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GALAXY Q3 2014 CONFERENCE CALL NOTES

Takeaway: If we had to pick one (we don't) Macau long, Galaxy would be it, owing to an earlier opening of Phase II and more defensible VIP exposure

Mostly in-line quarter on lowered expectations. Only operator to grow VIP YoY in Q3

 

 

GALAXY Q3 2014 CONFERENCE CALL NOTES - gdgdg

 

 

CONF CALL

  • Perfect storm in Macau
  • Only company in Macau to report gains in VIP revenues and volumes
  • Galaxy Macau
    • VIP bad luck reduced EBITDA by HK$50m
    • Win/table/day +27% YoY
    • Shifted 10% of mass capacity to VIP rooms
    • Slot:  reported record win
    • LTM ROI:  60%
  • Starworld 
    • Win rate:  2.66%
    • No bad luck impact
    • Closed 2 VIP rooms in 3Q and additional 2 VIP rooms in October (15% of capacity) to reallocate tables to higher yielding use (mix of VIP and MASS).
    • LTM ROI: 108%
  • Galaxy Macau PH2:  on budget, on schedule for mid-2015, excited to introduce Ritz Carlton and JW Marriott hotels to the market
  • Grand Waldo:  on schedule; will unveil plans in January; aim to re-launch in early 2015
  • Galaxy Macau Cotai 3/4:  will double area of Ph1/2 to 2 million sq meters
  • Debt:  $240m at end of 3Q 2014

 

Q & A

  • Smoking ban:  have fully complied with regulations
  • Mass premium tables reclassification into VIP:  working close with govt on clarity on this issue.  There is cash play in VIP direct rooms. 
  • Starworld/Galaxy Macau 99% occupancy:  everyone is running near full capacity; market is undersupplied
  • Japan/Taiwan/South Korea:  actively exploring partnerships in Japan
  • Corporate expense: will see some lift when PH2 opens but trying to do things as efficiently as they can
  • Junkets:  large guys are getting better; smaller guys are experiencing challenges
  • Galaxy Macau PH2:  
    • Will have additional smoking chambers in mass floors (have 4 in PH1 and developing some in PH2 to comply with regulations)
    • Retail:  Fully leased; rents are healthy
    • VIP rooms Galaxy Macau:  still sees strong demand and into PH2.
      • Combination of new and existing junkets into PH2
    • Will add 6-8k new employees (4-6 wks from openings); quite confident in getting the necessary labor
  • Table allocations for PH2 and Grand Waldo:  have certain expectations; still in dialogue with govt

Cartoon of the Day: Central Planning #Failure

This grand central planning experiment? It's failing where it matters most, in economic growth terms.

Cartoon of the Day: Central Planning #Failure - Growth cartoon 11.10.2014


We're Sticking with Our (Very) Successful Macro Call | $TLT

Editor’s note: This is a brief excerpt from CEO Keith McCullough’s morning research. Click here for more information on how you can subscribe.

 

The UST 10YR Yield is down hard on the October jobs report, and down again to 2.29% this morning after trading 10-12 basis points higher into jobs day on misbegotten hopes that the U.S. isn’t slowing like the rest of the world is.

 

Newsflash: It is.

 

We’re staying long the Long Bond (via TLT) and bond proxies. That’s where the fundamental performance is and has been all year. 

 

We're Sticking with Our (Very) Successful Macro Call | $TLT - 11.10.14 TLT Chart


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

MCD: October Sales Weak

MCD reported same-store sales for the month of October this morning.  Despite weak numbers across the board, they were admittedly better than feared:

  • MCD Global SSS -0.5% vs -2.2% estimate
  • MCD US SSS -1.0% vs -1.9% estimate
  • MCD Europe SSS -0.7% vs -2% estimate
  • MCD APMEA SSS -4.2% vs -6.1% estimate

 

Our take on October sales numbers were (1) estimates for the month were quite low after a disastrous September and (2) even after a small upside surprise this month there is no light at the end of the tunnel for a true recovery.  

 

Global, US, Europe and APMEA comps all accelerated meaningfully in October.  Comps in all four regions, however, remain negative on a two-year basis, suggesting there is still much work to be done; particularly when considering the strength we’ve seen in the industry over the past few months.  MCD continues to lose market share to BKW, JACK, SONC, WEN and others.

 

MCD: October Sales Weak - 111

 

Rhetoric showed no sign of direction, as CEO Don Thompson merely emphasized the need for change without much of a plan to get there.  Some initiatives to stem the company’s multi-year decline are underway, particularly in the US where the team is changing its marketing approach, simplifying its menu and creating a new organizational structure.  We expect these efforts, however, to fall short.

 

Despite positive results, on the margin, it is important to recognize that McDonald’s continues to face significant challenges across the globe.  The US struggled during the month due to “strong competitive activity;” Europe was hampered by “very weak” results in Russia; and APMEA continued to suffer from the ongoing impact of the supplier issue. 

 

As we’ve previously mentioned, it will be a long road to recovery for MCD and we're not convinced it is even underway.  It has yet to be proven that management’s initiatives will succeed and, at 17.5x NTM P/E, is difficult for us to support this stock.  We continue to stay on the sidelines here, with a bearish bias.

 

MCD: October Sales Weak - 222

 

MCD: October Sales Weak - 333

 

MCD: October Sales Weak - 444

 

MCD: October Sales Weak - 555

 

MCD: October Sales Weak - 666

 

Feel free to call, or email, with questions.

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst


New 'Nike Flash' Campaign Is a Bigger Deal Than Financial Media Thinks

Quick Takeaway from Hedgeye's Brian McGough:

 

This new Nike Flash campaign is a bigger deal than the financial press will give it credit for. It's geared largely toward running, and as shown in the pictures below, the product literally glows when under a light (most notably -- a car's headlights for people who run early morning and at night). The jacket shown below retails for just under $500, and the shoes between $100-$150.

 

Most notable here is that the old way of doing things at Nike is that the company would come out with a shoe, or a shirt, and they would literally have nothing to do with one another -- and that's because the footwear and apparel organizations did not come out of their silos. But now the product is integrated in design, manufacturing, logistics, and presentation at retail. 

 

This collection will only be available at Nike online and Nike retail stores. Sorry, Foot Locker.  

 

New 'Nike Flash' Campaign Is a Bigger Deal Than Financial Media Thinks - n9


Retail Callouts (11/10): NKE, FL, SHLD, TGT, HD, TJX

Takeaway: Nike ‘Flash’ = great example of growing around traditional retail. Sears REIT = Bad Idea. Banks vs retailers on Cyber attack liability.

EVENTS TO WATCH

 

Retail Callouts (11/10): NKE, FL, SHLD, TGT, HD, TJX - 11 10 chart1

 

COMPANY HIGHLIGHTS

 

SHLD - Potential REIT Formation

 

Takeaway: Let's not forget that Dillard's attempted to structure a public REIT in 2011, but never got it done. The market's appetite for anything other than primo mall properties is simply not there. Sears talks about 200-300 locations, but Sears only has 130 'A' Mall locations.  The property location is critical here -- more so than with other transactions. Dillard's at least will likely remain a viable entity for a fairly long time. Sears, however, has a 95% likelihood of being wiped clean from the retail landscape within five years -- and 60% chance within 3-years, in our opinion.  We can come up with a list of retailers/restaurants who would want a piece of the 'A' Mall properties Sears owns when it goes away, but at best we can identify a home for a third of the real estate SHLD owns. Overall, this transaction seems unlikely to us -- unless financial terms are egregiously skewed in favor of investors.

 

NKE - Flash Collection

 

Takeaway: This new Nike Flash campaign is a bigger deal than the financial press will give it credit for. It's geared largely toward running and as shown in the pictures below, the product literally glows  when under a light (most notably -- a car's headlights for people who run early morning and at night). The jacket shown below retails for just under $500, and the shoes between $100-$150. Most notable here is that the old way of doing things at Nike is that the company would come out with a shoe, or a shirt, and they would literally have nothing to do with one another -- and that's because the footwear and apparel organizations did not come out of their silos. But now the product is integrated in design, manufacturing, logistics, and presentation at retail.  This collection will only be available at Nike online and Nike retail stores. Sorry, Foot Locker. 

 

Retail Callouts (11/10): NKE, FL, SHLD, TGT, HD, TJX - 11 10 chart2

 

TGT, HD, TJX - Banks take on retailers over who foots cyber attacks bill

(http://www.ft.com/intl/cms/s/0/23f1339c-6778-11e4-84feabdc0.html?siteedition=uk#axzz3Ifj64F1C)

 

  • "In a rare show of unity, industry bodies that represent banks are banding together to urge lawmakers to introduce legislation that would force retailers to pay for the clean-up themselves during the new session of Congress next year."
  • "The data breach at the retailer, which the company reported in September, cost community banks and credit unions at least $160m to reissue cards and pay for other services related to the attack. Home Depot estimated that the breach cost the company at least $62m."

 

Takeaway: This isn't applicable to the breaches at TGT and HD, but it's the driving force behind banks pushing for a change in legislation. The biggest breach in history at TJX in 2007 compromised nearly 100mm cards and cost the retailer $256mm. TGT's stats look like this - 40mm cards compromised at an estimated cost of $129mm. We have to assume that banks are eating 2 to 3 times that amount. It makes sense to us that Retailers could and probably should be left holding the bag when their internal systems fail.

 

OTHER NEWS

 

WMT - Wal-Mart Feels Pinch From China Austerity Campaign

(http://online.wsj.com/articles/wal-mart-says-china-sales-hurt-by-nations-austerity-campaign-1415550596)

 

  • "The Bentonville, Ark., retailer’s same-store sales in China declined 1.6% from a year earlier for the quarter through July."
  • "Wal-Mart isn’t concerned about slowing growth in the world’s second-largest economy, Mr. Price said. He said he was sticking by a plan to have around 480 Wal-Mart stores in China by the end of 2016."

 

NKE - Nike & Adrian Peterson: No More

(http://www.wwd.com/footwear-news/business/nike-adrian-peterson-no-more-8025541)

 

  • "The football player is the fourth athlete in 2014 — after Ray Rice, Oscar Pistorius and Jon Jones — to lose a contract with Nike."

 

AdiBok - Reebok to Launch Wearble Tech in '15

(http://www.wwd.com/footwear-news/markets/buzz-new-launches-from-reebok-asics-more-8026207)

 

  • "The athletic brand told Footwear News last week it plans to enter the wearable tech business in 2015."

 

M - First Persian Gulf Macy’s to Anchor $1 Billion Mall

(http://www.bloomberg.com/news/2014-11-10/first-persian-gulf-macy-s-to-anchor-1-billion-mall.html)

 

  • "The Persian Gulf’s first Macy’s Inc. department store will be part of a $1 billion Abu Dhabi mall planned by Gulf Capital and Stephen Ross’s Related Cos."
  • "The Al Maryah Central mall will connect with an existing luxury shopping center called the Galleria on Al Maryah Island. The mall will have 2.3 million square feet of space and the project includes a tower containing a 200-room hotel and another with about 300 serviced apartments…"

  

Gilt Groupe - Gilt Turns Eye Toward Asia

(http://www.wwd.com/retail-news/direct-internet-catalogue/gilt-eyes-china-8026367)

 

Retail Callouts (11/10): NKE, FL, SHLD, TGT, HD, TJX - 11 10 chart3


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