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Wynn's revenue share in Macau share looks good on a preliminary basis.



Our Macau sources are telling us that Wynn’s market share of gross gaming revenues month-to-date has jumped to 18% due to strong VIP turnover and decent hold.  Obviously, Encore is fueling the increase but, if our sources are correct, Wynn would be adding more share than supply which would be a positive.  One source even suggested that Wynn overtook LVS in market share, although it could be due to just low hold. 


As we wrote about yesterday in “MPEL: TOO BIG OF A MOVE DOWN”, we think Macau is having a very good May, driven by very strong VIP volumes.  Our best guess is that May revenues should increase +60% y-o-y.  Wynn has materially higher market share in VIP and to get to 18% total GGR share, they would need to capture over 20% of VIP revenue – which is a nice jump over April and 1Q2010.  In April, VIP revenues grew 89% y-o-y to almost $1.27BN, and if May comes in at similar or slightly higher levels and if Wynn’s Mass share creeps up a few bps to 10%, that would imply a whopping $274MM of gross table revenue for Wynn.  We’ve also heard that all of the Encore tables are direct play tables which means lower blended commissions and higher margins.


To put things in context:

  • Wynn added 37 VIP tables and 24 Premium Mass tables, representing a 2.3% and a 70bps addition to the market as a whole, respectively. 
  • Wynn’s market share in April:
    • 14% ($239MM) of total table revenues
    • 16% share of VIP revenues
    • 14.4% share of Junket RC
  • Wynn’s market share in 1Q2010:
    • 13.5% ($663MM) of total table revenues
    • 15% share of VIP revenues
    • 16% share of Junket RC

TSA: File the Dang IPO Already!

TSA: File the Dang IPO Already!


Yet another announcement from TSA lighting the path to an IPO later this year. It’s all good for the industry for now. We’ll see competitive tension, no doubt. But without it we’re left with atrophy, which has hurt for the past 3 years. The cycle is turning positive.


It’s like torture waiting for The Sports Authority to come back to market. We’ve been watching and waiting since we made our view clear in January. Since then, the company has announced an acceleration in square footage growth from 0% to a high-single digit rate.   And then this morning it announced a new concept called S.A. Elite. I’m going to realistically assume that this new concept was embedded in the company’s prior growth acceleration plans. But the noise is getting louder.


Comps are looking better, capacity has been pulled out of the industry, the athletic cycle is just starting to turn up due to elevated levels of R&D out of the vendors, and this happens to be a window where private equity firms can jettison levered businesses they’ve been sitting on through the recession and credit crunch.


This will be Dollar General all over again. Also watch Toys R Us, PetCo…You get the drift.


The S.A. Elite idea is actually pretty interesting. The boxes are about 80% smaller than existing TSA box, and will be geared toward very high-end product from only the top brands. TSA is highlighting how ‘brand presentation’ will be key, and it is investing in things like lighting, high-end fixtures, and just about anything else needed to get brand CEOs’ juices flowing. The first one opens in August in Denver, with opportunity for ‘200-300 over 5-10 years.’


One point I don’t get is that it’s pretty clear based on what we see out of this space is that you need to be super-aligned with how the brands want to approach the market – otherwise you’re hanging on by a thread. We’re seeing Foot Locker close and consolidate its base of stores, and open up more category-specific (i.e. run, hoops) and brand-specific (Nike) stores. TSA is going out there with more multi-brand stores. It seems to me that the path to success here will be to make the experience heads and tails above everything else out there, which will be costly with an unproven return on capital. I wonder if Leonard Green is going to fund this, or if they’ll ask you to do so when it’s a stand-alone company?


The most commonly asked question of me is whether this is good or bad for the industry. The bottom line is that if the growth is going to come from a high-end concept where the formula works for both the retailer and the brands, then it is quite healthy. Tension in this business is good. It keeps people on their toes, and it keeps R&D checks flowing. Inactivity is bad. Complacency = no spending = weak product cycle. So longer term, I’m torn on this specific transaction without knowing more facts.


But near-term, it’s a positive. More hype, more press, better product flow, better comps, etc…will keep a halo around the athletic space well after the rest of retail enters its ‘show me’ stage of earnings growth (which it is just kicking off now).


- Brian McGough

Watching the IRS

Conclusion: Keep your Hedgeyes on the IRS and how 2011's tax rate increases will affect the economy at large. Expect more attention to be paid to this as we progress through the year, and for it to be priced into the markets as early as this summer. 


With sovereign debt concerns, the EU bailout package, accelerating inflation, and fat fingers garnering so much investor attention globally, we thought  we'd give you a quick global macro break and focus you on a domestic issue that will become increasingly important as 2010 progresses - 2011 tax hikes.


Since I collected my first paycheck some 8-9 years ago, I've been duly focused on taxes - i.e. how much of the money I made I wasn't actually going to be able to spend. After all these years (joke), the only thing I've come to learn about taxes is they don't get less annoying with time. And in 2011, I expect to become even more annoyed (along with a lot of other taxpayers).


Changes to be enacted in 2011: 

  • Income tax brackets are scheduled to change for 2011, with the highest rate increasing from the current 35% to 39.6%. Each of the lower brackets will also be increasing. It has yet to be determined where the income threshold will be for each bracket, but taxpayers can rest assured that their federal tax burden will be increasing for 2011; 
  • Capital gains tax rates are also scheduled to change. The top rate for long-term capital gains is expected to rise from 15% to 20%; and 
  • The preferential qualified dividends tax rate of 15% is scheduled to expire, so all dividends will be taxed at ordinary income tax rates. 

Obviously, this will be a headwind for the American consumer and will have negative implications for discretionary spending in 2011 (we may see a marginal pull-forward in spending on larger-ticket purchases this year as consumption is all but sure to decline next year). Less obvious, however, are the implications the tax rate hikes will have on the certain markets and M&A activity.


Under the new tax structure, we could see investment money flow towards capital gains away from equity income - especially those monies that will be taxed at or near the highest rate (39.6%). With so many retirees dependent on dividend funds, however, Congress may be inclined to level the playing field by either raising capital gains taxes or lowering the tax rate on dividends. Time will tell on that matter.


The far right column of table below shows the Y/Y percentage change in the after-tax income from a variety of investment sources. We have used the top tax bracket as a proxy for wealthy investors, simply because the flow of their monies will have greater impact on the overall investment community.


 Watching the IRS - Taxes


It is important to also note that municipal bonds and municipal bond funds will become more attractive on the margin vs. taxable bonds and taxable bond funds. While we believe the state budget and U.S. sovereign debt issues will have a greater impact on municipal bonds inflows, we'd be remiss not to call out this additional tailwind for the investment vehicle.


Regarding M&A activity – which should pick up with capital gains taxes headed higher – private businesses will be looking to sell prior to the tax rate hikes, and, as the year progresses, those looking to acquire with cash will have a more favorable environment. Sellers will certainly feel the pressure to unload by year's end rather than face a 33.33% higher effective tax rate in 2011. Aware of this selling pressure, buyers equipped with cash will be hunting for discounts late in the year. As an aside, buyers looking to acquire with deferred payments may be subject to a premium to offset the seller's increased 2011 tax burden.


In short, keep your Hedgeyes on the IRS and how 2011's tax rate increases will affect the economy at large. Expect more attention to be paid to this as we progress through the year and for it to be priced into the markets as early as this summer.


Darius Dale


Early Look

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R3: Easing Into Earnings With Macy’s


May 12, 2010





Macy’s reported 1Q earnings this morning of $0.05, a penny ahead of recently revised guidance and in-line with the Street. After hosting an analyst day two weeks ago and reporting April same-store sales late last week, there are few surprises with today’s release. As is always the case with Macy’s the conference call tends to add a bit of color to the quarter, but there are a couple of highlights worth noting at first glance:

  • Guidance remains unchanged (albeit recently revised upward) for the year at $1.75 to $1.80, driven by a 3-3.5% same store sales increase. Management says “it is premature to raise annual guidance further at this time given the macro-economic uncertainty.” With same store sales coming in at 5.5% in the recently reported quarter, the current comparisons for 2Q almost identical to 1Q, and demand through early May remaining solid, this seems like an overly conservative statement to make. With that said, the Street is at $1.87 and with so much riding on 4Q profits we expect conservative posturing to continue.
  • E-commerce appears to be building as a key contributor to the business, finally. Sales from Macys.com and Bloomingdales.com increased by 34% in the quarter, contributing 90 basis points to the overall same store-store sales result. This outperformance is amongst the stronger online results we’ve seen from traditional retailers.
  • Inventories remain in very good shape, down 7% year over year. With total sales up 7%, the 14% sales/inventory spread is noteworthy and sequentially improved from 4Q.
  • Management mentions the success of the quarter is in part due to the company’s My Macy’s strategic initiatives. While these internal efforts have been underway for a couple of years, it’s hard not to notice the company’s success coinciding with 1) the overall pick up across the mall and 2) similar margin and sales performances out of other department store operators.

Eric Levine



R3: Easing Into Earnings With Macy’s - M SIGMA






- With clogs back on the runway and toning shoes all the rage, it was only a matter of time before the two products became one. Enter the “Fitflop Gogh”, a clog built around the company’s Microwobbleboard technology. Keep an eye out for the patent leather, metal studded version slated to pop in NYC boutiques in a matter of weeks.


- In a yet another sign that the off-price channel is seeing less quantity of “quality” brand name goods, Fossil pointed out that its sales to the off-price channel were down 50% in its first quarter to about $5 million. Management also noted that the run rate for off-price sales from Q408 to Q209 was about $10 million per quarter. Clearly tight inventory and growing demand is helping to dramatically reduce FOSL’s reliance on off-price.


- With a deal announced between Zale and Golden Gate Capital, it appears the company has bought some time (and raised some capital) to execute another iteration of a turnaround strategy. While the details of the merchandising and marketing plan were not discussed, it was clear from management comments that Zale’s store base is not expected to shrink from here. In fact, the interim CEO made it a point to say with the current assets acting as a base, the goal is to grow the business from here. Easier said than done, but time now appears to be on ZLC’s side.





R3: Easing Into Earnings With Macy’s - Calendar





GSI Acquires E-Commerce Supply Chain Solutions - GSI Commerce Inc. has acquired VendorNet, a Boynton Beach, Fla.-based multichannel e-commerce supply chain solutions provider to more than 100 retailers and brand marketers. <sportsonesource.com>


Macy's May Offer Exclusive New Clothing Line from Hugo Boss in Fall 2011 - Sources say Macy's is in talks to sell "White Label," which will be a range for men and women priced below most Hugo Boss offerings, the NY Post reports. The mid-priced line is part of Hugo Boss CEO Claus-Dietrich Lahrs's plan to double US revenues. <streetaccount.com>


Macy's Launches Web Site Geared Towards Travelers - The site includes a hotel search and booking engine powered by Kiwi Collection. <internetretailer.com>


International Spend in UK Hit by Flight Ban in April - International shopper spend in the UK fell 16% year-on-year in April as the volcanic ash cloud impacted tourism.  <drapersonline.com>


Furniture Buying Index Up 6th Month in a Row - The Furniture Buying Index, tracked by America's Research Group, jumped two points this month to a reading of 71, marking the sixth consecutive month the Index has moved up.  “Pent-up demand and larger than expected tax refunds helped drive the Index up two points this month,” said Britt Beemer, chairman of America’s Research Group.  “When the Index reaches 70 points or higher, the success of retail furniture sales goes up dramatically. “This is a good sign especially considering that Memorial Day weekend is historically a very strong furniture weekend.” <hfbusiness.com>


K-Swiss Boosts Marketing Efforts with Another Athlete - KSWS signed a multiyear deal with France’s second highest ranked tennis player Gael Monfils to represent both footwear and apparel. The 23-year-old tennis phenom, currently ranks at No. 18 in the ATP World Tour and will be the highest ranked player on the K-Swiss team, which also includes tennis players Bob and Mike Bryan and Sam Querrey. Monfils has two career ATP titles and is a seven-time ATP Tour finalist. “He will be a big part of our marketing efforts, not only in Europe, but globally as well,” K-Swiss sports marketing director Erik Vervloet said in a statement. “He is young, talented, and is only going to get better as the years go on.” <wwd.com/footwear-news>


Red Wing Shoe Co Receives Grant to Expand Facilities - Red Wing Shoe Co., the owner of Vasque, Irish Setter Boots, and other shoe brands, has received a $261,270 grant to expand its plant in Potosi, MO, and add 42 new full-time jobs within two years, according to the St. Louis Business Journal. <sportsonesource.com>


Li Ning Tripling Store Size - Chinese sportswear company Li Ning Co. Ltd. is tripling the size of its Pearl District store. The store opened only three months ago. <sportsonesource.com>


Hot Topic Launches Helmetgirls Tees - Urban pop-art artist Camilla d'Errico has paired with Hot Topic to launch a line of T-shirts featuring Helmetgirls designs. The tees by licensee All Pacific Apparel are rolling out to Hot Topic stores now in the U.S. and online. D'Errico's manga-inspired artwork has been on snowboards, magazine covers, toys, clothes and accessories. <licensemag.com>


Yoox Profits Triple in Q1 - Profits at online retailer Yoox Group quintupled in the first quarter, jumping to 2 mm euros. Increase due to currency hedging and lower interest expenses having self-financed most of its investments on the back of its initial public listing last fall. Revenues gained 43.4%, reaching 50.3 mm euros. The 10-year-old company also runs e-commerce sites for designer brands from Marni and Emilio Pucci to Emporio Armani, Valentino and Roberto Cavalli. This division reported a 109% increase in sales. At the end of March, Yoox counted 20 online stores, eight more than in March 2009. In the first quarter, Yoox launched online stores for Coccinelle, Giuseppe Zanotti, Napapijri and Alberta Ferretti. In February, the firm extended its collaboration with Giorgio Armani SpA in Europe, the U.S. and Japan until Jan. 31, 2015. Under the new agreement, the Armani Jeans brand also will be included on emporioarmani.com. Geographically, sales in Italy grew 21.1% and 38.7% in Europe. Revenues in North America rose 111.6%. <wwd.com/business-news>


Maidenform Brands Inc. Doubles Profits - Strength due in part to strong gains in its shapewear business. The firm also raised its guidance above Wall Street’s estimates. Sales rose 25.1%: Wholesale sales increased 27.4%, Retail sales rose 3.7%. Top- and bottom-line results exceeded analysts’ expectations. Leaner inventories and reduced promotional activity drove the firm’s gross margin up 430 bps. Shapewear sales, up 34%, were key to the quarter’s performance. “Shapewear now makes up more than a third of Maidenform’s global business and is the fastest-growing category in intimate apparel,” said CEO Maurice Reznik. <wwd.com/business-news>


R.G. Barry Quadruples Profits - Higher sales and margins helped R.G. Barry Corp. more than quadruple its third-quarter profit. The marketer of slippers and accessories footwear, recorded 5.1% sales growth and 690 bps gross margin expansion. “Our spring business benefited from the growth initiatives undertaken during the past several years and is being measured against our very healthy results from the equivalent period last year,” said Greg Tunney, president and CEO, in a statement. <wwd.com/footwear-news>




The Macau Metro Monitor, May 12th, 2010




Human Resources Office (GRH) coordinator Wong Chi Hong said Sands China will only get imported labour for the resumption of its Parcels 5 & 6 construction when half of the workers needed are Macau residents.  He confirmed yesterday that GRH has already received the imported labour application from Sands China “a long time ago”, but said he was not sure if it was in last year or this year.


In addition, Wong Chi Hong stressed that the Office will not approve any quotas at this moment before Sands China can meet the requirements and confirms when exactly the suspended construction work on the Cotai Strip can be restarted.  “We definitely won’t give them [Sands China] any quotas in advance, it has to depend on the actual conditions of the construction because it’s still waiting to be resumed, and also how many local workers they are going to hire,” Wong Chi Hong said.  “We have already said that the minimum ratio [of local to imported workers in the construction industry] is 1:1. So we will only approve the quotas when at least 50 percent of their workers come from Macau,” he added.



Sands China has obtained the official land concession contract for parcels 5 and 6 in Cotai.  The company will have to pay a premium of MOP1.87 billion for the two parcels, which have a total size of 150,134 square-meters.  The concession contract states that the company has 48 months to develop parcels 5 and 6.



According to a letter reviewed by The Wall Street Journal, an impatient Macau government could move to settle Studio City's fate as soon as this week.  The letter, signed by Jaime Roberto Carion, director of land and public works in Macau, said the government would invalidate or terminate land rights for the $2.4 billion casino-resort project unless a satisfactory reason is given for its delay.  The parties, including U.S. investment firms Silver Point Capital LP and Oaktree Capital Management LLC, had one month from the date of the letter, April 14, to respond.



Stephen Weaver, chief development officer of Sands China, has left the company.  The creator of the Cotai Strip masterplan, Weaver had already resigned from the Sands China board a few weeks ago.

Financial Triumvirate

“Don’t tell mom I’m an investment banker. She still thinks I play piano in a brothel.”

– Bruce McKern


Early on in my career on Wall Street I had a friend who ended his Wall Street career after just a few years to become a teacher.  He has gone on to become headmaster at one of the best private schools in Ohio, helping to shape the minds of thousands of kids.  As for me, I don’t know what it’s like to wake up in the morning and not think about making money. 


There are lots of ways to make money legally on Wall Street and some do it better than others.  Wall Street storytelling is exemplified by bankers dressing up assets to look better than they are.  Then they charge huge fees for this service, while charging you interest on the money you borrow from them (and they can borrow money while paying little to no interest). 


Since March of 1792, it does not matter what side of the Street you are on; it’s all about making money.  Today, thousands of people are waking up thinking “how can I make money today”, but at the same time they see that Washington is demonizing what has been part of our culture for 218 years.   


The excesses of Wall Street are not excusable and are front and center right now, but Wall Street continues to be a necessary and critical part of our culture, and our economy.


With Financial reform on the tip of Obama’s tongue, can the recent string of events be just a coincidence?


(1)   SEC charges Goldman Sachs with fraud

(2)   Federal prosecutors are investigating whether Morgan Stanley misled investors

(3)   Last week the market melts down for some unknown reason….

(4)   JPM, GS and BAC have perfect quarters (what were they thinking?)


What is not a coincidence is the “Financial Triumvirate” of perfect quarters from JP Morgan, Goldman Sachs and Bank of America (Ken Lewis must be steaming right now).  Maybe now it's time for Mr. Bernanke to stop throwing money at the “Piggy-Bankers” who get up every morning and have nothing better to do but think about making money. 


He is making life so easy for them…. 


If you are a client that is on the other side of the “Financial Triumvirate”, you must be thinking “what do they know that I don’t?”.  Yes, it’s a stacked house!  The big boys have an unfair advantage in knowing exactly what the order flow pipeline looks like, so they can sit back and let their clients come to them for another losing trade.  This is a theme Washington can understand! 


Even so, you would think that in a “normal quarter” they would still have some trades go against them.  Flawless is definitely an outlier and nearly statistically improbable.  According to our in-house financial guru, Josh Steiner, in a “normal quarter” the historical charts of profitability distribution suggest that they lose money 5-10% of the time. 


When it’s all said and done, Main Street is the biggest loser. The man on the street is not getting paid on his /her savings account while Washington continues to enrich the Piggy-Bankers on Wall Street, whose sole purpose in life is to make money.  Last night, the ABC consumer confidence index came in unchanged at -47 for the week ending May 9.  The “Financial Triumvirate” may be doing what they do best, but it’s not trickling down to the little guy on Main Street.   


After last week, it is much clearer now why the Federal Reserve is keeping rates so low.  The European Sovereign debt issues and the size of the new loan facility have exposed the vulnerability of the EU as an economic power, which puts the US in a position of relative strength.  Having a sound banking system is critical to maintaining this mystique.  This is Dollar bullish! 


What can’t be ignored is that the consumer credit cycle of the past 20 years is dead.  At the same time, sovereign credit issues, combined with unsupportable entitlement spending, have ushered in an era of political and social instability.  This is a negative for the market and equity valuations, and I will point to Healthcare as a classic example.   Yesterday, our Healthcare analyst Tom Tobin said to me that he thought that Healthcare as a “safety trade” was gone, as the US and EU governments account for about 50% of payments to Healthcare.  Without healthcare, what’s left? Utilities?  Please say it’s not so.  


How many times in 2008 did you read that “cash is king” and that anything with leverage was going to zero?  In 2010 cash is still king and asset valuations are dependent upon the predictability and sustainability of cash flow generation. 


Yesterday, we sold our trading long position in QQQQ and took our allocation to US Equities in the Hedgeye Asset Allocation Model back to zero percent.  Also, at 12:14 PM we re-shorted the SP500 on strength (SHORTED SPY at $116.69) and our view of the market right here and now with the S&P at 1,155 is implied by our positioning.  Financial reform, Healthcare reform, the elimination of the Bush tax cuts, trillion dollar bailouts and the negative credit cycle are all inhibitors to growth.     


Wall Street’s interests are not always aligned with those of Main Street, and given what is happening on Main Street today, it is easy to demonize Wall Street.  However, not all bankers are bad.  Washington is trying to push through its financial reform so it does not want to educate people on the good guys and the critical role they play in today’s economy.  Some reform may be necessary, but too much financial reform will not only be an inhibitor to growth, but could also put a damper on a culture that has thrived on the dreams of those waking up, wanting to make money.



Howard Penney
Managing Director


Financial Triumvirate - gs dealer 1

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