The Macau VIP segment for LVS has not been keeping up with the market. Some of this is deliberate, most of it is not.



Macau market Rolling Chip (RC) volume increased a whopping 76% y-o-y in April.  LVS, on the other hand, could only muster a 10% increase in RC.  The Venetian actually experienced a 23% decline in RC but pulled a rabbit out of its hat in the form of high hold % (and maybe higher direct play) to increase VIP revenue 22%.  Even in Q1, LVS failed to keep up.  Market-wide RC grew 75% in Q1 while LVS and Venetian only expanded 29% and 11%, respectively.


The chart below shows the pretty consistent erosion in LVS RC market share since December of 2008.




So what’s going on?  Here are some thoughts:

  • SJM market share push – We first highlighted this on 02/08/2010 in our note, “MACAU: A MARKET SHARE BATTLEFIELD?.”  SJM embarked on an aggressive market share push with many of its properties and rooms on 5% franchise structure which is very attractive to the junkets.  Moreover, the company has targeted the LVS junkets.  SJM has been on a steady market share climb since September 2008, increasing its RC market share 1,400bps to a 2 ½ year high of almost 35% in April.
  • City of Dreams commission hike – Despite a 1.25% commission cap agreement with The Venetian, we are hearing that CoD is actually paying many of its junkets a higher rate.
  • Triads – I thought these guys went away peacefully when Macau opened up the casino industry.  Yeah right.  The media attention lately on LVS alleged ties with a Triad backed junket does not go over well with regulators.  If LVS is pretty smart, and I think they are, they will be very careful to pull away from any even remotely shady junket.  I don’t think those junkets necessarily want the attention either and they may distance themselves from the American operators.  Look for Wynn and LVS to continue to experience VIP share degradation. 
  • CoD addition to the market – This is partly to blame for LVS’ RC share loss but only a small part.  CoD garners only about 8% of the market and a lot of that comes from MPEL’s own Altira property.
  • Shift to Four Seasons – Four Seasons is on a ramp but since inception, that property has only generated about 17% of the VIP turnover as Venetian.
  • More direct play – Here is the positive take away from the bunch.  The Venetian has absolutely been trying to cultivate this business.  With player rebates in the 0.77%-1.05% range (or 28-34% of the table hold rate) versus junket commissions of 1.25%, direct play is much higher margin.  The chart below shows direct play as a percentage of RC for Venetian and Sands.  Clearly, Venetian is on the upswing and that is deliberate.  Higher direct play will usually eat into VIP but the net will be a positive because of the higher margin.



LVS has clearly stated that it intends to be primarily a non-junket Macau operator.  Over the long-term that should be a positive and we are quite constructive on the long-term competitive positioning of LVS.  However, LVS currently remains very reliant on VIP.  In 2009, we estimate 48% and 39% of Venetian Macau’s net table revenues and table profits, respectively, were generated from VIP.  When market VIP growth slows – we think post May – near-term investor growth expectations may have to be ratcheted down for LVS.

R3: AdiBok Strikes Again

Easily the most notable quote over the weekend came from Adidas’ CEO Herbert Hainer as it relates to the Toning category and impact on Reebok. “The explosion of growth in this [toning] space in such a short period of time eclipses nearly everything I have witnessed in the industry over the last 25 years, and we are well on track to sell at least 5 million pairs of toning footwear in the U.S. alone this year.” Worldwide, Hainer forecast that as many as 10 million pairs of toning product could be sold, up from a prior forecast for 5 million pairs as the Reebok toning product is gaining traction with recent advertising launches in Germany, Russia and the U.K.


What I’m not going to do is sit here blindly and deny the growth of this category, regardless of my personal bias as to how ridiculous the category is, and how hard I laugh when I see Joe Montana on TV advertizing Skechers Shape-Ups for men.  The fact is that the growth is real – for now – and Adibok is benefitting. This is happening at the same time we head into World Cup, which disproportionally helps Adi – at least until they need to anniversary it next year. Remember that Adi’s strategy is to endorse the event to sell the ‘official’ product of the World Cup. Other brands – like Nike and Puma – could care less about selling ‘official product’ that is worn by a ref, but care more about using the event as a platform for growing their business in outer years.


So if you own Adi, be happy. The trends continue to work in your favor. Take outsized growth in ‘toning,’ what may or may not be a sustainable category, add to World Cup – and layer over a German-engineered cost structure. That’s pretty nice as it relates to profit growth trajectory this year. But ‘this year’ is the key part of the phrase. Sustainability is a massive question mark.


- Brian McGough





  • A recent study by Comscore suggests consumers are less brand loyal than they have been in years. As an example, 57% of consumers surveyed buy the brand of toothpaste they want most vs. 67% only two years ago. In the apparel category, 15% fewer consumers “bought the brand they want most” in March 2010 vs. March 2008. Clearly trading down has had a major impact on brands in just a very short two year time frame.


  • After rumors that famed London department store Harrod’s was for sale, it seems this is now a reality. Over the weekend it was reported that Harrod’s was sold for $2.2 billion to Qatar Holding, the private equity arm of the Qatar royal family. At two times revenues, the purchase price is certainly eye-opening for a single store operation (albeit a very big one).


  • With Mother’s Day now over, it was estimated that Americans spent just shy of $15 billion on gifts for mom’s big day. The holiday ranks second only to Christmas as an occasion for which to give a gift.




R3: AdiBok Strikes Again - 5 10 Retail Calendar




Consumers polled by Big Research last month on their shopping habits appeared to be in the mood for shoes: All but one of the top 10 footwear stores registered an increase in market share from the previous year (all figures based on April y/y change in market share):

  1. Walmart - 11.5% (up 0.7% y/y)
  2. Payless ShoeSource - 9.8% (up 0.3%)
  3. Kohl's - 5.1% (down 0.1%)
  4. DSW - 3.8% (up 0.7%)
  5. JCPenney (up 0.3%)
  6. Macy's (up 0.3%)
  7. Kmart (up 0.6%)
  8. Foot Locker (up 0.2%)
  9. Target (up 0.7%)
  10. Famous Footwear (up 0.2%)



Broder Bros., Co. reported first quarter 2010 net sales were $153.5 million compared to $151.7 million for the first quarter 2009.  Loss from operations for the first quarter 2010 was $3.3 million compared to $6.9 million for the first quarter 2009.  Net loss for the first quarter 2010 was $6.0 million compared to $14.8 million for the first quarter 2009. First quarter 2010 gross profit was $26.9 million compared to $25.0 million for the first quarter 2009.  The increase in gross profit was due to higher unit volumes and improved gross margins.  First quarter 2010 gross margin was 17.5% compared to 16.5% in the first quarter 2009.  Consistent with management's expectations, the Company began to regain lost market share during the first quarter 2010.  The Company's unit shipments were 4% better than the prior year compared to a 3% increase in overall industry unit shipments as reported by STARS.    <>


Nordstrom Rack Outlet Concept to Debut in NYC - Nordstrom may one day open a full-line store in Manhattan, but on Tuesday, it will open a Rack unit at One Union Square South, marking the Seattle-based retailer’s entry into New York City. It’s a logical move, given the nation’s mind-set for trading down. It also gives Rack a high-profile location, right on busy 14th Street, and a leg up on competitors such as Saks Off 5th, Lord & Taylor, Talbots and Neiman Marcus, which are getting more aggressive in the outlet arena, as well as Bloomingdale’s, which is opening its first four outlets this summer and fall. Macy’s also is considering an outlet strategy  <>


China’s trade surplus shrank 87 percent in April from a year earlier as imports grew faster than exports because of stimulus-driven domestic demand.  The surplus of $1.68 billion, reported by the customs bureau on its website today, compared with a deficit in March. Imports gained 49.7 percent. Exports rose 30.5 percent, topping the 28.9 percent median estimate of 30 economists in a Bloomberg News survey.  <>


Multichannel bookseller Borders Group Inc. said today it’s taking online pre-orders for its Kobo eReader for delivery as early as June 17. Also coming soon: A new e-book store on, Kobo apps for ordering e-books through mobile devices and PCs, and in-store Area-e shops for downloading e-books. Borders is offering the Kobo eReader for $149.99, compared to $259 for Inc.’s similarly sized Kindle e-reader. The Kobo eReader, which will come pre-loaded with 100 classic books, can carry up to 1,000 book titles; the Kindle carries up to 1,500 while the larger Kindle DX, priced at $489, can handle up to 3,500 titles. Mike Edwards, Borders Group’s interim president and CEO, says its Kobo eReader is just the first of several e-readers the retailer plans to offer.  <>


Retailers joined with the overall economy in adding jobs in April, offering evidence of an improved economic outlook. Specialty apparel retailers added 8,600 jobs last month compared with March to employ 1.39 million, the U.S. Labor Department reported Friday, while department stores expanded payrolls by 300 jobs to employ 1.48 million. “The gains in retailing employment are consistent with a recovery [in] spending at retail chains,” said John Lonski, chief economist for Moody’s Investor Services. “The improvement in private sector employment is consistent with a lasting upturn of consumer spending. Going forward, consumer spending should grow.” Clothing stores helped spur an increase in retail industry employment of 12,400 jobs, said Sandy Kennedy, president of the Retail Industry Leaders Association. The employment figures came on the heels of mixed same-store sales reports from retailers on Thursday, she noted. “Today’s jobs report is yet another reminder of the complex challenges the U.S. economy faces as it moves toward recovery,” Kennedy said. Nationwide, employers added 290,000 jobs, the largest increase in four years and the fourth straight month of job gains. Yet the unemployment rate rose to 9.9 percent in April from 9.7 percent the previous month.  <>


Jockey International Discusses Strategy - Like other heritage brands that have struggled with the tough economy over the past two years, Emma said Jockey is focusing on its most important assets: brand integrity as well as its 134-year-old franchise of men’s, women’s and children’s underwear at retail. Ramping up investments in design and marketing are strategies that have clicked for the privately held company, which generates estimated annual wholesale sales in excess of $300 million.

WWD: How does Jockey differentiate itself from the competition?

E.E.: We focus on innovation and newness and want to stay a step ahead as it relates to fashion. We offer value — it’s built into the product. We have not allowed ourselves to get involved in the promotional frenzy. There’s been a lot of pressure to deviate but we have not deviated from our 25 percent off [seasonal sales]. A lot of companies are doing 40 percent off. We feel that’s a mistake.  <>


Deal Activity in Outdoor Equipment - Clarus Corporation has signed definitive merger agreements to acquire, in two separate transactions, Black Diamond Equipment, Ltd., the manufacturer of equipment for rock climbers, ice climbers, alpinists, and freeride skiers; and Gregory Mountain Products, Inc., the manufacturer of technical backpacking and related mountaineering products. The aggregate purchase consideration, prior to adjustments, for both acquisitions is approximately $135 million.  <>


Spanx Innovation Continues - Building on its recent forays into women’s swimwear and men’s products, shapewear company Spanx is keeping the momentum going with a new category launch today: control tops that can be worn as ready-to-wear. The collection, called On Top and In Control, consists of eight styles — including a long-sleeve turtleneck, V-neck and crew neck, a three-quarter bateau-neck top and four sleeveless designs. Priced from $68 to $118 at retail, the tops will launch exclusively on Sara Blakely, founder of Spanx, said the company is developing additional outerwear products and the next launch will be “a new take on a classic item.”   <>




News from United States Cellular steals the spotlight from April sales numbers.


MCD released global comparable store sales numbers this morning and, overall, the numbers beat Street expectations.  The results fell in line with our “NEUTRAL” ranges in the U.S. and APMEA, with the Europe sales number implying a sequential improvement in two-year trends. 


However, the most pressing news for McDonald’s this morning came from United States Cellular (USM), which named Mary Dillon as President and CEO.  Dillon is joining U.S. Cellular from McDonald’s Corp., where she was Global Chief Marking Officer and Executive Vice President.  What is most telling about this announcement is that there was no press release from McDonald’s side announcing Dillon’s departure.  At the time of writing, there is still no announcement from her former employers.  Dillon joined McDonald’s in 2005. 



Howard Penney

Managing Director


The Macau Metro Monitor, May 10th, 2010



As revenues continue to grow, it is not the right time to lower gaming taxes in Macau, Luis Pessanha, legal adviser of the Legislative Assembly told the Macau Daily Times yesterday.  Stanley Ho and several gaming operators have been asking the Government to consider rebating a certain amount of gaming tax in order to enhance competitiveness in the market as well as to curb any regional competition.  Currently, the gaming tax in Macau stands at 35% of the gross income plus a maximum of 5 percent of contribution to support Macau’s construction, social security and the Macau Foundation.



From February to April this year, Sentosa saw an increase of over 30% in visitors compared with the same period last year. A crowd size of up to 20,000 was previously seen on only a weekend but it's now typical on a weekday.  Rajavarman M, assistant manager, Admission Operations, Operations and Retail Division, said: "During a weekday, we see a weekend crowd before RWS has opened and on a weekend we are seeing a slightly more peak crowd that we used to see during certain public holidays.  And during our current public holidays, we see an almost super peak crowd, like during Chinese New Year - we almost hit a 100,000 crowd which we have never seen before".



The chairwoman of the Legislative Assembly’s (AL) Provisional Committee for the Analysis of Land and Public Concessions, Kwan Tsui Hang, said that 30 operators who are yet to develop land granted to them by the Macau government will be asked to explain the reasons for their inaction in writing.  Kwan stressed that the 30 cases are not only related to gaming operators.

The Keynesian Elixir

“The lesson is clear: when we celebrate a great achievement, we are not just celebrating hard work, but also a competitive process where some have won and others have lost.”

-David Shenk


I was reading David Shenk’s new book ‘The Genius In All Of Us’ on Friday and couldn’t stop smiling. Finally, the Perceived Wisdoms associated with intelligence being endowed upon us genetically are dying on the vine of science. This is another major victory for those of us who agree with Shenk that “talent is not a thing; it’s a process.”


Risk management is a process. So is being proactively prepared for The Keynesian Elixir that has become our global economic resolve. Per our friends at Wikipedia, “an elixir is a sweet flavored liquid used in compounding medicines to be taken orally in order to mask an unpleasant taste and intended to cure one’s ills. Elixir in the noun form means a drink which makes people last forever.”


Forever is a long time. I won’t spend this morning reminding you who was bullish at SPX 1217 on April 23rd with the expectation that this bull rush was going to last forever. I don’t need to waste your time calling out who made short sales on Friday’s lows expecting that global markets would go down forever either. What we have here is a very healthy competitive process where some will win and some will lose. That’s my kind of capitalism.


I spent Thursday and Friday covering shorts and getting long. On Friday, I added a 3% position in the Nasdaq (QQQQ) to our Hedgeye Asset Allocation Model, taking our allocation to US Equities up to 6%. I started the week with a zero percent allocation to US Equities. We were short the SP500 (SPY), and now we are long that too.


How can I be bearish on US stocks and end up being long them this morning? The answer to that question is fairly straightforward  - time and price. Just because our Q2 Macro Theme for April Flowers/May Showers is playing out doesn’t mean I need to press it at every time and price. That’s what a sell-sider who has never managed money before would do. Every risk manager who has traded a market knows that, at a price, gains on the short side are meant to be taken.


We like to keep score. Some people love that. Some people love to hate it. My job isn’t to wake up and try to make friends. It’s to augment your investment process with some risk management thoughts that don’t pander to whatever it is that professional meeting organizers do.


For the month of May to-date, here’s the score for US Equities: Dow -5.7%, SP500 -6.4%, Nasdaq -8.0%, and the Russell 2000 -8.9%. This is what we call a market that’s immediate term oversold. That doesn’t mean that it’s not broken or bearish. Oversold is as oversold does.


From a risk management perspective, it’s not only critical to probability weight where we are immediate term oversold, but to also have a point of view on ranges of probabilities as to where we could bounce. For two long positions that I currently hold (SPY and QQQQ), here are those ranges:

  1. SP500: 1110-1143, with 1143 being our intermediate term TREND line of resistance, and 1172 being the line that’s in play if we close > 1143.
  2. Nasdaq: 2, with 2335 being our intermediate term TREND line of resistance, and 2425 being the line that’s in play if we close > 2335.

On the short side, we shorted the US Dollar on strength last week (on 5/6/10 at 11:29AM) as we thought the Euro was immediate term oversold and the Dollar (UUP) immediate term overbought. At Hedgeye, we define immediate term as the “TRADE” which is 3-weeks or less in terms of duration.


We remain bearish on the Euro for the intermediate term TREND (3 months or more) but, again, that doesn’t mean we are bearish on the Euro at every time and price. While our Q2 Macro Theme of Sovereign Debt Dichotomy had us short the Euro and long the US Dollar, for the immediate term TRADE both of these gains needed to be booked. Here are our refreshed lines of support/resistance for these currency markets:

  1. US Dollar: $83.06-84.59
  2. Euro: 1.26-1.31

 Altogether, all of this presents me with 2 simple macro questions this morning:

  1. Where do I sell the QQQQ and SPY?
  2. Where do I re-short the Euro and cover my trading short in the US Dollar?

We can get all caught up in the semantics of whether or not this is “too trading oriented”, but I have yet to see a legitimate risk management process that doesn’t need to execute trades in real-time. As time and prices change, we do. It’s a competitive process, not a popularity contest.


Whether we agree ideologically with The Keynesian Elixir of European governments attempting to bail out neighboring governments or not, the only thing that is going to help us all from ourselves this morning is being right. Then we can all celebrate great achievement in risk management, together.


Best of luck out there today,



The Keynesian Elixir - S PCHART


In early trading, equity futures are trading sharply above fair value after the EU and ECB unveiled a €750B rescue package to prevent the Euro zone financial system collapsing.  In addition, the EU and IMF approved the loan agreement with Greece with the first disbursement set to proceed before its May 19th bond redemption.


The European markets moved sharply higher in response to European policy makers agreeing on the rescue package.  The upward move in stocks, which saw all industry groups trade higher, was led by banks and financials with average gains of over +12%.  Also in early trading, all members of the FTSE 100 are higher.


When the US levered up its balance sheet to save the nation the market rallied 75% over the next twelve months and the Euro zone is now taking the same path as the US.  How is this all the MONETARY LUNACY going to end?  Leverage is bad, not good!  That being said, we are managing risk around what the market gives us and coming into today’s trading, we have the following positions in the Hedgeye virtual portfolio:


On 05/07/2010 (10:18 AM) LONG QQQQ - The reactive are making forced sales here in early trading, so we'll take our US Equity allocation up from 3% to 6% with this addition to our long exposure.


On 05/06/2010 11:29 AM SHORT UUP $24.75 - We have been bullish on a Buck Breakout since the beginning of the year but, for a TRADE, the buck stops here. Shorting high as US debt issues aren't going away either.


On 05/06/2010 01:25 PM LONG SPY $114.98 - May Showers it is! We'll get long some US Equity exposure now, taking our Asset Allocation in US Equities to 3% (from zero). KM


With US equities finishing substantially lower on Friday, all of the US sectors were broken on TRADE and TREND except Consumer Discretionary, which did not break TREND. 


The Hedgeye Risk Management models have the following levels for the S&P 500 the US dollar, The Euro, VIX, OIL, Copper and Gold: 

  • As we look at today’s set up the range for the S&P 500 is 33 points or 0.08% (1,110) downside and 2.9% (1,143) upside.  
  • The Dollar index is currently trading down 1.4%; the Hedgeye Risk Management models have levels for the DXY at: buy Trade (83.09) and sell Trade (84.59). 
  • The Hedgeye Risk Management models have levels for the VIX at: buy Trade (25.23) and sell Trade (40.95). 
  • The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.26) and Sell Trade (1.31).  
  • The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (75.01) and Sell Trade (80.40).  
  • The Hedgeye Risk Management models have the following levels for COPPER – Buy Trade (3.06) and Sell Trade (3.34). 
  • The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,180) and Sell Trade (1,212).


Howard Penney

Managing Director













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