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NKE: A Look At Insider Selling

A lot of people have asked me recently about insider selling at Nike. Here’s some history as to the one-two punch of insider selling vs. company stock repo. There are some key considerations this time around.



Phil Knight is such an icon in the footwear industry – not to mention the holder with majority voting interest. Mr. Knight has not been a ‘serial seller’ of his stock, and in fact hardly sold any in the open market in the first 30-years of his company’s existence. But since he began, he’s sold stock equating proceeds of about $2.5bn (yes – BILLION). Kind of mind-numbing, really, for a guy that started to sell shoes out of a van.  Here’s the part where I bring up that these sales are under a 10b5-1 plan, meaning that it is not Mr. Knight that pulls the trigger, but rather a financial advisor that handles Mr. Knight’s estate planning. Like it or not, the guy is good. His timing has been far better than plans we’ve seen for other executives in retail as well as other industries. But what does that mean? Regardless of who is pulling the trigger, these sales have been timed well in the past.


NKE: A Look At Insider Selling - Phil Knight solo


What’s interesting is that it’s been 17 months since he’s sold a single share. It has been a rarity to see a plan like this executed over time just before a meaningful near-term run up in the stock.


It’s interesting to stack this up against Nike’s own repurchase activity. The facts and numbers don’t lie on this one. In all but one traunch of Mr. Knight’s arms-length selling, Nike was in the market buying shares. Perhaps this is as simple as the company offensively using its bullet-proof balance sheet to mitigate volatility among investor concern about its Chairman selling stock. What we also know is that NKE has not repo’d any shares of substance since Oct 2008. We don’t know the current quarter’s numbers yet. But I’ll be concerned if we see the company not buying any stock, while insiders are selling, AND cash is sitting on its books collecting less than 1% interest.


NKE: A Look At Insider Selling - Phil Knight   NKE Repo Activity


Definitely something to consider.


Darius Dale

The Chinese Consumer – What is wrong with MCD and YUM?

I found it somewhat interesting that the CEOs of YUM and MCD both blamed poor same-store sales trends on the Chinese economy that grew 9% in 3Q09. 


Anecdotal evidence of the behavior of the Chinese consumer is very difficult to come by.  Today, I read an interesting survey on the Chinese consumer and it completely contradicts what the management teams of both YUM and MCD are saying about what is impacting their business.


First, YUM Brands CEO David Novak said on the company’s 3Q09 conference call that “I don't know when the China economy will improve, my guess is that it will strengthen before the rest of the world.”


More to the point, I specifically asked MCD’s management during its 3Q09 earnings call why it felt the need to pull back on China unit growth when GDP grew nearly 9% last quarter.  The answer was so flip I felt like I was dismissed as being uninformed about the Chinese economy. 


Here is MCD’s response to my question...  “GDP in China is very much driven by infrastructure investment.  So you've got to separate GDP from consumer spending.  Two different animals and then, worry is growing around the country.  So the Chinese consumer is a big saver when they're worried about what's going on, and so we've seen that.  We're not going to chase the traffic there from a significant price point of view.  And so, we see the consumer coming back there, so it's not any kind of long-term concern but the GDP numbers that you hear are the level of infrastructure investment that's being put in along with incentives for things like car buying, et cetera, which do not affect the consumer every day on the retail side.  And so, we modeled on the retail data and plan ourselves accordingly.”


MCD went so far as to cut back unit development in China and YUM did not.  I have thought that YUM should do this for six months now, but management suggests that I should not think like a typical US-centric restaurant analyst and I need to view China differently.  Time will tell.


Over the years I have found BIGresearch very helpful in detecting consumer trends here in the US.  BIGresearch just recently published a poll on the Chinese consumer that makes me question what both YUM and MCD are saying about the Chinese consumer.  Although both companies stated that they are seeing signs of improvement in China, both companies are expecting some softness to remain in the near-term as a result of the relatively weak consumer. 


According to the BIGresearch poll “The effects of a global recession continue to be felt around the world, except maybe China, where credit is flowing, and consumer confidence is rising and young Chinese consumers are planning to spend money.”


According to BIGresearch’s 17th China Quarterly, of which there were 12,641 18-34 year olds and 15,168 total respondents, 64.7% of Chinese Consumers 18-34 are confident/very confident in the chances for a strong economy versus 61.3% in Q2 2009, and up almost 40% from Q4 2008.  It would make sense that this sequential improvement in consumer sentiment would be reflected in MCD’s and YUM’s China results, but YUM’s same-store sales growth in China continued to decline in 3Q09 on a 2-year average basis and MCD’s comps are still running negative. 


According to the survey, “The improving trend likely reflects the success of the large stimulus package introduced by the government in early 2009.”  But there is no love for KFC or McDonald’s! 


The survey goes on to say “the young Chinese consumers have a higher propensity to buy a new vehicle or make a big dollar purchase than Americans the same age, which could be due to growing credit markets in China. For example, 24% of Chinese Consumers say they are planning to buy/lease a vehicle in the next six months, up 22.0% quarter-over-quarter, and a whopping 64.7% year-over-year. This compares to 13.4% of 18-34 year old Americans who say the same.  It appears that the young Chinese consumer economic outlook has started to improve.”


As compared to the US consumer, the Chinese confidence in the economy is increasing and their outlook regarding employment is better.  If we saw the same trends in the US, nobody would be making excuses for poor trends.  Instead, we all would be asking what is wrong with the concept.  Right now, both companies are getting a free pass on trends in China.

US Consumer: Lower-Highs...

On US Consumer spending slowing sequentially, Howard Penney has been as right as the rain feels today in New Haven. If some people don’t understand that the Dollar Down doesn’t get everyone paid at this point, some of those people probably wouldn’t know they are getting wet when rained on either.


The better balance of the rally in stocks since the summer’s highs had everything to do with a US Dollar debasement. We called this Burning the Buck. As the Buck Burns, Debtors and Bankers get paid – the Consumers and Creditors pay the bill.


While I have covered our short positions in both US Consumer ETFs in the last 2 days (XLP and XLY), that was simply because they were down. I will re-short them, at a price. This is not a V-shaped or squiggly shaped Cinderella US Economic recovery. It’s the same kind of recovery we have had in 11 out of the last 11 recessions – 1 to 2 quarters in length, then the US Consumer will call it from there. Stay tuned.


For now, Consumer Confidence continues to make a series of lower-highs (see charts below). Americans are not as stupid as Washington thinks they are.



Keith R. McCullough
Chief Executive Officer


US Consumer: Lower-Highs...  - a1

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BYD Gaming Q3 Conf Call



Soft quarter for BYD, particularly in the Las Vegas locals market, in both revenues and EBITDA.  The table below presents our view of the Adjusted EBITDA comparisons.  BYD missed our EBITDA estimate by almost $2 million driven by lower revenues. The Borgata EBITDA was surprising high.  YoY EBITDA actually increased 13% driven by lower operating expenses.


The company reported their own Adjusted EBITDA number $96.6 million which was below the Street at $104.3 million.  Revenues of $398 million fell below the Street at $413 million.


Two other takeaways from the release: 

  1. Echelon construction likely won’t be resumed for 3-5 years.  This is probably a positive.
  2. Spend per visit continues to decline – we’ve highlighted this in past posts and is consistent with our thesis on consumer spending.

We still don’t like the regionals (gas prices will be a huge headwind) and this release provided some corroboration of our thesis.  However, BYD at lower levels will start to look interesting given the attractive free cash flow profile. 






  • Reengineered business model
    • Cost efficiency – y-o-y improvement in operating margin and EBITDA at 3 out of 4 business units
    • LV locals market was the only negative standout
    • Las Vegas market is very challenging, won’t be bad forever. Confidence in long-term.  More cost efficiency will improve bottom line on rebound
  • Echelon halted for 3-5 years.  Reasons:
    • Long, deep recession
    • Consumer spending patterns changed for the worst
    • New supply (10k + new rooms) with depressed demand
    • Financing unavailable
    • Long term LV strategy remains intact
  • STN
    • Bankruptcy process costly and drags out
    • STN trying to restructure for nearly a year, no agreement yet
    • Ready to begin due diligence as soon as permitted
    • The bid is serious and BYD has capability to execute a transaction in the best interest of customers, employees, and Las Vegas.
    • Strategically fits BYD’s plan, makes sense for BYD shareholders 


  • High unemployment – 14%
  • Depressed house prices – 50% from peak
  • Lower spend per visit
  • Traditional summer seasonality
    • Very soft August (over half of $14 million EBITDA decline was from August)
  • Declines in ADR decreased EBITDA significantly
  • September saw a moderation in performance 



  • EBITDA rose yoy for third quarter in a row
  • Hawaiians coming
  • Hawaiian charter had little yoy effect, growth was due to operating growth


  • Market share growing
  • Delta downs tough comps in 4Q and going forward so recent growth rate will slow
  • LA lacks incremental demand needed to absorb more supply
  • Blue Chip EBITDA up 20% in Q3


  • EBITDA grew from focus on margin improvement and pursuing more profitable revenues
  • 18.9% marketshare in Sept., up 1.1%
  • Stabilization trend continued in 3Q.
  • Maximized EBITDA in reduced consumer spending environment


Balance sheet

  • Leverage was below 6.0x vs. 6.5x covenant. 
  • No capitalized interest ($10m last year)
  • Borgata leverage 2.6x. Covenant calc benefited from gain on insurance settlement due to water club fire.
  • Will remain in compliance with financial covenants
  • Reduced debt by $50 from Q2 to end of Q3



  • Tax rate will be the same in Q4 as Q3
  • Expect Borgata to pay larger distribution to its partners in Q4 as a result of insurance settlement
  • Borgata paid out dividend of $3.2 million in Q3



  • Any Echelon costs lingering in quarters going forward?
    • Only costs now are normal recurring of ~$15m this year and less in the following years. Very limited capex for Echelon going forward- $20MM in 2010
  • AC smoking ban               
    • Awaiting city council decision
    • Hoping for 25% of casino floor to be allowed to smoke
  • Sept moderated…was October better also?
    • We’ll see where it plays out. Gets slower past Thanksgiving. Withholding comment on 4Q for now
  • 3.6m gain from debt repurchases? Which notes were bought?
    • 30 m worth of bonds in 3Q – equally split between each of the three issues
  • Echelon. 3-5 years, will there be a skin put on it? Will anything be done to protect structure?
    • It’s in Vegas, good climate so little needs to be done. We’ll monitor it, though.
  • Weighing the prospective STN acquisition with other opportunities in new gaming jurisdictions? Distressed markets? Walk us through analytical approach to those? How does STN weigh out better?
    • We look at many opportunities each week. We see if they fit our strategy…if the market is growing…if it’s a good prospective market…our focus on STN does not preclude us from looking at other assets. We’ve looked at distressed assets and either we don’t like the asset, the market, or the price. We’re looking though.
    • Valuations can be appealing in this economy, but we are in an environment where acquisitions are more appealing than developments but that doesn’t mean we don’t look out for development opportunities
  • Interested in other locals properties aside from STN?
    • Sure ... if there was anything available that made sense
  • Blue Chip performance?
    • Summer is the peak season
    • Was up 20% of EBITDA, despite new Indian casino opening in August (Firekeepers)
    • Should continue to show growth in winter months
  • Plans for Dania?
    • Continue to monitor the market, and the state of the compact with the Seminoles
    • Waiting for the right time to make an investment there


Today’s Case-Shiller report showed that the composite index of home prices in 20 metropolitan areas rose 1.2% month-to month in August, above the consensus estimate of a 0.7% increase.  The magnitude of the increase, however, declined on a sequential basis for the first time in four months.  In July, the index improved 1.6% month-to-month.  Nonetheless, the rate of annual decline in home price values continues to improve. 


The question about whether these trends will continue to show sequential improvement rests on the upcoming November 30 expiration of the government's $8,000 tax credit for first-time home buyers.  Also impacting these housing numbers are the anticipated higher unemployment rates through year-end and the apparent trend toward lower consumer confidence numbers, which was more evident today following the disappointing conference board reading. 


These issues, coupled with a new wave of foreclosures hitting the housing market in early 2010, suggest that the improvement in pricing trends are sure to slow down and may even begin to deteriorate further.


As always, any discussion about Case-Shiller needs the disclaimer that the data we are looking at is for August 2009.  The more recent data that we have seen from the homebuilders and the housing market in general suggests that the trend is slowing.    Two weeks ago, it was reported that the National Association of Homebuilders housing market index dipped to 18 in October from 19 in September, falling below market expectations for a reading of 20.  While the index has improved significantly from the January 2009 reading of 8, it is only up from 14 in October 2008. 


In short, our current view on housing has not changed - Given the pace of new homes being built, the current inventory of unsold homes and the potential number of homes that are in distress is likely to increase.  Put simply: the housing overhang is here to stay. 


Howard Penney

Managing Director




EYE ON HOUSING PRICES - caseshiller1




Steve's commentary

  • "It hasn't been too bad this quarter"
  • 1Q09 confirmed their worst fears for LV, 2Q09 wasn't much better, and in the summer things began to pick up
  • If things continue as they are they will beat the 08' results in Vegas this year and in Macau
  • If rate at Encore was $350 then annual EBITDA would have been $150MM higher
  • Room rates are still down because midweek rates are weak given lower business/convention travel
  • People that come to Vegas are spending less on everything 
  • Get the benefit of some Asian spill over
  • Capital structure (ie low debt) protects their franchise until the economy improves
  • You can always buy revenues, its the bottom line that matters - D&A is real (meaning capex) and so is interest expense
  • "Bigger is not better - better is better"... love the Sheldon shot
  • It's not about market share it's about the free cash flow and ROI - basically he's saying that his equipment is most productive and he runs his casinos most efficiently in terms of maximizing ROI per gaming position
  • Encore in Macau is completely budgeted and under control.  Opened some parts already will be 100% open by April
  • Prettiest and most beautiful thing they've ever built
  • Building was built to meet the needs of the VIP business in Macau... "in a hundred cunning ways it will ingratiate itself with the customers"


  • Domestic high end business - is that improving? 
    • International has held up well, but the high end domestic business has just not returned yet
  • How does the group convention calendar look for 2010/2011?
    • Booking window is still very compressed.  Hearing that people will start spending their budgets, but that won't happen until 2Q2010 ...as they wait for things to stabilize
    • Had two large cancellations last week... I love how honest Steve is... he thinks that there is still political stigma coming to Las Vegas
  • Response to City Center?
    • Focusing on the fundamentals, employee morale and good service
    • They know that a lot of people will go and check it out... nothing they can do about that.  The experience they have at CC will determine whether they come back to Wynn....
    • If CityCenter cuts prices it will hurt them
  • Increases in expenses can be attributed to utilities/etc rest was seasonal and revenue driving (ie variable as a result of higher revenue)
  • What they expect in additional costs when Encore Macau opens?
    • They are very room constrained, more rooms will allow them to capture more mass market shares
  • What will they do with the IPO proceeds?
    • Protect himself from a dollar that is getting creamed... he's very worried about the depreciating dollar ... will hedge the weakening dollar.
      He sounds like Keith McCullough and the Burning Buck
  • Klatzin asks the question again... in a different way ... Hey Steve will you buy anything with all that cash?
    • Asia seems to be a better bet now.  Uncertainty in the US economy is devastating, and that impacts all of their decisions
  • Visa restrictions in Macau?
    • All the talk of about visa restrictions is becoming quite irritating, all media hype and noise
    • 50% of their visitors are from mainland china
    • Oct holiday was very strong and the period post holiday was seasonally slower as usual. Oct was good
    • "We don't feel uncertainty in Macau"
  • What about Singapore?
    • If the central government thought that Singapore was a threat to their gaming enclave, they change visa restrictions (and taxes)
    • Doesn't think that they lower tax rate in Singapore, and hence the ability of junkets to give higher incentives, will not be a threat to Macau
      • We are worried about Singapore... I wish someone asked the question on what % of Wynn's visitors come from SE Asia 
  • Cotai?
    • They are working on the project but won't discuss it until they are ready to
    • When I was there at the end of Sept there was nothing going on at the site
  • No comment on Acqueduct
  • Any changes to the government policy in Macau?
    • Use the visa program to balance quality of life for people living and working in Macau and the business well being in Macau
  • Corporate expense - little lower than where its been running? Comment
    • Yeah and SG&A was higher - which more than offset that decrease... can you say re-allocation?
    • Payroll cuts and cost control efforts - don't assume that that is a good run rate either
  • Dollar commentary and desire to get less exposure to that... what is he implying?
    • In the past they have converted all their foreign profits into USD ... re-evaluating that
  • Lots of projects/ land available in Las Vegas - any interest?
    • Until there is more certainty in the US they will not be expanding in the US
  • How much of the cost reductions we saw earlier this year will be sustainable
    • Garth Brooks in the 4Q09 - big deal
    • Bought him a jet so that he can come and go
    • First 20 shows are sold out, attracting a lot of people to Las Vegas that haven't come in a long time
    • Entertainment has been the trickiest thing to get right in this business... so bottom line they spent a lot of money on that
    • Other than that things should trend flat from here 
  • Accounting question about WYNN Macau 
    • NI attributable to non-controlling holders right below the NI line
    • Don't you wish that sell-side analysts understood basic accounting?
  • What will become of Fontainebleau?
    • Disconcerting to have half complete projects all around them
    • Another shot at Sheldon - sites 5 & 6
  • "Cosmopolitan is another pending disaster"

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