- The same conditions that pushed hotel demand much higher than the national average (see 2nd chart) are now moving against the lodging environment in NYC. The dollar recorded the highest monthly gain in 15 years in August and global GDP growth is slowing rapidly. Since 1/1/07, the dollar index fell 15% to the end of July 2008 while international visitation to NYC grew over 20% against the backdrop of strong global economies. Meanwhile, the spread of NYC RevPAR growth vs the national average remained significantly positive throughout the period in the range of +5-9%. I believe the recent sharp reversal of the dollar and slowing global economies will narrow that gap considerably, and quickly. Considering the recent national RevPAR trends, this is not good for the NYC hotel market. August RevPAR probably fell 1% nationally.
- In my 6/26/08 post, “NOT BEARISH ENOUGH? NOT EVEN BEARISH”, I estimated that 2009 lodging company EPS estimates were too high on average by 30%. At the time, the consensus HOT estimate was $2.92. Two months later, the consensus estimate has fallen 25% to $2.19. Unfortunately, the data has deteriorated further and forward looking indicators are worsening. I now think 2009 EPS estimates need to be reduced by another 25% and EBITDA by about $150 million. We’ll probably have to wait for the next “beat and lower” quarter come October to actually see the reductions.
Some companies might be better prepared than others. According to recent comments by management, the following casual dining companies’ guidance may be more realistic about trends in 2H08.
- EAT 4Q08: Relative to current momentum, management stated, “You know, we didn’t see the exact same momentum continuing in Chili's. It’s sort of flattened out a little bit as we got through the first part of July. We think some of it was related to the way the holiday was and the calendar shifts there. But I would say that we went in and made some changes to our advertising and promotion, schedule. We were doing Create-Your-Own fajitas, which had a much higher price point. And we didn’t see the same kind of response from consumers that we had in the past.
I think the other issue we were facing in July was we were lapping over a highly successful promotion from last year where we had some of the best same store sales performance in Q1. So, we made some changes to the advertising and promotion schedule. We went to the Bottomless Express Lunch again and back with our Big Mouth Burger Bites, which have done very well and we started seeing a bounce back again. So I would say that the environment is pretty choppy out there right now.”
- CPKI 2Q08: “Despite our outperformance in the second quarter, we are making only modest changes to our full year guidance by raising our range to $0.65 to $0.70. The way we feel is, until we see consistent upticks in traffic, we'll remain cautious and believe that a negative 1% to 0% comp number for the full year is still the right range for us to forecast.”
“When I look at our revenues and our profits, I feel very, very good about the current state of our business, even though we're very cautious about the back half of the year and lack of visibility that we all have, and that makes us conservative.”
- RRGB 2Q08: “We continue to believe we have good visibility generally on the cost side of our business for the balance of 2008 but our visibility for revenue in the second half of the year is less clear. We will be lapping our toughest comp of the year in Q3 with the consumer environment remaining under pressure from macroeconomic influences. We will be on advertising in three weeks in the fourth quarter this year when we were dark in all of the fourth quarter last year. As we have laid this out in our press release, and as Katie will share with you later in the call, we have updated our fiscal 2008 guidance to reflect this top line uncertainty and related deleverage.”
Management teams that were optimistic (or at least communicated their expectation that trends would not worsen further in 2H08):
- MSSR 2Q08 earnings call: “Similar to last quarter we have seen stabilization at our suburban restaurants as well as some Friday day parts and Saturday dinner part which indicates to us that the decline in these guests’ dining frequency has at least plateaued and we do not see further erosion in this consumer base.”
“We’ve definitely seen, as we said earlier, that middle income, aspirational consumer, we’re no longer seeing a continuation decline of that customer. We’ve also seen continued strong results from the business traveler which I, as you’re aware, hotel occupancies and flights are down but I think because of our national advertising campaign and our price point relative to some of the higher end options in the industry we’re holding up that consumer pretty well. So as we’ve implied earlier we’re definitely seeing stabilization and I think the initiatives we put in place are in fact very improved.”
- RUTH 2Q08: Although management acknowledged that current trends could persist, guidance assumes an improvement in same-store sales growth. “Coming back to 2008 guidance. We now expect comparable sales declines to be in the minus five range, which is at the low end of our original range. We believe that the above-mentioned cost-cutting initiatives will largely offset the drop in earnings associated with the sales shortfall and, as such, at this time we still believe that we can deliver EPS from continuing operations without an -- within our original guidance range of $0.55 to $0.60, excluding charges associated with our CEO transition. However, if negative sales trends persist at the level we experienced in the first half or if cost savings do not materialize as quickly or as significantly as we expect, we will likely come in below this range. We will update this guidance at the end of the third quarter.
“I won't -- we won't make any comments about -- on a go-forward basis, if you will. But what the guidance does imply is that we will have improvement in the second half of the year over the first half of the year, in part due to the easier comparison, but also in part to what we believe are very effective marketing initiatives that are in place.”
- CAKE 2Q08: Relative to comp guidance, management stated, “Really what we’re saying is as of today, best guidance that we have and that contemplates the fact that we started to see some of the consumer slowdown in the fourth quarter of last year, and so really it would just be a nominal lapping of that, if we maintain as of today. “
- BWLD – The Company was very optimistic about the 2H08. "Same-store sales continue to be strong in July, with increases of over 6% at company-owned and over 2% at franchised restaurants. We are in final preparation for the start of football season, with a redesigned menu rolling throughout the system this week, our HDTV and remodel projects nearing completion, our media and local marketing plans set, and our operations team trained and energized. We expect the purchase of our nine Las Vegas franchised locations to close in late September. With the momentum continuing from the first half of the year, we are confident in our ability to achieve our 15% unit growth, 20% revenue growth, and 25% net earnings growth targets for 2008."
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Not sure about the trend, but the trade continues higher on the US Macau stocks.
1. Japanese inflation (see chart) came in higher again (month over month) at +2.4% y/y vs. +1.9% in June. As the Yen weakens, imported inflation spikes - the chart is plain ugly. This is a 10 year high, as you can see. American wins = Japanese losses.
2. Overnight, Prime Minister Fokuda, was pleading for another 2 Trillion Yen Government bailout program for the economy. This is more of the same - a leader-less socialist government that doesn’t get it.
3. As GDP goes negative, increased government spending is going to intensify the problems associated with Japan's balance sheet. They already hold an untenable position of 787 Trillion in Yen denominated debt. That's 147% of GDP that is setup to stagflate!
It's global this time, indeed.
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