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Heading into CMG’s earnings after the market closes the stock is near an all time high and up 10% over the last 5 days and 15% over the past month.  Consensus expectations are for CMG to have a good quarter - revenue is estimated to be $462.0M and EPS is expected to come in at $1.31.  Same-store sales and restaurant level margins are expected to be +9.9% and 25.3%, respectively.  


Guidance going forward is likely to be very different that what the company talked about last quarter.  Last quarter, CMG was looking for 3% food inflation and since them food prices have surged.  In addition, they now have a potential labor problem with the ongoing probe into the hiring of illegal immigrants by Chipotle restaurants.  It will be interesting to see how they forecast what incremental costs will be in 2011. 


Here is a look at CMG’s commentary on some forward-looking commentary during their most recent earnings call on October 21st, 2010.




“Food costs were 30.6% for the quarter, which is down 20 basis points from last year.  Prices for avocados, corn, rice and chicken were slightly lower in the quarter, which were partially offset by increases in barbacoa and steak due to the continued rollout of naturally raised beef.  We continue to expect modest increases in our food costs for the fourth quarter as we continue to invest in increasing our supply of naturally raised chicken and as prices for avocados increase due to a Chilean freeze…As we look to 2011, we will continue to invest in our Food With Integrity initiative and we expect inflationary pressure on many of our ingredients, especially chicken, beef, pork and avocados. As a result, we anticipate overall food cost inflation in the low- to mid-single digit range for 2011.”


“If we had 3% inflation, for example, that would be roughly 100 basis points on the food line” [assuming no price increase]

“If corn prices are going to increase, that’s generally going to cause both naturally raised and commodity meats to go in the same direction”


The chart below show the prices of key commodities since the last quarter's call. 







[In the event of a food price increase] “We would like to leak out smaller price increases than do a big giant increase all at one time.”


“We feel good that we have pricing power, it’s been two years now since we’ve raised prices in most of our markets…but we’re going to be patient about it.  I think what we’ll do is watch what happens…see how the consumer responds to price increases of other competitors and if it looks like inflation is going to hold, increases are generally being accepted by consumers, then we’ll be prepared to increase prices if need be.”


“Typically if we’re going to try to offset inflation, and inflation’s 3%, if we’re going to raise prices at all, we would look for something in the same ballpark as inflation would be, so somewhere around 3%.”





“If you have 3% inflation on food, we typically have inflation on our labor line of somewhere between 2% and 2.5% as well, something in that ballpark across many of the other line items”


“In the quarter, labor costs decreased 70 basis points to 24.2% and a 50 basis point decrease to 24.7% for the year.  The decrease for the quarter was the result of labor leverage driven by the comp increase, as our restaurant teams did a nice job recapturing some of the labor leverage lost in 2Q, along with the 40 basis point accrual adjustment I mentioned earlier, which we don’t expect to continue in the fourth quarter.


Howard Penney

Managing Director



Mayhem in Munis Macro Presentation: Dial-In & Materials Details

TODAY, FEB. 10, 2011 11AM EST


Valued Client,


5-10 minutes prior to the 11 AM EST start time please dial:

(Toll Free) or (Direct)
Conference Code: 861369#


To access the "Mayhem In Munis" materials please cut and copy the following link into your web browser:



To submit questions for the Q&A, please email .









Join Hedgeye's CEO Keith McCullough, Managing Director Daryl G. Jones, and Analyst Darius Dale who will discuss the Municipal Bond Market. The key questions being answered include:



-Will we see "hundreds of billions" of defaults in 2011?


-Will or won't States go bankrupt?


-What will the impact of Federal, State, and local austerity measures be?


-Will the Federal Government backstop State level debt?


-What are the lessons of history?


-How much do fund flows matter?



Please contact if you have any questions.



Jen Kane

Managing Director and Head of Institutional Sales



111 Whitney Avenue

New Haven, CT 06























Daily Oil & Gas Perspectives

From the Global Oil and Gas Patch: February 10, 2011


Current Long Positions in Hedgeye Virtual Portfolio……

  • Oil (via the etf OIL) – Initiated 2/2/11 @ $25.21
  • CNOOC (CEO) – Initiated 2/9/11 @ $210.25

Current Short Positions in Hedgeye Virtual Portfolio……

  • Murphy Oil (MUR) – Initiated 2/3/11 @ $42.65

Chart of the Day……


Daily Oil & Gas Perspectives - APC DAILY GHANA FEB 10 2011


Daily Oil & Gas Perspectives - APC DAILY MOZAMBIQUE FEB 10 2011


Key Metrics……


Daily Oil & Gas Perspectives - table


Must Know News……


PetroChina and Encana Team Up in Western Canada……PetroChina Co. (PTR), China’s biggest energy producer, agreed to buy a 50% stake in Encana Corp.’s(ECA) Cutbank Ridge gas assets in Canada for C$5.4 billion ($5.4 B-billion) in its largest overseas acquisition.  PetroChina would get daily production of 255 MMcf of natural gas from 635,000 acres in the provinces of Alberta and British Columbia, Encana said yesterday. Proven reserves are 1 Tcfe.  The companies will also form an equal venture to increase output, the Beijing-based producer said in a statement today.  Each company would contribute 50/50 to future development capital requirements.  Encana will initially operate the joint venture's assets and market the production.  (Bloomberg, Street Account)


Hedgeye Energy’s Take: ECA has been marketing for a partner since early 2010 to secure development of these assets. The Chinese have deep pockets and need reserves; ECA wanted to spread the development/capital risk and has found a willing partner in PTR willing to pay top dollar. The price appears high for natural gas assets in Canada at roughly ~C$8,500/acre, or ~C$5.40/Mcf of proven reserves, and marks PTR’s entry into North American gas assets. Asian partners, primarily the Chinese, have invested ~C$15 B in Canadian resources. Indeed, since the beginning of 2010, Chinese Companies have spent nearly ~$46 B in global resource acquisitions.


Chevron Buys Shale Gas Assets……Oil giant Chevron Corp. (CVX) said Wednesday it has recently acquired about 200,000 acres of land in the Duvernay shale gas formation in Alberta, Canada.  "This has established an important core land position for Chevron Canada in shale gas," said Kurt Glaubitz, a company spokesman. Chevron is planning to commence appraisal drilling during the second half of this year, he added.  The Duvernay shale sits nearly four kilometres below the surface. In its broad reach across central Alberta, it underlies fully 10 other rock zones that contain commercial quantities of natural gas.  Also, compared to more proven areas, Duvernay land remains abundant enough that major companies can make a large bet on it. It lies in an area thick with pipelines and other infrastructure, making it potentially cheaper to develop than plays in the northern hinterland. (Company statements, The Globe and Mail)


Hedgeye Energy’s Take: We expect CVX to step up its activity in North American shale development as CVX pursues production growth at a lower political risk profile. While the production is not immediate for 2011, CVX is seeking to become gassier with a greater footprint in North America, and it has the deep pockets to invest through the price cycles. CVX is thinking long-term.


Chinese Oil Demand Growth to Slow…… China’s oil demand growth may slow “noticeably” this year as the economy expands at a reduced pace and the country improves energy efficiency, according to the International Energy Agency.  China, which consumes more oil than any country except the U.S., may boost efficiency as it burns more natural gas and restricts car use, according to the energy security adviser to the Organization for Economic Cooperation and Development. Fuel demand may increase 6% this year, from 12% in 2010, the IEA said today in its monthly Oil Market Report.  “The economy should cool down slightly, gasoil shortages ease and oil intensity fall,” the Paris-based agency said. “New sources of energy should provide some degree of inter-fuel substitution.”  “China’s oil demand outlook has become increasingly crucial for global oil balances,” the IEA said. “We remain cautious so far, expecting China’s oil demand to rise by a much more modest but nonetheless significant 570,000 barrels a day.”  (Bloomberg)


Hedgeye Energy’s Take: Indications are that China will slow its economy in 2011, as recent interest rates hikes are pointed at curbing rising inflation. A slowing economy will ease oil consumption demand, which depending on how fast inflation accelerates and the global economic situation deteriorates will put downward pressure on crude prices, particularly Brent marker crudes, which Chinese refineries rely upon.


Anadarko Announces Discovery Offshore Ghana……APC announced a discovery at the Teak-1 exploration well in the West Cape Three Points Block offshore Ghana, where Anadarko owns a 30.875% working interest. The Teak-1 well encountered a total of approximately 240 net feet of oil, condensate and natural gas pay in five separate Campanian and Turonian-age reservoirs. More specifically, the well encountered approximately 70 net feet of oil pay and almost 108 net feet of natural gas pay in the Campanian, and about 46 net feet of gas condensate pay and 16 net feet of oil pay in the Turonian reservoirs of a similar age to the Jubilee field. Oil samples recovered from the Teak-1 well indicate oil of approximately 40 degrees API gravity in the Campanian reservoirs and 32 degrees in the Turonian reservoirs. The Teak-1 discovery well, which is located more than two miles northeast of the Mahogany-2 well, was drilled to a total depth of approximately 10,400 feet in water depths of approximately 2,850 feet. The partnership plans to suspend the well for future use and mobilize the rig to drill the Teak-2 prospect. West Cape Three Points Block, is operated by Kosmos Energy (30.875%), Tullow Oil plc (TLW LN)(22.896%), the E.O. Group (private) (3.5%), Sabre Oil & Gas Holdings Ltd (private) (1.854%) and the Ghana National Petroleum Corporation (10%). (Street Account)


Hedgeye Energy’s Take: APC has had considerable exploratory success offshore West Africa in Ghana and offshore East Africa in Mozambique. In Mozambique, APC made a fourth gas discovery offshore Mozambique in the Rovuma Basin, the discovery well was at the Tubarao prospect. Appraisal drilling is expected within the year for offshore Ghana, but initial indications are the hydrocarbon potential i as Ghana has become a core area of development for APC and its partner TLW. First oil at the massive Jubilee Field in Ghana, with reported ~1 B bbl of resource potential was achieved in December 2010, with gross production targeted at 120,000 b/d by mid-2011.  See our charts of the day above for maps of APC's recent discoveries.


Lou Gagliardi


Kevin Kaiser

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February 10, 2010





  • After two consecutive years of strong boot sales, JNY management suggests the trend is likely to soften in 2011. While providing confirmation of strong demand for new spring product, perhaps initial BTS interest is prompting the cautionary tone. Keep in mind that despite the changing hemlines in denim (returning to flare) are better suited for booties than boots, DSW had bullish comments on boots, both present and future.
  • If the use of superlatives is an indication, Ralph Lauren management used “extraordinary” to describe their business performance 16 times on yesterday’s call. Among the positive drivers were the company’s new Madison Avenue flagship stores, which registered a 100%+ increase in average ticket sales compared to prior holiday seasons driven in large part by higher priced items like handbags, accessories, and jewelry/watches.
  • Whole Foods efforts to promote health and wellness will be accelerated with the company’s launch of five prototype wellness clubs (within existing stores) this year.  While just a test, management believes the company can be part of the solution for the nation’s healthcare crisis primarily through educating the consumer about changing their unhealthy lifestyles.
  • Is email marketing losing its luster? According to a report from Exact Target/CoTweet, 91% of us email users have subscribed to company’s email and later decided they didn’t want it.  The report also found that 18% of email users never open emails from companies and 77% have become more cautious about giving their email addresses to companies over the past year.



Jones Launches B Brian - The launch of B Brian Atwood, the designer’s contemporary-priced collection with The Jones Group, drew a crowd of socialites and editors to the swanky Lion speakeasy in the West Village last night. Atwood held the spotlight at the crowded party, where friends and press clamored for a few minutes with the glowing designer to hear about his enthusiasm for the new collection. Guests included co-host Byrdie Bell, DJ Alexandra Richards, Ali Wise, Rose McGowen, Olivia Chantecaille, Poppy Delevigne, Nate Berkus, Hilary Rhoda, and the entire executive team of Jones Apparel Group. <WWD>

Hedgeye Retail’s Take: Sounds like a fun fashion week party on the same day the company reported lackluster earnings.  Unfortunately JNY needs several Brian Atwood-type efforts to work if the topline is ever going to meaningfully and sustainably accelerate. 


Wolverine Promotes Two in Outdoor Group - On the heels of a reorganization announced last month, Rockford, Mich.-based Wolverine World Wide, Inc. said Tuesday it had created two new executive positions in its Outdoor Group to give added focus to its Merrell and Chaco brands. Effective immediately, brand veteran Seth Cobb has been appointed VP and GM of Merrell, and Chip Coe, formerly head of accessories for all Outdoor Group brands, has been named VP and GM of Chaco.“These promotions give us a strong set of resources to drive brand-specific strategy and give us an enhanced brand focus,” Jim Zwiers, president of the Outdoor Group, told Footwear News. <WWD>

Hedgeye Retail’s Take: Expect to see more emphasis on brands other than Merrell as Chaco and Cushe begin take on a more meaningful part of the portfolio. 


Men's Wear Leading Recovery- Men’s wear could be the leading indicator of the long-hoped-for consumer revival. The sector was a strong performer over the holidays and has continued its steady climb upward this year. In December, MasterCard Advisors SpendingPulse, a macroeconomic report tracking national retail sales, reported that men’s wear sales rose 9.9 percent that month. In January, sales increased 8.1 percent, according to MasterCard. The improvements have retailers in a buoyant mood as they head to Las Vegas next week for trade shows even as they battle a harsh winter, rising raw material and fuel prices and lingering financial uncertainty. <WWD>

Hedgeye Retail’s Take: While MasterCard has never been a pure proxy for overall retail sales, this data coincides with anecdotal comments coming out of December and January sales.  Clearly a multi-year malaise in menswear is seeing some mean reversion at this time. 


Undergarments Gain Share - The dollar share of the men’s underbottoms market held by the long-legged brief silhouette last year, up from 31.9 percent in 2009. Long briefs vaulted into the dominant position among men’s underwear models, higher than boxers, which fell to a 29.9 percent from 32.6 percent in 2009. Men’s underwear sales overall were up 10.7 percent last year.<WWD>

Hedgeye Retail’s Take: Looks like men are replenishing their undergarments at the same time they’re replenishing their “outergarments”.  For those not familiar with long briefs, these are basically the underwear version of compression shorts.   


No Relief Seen From Record Cotton Prices - Cotton prices are expected to remain at record-high levels this year, due to a tight supply-and-demand situation, which was borne out by a new report released Wednesday by the U.S. Department of Agriculture.  According to the USDA, cotton stock levels among three of the five top producers in the world, including China, the U.S. and Pakistan, are estimated to end the marketing year on July 31 at record-low levels, which will continue to drive high cotton prices globally and increase pressure on the entire supply chain, from yarn spinners all the way to the consumer. India and Brazil showed slight increases. <WWD>

Hedgeye Retail’s Take: In looking at the dynamics driving cotton prices, the offset to increased acreage is stronger demand. Recall that earlier this week, Gildan’s CEO Chamandy projected that cotton prices will return to a range of $0.90-$1.20 next year driven by increased supply.


Fashion Footwear Sales Increased in 2010 - It’s official: 2010 was a good year for the footwear industry, as Americans bought more trendy shoes than they did in 2009.The latest sales figures for the fashion footwear market, released by marketing research company The NPD Group, show that total fashion shoe sales in the U.S. rose 7.2 percent — a strong reversal of the 3.5 percent decline recorded in 2009. “The footwear market was the last to feel the pain of the recession and is the first to feel the gain of the recovery,” Marshal Cohen, chief industry analyst at NPD, said in a written statement. “Women were the first to feel ‘frugal fatigue’ and head back to spending on fashion product, while spending on men’s and children’s products has followed.”  <WWD>

Hedgeye Retail’s Take: With the fashion category resurging as well over the last ~6-months, we continue to favor athletic footwear which continues to benefit from the reinvigoration of new product innovation.


Gap expands e-commerce brands  - If there’s any gap in online apparel retailing in Europe, Gap Inc. intends to fill it. Today, Gap, No. 23 in the Internet Retailer Top 500 Guide announced plans to expand its e-commerce brands for Gap and Banana Republic to eight more European retail markets: Austria, Estonia, Finland, Luxembourg, Malta, Portugal, Slovakia and Slovenia. Gap already sells online in Belgium, Denmark, France, Germany, Ireland, Italy, Netherlands, Spain, Sweden and the United Kingdom. With the latest European rollout, Gap is offering consumers immediate shopping on the English-language versions of Gap.com and BananaRepublic.com and up to three days shipping at a flat rate of 6 British pounds (US$8.21). “Launching in eight additional European countries underscores the loyalty and enthusiasm customers in Europe have shown for our online brands since the sites launched last August,” says Gap Europe and strategic alliances president Stephen Sunnucks. <InternetRetailer>

Hedgeye Retail’s Take: We can’t think of another retailer that’s rolled out e-commerce platforms across so many countries in such short order. With many multinational retailers looking to tepidly expand e-commerce in 2011, they should take note.

























The Macau Metro Monitor, February 10, 2011



According to official government figures, Macau had 805,289 tourist arrivals during CNY, representing 8.6% YoY growth.  477,252 visitors came from mainland China, a 14% gain YoY.  Macau's border-gate checkpoint logged the largest number of border movements, with arrivals and departures standing at 754,822 and 786,618 respectively, according to the Immigration Department.


The average daily number of rented hotel rooms rose 1.1% to 16,949; overall ADR gained 14.4% to MOP 1,878. 



Singapore visitor arrivals grew 15.9% YoY to a monthly record, 1,127,000 in December.  Visitor days grew 13.1% YoY.  Indonesia (262,000), Malaysia (130,000), PR China (100,000), Australia (87,000) and India (74,000) were Singapore's top five visitor-generating markets in December 2010.




MGM Macau is looking for HK listing approval at the end of February.  It was originally scheduled for the 2H 2011.  But analysts say the Ho dispute may push back IPO plans.  MGM Macau seeks to raise $800MM.  BofA, JPM, MS are the joint global coordinators for the deal, and joint books with BNP Paribas, CLSA, DB, and RBS.



Lee Chong Cheng has asked the Government about whether the Administration will roll out special laws or regulations to monitor the number, routes, passenger capacity and parking spaces of the casino shuttle buses.  Last year, Macau had 1,451 tourism coaches, 55 more than in 2009.


“The casino shuttle buses do not only station at various border checkpoints and occupy public space, but also increase pressure to the traffic, reduce the turnover rates of vehicles and cause road congestion.  The soaring number of casino buses also occupy the parking spaces of heavy vehicles, forcing tourist coaches to park on yellow lines which affects the traffic and leaves a negative image to tourists,” Lee said.


Lee also questioned the appropriateness of continuing to offer tax exemptions to tourist coach imports.



In 2010, S'pore tourism rose 49% YoY in tourism receipts to S$18.8BN, a 10-year high.  Together with other sightseeing and entertainment outlets in Singapore, the two IRs contributed 21% in estimated earnings.  Meanwhile, gaming ships saw passengers decline 11% YoY, largely due to two gaming ships ceasing operations.  Some gaming ships are no longer making Singapore one of their ports of call, says Singapore Tourism Board's (STB) Chief Executive, Ms Aw Kah Peng.


STB expects 2011 tourism to grow but not at the "exceptional" levels of 2010.


Looking at recent short interest moves in the restaurant space, it is interesting to note the increase in casual dining short interest versus quick service.  Below I go through some important takeaways:

  • CAKE is seeing short interest increase dramatically.  This company has an average check problem and the prospect of rising meat and dairy costs obviously doesn’t help the company’s outlook.
  • PFCB, despite a marginal uptick over the past two weeks, has seen short interest come down significantly of late.
  • CHUX is the perennial under-performer and the shorts piled into this ahead of the most recently reported quarter.
  • MCD remains the Teflon Don of the restaurant space – this will change in 2011.
  • CMG short interest remains low but ultimately the tide will reverse.  Labor cost efficiency, part of the secret sauce that footed the bill for organic, spot market, Food With Integrity, are going higher.  There is complacency here and I anticipate a change here when the music stops.
  • SBUX and PEET saw short interest rise while GMCR ticked down.  I believe that the PEET shorts are playing with fire here and GMCR is a much more attractive target on the short side.

SHORT INTEREST UPDATE - short interest historical 210


Howard Penney

Managing Director