Takeaway: Margins missed expectations in Q4 and fell to lowest level since Q1 2012. Ph2 table request application submitted yesterday.


  • Special dividend of HK$0.28 on May 22
  • Q4: Playing lucky benefited EBITDA by HK$35m
  • Galaxy Ph2 opening: on time
  • Operating velocity remains unchanged
  • Galaxy Macau: Playing lucky benefited EBITDA by HK$40m
  • Opened 2 VIP rooms (1 in December 201`4 and 1 in February 2015)
  • Starworld: bad luck of $5m
  • Galaxy Macau Ph2: invested HK$10.8bn (HK$1.8bn in Q4 2014).
  • Q4 2014: $790m total borrowing capacity


Q & A

  • Galaxy Ph2:  
    • Not as much VIP offering as you would expect given there is not much junkets out there
    • Cost of running property shouldn't change much per laborer
    • Officially submitted table requests yesterday.  Govt will be pragmatic about the process. Will be sitting down with govt very soon. Will not talk about table # expectations on the call.
  • 5 small VIP operators ceased operations in 2014 at Galaxy
  • 1-2% margin impact on employee retention program
  • Direct VIP:  growing but still very small part of overall VIP business. That segment has done well.
  • Labor cost pressures:  increasing staff numbers, compensation costs up ~20%.  Will continue to offer competitive package to employee and will evaluate pay costs in mid-year.
  • Full smoking ban:  very serious issue. Working with govt. 
  • Mainland China not only targeting Macau on corruption issues
  • Cannibalization between Starworld and Galaxy Macau:  not an issue since one property in Peninsula, one on Cotai. 
  • Galaxy Ph3/4 opening: 2018 (unchanged from previous commentary)
  • Want have some flexibility regarding dividends

WSM/RH – The Only Chart That Matters

Takeaway: This is pretty much the only WSM chart we really care about.

WSM/RH – The Only Chart That Matters - WSM RH comp 2


The 4Q WSM comp was uninspiring at face value at 5.1%, though to be fair the 2-year trends held steady across every concept except for PB Teen (only 6% of rev). But the key for us is that comps trended down for WSM, and trended up for RH (which already preannounced the quarter it will report next week). These two names are often mentioned in the same sentence. But keep in mind that one of them (WSM) grows square footage at 2% on its best day and is comping mid-single digits. The other has square footage growth accelerating to 25% by the end of 2015, and just comped 24% (the second best comp in all of retail behind Kate Spade’s 28%).


WSM took down 1Q guidance, which was almost entirely due to the impact of the West Coast Port issues. The Street will probably look through this, and it should. We certainly will.  But the question about the impact on RH from labor issues has already come up in the hours since the WSM call.


Could RH see some impact? Yes. It definitely could, and we expect there to be mention of it on the call. The company is far less mature than WSM and therefore has less experience dealing with issues like this. But keep in mind one important factor…the business that is at risk of being lost forever is what we’d call ‘cash and carry’. That means that the consumer goes into the store, and walks out with the merchandise in their hands. If it’s stuck on a container ship, the consumer is likely walking away empty handed. Consider the following…

a)      An apparel company (which is near 100% ‘cash and carry’), that has delayed containers, gets the merchandise several weeks into the season – after the consumer has already made full price purchases. The goods ultimately get sold, but at a deep discount. That’s problematic.

b)      By our math, WSM is closer to 30-40% ‘C&C’. Far from optimal, but the nature of its category carries less risk than apparel, footwear, or some other non-durable category.

c)       RH, however, has an estimated 5% of its business that walks out of the store with the consumer on the day of purchase. Could some of that be lost? Yes, and some will. But the remainder of the impact should come down to an extension of the time it takes to deliver product. Maybe it takes 12-weeks on a custom order instead of 7-8 weeks, and yes, that could push revenue into 2Q. If anything, this will simply come down to when the revenue is recognized. When all is said and done, we’d argue that RH is structurally more insulated from lost revenue than any other type of retailer. It will probably come down to a matter of timing.


Takeaway: The good news: premium mass table minimum bets seem to have stabilized. The bad news: grind mass minimum bet size continues to drop

  • The continued lower trend in bet minimums for grind mass is troubling. We fear revenues for this very profitable segment could meaningfully disappoint relative to Street expectations.
  • Premium mass minimum bets have stopped falling – a partial offset to the very concerting trend in the higher margin grind mass segment
  • Minimum bet size is a form of pricing and is indicative of current and expected demand. Since neither the companies or the Macau government data breaks down mass revenue segments, the table bet minimum data depicted below is very useful.
  • If the table minimum bet data is indicative of grind mass revenue trends, LVS estimates could be the most at risk and the stock could present the most near-term downside.  LVS is the undisputed leader in the grind mass segment.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.35%

$TLT And The Sweet Taste Of Victory

Bond Rally Over? (David Tepper) Owning $TLT Like Picking Up Nickels In Front of Steamroller? (Doug Kass) Wrong



$TLT And The Sweet Taste Of Victory - z tlt


Virtually all of our firm's many loyal customers and supporters (as well as detractors) around the world know that Hedgeye CEO Keith McCullough and our macro team have been arguably the most vocal proponent of being long the long bond via TLT on Wall Street.


It's worked out pretty well for us.


Following the release of the Fed's policy statement today, the 10-year yield fell all the way down to 1.92% (from 2.05% before the announcement.)


As you can see in the chart above, it's been a bumpy, but very profitable ride for us.


It's also timestamped. (See below current Real-Time Alerts signal from 4/1/14)

$TLT And The Sweet Taste Of Victory - z rta ex

Click to enlarge. 


An over 21% return? Not too shabby. Especially when compared to the S&P 500.


$TLT And The Sweet Taste Of Victory - Z TLT VS SPY


It's also important to mention that this TLT position hasn't been without some degree of controversy. It's received more than its fair share of criticism from basement dwellers trolling on Twitter, as well as some more well-known market pundits.


(See tweet below from said gentleman behind computer screen in Boca Raton ... who, incidentally, was attempting to make fun of our position in this particular tweet, despite the fact the he currently "blocks" us. It hasn't worked out so well for him.)

$TLT And The Sweet Taste Of Victory - z kass


We would be remiss not to mention the grand poobah pronouncement by David Tepper heralded on Bloomberg by Stephanie Ruhle back in September that: 


"It's the beginning of the end of the bond market rally. We are done."


Ehh, not so much.


Heck... we even ran a poll on it.


$TLT And The Sweet Taste Of Victory - z1

For the record, we remain long TLT.


***In closing, here's a look back at a handful of our inimitable cartoonist Bob Rich's cartoons. We thank you for continued confidence in us. Enjoy!


August 29, 2014

$TLT And The Sweet Taste Of Victory - Fightin  Words 08.29.2014


July 27, 2014

$TLT And The Sweet Taste Of Victory - 3  yield Godot 07.27.2014


October 7, 2014

$TLT And The Sweet Taste Of Victory - TLT cartoon 10.07.2014


December 12, 2014

$TLT And The Sweet Taste Of Victory - 1  cartoon 12.12.2014


January 6, 2015

$TLT And The Sweet Taste Of Victory - 10yr yield cartoon FIX 01.06.2015


January 26, 2015

$TLT And The Sweet Taste Of Victory - TLT cartoon 01.26.2015




INSTANT REPLAY (1 Min Fed Video) | McCullough: You Buy Everything!


Hedgeye CEO Keith McCullough (colorfully) responds immediately following the release of the FOMC policy statement with thoughts on how to be positioned.  


CLICK HERE for a replay of Keith's real-time reactions to the FOMC statement


CHART OF THE DAY: COO-ish - Fed cartoon 03.18.2015NEW

“Just because we removed the word patient from the statement doesn’t mean we are going to be impatient,” Fed Chair Janet Yellen said in a press conference Wednesday in Washington.