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Takeaway: Macau table minimum and average bets still moving lower for the high margin base mass tables

  • The following charts depict our proprietary monthly table bet data updated for April
  • While posted minimum bet levels could be stabilizing in premium mass, base mass minimums continue to accelerate to the downside
  • While somewhat anecdotal, observed average bet levels are still declining for both premium and base mass
  • The data suggests further EBITDA estimate cuts are in store for Macau gaming operators as the Street continues to underestimate the deterioration in high margin base mass. Margin estimates remain too high for LVS, MPEL, MGM, and WYNN.




Cartoon of the Day: Hyperactive

Cartoon of the Day: Hyperactive  - Bond cartoon 05.13.2015

"Epic moves, almost daily, now [in U.S. Treasury bonds]," Hedgeye CEO Keith McCulloug wrote earlier today. "But I’d have to see a sustainable close over 2.39% to shake me out of Treasuries."

U.S. Dollar Is Melting Like The Economic Data

U.S. Dollar Is Melting Like The Economic Data - z doll


The U.S. Dollar continues to break down from an immediate-term TRADE perspective as the U.S. economic data continues to slow in rate of change terms. The EUR/USD risk range has tightened up too (higher-low, which is new) to 1.09-1.13.


The latest #Growth slowing data point was today’s lackluster Retail Sales report which came in flat for April. Clearly no cause for celebration.


U.S. Dollar Is Melting Like The Economic Data - z 1 chart


On a related note, Oil loves Down Dollar; absolutely loves it – but does the consensus Consumer bull case on “lower gas prices” share the love? WTI up another +1.2% this am to $61.53 and is also signaling higher-lows within its $55.06-62.36 risk range.


Get the dollar right and you get a lot of other market things right.


U.S. Dollar Is Melting Like The Economic Data - z 3 chart


Editor's Note: This is a brief excerpt from Hedgeye morning research. Click here to learn more about how you can subscribe to our investing products.

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Retail Callouts (5/13): RL, M, KSS, LULU, NKE, AMZN

Takeaway: RL- No Rush Here. M- This Was A Bad Number. LULU- Board doing what it needs to, shake up management. KSS selling banner ads on e-comm site.


Retail Callouts (5/13): RL, M, KSS, LULU, NKE, AMZN - 5 13 chart2





RL - No Rush Here

Nice headline beat by RL ($1.41 Street at $1.32), but this can hardly be called a victory with the company earning $1.83 last year. In fact, comps were down -4.0% -- a sequential slowdown on a 1 and 2-year basis. The ensuing algorithm was less than stellar. Total revenue was up a whopping 1% due to Wholesale (up 2.4%), Gross Income down 1%. EBIT down 16%, and EPS down 23%. On the plus side, the cash cycle was 'less bad' -- up only 2 days vs last year to 122 days. Also, on a go-forward basis FX was guided to -450bps, a positive delta from the -550bps handed out at the end of RL's 3Q. On top of that RL upped the stock repo authorization by $500mm to a total of $580mm. But truth be told, we'd rather it be executing better on its business and not be buying any stock than the opposite. Also a $580mm authorization for a company with $11.3bn in equity value and $1.15bn in cash and short term investments sitting on the balance sheet is hardly anything to write home about.


We believe in this brand. It's not dead, and not dying -- like some people are suggesting. And we love to buy stocks of great brands when the top line is under pressure, margins are caving (due to sustained investment) and capex is going up. This is exactly what RL is right now. But there's something that we can't put our finger on right now with Ralph compared to other cycles. Maybe it's that the company is not buying back geographic/product licenses and therefore the ROI on investment is simply harder to calculate. That's an opportunity for those who can figure it out faster than us. But we can't shake the concern that this is another 1-2 year investment cycle that might not end until the CEO and Founder (who is immensely involved in the day to day operation) is in his late 70s.

Retail Callouts (5/13): RL, M, KSS, LULU, NKE, AMZN - 5 12 chart4


M - This Was A Bad Number

  1. 10% earnings miss was the worst downside surprise M has posted since 2Q07. This is the first time the company has not grown earnings since 2010. Comps decelerated by 270bps from 2% to -0.7% on a 2yr basis sequentially. Not a good barometer for the rest of the industry.
  2. Deleveraged -0.7% sales growth into -7% EPS growth. Gross margins up 10bps as inventories looked good coming out of 4Q. SIGMA trajectory moved into Quad 3 as margins deteriorated and sales/inventory spread -3.5%. SG&A delivered by 60bps. And management indicated that the brunt of the port issues and sales miss would be felt in 2Q15 on the gross margin line.
  3. Company closed Blue Mercury acquisition during the quarter, but no detail given on top line benefit. Really too small to move the needle.
  4. Holding guidance for the year despite the miss. Makes the earnings cadence very back half weighted as comps get tougher industry wide. Have to assume that EPS growth accelerates to low DD to get to the low end of the guided range from negative in the first half of 2015.

Retail Callouts (5/13): RL, M, KSS, LULU, NKE, AMZN - 5 13 chart3


LULU - lululemon announces departure of evp, global retail


Takeaway: Schweitzer has been with the company since store 1. Working her way through the ranks from 'Educator' to near the top of the company org chart as the Head of Retail ops. The management team that Chip built around him may be good enough for a $500mm company, but not a company on it's way to $4bil. That was on full display at the Analyst day the company hosted in April of 2014. With Advent now on the board and new blood in the CFO and Head of Retail seats, it appears the board is taking the steps necessary at LULU to get a management team in place that can support the next leg of growth.


KSS - Selling Banner Ads?

Takeaway: 1) We've never seen this from a retailer, ever. There are probably a few e-comm only operations selling banner ad space on the company's homepage, but for an established Brick and Mortar retailer, this is uncharted territory. The point is that M, JCP, DDS, you name it, haven't gone to the ad well to help offset an increasing cost structure as unit growth and comps slow. To us it seems a little bit desperate. 2) It's a bit ironic that KSS is posting AMZN ads on its site. KSS probably doesn't control all of the content posted to its site, but really Audible, who is owned by Amazon?

Retail Callouts (5/13): RL, M, KSS, LULU, NKE, AMZN - 5 13 chart1





NKE - Did Nike Say 10,000 Jobs If TPP Passes? Why Not 20,000?



AMZN - Coming This Summer: U.S. Will Run Out of Internet Addresses



Fitbit’s Pending IPO Shows Wearables Gaining Traction



Bonobos founder shifts to chairman, hires Coach exec as CEO



JWN - ‚ÄčNordstrom hiring 1,000 people for Vancouver store


Keith's Macro Notebook 5/13: USD | Oil | UST 10YR

Hedgeye CEO Keith McCullough calls in from the road to share the top three things in his macro notebook this morning.


Takeaway: GTECH results a snoozer but management was reluctant to discuss IGT's awful performance.


  • Will not talk about IGT standalone results. IGT's results are for informational purposes only.
  • Italy unfavorable sports betting by 10% points (which was in-line with industry average). This will normalize over time.
  • North America:  Same-store benefited from jackpot and instant ticket segments
  • IGT's (Stand-alone) March quarter not indicative of its future
  • Confident synergies remain on track
    • Have consolidated production/maintenance...closing plants in Vegas and Canada
  • FX did not have a meaningful impact on operating income 
  • Americas:  Instants ticket sales (Double-digit increases in California and North America)
  • MegaMillions declined in 1Q
  • Gaming shipments declined due to hard comps boosted by Canada last year
  • International: instant ticket sales led by UK growth
  • Expect Greek VLTs revenues in 2H 2015
  • Italy:  machine gaming revenues impacted by Stability Law implementation. Excluding that rule, revs would have been flat.
  • 2Q results will be on a consolidated entity basis and reported in US$


Q & A

  • IGT results below expectations
  • IGT: Reduction in receivables have improved its profitability
  • Will provide some guidance at end of Q2. Expect 2H 2015 will have better performance, particularly on IGT's product sales with the introduction of new products
  • Leverage target at closing:  4.5-4.9x ; longer-term, will be at 4x or below 4x
  • Synergies:  on time and on target
  • IGT: conversion of units in Mexico impacted results.  Weaker period in industry due to less newer openings.  
  • Installed base count will be more balanced as a combined entity
  • Pro forma balance sheet shouldn't change much when translated to US GAAP.
  • Italian Lottery contract: waiting for issue of tender. Expect 1st installment by end of year.
  • IGT:  conversion of 1,000 units in Maryland which fully explain the ASP difference. 
  • GTECH:  no units were converted
  • IGT/GTECH Oregon units: 300 IGT units. Basically concluded.
  • Cost of debt:  5.25%-5.50% (depending on currency and product)
  • Debt:  50% in euros, 50% in dollars
  • 2015 Maintenance capex: US$150-$170m
  • 2015 growth capex:  some capex related to VLT Greece
  • Do you need to borrow additional funds?  It depends.
  • IGT:  have some visibility in the new openings (mainly Massachusetts)
  • GTECH Italian taxes paid:  paid 40% ($38m).  Finalizing contracts and resolution before next payment is due. GTECH will only pay their portion of the 60% ($5m euros).
  • IGT product sales will improve in US and international going forward. Spielo leading the charge. 
  • IGT product sales in 1Q 2014 not in 1Q 2015:  1,000 units in Illinois
  • Synergies:  will execute 65% by 1Q 2016
  • Property sales: different mix sold resulted in lower intellectual property fees.  Inventory write down.

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