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MPEL up/Wynn down.  With detailed data in hand, the shifts look more sustainable.



Macau gaming revenues grew almost 40% YoY in August.  Considering the stronger pace in the first half of the month, 40% growth is a little disappointing.  In looking at the breakdown between Mass revenue, VIP revenue, and VIP hold, it doesn’t look like luck played a major factor in the month. 


In terms of market share, MPEL and Wynn moving in opposite directions is the most interesting trend.  We saw it in July and here again in August.  As can be seen in the following market share charts, Wynn’s market share fell again, to 14.2% from 15.0% and 17.4% in July and June, respectively.  On the other hand, MPEL had another strong month with its highest market share in almost a year, and it was mostly VIP volume related, not just high hold. 


Wynn VIP hold % was consistent with last year but surprisingly, Wynn lost a lot of Mass share, down 180bps sequentially to 9.2%.  August was the 2nd lowest ever for the company.  Owing to an easy comparison, Wynn did grow total revenue 50% YoY, although high margin Mass only climbed 9%. 


LVS seemed to hold very well on VIP which pushed up their market share to 19.9%, still below its TTM average.  SJM played unlucky on the VIP tables which pressured their market share significantly sequentially.  Finally, as we expected, MGM is starting to build market share due to the addition of a new junket, “David Star”, which had been active at Wynn (thanks Mr. Kwong).







Rolling Claims Improve Slightly, but Do Little to Counter the Bigger Picture Slowdown

Initial unemployment claims fell 1k last week to 472k (6k after revising the prior week). Rolling claims fell 2.5k to 485.5k. For perspective, rolling claims are roughly 75-100k higher than they need to be in order for unemployment to improve.


Our firm remains of the strong view that US economic growth is going to continue to slow markedly in the back half of this year and into 2011. We think this will keep a lid on new hiring activity as management teams focus on cost control. 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.


Rolling Claims Improve Slightly, but Do Little to Counter the Bigger Picture Slowdown - rolling


Rolling Claims Improve Slightly, but Do Little to Counter the Bigger Picture Slowdown - raw


In the table 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.


Rolling Claims Improve Slightly, but Do Little to Counter the Bigger Picture Slowdown - 9


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.


Rolling Claims Improve Slightly, but Do Little to Counter the Bigger Picture Slowdown - census chart


Joshua Steiner, CFA


Allison Kaptur

R3: WMT, AMZN, Brooks, PSS, Choo IPO


September 2, 2010


Brooks stepping up web presence and Aldo goes exclusive with AmaZappos, at the same time Mastercard reports smallest monthly growth in ecommerce this year, and PSS echoing WMT’s concern that consumers are incrementally moving from credit toward cash.





- In a sign that the lower end American consumer continues to have credit revoked in large numbers, Collective Brands highlighted that it’s seeing a ‘slight increase’ in the proportion of cash sales versus credit among its sample of more economically challenged customers.


- With a more positive start to BTS than many of their retail counterparts, Genesco noted that comps were up +8% in August compared to up +3% in Q2. More notable was the driver as the company admitted to taking a more promotional cadence in order to drive traffic, which continues to be more robust in outlet stores than malls.    


- After early success at their Union Square location, Trader Joe’s is now coming to New York’s West Side with its new location slated at 72nd & Broadway. What most people don’t realize is just how large the chain is – with 345 locations and $8Bn in annual sales, it has a broader reach than Whole Foods at 280 locations and on a similar ~$8Bn sales base. Expected to open in late September, this is a classic example of a private retailer opportunistically opening stores because it can, not because it should.





Jimmy Choo Owner Moots IPO - Investment banks Goldman Sachs and Morgan Stanley are the front runners to advise the owner of luxury footwear brand Jimmy Choo on its strategic review, which includes a possible initial public offering and a sale expected to fetch up to £500m. <drapersonline.com>

Hedgeye Retail’s Take: Following a collaboration with H&M this time last year, the designer’s looking to leverage momentum with the masses.  Not sure if this is really really good, or really really bad. But it’s definitely binary.


MasterCard Sees August as the Smallest Month of E-Commerce Growth in 2010 - E-commerce spending increased 7.2% year over year in August, slipping back into single-digit growth, MasterCard Advisors reported today in its monthly SpendingPulse report. The August growth in e-commerce is the smallest year-over-year increase in 2010, MasterCard says. <internetretailer.com>

Hedgeye Retail’s Take: Still a key growth channel for retailers, the sequential deceleration is notable indeed – particularly with an average growth rate of 20%+ over the last 4-years. This can be partially explained away by a step-up in tax-free holidays in the month of August. But that can’t account for such a big decline.


Sears, Kmart to Debut Home Line - Casa Cristina, a new soft home collection inspired by Hispanic journalist and talk show host Cristina Saralegui, will hit Sears and Kmart stores this fall. Meanwhile, Kmart recently rolled out Stylesip, a teen girl fashion social hub, featuring the retailer's exclusive licensed lines and more. The Casa Cristina range includes comforter sets, quilted coverlets and euro shams, microfiber sheets, decorative pillows, shower curtains, embellished towel sets, cotton bath rugs and coordinating accessories. Five patterns will be offered based on Saralegui's individual style.  <licensemag.com>

Hedgeye Retail’s Take:  More attempts to mimic the “exclusive” merchandising strategies of competitors including Kohl’s and Target.  Also note that Liz Claiborne New York debuted its Home collection on QVC this past Monday. We’re pretty sure Casa Cristina is not the answer to stemming SHLD’s market share losses.


Wal-Mart replaces Sherwin-Williams Dutch Boy With Akzo Nobel's Glidden Brand - Akzo Nobel NV will become the sole paint supplier to Wal-Mart Stores Inc. in the U.S., with its Glidden brand replacing Sherwin-Williams Co.’s Dutch Boy on the shelves of the world’s biggest retailer. The “exclusive strategic alliance” means Glidden will be introduced to the 3,500 Wal-Mart stores across the U.S. early next year. <bloomberg.com>

Hedgeye Retail’s Take: Tough loss for Sherwin-Williams at the world’s largest retailer propels Akzo into the #2 position in the U.S. after having secured Home Depot as a customer in December.


AMZN Sees Large Expansion in China - The world’s biggest online retailer—Amazon.com Inc.—has big expansion plans in mind for China, now the globe’s second largest consumer economy. Some estimate that Amazon already generates $750 mm in annual web sales in China, a figure that could increase 33.3% to $1 billion as soon as next year. Based on $1 billion in annual sales, Internet Retailer calculates that China would have accounted for 8.6% of Amazon’s total international sales of $11.68 billion in 2009. A key indicator of Amazon’s emerging business model in China is the online retailer’s established base of customers—about 5 mm—and its growing appetite for leasing more fulfillment space near some of the country’s largest cities: Beijing, Suzhou, Guangzhou and Chengdu. In China, Amazon already has 530,000 square feet of space, including a 180,000-square-foot distribution center in Beijing. Amazon’s China strategy is straightforward: locate distribution centers and its supply chain near the major metropolitan areas and offer Chinese shoppers plenty of free or reduced rate shipping. <internetretailer.com>

Hedgeye Retail’s Take: Working off a much larger base than most in retail with ~9% of total sales coming from China, there’s still plenty of runway barring any changes to China’s regulatory posture towards online-based businesses.


Brooks Steps Up Web Presence - Next week, the Bothell, Wash.-based running company, a division of Omaha, Neb.-based Berkshire Hathaway, will roll out a completely refreshed website and e-commerce site designed to support its “Run Happy” mission statement. The goal, according to the company, is to not only upgrade its current merchandising capabilities but overhaul its search feature to make finding product easier, dramatically increase the rich media content, includng videos and reviews, and more fully integrate the brand’s own site with its social media ventures. <wwd.com/footwear-news>

Hedgeye Retail’s Take: The company already has one of the easier to use and functional sites, particularly for a private brand, so tying in the social media component and dressing it up a bit should be well received by online shoppers. Unfortunately too many companies approach it in reverse with fashion often trumping form.


Aldo Partner With Zappos - The Montreal-based fashion footwear company announced yesterday it had selected Henderson, Nev.-based Zappos.com to be the exclusive online carrier of the brand. Aldo footwear and handbags are currently available at Zappos.com. <wwd.com/footwear-news>

Hedgeye Retail’s Take: This is really noteworthy. Such an established brand picking Zappos as the exclusive on-line destination is certainly a win for Amazon/Zappos.


Umbro Extends Sponsorship of English Football Association - Umbro, owned by Nike Inc., has extended its sponsorship deal with the English Football Association until 2018. <sportsonesource.com>

Hedgeye Retail’s Take:  No surprise here. This is a low dollar number in the grand scheme of endorsements. Though interesting that it comes about a day after Adidas locked up MLS. 


Uniqlo Comps Decline From A Hot and Steamy Summer - Fast Retailing Co. Ltd. said Thursday Uniqlo’s same-store sales shed 9.3% for the month of August. The retailer blamed Japan’s sweltering temperatures for the decline. Uniqlo’s same-store sales refer exclusively to the business in Japan. Uniqlo's stores had fall items in the store but it was so hot that not many people want to buy. The fast-fashion giant’s comps have been very choppy this year, dropping by as much as 16.4% in March. Last month they grew 0.4%. <wwd.com/business-news>

Hedgeye Retail’s Take:  After a strong run, driven primarily by strong product intros including Heatech and J+, it appears that UNIQLO is giving its customer less of a reason to shop.  It needs something new. Fast.


Equal Employment Files Discrimination Case Against A&F - The U.S. Equal Employment Opportunity Commission said Wednesday it filed a workplace discrimination lawsuit against Abercrombie & Fitch Co. in federal court in California alleging the retailer refused to hire a Muslim job applicant because she was wearing a hijab, a religious head scarf. This is the second lawsuit filed by the EEOC against Abercrombie for “failing to accommodate a Muslim teenager’s need to wear a head scarf.” The first was filed in U.S. District Court for the Northern District of Oklahoma in September 2009.  <wwd.com/business-news>

Hedgeye Retail’s Take:  More of the same. Anyone that knows the story and walks the stores probably ‘knows’ that A&F is anything but an equal opportunity employer. 



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The Macau Metro Monitor, September 2nd 2010



According to LUSA, the market shares for August are as follows: SJM 29%, Sands China 20%, MPEL 16%, WYNN 14%, Galaxy 13%, and MGM 8%.



The Industry and Commerce Association of Macau has asked for a relaxing on imported labour restrictions for the Zhuhai-Macau Cross Border Industrial Zone.  The association said it "welcomes and supports" CEO Chui's plan to review and upgrade operations in the industrial zone.


The refreshed chart, below, of the S&P 500 shows why it was important to focus on risk last week.


Last Tuesday, the 24th of August, Keith covered five of the fourteen shorts that were in the Hedgeye Virtual Portfolio for three main reasons: Math, Risk/Reward, and Volatility.  All three indicators were telling him that it was time for us, and our clients to book some gains.  Knowing when to get out of a short position is as important as knowing when to put it on in the first place. 


Last Thursday I posted a note titled “BEING BEARISH AT THE RIGHT TIME.”  I highlighted the fact that “we could be setting up for manic media to make the last Friday in August to a ‘the-economy-is-not-as-bad-as-consensus-thinks’ day.” With ISM print yesterday and contained M&A activity, the squeeze higher continues.  Even with yesterday’s news, we still see substantial downside risk to the US economy.


Of the five short positions in the Hedgeye Virtual Portfolio covered last Tuesday, three of them – XLY, XLI, and SPY – squeezed higher yesterday. 


Our immediate-term overbought line is at 1089 with intermediate-term resistance at 1114.  Immediate term support lies down at 1059.


The quote from the 8/25 Early Look bears repeating.  “The best investors in the world do not target returns; they focus on risk.” – Seth Klarman.


Howard Penney

Managing Director




TODAY’S S&P 500 SET-UP - September 2, 2010

As we look at today’s set up for the S&P 500, the range is 30 points or 2% (1,059) downside and 0.08% (1,089) upside. 

Equity futures are trading above fair value as markets await key US data on jobs and home sales. Over in Europe Basic Resources, Autos, Insurance and Tech sector’s offset weak Food and Telco stocks. Today's macro highlights include: Initial Jobless Claims, July Factory Orders and July Pending Home Sales.

  • Allergan (AGN) said it expects an impairment charge of $340m-$350m related to its Sanctura franchise
  • China Green (CGA) forecast FY2011 EPS $1.35-$1.37, vs. est. $1.43
  • Cigna (CI) CFO Annmarie T. Hagan will leave her post effective immediately, with Thomas A. McCarthy to be acting replacement
  • Collective Brands (PSS) reported 2Q EPS 32c vs. est. 45c
  • Greif (GEF) raised year adj. Class A EPS to $4.15-$4.35 from $4.05-$4.30, vs. est. $3.99
  • Martek Biosciences (MATK) forecast 4Q rev. of $108m-$113m, vs. est. $113.8m
  • SAIC (SAI) boosted FY2011 diluted EPS cont. ops growth forecast to 14%-18% Y/y from 8%-14%
  • Walgreen (WAG) agrees to buy 18 Graymark Healthcare (GRMH) pharmacies; GRMH sees realizing enterprise sale value $35m
  • Zumiez (ZUMZ) revised 2Q results to 4c loss-shr after settling lawsuit


  • PERFORMANCE ONE DAY: Dow +2.54%, S&P +2.96%, Nasdaq 2.978%, Russell 2000 +3.81%
  • PERFORMANCE YEAR-TO-DATE: Dow (1.5%), S&P (3.1%), Nasdaq (4.1%), Russell (0.1%)
  • ADVANCE/DECLINE LINE: 2233 (+1906)
  • VOLUME: NYSE - 1191.85 (-15%) - Big up day not confirmed by strong volume
  • SECTOR PERFORMANCE: All sectors up over 2% except the XLP ip 1.8%
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Office Depot +9.28%, Rowan Co +8.98% and Tenant HC +8.67%/Brown-Forman -4.52%, Newmont Mining -1.63% and Boston Scientific -1.16%
  • VIX: 23.89 -8.29% - down 12.5% in two days - YTD PERFORMANCE - 10.2%            
  • SPX PUT/CALL RATIO: 1.82 from 3.04


  • TED SPREAD: 16.76 - +0.179 (1.082%)
  •  3-MONTH T-BILL YIELD: .13% -.01%
  • YIELD CURVE: 2.08 from 2.00


  • CRB: 268.51 +1.64%
  • Oil: 73.91 +2.77% - bucking a down trend this week
  • COPPER: 347.75 +3.19% - Dr C ragging ahead
  • GOLD: 1,246 -0.17%


  • EURO: 1.2796 +0.84% - looking at a 3 day rally
  • DOLLAR: 82.522 -0.82%



  • The region’s markets tracked Wall Street to end higher with an added boost coming from a strong rise in Chinese August car sales. Miners gained in Australia on higher copper prices.
  • China up 1.25%



  • Major indices are trading flat to lower as caution prevails ahead of the ECBank interest rate decision.
  • UK August Construction PMI 52.1 vs. consensus 53.2 and prior 54.1
  • UK Aug Nationwide House Price Index (0.9%) m/m vs. consensus (0.2%) and prior (0.5%)
  • UK Aug Nationwide House Price Index +3.9% y/y vs. consensus +4.9% and prior +6.6%
  • France Q2 ILO unemployment rate 9.7% and prior 9.9%
  • Euro zone July PPI +4.0% y/y vs. consensus +4.0% and prior +3.0%
  • Euro zone July PPI +0.2% m/m vs. consensus +0.3% and prior revised +0.3% 

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