• run with the bulls

    get your first month

    of hedgeye free



I wouldn’t say we’re bullish, LVS actually missed our estimate, but we were way above the Street. Here’s what we found interesting.






  • Mass table drop (8%) and VIP RC (16%) both declined while the market exploded.
  • Gross gaming revenues were 2% below our estimate--spread among slot win, VIP and Mass.  Net win was $26MM below our estimate due to higher rebates.
  • Rebates were $100MM or 34% of VIP table hold compared to 30.8% of VIP table hold in 2009.  Going forward we will use a 32% of VIP win rate to calculate rebates for Venetian.
  • Better hold helped the quarter:
    • $14MM on Mass revenues using the company’s 4 quarter average of win of 23.6% and flow through to the bottom line at a 60% rate
    • $7MM on VIP assuming a normal hold of 2.85% and should flow through to the bottom line at roughly 50% since Venetian’s junket VIP volumes are 80% turnover based (1.25%)
  • Non gaming revenues, especially the room revenues, were a little better than we estimated.


  • Slot handle was up 31%; RC drop increased 25%; BUT non-rolling drop decreased 4%.   As a point of reference for the whole Macau market, VIP RC volumes (Junket only) grew 75% y-o-y in 1Q2010.
  • Non-rolling chip drop has declined 14.4%, 25.5% and 8.1% in 2007, 2008, and 2009, respectively.  Despite the huge growth in gaming revenues, this is a competitive market.  To put things in perspective, Mass table revenues grew 37% y-o-y in 1Q2010 while Sands Mass win only grew 4% despite a 1.5% increase in Mass hold.  Sheldon’s characterization of the property as a mature “cash cow” is fair.
  • Better hold also helped the quarter:
    • $5MM on Mass revenues which has roughly a 35% gross margin
    • $21MM on VIP, assuming a normal hold of 2.85% with a gross margin of roughly 18%
  • Gross gaming revenues were 3% below our estimate--spread among slot win, VIP and Mass; however, net win was $19MM below our estimate due to higher rebates
  • Rebates were $68MM or 33.2% of VIP table hold compared to 31.7% of VIP table hold in 2009. Going forward we will use a 33% of VIP win rate to calculate rebates for Sands
  • Commission at Sands are 50/50 turnover based (i.e. 1.25%) and Rev Share, so high hold at this property doesn’t flow through quite as well as at Venetian and FS
  • Fixed costs look like there were up around $5MM y-o-y and promotional expenses also look a little higher y-o-y
  • Direct play at Sands was 10% of VIP volume compared to a 11% 4 quarter average.



  • Table drop was better than we thought, by $85MM but casino revenues were $3MM below our estimate.  The player rebate on tables games went up to 4% this quarter, which isn’t surprising given the strength of the baccarat play.  Obviously the correct way to calculate the rebate would be on the VIP volumes which we just don’t know.  If the strong Baccarat trend continues, we will need to model both net and gross revenues for Vegas going forward, just like Macau.
  • Non-gaming revenues were $10MM better than we expected – which was pretty much entirely driven by better RevPAR results.
  • Cost cutting looks like it’s essentially done.  Total operating costs were down 3.3% y-o-y after 3 quarters of double digit declines.   1Q09 was actually an easy comp as costs were essentially flat from the prior year.  We expect costs will be up year over year going forward.
  • The Palazzo had a monster quarter while the Venetian suffered.   Win per table was $9,282 vs. $2,729, respectively.  This is partly due to the massive divergence in luck between the 2 properties.  Our guess is that Venetian held at 13% and suffered roughly an 8% decline in drop while Palazzo got most of the Baccarat volume and held at 30% with drop increasing over 55%.
  • Palazzo is commanding a 6% rate premium over Venetian; not a surprise since the property is newer and rooms are nicer
  • Promotional expenses decreased to 33% of casino revenues from 36% last year.
  • Slot hold % was up materially but some of that should be sustainable given:
    • Shift to penny games from quarters.  Penny games have much higher hold % - mid teens.
    • Pruned video poker mix which has very low hold.  Particularly, they removed IGT “Jacks are Better” full pay games which have hold percentages as low as 50bps.
    • Table win of 23.4% compares to 2009’s table hold of 17% and 2008’s table hold of 20% - so it’s definitely not “normal”.  If we use the company’s 4 quarter trailing average of 17.3%, then casinos revenues would have been $33MM lower.


The Macau Metro Monitor, May 7th, 2010



Several analysts believe that VIP volumes should slow down due to the Chinese government placing restrictions on credit at mainland banks and reining in the speculation in the real estate market. But Intelligence Macau staff believe that these government actions would accelerate the movement of wealth offshore and slow down the recycling of wealth back into depreciating assets on the mainland. This may suggest that VIP volumes are not, in fact, going to dry up in the wake of the obvious correction underway on the mainland right now. Indeed, they might even get bigger –until the central government decides that enough is enough.

R3: Key Nuggets From A Volatile Day

Combine Sales Day with an incredibly volatile market, and you get a noisy day to say the least. Here are some key company-specific observations:


  • Despite a negative same store sales result for Target, the company noted a handful of categories which remained positive for the month. Health & beauty increased by low to mid single digits, ladies apparel increase mid single digits, and decorative home increased by low single digits.


  • Costco noted that sales of TV’s were soft in the month, with both units and total sales dollars down. Less couponing year over year was part of the reason for the weakness. On the food side, evidence continues to build (albeit slowly) on the inflation front. Food and sundries were slightly inflationary, driven mostly by deli, with slight inflation in beef and pork.


  • ROST noted that they “may have misjudged the impact of the Easter shift on [their] March and April business”. Unseasonably cool and wet weather in California was also cited for the below-plan month. Home (up low double digits) and shoes (up mid singles) were the leading categories in the month.


  • At Kohl’s footwear and home were cited as having the strongest performances in the quarter. The Southeast and West regions were also standouts over the same period.


  • Nordstrom noted that fashion and fine jewelry, women’s shoes, and dresses were the best performing categories for the month. Additionally, CA was cited for lagging the company average but results for the state were within the same range as March. Overall traffic increased for the 8 straight month. Considering JWN’s heavy CA concentration, it is notable that they did not suffer the same negative effects from weather as others did.


  • JC Penney noted that women’s accessories, shoes, and handbags continue to benefit from the company’s efforts to improve the assortment. The final two weeks of the month were also cited as being soft.


  • Gap noted that women’s performance was better than men’s, with particular strength in shorts, knits, and denim (white too). From a timing standpoint, the Gap’s second summer product flow is set to be in stores next week, which is one week later than the prior year. We’ll see if newness can help regain the positive traffic momentum that stood out in March but was lost in April.


  • At ANF, the company noted that UK’s Hollister locations and domestic tourist stores were outperformers for the month. However, it was noted that the flagship Fifth Avenue location was excluded from the callout. Recall that the NYC Abercrombie is the oldest and most mature of the high profile locations.


  • While sales day is usually about “sales”, American Eagle Outfitters used the occasion to also update investors on the pace of its share repurchase activity. The company bought back 4 million shares in April for a cost of $72 million, leaving 26 million shares left under authorization for repurchase.


  • Limited reminded us that Memorial Day is later this year and as such, May results will be negatively impacted. Total comps for May are forecast to be flat to up low single digits.

 - Eric Levine






R3: Key Nuggets From A Volatile Day - 5 5 Retail Calendar




Simon Property Firm and Final Offer - Mall giant Simon Property Group Inc. on Thursday raised its bid to acquire General Growth Properties Inc. in a "last and final" effort to sway its rival from going forward with a competing offer to finance its exit from bankruptcy, The Wall Street Journal reported. In a proposal now valued at $33.5 billion, Simon offered $6.5 billion, or $20 per share, for General Growth's equity. Simon also would pay $7 billion to eliminate General Growth's unsecured debt and would assume roughly $20 billion of mortgages on General Growth's malls.  <www.bizjournals.com/washington>


PVH Completes Hilfiger Deal - Phillips-Van Heusen Corp. said Thursday it has completed the acquisition of Tommy Hilfiger BV and certain affiliated companies from funds affiliated with Apax Partners LP. In March, PVH reached an agreement to purchase Hilfiger for $3 billion, plus the assumption of $138 million in liabilities, creating a group with combined revenues of roughly $4.6 billion. PVH also said it has completed several previously noted activities, including financings, the proceeds of which were used to fund the acquisition or are being used to provide ongoing liquidity for PVH. These activities include:

• Issuance of 5,750,000 shares of PVH common stock on April 28, which includes 750,000 shares sold as part of the underwriters’ overallotment option. The price at which the shares were sold to the public was $66.50 a share.

• Issuance of 8,223,841 shares of PVH common stock to the selling shareholders of Hilfiger, as part of the purchase price for Hilfiger.

• Issuance in private placements of an aggregate of 8,000 shares of PVH Series A convertible preferred stock to affiliates of LNK Partners LP and affiliates of MSD Capital, which are currently convertible into 4,189,360 shares of PVH common stock, for an aggregate purchase price of $200 million.

• Issuance of $600 million of 7.375 percent senior notes due 2020.  <www.wwd.com>


Liberty Nearing Deal - Liberty, the 135-year-old London department store, is set to be bought by an investment fund for up to £40m. Marco Capello, the former managing director of Merrill Lynch Global Private Equity, is thought to be close to buying the Liberty business through his investment fund BlueGem Capital Partners. Liberty's confirmed it had received takeover "approaches" yesterday after months of speculation about the company. Earlier this month it said it was considering the sale of the freehold of its 125,000 sq ft mock Tudor building on Great Marlborough Street. It is understood that Mr Capello could acquire the business before the end of next month. By then Liberty is also expected to have completed a separate sale and leaseback deal on the shop for in excess of £40m. The luxury investor Robert Bensoussan and the global supplier Li & Fung are also among those to have expressed an interest in bidding for Liberty, according to the fashion industry magazine Drapers. The magazine reported that Mr Capello had significantly outbid the competition and plans to buy Liberty for as much as £40m.  <www.independent.co.uk/news>


Canali Flagship Opens in London - Canali, the luxury Italian men’s wear firm, will open its largest boutique to date at 126-127 New Bond Street in London today covering 7,500 square feet. The location will serve as the brand’s U.K. commercial headquarters and showroom as well. “The U.K. is our third-strongest market after the U.S. and Italy,” said Paolo Canali, the label’s commercial director. “Two-thousand ten started with a much more positive note. We’ve seen a 20 percent increase in the first quarter in our own stores,” said Canali. “Men are buying suits again.” Canali added he expects the store to generate 6 million pounds, or $9.1 million at current exchange, in the first full year. According to the brand, a total of 20 boutiques will open this year, bringing the total store count to 175 units.  <www.wwd.com>


VFC Fined - VF Outdoor Inc. will pay a $207,500 fine after allegedly making unsubstantiated “antimicrobial protection” claims in the hangtags of shoes sold by its San Leandro, Calif.-based The North Face division, the U.S. Environmental Protection Agency announced Thursday. As Footwear News reported in September, the complaint centered on 30 or so styles (about 70 SKUs) of outdoor, running and multisport footwear that used Agion topsheets in the footbeds. (Agion is the maker of a silver-based antimicrobial technology widely used in the footwear world and counts brands such as Adidas, Ecco, Columbia, Timberland and Under Armour as clients.) <www.wwd.com/footwear-news>


U.S. Launches Investigation of IPR Infringement in China - The USITC will hold a public hearing in connection with the two investigations at 9:30 a.m. on June 15, 2010. The U.S. International Trade Commission (USITC) has launched the first of two investigations into the effect on the U.S. economy and U.S. jobs of intellectual property rights (IPR) infringement in China. The investigations were requested by the Committee on Finance, U.S. Senate, in a letter received on April 20, 2010. The first report, China: Intellectual Property Infringement, Indigenous Innovation Policies, and Frameworks for Measuring the Effects on the U.S. Economy, will describe the principal types of reported IPR infringement in China, describe China's indigenous innovation policies (under which China reportedly promotes the technologies and brands of Chinese companies over those of non-Chinese companies), and outline analytical frameworks for determining the quantitative effects of the infringement and indigenous innovation policies on the U.S. economy as a whole and on sectors of the U.S. economy, including lost jobs. The second report will focus on the effects of intellectual property infringement in China and the country's indigenous innovation policies on the U.S. economy. <www.sportsonesource.com>


TomTom Goes Star Wars - Lucasfilm, VoiceSkins.com and TomTom have teamed up to bring Star Wars' voices to TomTom navigational devices. Sith Lord Darth Vader is available for download now (£7.95, $12) and will be followed by C-3PO (June), Yoda (July) and Han Solo (August) releases. "The TomTom brand is synonymous with high-quality navigation," says Casey Collins, senior director of international licensing and marketing at Lucas Licensing. "Star Wars fans are sure to be delighted when they hear just how great these voices sound on their TomTom navigation devices."  <www.licensemag.com>



Three Word Phrases

“In three words I can sum up everything I've learned about life: it goes on.

-Robert Frost


At Hedgeye Risk Management, the number three is very important to us. …if you did not know it, you do now.


I like the sound of three-word phrases; “Fools Rush In,” “Greed is good” and “Character is Destiny.”   The last one comes up a lot when someone makes a mistake and can’t own up to it or is not held accountable for his or her actions. 


The SEC will probe the cause of yesterday’s electric trading malfunction, but we will likely learn that some overpaid MAWG (middle-aged white guy) has a “big fat finger” (love those three-word phrases).


Last night after settling in from just a crazy day, I turned on the TV.  Yes, it was on CNBC (Comcast does not have Bloomberg in my neighborhood).  Staring me in the face was another one of those three-word phrases - “Markets in Turmoil” - the CNBC special report.  The network altered its programming to produce a special report on yesterday’s price action.  I get it, yesterday was a crazy day but to perpetuate a market correction in this manner - seriously?  It was unwatchable. 


In my career, I have seen more than my fair share of days like yesterday and I will not forget any of them.  Given the speed and magnitude of the drop, it was clear that the price movement was not normal.  In a matter of minutes, Accenture did not go out of business and P&G was not suddenly worth 40% less.  Electronic issues aside, what’s important is the reason for the market decline.     


As a firm, we are positioned perfectly for a difficult May, with two of our three key themes for Q2 (April Flowers/May Showers and Sovereign Debt Dichotomy) playing out on the big screen.  Notwithstanding the potential for a MAWG with a fat finger, the market correction is perfectly normal and we are not crashing.  That is not to say we don’t have issues to deal with, we do, but it’s not 2008 all over again. 


This week’s RISK AVERSION trade has seen the dollar index move up 3.7%, which is a move in the DXY we have not seen since October 2008.  The VIX closed at 32.80 and has also seen a spectacular move this week, up 45%.  The VIX would need to go up another 140% to be at the same level it was at in October 2008. The Dollar is a safe haven for now, but our balance sheet is like “Kissing a PIIG” (think three-word phrases). 


In keeping with the Hedgeye transparency mantra, yesterday at 11:29 AM we shorted the Dollar index (UUP).  As Keith posted yesterday, we have been bullish on a “Buck Breakout” since the beginning of the year but, for a TRADE, the buck stops here.   We are shorting high as US debt issues aren't going away either.


While we are not crashing in the US, the Chinese market is close.  Last night the Chinese market was down another 1.9%, bringing the year-to-date decline to 18%.  The Chinese government is proactively slowing an economy that is white hot, but the country’s economy and its balance sheet is the strongest on the planet (For full transparency we are long the CAF).     


This is in contrast to the US economy and balance sheet, which is in very poor shape.  I wrote a MACRO note the other day that focused on the “sustainability” of the US GDP figures.  I use the theory of sustainability when analyzing stocks and, applying the same thought process to the US economy and its balance sheet, the trends are unsustainable.  Given this and the right price, it’s not a bad idea to be short the US dollar…which leads me to our new favorite three-word phrase, “Bernanke Stands Alone.” 


Yesterday, the head of the ECB, Jean-Claude Trichet was one of the last central bankers to come around and admit that inflationary pressures are real.  His two key quotes were “Inflation higher than expected due to oil” and “global inflation pressures may increase.”  How long can Mr. Bernanke stand alone and claim not to see the threat of inflation? 


The market is “correcting not crashing” and CNBC wants to perpetuate the turmoil because their viewership is falling faster that the market did in 2008. 


In closing, the most important three-word phrase of the weekend is “Happy Mother’s Day.”


Function in disaster, finish in style.


Howard Penney

Managing Director


Three Word Phrases - S P


The big market drop could be a correction, not a contagion


LVS missed our EBITDA estimate slightly but we were way above the Street. High hold % and strong baccarat volume drove LV.



"We are pleased to report that we delivered record revenues and adjusted property EBITDA during the first quarter of 2010. Strong top line growth in all our markets, coupled with increases in operational efficiency, contributed to substantial margin expansion and a record financial performance overall.  In Macau, we delivered $259.2 million of adjusted property EBITDA, with each of our properties, The Venetian Macao, Sands Macao, and Four Seasons Hotel Macao and Plaza Casino, delivering revenue and EBITDA growth, as well as EBITDA margin expansion.  In Las Vegas, increases in gaming revenue driven by record table games drop, in concert with the impact of our efficiency programs, allowed us to deliver $105.3 million of adjusted property EBITDA during the quarter, and to expand our Adjusted Property EBITDA margin to 32.3%, an increase of 410 basis points compared to the first quarter of 2009."

- Sheldon G. Adelson, chairman and CEO




  • Will shortly recommence construction of sites 5 & 6
    • Doubling the hotel inventory on Cotai is critical to growing the MICE business
  • Vegas: Forward bookings are increasing for 2010 & 2011.  Stronger pricing trends in FIT - especially on weekends.
  • MBS Singapore
    • Mostly SE visitors
    • Both premium direct and slot play have been quite robust
    • Today's visitation has been primarily from international visitation
  • Their principal focus now is growing by focusing on sites 5 & 6, recovery in Las Vegas, expansion and tables of Bethlehem and of course the maturation of Singapore.
  • Believe that the high hold at Venetian Macao on mass play should continue in the future, given the mix of games, time of play and other factors
  • Focused on growing their direct VIP play in Macau - which grew to 21% of total VIP drop at Venetian
  • Four Seasons - direct VIP play was 43% of VIP drop
  • Sands Macao remains a cash cow
  • Sands Bethlehem:
    • Had its best quarter since opening, reflecting new marketing programs and higher win per day
    • Plan to add 89 table games this summer which should increase the property's attractiveness
    • Started building hotel, which will open June 2011
  • Vegas:
    • Looking forward they should see a higher mix of group bookings in 2010 and even higher mix in 2011
    • Have 515k group room nights on the books for 2010
    • Expect pricing will improve over time
  • Deleveraging strategy:
    • Repaid $850MM of debt this quarter
    • Have $1.3BN on their credit facilities (US & SING) and $4.2BN in cash
    • Have $5.5BN of liquidity: 1.5BN left to spend on MBS through balance in 2010, but as much as $400 of that will be paid out of cash flow in 2010, $400MM more will be paid in 2011 on MBS out of their cash flow
    • Will also use some funds to develop first 2 phases of sites 5 & 6 in combination with the project financing that they raised
    • US Restricted group: EBITDA $439MM, debt $4.3BN, cash $2BN, leverage was 5.4x 
    • Venetian Restricted group leverage was 2.6x  (Macao)
    • Expect the sale of non-core assets in the near term to help them going forward
  • Guidance on hold rates: VIP: 2.7-3% as the normal hold rate for RC play, for Mass play, they think it's more reasonable to use the 4 quarter moving average as normal instead of a one size fits all approach



  • Table game cap in Macau
    • Assured for 400 NEW tables & 2,200 slots on sites 5 & 6 to start with. 
    • They will likely also move some tables and slots that they will have to move from other properties in Macau if they need to as well (170 tables that aren't being utilized or are marginal at other properties)
    • Adding 100 electronic tables too
    • Will be allowed to add 270 additional NEW games in 2013
  • MBS metrics
    • The electronic table games at Genting have been gangbusters.  They ordered games that they should get in 6-8 weeks
    • The slots are winning $400-900/day
    • The electronic roulette games play 10x faster then the live games
  • Why are the FIT rates on the weekends so good?
    • It's not across the board - just in FIT leisure.  Not sure why.  All of April was strong (+YoY)
    • Group demand is strong but pricing doesn't accompany that demand
    • For the last 4-6 weeks, weekends averaging $240-260 ADR
  • Lots 5 & 6 in Macao and the foreign labor issues?
    • Have 3,900 workers on the site now
    • They were assured that they will be able to get the labor they need
    • They will have to absorb the low amounts of unemployed workers as well
  • Biggest surprise in Singapore
    • Surprised by the premium direct play and credit applications - about 50% of play
    • Surprised by how much surveillance activities they had to do, and as a consequence they only opened half of their tables on the VIP side
    • Local crowd mix? 33% Singaporean 67% foreigners (Malaysia, Indonesia, Singapore)
    • Good news is that they had a lot of people during the opening day, but they weren't allowed to advertise until April 27th 
    • Will take a while to get the right mix of business. Looking at Baccarat mix relative to other games.
  • Volumes in Macau have been relatively subdued despite good hold
    • A lot of their emphasis has been building their direct play business
  • CoD - are they being more promotional?
    • They have not heard that CoD is changing their commission rates
    • They are selling more than 2/3 of their rooms on a cash basis and don't think that CoD is anywhere near that
  • Singapore VIP vs. Mass Mix
    • 48% of the revenues in the first 8 days were VIP 
    • In operation:
      • 70 VIP (out of 139)
      • 442 out of 559 Mass
      • 1450 slots out of 1600+ slots
    • Commission and rebate structure? They are paying much less then Genting and so far have not had pressure to move those rates so far
    • Ramp up of high end is going well but it is ramping
    • Gaming table win per unit is very encouraging - higher then what he originally estimated and what he used to come up with his estimate of EBITDA potential.  That's because they have higher quality of person visiting their property vs Genting's low brow visitor
    • If their ramp goes very well - in 12 months, the run rate number will be higher then what they estimated
    • They will increase their slots there to 2,500 (that includes electronic table games)
  • In Vegas: About 50% of drop came from Asian baccarat - held in the low 30's.  Held at 13% on the non-baccarat. They usually hold around 28% anyway on the baccarat play in Vegas.
  • 2.84% is their normal hold on rolling in Macau - claim that they were $5MM unlucky in the quarter for the RC business.  So they were unlucky on the Volume base  (RC 1.25%) and luckier on the Rev Share side. But when you combine RC and the RevShare then they were $5MM favorable.
  • Receivables: $118MM in Vegas (31% reserved) and $190MM in Macau
  • Rebates: 0.75% to 1.0% to players on direct play
  • 40-60% gross margins on the casino business in Singapore
  • Every $10 of ADR can contribute $20MM -$25MM of EBITDA in Las Vegas
  • Trying to say above $200 on ADR for groups in 2011
  • Co-op sales at Four Seasons - getting the final "ok" and as soon as they get that they can start selling. Mister of Public works has now been assigned that responsibility. They were looking for $1/SQFT
  • Can't sell the Singapore mall for 7 years and wouldn't consider selling it until its mature - 2-3 years away
    • Maybe I'm confused but he said that they can't sell it for 7 years??

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.