We came away from our recent trip to Vegas more positive on our Overweight MGM Strip recovery thesis as group bookings for the market appear to be ahead of budgets while investor RevPAR expectations remain in check. LV Locals top-line growth remains elusive, but we continue to see EBITDA upside for BYD in this segment as the competitive environment is better than 6 months ago and there continue to be cost refinements. Key takeaways (see inside for further thoughts): Las Vegas Strip. Sentiment around the Strip operating environment remained positive despite the noticeable weakness in February gaming results published by the state (appears driven by baccarat volatility). Operators said visitation strength in 1Q was at least inline with their expectations (MGM guided to +10% RevPAR growth). While no operator gave specific 2Q-4Q RevPAR guidance, commentary on forward bookings continues to be positive as few suggested that they had already surpassed their annual group booking budgets, which will help drive rate, and we believe consensus expectations of ~3-4% are reasonable. In addition, 2015 / 2016 bookings continue to strengthen, validating MGM’s commentary that 1Q13 strength can be a stepping stone. LV Locals. We met with a number of LV Locals operators and consensus remains that top-line growth will likely be hard to achieve in 2014 (we model +1% revenue growth for BYD). While leading indicators remain positive, they have yet to translate into gaming revenue growth. Suggestions for why this was were: i) While unemployment levels have improved, hours per week have declined (down ~20% from peak) resulting in lower levels of disposable income; ii) Companies have shifted employees from full-time to part-time to keep healthcare costs down as a result of new ACA guidelines; iii) Lack of interest income for retirees; iv) Negative impact from proliferation of Dotty’s (slot machine parlors that use cheap cigarettes as a marketing tool) which now have ~120 locations in the LV area. Macau. We heard much of the same as we did on our trip to Asia two weeks ago (see Casino Tale No. 31: Macau Gaming Trip Takeaways which we published with our Asia Gaming analyst, Praveen Choudhary). Operators continue to be bullish on the underlying strength of the Macau market. Union Pay scrutiny is in the press but not in the market. The market today continues to be underpenetrated and we think LVS / Sands China have an opportunity to better utilize room footprints for premium mass gaming customers as the depth of their databases increases. Operators are conscious of the risk around labor inflation / shortage, but we think they may be underestimating it. Online Gaming. While operators acknowledged that the NJ market is smaller than initially thought as a result of technology issues (detailed in our note US Online Gaming: “You Can’t Shut Down the Internet”), they still believe there will be a significant ramp (NJ can be a ~$500m market). Companies are hopeful they can use their online databases to grow on-ground business and are seeing positive customer behavior in terms of length of use, how quickly customers make deposits, and how long customers leave deposits on their sites. Company take-aways. We continue to recommend LVS and MGM as our favored ways to play the continued strength in Macau and for MGM, a levered option on the LV Strip recovery as well. We like BYD for the longer-term LV Locals recovery and US online gaming growth.


Can we expect to see Aviva, the superyacht owned by the Bahamas-based currency billionaire Joe Lewis, steaming into London soon to allow its maverick owner to shake up the stockmarket? Rumours are swirling that Mitchells & Butlers, the pub chain for which Lewis launched an audacious (and failed) takeover attempt in 2011, is eyeing a merger with the rival pub company Greene King. Bankers from Deutsche Bank are reportedly working on making the potential deal shipshape.


The convenience store industry’s in-store sales have seen rapid growth over the last decade, as consumers seek out more food and beverages on the go, according to new NACS State of the Industry data. Source: NACS April 3, 2014 U.S. convenience stores reached record in-store sales in 2013, with sales climbing 2.4% to $204 billion. Combined with motor fuels sales of $491.5 billion, overall convenience store sales were $695.5 billion, according to figures released today by the National Association of Convenience Stores (NACS). The industry’s 2013 numbers were announced at the NACS State of the Industry Summit, a two-day conference that reviews and analyzes the industry’s key economic indicators. The convenience store industry’s in-store sales have seen rapid growth over the last decade, as consumers seek out more food and beverages on the go. In-store sales in 2013 were led by continued growth in foodservice (2.4%), driven by prepared food and commissary. Motor fuels sales also hit new highs on a per-gallon basis, with sales climbing 0.9% to 132,029 gallons per store per month. While fuels sales per store increased on a unit basis, a 2.9% decrease in gas prices led to an overall 2.1% decrease in fuels sales. Although the industry again realized strong sales, store-operating costs increased at a faster rate than sales and led to a decrease in industry pretax profits, which fell from $7.2 billion in 2012 to $7.1 billion in 2013. The biggest increase in costs was wages and payroll taxes. The industry saw a dramatic 19.5% increase in employees, a function of the industry’s continuing embrace of foodservice, which requires more labor to manage. The link between fuels and convenience retailing continues to grow. Overall, 83.7% of convenience stores (126,658 total) sell motor fuels, a 2.7% increase (3,369 stores) over 2013, according to the 2014 NACS/Nielsen Convenience Industry Store Count. The U.S. convenience store count increased to 151,282 stores as of December 31, 2013, a 1.4% increase (2,062 stores) from the year prior.Convenience stores also account for 34.3% of all retail outlets in the United States, according to Nielsen, which is significantly higher than the U.S. total of other retail channels including drugstores (41,378 stores), supermarket/supercenter (37,459 stores) and dollar stores (24,853 stores). Beyond sales, convenience stores are an important part of the economy. They employed 2.2 million people and generated $174.5 billion in federal, state and local taxes in 2013. Overall, convenience stores sales represent 4.0% – or one out of every 25 dollars – of the entire $17.4 trillion U.S. gross domestic product. “Our industry numbers demonstrate that convenience and fuel retailing continues to grow, despite economic and retail environment challenges,” said NACS Chairman Brad Call, vice president of adventure culture at Maverik Inc. “These numbers show that we continue to meet the needs of our diverse consumers throughout the United States.” Motor fuels continued to drive revenue dollars, but in-store sales drove profit dollars. Overall, 70.7% of total sales were motor fuels, but motor fuels only accounted for 35.6% of profit dollars. Motor fuels gross margins were 18.5 cents per gallon before expenses, or 5.3%. The industry’s bifurcation also continues, with a considerable difference between top quartile and bottom quartile performers. Top quartile performers had hot dispensed beverage gross profits that were 7.3 times greater than those of the bottom quartile; prepared food gross profits 3.0 times greater than the bottom quartile; cold dispensed beverage gross profits 3.9 times greater than the bottom quartile; and packaged beverage gross profits that were 2.4 times greater than the bottom quartile. Of major interest to retailers this year was the breakout of industry numbers into regional benchmarks, allowing them to compare key metrics against more companies in their respective markets. Here’s how in-store sales were broken down in 2013: Tobacco (cigarettes and other tobacco products): 37.0% of in-store sales Foodservice (prepared and commissary food; hot, cold and dispensed beverages): 18.0% Packaged beverages (soda, alternative beverages, sports drinks, juices, water, teas, etc.): 15.5% Center of the store (candy; sweet, salty and alternative snacks): 9.9% Beer: 7.9% Other: 11.7% Meanwhile, foodservice was the category that drove profits, accounting for 29.1% of gross profit dollars. Packaged beverages were second, accounting for 19.6% of gross profit dollars. While tobacco products constituted 37.0% of in-store revenue dollars, they accounted for only 18.7% of gross margin dollars. The industry’s 2013 metrics are based on the NACS State of the Industry survey powered by its wholly owned subsidiary CSX, the industry’s largest online ?database of financial and operating data. Complete data and analysis will be released in June in the NACS State of the Industry Report of 2013 Data.?


VEEV SPIRITS has appointed industry veteran Jeff Feist to the newly created position, Vice President Sales. Feist has been in the spirits industry for more than 20 years; for the past 17 years he was with the Phillips Distilling Company, most recently as Executive Vice President.Reporting directly to Bryan Crowley, President and COO, Feist will be responsible for driving VEEV Spirits sales in the U.S. He will be responsible for leading a sales organization that has nearly tripled in size in the last year with U.S. sales that have grown +80% in the last six months. “Jeff is an industry veteran and skilled sales leader with a proven track record of building strong distributor and retail partnerships to take brands to new heights,” says Crowley. “I look forward to working with Bryan and the VEEV team to strengthen the relationships already in place while developing new relationships at the distributor and key account level,” says Feist.


Governor Branstad has reappointed Stephen Larson as the Administrator of the Iowa Alcoholic Beverages Division (Iowa ABD) for a second four-year term. Larson began his first term May 1, 2010, after being appointed by former Governor Culver. During his tenure, Larson has been dedicated to increasing transparency and accountability while improving the quality of service for Iowans. He is the Chairman-Elect of the National Alcohol Beverage Control Association and a member of the National Conference of State Liquor Administrators. “After taking over the division in 2010 after the State Auditor’s office found numerous deficiencies and mismanagement, Steve Larson has displayed strong leadership in turning the Alcoholic Beverages Division around,” said Branstad. “I’m pleased his well-deserved reappointment has been confirmed by the Iowa Senate and am confident he will continue to be a strong asset in our administration.” Throughout his first term Larson implemented initiatives including policies and procedures for enhancing customer service, improving efficiencies and space utilization, initiating education and outreach programs, renewing the alcohol compliance program, and increasing transparency. He has also focused on revitalizing the agency’s relationships with partners such as licensees, other state agencies, prevention groups, trade associations, industry partners and local law enforcement officials. “I am honored to have the opportunity to serve the State for four more years and will continue to carry out those goals set forth by the Governor to bring the Iowa ABD into the future,” said Larson. “I will continue to focus on the core functions of regulation, licensing and distribution while implementing strategic initiatives to increase efficiencies, advance technologies and improve customer service.” A native of West Burlington, Larson’s career in public service dates to 1984, when he began working for the state treasurer’s office. He has extensive experience in regulatory compliance, treasury management and governmental relations. Larson has served on numerous boards and commissions including the State Appeals Board, Vision Iowa, and the Iowa Accountability and Transparency Board. Notable achievements include the 2007 Presidential Distinguished Services Award for Outstanding Service, Golden Dome awards on Dedication to Process Improvement and Leader of the Year in 2003. Larson graduated with honors from William Penn University in Oskaloosa, Iowa, with a B.A. in Business Administration.