The news flow on the MACRO front is quiet this week and so is the market.  The S&P 500 finished lower by 0.89% on very light volume.  The sovereign debt concerns are not going away as the issue continues to put pressure on the RISK trade.  The VIX closed up another 1.5% yesterday (22% Year-to-date) and is bullish on TRADE and TREND.  The Hedgeye Risk Management models have the following levels for VIX – buy Trade (23.98) and Sell Trade (27.66). 


Contagion fears are taking a toll on the Financials (XLF), which was the worst performing sector yesterday closing down 2.0%.  Yesterday our Financials analyst, Josh Steiner pointed out that Banking News reported that Deutsche Bank and Unicredit Group have denied requests from 3 to 4 Greek banks for loans on the repo market.    First it was the CDS market signaling trouble and now the repo market is breaking down.   


According to Bloomberg news, ECB Chairman Jean-Claude Trichet has decided to leave a symposium of policy makers in Sydney a day earlier than planned to attend a special EU summit on Thursday to discuss the growing debt problems among EU states. Trouble is brewing!


The Financials are also being hit with the Democrats talking regulatory reform with or without Republican cooperation.   The large-cap banks like WFC, BAC, C and JPM were among the notable underperformers.  In contrast, the bulk of the regional banks outperformed, while credit-card names were also under pressure. 


While the Materials (XLB) was the second worst performing sector yesterday, not all pockets of the RISK/RECOVERY trade underperformed.  Technology and Consumer Discretionary outperformed the S&P 500 yesterday.   


The Technology (XLK) sector outperformed the S&P 500 by 50bps yesterday.  The destruction in the SOX was halted for a day with the index down in line with the market.  Outside of the semis, there were a couple of bright spots in the communications equipment and PC related names.  Yesterday, we shorted AAPL.  We've spent the last week working on an Apple model and we think the Street's assumptions on margins in the upcoming two quarters are too hopeful. Hope is not an investment process. 


Yesterday, both the Consumer Staples (XLP) and Consumer Discretionary (XLY) sectors outperformed the S&P 500.  We are now short the Consumer Staples (XLP).   The XLP has finally broken both our TRADE and TREND lines. Given how many investors own these stocks because it was a "way to play the weak US Dollar" last year, we have ourselves another way to profit from a Buck Breakout with this short position.


Along with the rally in the homebuilders, the XLY benefited from an earnings beat from HAS +12.7% and better relative performance from the retail group.  The S&P Retail Index declined 0.15%, only declining late in the day.  Within the XLP, CVS and TSN were higher following earnings. 


The Dollar index took a breather yesterday declining 0.17%; the Hedgeye Risk Management models have levels for DXY at – buy Trade (79.48) and sell Trade (80.64). 


As we look at today’s set up the range for the S&P 500 is 36 points or 1.0% (1,045) downside and 2.4% (1,081) upside.  Equity futures are currently trading above fair value after the markets broke down late in the day yesterday. 


Copper rose for a second day in London on speculation that demand may swell on increased imports into China. The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.79) and Sell Trade (3.01).


In early trading gold is trading higher on the back of a weaker dollar.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,048) and Sell Trade (1,086).


Crude oil is trading near $72 in New York before the government data due tomorrow that may show U.S. inventories of diesel and heating oil declined last week. The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (70.01) and Sell Trade (73.90).


Howard Penney

Managing Director














Risk Management Time: SP500 Levels, Refreshed...

On strength this morning, I sold the long position I took in the SP500 on Friday’s weakness. Anytime I can book a gain on the long side of a market that remains in an bearish intermediate term position, I will.


In addition to the SP500 having broken my intermediate term TREND line of 1099 (thick red line in the chart below), here are some important risk management factors to consider intraday:

  1. Volatility: VIX remains in a bullish TRADE and TREND position, with newly established intermediate term TREND line support = 22.32
  2. Financials: XLF is the worst performing sector in our SP500 Sector Model today, and remains broken on both TRADE and TREND durations
  3. US Dollar: UUP continues to be in a bullish TRADE and TREND position, showing no signs of backing off after closing up for 3 straight weeks

At 2PM EST the SP500 is trading right in the middle of a new range that I think we will trade in for now (1052-1082). After 4 consecutive weeks of the SP500 closing down on a week-over-week basis, there is plenty of revisionist bearishness to support buy-to-cover rallies back up to what is becoming significant resistance.


This is definitely turning into a risk manager’s tape. Be patient, and pick your spots. If the SP500 starts churning here, a lot of weak hands will get frustrated and flushed out.



Keith R. McCullough
Chief Executive Officer


Risk Management Time: SP500 Levels, Refreshed...  - spkm



SJM may be embarking on a VIP market share grab strategy for 2010. 



Already with a combined 42% overall market share, SJM could be going for broke, somewhat literally.  The company secured only about 29% of VIP turnover (volume) share in 2009 but is looking to ratchet up that number meaningfully, potentially at the expense of their margins, and potentially the market’s margins.


Within its junket operations across its properties, SJM seems to be moving to a revenue share model with the junkets, rather than a commission based on rolling chip.  We are hearing SJM will keep only 5% of VIP revenues while 40% will go to the government and 55% to the junkets.  That is a very attractive model for the junkets and should drive significant share shift if the competing properties do not follow suit.  This model also takes commission caps out of play since it is a revenue share model and doesn’t violate the letter of the 1.25% commission cap on rolling chip.


If our intelligence is accurate, get ready because Macau VIP margins are going to shrink or share will shift dramatically.  Specifically, SJM may be targeting LVS’s VIP junkets.  However, this type of pricing will hurt everyone.  We’ll have more on this in the coming days.

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Huge month with some share shifts, mostly related to hold. Feb promises to be a big month again but there are warning signals ahead.



January marked the sixth month of big y-o-y growth in Macau.  Total revenues grew 63% y-o-y, with VIP leading the charge up 77%, followed by Mass revenues growing 42%, and slot revenues growing 20%.  Melco was the clear share taker in the month, while WYNN was the clear share loser.  Luck was a primary factory for Melco's fortune and Wynn's misfortune.  MGM also gained back what it lost last month in market share while Galaxy did just the opposite. 


As we've written about in several recent notes, February promises to be bring another hot month with the calendar shift of the Lunar New Year and an easy comparison with Feb 2009 seeing a 14.5% revenue drop.  We expect a deceleration of growth in March and balance of the 2010 has comparisons become more difficult and the effects of bank tightening start showing some impact on the broader Chinese economy and trickling down to Macau.  The other issue may be more a big VIP market share battle initiated by SJM.  More on that in an upcoming post.



Y-o-Y Table Revenue Observations:


LVS table revenues up 64% with most of the growth coming from 103% increase in VIP revenues and 21% growth in Mass

  • Sands was up 73%, driven by a 137% increase in VIP and 19% growth in Mass
    • VIP growth was largely driven by easy hold comparisons.  Sands suffered weak hold in January 2009 of around 1.7%, assuming 10% direct play.  If we assume 12% of total VIP play was direct in Jan '10, this implies hold of 3.36% 
    • Junket VIP RC increased 28%
  • Venetian was up 41.5% with VIP increasing 58% and Mass increasing 20%
    • Most growth in VIP was driven by easy hold comparison.  Hold was weak, roughly 2.6% assuming 17% direct play in Jan 2009, vs. an estimated 3.65% hold assuming 20% direct play in Jan '10
    • Junket VIP RC increased 12.6%
  • Four Seasons was up 259% y-o-y driven by 531% VIP growth and 39% Mass 
    • Junket VIP RC increased more than five-fold to $858MM vs $137MM.  In 3Q09 FS also derived 50% of its RC from direct play versus having almost no direct play in 1Q09.  Therefore, if the direct play is material, volumes could be up even more y-o-y than the junket numbers imply


Wynn table revenues were up 27%, almost entirely driven by a 35% increase in VIP, while Mass revenues were only up 2%

  • Junket RC increased a massive 115%, however weak hold coupled with difficult hold comparisons, masked Wynn's share gain on the VIP side.  Assuming 12% direct RC play in Jan 09, Wynn's hold rate was 4.1% vs. 2.6% in Jan 2010 assuming 13% direct play
  • Wynn is battling the the impact of the loss of a VIP operator in mid-December and the departure of property's #2 marketing individual


Crown table revenues grew 144%

  • Altira was down -0.6% (the only property in Macau with lower January revenues) due to challenging hold comparisons
    • VIP RC was up 28% and hold was normal at 2.8%, however, hold was 3.7% last January
    • Mass win was very strong, up 58% y-o-y
  • CoD table revenue was up 83% sequentially, benefiting from better volumes and much better sequential hold
    • Mass ramped 25% m-o-m to $31MM
    • Junket VIP RC grew 24.5% sequentially. 
    • If we assume 20% direct play at CoD (in line with what MPEL said on their earnings call), then total VIP RC would be $3.5BN and hold appears to be quite high, at 3.7%, meaning any extrapolation of the $40MM of EBITDA MPEL did in Jan would result in a gross overestimation of the company's earnings power for 2010 and coming quarter.  If direct play was 20% in December, then the hold would only have been 2.2%. 


SJM continued its hot streak, with table revenues up 78%

  • Mass was up 53% and VIP was up 96%
  • SJM is being very aggressive on junket pricing


Galaxy table revenue was up 32%, driven by a 34% increase in VIP win and a 19% increase in Mass

  • Starworld's table revenue was up 60%, driven by 67% growth in VIP revenues and 21% growth in Mass win


MGM table revenue was up 61%

  • Mass revenue growth was 30%, while VIP grew 72%



Market Share:


LVS share's was up 20bps sequentially at 21.23%

  • Sands' increased 10 bps to 7.1% sequentially
  • Escalators and walkways from Ferry Terminal to competitor Oceanus are not yet complete
  • Venetian & FS share increased 10bps to 14.13%

WYNN's share dropped to 12.9% from 16.5% share in December

  • We attribute the market share change mostly to luck. In January we estimate that hold was only 2.6% while we estimate that December was roughly 3%. Wynn has suffered from poor hold in 3 of the last 4 months, which explains why their average share has been below prior averages
  • Departures discussed above probably hit VIP turnover a bit


Crown's market share increased by 5% from 10.9% in December to 15.9%

  • Like Wynn, hold was largely responsible for the massive share shifts here


SJM's share decreased to 30.9% from 31.9% in December


Galaxy's share dropped slightly to 10.4% from 13.3% last month

  • Starworld's market share fell to 8.15% from 10.4% in the previous month


MGM's share increased to 8.65%, from 6.3% in December



Slot market commentary:

  • Slot win grew 20.7% y-o-y to $80MM
  • Melco's slot win grew 87% y-o-y with the addition of CoD, LVS's slot win grew 21% y-o-y, and MGM's slot win grew 43% y-o-y
  • The other 3 concessionaires had paltry growth in slot win y-o-y, with Wynn's actually decreasing 5% and SJM's only increasing 1%, while Galaxy's increased 9.4%

MACAU JANUARY DETAIL - Macau Total Bac Rev Share  Feb 2010


MACAU JANUARY DETAIL - Macau MM Rev Share  Feb 2010


MACAU JANUARY DETAIL - Macau RC Turnover Share  Feb 2010



February 8, 2009


The post-mortem on last week’s retail sales and subsequent earnings revisions shows us that the group needs to find some way to grind the 27% NTM expected growth for retail higher. Otherwise, I’m open to suggestions as to how a 20x P/E is sustainable.





Let’s take a post mortem on one of the more gut wrenching retail sales days in recent memory. As we all know, numbers came in better than guidance across the board, and largely better than most spoken expectations.  But with the precipitous sell off on the event, it just goes to show that Retail is at a place right now where it needs a LOT of good news to take the group higher in aggregate. We still think that this will be the year marked by a massive bifurcation between the quality and the junk (and some new names will fall in and out of each category).


Despite such solid numbers, and the first uptick in the earnings revision factor in 10 weeks, we actually saw the expected 12-month forward growth rate (bottom up) for retail flatline at 27% -- also the first time since mid-November this rate did not climb. Translation, any continued evidence that the expected growth rate will not grind higher will make it all the more difficult to sustain the 20x P/E for US Retail.










  • In one of the more interesting M&A transactions of late, LA based J Brand Denim was sold to a group of investors led by Star Avenue Capital and Irving Place Capital.  Hollywood agent powerhouse Creative Artists Agency was also listed as an investor.  Given the involvement of the talent agency, we expect we'll be seeing many more celebrities wearing the jeans.  Product placement coming as well…
  • Launching at New York Fashion Week, women's "slimming" intimates brand Spanx is introducing a mens line.  The line of compression undershirts is being marketed as having benefits which include firming the chest, flattening the stomach, improving posture, and eliminating bulk under clothes.  Shape-ups watch out…
  • With Valentine's Day approaching it's worth sharing some "candy" facts.  Nearly 71 million pounds of chocolate candy is sold during the week leading up to Easter. By comparison, only 48 million pounds of chocolate candy is sold during Valentine’s week. Halloween sees the most chocolate candy sales, with nearly 90 million pounds of chocolate candy sold in the final week of October.
  • During the commercial breaks at the Super Bowl last night Dockers paid the big bucks for an interesting advertisement  The 98 second Dockers “I wear no pants” commercial promised free pants at  For those who sought free pants, there was serious disappointment as the website was initially down due to overload of volume and then once you finally got access to the site there was only a chance to win by signing up.  If you want to get a sense of how successful the ad was, just google “dockers free pants.”
  • In what has become a customary move for the company, DICK's Sporting Goods sent an email blast ad for championship merchandise shortly after the Saints won the Superbowl. The email was sent roughly and hour and fifteen minutes after the final whistle. By contrast, the company hit the send button on a similar email only 30 minutes after the New York Yankees won the World Series this past fall. The relative lack of speed to market with the New Orleans Saints email was most likely the result of the lack of certainty over the outcome of the game down to the final minutes. In contrast, the Yankees were  up three games to two at the time, meaning that only they could have clinched that night. The email, titled "Congratulations, New Orleans - Get Your Locker Room Gear Now!", featured a free shipping campaign whereby all eligible purchases over $69 dollars qualified.
  • Following two 10-second spots from Skechers during the game and Reebok marketing its new ZigTech sneakers from a giant yacht docked in Ft. Lauderdale, the toning category got even more exposure over Super Bowl weekend. With a struggle for advertising dollars evident by the abundance of network ads and movie preview spots, there is little doubt SKX was able to negotiate a discount to the ~$3mm 30-second spot sticker price. By using its current campaign for the spots (instead of new creative), we estimate SKX's cost at approximately $1.5-$2mm, or $0.02-$0.03 in EPS.




Bon-Ton Promotes Pair - Kiki Lockwood has been appointed senior vice president and general merchandise manager of ready-to-wear at The Bon-Ton Stores Inc. She succeeds Joyce Armeli, who was named to the same post in the center core and children’s areas. They report to Tony Buccina, vice chairman and president of merchandising for the York, Pa.-based department store group. Armeli replaces Therese Callahan, who is retiring after a more than 40-year career, including the last three years at Bon-Ton. Lockwood joined Bon-Ton in 2002 and had been vice president and divisional merchandise manager of women’s better sportswear. <>


Burberry to Live Stream 3-D Fashion Show - Taking a few cues from “Avatar,” Burberry will live stream its fall runway show in 3-D in four major cities. While models hit the catwalk at the Chelsea College of Art & Design in London on Feb. 23 at 4 p.m., select guests in New York, Paris, Dubai and Tokyo will be adjusting their 3-D glasses in customized screening spaces designed by chief creative officer Christopher Bailey. Attendees in Los Angeles will also catch every last turn, though the start time will be 7 p.m. PST due to the time difference. This five-city visual bonanza will mark the first time a brand has broadcast live simultaneous events in 3-D worldwide. Viewers will be welcomed in New York at Skylight Studios, in Paris at a Colette-hosted event at L l’ecole des Beaux Arts, in Dubai at The Address, in Tokyo at a “Burberry Night” at a yet-to-be-identified club and in Los Angeles at Milk Studios, where Tina Brown of The Daily Beast will host the festivities. <>


Kenneth Cole to Reach Turkey in New Deal - As part of a strategy to further broaden its worldwide business, Kenneth Cole Productions, Inc. inked an exclusive retail licensing deal with The Park Bravo Group, the Turkey-based firm that operates Park Bravo and Park’s stores, and has licensing partnerships with such brands as Nine West, Enzo Angiolini, AK Anne Klein and La Senza for the Turkish market. In the agreement, Park Bravo will distribute and market Kenneth Cole New York men’s and women’s clothing, footwear and accessories in Turkey. The deal will kick off with two Kenneth Cole New York retail stores in Istanbul, slated to open next month. <>


Martin + Osa President Exits - Laura Dubin-Wander, president of Martin + Osa, has left the company, WWD has learned, raising more questions about the future of the specialty division of American Eagle Outfitters Inc. An American Eagle spokeswoman confirmed Dubin-Wander departed a few weeks ago and a new president was not named. Dubin-Wander’s duties were assumed by Chuck Chupein, chief operating officer. Dubin-Wander, who could not be reached for comment, had been Martin + Osa’s president since April 2007. Previously, she had been president of Dana Buchman and Laundry by Shelli Segal. Dubin-Wander also worked at Victoria’s Secret Catalogue as a director of merchandising and as a buyer at J. Crew.  <> lets customers buy clothes when not on its e-commerce site -, an apparel merchant focusing on independent fashion and designers, is targeting fashion shoppers on sites they’re likely to visit and enabling them to purchase products without leaving the page they’re on. It’s doing so through ShopAds, online and mobile display ads from Adgregate Markets that, when clicked, create an entire e-commerce experience—from product page through checkout—within a screen overlay that shows up above a web page. Moxsie is using ShopAds to bring limited-time deals through highly targeted ads on fashion web sites like ShopAds allow Moxsie to acquire new customers and increase brand engagement by allowing impulse shopping from fashion shoppers looking for new styles and deals, Adgregate Markets says.  <>


Ocado May Be Valued at Up to $1.9 Billion in IPO - Ocado, a U.K. grocery delivery company, may be valued at as much as 1.2 billion pounds ($1.9 billion) when it lists shares on the London Stock Exchange in May, the Sunday Times reported, without citing anyone for the information. The company plans to appoint three investment banks by the end of this month to advise on the initial public offering, the newspaper said, citing unidentified London financial “sources”. Goldman Sachs Group Inc., UBS AG and JPMorgan Cazenove are among the frontrunners, the Times said.  <>


Bebe Stores to Debut Kardashian-Inspired Fashion Line - A new apparel collection will launch soon at Bebe stores nationwide, inspired by E! Entertainment reality stars Kim Kardashian, Kourtney Kardashian and Khloe Kardashian-Odom. The line, called Bebe-Kardashians, features dresses, skirts and tops. The collection hits U.S. Bebe stores mid-February and will be followed by an international launch. The apparel retails from $59 to $129. "A partnership and design collaboration with Kim, Kourtney and Khloe is such an innate fit for Bebe," says Manny Mashouf, founder and chief executive officer for Bebe. "They exude an attitude that is exactly what today's modern woman is—or aspires to be—confident, desirable and feminine. All three are in the know and have each contributed in their own way to the design and styling of the Bebe-Kardashians collection." Bebe-Kardashians will debut Feb. 16 during New York Fashion Week at Style360. <>


Super Bowl Sidelines: Commercial Earnings Through the Years -

$311.8 million: spent by Anheuser-Busch, top Super Bowl advertiser, 1

$213 million: total ad revenue from Super Bowl XLIII, 2009

$39 million: total ad revenue from Super Bowl XXIII, 1990

$3 million: cost of a 30-second Super Bowl commercial, 2009

$700,000: cost of a 30-second Super Bowl commercial, 1990

59%: share of U.S. adults planning to watch Super Bowl XLIV

46%: portion of U.S. adults who enjoy the game more than the commercials

13%: share of U.S. adults who enjoy the commercials more than the game

$1 million: Doritos’ award to two unemployed brothers for creating Doritos’ Super Bowl spot in 2009, rated tops in USA Today ad meter



Super Bowl Merchandise and the Bets Behind It  - Shirts on sale the day after the Super Bowl in 2008, won by the New York Giants. Super Bowl items are expected to reach $100 million in sales this year. Though the experts considered the Colts the favorite to win,, a Web operation in Florida that is licensed to sell official Super Bowl merchandise, preordered more Saints material, assuming that the interest would be much greater if the Saints won. The Saints were a better story, said Richard Perel, the company’s vice president for Internet advertising, and they had never even appeared in a Super Bowl, as opposed to the Colts, who last won in 2006. In times past, it was mainly local retailers who had to gear up for the flood of fans thrilled by victory and eager to shop on the day that is the, well, Super Bowl for sports merchandise. The N.F.L. estimates retail sales this year of $100 million in Super Bowl-related merchandise. <>


Reebok Debuts ZigTech - On March 11th, Reebok allows athletes to find out with the highly anticipated launch of ZigTech, the brand’s most technically advanced running and training shoe. ZigTech allows your key leg muscles to do less, so you can do more. Simply put, it’s like an energy drink for your feet.  “Wearing ZigTechs give players a bounce, an energy that lets us train longer with less strain on key leg muscles, like shins. This ultimately enables athletes to stay healthier during the season.” Everything about Reebok’s ZigTech footwear is designed to conserve and return energy to the athlete for a soft and springy ride. The one-of-a-kind ZigTech bottom unit features an innovative, lightweight foam that is engineered into a dramatic, geometric, zig-zag shape. This unique zig-shaped sole absorbs the impact of heel strike and sends a wave of energy along the length of the shoe to help propel the athlete forward with each step.  The lightweight, flexible bottom unit, minimalist upper, and whisper-quiet ground contact also contribute to making ZigTech a new standard in running and training footwear. In fact, by wearing Reebok’s ZigTech footwear, training longer just got easier. The technology causes up to 20% less wear and tear on key leg muscles, especially the shins and hamstrings.  <>


Retail Employment Rises in January - Apparel retailers added 23,600 jobs in January, running counter to a decline in payroll levels nationwide as most employers lacked the confidence to hire full-time workers. Clothing and accessory stores hired 13,300 workers last month to employ a total of 1.37 million. Department stores added 10,300 jobs to reach 1.47 million, the Labor Department said Friday. Department stores, clothing stores and grocery stores led retail industry employment gains, said Sandy Kennedy, president of the Retail Industry Leaders Association. The entire retail sector, including apparel retailers, added 42,100 jobs in January, the Labor Department said. Retailers could be responding to early indications that the job market is on the verge of improving, said Phillip Swagel, visiting professor at McDonough School of Business at Georgetown University and a former economist for the Treasury Department. Wages have started rising, the number of hours worked is beginning to increase and temporary employment picked up, he said.  <>


The Macau Metro Monitor.  February 8th, 2010.




Singapore granted Genting Singapore its gaming license, allowing Resort World's casino to open by next week's Chinese New Year.



Despite Lawrence Ho's comment that a deal with Harrah's is "total nonsense", gaming insiders claim that Harrah's is still working on acquiring Packer's 32.5% interest in Melco Crown but "the paperwork hasn't been signed yet."  Loveman told the Review-Journal in June he wanted to bring the Caesars brand to Macau. He made similar comments to Bloomberg.



The Macau International Airport (MIA) reported 4.8% increase in the passenger volumes this January, and expects increased air traffic during the upcoming Lunar New Year holidays. Airlines are planning to add more flights to mainland China during the Chinese New Year to accommodate the travel demand. Additional flights will fly to popular destinations such as mainland China, Taiwan, Thailand and Japan, the MIA said.


Portuguese channel of Radio Macau reported yesterday, that the SAR government is considering another cash handout scheme again in 2010, but permanent residents may be the only recipients.  The amount of the scheme would likely be the same or slightly greater than the payouts in 2009.  Last year each Macau permanent resident received MOP 6,000 while each non-permanent resident received MOP 3,600 in the scheme. Additionally, in 2009 each local permanent resident received MOP500 worth of health care vouchers. Radio Macau said the health care subsidy scheme will also be retained this year.



The number of visitors during Chinese New Year is expected to increase 10% y-o-y according to Macau Travel Industry Council president Andy Wu Keng Kuong.  Hotel occupancy rate stands at 90% for the Lunar New Year period, a 10% increase over 2009.

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 80.47%
  • SHORT SIGNALS 78.71%