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Caesar's reported a 5.1% YoY increase in Adjusted EBITDA; however, excluding the $23.5MM property tax accrual included in the IL/IN region, Adjusted EBITDA actually declined 1.7% YoY.




  • "The company's 2010 fourth-quarter revenues increased approximately 1.0 percent to $2,121.0 million from $2,099.1 million in the 2009 fourth quarter, due primarily to revenues associated with our February 2010 acquisition of Planet Hollywood, offset by the continuing impact of the weak economy on customers' discretionary spending. However, certain markets, including Las Vegas, have shown signs of stabilization and improving operating margins."
    • Same store net revenues declined 2.4% YoY in 4Q10 compared to a 2.7% YoY in 3Q2010
  • "During the quarter, we initiated a new program to streamline our operations further, and I'm confident we will end this year with an even leaner, more efficient and responsive organization"
  • "While most markets in which we operate showed modest revenue gains or stabilization in the fourth quarter, Atlantic City did remain challenged"
  • "Our new joint venture with Rock Gaming, LLC, broke ground earlier this month on casino projects in Cleveland and Cincinnati that will operate under the Horseshoe brand name.  The two casinos combined will offer about 4,100 slot machines, 180 table and poker games, and exciting dining, retail and entertainment venues to an
    estimated 14 million visitors annually." Both projects are expected to open in 2012, pending receipt of required regulatory approvals."
  • "On a consolidated basis, when compared with the respective periods of 2009, visitation by our rated players decreased 5 percent for the fourth quarter 2010 and decreased 1 percent for the full-year 2010. The amount spent per rated-player trip increased approximately 1 percent for the fourth quarter 2010 and decreased approximately 2 percent for the full-year 2010. Average daily room rates and occupancy were generally flat for both the fourth quarter and full-year 2010."
    • 4Q Las Vegas YoY trends: 
      • "Visitation by our rated players increased 15%"
      • "Amount spent per rated-player trip decreased 5%"
      • "Hotel occupancy remained above 90 percent"
      • Hotel revenues increased 16%: Occupancy +3.5%; ADR: Flat
    • 4Q AC YoY trends:
      • "Visitation by our rated players decreased 9%"
      • "Amount spent per rated-player trip decreased 5%"
      • Hotel revenues remained relatively flat: Occupancy -3%; ADR: +4%
    • 4Q all other US markets YoY trends:
      • "Visitation by our rated players decreased 8%"
      • "Amount spent per rated-player trip increased 4%"
  • IL/IN: "Revenues in the region increased for the 2010 fourth quarter from the 2009 comparable period, primarily due to increased visitation... Income from operations prior to consideration of impairment charges, and property EBITDA increased for the fourth quarter and full year of 2010 from the 2009 periods as a result of reduced marketing expenses and the benefit of a $23.5 million property tax accrual adjustment recorded in the fourth quarter 2010."
  • "Revenues from our managed properties decreased for the fourth-quarter and full-year 2010 due to the continued impact of the current economic environment on our managed properties. Revenues from our international properties for the fourth-quarter and full-year 2010 increased from 2009 due to increased visitation and increased spend per trip at our Uruguay and London Clubs properties."



  • Group bookings are strong in Las Vegas
  • In the US, they remain committed to legalization of online poker on the federal level
  • Implemented priority Prism system that allows them to customize marketing programs
  • Significant opportunities remain to streamline their organization and cut more costs
  • 2010 was a challenging year for CZR and the gaming industry
  • For the first time, both revenues and property EBITDA increased... 
    • Not if you exclude the Planet Hollywood acquisition and the tax accrual... oh well gotta love creative accounting GAAP measures
  • New $153MM cost saving initiative by end of 2011
  • I love how they mention the reasons behind their property level EBITDA but manage to exclude the single largest driver of the increase - since it's a one time item that should never be in adjusted EBITDA to begin with
  • The $23.5MM tax adjustment was related to the Hammond property


  • 1Q2012 opening of the temp facility in Cleveland and a 4Q2012/1Q2013 opening of the Cincinnati property. $65MM was contributed to the JV so far.
  • Think that stabilization is their ambition in AC given the regulatory changes there. Think that Revel will reinvigorate Showboat and that they need to reposition Bally's.
  • $550MM of cash at OPCO and no R/C draw
  • 2011 Capex plan? $425MM - includes maintenance and growth capex including OH and equity into the LINK project and Octavius Tower ($100-150MM of their equity + financing raise that they announced)
  • RevPAR growth in LV ex PH: Occupancy was up 3pts and ADR was down 1%.  They are against resort fees.
  • Group booking trends in Vegas:
    • Began seeing a pickup of group booking trends a year ago. Both volumes and pricing are much improved from what they saw in 2008-2010.
  • They are working very hard to make their marketing spend more efficient. In AC they have been substantially cutting back on marketing.
  • Why is now the right time to invest in Vegas?
    • They are not trying to game good timing, rather they are trying to attract customers to their strip real estate that has suffered from loss of visitation.  Think that the Wheel will drive a lot of traffic - ala the London Eye.
  • Believe that people's desire to visit their facilities hasn't diminished but their ability to spend has... believe that spend per visitor is starting to rebound a little
  • Planet Hollywood acquisition is really helping them draw more traffic to Vegas 
  • Thinks that the London Eye does 3MM visitors a year - each which pay $20 to take a ride. Intend to offer a more modern version and offer F&B.  Believe that this will be a highly remunerative project.  The Stratosphere also is a big draw.
    • Retail area will have 190,000 SQFT of leaseable space
    • Wheel capacity 10MM / year
  • Update on i-gaming legislation:
    • They would prefer to focus on the federal level until those efforts are exhausted
    • He is cautiously optimistic that they can have a successful passage of online poker in this congressional session
    • If the federal effort is not successful, then they can go the State route. However, given the lack of liquidity, the State efforts are limited unless a number of states legalize and join efforts.
    • US poker market is about $6BN with no promotion from the large operators
    • Think that it would be a fixed cost driven market with high margins
  • Thinks that New Orleans should have a great 2011 - with lots of events and big resurgence of tourism
  • MS has been very tough. Tunica is in its 5th year of decline.
  • Business in Chicago is a monster and that market is quite vibrant
  • St Louis has had too much supply, but is starting to see some stability
  • The competitive behavior has been quite favorable. ASCA has done some innovative work on their marketing front.
  • How did they identify another $150MM of cost savings?
    • Consolidation of mgmt activities in AC and Tunica, marketing activities in the midwest region
  • Strength in the Asian play in Vegas continues to be very strong
  • $220MM tax return was received in the 4Q but not at HET OPCO
  • What are they doing to get that incremental spend per visitor?
    • In Vegas - they are trying to make their network of properties more valuable to their players - trying to incentivize players to see them in multiple properties during their visit

Could The Turmoil in the Middle East Be Bearish for Oil?

Position:  We are long oil via the etf OIL

Conclusion: We are long OIL in the Virtual Portfolio as price continues to confirm this position, but longer term, as history shows us, political liberalization could actually support growing production.

The price of oil is already indicating to us that the current turmoil in the Middle East will not be resolved in the short term.  Since tensions heightened in Libya over the past week, the prices of most major grades of oil are up roughly $10 per barrel in just a couple of days. Today oil is flat after a volatile day of trading motivated by rumors surrounding the demise of Moammar Gadhafi.


Further to this point, we’ve outlined in a chart below the highest closing price in February going back the last 15-years.  Typically, February would be a relatively slower seasonal month for demand in the United States (the world’s largest consumer) as the need for winter heating oil diminishes and summer driving season hasn’t picked up.  Interestingly, while the price of oil is still more than $40 from its all time high, it is very close to highest February close of $101.78 in February 2008.  This abnormal and non-seasonal price movement emphasizes the powerful price move we are seeing.


Could The Turmoil in the Middle East Be Bearish for Oil?  - dj oil


On February 16th, we called out this potential impact of popular unrest in Libya and Iran in a note that underscored our long position when we wrote:


“We are starting to see Egyptian and Tunisian type popular tensions spread to some key oil producing states, which should provide a key support under the commodity.  Specifically, both Iran and Libya have seen an increase in protests.  This is relevant because, based on the most recent data, Iran is the second largest producer of crude oil in OPEC, at 3.7MM barrels of oil per day, and Libya is a sizeable producer as well at 1.6MM barrels of oil per day.”


Given that Libya is less than two percent of global production and that the IEA has over 1.6BN barrels of oil in storage, clearly the current price movement is about more than Libyan disruption.   Even if Libyan oil production were completely turned off, the IEA has enough oil in storage to offset that lack of production decline for a full year.  Further, it is estimated that OPEC collectively has between 4 – 6MM spare barrels of daily production. So, why has oil gone parabolic over the past couple days?  Simply put: oil is now trading on fear.


In effect, this is fear that popular upheaval goes well beyond Libya and into more significant producers in the Middle East (like Iran) and that the ultimate outcome is a transition in government, or armed conflict, that leads to a broad decline in oil production.  An associated fear is that OPEC ultimately doesn’t have the spare capacity they claim, which could lead to a global oil supply tightening quicker than most expect.  Ultimately, this fear will continue to buoy and lead the world oil markets until we have some resolution or clarity in the Middle East, which certainly does not seem imminent.


Longer term there is a scenario, which certainly isn’t consensus on a week like this, that vast liberalization and democratization in the Middle East could be positive for oil production.  Russia is probably the prime example of this occurring. 


In the late 1980s, Russian oil production reached a peak of production of 12.5MM barrels of production per day.  Due to a decline of investment during the Soviet era, Russian oil production gradually fell thereafter and had fallen to around 6MM barrels per day by the mid-90s. The collapse of the Soviet Union combined with a privatization of the oil fields initiated a turnaround in production starting in 1999.  Currently, Russia is back to near peak production levels due to privatization and subsequent modernization of her oil assets.


Iraq looks to be on a very similar path to that of Russia.  Not surprisingly, with the Iraq War and the ensuing chaos following the removal of Saddam Hussein from power, Iraq oil production fell dramatically and was mired in the 1.5MM barrels per day level of production until early 2007.  By then, post Saddam Hussein modernization and investment started to pay off and Iraqi oil production began to climb.  In January of this year, Iraqi oil production hit a post war peak in production of ~2.6MM barrels per day and is expected to be near 3MM barrels per day by year end, a level not seen since the late 1970s.  In fact, as reported late last year in the Wall Street Journal, some Iraqis believe that growth in production could be meaningful in the coming decade:


“In all, Iraq hopes the work will boost output capacity from the current 2.5 million barrels a day to 12 million barrels a day in less than a decade. That would be a feat unrivaled in the history of the modern oil era. Last month, Fatih Birol, the International Energy Agency's chief economist, called Iraq a potential "game changer" for global oil markets.”


In fact, Royal Dutch Shell, who was awarded one of the Iraqi contracts last year, recently upped its Iraqi production from the Majnoon field from 45,000 barrels per day to 70,000 barrels per day.  A small change, but incremental.


No doubt this is a long tail type scenario, and a lot would have to happen for Western Oil companies to up investment in less stable regions like Iran and Libya, but both Iraq and Russia do provide some credence to the idea that production, over the longer term, could grow if the ultimately outcome is the spread of democracy and rule of law.


Could The Turmoil in the Middle East Be Bearish for Oil?  - dj iraq oil


Daryl G. Jones

Managing Director

JCP: Picking Apart the Outlook


In digging below the surface, JCP’s guidance for 2011 of $2.00 to $2.10 does not appear as robust as it seems. What the press release fails to articulate is an assumption that the company’s pension expense will be reduced by $134 million year over year in 2011. This equates to a savings of $0.36 per share, which when added to the $1.59 just reported for 2010 gets to a starting point of $1.95. Add to the base the assumption that same store sales are expected to grow a robust 3-5% and management is essentially guiding to incremental earnings growth of just $0.05 to $0.15.  Something is clearly not adding up if comps are expected to be solid, gross margins essentially flat, and barely any “core” earnings growth will result.


Bottom line here is not to be fooled by the seemingly robust topline outlook.  Earnings growth in large part is being supported by pension expense reduction for 2011, at least for now. We expect the combination of 3-5% same store sales increases and flat margins to also be a challenging goal to achieve.


JCP: Picking Apart the Outlook - JCP 2 11


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February 25, 2010






  • KSS indicated that its e-commerce business would approach $1 billion in revenues this year, representing 30% growth over 2010 sales of $720 million.  To support this growth an additional e-commerce distribution facility will open in the fall.  $1 billion in .com sales would represent approximately 5% of total company revenues.
  • Target noted that its overall home business has been a mixed bag.  There has been strength in the opening price point offering as well as the “best” categories.  However, the middle or “better” part of the assortment has been weak.  Merchants are working to the address this softness via a reinvigoration of product freshness.
  • Safeway believes that after two years of declining price per item, the company and industry needs to take some risks and pass increases along.   They are passing along inflation currently and are not seeing a “demand depressing effect”.  Management went on to say that they believe consumers are feeling better than they were one year ago which allows the market to absorb price increases with little resistance (so far).
  • GPS noted that it plans to be much smarter and more strategic with its promotional strategy in 2011 at Old Navy.  The company will ramp new efforts over the course of the year, with maximum year over year change in promotional strategy taking place over the back half.  Expect to see further innovation (digital) and creativity (not just % off).
  • Online sales at CROX has been one of the more impressive in retail with growth rates in e-commerce up +44% and +24% in Q4 and FY10 respectively. More impressive is the fact that online sales account for nearly 10% of the company’s revenues while most retailers and branded manufacturers are building off a much smaller base.
  • With gross margins up over 400bps in Q4, DECK acknowledged that the bulk of the expansion was due to price increases implemented last year ahead of anticipated raw material cost increases that never materialized. With pricing for sheepskin locked in and cost increases expected to be up 10% for 2011, we question how receptive retailers will be to further increases while other brands are essentially proposing higher prices for the first time related to higher input costs.



Polo Ralph Lauren Unveils new iPad App - This Friday, Polo Ralph Lauren Corp. is launching its first RLX iPad app, and this being Polo, there’s no shortage of innovative elements to underscore the brand’s athletic roots. It features real atheletes wearing the clothes, and the iPad’s built-in accelerometer, digital compass, assisted GPS and Multi-Touch screen capabilities allow users to do all sorts of things with the athlete images, from flipping it to tilting it and tapping the screen to experience the different movements of the clothes. “This application places the user in the driver’s seat so that they can control the technical functions of the apparel and experience the brand in a way that is visually entertaining,” <WWD>

Hedgeye Retail’s Take: RL has had apps all along for its purple/black label, but one designed specifically for the brand’s RLX line makes sense. The brand marketing and message, while still very much Ralph, is considerably different from the brands classic lifestyle lines making it a challenging fit inside the typical club-like RL store. The option to view the line virtually may ultimately help piqué interest and ultimately drive traffic. 


No Fear Fliles Chapter 11 - No Fear Retail Stores, Inc., which has 41 stores in California, Arizona, Nevada and four other states, announced that it filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California. Based in Carlsbad, CA, the stores target to motocross and surf markets. Its stores sell No Fear-branded clothing as well as Spy Optic and other brands. Other brands include So Cal, No Cal, Fearless, FMF, Gatorz, Hustler and Truth.<SportsOneSource>

Hedgeye Retail’s Take: The second brand of note to file YTD reflects the relative weakness we’ve seen in the west coast region.


Sportmax Unveils New Store Concept - A new Sportmax store concept will be unveiled here today. Covering 2,700 square feet over two stories, with four large windows, the store is located in the city’s central Via Spiga, and replaces a previous one on the same street, in Milan’s so-called golden shopping triangle. But Milan is only the first step in a global retail expansion for the brand. “While maintaining a selective distribution, we want to increase our worldwide presence, in China and Russia, for example,” said Luigi Maramotti, president of the Max Mara Fashion Group, which controls the Sportmax label. There are currently 13 Sportmax stores, in cities such as Paris, Moscow, Hong Kong, Shanghai and New York. These units will be renovated along the lines of the Milan blueprint. <WWD>

Hedgeye Retail’s Take: The upgrade at retail makes sense from both a presentation and messaging vantage point given Max Mara’s strategy to start distributing the Sportmax brand in department stores over the next two years.  


Clinique Enters the Digital Age The brand, which made its debut in 1968 with a hand-operated diagnostic slide device, has joined the iPad generation.  The new device, called the iPad Skin Diagnostic Tool, will be installed in new counter configurations, which ultimately will include new product testers for foundation and color cosmetics and a new smart-screen scanner that provides product information and even reviews from other consumers. “By integrating digital technologies into the shopping experience, we are offering the consumer a stimulating and socially modern way to connect with the brand,” stated Lynne Greene, global brand president of Clinique, Origins and Ojon at the Estée Lauder Cos. Inc. <WWD>

Hedgeye Retail’s Take: Which brands don’t have an app at this point is the question, but it sounds like the idea here is more one of self help at the counter, which may indeed increase traffic and interest in light of the fact that many shoppers look to avoid engaging predatory counter staff.


Cameroon May Increase Cotton Output 35% - Cameroon may increase cotton output by as much as 35 percent this season by using higher yielding strains and improving agricultural techniques, according to Sodecoton, the state-owned producer. “We intend to produce at least 39,000 metric tons more of the crop,” Ibrahim Ngamie, director of agricultural production, said in an interview today in the capital, Yaounde. That would boost output of the fiber to about 150,000 tons, up from 111,000 tons last year, he said. Cotton, mostly grown by about 227,500 small-scale farmers in the north of the country, is Cameroon’s fifth-largest foreign exchange earner, according to the government. The West African nation plans to boost output by reorganizing the industry, training farmers and increasing the use of more resistant and higher-yielding crop strains.<Businessweek>

Hedgeye Retail’s Take: Optimistic headline, but this is a rounding error. By way of perspective, as the world’s #24th leading cotton producer Cameroon produces only 1% of the cotton volume of #2 India.


Social Media Budgets Grow - Over the next several years, social media spending will become a bigger percentage of companies’ overall marketing budgets. Yet CMOs report there are still challenges when it comes to integrating social media into their overall business strategies. The American Marketing Association and Duke University’s Fuqua School of Business surveyed more than 400 top marketers for the February 2011 CMO Survey. They reported that over the next 12 months, social media spending will jump to 9.8% of marketing budgets, up from the current level of 5.6%. In the next five years, that percentage will increase to 18.1%. <emarketer>

Hedgeye Retail’s Take: With marketing budgets accounting anywhere from 5%-10% of sales for most retailers/brands, the average increase in spend implies a 25-50bps impact to margins this year. Given that most retailers are using the SG&A line to offset cost inflation, we expect most investments in social media to replace more costly marketing efforts rather than be purely an incremental expenditure.


R3: KSS, TGT, GPS, DECK - R3 2 25 11




The Macau Metro Monitor, February 25, 2011



The unemployment rate for November 2010 - January 2011 held stable at 2.7% and the underemployment rate remained unchanged at 1.7% from the previous period (October-December 2010). 
Total labor force was 332,000 in November 2010 - January 2011 and the labor force participation rate stood at 71.4%, with the employed population increasing by about 800 over the previous period to 323,000.


DICJ director Manuel Joaquim Das Neves said the Macau government isn't likely to get involved in the Ho drama.  Neves also said that MGM Macau told DICJ that Daisy Ho had stepped down from its board at the end of 2010.  The move raised speculation that Daisy was trying to seek a board seat at SJM.



Casino operator Crown's CEO, Rowen Craigie, said that Crown has lost some of its business to S'pore's 2 IRs and that the VIP market was growing strongly, particularly in Macau.  He said facility upgrades in progress at Crown and Burswood would help boost Crown’s share of VIP numbers.


Craigie added that many VIP gamblers from South-East Asia were now choosing to play locally, and some of Crown’s key VIP customers were spreading their time between Macau, Las Vegas, Australia and Singapore.


The Court of Second Appeal rejected Bombardier’s injunction seeking to cease all administrative actions related to the public tender to supply the rolling stock and system for the light rail transit system.  Bombardier may seek an appeal. The two losing bidders of the LRT contract – Bombardier and Siemens – still have until March 8 to lodge an appeal regarding the tender result.


TODAY’S S&P 500 SET-UP – February 25, 2011


Oil was, once again, a key driver of equity prices yesterday.  The rise in oil reversed yesterday intraday and equities, on cue, finished strongly into the close in New York.  Speculation that the U.S. recovery will be further confirmed by data to be released today also helped stocks as the concerns surrounding oil prices abated.  As we look at today’s set up for the S&P 500, the range is 31 points or -0.85% downside to 1306 and 1.52% upside to 1330.




  • 08:30 a.m.: GDP QoQ, 4Q, Est. 3.3%, prior 3.2%
  • 08:30 a.m.: Personal Consumption, 4Q, Est. 4.2%, prior 4.4%
  • 08:30 a.m.: GDP Price Index, 4Q, Est. 0.3%, prior 0.3%
  • 08:30 a.m.: Core PCE QoQ, 4Q, Est. 0.4%, prior 0.4%
  • 09:55 a.m.: U. of Michigan Confidence, February (final), Est. 75.4, prior 75.1 




Two of the nine S&P 500 sectors are positive from a TRADE perspective while all nine are positive from a TREND perspective.

  • One day: Dow (0.31%), S&P (0.10%), Nasdaq +0.55%, Russell +0.57%
  • Month-to-date: Dow +1.48%, S&P +1.55%, Nasdaq +1.40%, Russell +2.94%
  • Quarter-to-date: Dow +4.24%, S&P +3.85%, Nasdaq +3.21%, Russell +2.62%
  • Sector Performance - (6 sectors up and 3 down): - Consumer Discretionary +0.60%, Industrials +0.58%, Technology +0.35%, Healthcare +0.34%, Financials -0.24%, Utilities -0.39%, Consumer Staples -0.41%, Materials -0.52%, Energy -1.41%



  • ADVANCE/DECLINE LINE: +143 (+1052)
  • VOLUME: 1221.30 (-8.20%)
  • VIX: 21.32 (-3.62%)
  • SPX PUT/CALL RATIO: 2.22 from 1.34 (+65.67%)



  • TED SPREAD: 18.47 from 18.88
  • 3-MONTH T-BILL YIELD: 0.13% from 0.12%
  • 10-YEAR: 3.46% from 3.45%



  • CRB: 346.3 -0.63%; YTD: +3.90%
  • Oil: 97.61 +0.34%; YTD: +5.84%
  • Copper: 440.2 +1.35%; YTD: -0.84%
  • Gold: 1404.72 +0.13%; YTD: -1.13%



  • USD: 77.149 +0.12%
  • Euro: 1.378 -0.07%



  • FTSE 100: +0.83%; DAX: +0.43%; CAC 40: +1.31%
  • Russian Central Bank Unexpectedly Raises Main Rates, Reserve Requirements
  • Lloyds Tumbles as Rising Funding Costs Threaten 2011 Profit
  • Sentance Says BOE Must Tighten Now to Prevent Tough Moves Later 



  • Nikkei +0.71%; Hang Seng +1.82%; Shanghai Composite +0.00%
  • Asian Stocks Climb for First Time This Week on Oil Price; Hynix Advances
  • India Says Economy May Grow as Much as 9.25% Next Year Amid Inflation Risk
  • World’s Biggest Pension Fund ‘Will Likely’ Sell Japan Bonds



Howard Penney

Managing Director

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