front. Check out Italian CPI which is down to +0.4% year-over-year in March. Italy’s MIB Index is powering forward another +0.7% this morning, ramping it to over +14% year-to-date!
Take a look at the CRB Food Index. That’s where the big absolute performance in Global Macro was at for Q114. It is up a monster +19.3% year-to-date. Meanwhile, the US Dollar remains well below its $81.17 TAIL risk line of resistance. No, that’s not good for US consumers.
|FIXED INCOME||15%||INTL CURRENCIES||20%|
Top Long Ideas
Construction activity remains cyclically depressed, but has likely begun the long process of recovery. A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating. Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms. As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.
Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.
Three for the Road
TWEET OF THE DAY
Since inflation slows growth, #YieldChasing continues - Utilities $XLU +1.2% last wk in a down tape to +8% YTD @KeithMcCullough
QUOTE OF THE DAY
"Do what you can, with what you have, where you are." - Theodore Roosevelt
STAT OF THE DAY
Japan’s industrial production fell in February, undershooting all forecasts by economists surveyed by Bloomberg News, as the first sales-tax increase since 1997 risks stalling recovery in the world’s third-biggest economy. Output fell 2.3% from the previous month, the steepest drop in eight months. (Bloomberg)
03/24/14 Monday Mashup: DNKN, WEN and More
03/26/14 PNRA: Expect Some Near-Term Pain
Events This Week
Wednesday, April 2
- BWLD Analyst Day 10:30am EST
Chart Of The Day
The USDA reported last week the U.S. hog herd is at its lowest level in seven years, as cases of the fatal PEDv have tripled over the course of the last three months, killing nearly 8% of the herd. There is currently no cure for the virus, which has shown zero signs of slowing down. Prices of spare ribs and bacon are expected to continue surging in the coming months.
Recent News Flow
Monday, March 24
- SONC reported a strong 2QF14, delivering $0.07 adjusted EPS and beating bottom line estimates by approximately 18.5%. System-wide sales increased +1.4% as company drive-in margins improved 80 bps.
Tuesday, March 25
- RRGB acquired four Red Robin franchised restaurants from Swan Concepts Inc. The restaurants are primarily in the upstate New York area.
- WEN announced the completion of its system optimization initiative with the sale of 104 company owned restaurants in four primary markets. The initiative is expected to lead to higher operating margins, stronger free cash flow generation and higher quality of earnings.
- PNRA held its investor day and the results were generally disappointing. The company reiterated its 2014 guidance, but the initiatives in place (mainly the rollout of Panera 2.0) will take much longer to materialize than the street had anticipated. The company also declined to give 2015 guidance, due to a lack of visibility.
Wednesday, March 26
- DRI Activist Barington Capital officially called for a new CEO at Darden in a letter to the independent board of directors and urged the board to begin looking for Clarence Otis’ replacement.
- TXRH upgraded to buy at KeyBanc with a $30 PT.
Thursday, March 27
- YUM Taco Bell launched breakfast nationwide. The menu includes the Waffle Taco, A.M. Crunch Wrap, coffee and other products aimed at taking share from McDonald’s and other notable breakfast players.
- El Pollo Loco, a fast food chicken chain, is reportedly planning an IPO. The company operates 400 restaurants primarily in the West.
- IRG Chief Marketing Officer, Robin Ahearn, is stepping down to start her own marketing agency. Ignite will not replace the position and plans to work with Ahearn in her new role.
Friday, March 28
- MCD responded directly to Taco Bell’s breakfast rollout and controversial ad campaign by announcing a free two-week coffee promotion featuring its McCafe product line. The Breakfast War hath begun.
US Macro Consumption
Last week was a bloody one for consumer stocks, with the XLY -2.1% vs the SPX down -0.5%. Both casual dining and quick service stocks largely underperformed the XLY index for the second consecutive week. The Hedgeye U.S. consumption model reverted back to neutral, from bullish, and is now flashing green on 6 out of 12 metrics. We continue to believe the current environment is more conducive to select fast casual and quick service restaurants than casual dining restaurants.
XLY Quantitative Setup
From a quantitative setup, the sector turned bearish last week on an intermediate-term TREND duration.
Below we look at the performance of restaurant companies relative to the XLY and recent trends in earnings revisions estimates.
Casual Dining Restaurants
Top 5 Week-Over-Week Divergent Performances:
Positive Divergence: DRI +2.1%, EAT +1.9%, CBRL +1.3%, BAGL +1.3%, TXRH +0.6%
Negative Divergence: BBRG -5.1%, BWLD -3.5%, BJRI -3.4%, BLMN -3.4%, KONA -3.1%
Notable 1-Month Earnings Revisions
Positive Revision: RUTH +2.8%, BWLD +0.2%
Negative Revision: BOBE -25.4%, RT -1.1%, DRI -1.0%, BLMN -0.9%, BJRI -0.6%
Quick Service Restaurants
Top 5 Week-Over-Week Divergent Performances:
Positive Divergence: SONC +8.2%, MCD +4.0%, THI +2.1%, BKW +1.0%, YUM +0.7%
Negative Divergence: PNRA -5.8%, TAST -5.4%, CMG -5.1%, PLKI -3.7%, DNKN -3.3%
Notable 1-Month Earnings Revisions
Positive Revision: WEN +0.9%, PZZA +0.8%, GMCR +0.4%, SONC +0.4%, JACK +0.3%
Negative Revision: PNRA -0.4%, MCD -0.3%, SBUX -0.3%
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