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RETAIL - CRE

RETAIL - Gaming

Wynn Calls "Big" Recovery "Complete Dream" As Gaming Revenues Collapse 05-05-15 Zero Hedge

Last month, courtesy of Andrew Zatlin’s Vice Index, we flagged the disturbing Q1 rise in traveling hookers. We call the trend disturbing not because we have a prima facie inclination to look with disdain upon all things escort-related but because, as Zatlin notes, when escorts are forced to take their show on the road it means the phones have stopped ringing locally, and if you’re inclined to believe that trends in all-cash businesses are a good leading indicator for trends in consumer spending in general, depressed spending on gambling, alcohol, and other “fun” things does not bode well for economic growth going forward. As you can see from the graph below, The Vice Index hit its lowest level in more than a year in March:

Given this — and given the fact that whatever discretionary income Americans do have is apparently being chanelled into TD Ameritrade accounts — it should perhaps come as no surprise that gaming revenue on the Las Vegas strip fell nearly 10% in March after sliding 4.4% in February. 

Meanwhile, the situation in Macau continues to deteriorate at a rather remarkable pace, as gaming revenue fell 39% last month, the eleventh consecutive monthly decline which looks good only in comparison to March’s 39.4% decline and February’s 49% drop. Of course in the deluded minds of China’s millions of newly-minted day traders, a 39% decline represents “stabilization” and so, as Bloomberg reports, casino shares rose in Hong Kong on the news:

Wynn Macau Ltd. rose 4.8 percent to HK$16.54 by the close of trading, the biggest gain since April 9. Sands China Ltd. gained 3.3 percent and Galaxy Entertainment Group Ltd. advanced 3.1 percent, while the Hang Seng Index was little changed.

Gross gaming revenue in the world’s largest gambling hub fell 39 percent to 19.2 billion patacas ($2.4 billion) last month, meeting a median estimate of a 39 percent decline from eight analysts surveyed by Bloomberg. The drop has slowed for a second consecutive month.

“Investors are really just focused on trying to find stabilization or a bottoming,” said Vitaly Umansky, an analyst at Sanford Bernstein. “As long as things aren’t deteriorating, things seemed to be fairly consistent, that’s probably a decent sign from an investor’s perspective.”

Right. As long as things “aren’t deteriorating” and revenues are only falling by 40% that’s a “decent sign.” Unfortunately, some industry heavyweights don’t seem to share the view that the market is set to turn the corner any time soon. Take Steve Wynn for instance who, on the way to slashing WYNN’s dividend by nearly 70%, had the following to say about the company’s outlook for Vegas and Macau and about the so-called "recovery" in the US economy:

Well, the numbers in the first quarter are out. I think the trends in Macau were beginning to be very visible in the fourth quarter, but our hopes for an improvement in the Chinese New Year turned out to be incorrect. And the repositioning of the market and the degradation of the volumes in VIP, have continued even into April. Most of my remarks now are going to include what we’ve seen in the first four months, not just the first three months, because the trends that were clear in January, February and March have continued into April and as we look at the whole year in Las Vegas and Macau, certain simple truths emerge.

It is no secret that there’s been a change in mainland China in attitudes towards a number of things that have impacted Macau. That has not – nothing has changed since this all began last October. And the depression of the VIP market continues…

So as we look backwards for the fourth quarter and especially during the last four months, and understand what’s happening, both in Las Vegas because of the Asian impact on Baccarat, and we look back and then we extrapolate and try predict the future, or at least understand what most likely will be the future, it is foolhardily and immature and unsophisticated to issue dividends on borrowed money. We only distribute money that’s free cash flow based upon our earnings that trail…

If you were to ask me, since we’re making forward-looking statements, what will the second quarter look like in Las Vegas? Weak. Do you hear me? Weak. So I’m trying to lower expectations here. This notion of a big recovery is a complete dream. I don’t think Las Vegas is experiencing a great recovery. I think it’s still very patchy and I think that that’s probably our non-casino revenue in the first quarter was flat. I’d be thrilled if it was flat in the second quarter.

Besides being a stinging indictment of the pitiable state of the US economy, that’s a fairly unambiguous message from someone who knows a thing or two about this industry and even as the likes of Deutsche Bank called the Las Vegas commentary “overdone”, the bank had the following to say about the outlook for the gaming industry:

[With] market trends showing very limited signs of improving, and more headwinds than tail winds on the horizon (potential visitor traffic curbs, a full smoking ban, and uncertainty around table allocations), visibility is worse than ever in our view. 

Despite the malaise and despite the fact that, as we noted earlier this year, Beijing’s corruption crackdown has likely motivated China's habitual (and filthy rich) gamblers to move permanently away from the dark-lit Macau gambling parlors to multiple-monitor lit trading desks, there will always, always be BTFDers  — especially when you’re talking about Hong Kong-listed shares. With that in mind, we'll close with this quote provided to Reuters by Matthew Ossolinski, chairman of Ossolinski Holdings:

"What is the worst that could happen? [Gaming] stocks go down before they go up. But they will go up. We are preparing for a 100 percent increase in shares within the next three years."

RETAIL - WalMart

Walmart Sales, Comps Miss; Operating Income Tumbles; Runs Out Of Scapegoats 05-19-15 Zero Hedge

In what may be the most cryptic press release from Walmart yet, the company just issued an 8-K which consisted all of 5 bullet points, a few charts, and precious little else. Perhaps the reason for the pithy transmission is that WMT had nothing good to say: Revenue declined from $115 billion to $114.8 billion, missing expectations of a jump to $116.2 billion, EPS also missed at $1.03, vs $1.05 expected, operating income tumbled 8.3% from $6.2 billion to $5.7 billion, and finally comp store sales also missed at 1.0%, below the 1.5% expected. With these results, anyone would be short and to the point.

After previously providing extensive explanations for why the massive Apple Sachs Industrial Member member missed, this quarter the firm almost didn't even bother to scapegoat. This is what it said:

"Consolidated operating income declined 8.3%, due to impacts from currency fluctuations and investments in associate wages & training and e-commerce."

As if it didn't even bother to put in the effort to find a reason for the 8.3% plunge in operating income.

Finally, even the company's guidance was berely there. From Charles Holley, Executive Vice President and CFO, Wal-Mart Stores, Inc.

"Based on our views of the global macro-economic environment, and assuming currency exchange rates remain at current levels, we expect second quarter fiscal 2016 earnings per share to range between $1.06 and $1.18. Our second quarter guidance includes the impact of approximately $0.04 per share from our previously announced investments in both U.S. associate wages and training, as well as $0.04 per share from currency."

Wall Street currently expects a Q2 EPS print of $1.17.

And with this latest bellwether miss, expect the S&P to close at a recorder high today.

RETAIL - Consumer Recession

The Recovery Itself Unravels; Consumer Recession 05-13-15 Alhambra

If March was supposed to herald at least the beginning of the anticipated yearly rebound, April put that idea to rest. In terms of retail sales, one of the most important and largest segments of “demand”, April’s figures were mostly the worst of the recovery and some of the worst in the entire series – “beating” out February in every category. Even including autos, total retail sales gained just 0.72% in April more than suggesting there really is a major economic problem brewing.

Among the other segments, the figures are getting truly dire (all numbers are year-over-year not-adjusted): retail & food sales ex autos -0.35%; retail trade incl. autos –0.26%; just retail ex food ex autos -1.80%; general merchandise stores -1.52%. While these numbers are severe on their own, this is a contractionary environment that now stretches at least four months and in some cases five. Recessions are not spontaneous events but rather the accumulation of negative pressures and results. There can be no doubt that consumers in the US right at this moment are acting out of recessionary impulses.

The accumulation of the past four months is indistinguishable from results of the past two recessions (apart from the collapse after Lehman):

The negative Y/Y changes, which are actually quite rare, place April 2015 among the very worst economic months of the entire series dating back to 1992.

In addition to registering these atrocious results, the trajectory continues on in the “wrong” direction. In other words, not only is the US economy accumulating contraction the outlook isn’t indicative of that changing anytime soon. Households are pulling back, staying back and doing so rather quickly.

We have pushed way past last year’s “aberration” in the polar vortices and way past even the immediate aftermath of the 2012 slowdown (which hit in the also-snowy winter of 2013). You can make the argument that the full US economy is not in recession but it is now exceedingly difficult to sustain any position that doesn’t put the consumer already there. With capital goods spending equally unstable and sinking, as well as the “dollar” yet having companies cut back in all major costs, it is very troubling that these highly negative estimates have occurred without the much larger and heavier recessionary forces that are still likely as downstream events; those would include the as-yet oil sector retrenchment.

Furthermore, there is still the massive inventory overhang that has been accumulated in the last year or so likely upon the word of economists that what has already occurred was impossible. That places even further emphasis on the downsides still coming up as that inventory will slow the entire supply chain liquidations first. In other words, if this is a consumer recession taking shape then the full economy is just now seeing the leading edge with the worst, potentially, yet to come. The world that Janet Yellen was talking about late last year is completely gone and there isn’t much left of even hope to salvage it; though I suspect they will keep trying to the last inappropriate data point.

I wondered a few months back what it might look like if a recession were to form without ever having gained a recovery from the last one – consumers already in the bunker. The initial results of that are not encouraging as the economy has been serially overstated anyway and the real recession hammer has yet to strike. Maybe the bond market is correct and that another QE is coming, but at this point all that may do is as the last few did, namely put off the inevitable without any real economic upside; and that is the best case. While that may be great for stocks (though it may not be) I suspect the expiration date on QE and monetary magic may be rapidly approaching. It already has for “demand.”

US DOLLAR

YEN WEAKNESS

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