Here are the property specifics driving the 93% y-o-y increase in May Macau gaming revenues.



As we wrote about mid-month, May was likely to be a blowout month – and it was, up 93%.  Yes, the casinos held well on the VIP side, but even if the hold percentage was normal in May 2009 and 2010 and if we adjust for higher levels of direct play, total Macau gaming revenues would still have increased 71%.  While VIP was again the standout – up 121% - Mass did increase 44%, owing in part to a strong Golden Week.  We estimate that direct play accounted for 8% of RC turnover in May vs 7% last year.  A small part of the explanation for the explosion in VIP growth can also be attributed to last May's weakish hold (2.6%) and this May's relatively high hold of 3%.  Assuming both period held normally at 2.85%, VIP revenues would have still growth 86% y-o-y.


In terms of market share, Wynn and MPEL were the clear winners while LVS showed the biggest sequential drop.  Wynn obviously benefited from a full month of Encore while MPEL was able to grow its market share sequentially in both Mass and VIP.  LVS lost share in both VIP and Mass.  We remain concerned with the continued share losses by LVS but until market growth stops growing 60-95%, few are likely to care. 



Y-o-Y Table Revenue Observations


LVS table revenues increased 82%, with growth coming from a 140% increase in VIP revenues (hold was very low last year) but only a 21% increase in Mass revenues.

  • Sands grew 73%, driven by a 132% increase in VIP revenues and an 15% increase in Mass revenues
    • Junket RC increased 77%. 
    • Hold looks high - roughly 3.1% compared with low hold last May of roughly 2.25%, assuming 12% direct play levels in both period.
  • Venetian was up 61%, driven by a 95% increase in VIP revenues and a 24% increase in Mass revenues
    • Junket RC decreased 10% y-o-y, however, hold more than made up the difference.  Assuming 20% direct VIP play volume, we estimate that hold for May was 3.7%.  Last May, assuming 16% direct play, the hold percentage was only 1.7%.
  • Four Seasons was up 342% y-o-y entirely driven by 703% VIP growth and Mass growing a relatively small 30% 
    • Junket VIP RC increased 446% to $989MM.  If we assume 35% direct VIP play then overall VIP turnover likely had a record month of approximately $1.5BN

Wynn Macau table revenues were up 78%, primarily driven by a 92% increase in VIP revenues and a 23% increase in Mass revenues.

  • Junket RC volumes increased of 81%
  • Assuming that direct play percentages increased by 20%, hold was similar to last May

MPEL table revenues grew 159% with the growth fueled by 675% growth in Mass and 131% growth in VIP

  • Altira was up 18%, due to an 18% increase in VIP revenues and a 19% increase in in Mass
    • VIP RC was down 4%, but hold comparisons were favorable.  For the second consecutive month, Altira seems to have held high at 3.5%, compared to normal hold of 2.8% last May
  • CoD table revenue increased 40% sequentially, due to a 54% increase in VIP win and a 9% increase in Mass revenues
    • Mass was $37MM
    • Junket VIP RC increased 12% sequentially
    • If we assume 18% direct play at CoD (in line with what MPEL said on their earnings call), then total VIP RC would be $4.5BN.  However, hold in May hold appears weak at only 2.5%

SJM continued to grow above market growth rates for the 9th consecutive month, with table revenues up 106%

  • Mass was up 40% and VIP was up 154%
  • Junket RC volumes increased 123%

Galaxy table revenue was up 82%, driven by a 86% increase in VIP win and Mass increase of 47%.

  • Starworld's table revenue was up 159%, driven by 165% growth in VIP revenues and 44% growth in Mass

MGM table revenue was up 83%.

  • Mass revenue growth was 44%, while VIP grew 103%
  • VIP RC grew 85%


Table Market Share


LVS table share increased 200bps sequentially to 18.9% with most of the share loss coming from VIP.  Despite impressive y-o-y results, May 2010 marked LVS's lowest table share since March 2008.

  • LVS's share of VIP revenues decreased to 16.5% from 18.7% in April.  LVS's share of Junket RC increased 20 bps to 12.2% from the lows of last month
  • Mass share decreased by 80 bps to 26.6%
  • Sands market share dipped to its lowest levels since we've been tracking the data (and likely an all time low) of 6.3% down 60bps sequentially.  Sands lost share across both VIP and Mass.
  • Venetian lost 60bps to 9.9% sequentially
    • Venetian lost share across both Mass and VIP
    • Junket RC fell 22bps to lows of 5.3% - Venetian's lowest share since opening.
  • FS share decreased 85bps to 2.7% off of April's record share of 3.5%.
  • After SJM, LVS still commanded the second highest share of the overall market (including slots) of 19.4%,  followed by Wynn at 15.7%.

WYNN's share (including slots) increased to 15.7% from 14.4% in April.

  • VIP revenue share increase 155bps to 17.3% sequentially while Mass revenue share increased 50bps to 9.9%
  • Wynn's VIP share is second only to SJM at 30.8%, followed by LVS at 16.5%
  • Wynn Junket RC share increased 177bps to 16.2%, its highest share since last May

Crown's market share increased by 110bps to 13.7% in May.

  • CoD's bounced back to 7.5% and gained back what it lost in April due to low hold
  • Altira's share increased to 6.3% from 6.2% in April.  However, Junket RC share decreased by 110bps to 7.1% which is the lowest share Altira has garnered since July 2007

SJM's share (including slots) slipped by 110 bps to 32.3%.

  • SJM Mass share decreased by 210bps to 41.1% sequentially, while VIP share slipped 40bps

Galaxy's share was flat at 11.7%, although Mass share increased while VIP share slipped a little

  • Starworld's market share was decreased 30bps sequentially to 9.2%, due to a 90bps hold driven decline in VIP share which was somewhat offset by a gain of 60bps in Mass
  • Junket RC share increased 20 bps sequentially to 13.1%

MGM's share increased by 50bps (including slots) to 7.2%.

  • MGM's share gain can be attributed to a 1.2% sequential increase in Mass share to 8.5%, its best share since August 2008
  • VIP share increased 20 bps to 6.5% despite a 30bps decline in Junket RC


Slot market commentary

  • Slot win grew 29% y-o-y to $89MM
  • LVS's slot win grew by 29% y-o-y to $29MM
  • Wynn slot revenues increased by 11% y-o-y to $17MM
  • Melco's slot win grew 118% y-o-y to $19MM
  • MGM's slot win grew 16% y-o-y to $11MM
  • SJM's slot win decreased 1% to $12MM
  • Galaxy's slot win grew 25% to $2MM

MAY IN MACAU - macau rev share


MAY IN MACAU - macau mm




A collection of telling charts on the state of the U.S. employment environment.








Christian B. Drake

Analyst - Healthcare

Buy-And-Hope: SP500 Levels, Refreshed...

Yesterday’s rally to 1092 lasted until 130PM EST. Today’s rally to 1084 (another lower-high) has made it to 1230PM EST.


Volume is very light. Volatility has corrected by -10% on the VIX, but remains considerably above our TRADE, TREND, and TAIL lines of support (with the most immediate term TRADE line of support = 29.12).


Warren Buffett is defending the ratings agencies, joining the ranks of the “no one saw this coming” crowd …


Accountability and leadership in this country remain fleeting at a time that we need it most …


Willfully blind expectations that US deficit and balance sheet problems won’t become those of Europe continue to hang in the balance…


We aren’t going to solve the America’s problems today, but we will remain short this market in the face of the Perceived Wisdoms of those who are telling you they know exactly what is going on. All we know is where the lines in the sand are in our risk management process.


1.       TREND line resistance = 1144
2.       TRADE line resistance = 1101
3.       TAIL line support = 1077


What matters most in our macro model is the closing price. If the SP500 can find a way to hold its head (and close) above 1077, I may consider making some purchases. If it doesn’t, we’re looking for a downside test of 1057 of immediate term TRADE support.


Don’t forget that a weak set of US retailer results and jobless claims are due out in the morning, then an ominous unemployment report is due Friday morning.



Keith R. McCullough
Chief Executive Officer


Buy-And-Hope: SP500 Levels, Refreshed...  - S P

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%

PSS: Math

Here’s a great example of why estimates ≠ expectations. Let’s step back, YouTube ourselves, re-evaluate, and decide where to go from here. Math is math… Bottom line is to up our exposure.




Don’t you love when a company grows earnings by over 40%, beats estimates by 13%, and yet the stock still goes down meaningfully on the print? Unfortunately, there’s a difference between estimates and expectations, and as we often say here at Hedgeye, “Expectations are the root of all heartache” (borrowed from Shakespeare).


Make no mistake; the company missed both my estimates and expectations this quarter. I was at $0.88 cents (17% above the Street) and thought they could print something starting with a 9. The key variable was sales comps vs. Inventory.  Simply put, PSS missed the comp – printing -1.2% -- in an environment where people are scared spitless about anything surrounding the consumer. They smoked expectations on their wholesale business, which is not only higher margin but also less asset intensive and higher ROIC, but that does not have quite the offsetting dramatic flair in the headline that a comp miss does.


Ok McGough, you’ve liked this name for a while. Solid story last year, it’s been a dog since the start of 2010, and now they miss the comp. Have you overstayed your welcome? Are you succumbing to ‘thesis morph’?  Time to bail on this name and move on to greener pastures?


After going through the model ad nauseum last night and this morning, the answer is ‘No.’ I liked it 2 days ago, and I like it today – but at a better price. Yes, there are question marks that exist today that did not exist for me last week. But I am comfortable with the answers I’ve come up with.


Let’s dig…


1)      Why’d they miss the comp?  Am I happy about this? No, and there’s no excuses here for missing. A real company in this space needs to grow comp – especially one with no square footage growth. But I’m not as miffed as to why they missed. Simply put, the biggest driver was not having enough product to fill consumer demand.  Mind you, that’s one of the primary reason that gross margins were up 241bps. Ideally, they’d have managed the business to drive a few points of comp and around 100bps+ of GM% improvement. That’d look prettier, but would ultimately leave us with a similar result on the P&L.  This ability to manage the business better is something that PSS will need to show more of.


2)      What’s coming down the pike? PSS is going heavy on the toning category – with nearly 3x the inventory in 2H than 1H. The price point is nearly 2x the average price of the base Payless shoe, and let’s face it…regardless of how ridiculous this product is in my humble opinion (get fit while wearing them to do round trips from couch to fridge and back to score bon bons and beer) it is a hot trend. Competing product is selling around $80 (Reebok Easy Tones), $100 (Skechers Shape Ups) and $200+ (MBT).  A Payless offering under $30 will probably get noticed, as will several wholesale initiatives. 


3)      P&L Trends in 2010. At the same time they have this push; they’ll have a corresponding marketing push and will be going up against their easiest comp of the year. In fact, there’s no reason why we should not see avg ticket grow sequentially over the course of this year. This highlights the biggest binary risk/opportunity. We know the product is coming in. We know the trend is hot. We know the price point is meaningfully below anything else on the market. We know they’ll promote accordingly. But if this falls flat on its face, then there’s top line, GM and Inventory risk all rolled into one. If it works, then we get the opposite. The current stock price and consensus estimates discount something closer to the bear-case.


4)      That brings me to our estimates. Without making heroic assumptions, we’re coming out at $0.58, $2.00, and $2.50 for the upcoming quarter, this year, and next year, respectively. Over those time periods it represents 100%, 52% and 26% earnings growth, and 26%, 15%, and 25% above consensus, respectively.


5)      Don’t forget the long term story. This is a business that I like on a multi-year basis. It is at the center of a multitude of Macro cross currents, and just happens to have a CEO who I think has one of the best Macro processes in retail. The company owns both content and distribution – which will increasingly be important – and is the low cost/price provider of footwear with large scale distribution at a time when its main competitor – Wal-Mart – is downsizing its shoe business. Multiyear investment that have come to a head and structural changes in business alignment at PSS will allow the company to grind its average price higher over the next several years, which should unlock incremental margin dollars on what has been a perennially low-margin, highly-levered, no growth concept. As the fundamental story plays out, so will the earnings, the perception, the valuation, and ultimately the stock.


6)      Cash flow??? It’s rare to hear the words ‘Cash Flow’ in conjunction with PSS, but the reality is that the company has its’ net debt down to $417mm, or 33% of total capital. That’s the best position since the closure of the (horrifically ill-timed) Stride-Rite acquisition. But this is a company that should completely fund its working capital and capex needs, and still generate close to $360mm in free cash over the next 2 years. In effect, it should be nearly debt-free by the end of 2011.  I’ll have a tough time justifying that it should hang onto its ‘junky levered retail’ discount as that plays out.


7)      That brings me to valuation. Those who know me can count on one hand the number times I’ve dedicated any of my typing capacity to anything valuation-related unless it is break-up or M&A-related. That’s not because it does not matter, but because of our view that fundamentals will almost always trump valuation. Some cheap stocks should be cheaper, and some expensive stocks should be more expensive. But in the context of everything outlined above, consider the following valuation stats on FY10/11 using today’s stock price:

  1. PE: 9.8x/7.8x
  2. EV/EBITDA: 4.6x/3.8x
  3. FCF Yield: 14%/16.5%



Take nothing on its looks; take everything on evidence. There's no better rule.
-Charles Dickens, Great Expectations


How many times have you heard that “expectations are the root of all heartache?”  Well, here it is one more time.   


Looking ahead to the Nonfarm Payrolls number to be reported on Friday, the expectation is high for a strong print.  A Bloomberg Survey is looking for a BIG uptick to 515,000 jobs from 290,000 last month.  We have noted  the spread between what the economists were saying and reality since 2008 and 2009, when nobody saw the recession coming.  What are the chances they get it right this time? 


Yes, May is the peak for census hiring and there have been a number of press reports that the Obama Administration is double counting the numbers, but this looks a little out of line.


Howard Penney

Managing Director


FRIDAY'S JOBS REPORT - GREAT EXPECTATIONS - nonfarm payrolls annotated





"While we believe the economic condition of our customers improved as the fiscal year progressed, we believe the effect of an economic recovery on the gaming business will be slow and steady. As a result, we continue to trim costs where possible, improve our marketing efforts and elevate the guest experience to improve the competitive positioning of each of our properties."

- Virginia McDowell, President and COO



  • Depreciation and amortization expense is expected to be approximately $85 million to $87 million.
  • The Company expects cash income taxes pertaining to FY 2011 operations to be less than $5 million which primarily represents state income taxes.
  • Interest expense is expected to be approximately $89 million to $92 million, net of capitalized interest.
  • Total Corporate expenses for FY 2011 are expected to be approximately $46 million including approximately $8.5 million in non-cash stock compensation expense.
  • Maintenance capital expenditures for FY 2011 are expected to be approximately $45 million to $48 million, including conversion of approximately 2,500 slot machines to the Bally's slot system technology.


  • Retail sales increased sequentially in 5 of the casinos
  • Little visibility of economic recovery
  • Adjusted EPS is 24 cents/share vs. 18 cents/share in 4Q FY 2009
  • Strive to bring cash level down from $90 MM to current levels
  • 6.9x leverage ratio
  • $110MM available in credit facility before busting a covenant; 300 MM undrawn
  • $6 MM capex in 4Q 2010


  • Tax rollback in Pompano, FL- goes down by 15%
  • $400MM swapped out debt - most expires at end of 2011 with one long-term expiring at end of 2011
  • Station auction participation?
    • No
  • Florida properties:
    • have introduced penny slots in recent years
    • will take a couple of million dollars to reinvest in marketing program - to reintroduce customers to property
  • Gaming in Texas?  Thinks nothing happens until 2011.  Racino is a more likely possibility than a full-fledged casino.
  • Ameristar Black Hawk ramping:
    • doesn't think Riveria has any impact on Ameristar
    • hotel occupancy stabilized in Black Hawk.... retail expansion have driven customers to Ameristar
  • Rainbow
    • will rebrand to Lady Luck; will cost a couple of million
  • 35% effective tax rate in Florida - could be marginally higher.
  • Like the current cash level of $68MM-- though $75 MM is normal run rate.
  • Promotion environment:
    • facing pressure in Lake Charles
    • Biloxi--highly promotional environment
    • Quad cities-- tough as well
  • Depreciation decline forecast for 2011:
    • Assets getting to end of useful life; Pompano and Waterloo assets, specifically.
  • Stock compensation in 4Q 2010: $1.7 MM
  • South Florida economy seemed to have recovered: direct competition with Sugar Creek;
    • menu changes at many of the restaurants and television campaigns driving retail sales.
    • customer confidence improving "a little"
  • Credit amendment:
    • ISLE can invest in private equity projects that can leverage management fees
  • Quarterly interest coverage:
    • How close to covenant?
      • leverage: 6.9x; covenant is 7.5x.
  • Biloxi oil spill effect?
    • Nothing yet
    • BP marketing campaign to increase tourism in gulf coast area
    • Postponed the property's biggest event-- Bill Fish Tournament--to August; if oil spill doesn't improve, may cancel this event
  • Discontinued operations?
    • A little from Europe and a little from Bahamas in FY 2010
    • In FY 2011, discontinued operations will involve a little of Blue Chip from Europe
  • Davenport license:
    • nothing substantive has occurred
    • would be compensated for losing the contract if ISLE sells its property
  • Missouri 13th license:
    • interested but need to know more details
  • Gaming visitation trends:
    • For full year, visitation increased 3%; 4Q 2010 visitation is down slightly YoY.

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