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Genting blew out numbers this quarter.  Even when adjusting for high hold the reported EBITDA number would have still been almost 50% above consensus.



Resorts World Sentosa reported revenue of S$860.8MM (US$618 MM) and EBITDA of S$503MM (US$362MM).  Part of the massive EBITDA beat was due to high hold on their premium play business.  While the company didn’t quantify the impact of high hold, they did say that normal margins would have been between 48-58%.  Using an average of the “normal range”, we estimate that high hold benefited them to the tune of S$45-55MM in the quarter.  Still S$450MM of EBITDA is nothing to get disappointed over.  While the release was short on details and haven’t spoken to the company yet, below are our preliminary takeaways.


2Q2010 Preliminary Details

  • We estimate that net casino revenues were approximately 87% of reported net revenues or S$753MM
    • We estimate that gross casino revenue per day increased to S$10.3MM in 2Q2010 from S$8.2 in 1Q2010
    • 64% of the gross win came from the VIP segment, with the balance coming from Mass table play and slots
    • Given the high contribution from VIP and the estimated hold impact, the implications is that total RC was pretty massive – around S$16.5BN  and that hold was about 3.65%.  We’ll get more details after we speak to the company.
    • While Genting made a useless comment that slot win was north of US$200/day, we estimate that slot & EGT win per day was approx S$1,000/day (US$737)
    • We estimate that Mass table revenues were approx S$220MM
    • Implied average rebates are about 1.1%
  • Hotel room revenues were approx S$17MM (1,000 rooms, ADR: S$263MM, OCC: 70%)
  • Universal revenues of $53.5MM (7,000 daily visitors / S$84 spend per visitor)
  • Estimated fixed expenses were about S$20MM lower than we estimated
  • Normalized taxes were around $80MM when you add back the impact of the impairment on the UK operations


2010 & 2011 outlook:

  • 2010:  We estimate that RWS can produce revenues of S$2.84BN and EBITDA of S$1.53BN for 2010.  Treating the UK operations as discontinued starting 3Q2010, we assume the Genting Singapore can do S$3.1BN in revenues and S$1.27BN of EBITDA.
  • 2011:  We project that RWS can produce revenues of S$3.6BN and EBITDA of S$1.9BN.  After corporate overhead, our 2011 EBITDA estimate is S$1.6BN.

Bear Market Macro: SP500 Levels, Refreshed...

It’s about lunch time but this Thunder Bay Bear has had enough to eat on the short side for this week. Below the 1080 line in the SP500 is the immediate term TRADE bear trap that we call 3 standard deviations oversold (on a short term duration).


I covered our short position in the US Consumer Discretionary (XLY) this morning, not because I’m not bearish on consumer spending – that jobless claims # was a bomb (biggest weekly jump in rolling claims for 2010) – I covered because the XLY, like the SP500, is immediate term oversold.


Oversold is as oversold does, so we’ll see if I’m right with my refreshed immediate term risk management range for the SP500 (1080 to 1097). I think you can manage your gross/net exposures around this range for now. The Bear Market Macro TREND line of resistance remains overhead at 1144.



Keith R. McCullough
Chief Executive Officer


Bear Market Macro: SP500 Levels, Refreshed...  - 1


Let's face it, ASCA has been on the "for sale" block for 3 years.



Since Craig Neilsen died in 2006,  Ameristar has been on sale; maybe not formally but for all practical purposes.  If there was a corporate casino buyer, we'd bet that ASCA has already talked to them.  Hiring an investment bank, to some extent, may be an acknowledgment that PENN, BYD, nor Genting were interested and the talented bankers at Lazard will have to hit the pavement aggressively to find a buyer.  We're not saying they won't succeed but the premium to today's stock price may not be great.


ASCA currently trades at 7.5x our 2011 EV/EBITDA estimate, a slight premium to PENN and a huge premium to PNK.  PENN's leverage is half of ASCA's and its growth profile dwarfs that of ASCA.  PNK trades at a 1.5x turn discount to ASCA, indicative of a solid takeover premium implicit in ASCA.


It is conceivable to us that ASCA could be worth 8x or $19 in a takeout scenario, 16% upside from here.  However, let's not forget about the time value of money, which is always important in gaming deals.  Due to licensing and jurisdictional approval requirements, gaming transactions take more time to close.  Moreover, most private equity firms are not licensed in ASCA's jurisdictions and some of the major PE players in gaming have already been burned (Harrah's, Station, Aztar, PENN, etc). 


Assuming 6 months to find a buyer and reach an agreement and 9-12 months to close, 16% upside does not seem so juicy, and that's assuming a buyer can be found and the deal can be closed.  We'd handicap those odds below 50%.

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The Macau Metro Monitor, August 12th, 2010


DIRECT PLAY Inside Asian Gaming

IAG believes the difference in LVS's rebate rate in Macau (0.9%-1%) vs in Singapore (1.2%), and Singapore's lower taxes give LVS incentives to shift its Macau DIrect VIP players to Singapore.  But a source familiar with the VIP trade around the Asia Pacific region said, " A lot of high rollers travel regularly around the region for business and may have a home in more than one city. For them, it may not be a choice of playing either in Macau, Melbourne, or Singapore. It may be a case of the more destinations they have to try their luck, the better."  Nevertheless, IAG thinks credit risk in Macau and the Lion City factor would cause LVS to realign its Direct VIP business and focus on Singapore. 


Also, IAG had reported some Macau junkets were offering 0.2% of a player's rolling turnover to third parties in order to convert Direct players into junket players.

A TALE OF TWO CITIES Inside Asian Gaming

SJM-licensed Taipa casinos--Greek Mythology (New Century), Macau Jockey Club Casino, and Grandview-- are significantly underperforming in revenue terms.  Their 200 tables (almost as many as Grand Lisboa) could boost SJM's profitability if at least some of the mass tables were reassigned to busier floors on Taipa.  The presence of those 200 SJM tables in Taipa gives SJM and affiliates coverage in the southern part of the Macau market.  The Government's position so far has been to restrict any further expansion of gaming in suburban areas.


The mass market prospects of Greek Mythology have been overlooked by Ho family interests in order to focus on Altira. The 16 VIP tables at Greek Mythology actually outperformed relative to Altira, but its 100 mass tables are often empty. 



Sands China said a worker shortage will delay the opening of its Cotai resort to 4Q 2011 from 3Q 2011.  "That [delay] will affect the ramp-up of the product and will affect the short-term income situation. But the cost of the product will be the same," acting CEO Michael Leven said.  "Sands China has 1,293 workers (mostly locals) at its project," Leven said.  "We're about half the amount we needed for this particular time," he said, adding that the firm would need 10,700 workers (30% locals) at its peak. "We expect over the next six weeks to get closer to our goals."  In addition, Leven said the name of its Cotai project could be decided by September.


As for the search of Sands' CEO, Leven hopes to find a replacement by the end of the year, adding that it is hunting externally for someone with Asian experience, particularly in China, among other traits.  Leven also wants to bring in more junket play without increasing the commissions.



IM is not expecting much from Dragone.  According to an IM survey, less than 1% of visitors at the border points said a show, e.g. House of Dancing Water, was something they would consider.  House of Dancing Water ticket prices go for MOP 400 and the average stay for a Macau visitor is only 1.5 nights.



IAG believes the process of localization will take time in Macau and that Galaxy and Sands will raise construction sector wages to attract locals from other sectors--a wage fight that could lead to an upward inflationary spiral. In addition, according to sources, casino dealer jobs, pit supervisor and pit manager jobs are reserved for permanent residents, which force locals to attend higher education.


A GROWING GAME Inside Asian Gaming, Hedgeye

Lindsay Stewart, VP of Electronic Gaming, SJM: "Not all our slots are systemized yet. Once that happens, we hope within 12 to 18 months we will have far more firepower in terms of being competitive with these big guys.... There's one manufacturer [Aristocrat] that still holds sway."


Peter Johns, Director of Slot Operations, MGM Macau: "We constantly get slots at around 20% now of the mass floor revenue (July 2010: 23.7%).... At my last count there were 23 vendors selling machines in Macau. Most operators stick to the top six [manufacturing] names."


Darrin Carlson, Slot Manager-operations Sands China:

"Slots will progress just like they did in Las Vegas."



The joint statement by Marina Bay Sands and IPBA stated that the suits will be discontinued as part of an amicable, confidential settlement.

R3: Basketball Getting Worse. Really?


August 12, 2010


While there is no question basketball has been weak for some time now on an absolute basis, our weekly scan data suggests the trend has actually improved sequentially over the past three months.  





There’s been some noise in the marketplace suggesting the basketball footwear category has eroded over the past few months, especially in the athletic specialty channel.  While there is no question basketball has been weak for some time now on an absolute basis, our weekly scan data suggests the trend has actually improved sequentially over the past three months.  Weak or not, we believe the opportunity for the category (against easy compares) is becoming even more exciting.  This comes on the heels of an inevitable investment in product by Nike to support Miami’s “big three” and as Under Armour prepares to launch its hoops product in October.  And, while Reebok hasn’t been on the basketball scene since AI entered the league, there is some promise with the signing of John Wall and a line built off of the Zigtech platform.


Importantly while basketball is just one part of Foot Locker’s merchandise mix, this data does support our positive stance on the upcoming quarter.  While we are conservatively forecasting a 4.5% comp increase (could be upside from Europe driven by successful World Cup sell-throughs), we believe margin trends will be solid given tight inventory levels entering the quarter as well as another quarter of benign promotional activity.  Our model is looking for $0.13, well ahead of the $0.03 consensus.  FL reports next week on August 19th.


R3: Basketball Getting Worse. Really?  - BBall 1


R3: Basketball Getting Worse. Really?  - bball 2





- Macy’s noted that back to school selling has been “very encouraging”. In particular, the company’s recently launched Material Girl line (in collaboration with Iconix, Madonna, and her daughter Lourdes) has been posting strong initial sell throughs. Management also believes the buzz surrounding this line is also helping to boost traffic beyond the brand itself.


- Keep an eye on the state of California which is soon to bring a bill to the senate which aims to ban the plastic bag. With a clear focus on the environment, the bill which already passed the Assembly would make CA the first state to ban retailers for using plastic. Looks like paper or BYO if passed.


- As JC Penney prepares for the launch of its Mango shop-in-shops, the Spanish retailer is looking accelerate its growth plans globally. The family owned business is planning to open a store per day over the near-term, with an eye on expansion in China. With 1,500 stores currently, this growth rate puts the fast fashion retailer in rare territory for concepts that are still looking add meaningful square footage.





June Apparel Imports Rose 36% - Led by major gains from Asian countries, textile and apparel imports to the U.S. surged in June, as retailers restocked inventories. Combined shipments of textiles and apparel to the U.S. rose 36.1% driven by apparel imports growth of 25.8% and textile shipments growth of 45.1%. Combined textile and apparel imports from China (#1 supplier) spiked 52.4%, India (#2 supplier) increased 32.6%. The top five apparel suppliers to the U.S. in June were: China, Vietnam, Bangladesh, Indonesia and Honduras. China was also the top textile supplier, followed by Pakistan, India, Mexico and South Korea. <wwd.com/business-news>


R3: Basketball Getting Worse. Really?  - apparel margins 1


R3: Basketball Getting Worse. Really?  - apparel margins 2 


Li & Fung Acquires US Footwear Brand Jimlar - Hong Kong-based sourcing giant Li & Fung Limited confirmed Thursday that it has acquired U.S.-based footwear maker Jimlar Corporation, confirming a July report in these columns. LF USA is nearing a deal to acquire Jimlar Corp. for $450 million. Jimlar is a privately held firm that owns the Frye trademark and does business through licenses such as Coach and Calvin Klein. A price was not disclosed in Thursday's  announcement and the company could not be reached for comment at press time. <wwd.com/business-news>

Hedgeye Retail’s Take:  As expected, Li & Fung continues its shopping spree, but this time with an acquisition of some content.  Recall earlier in the week the company acquired a transportation logistics business in an effort to take more of the logistics process in-house.


Gap Inc. Expanding Global E-commerce Reach - Gap Inc. said its e-commerce capabilities will extend to 65 countries by year end. The international Web push marks the e-commerce debut of Gap, Banana Republic, Old Navy, Piperlime and Athleta outside of the U.S. With the expansion, Gap’s online presence will touch more of the globe than the company’s brick-and-mortar stores. Gap is in five countries with company-owned units and 20 with franchised units, while Old Navy has no stores beyond North America. Gap has partnered with FiftyOne, a New York-based e-commerce specialist, to develop the online infrastructure needed to support a Web business around the world, with the exception of China. For China, Gap is working with Shanghai Yi Shang Network Information Co. Ltd. to provide e-commerce starting this fall. Gap’s e-commerce business was $295 mm in Q1 up 11%. <wwd.com/business-news>

Hedgeye Retail’s Take:  A no brainer given the platform is in place and the cost to build out has dropped substantially as technology advanced.  Makes a ton more sense than opening stores across the globe.


Celebrity/Proprietary Brands Squeeze Independent Labels - As retailers seek to add more celebrity and proprietary brands, there’s no end in sight to exclusive pairings. And it’s getting a lot tougher for other labels to compete. Brand exclusives and private label are increasing their share of big-store real estate, commandeering dedicated advertising and promotional support, not to mention buying dollars. If a store has two brands that are similar, and one is an exclusive, there's plenty of reason to leave one out. With department stores narrowing the number of vendors they carry, those brands without an exclusive will have a much harder time competing. <wwd.com/retail-news>

Hedgeye Retail’s Take:  Exclusivity has been a trend for the past several years and this is nothing new.  Note to vendors:  Produce a line consumers want and they will pay full price for it. 


Li-Ning USA and Champs Sports Team Up - Li Ning Company Limited and Champs Sports have announced their partnership in the U.S. launch of the Baron Davis sportswear collection. Beginning on Friday, August 13, the “BD Doom” line of footwear and apparel will be available in select Champs Sports stores, located primarily along the west coast. Named after and designed in part by NBA All-Star Baron Davis, the BD Collection includes both performance and lifestyle footwear and attire.  The assortment will also be offered online at Champssports.com and Eastbay.com, both divisions of Foot Locker, Inc. Champs Sports is the first U.S. retailer to partner with one of China’s most popular sportswear companies. <sportsonesource.com>

Hedgeye Retail’s Take:  Well within the realm of our expectations, this marks yet another exclusive partnership for Foot Locker under new leadership.  While the partnership with a Li Ning is interesting on its own merits, the exclusivity with Champs/Eastbay is just a small part of FL’s strategy to differentiate and ultimately regain market share.  We expect to see similar deals coming over the next 12-18 months.


Nine West Steps Into M-Commerce - Consumers can use the shoe retailer’s mobile site to access the complete catalog of products found on the Nine West e-commerce site. Shoppers also can buy products and access accounts that contain default payment, billing and shipping information. <internetretailer.com>

Hedgeye Retail’s Take:  Newsflash.  M-commerce is essentially e-commerce when you’re not at your desk.  At some point soon, m-commerce launches will no longer be newsworthy, but rather just a part of normal retail activity.


Timberland to Expand Green Index to All Footwear by 2012 - The Timberland Company plans to expand its "Green Index" to all its footwear by 2012. <sportsonesource.com>

Hedgeye Retail’s Take:  While once a gimmicky marketing ploy, it is clear consumers actually do care where there products come from and how they are constructed.  TBL remains on the forefront of the “green” movement, an area in which the overall footwear industry has a long way to go.


UK Ethical Tradition Initiative Calls Upton Bangladesh to Increase Minimum Wage - The Ethical Trading Initiative has backed calls for the Bangladeshi government to make a further increase in the minimum wage. <drapersonline.com>

Hedgeye Retail’s Take:  While the wage debate continues in Bangladesh, there is no denying prices are on the rise as labor heads higher.


Brazil Reaches 1 BN in Leather Exports Despite July Decline - Sales of the Brazilian product grew by 74% in the first seven months of this year as compared to the same period last year and is expected to reach US$1.7 billion in exports by the end of this year, according to the Confederation of Hides and Skins Industries. Brazilian leather exports totaled US$ 1 billion from January to July. Despite the growth in exports during the period, sales in July dropped by 13.3% as against the previous month. The reduction was a consequence of financial problems faced by international markets, especially the European Union. <fashionnetasia.com>

Hedgeye Retail’s Take:  Keep an eye on Brazil as a leather source as China looks to cut capacity in an environmental effort to eliminate toxic factories. 


Despite Fewer Internet Users than Men, Women Spend More Online - According to comScore’s “Women on the Web” white paper, women account for just less than half of US internet users but make up a disproportionately large share of online buyers, at nearly 58%. Their share of transactions is even higher, with more than 61.2% of online purchases made by women. They also spent more than men, accounting for 58.2% of the total, suggesting men tend to make fewer purchases of bigger-ticket items, while women are more frequent buyers with a lower average order value. In the US, women dominated most in the online market for fashion and jewelry, toys, housewares, books and other entertainment, and even video games. Around the world, comScore found that women spent 20% more time on retail sites than men. Reach of most categories of retail site was higher among women, with a few exceptions: Computer hardware and software, consumer electronics, sporting goods and music were more likely to be shopped for by men.  <emarketer.com>

 Hedgeye Retail’s Take:  Not surprisingly the breakdown between male/female purchasing behavior looks very similar to metrics tracking traditional retailing.  Yet another reason why online and offline shopping have reached a point where they are now seamless in the mind of the consumer.


R3: Basketball Getting Worse. Really?  - ecomm







Jobless Claims Come in More Than 20K Above Consensus

Jobless Claims Come in More Than 20K Above Consensus While the Yield Curve is Quickly Compressing


Initial claims rose by 2k last week to 484k (rising 5k net of the revision).  Rolling claims came in at 473.5k, a rise of 14.25k over the previous week. This is the largest jump in the rolling claims series in all of 2010, though a look at the reported claims chart shows that the average just rolled off of the aberrantly low data point from July 10th.  Both reported and rolling claims are now consistent with the highs seen YTD. While we are beginning to feel like a broken record on this point, the fact remains that we need to see initial claims in the 375-400k range before unemployment meaningfully improves, and for now we are moving in the wrong direction.


To reiterate, our firm is of the strong view that US economic growth is going to slow markedly in the back half of this year and into 2011. We think this will keep a lid on new hiring activity and will keep cost rationalization paramount in the minds of C-suite executives. All of this raises the risks that a prospective slowdown in GDP will precipitate an incremental slowdown in hiring/pickup in firings, which will, in turn, further pressure growth. We continue to look to claims as the best indicator for the job market, as they are real time and inflections in the series have signaled important turning points in the market in the past.


Jobless Claims Come in More Than 20K Above Consensus - rolling


Jobless Claims Come in More Than 20K Above Consensus - raw


Below, we chart US equity correlations with Initial Claims, the Dollar Index, and US 10Y Treasury yields on a weekly basis going back 3 months, 1 year, and 3 years.


Jobless Claims Come in More Than 20K Above Consensus - 1


As a reminder, May was the peak month of Census hiring, and it should now be a headwind through September as the Census continues to wind down.


Jobless Claims Come in More Than 20K Above Consensus - census chart


Joshua Steiner, CFA


Allison Kaptur

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 80.37%
  • SHORT SIGNALS 78.32%