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BLOW OUT MAY IN MACAU

Table gaming revenues tracked through May 16th were a whopping HK$8.6bn. Wynn, MPEL, and SJM gained share at the expense of LVS and MGM.

 

 

We just received some preliminary Macau numbers for the first half of May.  Fueled in part by Wynn Encore, table revenues through May 16th were HK$8.6 billion.  The Golden Week celebration took place in early May and needs to be taken into account in predicting the full month revenues.  Adding expected slot revenue of approximately $700 million for May, we think May could end up generating approximately HK$16 billion in revenues, up 85% year over year.  Here are the market shares MTD:

 

SJM            35.3%
LVS            15.1%
Wynn          18.1%
MPEL          13.2%
Galaxy         11.9%
MGM             6.4%

 

We already wrote about Wynn’s impressive May so far in our note last week.  Other notable market share shifts concern LVS, MPEL, and MGM.  LVS has been losing share but it took a huge dip thus far in May and if it holds, will be the lowest on record for the company since Venetian opened.  We don’t know how the company held but we’re guessing it was pretty low.  For the last few months, LVS’s share has been in the 19-21% range.  On the other hand, MPEL’s share improved 60bps sequentially, despite the Encore opening.  MPEL could be the big winner this month relative to estimates.  Finally, MGM’s share fell again sequentially to a level not seen since February of 2009.  Not the kind of numbers to be posting into an IPO.

 

BLOW OUT MAY IN MACAU - macau1


Braveheart: SP500 Risk Management Levels, Refreshed

There was a time in my career where I thought I could pretend I was Braveheart and buy my “best ideas” on valuation – then I got crushed. In a market that’s flashing negative across my core 3-factor model (Price, Volume, Volatility), the risk/reward is skewing to the downside.

 

After registering price, volume and, volatility studies after the first hour of this morning’s trading, the risk in the SP500 clearly outruns the reward (1108 downside versus 1144 upside). Here are some other real-time risk management factors to consider: 

  1. SP500’s dominant TREND line (1144) is not only broken, but the bulls are keep trying to test it – that should equate to higher VIX if SPX fails again
  2. VIX remains in a Bullish Formation (bullish across all 3 of our core investment durations, TRADE, TREND and TAIL), with no resistance to 39.37
  3. Immediate term TRADE support drops to a lower-low for the first time in a week (was 1110 and is now 1108 which would also be a lower-closing low) 

The brave move from here may simply be not getting sucked into the bid.

KM

 

Keith R. McCullough
Chief Executive Officer

 

Braveheart: SP500 Risk Management Levels, Refreshed - S P


LOW/HD: Same Biz, Polar Approaches

LOW/HD: Same Biz, Polar Approaches

 

A quick roll in sales/inventories alongside a margin hit at a time when LOW faces one of its easies compares shows some interesting divergences between LOW/HD. But the real question is whether you want to be here at all. From this point – the call on housing matters.

 

We’re seeing such a polar opposite result from LOW vs. HD as it relates to trading off between the P&L and the balance sheet. The chart below says it all. It overlays the trajectory for LOW/HD on those metrics for each of the past 4 reported quarters.  The Y-Axis measures the sales/inventory spread (higher is better), while the X Axis measures the yy change in margin. HD has had positive margins, with an improving sales/inventory spread, while LOW’s margins AND inventory spread have both been down in 4 of the past 5 quarters. More troubling for LOW is that its trajectory on this chart just swung back down to the lower left quadrant – even though it faced the easiest compare of the year.

 

While it’s tempting to look at the puts and takes on each of these two in more detail, the bigger question should really be whether you want exposure to either. We have four quarters of improvement on the margin from both – off of a cyclical low. Now, you need to believe in a housing recovery to be comfortable in these names. If you want to make that call, then be my guest. You might be lonely for a while.

 

LOW/HD: Same Biz, Polar Approaches - LOW   HD

 

 

 

 

 


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R3: Tricky Dick’s Gonna Beat

R3: REQUIRED RETAIL READING

May 17, 2010

 

 

TODAY’S CALL OUT

 

Here are some of our thoughts on Dick’s headed into the print on Tuesday. The bottom line is that the company should print something starting with at 2, vs. the Street at 13 cents. The comp and GM% setup looks solid. SG&A is up in the air due to catch up spending on systems, but they guided there already. We’re 10% ahead of consensus for the year. The cycle is still shaping up very nicely for this space – which has been core to our NKE and FL calls. But if Tricky Dick sandbags, lowers 2Q, and causes a selloff on the print, you’ll hear me get much louder on this name.

 

1)      As it relates to EPS – Our model is coming in hot for the quarter. $0.20 vs. Street at $0.13/$0.14 and guidance of $0.13. The key driver is comps. I simply can’t get to anything as low as the 3% comp they guided to. Sales have been strong in the channel based on reports out of competitors, and anecdotes from suppliers.  Weather was less favorable in DKS territory than in other parts of the country – but nothing so debilitating that it should hurt numbers. In addition, they are going up against -3-5% traffic trends in both 1Q08/09, and a 3-4% decline in both traffic AND ticket in 1Q09. To boot, this is the quarter where dot.com starts to get booked in SSS. We should be seeing acceleration in the 2-3 yr trends. In order to get there, I’ve got to double the company’s guidance (and Street estimates). I’m at 7%.

 

2)      GM%: +100bp sounds about right. Sales/Inventory spread ended last quarter in relatively good position on our SIGMA chart – suggesting that inventories were not a problem. Plus, they should lap Chicks liquidation and golf galaxy clearance last year. If anything, I may be light with 100bp GM improvement.

 

3)      SG&A: This is the biggest question mark. They deferred investments last year in systems to optimize regional product assortment (i.e. more like how HIBB does it). They noted that it should cost $0.16 ps throughout this year – or an even $0.04 per quarter.  Maybe they sandbagged there, but the reality is that I have no reason to doubt this number. If I back into P&L impact, $0.04 = $4.8mm after-tax (120mm shares), $8.0mm pre-tax, or 3-4% growth to each quarter in SG&A – all else equal. I think I’ve got that plugged into my model appropriately.

 

For the year, I’m at $1.55 vs Street at $1.37. Next year is $1.70.

Sell-side sentiment is about 50/50 split between bulls/bears.

Buy side is slightly more bearish. Short interest has come down from 16%, but still stands at just over 10%.

 

No way would I be short this thing headed into the print – even if it is expensive and has tripled off the low. There’s going to be many reasons as it relates to the industry cycle why this thing will make sense as one of the best houses on a bad street. In addition, earnings revisions will be supportive.  There’s still other places I’d rather be in the space as it relates to riding the upside – most notably FL and NKE, but if Tricky Dick beats the quarter yet sandbags guidance and the stock sells off, this one will make it towards the top of my queue pretty quickly.

 

 

LEVINE’S LOW DOWN 

 

- Unlike most retailers which are seeing their online businesses grow at rates far greater than their core same store sales, JC Penney.com continues to underperform. The .com business grew 1% in the first quarter, essentially in line with overall sales growth. The e-commerce business continues to be negatively impacted by weak home furnishings sales. While the company is seeing a slight pick-up in soft home, management notes there is still much work to be done here to impact a measurable pick up in this key category.

 

- Keep an eye of Gap’s efforts to expand and grow its “1969” denim sub-brand and freestanding shops. With a handful of stores already open in LA, NYC, and now Chicago, the company has tapped a former 7 For All Mankind executive to become the creative director of the company’s heritage denim line.

 

- While most are fixated on Skechers wild success with its ShapeUps toning shoes, the company continues to grow in other ways. SKX announced a recent licensing deal to launch a line of leather goods, including belts, wallets, and coin purses for adults and children. Also on the way are licenses for apparel, sunglasses, legwear, bags, backpacks, and medical scrubs. It’s not clear how the medical scrubs fit into the company’s merchandise mix, but we suspect it has something to do with those in the medical profession already wearing the company’s footwear.

 

 

HEDGEYE CALENDAR

 

R3: Tricky Dick’s Gonna Beat - Calendar

 

 

MORNING NEWS 

 

H&M April Sales fall 6% - Hennes & Mauritz AB  said same-store sales in April slipped 6 percent as the Swedish fast-fashion giant came up against tough comps, cool spring weather and an early Easter holiday. Including new stores, sales for the month grew 4%. As of April 30, the Swedish fast-fashion giant operated 2,037 stores. The April figures represent a slowdown from March, when like-for-like sales grew 9 percent. <wwd.com/business-news>

 

R3: Tricky Dick’s Gonna Beat - H M 1yr 

 

Affordable Footwear Act is Back - The footwear bill, which would eliminate duties on certain types of lower-priced and children’s footwear, is being attached to the jobs bill. They asserted that some international manufacturers are circumventing the U.S. tariff system and paying lower duties on some types of imported footwear than their American counterparts by using textiles in the soles of shoes to get a textile tariff classification, which is subject to lower duties. A provision in the Affordable Footwear Act would close the loophole that “allows importers to evade duties that help the domestic manufacturers compete in the U.S. and global markets,” they said. The bill states that textile materials inserted into soles does not change the character or classification of the soles or the shoes, and thus, is subject to the higher duties. The centerpiece of the duty-dropping footwear bill, which the industry has been pushing for a few years, would eliminate some $800 million in tariffs on approximately$1.7 billion collected each year. It would also eliminate tariffs on about 60% of shoes imported into the U.S., or nearly 1.5 mm pairs annually, according to industry figures. <wwd.com/footwear-news>

 

Chinese Labor Shortage - A year ago, footwear manufacturers, deep in the trenches of the recession, were desperate for consumers to buy shoes. Now, the challenge has shifted to finding someone to make them. Footwear factories have so many orders that they are overwhelmed. Footwear Distributors and Retailers of America claimed after a recent poll that 88% felt the industry had a significant labor shortage, with 86% reporting that the problem had caused deliveries to arrive from one to four weeks late. There is also a generational change with young people having higher expectations of career paths. Footwear companies are feeling it the worst of any segment. <wwd.com/footwear-news>

 

TRLG Hires Apparel President - Michael Egeck, the former president of The North Face brand, was named president of True Religion Apparel, the designer jeans company.  <sportsonesource.com>

 

Bulgari Not For Sale - Bulgari SpA, the world’s third- largest jeweler, isn’t for sale, and doesn’t plan to make acquisitions, Chief Executive Officer Francesco Trapani told Corriere della Sera in an interview. The family is “completely resistant” to the possibility of a sale, Trapani said in the interview with the weekly business supplement of the Italian newspaper. Trapani is the nephew of Chairman Paolo Bulgari, grandson of the company’s founder. The Bulgari brothers, Paolo and Nicola, along with Trapani, own about 51% of the company. <bloomberg.com/news>

 

Senators Approve a Measure that Could Cut Retailers` Debit Card Fees - The fees that merchants pay to accept debit cards, including for online retail transactions, could decline under a measure the U.S. Senate passed yesterday. <internetretailer.com>

 

Gilt Groupe Goes From Fashion to Furniture - Members-only luxury sale site Gilt Groupe is expanding into home goods, the retailer announced yesterday. Gilt Home will offer 15 sales per week from more than 200 brands that sell products such as outdoor furniture, rugs and bedding. <internetretailer.com>

 


WEEKLY RISK MONITOR FOR FINANCIALS

This morning we're rolling out our inaugural weekly risk monitor for Financials. The point is to provide readers with a snapshot of the changes that took place in various risk-based indicators during the last week to help them position as they look ahead to the coming week. We've selected specific indicators that we think represent good "canaries in the coal mine" in that they tend to reflect changes coming before those changes are more broadly priced into equity markets. Overall, 5 of the 8 measures registered positive readings on a week-over-week basis, while 1 was negative and 2 were neutral.

 

Our risk monitor looks at the following metrics weekly:

 

1. CDS for all available US Financials (30 companies).

2. High Yield

3. Leveraged Loans

4. TED Spread

5. VIX

6. Greek Bond Spreads

7. Markit Subprime Spreads

8. AAII Bulls/Bears Sentiment Survey

 

 

1. Financials CDS Monitor - Overall, credit default swaps in Financial companies were tighter nearly across the board last week with the largest improvement coming from GS, WFC and COF. Compared with a month ago, however, swap prices remain considerably elevated with the most widening at HIG, MET, JPM. Conclusion: Positive.

  • Tightened the most vs last week: GS, WFC, COF
  • Widened the most vs last week: ABK, MBI, AGO
  • Tightened the most vs last month: MTG, PMI, RDN
  • Widened the most vs last month: HIG, MET, JPM
  • Greatest CDS vs Equity divergence - last week:
    • GS (CDS 17.9% tighter / Equity 0.2% Higher)
    • ALL (CDS 15.6% tighter / Equity 0.2% Higher)
  • Greatest CDS vs Equity divergence - last month:
    • PMI (CDS 31.0% tighter / Equity 36.3% Lower)
    • MTG (CDS 33.6% tighter / Equity 28.7% Lower)
    • RDN (CDS 24.4% tighter / Equity 45.1% Lower)

WEEKLY RISK MONITOR FOR FINANCIALS - CDS table

 

2. High Yield (YTM) Monitor - High Yield rates tightened 24 bps last week, reversing some of their recent deterioration over EU contagion fears. Rates closed the week at 8.62% down from 8.86% the week prior. Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS - high yield

 

3. Leveraged Loan Index Monitor - Leveraged loans were essentially unchanged last week, closing at 1491, up a hair from 1488 where they went out the week prior. It's interesting to note the divergence between HY and Leveraged loans over the last week. Leveraged Loans are slightly senior to High Yield in the capital structure (secured vs unsecured), so it is interesting to see HY outperforming LL at a time of still broadly perceived uncertainty. Conclusion: Neutral.

 

WEEKLY RISK MONITOR FOR FINANCIALS - leveraged loan index

 

4. TED Spread Monitor - The TED Spread is a great canary. It was essentially unchanged last week closing at 30.0 bps down a hair from 30.8 bps in the week prior. Conclusion: Neutral.

 

WEEKLY RISK MONITOR FOR FINANCIALS - ted spread

 

5. VIX Monitor - The VIX is admittedly a far more coincident indicator, but we include it as a general reflection on the equities market. Last week the VIX closed at 31.24 down from 41.95 the week prior. Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS - vix

 

6. Greek Bond Yields Monitor - The Greece situation remains in flux and so we include Greek Bond 10-Year Yields as a reflection of that dynamic. Last week yields fell to 802 bps from 1229 bps. Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS - greek bond yields

 

7. Markit ABX Index Monitor - The Markit ABX Index was generally positive vs the prior week. We use the 2006-2 series and look at the AAA, AA, A and BBB- series. We include this measure as a reflection of what is going on in deep subprime distressed paper. Conclusion: Positive.

 

WEEKLY RISK MONITOR FOR FINANCIALS - markit data

Source: Markit

 

8. AAII Bulls/Bears Monitor - The Bulls/Bears survey grew more Bearish on the margin vs last week. Bears increased by 8% to 36.6% while Bulls fell 2.5% to 36.6%. This now means that Bulls and Bears are equally balanced at 36% suggesting no edge is available presently from this survey. Conclusion: Negative.

 

WEEKLY RISK MONITOR FOR FINANCIALS - bulls bears

 

Joshua Steiner, CFA

 

Allison Kaptur


THE M3: IVS CURBS RELAXED?, SPEEDING UP LAND-USE APPROVALS

The Macau Metro Monitor, May 17th, 2010

 

IVS CURBS RELAXED FURTHER? Intelligence Macau

According to IM, because of the visa restrictions two years ago, mainland visitors switched from IVS to package tours in order to avoid the restrictions on the number of visits per year.  But overall mainland arrivals were up 8.18% in March 2010 as tour package numbers fell overall by 7.7% YoY. Are we starting to see a swing back towards IVS (individual visitor scheme) from package tours? If so, mainland visitors will have more money in their pockets for gaming, seeing as they don't need to pay a middleman to get to Macau. It may also weaken the hand of the junkets who control many of these tours.

 

'BUILD FIRST, APPROVE LATER' POLICY FAULTED SCMP

Approving construction projects long after they are completed has become a common practice of the Macau government in the last few years as a backlog of land-use applications builds up while officials tread warily in the wake of the graft scandal involving former public works minister Ao Man-long. For example, the land-use approval for Sands China's US$4.42 billion project on the Cotai Strip was gazetted on Wednesday - four years after construction began and five years after the government received the application for the project.

 

Jaime Roberto Carion, director of the Land, Public Works and Transport Bureau, on May 7 admitted that his bureau was "a little slow" in approving land-use changes. "The process of changing land uses is a little slow. We will review it and speed it up," Carion said. A bureau spokesman said the government had been improving transparency in land-use approvals. "We are speeding up the revision of the Land Law and other relevant laws and regulations," he said.


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