Only slightly below us but well below the Street




  • RWS net revenue of S$716MM and Adjusted EBITDA of S$352.5MM
    • Gaming net revenue of S$583.9MM and non-gaming revenue of S$132.1MM
    • Hotel occupancy of 88% and ADR of S$317
    • USS average daily visitation of 10,300 and spend per visit of S$83
  • "Win percentage in the premium player market segment for second quarter of 2011 was significantly lower than the theoretical win and that of first quarter of 2011"
  • "The Maritime Experiential Museum will open in October 2011, followed by the world-wide debut of Transformers - a major blockbuster attraction in USS in December 2011...At the end of this year, we will add more luxury rooms at our high end West Zone...These accommodations, when fully completed by first quarter of 2012, will be highly complementary to our vision to be the playground for the rich and famous in Asia."


  • Maintained 55% of the GGR in 1H11
    • After 60% in Q1, we think share dropped to 48% in Q2
  • Had a hold % of 2.66%. RC volume was lower while the Mass market remained stable
  • Sales and market activities continue to ramp up
  • Focus will continue to be on premium customers
  • In the short term they remain cautious due to the recent market turmoil



  • Hold impact in the quarter? Theo is 2.8-3.0%, if they adjust then the EBITDA margins would have been 51%. Revenues would be 5% higher.
    • If hold was 2.9% revenues we estimate that revenues would have been S$39MM higher and EBITDA would be S$33MM higher
  • In their view the local Singapore market that is interested in gambling has already been tapped. In order to increase their Mass revenue they need to attract more international visitors. There are a lot more regional Asian flights coming into the Singapore.  More hotel rooms coming online over the next few years will also help grow the Mass market
  • Continue to see a lot of VIP players coming from abroad.  VIP players from Singapore are a small percentage of total VIP players
  • They are concerned on how the market crash in Europe and US will impact Asia, but so far there has been no impact on their business
  • VIP RC declined 13% QoQ
  • Win rate in the Mass market was consistent QoQ
  • There are no seasonal patterns that they can discern thus far
  • Think that the international markets will be a source of growth.  MBS has the advantage of more hotel rooms and the number of hotel rooms that surround their property compared to their property which has a location disadvantage
  • When do they expect some growth in the VIP segment? 
    • They believe that 2Q results were impacted by CNY which benefited the first quarter.  They are optimistic that they will do well on the RC chip side
  • Mass market EGT reconfiguration? 1,800 machines on site - by year end they will reach the max of 2,500.
  • There was some growth in slot revenue in the 2nd Q and believe that once the reconfiguration is complete there will be even more growth
  • No change in the commissions
  • Will have 550 table games by year end assuming they go to 2500 slots.  Currently they have 543 table games. Expect the mix of tables to remain 1/3 VIP and 2/3 Mass
  • Net gaming revenue  - 34% was VIP and RC revenue was 49% of their gross gaming revenue.
  • They are happy with the current commission structure and have no plans to change it in the near future
  • Market share of VIP turnover was - 52%
  • Where is the $60MM investment they made was in PP&E. The investment was not to offset any gaming debt
  • Mass & Slot share of GGR is around 51%
  • Mass market margins have remained the same QoQ
  • USS generates a lot of FCF for them once they are past the B/E point. For every extra 1,000 people they bring down it all drops down to the bottom line. Transformers will be a major attraction for them.
  • The new hotel will have 200 rooms which are very large. Will help grow the VIP.   Have about 120 rooms now that are "VIP". Will open by year end - but the villas will open in Feb/March 2012
  • If the interest rates remain low than the interest expense will remain low at these levels. Paying only 1.45%. Interest expense should stay at below S$30 
  • Credit extension has not been impacted by the recent global events. Don't expect to make any changes to credit policy
  • Cash spend on the Western Zone - S$600-800MM in the next 12-14 months. The S$500MM that was spent in 1H was for payment of prior completed capex
  • Will be repaying S$500MM of their term loan per year starting in 2012
  • Marine Park will open in mid 2012 and there will be no more major capex
  • Not all of their VIP business is from mainland China - a lot of Chinese live elsewhere
  • Total GGR market share for 2Q - 50%; the 50% share on handle and drop for Mass was 51%
  • Again, we think it was sub-50%
  • Number of casino visitors QoQ has been quite consistent 
  • Malaysian contribution to casino? Their visitation from Malaysia is still very strong
  • They are looking at further markets like Japan and Korea for marketing? There is no movement politically in Japan for gaming approval. They don't see gambling legislation moving too fast in Korea
  • Use of cash?
    • Looking at a number of projects that they don't want to discuss for competitive reasons
    • Hope to utilize that cash in the 12-24 months
  • 67% VIP RC share in the 2Q
  • Receiveables are growing is because the business itself is still growing. The receivable has been growing at a similar pace to revenue. Will have aging information at year end.
  • Roughly 95% of their gaming space is utilized
  • There is some overlap between the 2 IR customers
  • Has the Singapore market reached saturation?
    • MBS is always more optimistic than they are. They are working hard to build top and bottom line. Its still tough to know what the market growth will be going forward because there aren't any clear seasonal trends that have emerged. They are also more leisure oriented.

The Week Ahead

The Economic Data calendar for the week of the 15th of August through the 19th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.


The Week Ahead - b. cal

The Week Ahead - 8. cal2




Notable news items and price action pertaining to the restaurant space. 






University of Michigan Consumer Confidence was a BOMB this morning, coming in at 54.9 versus 62 expectations and 63.7 prior.




According to the Bloomberg consumer confidence index, sentiment dropped 1.5 points, to -49.1 for the week ended August 7; dropping back near its mid-May low and only 5 points from its all-time low. 





Retail Sales


Retail sales rose 0.5% in July, the largest gain in four months; excluding autos core sales grew 0.3%, down from the upwardly revised 0.5 June figure.  In July, growth was led by miscellaneous retailers, gasoline stations and electronics and appliance retailers.   On the down side were Sporting goods and hobby stores, department stores, and building supply stores.




Thank in large part to GMCR, the QSR category has performed strongly relative to its peers.  What we would call out here is the improving performance in Food Processing, a space that has been heavily beaten down throughout the recent phase of high levels of inflation in agricultural commodities.






  • WEN discussed the new coffee program at breakfast and a new prototype to drive sales during its earnings call yesterday.  Other than that, it wa just an OK quarter!  SSS for Wendy’s company-operated stores were flat sequentially on a 2-yr basis at -0.3%.
  • BKC SSS grew by +6.8% in Latin America and +2.2% in Europe, Middle East, Africa and Africa and Asia Pacific (EMEA/APAC) and declined by 5.3% in the U.S. and Canada.  BK has been testing smoothies, salads, parfaits and oatmeal at 100 locations.
  • PNRA was upgraded to “Buy” from “Neutral” at Miller Tabak.
  • THI was upgraded to “Buy” from “Hold” at TD Newcrest.


  • DRI has entered into an agreement with CMR, a Mexican casual-dining restaurant operator, to develop and operate Red Lobster, Olive Garden and The Capital Grille brands in Mexico.
  • EAT was downgraded to “Neutral” from “Buy” at SunTrust Robinson Humphrey.
  • BWLD was upgraded to “Buy” from “Neutral” at Sterne, Agee.
  • RRGB has named Stuart Brown CFO of the company, according to reports out this morning.




Howard Penney

Managing Director


Rory Green




Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.35%

JCP: Woof, Woof


JCP reported adjusted earnings of $0.13 coming in well below its own guidance as expected, but it ‘managed’ to come in above both our $0.07 and the Street’s $0.10 estimate on lower quality earnings (i.e. further SG&A cuts). In addition, the company is guiding Q3 lower, but instead taking full-year guidance down as we expected they simply pulled it altogether. So much for transparency. JCP continues to be at the top of our short list. Here are a few other callouts:

  • Sales came in down -1% and e-commerce up only +2.8% well below prior full-year double-digit growth expectations as expected. The company’s inability to drive top-line growth persists.
  • Gross margins came in down -110bps compared to company guidance calling for flat to up slightly and even below our down -50bps expectations. Margin pressure is clearly underway. In addition, JWN just highlighted that they have yet to see a squeeze from inflationary pressure, which is right in-line with our call that JCP is the most exposed in this regard.
  • Managing SG&A expenses is how the company ultimately got to its number. Expenses coming in down -2.5% compared to company expectations to increase “slightly,” saved the quarter from being a complete disaster. For reference, if the company maintained its investment schedule and increased SG&A by +1.5% as we expected, earnings would have come in NEGATIVE with EPS of ($0.01). Had JCP kept SG&A flat, EPS would have come in at $0.04. As we highlighted in our recent Black Book, the company has already cut expenses down to the bone. There simply isn’t much left for JCP to keep pulling from in an attempt to juice earnings on a go forward basis.
  • The sales/inventory spread was about the only positive I could find in the quarter with the spread improving on the margin while still planted firmly in the 'danger zone.'
  • As for guidance, the company guided Q3 to $0.15-$0.20, well below the street at $0.27E & they pulled full-year guidance altogether. The table below captures what the implied earnings would have to be in Q4 given 1H results and the high-end of Q3 guidance in order to achieve prior guidance of $2.15-$2.25 as well as where the full-year could shake our based on out and the Street’s expectations. In short, it’s not happening.


 Conference call at 9:30am


JCP: Woof, Woof - JCP Guid 8 11


JCP: Woof, Woof - Dept SIGMA 8 11


Casey Flavin





Last night RRGB reported 2Q GAAP diluted earnings per share of $0.44 versus $0.36 consensus.  On a non-GAAP adjusted EPS were $0.48, compared to adjusted EPS of $0.29 last year.  Importantly, Red Robin's company-owned comparable restaurant sales increased 3.1% driven by 4.5% increase in average check, which was partially offset by a 1.4% decrease in guest counts.


That was the good news.


On the conference call, management said “through August 7th, the first four weeks of 3Q11, same-store sales were up 0.5%; driven by a 5.8% increase in average check and 5.3% decrease in guest counts.  This compares to same-store sales being up 1.4% in the first four weeks of 3Q2010, which were driven by a 2.7% decrease in average check, more than offset by a 4.1% increase in guest counts.”


In my view, the biggest problem was that management used the macro environment as an excuse.  The roller coaster in US equities which has been down ~13% over 14 days of trading (over the last three weeks the VIX is up 44.1%, 26.7 and 36.3% (through Thursday), respectfully) as the reason for the decline in traffic.  The stock market is a discounting mechanism and is clearly, over the last two weeks, implying deep concerns about the future prospects of the U.S. economy.  For RRGB, though, the consumer has been impaired for some time and management’s clinging to the macro environment for an excuse is not convincing.


Declining traffic trends are always a concern and, while management is attributing this slowdown to the macroeconomic environment, we would contend that there is likely more to it than that.  It is unlikely that such a sequential deceleration in traffic can be entirely accounted for by soft macroeconomic trends.  The consumer environment has been challenging for some time.  The Bloomberg Weekly Confidence Index is only 5 points from its all time low.  On the other hand, gas prices have come down, albeit to still-elevated levels.  While the market plunge has definitely shook confidence, we do not believe it has caused the Red Robin consumer to stop bringing his/her children for a burger. 


The RRGB turnaround is progressing and management is forging ahead with acceleration in new unit development.   The decline in traffic trends overshadowed what was otherwise a strong quarter and this is a worry for investors going forward.







Howard Penney

Managing Director


Rory Green




I guess we were right to worry about FY12 guidance but this is well below what we expected. Don’t expect our estimate to go there though.



Meet and lower is what we expected, but not this much lower.  Below is management’s guidance for FY2012:


BYI: BAGS OF SAND - sandbags


“At least” $2.15 for FY2012?  Thanks for those two words of comfort.  While sympathetic to current BYI shareholders, we really like the setup for would be investors.  This is a complete sandbag – nothing less.  We scrubbed and scrubbed and we can only get down to $2.40.  Our guess is that the real guidance should’ve been “at least $2.40”.  And to throw salt in the wound – or icing on the cake for new investors – JPM slapped a downgrade on the stock this morning cause it’s now a show-me stock.  This stock could trade with a 2 handle this morning implying a 12x forward 12 month P/E on what we see as a bad case estimate.  Ridiculous but opportune. 


Look, we are pretty certain the gaming supply business will exhibit very strong long-term growth.  What’s really attractive about BYI though, is they have a near term growth driver beginning in the back half of FY12 the other guys don’t have.  I’m talking systems and it is visible.  So even if replacement demand takes another year or two to materialize – mathematically it has to at some point – BYI begins its growth cycle much sooner.  Please see our 8/3/11 note “BYI 4Q POSTVIEW” where we laid out the back ended loaded FY2012 and the systems visibility.


The quarter was actually decent and we didn’t see much in there that was disconcerting – one reason why we don’t buy into the $2.15 number.  Here are some observations from the quarter:


FQ4 Takeaways

  • Despite dire outlooks for the coming fiscal year, it appears that replacements were over 13k units this quarter – up about 20% YoY.  For the first half of the 2011 we estimate NA replacement units were 28.4k, up about 12% YoY while new and expansion units were down 31% to just over 5k units.
  • The only real disappointment this quarter was the low game sales margin for BYI and higher than expected SG&A.
  • For gaming operations at least, we know that licensed titles have about a 10% lower margin than in house themes, so the explanation of lower margins on game sales isn’t complete BS. Nonetheless, we have taken down our margin assumption for game sales in FY12
  • It looks like BYI garnered NA market share of about 18% - although we won’t know for sure until ALL reports – but 18% is a lot better than 14% the last few quarters, and that’s before a full game library is available for Alpha 2
  • Other quarterly observations:
    • Game sales :  North American units were a little better, international a little worse, pricing much better
    • Game Ops was spot in line with our estimate
    • Systems was above our estimate