CRI: This Smells Punk

CRI wins the award for the most disappointing EPS report yet. Really…there’s not much on the positive side to pull out at all. Yeah, the company missed and guided down. But it’s the speed of and derivation from which things changed is the bigger callout for me.


Consider this…

1) Every division experienced sequential erosion in underlying top line trends.

2) The most pronounced was in CRI’s mass business. Though Mass is CRI’s lowest margin business, it is the highest ROI by a moonshot.  Revenue rolled in this space by about 1500bp, and CRI noted that it was almost entirely driven by loss in shelf space at Wal*Mart. So let me get this straight, WMT’s apparel business is in disarray, they fire their head of apparel, and simultaneously cut space from CRI. Perhaps unrelated, but I certainly wouldn’t want to be the head of the Mass business at Carter’s now.

3) Carter’s posted the sharpest sequential erosion in its trajectory on our SIGMA chart out of any company to report this EPS season. See chart below. The punchline there is that inventories are building relative to sales at the same time the company is about to go up against its biggest gross margin gains in years.

4) CRI’s guidance suggests an acceleration in top line throughout the remainder of 2010, yet 2H earnings better than 20%. Yeah, I know that labor, commodity and import costs are up. No escaping that. But do you think that just maybe they can slow down their growth a bit and gain control of their business? Instead they’re budgeting costs up 10% in 1H (enough?), and are banking on raising prices in certain areas to offset these costs. Do you want to bank on that? I don’t. Hey CRI, stop adding stores, and get the product org in order. Note to management: even big retailers in disarray rarely cut great product.

5) No one should forget that this company is operating at peak margins of around 13%.  Even during the years where CRI struggled leading into and out of its well-deserved management shake-up, it never got below a 9% margin. Then it raced up from there printing what I’d consider an unrealistic revenue flow through rate from wholesale restocking and commodity cost relief.

6) Also, remember that it’s ills last go around were based on the fact this has traditionally been the ultimate ‘baby basics’ play. The brand is extraordinarily defendable in that segment, but unfortunately, growth has been coming from playwear (competing with the Old Navy’s of the world), mass channels, and company retail – all of which are inherently more volatile that CRI’s core. Unfortunately, the company has not yet invested in the infrastructure needed to sustain the top line in those businesses when faced with anything other than a bullish consumer tape.  

7) The company guided to down gross margins in 1H next year – without further clarification or quantification. That’s fine, and in fact I would not expect the company to know what Gross Margins will be given factors above. But a warning to those financial modelers out there…don’t think ‘down’ in terms of  40, 80, or even 100bp. This could be much more.  Just ask Li&Fung.

8) Bottom line: yes, 2011 should be a down year. If the consensus does not come out with such numbers after the conf call, then despite trading down today, this name is likely to have additional downside.



CRI: This Smells Punk - CRI 7 10 black




The Macau Metro Monitor, July 29th, 2010


Intercity Group, a South Korean real-estate developer, is planning to build Bellus Angokor Resort & City, a $400 million integrated resort and casino in Cambodia, to target Chinese high-rollers from Macau and Singapore.  Harrah's and MGM are potential investors of the project.


James Cho, vice-president of Intercity Group, told Reuters that the resort will be in Siem Reap province,195 miles northwest of the capital Phnom Penh, which attracts over a million tourists a year to its famed Angkor temples.  Construction of the Water Park complex, with 3 hotels, a gaming centre, shopping and convention centres and 3 golf courses (including 18-hole course), will start in October and it should open in early 2012.   "They're (Chinese) visiting Singapore, they're visiting Southeast Asia, and we just think that right now it's a very good time, it's the right time. Asian gaming is hitting Cambodia right now...There is no visa restriction like they have in Macau," Cho added.


Cambodia attracted 2.2 million tourists last year, with about 580,000 flying directly into Siem Reap, according to government statistics.  The Cambodian government earned $17MM in 2009 from its 29 casinos.



Starting next month, Korea will loosen travel restriction for Mainland Chinese visitors.  Korea hopes to attract >3 million annual visitors by 2012.  According to the Director of Travel & Tourism Association in Macau, this change in scheme will in the in short term potentially reduce the number of mainland visitors traveling to Macau, but from a long term perspective, it should not cause a major impact since Korea and Macau are different markets.



The bylaw that states that companies “should keep the minimum number of local workers imposed upon the [imported labour] hiring authorization” will come into effect on Sunday, the Human Resources Office (GRH) said.  According to the bylaw, if any local worker were to leave, another one should be hired within two weeks. If that’s not possible, the company should ask GRH for an extension of the deadline, within five days. After that, the authorities have 15 days as well to decide on whether the extension is justified or not.

R3: Putting Basis Points Aside



With earnings season picking up over the past couple of days, there are some noteworthy callouts that may have slipped by as basis points become a primary focus:

  • With the benefit of substantial increases in toning shoes sold and comparisons against a very difficult quarter, Skechers domestics ASP’s increased by 31.5% in 2Q.  Even more impressive were the unit sales, which increased by 50%!
  • With Wal-Mart’s apparel program in-flux, we’ve seen some negative repercussions from the discount retailer’s lack of a clear apparel strategy over the past few days and it’s having an direct impact on branded manufacturers.  Both Carters and Jones New York (via its LEI brand) are suffering from floor space reductions at the Wal-Mart.  On the flip side, Iconix noted that Op and Danskin were performing well.  The bottom line here is that there are no sacred cows at Wal-Mart.  With new management coming in and substantial pressure to improve apparel profits/sales, there are sure to be meaningful changes beyond what we are seeing at the moment.
  • SuperValu noted that for the first time in ten quarters, trade-down was essentially flat in the quarter.  On a year over year basis, the trade-down impact actually improved by 100 bps from 1Q last year.  On the same note, management indicated that EBT and coupon usage remain at record high levels.
  • Iconix noted that it’s Fieldcrest home business with Target was down in the quarter, but that plans are underway to revamp the brand’s positioning.  Target is working to elevate Fieldcrest to represent the luxury/premium price point within the discounters home furnishings offering.
  • Office Depot expects back to school to be very competitive this year. As a result, the company is adding in incremental direct mail pieces and media to drive market share gains.  The company expects to be on TV and radio for the upcoming season, which it has not done for the past few years.
  • In the first half of 2010, free-standing insert activity increased by 10.1% based on coupons dropped, the largest increase ever recorded since an 8% gain in 2004.  More than $234 billion in consumer incentives were delivered via FSI coupons in Sunday newspapers, up 17.8% from the same period in 2009.  Average face value of coupons also reached record highs, coming in at $1.51, up 7.1% year over year.
  • Jones New York noted that it expects to be able offset higher costs in 2011 by offering improved content and quality in its fashion product.  At the same time management was cautious on the opportunities for gross margins to move higher next year given the inflationary pressures.  They went on to suggest they are hoping to hold gross margins flat.
  • Timberland noted that it has booked 90 appointments with buyers and retailers at this year’s Outdoor Retailer show next week.  This is double the amount of meetings they conducted last year. 



Levi at Brooks Brothers - A new denim collaboration between Levi’s and Brooks Brothers will be introduced today at all Brooks Bros. stores and the retailer’s e-commerce site. Co-branded as Levi Strauss for Brooks Brothers, the $148 designs come in three fits and six washes for men, with all product made in the U.S. “There are millions of guys out there who wear our classic Brooks Brothers button-down oxford shirt with Levi’s jeans, so we thought there would be great synergy in offering an exclusive Levi’s product in our stores,” said Lou Amendola, chief merchandising officer at Brooks Bros. The idea for the project originated with Brooks Bros. chairman and chief executive officer Claudio del Vecchio, added Amendola. The jeans will be merchandised along with Brooks Bros.’ own branded Supima cotton jeans, which retail for $98.50. The Levi’s product will be available in all 114 traditional Brooks Bros. stores, but not the retailer’s 91 factory outlet units. The partnership is expected to be open-ended, depending on consumer reaction. Brooks Bros. throughout much of its history carried outside brands, such as Lacoste polos from the Thirties through the Sixties, noted Amendola. Currently, the 192-year-old retailer also carries the Black Fleece label designed by Thom Browne, a co-branded luggage line from Hartmann, footwear from Peal & Co. and a children’s wear collection under the Fleece label designed by Nikki Kule. <>

Hedgeye Retail’s Take:  Americana continues to be at the forefront of men’s fashion although we caution that this trend is not new.  This Fall will mark the third year in a row in which American heritage brands have collaborated with each other or have been resurrected in an effort to accentuate their “Made in the USA” lineage.


Macy’s Courting Young Men - For back-to-school, the retailer will launch Slade Wilder, a young men’s brand targeted at high school and college-age shoppers. The brand, whose icon is a snorting, mud-pawing wild boar, is hitting stores this week and will roll out to a total of 656 doors — anywhere that has a young men’s department — next month. The top 195 stores will offer an expanded assortment in a branded shop environment. Slade Wilder, which will sit next to Macy’s American Rag in the young men’s department, is inspired by athletics and designed to appeal to a guy who is shopping for himself. It will consist of screen-printed or appliqué T-shirts, basketball shorts, polo shirts, wovens, hoodies, track pants and jeans and will retail from $14.99 to $29.99. The idea for the label came from the late Kevin Morrissey, Macy’s head of men’s wear, who saw a void in the assortment for a casual, athletic brand that was “not branded like a Nike or Adidas.” <>

Hedgeye Retail’s Take:  So in other words, Macy’s is launching a private label athletic brand with a wild boar brand logo.  Of all the categories, athletic has never been a strong point for the anchor department store.


Chinese Infidelity Driving Luxury Sales? - Luxury brands better get to know the Chinese words er nai and xiao san. Those phrases mean mistress and third girlfriend, respectively, and are whispered on an almost daily basis by well-to-do Chinese. “With some fashion brands, we think that almost half of the sales are for mistresses,” said Rupert Hoogewerf, publisher and head researcher of the Huran Report, China’s rich list. “But this is difficult to ascertain.” Equally difficult is defining exactly who is the consumer driving China’s supercharged luxury consumption since specifics are so hard to come by. The superrich are another significant category of shoppers. Mainland China has 55,000 individuals with net assets of more than 100 million yuan, or $14.7 million, according to the Hurun Report. “This higher-wealth group tends to be slightly older men, age 44, and over 15 percent of these men live in Beijing. They have their own company, but have made their money from property and investments,” said Hoogewerf. Widening the net, there are 875,000 Chinese millionaires with personal assets of more than 10 million yuan, or $1.47 million. This figure includes the 55,000 superrich individuals mentioned earlier.  “A typical Chinese millionaire is a 40-year-old man who has made his money in property and investments. He owns four luxury watches, and owns at least three houses, the value of which have doubled in the last three years, and makes about four overseas trips a year, one of which is purely for leisure,” Hoogewerf said.  <>

Hedgeye Retail’s Take:  This certainly presents a marketing conundrum.  We’re guessing Facebook and Twitter are not the answer here.


K-Swiss Acquires Youth Brand - The company announced today it had acquired mixed martial arts apparel brand Form Athletics, and launched a subsidiary called K-Swiss Orange County. Mark Miller, founder and president of Form, will continue to lead the brand, as well as the new business unit, which will specifically design products for younger consumers. “I have a dual role,” Miller said. “I will be president of Form, and I’ll also be president of K-Swiss Orange County. It’s the youth culture division of K-Swiss. It will be focused on building a product line and creating a product line around youth culture, skate and action sports.”  While office space hasn’t yet been secured, Miller — who has also served as SVP and GM at DC Shoes — said the division would likely be located in South Orange County, Calif., and staffed with 10 to 15 designers and marketers. For K-Swiss EVP David Nichols, being located in Orange County is essential to tapping into youth trends. “We want to be as authentic as possible,” he said. “The K-Swiss Westlake Village office is a great place to develop running shoes because of the surrounding hills and trails. Orange County is a great place to connect with youth culture and skate.” <>

Hedgeye Retail’s Take:  While KSWS’ track record of making successful acquisitions is mixed (Palladium does appear to be good move, Royal Elastics not so), this one makes sense.  It’s no secret that KSWS has been struggling for growth and action sports has been on their radar for a while.  It’s good to see them exploring a new brand for this effort, after going down the path of initially using the K-Swiss brand to break into skate.


Adi Takes to the Outdoors - Effective fall 2011, adidas will enter the US Outdoor market with a newly developed range of footwear, apparel and accessories, including the TERREX concept, which debuted in Europe in 2009 to great reviews. The collection will be available in the US at selected Outdoor specialty retailers and in adidas own Sport Performance stores starting fall 2011. Long-time adidas partner Agron Inc. will be the official and exclusive distributor for adidas outdoor products in the US. Retail partners in the US will be able to preview the adidas Outdoor Fall/Winter 2011 collections at the January 2011 Outdoor Retailer Show in Salt Lake City, Utah. Adidas has a long history in innovative outdoor products with products such as the ‘Super Trekking’, the first light trekking shoe, being worn by climbing legend Reinhold Messner for his first Everest ascent without oxygen support in 1978. The tradition of adidas founder Adi Dassler, who worked individually with athletes to make them better, continues today. Adidas Outdoor has teamed up with climbing legends Reinhold Messner and the Huber Brothers, to work with them on product development. The Huber Brothers are ambassadors for the TERREX collection and have worn the product on recent expeditions to Antarctica and Pakistan. <>

Hedgeye Retail’s Take:  How long before Easy Tones cross with TERREX?


HSN Receives New e-Commerce Patents - TV and web retailer HSN Inc. has been awarded a patent for its technology that lets consumers shop with their TV remotes and another patent related to making purchases from online video, the retailer said today. "This reinforces our position as a revolutionary force in television and retail as we continue to bring exciting innovations to our customers that enable them to shop whenever and however they choose,” says John McDevitt, vice president of advanced services. He adds that the patents announced today are the first HSN has received for e-commerce technology. <>

Hedgeye Retail’s Take:  Any patent that keeps consumers on their couch longer is certainly newsworthy.  With market increasingly focused on mobile commerce, let’s not forget there are still opportunities for immobile commerce.


Pakistan Export Value Drops, Average Prices Reduced - Pakistan’s leather products dropped by 19% in terms of export value, with the average unit price going down by around 11% in the 2010 fiscal year. Exports of leather goods went down by 18.7% to $452.63 million in 2009-10. The average unit price of leather garments reduced from $37 per unit in 2009 to $33 per unit this year. Pakistan has been selling its garments at a price 34% lower than the world average of $50.  <>

Hedgeye Retail’s Take:  A rare example of a deflationary trend, which at this point may be in the rear-view. 


Miscellaneous Tariff Bill Passes - The U.S. Senate late Tuesday passed the U.S. Manufacturing Enhancement Act of 2010, better known as the miscellaneous tariff bill, or MTB (H.R. 4380). The MTB extend duty suspensions on several outdoor products, including waterproof breathable footwear, ski and snowboard equipment and footwear, and bicycle parts and accessories. <>

Hedgeye Retail’s Take:  A positive on the cost side for sporting goods, with duty suspensions extended.  This was largely expected.


WMT Will Have to Pay More than Minimum Wage to Open More Chicago Stores - Wal-Mart Stores Inc.’s quest to open a third store in Chicago may hinge on whether the retailer is promising to pay workers at least 50 cents more than the Illinois minimum wage.  The size of paychecks was at the center of the city council’s vote last month to approve a second store. Aldermen and the United Food and Commercial Workers International Union said the retailer committed to $8.75 an hour. Steve Restivo, a Wal-Mart spokesman, wouldn’t confirm a starting wage as the retailer pushes to build several dozen Chicago stores.  <>

Hedgeye Retail’s Take:  With communities in Chicago turning the tides on Wal-Mart acceptance (recall they resisted WMT for years), it’s unlikely that a $0.50/hour wage issue will derail WMT’s efforts to open multiple units within the Windy City.


GES To Open NYC Flagship, Open More Accessory Stores, Create Home Collection - Guess has a lot on its plate these days. In December, the brand will open its largest U.S. store, a two-level, 13,000-square-foot flagship at 575 Fifth Ave., on the corner of 47th Street. In addition, Guess plans to double the number of accessories-only stores to 450 worldwide in three years and round out its list of product categories. A home collection could complete the brand, Marciano said. Once they find the right partner, they will do a partnership or licensing agreement. <>

Hedgeye Retail’s Take:  Guess home, really?  Leopard prints are on their way to a bedroom near you-


World Cup Study Shows Adidas's International Brand Awareness Unchanged at 2nd to Coke - Adidas was the second most widely-named brand as a World Cup sponsor, both before and after the event, according to a new study with Survey Sampling International's (SSI). Coca Cola was first. <>

Hedgeye Retail’s Take:  So was the sponsorship worth it?  The real question will be answered when the next study comes out months after the World Cup fades into the past.


Tech Shoppers Research Products Online Before Buying in Store - Two-thirds of consumer electronic s and computer shoppers start their research on the web, but purchases are split evenly between online and stores, a new study finds. The research, consisting of an online focus group and a poll this spring of nearly 1,200 consumer electronics and computer shoppers, also finds laptops, notebook computers and televisions are the top products researched or purchased online.  <>

Hedgeye Retail’s Take:  Nothing surprising here given that Best Buy alone is seeing about 40% of online purchases picked up by the buyer in-store.  Multi-channel retailing continues to take the lead on convenience, offering far more options for consumers than online-only competitors.


Sears Offers Dorm Room Collection - In anticipation of the upcoming school year, Sears Holdings has launched a dorm décor line and digital platform for college-bound students. Coexist by Cannon, a dorm décor range, is exclusively hitting both Sears and Kmart stores now. The urban-inspired collection includes bedding, decorative elements and dorm essentials. Meanwhile, Sears Holdings has greenlit a Facebook page called Sears Campus Connection, where college-bound students can create wish lists that work like a wedding registry, find their roommates, chat about decorating ideas and more. <>

Hedgeye Retail’s Take:  Newsflash: Target started the “dorm” décor trend about 10 years ago!  Welcome to 2010 K-Mart and Sears.



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PE news and earnings provided a boost to a few stocks yesterday on a poor day, overall, for restaurant stocks.


CPKI was up 9.6% on surging volume at yesterday’s close.  As the Wall Street Journal reported yesterday, private equity firm American Securities Capital Partners is in advanced talks to by the publicly-traded chain of 260 restaurants and is lining up debt financing, the Post reported.  Unless the number is low, which I doubt, the stock is fairly valued to overvalued.  At 7.1X EV/EBITDA, the stock is trading at a premium to the peer group at 6.6x. 


Anything can happen but, I think the bankers will struggle to get the deal done north of $18.50.  In addition, the laundry-list of issues any potential buyer of CPKI needs to deal with is long. 


MSSR seems like another potential, more reasonable, candidate.  At 4.9x EV/EBITDA, there is 21% upside to where its peers are trading.



TALES OF THE TAPE - stock 728



Howard Penney

Managing Director


“Men willingly believe what they wish.” 

- Julius Caesar


I think I have become way too cynical, but it’s getting harder for me to believe what I hear and read about the outlook for 2H10.  I normally give people the benefit of the doubt, but signs of the early stages of a renewed economic downturn are everywhere.  Yet, given what we read during the current earnings season, corporate America is not tuned in to the same channel or at least they don’t want to fess up to it.


This is what I’m seeing - a weakening labor market, softening consumer confidence, softening housing activity and retail sales, and an intensifying trade deficit - the early stages of a renewed economic decline. 


I’m not alone because in my back pocket I have the FX market, the bond market and the US consumer all seeing what I see.  For the time being, equity investors willingly believe what they want to. 


Currencies are a leading indicator for a country’s health and the US dollar is getting crushed.  The DXY is down 4.8% over the past month and looks to be down 4 of the last five days (trading down 72 bps today at the time of writing). 


While the dollar is getting crushed the EURO has rallied 7.0% (trading up 67 bps at the time of writing).  Knowing that a country’s currency is a leading indicator for a country’s health, what are the MACRO headlines in Europe today - European confidence in the economic  outlook rose to the highest in more than two years in July and German unemployment declined for a 13th straight month as an export-led recovery gathers strength.


Tomorrow, what will the headlines look like for the USA?


We’ll get the BEA’s overstated estimate of Q2 US GDP.  Bloomberg is showing a consensus estimate of 2.5% for the second-quarter, down from the 2.7% as reported for the first-quarter (and downward revisions are likely).  In 2Q10, a slower growth rate would be consistent with recent underlying MACRO data points.   I believe that risks are fairly high that the reported growth will surprise the consensus on the downside.


The following week we will get the July labor numbers and there is a good chance that they will be softer than an already soft consensus.  Bloomberg is posting expectations of a 100,000 decline in monthly payrolls.  I believe that number includes layoffs of temporary and census workers in July, which will be roughly 144,000 (per Census reporting).  This implies little or no growth in nonfarm payrolls, ex-census workers.  In June, payrolls declined by 125,000, gaining 100,000 ex-census.  Bloomberg also has the unemployment rate estimate at 9.6%, up from June’s 9.5%. 


Yesterday, the FED provided a very consistent message about the current consumer trends:


New York - Contacts generally indicate that sales of fashion items and apparel were particularly strong, whereas sales of big-ticket appliances were relatively sluggish.


Philadelphia - Most retailers said warm weather boosted sales of summer apparel, but sales of big-ticket appliances, remained weak.  “The consumer is still cautious and looking for value.”


Cleveland - Purchases of apparel and food products are doing well, while spending on discretionary items has weakened.


Richmond - A contact at a large home and garden chain reported that impulse buying fell, and that home remodeling purchases had scaled back dramatically as consumers “splurged small.” Overall, according to our District survey, big-ticket purchases and shopper traffic plummeted.


Atlanta - Although most merchants have reported improved conditions since the beginning of the year, the outlook among retailers was more subdued than in previous months.


Chicago - While spending on food and other necessities rose, spending on home-related and luxury items decreased.


St. Louis - Contacts in education services, air transportation support services, and the casino industry announced plans to decrease operations and lay off workers.


Minneapolis - In South Dakota, a mall manager noted that recent sales were mixed; consumers remained cautious as traffic continued to be driven by promotions.


Kansas City - Retailers expected sales to rise over the next three months and a continued downward trend in prices… Restaurant sales were flat compared to the previous survey, but the average check amount fell.


Dallas - Department store sales were slightly stronger than anticipated, but the pace is expected to moderate in the second half. Consumers continue to deleverage and correspondingly remain price sensitive.


San Francisco - While consumers remained focused on necessities and lower-priced options, reports indicated expanding consumer appetite for discretionary spending.


The most bullish commentary came from the San Francisco region.  I’m not sure what to do with that, knowing that California is in a financial mess, though comparisons are likely easier in that region.


In the last month, the corporate earnings season (and corporate storytelling) has driven the S&P 500 and the Consumer Discretionary index higher, up 2.9% and 2.6%, respectively.   This market rally has occurred against the backdrop of sluggish  macro headlines, but over the last three months, Consumer Discretionary was the second worst performing sector (-9.8%) next to Energy (-11.1%).  As Keith always says, markets don’t lie, people do.


Function in disaster; finish in style


Howard Penney


Good? - HP


Not much wrong with the quarter. Yes, hold was high in Macau but we knew that. The low Singapore hold was more damaging, yet they still made our Street high estimates. 



Overall hold issues almost washed – there was a +35MM revenue benefit and an estimated $7MM negative impact on EBITDA.  Reason is the low hold was in low tax and variable rate jurisdictions (Singapore and Las Vegas) vs. high hold in Macau where the flow through is lower.  Besides, we had already modeled high hold in Macau and so on the margin, Singapore was the surprise.  Even so, Singapore almost hit our EBITDA estimate.  Here are the property details.




While slot win per day was disappointing given Sheldon’s prior comments, overall property ramp and revenues were healthy.  Even better, costs looks lower than expected.  Sheldon’s $1BN target for 2011 looks achievable to us, although we swear he had said $1.2BN at some point.

  • Low hold impacted VIP revenues by $26MM and EBITDA by roughly $23MM
  • The implied rebate rate at MBS was 1.19% - calculated by taking gross gaming revenue of $236MM less reported casino revenues of $190.8MM
    • $3.88BN * 2.18% + $538.3MM * 21.5% + $482.3MM * 7.5% = $236MM
  • It looks like fixed costs were around $77MM

Las Vegas


Las Vegas net revenues of $276MM and EBITDAR of $66MM came in $4MM and $3MM below our estimates, respectively.  Slot volume was worse, more than offset by better hold.  Table drop was better but more than offset by low hold.  Occupancy was very encouraging.

  • While LVS claimed that low hold impacted them to the tune of $30MM we think the impact is much less.  If we use 20%, which is above the table hold that LVS had in Vegas in 2008 & 2009, the impact of low hold was $26MM on revenues – almost all of which flows down to EBITDA.
  • We estimate that Venetian’s table hold was 12% (notice the low daily win per table of only $2,155) and that the property did roughly $29MM of EBITDAR
  • We estimate that Palazzo’s hold on tables was about 15% and that the property did about $35MM of EBITDAR
  • Venetian removed 228 slots sequentially while Palazzo removed 10 tables sequentially
  • Operated expenses declined 1.3% YoY to $210MM


  • Venetian net revenue of $581MM and EBITDA of $193MM came in $8MM and $9MM above our estimates, respectively. The revenue beat was entirely driven by a lower rebate rate while EBITDA was better due to lower fixed costs.
    • High VIP hold benefited revenues by $50MM and EBITDA by $26MM (given the variable commission component)
    • High Mass hold benefited revenues by $7MM and EBITDA by $4MM. 
    • We estimate the direct VIP play was 24% of total RC volume, however, total RC volume was actually down 2% YoY. We suspect this is why Venetian is going to focus more on adding junkets and that their direct play % may decrease in the future.
    • Despite high hold, the rebate rate was only 97bps
    • Implied fixed costs of $92MM
  • Sands net revenue of $302MM and EBITDAR of $81MM came in $1MM and $6.7MM above our estimates, respectively--with the delta in EBITDA driven by lower commission and lower fixed costs.
    • High VIP hold benefited revenues by $14MM and EBITDA by $5.5MM
    • We estimate the direct VIP play was 14% this quarter
    • Implied fixed costs were $48MM
    • Mass drop only had 1.4% YoY growth despite huge market growth
  • Four Seasons net of revenues of $144MM and $33MM EBITDA fell short of our estimates. Our estimates assumed lower direct play and a higher hold rate, which would have produced higher EBITDA on the same gross revenue number. We also assumed higher non-gaming revenues. It also appears that despite a higher mix of direct play, commissions were higher than we estimated.
    • High VIP hold benefited revenues by $11MM and EBITDA by $3MM
    • High Mass hold benefited revenues by $5MM and EBITDA by $3MM
    • We calculated direct VIP RC at 50% of total RC
    • Implied fixed costs were $26MM


2010 outlook



  • We’re at $275MM of net revenues and $71MM of EBITDAR for Vegas in 3Q2010. 3Q09 is a very easy comp given that table hold was only 12.2%.   
  • 4Q09 table hold was also on the low side at 17.1%, so in theory, that’s another easy comp.
  • For FY2010 we’re at $1.17BN of revenues and $312MM of EBITDAR for the Vegas operations.


  • Sands:  FY2010 $1.17BN of revenues and $292MM of EBITDA. They have tough hold comps in 2H2010--3.4% and 3.1% in 3Q and 4Q respectively.  They’ve also basically flat-lined on mass market drop, although slot handle has grown nicely and fixed costs have come down quite a bit.
  • Venetian:  FY2010 $2.25BN of revenues and $700MM of EBITDA.  We suspect that Venetian will bring in more junkets since their VIP RC growth has stagnated as they have focused on growing direct play at the expense of losing market share. 
  • FS:  FY2010 $514MM of revenues and $96MM of EBITDA.  FS has very hold easy comps in the 2H2010 of 2.3% and 2.1% in 3Q and 4Q, respectively.


  • We’re at $450MM of net revenues and $223MM of EBITDAR in 3Q2010 
  • For FY2010, we’re at $1.15BN of revenues and $565MM of EBITDAR

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