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Bill Critical for Ailing Retailers

The President signed a bill Friday that includes an important provision for struggling retailers that likely flew under the radar since it’s more broadly recognized for extending the home buyer tax credit. The primary difference for retailers compared to the original stimulus package in February is that 1) larger businesses (above $15mm in revenues) are eligible and 2) it extends the loss carryback from 2 to 5 years for losses suffered in either 2008 or 2009. A quick screen reveals nearly two-dozen retailers that could benefit from this legislation; however, the cash realized will be material only to a select few. Given the lack of clarity of the exact accounting of the bill, we are not attempting to quantify the exact cash infusion anticipated, but merely flag those who are likely to benefit the most.

 

The companies that have been lobbying Congress for the loss carryback provision since February such as Liz Claiborne, Pier 1 Imports, and Office Depot are some of the retailers poised to benefit. Based on our screen of companies with either substantial losses in 2008, or over the LTM, and substantial earnings and therefore tax expenses paid from 2003 to 2008 we have identified several others including DDS, CHRS, TLB, ZLC and CROX.

 

Again, these aren’t the only companies that will benefit from this new legislation, but given recent liquidity concerns are likely to benefit the most from this added stimulus.

 

 

Casey Flavin

Director

 

 

 


LVS/SJM BENEFICIARIES OF STRONG OCT IN MACAU

Read on for property details of a very strong October in Macau. LVS and SJM were the big market share winners, MPEL and WYNN the losers. 

 

 

As expected October continued the three month pattern of double-digit growth in  Macau.  October table revenues grew 44% y-o-y and 14% sequentially.  Of course October '09 had the benefit of two new properties, City Of Dreams (CoD) and L'Arc; and the benefit of an easy comp (October '08 table revenues were down -6%).  October VIP revenues grew 47% y-o-y and Mass was also strong at 37% y-o-y growth.

 

The big winners in terms of market share were Venetian/Four Seasons, SJM, Galaxy and MGM.  Losing the benefit of high hold in August, MPEL's share dropped back to earthly levels, and WYNN's share continues to be impacted by new supply.  Read on for property level details.

 

 

Y-o-Y Property Observations:

 

LVS table revenues up 34%

  • Sands was up 2.6% driven by a 6% increase in Mass and VIP growing 1%
    • Junket VIP roll decreased 5% at Sands, more than offset by direct VIP play (which doesn't get captured in reported VIP RC) or hold %
  • Venetian was up 52% with VIP increasing 82% and Mass increasing 15%
    • Junket VIP roll was up 57%
  • Four Seasons was up 130% y-o-y and up 30% from a seasonally slower August
    • Mass revenue increased 74% while VIP climbed 150%.  VIP roll was up 200%

 

 

Wynn table revenues were up 4.8%

  • Mass was up 26.5%, offset by a 1% decrease in VIP

 

 

Crown table revenues grew 50%, with both properties down from a strong and lucky August

  • Altira was down 30%
    • VIP roll was only down 5% but hold was weak once again at roughly 2.2% (note that Altira has a very small direct play business so the Junket RC is close to total RC at the property)
  • CoD table revenue was down 34% sequentially.  September benefited from very strong hold at the property which inflated win
    • Mass continued to ramp growing 20% m-o-m to $22MM
    • Junket VIP roll fell 3% sequentially.  Hold looks like it was weaker from August's high, but there could also have been growth in direct VIP play

 

 

SJM continued its hot streak, with table revenues up 74%

  • Mass was up 57% and VIP was up 86% 
    • As we mentioned last month, SJM had the benefit of L'Arc opening September 21st and we believe that SJM revenues should continue to stay strong with the addition of Oceanus in either December or early January

 

 

Galaxy table revenue was up 44%, mostly driven by a 50% increase in VIP win.  Mass was up 6%

  • Starworld continued to perform well with table revenue up 59%, driven by 66% growth in VIP revenues and 8% growth in Mass win

 

 

MGM table revenue was up 52%

  • Mass revenues grew 16%, while VIP grew 68%
  • Junket roll was up 45% 

 

 

Market Share:

 

- LVS share increased to 23.7% from 19.6% in September

  • Sands' share increased slightly to 8.4% from 8.3% in September
  • Venetian & FS share increased to 15.3% from a low of 11.3% in September

- WYNN's share decreased to 11.9%, the lowest share month since Wynn's opening

 

- Crown's market share plummeted to 11.9%, from a 17.5% high in September

 

- SJM's share ticked up to 31.6% from 31.5% in September

 

- Galaxy's share increased to 12.8% up from 10.6% last month

 

- MGM's share increased to 8% from 7% in September


THE WEEK AHEAD

The Economic Data calendar for the week of the 9th of November through the 13th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.  

 

THE WEEK AHEAD - FIN NOV9

 


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Bathroom Plasma, No More: Consumer Credit

Position: Short US Consumer Discretionary (XLY)

 

From Parts Unknown (our new Sector Head for Financials who we have yet to announce)…

 

Here’s a look graphically at Consumer Credit (updated for today’s 3pm data).

 

If a picture tells 1,000 words, then the song remains the same. It’s the second chart that’s actually more telling though. A full year after Lehman revolving credit is grinding to a halt at the second fastest rate in the last 12 months.

 

Further evidence that the consumer is (a) getting weaned off easy money by the still cash-strapped banking system, (b) voluntarily electing to save in lieu of buying the plasma for the 3rd bathroom.

 

Keith R. McCullough
Chief Executive Officer

 

Bathroom Plasma, No More: Consumer Credit - JS1

 

Bathroom Plasma, No More: Consumer Credit - JS2

 

 


A Pounded Pound Breeds Inflation

Research Edge Position: Short UK (EWU), Short British Pound (FXB)

 

When we speak of “imported” inflation we’re talking about the relationship between the strength of a country’s currency versus the price of goods and services it imports. With respect to the UK, an import and service based economy, the depreciation of the British Pound since mid ‘08—which we’ve named The Pounded Pound—has bred inflation (for both Producers and Consumers) as the depreciation in the currency has not only diminished purchasing power for its citizenry at home (as more money is needed to chase goods and services), but it has also reduced purchasing power versus its primary import partners. Finally, the global appreciation in the price of oil, denominated in US dollars and therefore boosted by the inverse correlation of depreciating USD (without consideration of supply and demand dynamics), has inflated energy costs for importing nations like the UK.

 

Therefore, with the depreciation of the Pound and the rise in oil prices (a major cost component for Producers), it comes as no great surprise to see a sequential and annual rise in the UK Producer Price Index.  In fact, Input Prices, the materials and fuels manufacturers buy, rose 2.6% in October versus the previous month, while Output Prices, or what manufacturers sell, increased 0.2% sequentially or 1.7% Y/Y. The take-away here is (see chart below) that cost inputs are trending positive and upward in the UK, while outputs have remained positive, but stable over the last year. This price inflation should compress margins for Producers, costs that will eventually be passed on to the consumer.

 

If the above rhymes, we must also mention that UK Consumer Price Index, in aggregate, has declined over the last months, from 1.6% in August Y/Y to 1.1% in September.   This decline can be attributed to a sluggish economy, still searching for growth with Q3 GDP registered at -0.4% Q/Q, annual declines in energy costs, and rising unemployment, all of which should put pressure on broader fundamentals. Further we hold that with the Treasury continuing to print money, including issuing a second wave of bailouts to RBS and Lloyds to the tune of 40 Billion Pounds this week, and the BOE expanding its bond purchasing program while keeping rates steady at a historic low of 0.5% will sustain a weak Pound, which should encourage inflation.   

 

In our virtual portfolio we remain short the UK via the etf EWU and short the Pound via FXB.  We expect to see continued underperformance in UK fundamentals. With the economy looking to return to moderate growth by the end of the year, Producer Inflation may remain a major headwind over the intermediate term. 

 

Matthew Hedrick

Analyst

 

A Pounded Pound Breeds Inflation  - UK PPI OCT

 


MCD – OCTOBER SALES PREVIEW

A look at good, neutral, or bad numbers…

 

MCD is scheduled to report October same-store sales numbers before the market opens on Monday.  Management provided the following outlook for October sales trends on its 3Q09 earnings call:

 

“As we move through October, consolidated comparable sales remain positive with Europe and APMEA contributing strong results. In the U.S., despite continued gains in market share and advancement in our industry-leading position, we're expecting flat to slightly negative October comps. This is due in part to the current economic environment and strong results a year ago. We do not believe, however, that this is a change in the overall trend in performance in the U.S.”

 

Taking those comments into consideration, I wanted to provide comparable sales ranges for each geographic segment as a benchmark of what I think would be GOOD, NEUTRAL, or BAD results based largely on 2-year average trends. 

 

U.S. (facing a relatively difficult +5.3% comparison from last year):

GOOD: Any number better than flat would signal that the company’s trends came in better than management’s guidance.  The company needs to report at least +0.6% to just maintain its 2-year average trends from August and September.  So this month, even a GOOD result will most likely point to a continued deceleration in 2-year average trends.

 

NEUTRAL: -1% to flat would signal that full month trends were in line with management’s guidance.  So this range of results, though neutral from an investor sentiment perspective as it relates to expectations, is not a favorable sign for current trends.  MCD has not reported a decline in U.S. same-store sales growth since March 2008.  This neutral range also implies a continued deceleration in 2-year average trends.

 

BAD: below -1% would be worse than expectations as set by management.  A -1% number points to an 85 bp sequential decline in 2-year average trends.  A -1.5% or below would be very BAD as it implies a 2-year average trend of less than 2%.  MCD has not posted 2-year average trends below that level since early 2003.

 

Europe (facing a relatively tough +9.8% comparison from last year):

 

GOOD: +4.5% or better would signal an acceleration in 2-year average trends from September levels and a return to the 7%-plus levels MCD has experienced for the greater part of the year.

 

NEUTRAL: +2% to +4.5% would point to 2-year average trends that are about even with to slightly better than what we saw in September.  Investors are most likely expecting some sequential improvement as management said Europe and APMEA are “contributing strong results” in October.

 

BAD: below +2% would imply a slight slowdown in 2-year average trends and anything below 1% would be viewed as really BAD as it would signal a return in 2-year average trends to the low reported June levels.

 

APMEA (facing a relatively difficult +11.5% comparison from last year):

 

GOOD: +2.0% or better would signal an acceleration in 2-year average trends.  A +2.5% or better would be really GOOD as it would imply a return to the 7%-plus 2-year average trend we saw earlier in the year.

 

NEUTRAL: flat to +2% would point to 2-year average trends that are consistent with to slightly better than what we saw in September.  Like Europe, based on management comments, investors are most likely expecting some sequential improvement in APMEA. 

 

BAD: any number below a flat result would imply that 2-year average trends have slowed somewhat.  Although MCD reported a negative comp in August, I think the sticker shock associated with seeing this segment go negative again would be bad.  Any number below -2% would be really BAD as it would imply a return to the softened 2-year average levels we saw in June, July and August.

 

MCD – OCTOBER SALES PREVIEW - mcdusa

MCD – OCTOBER SALES PREVIEW - mcdeursss

MCD – OCTOBER SALES PREVIEW - mcdamp


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