In preparation for LVS's Q1 earnings, we've highlighted management's forward looking commentary from its Q4 conference call and subsequent investor conferences.



LVS hasn't set an earnings date but we're guessing it could be Thursday after the close.  We are considerably above the Street in company EBITDA, $341 million versus $295 million, respectively.  We estimate total Macau EBITDA to be $273 million and Las Vegas to generate $101 million.  We think Las Vegas played lucky in the quarter and we are estimating 24% table hold versus 20.5% last year.  Baccarat volume was also very strong in Las Vegas.




Business update from Deutsche Bank's conference on 3/3/2010 and CLSA AsiaUSA Forum on 3/1/2010:

  • "I think that I do know that we’ll probably reach about our goal of 660,000 room nights. I think we’re somewhere about 500,000 now and our goal for next year is 800,000 plus and then I think we’ll bring it back to the most recent pre-crisis number. And from my standpoint, that gives us a base of about 7,100 suites and then we can yield up from there."
  • "So I think we look very good, our numbers were primarily beginning with the two for the ADR and I think our occupancy rate was starting with a nine (January and February)."
  • "We’ve checked out what Singapore is doing and what Genting is doing and they’re doing incredible numbers, like S$500 bet on baccarat. But that was the holiday. Now they are down to about 250, S$300. So take 70% of that, so it’s over $200 for the average bet in baccarat. Compare that to Macau, which is $85. Compare that to Vegas, which is $25... But that’s on the mass market side."
  • "We can only figure the theoretical, but based on my 20-year experience in Vegas, it’s typically about half of what the actual is. So, the bottom line is that Mike Leven and I have discussed over the last couple of days, redoing our numbers on the high side. And we were estimating $3,600 per win per table per day and about 250 or $300 win per slot per day. And now we find out that the slots (from Genting) were winning $1,000 a day."
  • Customers for MBS: "The first country is of course Singapore. The first country beyond Singapore is Malaysia. Also, Indonesia will be two, Thailand will be three, the Vietnamese might be four and China would be five. But on the high roller side, I don’t think we’re looking at any mass market. Mass market may come from Malaysia, Indonesia, maybe some from Thailand, but we’re going to raise the level of spend that each person from Thailand would bring with them. So the average batch will be significantly higher, which is what Genting is showing us up till now. The average batch is significantly higher than what we’re experiencing both in Vegas and Macau."
  • "As far as the hiatus concern, we have no indication except people that we talk to, and our own sales people– field junket reps. They just get a commission on sending some body in with a small several thousand dollar cap for the commission. They don’t provide credit or they don’t provide collection or something like that, they just send the player in."
  • Japan: "There is a committee of one member of each of the two governments, the LDP and DPJ, with whom we’ve met before. It’s a long process because Japanese change things very slowly. But what you should know is that there’s 16,000 pachinko parlors that does admittedly 25 billion."
  • Conventions/FIT: "So, gaming is in everybody’s nature, FYI, only 14% of the people who go to Vegas, according to the convention authorities research, go for the purpose of gaming; that means 86% go for other reasons, including conventions. We see the convention market picking up, I won’t say significantly, but I will say substantially from where it was. It was at it lowest point last year, and one guy characterized that they’re coming in force. For this year and we think next year, there’s a possibility we’ll get back to the levels of ‘07. So, the groups are picking up, but the FIT market is low."

Q4 Conference Call:

  • Sands Bethlehem: "We expect to introduce approximately 80 tables to the property in the third quarter."
  • "The pace of group bookings continues to improve and all signs indicate 2011 will be stronger than ‘10. In 2009 we realized approximately 470,000 group room nights, as of today we have more than that number on our books for 2010."
  • "In addition, in March, we expect to close the previously announced $1.75 billion credit facility to fund construction of parcels 5 and 6 in Macau."
  • Rates: "We’re trending down, relative to 2009 rates, we’re 211 for actual group segment for the year. We’re down in the 180 range for 2010, high 170’s, low 180’s."


High VIP hold % helps drive market - WYNN and LVS in particular. Here is the property detail.



April was another huge month for gaming revenues which increased 70%.  Much of the "huge" growth was driven by VIP table revenues which grew 89% y-o-y, while Mass table revenues increased 36%.  Slots were up 28%.  While WYNN and LVS gained table revenue share at the expense of all the concessionaires, these sequential gains were driven by much better luck in April vs. March (and much better than normal).  Looking at junket RC volumes it appears that just the reverse occurred; WYNN, LVS and to a lesser extent MGM lost share to the three HK-based concessionaires.  For WYNN at least, growth in their direct VIP business may have contributed to the higher hold versus volume, which actually wouldn't be such a bad thing.



Y-o-Y Table Revenue Observations


LVS table revenues increased 40%, with growth coming from a 56% increase VIP revenues but only a 16% increase in Mass revenues.

  • Sands grew 21%, driven by a 29% increase in VIP revenue and an 8% increase in Mass revenue
    • Junket RC increased 43%. 
    • Hold looks high - roughly 3.3%, but last April's hold was even higher - we estimate 3.6%.
  • Venetian was up 21%, driven by a 22% increase in VIP revenues  and a 21% increase in Mass
    • Junket RC decreased 23% y-o-y, however, hold more than made up the difference.  Assuming 18% direct VIP play volume, we estimate that hold for April was 3.7%.  Last April, assuming 16% direct play, the hold percentage was only 2.4%.
    • Gaming revenue growth would likely have been negative with normal VIP hold.
  • Four Seasons was up 475% y-o-y entirely driven by 1360% VIP growth (and massive hold %) with Mass growing a relatively tiny 14% 
    • Junket VIP RC increased 297% to $649MM.  If we assume 35% direct VIP play then hold percentage in the month was north of 5%.

Wynn Macau table revenues were up 87%, primarily driven by a 117% increase in VIP while Mass revenues were only up 11%.

  • VIP volumes were driven by Junket RC increase of 77%, high hold, and easy hold comparisons.
  • Using the same adjustment factor for direct play in both April 09 and 2010, hold this past month appears to be 3.1% vs. 2.5% last year.

Crown table revenues grew 143%, with the growth fueled by 561% growth in Mass and 113% growth in VIP.

  • Altira was up 19%, all due to a 21% increase in VIP revenues which was partly offset by a 16% decline in Mass
    • VIP RC was down 4%, but hold comparisons were favorable.  Last April hold was only 2.3% while this April it appears to have been 3%.
  • CoD table revenue increased 11% sequentially, due to a 15% decrease in VIP win,  while Mass was up 1.4%
    • Mass was $34MM (they did say that hold was in the low 20's so perhaps drop wasn't so great).
    • Junket VIP RC increased 11% sequentially
    • If we assume 18% direct play at CoD (in line with what MPEL said on their earnings call), then total VIP RC would be $4.1BN.  However, hold in April was very weak at only 1.8%.

SJM continued its hot streak, with table revenues up 87%.

  • Mass was up 43% and VIP was up 119%.
  • Junket RC volumes increased 130%.
  • As we wrote about on several occasions, we believe SJM is being very aggressive on junket pricing.

Galaxy table revenue was up 61%, entirely driven by a 71% increase in VIP win, while Mass increased 18%.

  • Starworld's table revenue was up 92%, also entirely driven by 105% growth in VIP revenues, while Mass decreased 15% y-o-y.

MGM table revenue was up 35%.

  • Mass revenue growth was 19%, while VIP grew 43%.
  • VIP RC grew 26%.


Market Share


LVS share increased 170bps sequentially to 20.9%, with most of the share gain coming from VIP.

  • LVS's share of VIP revenues increased to 18.7% from 16.4% in February.  However, LVS's share of Junket RC actually decreased 150 bps to 12% which is the lowest share that LVS has had since at least May 2007 (when we started tracking the data).
  • Mass share increased by 50 bps to 27.4%.
  • Sands gained what it lost last month (44bps), increasing to 6.9% sequentially.  Sands gained share across both VIP and Mass win while losing 50bps of junket RC share.
  • Venetian gained 30bps to 10.5% sequentially. 
    • Venetian actually gained 95bps of market share in VIP sequentially to 8.5% but VIP gains were largely offset by a 87bps sequential drop in Mass share.  If not for high hold, Venetian's share would have dropped, as Junket RC share fell 80bps to only 5.5% - Venetian's lowest share since opening.
  • FS share increased 90bps to 3.5%.
  • After SJM, LVS commanded the second highest share of the overall market, mainly due to the strength of their Mass business which commanded market share of 27.4%, followed by Wynn at 9.4%.

WYNN's share increased to 14.1% from 12.9% in March.

  • In a reversal of last month's trend, Wynn's gain was entirely driven by higher VIP hold.  Wynn's share of the VIP revenues recovered to 15.6% from 14.1% in March.  Junket RC fell by 119 bps to 14.4% - falling to fourth place behind SJM, Crown and Galaxy. However, the Encore addition should help in May and as long as they continue to grow their more profitable direct play, which we saw last quarter, it doesn't really matter.

Crown's market share decreased by 30bps to 12.6% in April.

  • All of the share loss came from CoD, whose share dropped to 6.4% from 7.5% in March
  • CoD's share drop was entirely due to a 1.6% decline in VIP share to 5.9% which was driven by the property's low hold.  Junket RC share increased by 100bps to 8.3%.
  • Altira's share increased to 6.2% from 5.3% in March.  Mass market share decreased slightly by 6bps to 1.2% but was more than offset by VIP share growth of 100bps to 7.8% which was all hold related as Junket RC share decreased by 10bps to 8.2%.

After 3 months of climbing, SJM's share slipped by 90 bps to 34.2% - which is still its 2nd highest share month since Nov 2007.

  • Despite share of Junket RC increasing by 70bps to 34.9% in April, VIP share decreased 145bps to 31.2%.
  • SJM Mass share increased by 150bps to 43.2% sequentially.

Galaxy's share decreased slightly to 11.7% from 11.9% last month.

  • Starworld's market share was increased slightly by 2bps sequentially to 9.6%
  • Galaxy and it's flagship property gained share in Junket RC.  VIP share creeped up for Starworld and was flat for Galaxy while Mass share decreased for both.

MGM's share decreased by 155bps to 6.5%, this is the property's second lowest share month since March 09.

  • MGM's share loss can be attributed to a 1.94% sequential decrease in VIP share to 6.3%.  Mass share decreased 40 bps to 7.2%. We can't imagine that Encore is doing them any favors... nor is SJM's aggressive share grab.

Slot market commentary

  • Slot win grew 28.5% y-o-y to $82MM.
  • LVS's slot win grew across all 3 properties by 7% y-o-y to $23MM.
  • Wynn slot revenues increased by 3% y-o-y to $15MM.
  • Melco's slot win grew 139% y-o-y.
  • MGM's slot win grew 35% y-o-y to $8MM.
  • SJM's slot win grew 29% to $15MM.
  • Galaxy's slot win grew 15% to $2MM.






Brazil, How Low Can You Go?

With the nearly every major equity index down on the day on fears that Greece’s sovereign debt may spill well beyond its borders in what has been termed the “contagion effect” by the media. It appears consensus is beginning to understand that after eight centuries of data, sovereign debt crises have never ended with just one country. Others - perhaps Spain - will soon join the dance.  While that is a topic for another discussion (see my colleague Daryl Jones’ note from this morning titled “Bearish Enough On Spain?”), we’d be remiss not to call out the  near-3.6% intraday decline in the Bovespa, which, at the time of this print, had declined more than any major equity index outside of Europe.


Domestically, at 2.8% MoM in April and 19.7% YoY, Brazil’s March industrial production rose at the fastest pace in five months, signaling concerns that the Brazilian Central Bank’s recent Selic rate hike from 8.75% to 9.5% may not be enough to cool accelerating growth and inflation – which itself (CPI) sequentially accelerated to 0.39% MoM in April and  5.22% YoY for the 12 months though mid-April. The rate hike was the first since September of 2008.


Perhaps global sovereign debt concerns will continue to douse global markets. Unfortunately for Brazil, those aren’t the only concerns facing the Bovespa currently. The key issue is indeed slowing demand from China.


Chinese PMI slowed to 55.4 in April from 57 in March, raising concerns that Chinese demand for commodities will continue to wane. In addition, as a result of the Chinese government tightening, an estimated $400 billion yuan may flow out of property into equities, according to some estimates. Steps taken to cool the white-hot growth include China raising the reserve requirement ratios three times in the year-to-date. In the most recent change, China’s reserve requirement will increase 50 basis points effective May 10, the People’s Bank of China said on May 2. The current level is 16.5 percent for the biggest banks and 14.5 percent for smaller ones.  The intention of these measures are to slow loan growth and the velocity of money, which is a derivative for Chinese demand for commodities.


Some other steps taken by the Chinese government to directly combat property speculation include: 

  • China's Banking Regulatory Commission ordered 78 state-controlled companies to exit real estate sector;
  • Chinese Banks are now asking for 40%-50% down payments  for second mortgages;
  • In March, Chinese officials raised deposit requirements for buyers at land auctions to 20% of the minimum price to increase costs for developers;
  • China's State Council raised down payment requirements for second homes to at least 50% and have pegged mortgage rates to no lower than 110% of the benchmark rate;
  • China told banks to stop loans for third-home purchases on April 19th;
  • The State Council has approved a real-estate tax trial in Bejing, Chongquing, Shenzhen, and then in Shanghai following the World Expo;
  • The housing ministry vowed on April 20 to punish developers that "artificially" create supply shortages and ordered builders not to take deposits for sales of uncompleted apartments without their approval;
  • China's Securities regulator will require developers to submit fund-raising plans for strict review by the land ministry; and
  • On April 20th, China ordered developers to not take deposits for sales of uncompleted flats. 

All told, these tightening measures coupled will slow construction and temper global demand for commodities including oil and copper.


The Bovespa continues to be highly correlated with the price of oil, so where oil goes from here (down nearly 4% intraday), the Brazilian stock market goes with it.


Darius Dale



Brazil, How Low Can You Go? - 1


Brazil, How Low Can You Go? - Brazil CPI

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The central principal of investment is to go contrary to the general opinion, on the grounds that if everyone agreed about its merits, the investment is inevitably too dear and therefore unattractive.”

  ~Warren Buffet


Our 2Q10 theme, APRIL FLOWERS/MAY SHOWERS, suggested that the S&P 500 could sees a 4-7% correction in 2Q10.  We did not think it would happen in a matter of days.  While Buffet took some heat over the weekend for talking up his book, he is still the ORACLE OF OMAHA.  As he suggests in the quote above, the persuasive bullishness of late is just to “dear” to the masses.   


Last week, the government reported that real GDP increased 3.2% annualized in the first quarter.  This print was slightly below consensus +3.3% and vs. prior +5.6%.  Personal consumption expenditures (PCE) were +3.6%; higher than consensus +3.3% and prior +1.6%.  PCE accounted for 2.5% of the reported gain and business investment accounted for 1.6% points, of which 1.5% was due to a continuing relative buildup in inventories.  The big concern with the Q1 GDP report is whether or not the trends in PCE are SUSTAINABLE.


As I wrote the other day, SUSTAINABLE growth in PCE requires continued growth in real disposable income.  Without growth in income consumption can only be borrowed from the future quarters through borrowing more and/or the consumer spending his/her savings.  In the current environment, neither of those sources is real or sustainable.  In 1Q10, the quarter-to-quarter trend in real disposable income was contracting.  Real consumer credit, which has been reported only for January and February, was also contracting in the first-quarter versus the fourth-quarter.  


If the U.S. banking system were able to function normally, it would be lending more money, not contributing to a slow downward spiral in consumer and business credit outstanding.  Needless to say, these trends show no basis for SUSTAINABLE growth in the economy or PCE.


The US market bulls expect the market to continue to move higher on stronger earnings.  A Bloomberg survey suggests expectations for total profit from Standard & Poor’s 500 Index companies of $88 to $90 a share this year, and close to $100 a share in 2011.


It seems unlikely that these strikingly bullish estimates incorporate proactive slowing of the free money trail in a number of regions around the world in 2H10 and 2011.  With the Chinese market down 13% year-to-date, worries about a slowdown in China are increasing.  The Government is proactively saying things are too hot.  The number of countries that are “proactively slowing” growth is increasing every week; it’s becoming the norm not the exception (Australia joined in last night and India has a real inflation problem to address).  Just to name a few….


With this trend solidly in place, and critical component to overall earnings growth, we would argue that over the next four quarters the risk/reward points to the downside in emerging economies; thereby placing much more pressure on the developed world recovery to meet the S&P 500 earnings growth numbers.  Such a recovery is not a likely event! 


We have been very vocal about the mounting sovereign solvency issues in Europe.  In many ways, the European crisis echoes the way the U.S. banking crisis brought the global banking system to its knees.  At that time, the global monetary policy-makers allocated trillions to prevent systemic collapse.  In total, the sovereign debt crisis in Europe could also threaten systemic collapse.  As with the U.S. banking crisis, I expect that everything possible will be done to prevent that type of massive melt down. 


As a result, U.S. fiscal stability is the key to keeping global systemic risk in check.  Unfortunately, our balance sheet issues are very much the same as those facing the PIIGS.


April Flowers/May Showers



Howard Penney
Managing Director

HIBB: Tidbits from Hibbetts

We visited with Hibbett Sports’ management team last week at their headquarters and came away feeling more confident that same store sales continue to improve and margins continue to expand in the near-to-intermediate term.  Our sense is that following a positive start to the quarter there was little if any deceleration in comps, which management highlighted were up ~14% including Saints and Alabama sales through the first 39 days on the March Q4 earnings call (core up 11%-12%).  With near-term results remaining positive, comps getting substantially easier next quarter, and full year results likely to shake out closer to $1.50 versus the Street at $1.30, we expect near-to-intermediate term outperformance to continue.  In addition to incremental company specific highlights, there were several notable observations:


  • When pressed on the company’s ability to meet or exceed prior peak operating margins (last achieved in 2007 with or without a 53rd week in that year), management responded with a confident “yes”.  Key to driving margins higher are productivity gains ($200/foot goal driven by 3-5% annual same store sales), gross margin gains driven by systems enhancements (auto-replenishment, store level allocation) and resumption of growth over time to a 5-7% unit growth rate.


  • Enthusiasm for “toning” goes way beyond the shoes themselves.  While HIBB chief merchant was bullish on Reebok and a potential resurgence in the brand, she was also broadly enthusiastic about the prospects for a pick-up in women’s overall.  The marketing spend and excitement surrounding toning has given the women’s category new life, after three years of negative comps.  Importantly, it appears that the vendors are working hard to make this trend last by going beyond selling as many shoes as possible.  Apparel and youth rub-off sales have been picking up as the female traffic has picked up.


  • There is no question that HIBB still views itself as a formidable growth retailer, with over 350 potential sites identified in existing markets.  However, the near-term outlook for store growth remains tempered by a lack of new development in the company’s target markets.  There has been no sign of credit easing for HIBB landlords and strip-mall developers, which is the key reason why HIBB will only open 15-20 stores this year (net of 10-15 closings).  Re-use properties are plentiful, but not often in the right centers or the right size.  Movie Gallery is likely the biggest source of opportunity for re-use over the next 12 months. We also got a sense that given tight supply in existing markets, the company might branch out to contiguous states providing further upside.


  • Underlying recent positive trends is a simple fact.  The customer is responding to newness and innovation, with little price resistance.  HIBB best selling shoe is currently the $160 Nike Air Max 2010.  This is the first time in over three years we have heard of sell-throughs being this strong for a $100+ silhouette.


  • As it relates to unemployment, there is a very high correlation between unemployment and comps at the state level. During our meeting, management noted that its best performing states also happened to be those with among the lowest level of unemployment. For example, Nebraska, Iowa, and Kansas have all reported comps north of 20% while posting unemployment of 4%, 6%, and 6% respectively.


  • Gas prices are critical to the sun-belt consumer, particularly at the $3/gallon level.  Management highlighted this is a particularly important confidence level for sun-belt consumers and one where there is a notable correlation with sales growth.  At the time of our trip, prices were ~$2.80.


  • Tax refunds have not had a material impact so far on sales results. If anything, the effect has actually come a couple weeks later than last year.  Moreover, the broader ramp in consumer spending is having a far greater impact than any tax related benefit.  In other words, management was a bit dismissive that this factor alone has been a key contributor to nearer-term strength.


 - Casey Flavin & Eric Levine




A small EBITDA miss but not really relevant. Surpisingly, previously stable Downtown disappointed but how quickly the LV Locals market improves will be the main driver going forward.



BYD missed our EBITDA estimate by only $1.4 million but we were below the Street.  The big negative was Downtown Las Vegas which had been holding in nicely, but missed our Q1 estimate badly with EBITDA down 37%.  The positives were cash flow and debt paydown.  Going forward, all eyes are on the LV Locals market which is clearly getting less bad, although down 11% on a -32% comp is not exactly table pounding, but at least it wasn't a miss from expectations. 





"We continue to be encouraged by improving trends in our business, which clearly reflect the signs of an emerging recovery. Our Las Vegas Locals market reported the best year-over-year comparison in nearly two years, and business levels are returning to normal seasonal patterns in this region. Given the positive developments in our business, combined with continued improvement in the national economy, we expect to generate year-over-year growth during the second half of 2010."

- Keith Smith, President and Chief Executive Officer of Boyd Gaming



  • LV Locals: "While conditions remain challenging in the region, the fundamentals of our business are strengthening, and we saw sequential improvement in this region for the second straight quarter."
  • Downtown: "Results reflect lower ticket pricing and higher fuel costs associated with our Hawaiian charter operation, as well as lower Downtown visitor volumes."
  • Midwest & South: "Regional results were impacted by declines at our Louisiana properties as the market continues to normalize, partially offset by Adjusted EBITDA growth in Illinois and Indiana."
  • Borgata: "The decline was principally due to reductions in visitation caused by severe winter weather, which impacted the property repeatedly throughout the first quarter."



  • Visitor volume has increased over the last 5-6 months in the locals Las Vegas markets. They expect that convention business will improve in the second half of the year
  • Will aggressively pursue M&A
    • Stations - continue to be interested in acquiring them
    • Also looking for additional acquisition opportunities that can create shareholder value
  • Expect a similar y-o-y decrease in EBITDA in 2Q2010 and a return to EBITDA growth in the 2H2010 in the Las Vegas locals market
  • Downtown was impacted by a combination of lower ticket prices and higher fuel prices which accounted for 1/3 of the decline.  Rest of it was due to Hawaiian economy and state gaming tax introduced in Hawaii
  • Level of growth they saw in LA during 08 & 09 wasn't sustainable and expect the declining revenues to continue through 3Q2010
  • Excluding weather, they think that Borgata's EBITDA would have been flat y-o-y
  • Believe they will return to overall growth in 2H2010
    • On an aggregate basis, not at every property
    • Apples to apples basis - not including Borgata
    • Yes, they mean EBITDA growth too
  • I don't understand why they are pumping up Borgata if they want to buy it on the cheap? hmmmm
  • Starting next quarter they will fully consolidate all of Borgata's revenues and expenses, and all BS items
    • Minority interest will also increase obviously
  • 6.5x was their leverage ratio at the end of the Q
  • Corporate expense this Q is a good run rate for the rest of the year
  • Interest expense: $125MM for the year plus Borgata's interest expense of $5-6MM per year.  Next year Borgata's interest expense will be impacted by refinancing of that facility
  • Maintenance: 55-60MM and Borgata's is 15-20MM for the year



  • Weather impact was really only at Borgata $5-6MM
  • Florida - now that the tax rate has been lowered they are re-evaluating that market but still watching how it develops
  • Stations assets - at this point they will wait and see what the judges ruling will be before they move forward
  • Would they consider selling their interest in Borgata's along with MGM?
    • Will see what happens. Right now they will just wait and see and don't have any interest currently in selling their stake but will wait and see
  • Las Vegas locals market- what does it mean that they are seeing normalizing trends?
    • Historically the 1Q has been the best quarter for the market and for the first time in a while 1Q was better then 4Q - and hence the seasonality comment
    • Spend is still obviously down but is seeing an uptick in visitation - the first time in 2 years
  • Confident that Borgata will be able to compete going forward in the face of supply in PA
  • Lower visitor volumes Downtown?
    • Number of commercial airline visitors was definitely down y-o-y
    • In addition saw lower levels of traffic from street levels
    • Not driven by less local visitors
  • Business as usual vs. just increasing promotional environment at Borgata to deal with new supply and table games. Borgata reallocated costs across the property when slots came to PA initially.
  • New Jersey doesn't need new capacity to stimulate demand
  • They just have a simple right of first refusal for MGM's stake in Borgata... lol no they can't force a potential buyer to pay the same for BYD's stake
  • Opening City Center is impacting their Downtown properties as well as the historically low rates that are driving people to try to upgrade
    • Cooler crowd