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After a strong start to the month, growth tapered off.  Digging below the headline +65%, we find that volumes were not as strong.



June table revenues came in at $1.62BN, increasing 66% YoY, while total gaming revenues increased 65%.  June's number should be no surprise to our readers as we had projected 67% last week.  Mass revenues increased 39% YoY while VIP revenues grew 77% YoY, compared to only 53% growth in Junket RC volumes.  Similar to May, easy hold comparison contributed to some of the big growth we saw this month.  Adjusting for direct play levels, we estimate that VIP hold was 2.83% in June vs. 2.45% last year.  If we normalize for hold, table revenues would have been only up 50% YoY this month.


The gods of luck smiled on WYNN and LVS but frowned upon SJM and Galaxy.  Luck (and Encore) explain most of the share shifts this month. 


Remember that July faces the first positive YoY monthly comparison of the year.  Additionally, World Cup betting should continue to steal volumes from the Macau tables.  For more details, keep reading.


YoY Table Revenue Observations


LVS table revenues increased 38%, with growth coming from a 53% increase in VIP revenues and only a 15% increase in Mass revenues.

  • Sands grew 20%.
    • 28% increase in VIP revenues.
    • 8% increase in Mass revenues.
    • Junket RC increased 34%.
  • Venetian was up 21%, driven by a 21% increase in VIP revenues and a 20% increase in Mass revenues
    • Junket RC decreased 1% YoY, however, hold more than made up the difference.  Assuming 20% direct VIP play volume, we estimate that hold for June was 3.2%.  Last June, assuming 16% direct play, the hold percentage was 2.75%.
    • Venetian VIP turnover growth was negative for the 3rd straight month.
    • Lowest mass share for LVS since pre-Venetian.
  • Four Seasons was up 283% YoY driven by 542% VIP growth and Mass growing a relatively small 11%.
    • Junket VIP RC increased 263% to $781MM.
    • If we assume over 40% VIP turnover came from direct play, hold still looks very high at north of 4%.

Wynn Macau/Encore table revenues were up 108%, primarily driven by a 138% increase in VIP revenues and a 20% increase in Mass revenues.

  • Junket RC volume increased only 59%.  Junket RC volumes grew a lot less than VIP revenues since the majority of the Encore addition was dedicated to direct play tables; the disparity implies that it's likely that Wynn played very lucky in June and that the percentage of total play coming from direct VIP increased nicely. 
  • In 2Q09, direct play volumes at Wynn were roughly 11% of total VIP.  Assuming June was in line with the quarter, hold was a low 2.4%.  If we assume that direct play volumes increased to 16%, implied hold for June is 3.5%.  2Q2010 will show a reversal of luck for Mr. Wynn - who hasn't had a "lucky" quarter in Macau since 1Q2009.

MPEL table revenues grew 138% with the growth fueled by 124% growth in Mass and 142% growth in VIP.

  • Altira was up 42%, due to a 41% increase in VIP revenues and a 56% increase in Mass.
    • VIP RC was flat YoY, but hold comparisons were favorable. Altira seems to have held high at 3.1%, compared to low hold of 2.1% last June.
    • 2Q2010 should be the property's first quarter of hold north of 3% since 1Q2009.  Perhaps that will put a temporary end to the annoying sell side questions regarding hold.
  • CoD table revenue decreased 22% sequentially to $119MM due to a 28% decrease in VIP win and a 5% decrease in Mass revenues.
    • Mass was $35MM.
    • Junket VIP RC increased 21% sequentially.
    • If we assume 15% direct play at CoD, then this is the 3rd month in a row where hold is low.  We estimate June hold of only 2.4% and hold of only 2.3% for the quarter.
    • We have heard consistently that CoD is spending a lot to "buy" its business, so margins could disappoint.

SJM table revenues grew 63%.

  • Mass was up 53% and VIP was up 70%.
  • Junket RC volumes increased 92%.

Galaxy table revenue was up 38%, driven by a 40% increase in VIP win and a 30% increase in Mass.

  • Starworld's table revenue was up 58%, driven by 59% growth in VIP revenues and 51% growth in Mass.
  • The group RC volumes were up 78% while Starworld RC volumes increased 105%.  Starworld's June hold was low - roughly 2.5% vs. 3.2% in June 2009.

MGM table revenue was up 48%.

  • Mass revenue growth was 39%, while VIP grew 52%.
  • VIP RC grew 7%.
  • We estimate that MGM suffered from low hold in June, roughly 2.5%, and in the entire quarter (2.6%).  However, last June's hold appears to have been even worse at sub 2%.


Table Market Share


LVS table share increased 230bps sequentially to 21.2%, entirely driven by good luck on the VIP business.

  • LVS's share of VIP revenues increased to 19.7% from 16.5% in May.  LVS's share of Junket RC increased 170 bps to 13.9%.
  • Mass share decreased by 110 bps to 25.5%, which is the lowest share LVS has had of the Mass business in Macau since August 2007.
  • Sands market share continued to make new lows at 6.2%, down 10bps sequentially. June sequential share loss was driven by the Mass business.
  • Venetian gained 110bps to 11% sequentially.
    • Venetian's share gain was entirely driven by a 140bps increase in VIP, while Mass share declined by 80bps.
  • FS share increased by 130bps to 4.0% - an all-time high for the property driven by good luck and strong VIP play.

WYNN's table share increased to 17.2% from 15.6% in May.

  • VIP revenue share increased 260bps to 19.9% sequentially while Mass revenue share decreased 20bps to 9.7%.
  • Wynn's VIP share is second only to SJM at 26.3%, followed by LVS at 19.7%.
  • Some of Wynn's market share gains in VIP seem to be driven by luck.  Wynn Junket RC share decreased 120bps to 15%.

Crown's market share decreased by 60bps to 13.1% in June, with both properties contributing to the loss of share.

  • CoD's share decreased 20bps to 7.3% due to losses in VIP share which were partly offset by gains in Mass share.
  • Altira's share decreased to 5.8% from 6.3% in May.

SJM's share slipped by 280 bps to 30.3%, its lowest share since August 2009.

  • SJM's share loss was entirely driven by their loss of 450bps of share in VIP to 26.3%.  Part of this loss is due to lower hold YoY.  SJM held at 2.8% in June 2009 vs 2.5% this June.  July's hold comp is very easy though (last year was only 1.84%), so we expect to see large sequential share gains for SJM next month.
  • Mass share increased 60bps to 41.7% sequentially.

Galaxy's share fell 1% to 10.7%, driven by poor hold.

  • Starworld's market share decreased 60bps sequentially to 8.6%, due to a 60bps hold driven decline in VIP share which was somewhat offset by a gain of 30bps in Mass.
  • Junket RC share increased 20 bps sequentially to 13.3% for Starworld.

MGM's share increased by 50bps to 7.4%.

  • MGM's share gain can be attributed to a 70bps increase in VIP, which was somewhat offset by a 20bps decrease in Mass share.


JUNE WAS STRONG BUT... - macau table


JUNE WAS STRONG BUT... - macau mm


JUNE WAS STRONG BUT... - macau rolling

The Week Ahead

The Economic Data calendar for the week of the 5th of July through the 9th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - c1

The Week Ahead - c2

European Chart of the Day: Swiss Franc

The Swiss National Bank is issuing language that suggests it may intervene (and sell Swiss Francs) to depreciate the value of the Swiss Franc, a move it made a number of times in 2009 to maintain a tight band to quell the appreciation of the Franc in Q1 2009.  With the sovereign debt contagion fears in Europe bubbling since the early part of this year, the Franc has gained substantially versus the EUR, up 10.96% YTD, hitting a high on 6/30, before selling off in lock step with gains in the EUR-USD over the last two days, to $1.25.


With Swiss Central Bankers reiterating that deflation risks have “largely disappeared”, they’re now worried that a Franc at these levels will choke off exports, which account for more than half of Swiss GDP. While the negative correlation of Exports to its closest trading partners in the EU and the CHF-EUR is only -0.44 over the duration of the chart, the correlation is nevertheless a formative one we’ll be following.


Matthew Hedrick



European Chart of the Day: Swiss Franc - CH

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 80.51%
  • SHORT SIGNALS 78.32%


If you thought 3 for 20 was cheap…


For those following EAT closely it’s no surprise that Chili’s same store sales are trending below that of the overall industry, as measured by Knapp Track.  In fiscal 4Q, Chili’s SSS could be down as much as 4%.  In this environment, top-line sales are critical to the implied health of the company.  When sales are not good the market punishes the equity, as it should.  For EAT we are reaching maximum bearishness. 


Given our Bear Market Macro theme, there is the potential that the market could get even uglier - that is out of my control.  What I can control is what I understand.  EAT recently closed the sale of OTB and now has enough cash and debt capacity to buy back 25% of the company.  While it will not happen tomorrow, it will happen over the intermediate term.  That is good enough for me.


News of Chili’s struggling top line has sent the stock down 20% over the past month, with the stock now trading at 6.1x EV/EBITDA.  Looking a little more closely, things are even cheaper that they appear on the surface.  Examining the different pieces of EAT’s assets, the current implied value of the Chili’s business alone is 2.5X cash flow.


When we get within a six month window of a potential catalyst we like to press our bets, and we are getting close to that time.  As the calendar turns on 2011, EAT will be in a great position to show improving trends.  The catalysts are:


(1)    Lapping the self-inflicted wounds of shrinking the menu.

(2)    Getting past the excessive discounting of 3 for 20.

(3)    Building momentum on the in-store margin initiatives.



The last catalyst is critical and has the biggest potential for an upside surprise relative to street expectations.  For now the stock is trapped in the bearish sentiment for typical bar & grill companies.


In the meantime, while we wait for the catalysts to play out, the company is a big, big, big buyer of stock. 




Howard Penney

Managing Director

Bear Market Macro: SP500 Levels, Refreshed...

We made two short sales on strength in the Hedgeye Virtual Portfolio this morning: Copper (JJC) and Citigroup (C).


While there was a fleeting hope that the US stock market could have a snappy bear market bounce this morning (the unemployment report wasn’t awful relative to expectations), the math in our quantitative models continues to say sell on strength.


In the chart below we outline how ugly this market is starting to look across all 3 of our core investment durations (TRADE, TREND, and TAIL). We call this a Bearish Formation (when all three durations confirm the same direction of price momentum, volume, and volatility).


Despite the SP500 having closed down for 4 consecutive days and for 8 out of the last 9, lower-lows of support continue to register in our models. This is bearish and speaks to the reality that consensus on US and global economic growth is not yet Bearish Enough.


Our next line of immediate term TRADE support is now 1005.



Keith R. McCullough
Chief Executive Officer


Bear Market Macro: SP500 Levels, Refreshed... - S P

R3: Fore!


July 2, 2010


Decelerating golf data for May highlights the volatility of monthly data while confirming pockets of regional strength.





As many plan to head out to the links over the holiday weekend, the latest update on golf rounds played (albeit on a lagged basis) provides a few noteworthy highlights. May data, courtesy of Golf Datatech, reveals a sharp sequential deceleration to -2.9% from +10.5% in April.  After posting positive growth in 7 of 8 regions last month, May reveals only three key areas of strength with New England (+8.2%) Mid-Atlantic (+4.1%) and South Atlantic (+3.6%) all posting positive numbers.  Recall that DKS has a notable presence on the East Coast.


While month to month results are clearly volatile (and weather sensitive), lackluster YTD results (-3%) remain unchanged.  As such, we suspect improved demand noted by retailers is likely to continue to be driven by share gains more than anything else.  On the wholesale side, golf participation-driven demand appears to remain lackluster.  Net, net aside from monthly volatility,  rounds played remains a headwind for the industry overall.





- Whether it’s in preparation for its IPO or just another growth vehicle, Prada has finally entered the world of e-commerce.  The multi-country site is more than just a placeholder, offering a full range of the company’s high priced handbags, leather goods, and accessories.  And of course what would ecommerce be without free shipping, this time with a threshold of $2,000.


- According to a BIGresearch survey, 16.2 percent of consumers will head to stores to buy new patriotic merchandise this year for July 4th, up from the 14.1 percent who shopped for apparel, decorations and accessories last year.   Even more eye opening is AAA forecast for a 17.1% increase in road travel over the holiday weekend.  Approximately 34.9 million people are expected to hit the roads and travel at least 50 miles from their homes.


-If you haven’t already seen the news out of Hollister’s “EPIC” flagship store in Soho, then here goes.  The store is closed, temporarily, due to bedbug infestation.  According to news and blog reports, employees began complaining about bedbug bites weeks ago but were originally ignored.  After the volume of complaints grew and spread to the customer base, management finally decided to close the store to exterminate.  Unfortunately, bedbugs thrive in a dark environment. For those who haven’t been, the store has no windows!  We’re officially crossing this location off of our store visit list.





Amazon Acquires Woot.com - Amazon.com is acquiring daily deal site Woot.com, one of the pioneers in offering the one-day bargains that many online consumers seem to love. Amazon, which just about a year ago acquired Zappos.com in a deal valued at almost $900 million, isn’t saying much about its latest acquisition. But in a series of blog postings on Woot.com, founder and CEO Matt Rutledge says his company looks forward to becoming an independent operating subsidiary of Amazon. Internet Retailer estimated woot.com web sales of $71.6 mm in 2009. <internetretailer.com>

Hedgeye Retail’s Take:  A smart purchase for Amazon, which gives now allows the company to use its own inventory to fuel the Woot “offs”.  Given the cultlike following of Woot, we just hope they don’t over expose it.  The essence of Woot is one product per day, which it what truly makes it unique. 


Delta Apparel Acquires HPM Apparel - Delta Apparel Inc. has agreed to acquire HPM Apparel Inc., which markets U.S.-produced collegiate fashions to college bookstores under The Cotton Exchange brand. Robert Humphreys, Delta’s CEO, said the deal furthers the company’s efforts to tap into the college bookstore market, while also adding to its business with the military and other retail channels. “In addition, this business provides us additional U.S. screen print and embroidery capacity, further enhancing our speed to market initiatives,” he said. Delta said the deal would add about $25 mm in sales to the fiscal year ending July 2, 2011, while being slightly accretive to earnings. <wwd.com/business-news>

Hedgeye Retail’s Take:  Simple bolt on acquisition which should drive some synergies.  However, this does little to differentiate the company’s core business away from commodity tees. 


LI-NING Unveils Rebranding Strategy - LI-NING unveiled a new logo and slogan Wednesday in a brand relaunch timed to coincide with the 20th anniversary of the founding of China's dominant domestic sporting goods apparel brand. <sportsonesource.com>

Hedgeye Retail’s Take:  We continue to believe that LI-NING and other Chinese sports brands will continue to raise the bar from a competitive standpoint rather than watch Nike and Adi walk into their marketplace.  Furthermore, we’re still waiting for LI-NING to enter the market here in the U.S.  Perhaps a re-branding is just what they’ve waited for before taking the brand stateside.


Uniqlo’s June Comp Decline Disappointing - Fast Retailing said Friday that Uniqlo’s same-store sales slumped 5.8% in June on slow sales of summer items and lower foot traffic. These figures exclude Uniqlo’s business outside Japan. The brand saw its same-store sales drop 16.4% in March and slide 12.4% in April. They recovered in May, gaining 3.1%. June demand for its stay-cool innerwear range, called Silky Dry for men and Sarafine for women, was high but some stores ran out of certain sizes and colors and missed out on sales to consumers. Uniqlo expects its inventory will work better in July and August, when consumers are in the market for t-shirts and shorts rather than underwear. <wwd.com/business-news>

Hedgeye Retail’s Take:  After a very strong run, Uniqlo has on more than one occasion missed the mark on merchandising and inventory “under” management.  Making a bet that underwear would be a key summer item just seems flat out wrong and is clearly an example of complacency after the company had a hit on its hands with Heatech.


Bloomingdale's to Showcase New Brand Pippa - French Connection has developed a new brand, Pippa, and Bloomingdale’s will have the exclusive on the fall launch.  Pippa, described by officials as a collection of contemporary workwear essentials, will be at all Bloomingdale’s stores and bloomingdales.com in the second week of August, but shoppers will be able to preorder on bloomingdales.com/pippa in mid-July. Bloomingdale's feels strongly that creating an on-trend category for the young professional woman is going to resonate. <wwd.com/retail-news>

Hedgeye Retail’s Take:  Differentiation and exclusivity continue to dominate department store merchandising efforts, this time with a horrible brand name.  Pippa? Really?


Sephora Perfumery Chain Enters Brazil - The Sephora perfumery chain is about to enter Brazil, the world’s third-largest cosmetics market, and take its first step into South America following its parent LVMH Moët Hennessy Louis Vuitton’s purchase of 70% of the Rio de Janeiro-based online retailer Sacks. The Brazilian retailer offers more than 270 brands and boasts a customer portfolio of more than 830,000 clients, with four million unique visitors a month. <wwd.com/business-news>

Hedgeye Retail’s Take:  Keep an eye on Brazil which for a long time now has been playing second fiddle to China and the Middle East in terms of emerging market growth.  The luxury market is booming in Brazil and we expect it will become a major target market for premium brands over the next several years. 


The NBA and GSI Commerce Extend E-Commerce Agreement to 2017 - GSI Commerce Inc. signed an extension of its multiyear e-commerce agreement with the National Basketball Association (NBA) to 2017. Since partnering with GSI in 2007, the NBA's online sales have grown each year.  <sportsonesource.com>

Hedgeye Retail’s Take:  If there’s one client that isn’t going to take their e-commerce in house, it’s the NBA.  This remains a win-win for both parties.


PVH and Ike Behar Apparel Grow Partnership - Ike Behar Apparel & Design has extended its licensing agreement with Phillips-Van Heusen to include ready-to-wear dress shirts, beginning January 2011. For 10 years, the two have been partners. The Insignia Division of PVH's dress furnishings group has been producing neckwear for the Ike Behar brand. <licensemag.com>

Hedgeye Retail’s Take:  Formerly a higher-end dress shirt brand, it now appears that the company is heading downscale a bit with this ready-to-wear effort.  We would expect to see distribution for Behar to expand as well, beyond Saks and Neiman’s along with this new line.

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