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PNK YOUTUBE

In preparation for PNK's 3Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.

 

 

$82 MILLION EXPANSION AT RIVER CITY CASINO IN ST. LOUIS (9/12/11)

  • Adding a 200-room hotel, a 10,000 square-foot event center and a covered parking structure to River City
  • Construction scheduled to begin in 1Q 2012 and will be complete in 2H 2013

 

 

YOUTUBE FROM Q2 CONFERENCE CALL

  • “Regarding customer spend, we are seeing improvements across all our customer’s tiers with higher increases coming from our top three tiers on our players program.  Across all our customer tiers, we are seeing a shift in revenue as the customer base has responded to our shift into focus on profitable revenue, not just revenue.”
  • “The corporate expense included roughly – just shy of $200,000 in severance costs, which we included in those numbers.  And there was some increased corporate overhead associated with some litigation – legal expenses, for a run rate basis for folks out there that are projecting us, somewhere between the first quarter and second quarter it’s probably a decent run rate to use going forward.”
  • “We had $10 million drawn on the facility at the end of the quarter, that it should reflect the lower cost going forward.  We obviously expect to use that facility as we look to build out Baton Rouge and build out River Downs sometime in the next year.”
  • “Trips to Wynn Las Vegas and Royal Caribbean cruises are being made by our guests in the top three tiers. All of these targeted marketing initiatives resulted in double-digit increases in both trips.  In addition to play consolidation and increased trip frequency, reallocation or reinvestment to reward higher value guests led to an 80 basis point decline in marketing expense as a percent of revenue year-over-year.  It’s important to note, and as I mentioned during our last call, the new construct of mychoice with its aspirational rewards will be net neutral to our overall marketing expense.”
  • “We still plan on opening our Baton Rouge facility in the summer of 2012.  We are still expecting that we will be at budget of $357 million, although there is some additional pressure on us due to the delay that we’ve had...If there was a change in that, at this point, we don’t believe it would be significant.”
  • “Marketing is an effort that we have focused on over the last year plus and we’re still in the very early stages of implementing that. That is our largest arguably controllable expense, and so that we very much agree that we’re still in the – at worst, the middle innings.”
  • “We don’t think that Las Vegas is a market today that it make sense for us to be in, and we couldn’t be more pleased with our relationship with Wynn Resorts, and how that’s working out for us.”
  • [Baton Rouge] “We have changed the mix of our casino floor, both with better slot product, with a new poker room that really just recently opened up in the third quarter.”
  • “So far in Baton Rouge has been about $51 million or so this year. The real spend will really start increasing now that we’ve started, and accelerating to the fourth quarter. I would tell you the number is going to be roughly about 75% of what we have left to spend, will happen in the next year.”
  • Q: “On a run rate going forward, we’re still talking $2 million, $3 million a quarter of cash charges related to Atlantic City?”
    • A: At most.

THE HBM: PNRA, YUM, EAT, RUTH, KONA

The most important meal of the day.

 

THE HEDGEYE BREAKFAST MONITOR

 

MACRO NOTES

 

The Conference Board Consumer Confidence Index declined to 39.8 versus expectations of 46.  The print is the lowest since March ’09.

 

THE HBM: PNRA, YUM, EAT, RUTH, KONA - confidence 1025

 

 

US MBA Mortgage purchase applications index gained +6.4% for the week ended October 21stwhile the total market index gained +4.9%.  These numbers compare to (8.8%) and (14.9%), respectively, during the week prior.

 

 

SUBSECTOR PERFORMANCE

 

THE HBM: PNRA, YUM, EAT, RUTH, KONA - subsector fbr

 

 

QUICK SERVICE

 

PNRA: Panera Bread reported strong 3Q results last night.  See our post from earlier this morning for details.

 

YUM: Yum! Brands’ acquisition target Little Sheep Group Ltd. dropped by the most in more than a year in Hong Kong trading after saying China’s Ministry of Commerce extended by 60 calendar days the review period of Yum! Brands Inc.’s proposal to buy the company, according to Bloomberg.

 

 

CASUAL DINING

 

EAT:  Brinker reported 1QFY12 earnings this morning.  EPS came in at $0.30 versus $0.27 consensus.  Comps at Chili’s missed, coming in at +1.7% versus the Street at 2.1%.  Blended comps came in at 2% versus consensus at 2.4%.  Restaurant operating margins, despite transaction growth at Chili’s exceeding the comp, came in 170 basis points ahead of expectations.

 

RUTH: Ruth’s Hospitality Group reported $0.00 in EPS for the third quarter.  Comps for Ruth’s Chris Steak House came in at 2.6% while Mitchell’s Fish Market saw a decrease of -0.7%.  Margins were negatively impacted by 120 basis point related to food and beverage costs.  Beef price inflation was the main driver, in addition to higher prices for dairy, oil and grain-based products.

 

THE HBM: PNRA, YUM, EAT, RUTH, KONA - ruth pod 1

 

 

KONA: Kona Grill reported a strong quarter, beating the Street’s expected EPS of 5c with a result of 6c.  However, the company, but lowered guided to EPS between -$0.01 to +$0.02. Marcus Jundt is returning to Kona Grill, having been appointed to the company’s board as former CAKE executive Michael Nahkunst was named CEO.

PFCB: According to thedeal.com, P.F. Chang’s is seeing interest from PE firms.  Per The Deal, Golden Gate Capital may be one potential bidder.

 

THE HBM: PNRA, YUM, EAT, RUTH, KONA - stocks 1026

 

Howard Penney

Managing Director

 

Rory Green

Analyst


PREVENTATIVE INCANTATION

This note was originally published at 8am on October 21, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“There is no cause for worry.  The high tide of prosperity will continue”.

-Andrew Mellon, June 1928.

 

Clearly, Mr. Mellon’s statement proved to be inaccurate and untimely. 

 

Fortunately for him, Irving Fisher stole the limelight with his immortal quote made days before the 1929 crash, “stock prices have reached what looks like a permanently high plateau”.  As John Kenneth Galbraith writes, in reference to Mellon’s statement, in his seminal work titled The Great Crash, “Mr. Mellon did not know.  Neither did any of the other public figures who then, as since, made similar statements…it is not to be supposed that the men who make them are privileged to look further into the future than the rest”. 

 

Later in The Great Crash, as Galbraith moves to discuss the weeks and days more closely preceding the ultimate stock market collapse of October 1929, he writes, “When markets fell many Wall Street citizens immediately sensed the real danger, which was that income and employment – prosperity in general – would be adversely affected.  This had to be prevented.  Preventative incantation required that as many important people as possible repeat as firmly as they could that it wouldn’t happen.  This they did.”  Here we are, in 2011, and important people are once again turning to preventative incantation.  This time, dare I say it, is different.

 

As the “roaring twenties” came back down to Earth, the informational resources that were available to Main Street were rather limited.  The New York Times, the Wall Street Journal, Barron’s and other legacy newspapers were the primary source of financial news for the vast majority of shareholders in this country.  Indeed, during the most volatile days of the period leading up the 1929 crash, the tickers in the New York Stock Exchange could not keep up with the real-time prices.

 

Today, ordinary people are increasingly on par with so-called important people.  Twitter, YouTube, and the acute desire for transparency are ensuring that this trend continues.  Yesterday’s most important geopolitical event highlights this point perfectly.  Muammar Gaddafi was dragged out of a sewer and killed by rebel forces in Libya after, in an ironic twist of events, pleading for mercy. 

 

One of his captors decided to make a digital recording of the event and, forty-five minutes or so after the dictator was executed, anyone in the world with access to YouTube could see evidence of the event on their mobile phone or laptop computer.  Not only could we watch an historic event unfold in just as timely a fashion as the Secretary of State, we could also see a clip on YouTube of Secretary Clinton being passed a phone with a message informing her of Gaddafi being captured.  Newsreaders in years past may have wondered, “I wonder what it was like?”

 

“The Veil of Ignorance” is a concept discussed by political philosopher John Rawls in his book A Theory of Justice to frame an unbiased determination of the morality of a certain issue.  Behind the Rawlsian “veil of ignorance”, parties to a debate on a social issue know nothing about their abilities, position in society or preferences.  A less sophisticated interpretation of the phrase could be that a veil exists between Main Street and the elites of Wall Street and Washington.  Movements like Occupy Wall Street and the Tea Party epitomize dissatisfaction with the status quo.  Social media is enabling democracy, however indefinite the aims of some groups may seem.

 

Social media is to democracy what the Bloomberg terminal was to finance.  Like the investors of the late 1920’s that had to wait until the ticker on the floor caught up with market prices, voters at the time were also deprived of the information flow that we are benefitted with.  Preventative incantations, in the US, Europe and elsewhere, are fact checked and debated by main streeters everywhere.  It has been said that deliberation is the essence of democracy and, if that is true, technology is the engine behind democracy today.

 

 I can’t claim to have visited Zuccotti Park to decipher exactly what it is that the Occupy Wall Street movement wants, but I would imagine that a higher jobs rate might assuage some of the dissatisfaction they are feeling.  Inequality is certainly a large theme of the protest, but a lack of jobs while corporate profits and cash balances remain so high seems to be central to what is causing discontent along all parts of the political spectrum. 

 

Chief Executive Officers, like politicians should be to voters, are accountable to their shareholders.  Growing profits and increasing shareholder returns are primary goals of any CEO.  Does it make sense, then, to leave so much cash on the sidelines earning little-to-nothing?  The easy answer is no, but most executives don’t want to risk the hard earned capital either.  So what is a CEO to do - wait and watch?  Here are some comments from CEO’s on the current economic environment:

 

Steve Wynn, CEO Wynn Resorts: “I cannot predict what healthcare costs are going to be, what regulatory load they are going to heap on us, what new taxes or other burdens this insatiable governmental appetite for money from the citizens will take us to.”

 

Paul Coghlan, CFO Linear Technology Corp: “Customers continue to be very cautious and are concerned over general global macro economic conditions. They acknowledge in-demand opportunities, but are in a wait-and-see mode. They're running tight inventories and order to the low end of our lead times.”

 

Stephen G. Newberry, CEO Lam Research Corp:  “Since our June quarter call, macro-economic uncertainty has continued, including concerns over European debt issues and ongoing struggles in the U.S. with high unemployment and a growing budget deficit.”

 

All in all, it is clear that neither the stimulus nor preventative incantations from American or European politicians are reassuring those that matter – the job creators.  Voters, too, can now see the impact – or lack thereof – of politicians’ lip service.

 

At Hedgeye we are trying to build a business that catches the wave of transparency that is changing how events unfold and are perceived. In 1929, political elites shifted blame and responsibility to each other with little fear of meaningful exposure, at least not in the immediate term. 

 

Today, their successors are not afforded that buffer.  In 1929, Joseph Stagg Lawrence’s book Wall Street and Washington, attempted to expose government policy and the impact it had on the prosperity of the nation.  Today, the same aim, if it is to gain traction, has to be synthesized within the construct of social media.  That is where Hedgeye is going. 

 

While hope is not an investment process, we hope that this time it is different.

 

Function in disaster; finish in style,

 

Howard Penney

 

PREVENTATIVE INCANTATION - EL Chart 1021

 

PREVENTATIVE INCANTATION - VP 1021


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Do You Believe?

“All money is a matter of belief.”

-George J.W. Goodman

 

If he was writing today, George Goodman would have thrived as an “economist” of The People. The competition in the land of Market Practitioner (money manager) turned Author is light. I think he would have crushed Paul Krugman, like a bug.

 

Best known for his writings under the pseudonym of “Adam Smith” when he first published one of the all-time greats on my bookshelf  “The Money Game” in 1968, Goodman went on to write “Supermoney” in 1972 and “Paper Money” in 1981. The similarities between the times of his writings (US Dollar Debauchery, US Debt Monetization, and Big Keynesianism) and today are glaring.

 

Let me re-state that – they are glaring to the non-willfully blind who would, of course, have to accept some level of responsibility in their recommendation. Much like history has forced Nixon, Carter, and their Fed Chief (Arthur Burns) to in the 1970s.

 

Do You Believe?

 

“Credit derives from the Latin, credere, “to believe.” Belief was there, the factories functioned, the farmers delivered their produce. The Central Bank kept the belief alive when it would not let even the government borrow further. But although the country functioned again, the savings were never restored, nor were the values of hard work that had accompanied the savings…” (Paper Money, 1981)

 

In that excerpt, Goodman was talking about The German Hyperinflation of 1923. Obviously a lot has changed since then, but the idea of the world’s largest man-made Money Printing Bazooka (ever) will be as alive as ever in the next 24 hours.

 

If you want to believe that the Swedes, Russians, and British aren’t already feeling the anticipated inflation associated with the centrally planned destruction of the Eurozone’s common currency, just go there… and ask them…

 

In the US, it’s already here. Only from the artist formerly known as an “economist” from The Goldman Sachs (NY Fed Head Bill Dudley) would you hear that talking up QG3 for a +9% one-day energy rip in the price of oil isn’t inflationary for those of us driving somewhere to eat something for our American Thanksgiving.

 

Thanking God’s Work for that…

 

Back to reality, what do The American People believe?

 

1.   US Consumer Confidence: after the biggest 21 day stock market and commodity inflation almost ever (which is a long time), US Consumer Confidence for the month of October plummeted yesterday to 39.8 versus the 46.4 reading when inflation toned down in September. To put that print in context, US Consumer Confidence in October of 2008 was 38.8! (see chart)

 

2.   US Institutional Sentiment: if there’s one certainty grounded in the Uncertainty of 2011, it’s that institutional investors are forced to suspend disbelief, often. BEFORE this 3-week, +13% inflation of the oil price, the II Bullish to Bearish Survey had a Bearish Spread of minus -12 points (bulls minus bears). AFTER the move, we have a Bullish Spread this morning of +2 points (40% Bulls versus 35.8% last week and 37.9% Bears versus 41% last week).

 

3.   Hedgeye’s Moves: we made the “Short Covering Opportunity” call on October the 4th and the “Shorting The SP500” call on October the 24th. Back-check, Fore-check, Time Stamped.

 

But never mind what we did when few wanted to pull the trigger … or what went on in Germany in 1923 … or in the USA in 1978. Those were lessons that history has offered to us – and our said leaders can ignore them at their own risk. The American Zeitgeist that no one can simplify is actually really simple – The People no longer believe that stock and commodity market inflations are good. Period.

 

Our 2011 Strategy: Growth Slowing. The Keynesian 2011 Strategy: More Policy.

 

The difference between our views and theirs is not that complicated. What is complicated is having The People believe in these ridiculous acronyms (TARP, EFSF, etc). So now, in the spirit of simplicity, the Obama Administration is mixing it up with ones that commoners and journalists alike can pronounce – like HARP (Home Affordable Refinance Program):

 

HARP is the next Policy Idea coming out of Washington that’s had the US Housing Index (ITB) trading with what The Bernank would call The Price Stability (ie +3% daily price moves in the stock market).

 

If you read into this Policy Idea, it’s effectively a short-term subsidy for losers, which will serve notice to the American Dreamers that their deadbeat neighbor can afford a shiny new car lease with his government handout. Or will they?

 

Our resident Financials and Housing gurus, Josh Steiner and Allison Kaptur, have boiled down the HARP 2.0 as follows:

  • It doesn’t really help consumers much at all
  • Consumers will be pressured into shortening the duration of the loan
  • Net-net, monthly payment flat when principle and interest is taken into account

OK. So what do you do with that?

 

The conservative, head down, American saver gets even more upset because every Policy Idea we come up with rewards leverage and losing. Meanwhile the policy itself doesn’t help the most delinquent Americans anyway!

 

Nice. Really nice. Can we get some more of that?

 

As the pretend American Capitalists of Adam Smith’s Invisible Hand spend the next 24 hours hoping and begging for the Heaviest Keynesian Hand offered to Global Markets ever, I’ll leave you with Goodman’s summary of what I think Americans Believe:

 

“… yet they had lost their self assurance, their feeling that they themselves could be the masters of their own lives if only they worked hard enough; and lost, too, were the old values of morals, ethics, and decency.” (Paper Money, 1981)

 

My immediate-term support and resistance ranges for Gold, Oil, German DAX, and the SP500 are now $$1, $88.62-93.67, 5, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Do You Believe? - Chart of the Day

 

Do You Believe? - Virtual Portfolio


THE M3: PAC ON; GALAXY CINEMAS

The Macau Metro Monitor, October 26, 2011

 

 

PAC ON TO BE MACAU'S MAIN FERRY TERMINAL Macau Daily Times, Intelligence Macau

According to the Infrastructure Development Office (GDI), the new Taipa Ferry Terminal will be completed in 2Q 2013 and have a capacity of 15MM passengers a year.  It will be the territory’s main maritime border crossing, Chan Hon Kit added.  When asked if the Taipa temporary ferry terminal (Outer Harbor Ferry Terminal) would be totally destroyed, GDI coordinator Chan Hon Kit said, " The temporary Pac On facilities will be important for the future construction of the permanent terminal. The equipment will be used in the new infrastructure."  Chan Hon Kit added there is still no decision on the future role what will be of the Outer Harbour Ferry Terminal, whose control the government is set to take back in December 20. 

 

According to IM, the closure of the old ferry terminal would impact the Golden Dragon casino (SJM-owned), Fisherman's Wharf, and Sands Macao.  IM says if Sands Macao gets pinched, it will make a big dent in the parent's profits.

 

GALAXY MACAU CINEMAS TO OPEN ON DECEMBER 15 Macau Business

The cineplex includes nine 3D-capable screens and up to 1,000 seats.  It was also announced that Galaxy Square will open alongside UA Galaxy Cinemas on December 15.  The 2,100-square-metre square will have a 19-meter-high atrium that can accommodate a stage and red carpet events, giant-size LED walls, a broadcast studio and a covered limousine drop-off area at the main entrance.



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 80.33%
  • SHORT SIGNALS 78.51%
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