Fed: Central Planning Update

Nothing surprised us in the Fed’s prepared statement. The Bernank remains Indefinitely Dovish. 

  1. Inflation – he finally admitted it’s there
  2. Growth – he talked it down (because his US GDP forecast was wrong by a lot, again) 

Marked-to-market reaction: 

  1. US Dollar = DOWN
  2. Gold = UP
  3. Oil = UP 

The Bernank perpetuates The Inflation but takes no responsibility for it. The ongoing risk of a US Currency Crash remains.



Keith R. McCullough
Chief Executive Officer


In preparation for PNK's Q1 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from PNK’s Q4 earnings call.




  • "We believe the corporate costs will continue to trend down in 2011."
  • "You should expect us to continue to begin to draw down on that increasingly this year as we complete the Baton Rogue construction. That said our Baton Rouge project remains fully financed through existing cash on hand, our revolver and anticipated free cash flow from operations. We do have approximately $319 million of cash construction costs still to fund for the completion of Baton Rogue."
  • "Up next are new brand campaigns for L’Auberge and the three Boomtown properties. MyChoice, our guest loyalty program, will be re-launched in April."
  • "The fourth quarter corporate would be a better proxy than any of the preceding quarters in the year for that
    very reason.  We’re hoping for some marginal improvement to that as well."
  • "We have sensed a stabilization of our top line experience roughly across our markets."
  • [Reno] "We’re going to keep an appropriate level of maintenance at a property. We have a large tract of land that’s for sale there and if we were able to sell the land we would. But we’ve said before if there was an appropriate offer there we’d consider it. But we’re not out shopping it. It is what it is."
  • [Discontinued operations] "Atlantic City is in disc ops in particular, probably the largest single component of that but that’s mostly a property tax expense at this point. That’s probably going to accrue up to something. In total you’re probably going to see in the kind of [low] double-digit millions for the year would be my guess."
  • "We are right now working on making MyChoice a universal card, meaning it would be recognized and accepted at all Pinnacle properties. We expect the universal card functionality to be fully in place by the end of first quarter 2012, so that would obviously be aligned with Baton Rouge and their opening."
  • [L'Auberge gaming mix change] "Now we have a plan that we expect to have completed by the end of the second quarter that will complete the change from a mix standpoint."


In preparation for HOT’s Q1 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from HOT’s Q4 earnings call and subsequent conferences.



  • "The fact of the matter is New York is weak right now.
    • "It’s been a long, hard winter in New York."
    • "New York came back earliest and – also from a group perspective, and my sense is that people were staying away from resorts from a group perspective because of the residual AIG effect that we were still living under. And I think that that’s changed and shifted some of the business from New York."
    • "There’s been substantial incremental capacity into the New York market over a short period of time, which is a bit of an anomaly relative to the overall supply dynamic and demand dynamic."
  • "China is 75 hotels for us at this moment. That makes it our second largest country. But what’s really remarkable I think is the fact that we have another 85 hotels that are under construction, meaning we’re building more hotels today in China than we have open. And just the hotels that we’re opening in China would be our second largest country therefore."
  • "Our target is to be at least 80% fee-driven. Today, over 60% of our fees come from markets outside of the U.S."
  • "We have three select serve brands between Four Points by Sheraton, Element and Aloft. And that’s I think where the biggest opportunity is for us in the sense that we’re still substantially below scale in that area, and see that as a growth opportunity on the one hand. And on the other hand, still is something that we continue to get after."
  • "Yeah. Well, let me answer directly the asset sale timing issue first. Hotels today, simply put, are still trading at below replacement cost, and so this isn’t a great time to be selling a lot of hotels if you don’t need to. And the majority of our hotels still today are in North America and in Europe. In both of those markets, there’s not only been very little capacity added relative to trend line over the last ten years, but as would astound none of you in the room to know that there’s very little construction lending today. And therefore, the prospect of more capacity being added over the gestation period of developing a hotel, which is three to four years, is going to be small. And so we’re already seeing occupancies that feel more mid cycle than early cycle. Although judging from the unemployment numbers and being a student of business cycles, it still feels like we’re earlier rather than later, and probably early in a long cycle up, not early in a short cycle up, particularly given the trajectory. Therefore, I believe there’s still an opportunity either to find buyers who have that same belief that we’re going to go from substantially below trend line ADR to substantially above. And if we have buyers that share that perspective and are willing to provide us with that value, then we sell. If not, then I’ll wait for the market to improve. As you pointed out, we don’t need cash right now. So we sell from a position of strength."
  • "So more on the pipeline. Our pipeline is 85,000 rooms at the end of the fourth quarter. On our existing base of rooms, that’s roughly 28% implied growth, assuming all of those hotels are built – larger than any of our peers. A key differentiator in our pipeline is, it’s more international than any of our competitors, roughly 80% international, 20% U.S. Whereas, you can see from the chart, Hyatt, Hilton and Marriott are much more skewed towards the U.S."
  • "So we expect supply in 2011 to grow in North America at sub 0.5%, which is substantially below trend. And if you look at the decade from 2001 to 2010, supply grew closer to 1.5% per year. So we’re entering this up cycle with less excess capacity than the industry has ever seen before."
  • "Developed markets business, most of our fees in the developed markets are driven off of the top line, roughly three-quarters. So as RevPAR accelerates and you have a continued imbalance between supply and demand, we expect to see favorable growth in our fees in these markets."
  • "I think offsetting somewhat that reduction in earnings from timeshare is the fact that we cut out almost $100 million in SG&A in the ‘08, ‘09 time period. And we expect those cost cuts to be largely sustainable. So I think that does offset much of the reduced SVO earnings impact."
  • [gas impact] "But I’d also point out gas prices were $3.50 most of the year for us in Connecticut. Now they’re closer to $4. I don’t hear the same type of hemming and hawing that I did in 2008 when gas hit those levels. So, again, people adjust their expectations somewhat. But certainly oil moving up beyond these levels is not a positive for the broader economic picture."



  • "Our outlook reflects this normal recovery with global REVPAR growth of 7% to 9% at company operated hotels in local currency and 100 basis points higher as reported in dollars, 150 to 200 basis points of margin improvement at owned hotels, 10% to 12% fee growth, a small increase at SVO, giving us a 2011 EBITDA range of $975 million to $1 billion and an EPS range of $1.55 to $1.65. One point of REVPAR impacts EBITDA by approximately $15 million. One point of shift in ForEx rates globally relative to the dollar impacts EBITDA by $4 to $5 million. We expect to open 70 to 80 hotels globally in 2011 with more than half outside the U.S."
  • "We are excited about the next major W opening in Europe, the W Leicester Square in London this February, which is also a leased hotel. Pre-opening costs associated with this opening will depress reported owned/lease hotel earnings in Q1. Q1 is a seasonally small quarter in Europe and the trends for the year will likely become more evident as we get into the second quarter. Like the U.S. with low supply growth and rate improvement, we expect 2011 to shape up as the second year of a normal cyclical recovery. As we have for the past few years we have hedged about 50% of our Euro exposure."
  • "Several significant renovations will be undertaken in 2011 including the Grand in Florence which we are converting to a St. Regis, the Alfonso 13 in Sevilla, the Westin Gaslamp, the Sheraton Kauai and other smaller projects. Over an extended timeframe our maintenance capital spend at owned hotels has averaged 7% to 8% of gross operating revenue ranging from 5% when the cycle turns down to highs of 10% when the cycle turns up. We expect to be at the high end of the range for the next couple of years."
  • "Our Monday to Thursday volumes are driving occupancies in the 90% range in most major metro markets. Our customers are telling us that they’ll continue to travel in 2011 in search of precious growth for their own businesses."
  • "Group pace for 2011 also improved sequentially through 2010. So as a result, we’re beginning 2011 with pace up double digits, significantly ahead of last year’s starting point. As expected for some time, booking windows are now slowly starting to lengthen. Nonetheless, strong bookings and improving sales will translate into revenues that are quickly rebounding towards 2007 levels."
    • "On group pace, at this point it’s driven, as you would expect because of the business that was booked in 2010, more by volume than rate. But as the new business is coming in, the mix is changing more to rate."
    • "As you look at group pace in 2012, that’s also pacing positive relative to 2011."
  • "The real story in 2011 will be about rising rates. Corporate rate negotiations are being finalized, and they’re still on track to increase in high single digits. The mix of room categories and clients should also support our ADR growth. Business travelers power 75% of our revenues, but leisure travel is also an important part of our business especially at resorts and tourist destinations. We’ve seen the leisure demand increase as consumer confidences has improved and we take heart from the fact that affluent travelers [inaudible] finances today are quite robust compared to a couple of years ago. As with business travel, this affords us the opportunity to improve mix by, for example, phasing out some cut-rate Internet channels such as opaque."
  • [Argentina] "Our hotel rates which are typically in dollars are not going up as fast as our costs. As a result of this disconnect and despite significant efforts by our local teams to hold costs in line, our margins are under pressure. We expect this issue to persist as long as these currencies are not devalued relative to the dollar commensurate with the local inflation trend."
  • "Our vacation ownership business is stable. Doors, close rates and pricing have tracked in line with expectations. Delinquency default rates continue to improve. We remain focused on cash generation in this business. With selective inventory adds we expect to generate over $150 million in cash flow in 2011 on top of the $500 million we generated in ‘09 and ‘10. There will also be some cash flow from closings that offset some of our capital spend on Bal Harbour this year. We have contracts on more than half the condo inventory and hope to be 65 to 70% sold by the time we start closings.  2012 will be the big year for revenue and income recognition and cash flow from Bal Harbour based on current plans."
  • "Sometimes you have some fees that are on a cash basis and the fee is paid, but by and large the incentive fee growth in the fourth quarter was powered by Asia where you saw some significant REVPAR growth. It was good in the U.S. from a very low base, and what held it back to some degree was the Middle East. So I think we’ll see some of that in the next year."
  • [North Africa fees] "$3 million to $4 million a quarter is reasonably close to what you should expect."
  • "We went into some detail about what percentage of our properties both in the U.S. and international markets were paying incentive fees, and it hasn’t changed much since then, so probably low double digits for North America and international is 60% or 70%."

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Athletic Apparel Posts Solid Week


Weekly athletic apparel came in strong. Sales accelerated both on a sequential and underlying trailing-3-week basis for the second consecutive week. While footwear should be out shortly where we see a greater benefit from the holiday shift, strong top-line apparel trends are a positive indicator of healthy consumer spending during the critical pre-Easter selling period. In addition, ASPs were up across all channels suggesting sales were not driven by promotional activity /discounts – a positive for margins.



Athletic Apparel Posts Solid Week - FW App App Table 4 27 11


Athletic Apparel Posts Solid Week - FW App Reg 4 27 11


Casey Flavin


PSS/BWS/DSW: BWS Read Through


BWS preannounced Q1 due to weak comps at Famous (-2-4% from its prior a outlook for +LSD). We’re not worried about it as it relates to other names in the space. Here’s why.

  • A miss is a miss – and we won’t ignore that, but not all percentages are created equal. BWS’ results do not include the critical sales weeks preceding Easter. In the Family footwear channel, Easter is one of the most important selling periods of the year. The -7% decline reported quarter-to-date captures only the first nine-weeks through April 2.
  • We know that March came in soft and we’ve sized the Easter shift (see our 4/15 post “Athletic Footwear & Apparel – The Egg Effect”), which accounts for a +12-16% shift in sales growth from March into April this year.
  • With at least 40% of Q1 sales coming in April this year, BWS’ guidance of down -2%-4% implies April comp expectations of flat to up +6%.
  • If we assume the low-end of the range accounting for the shift in holiday sales and normalize it over the March-April months comps should come in up approximately +2-3%. There’s clearly a disconnect here between BWS’ performance and what we’re seeing across the rest of the channel from peers.

According to industry trends through March, family channel sales are down -4.2% quarter-to-date, which suggests other retailers reporting into the monthly NPD data (i.e. DSW and SCVL) are outperforming. In addition, as we’ve noted since year-end results came out, we expect the comp diversion that has been present between PSS and the rest of its peers to continue to converge again here over the next 2-3 quarters – turning a headwind into a tailwind.


PSS/BWS/DSW: BWS Read Through   - MonthlyFW SalesByChanl 4 11


PSS/BWS/DSW: BWS Read Through   - FamFWComp Chart 4 11


Casey Flavin



Notable news items and price action from the past twenty-four hours along with our fundamental view on select names.

  • PNRA shares declined 2% on accelerating volume ahead of last night’s earnings.  The company missed top-line expectations.  The earnings call takes place at 08:30 am EST.
  • BWLD posted a strong quarter last night; see my post from earlier this morning for details.  Solid top-line performance coupled with favorable chicken wing prices and operational efficiencies during the quarter helped the company beat by 8 cents on EPS.
  • PFCB reported poor earnings results this morning, missing top-line expectations at the Bistro and at Pei Wei.  EPS came in at $0.46 vs $0.53.  Despite the miss, PFCB is pulling a CAKE-like "extend and pretend": maintaining EPS guidance for the year.
  • EAT declined on accelerating volume yesterday.  EAT reported a good quarter this morning.  3QFY11 EPS came in at $0.47 versus $0.45 and comps were -0.2% for company blended same-store sales versus -0.6% consensus.  Chili’s comps were down -0.3% versus consensus at -1.2%.  Maggiano’s posted +3.4% 3QFY11 comps versus consensus at +3%.  Restaurant operating margin was 18.3% versus consensus at 17.1%.  Chili's same-store sales were positive in February and March.
  • SBUX reports after the close today.
  • MCD Japan President Eikoh Harada said today that same-store sales will probably rise in April.
  • SONC gained 2.5% on accelerating volume - today it announced a refinancing.
  • MSSR management sent out a letter to shareholders urging them to vote for the current board of directors, stating that Tilman Fertitta, the Chairman of the Board and CEO of Landryr's, is attempting to interfere with MSSR's legitimate and important corporate governance procedure.




Howard Penney

Managing Director

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.