• run with the bulls

    get your first month

    of hedgeye free


AMZN: Buying On Sale

Keith doing some bargain hunting on AMZN. There’s clearly a lot of warranted concern about the cost side of the house. But when we see the market beat up a company with blue-sky growth opportunity that is investing in future, we get interested. Tack on a bullet proof brand name, huge barriers to entry, and the conceivability that incremental Retail Sales over the next 10 yrs could = AMZN’s sales growth, and we get downright excited.  The stock is a long way from its $191 TAIL line of support.

AMZN: Buying On Sale - AMZN 10 26 11

Booking It: SP500 Levels, Refreshed

POSITION: Long Consumer Discretionary (XLY), Short Consumer Staples (XLP)


After a 30 handle drop in the SP500, I’m booking it.


That doesn’t mean I’m bullish. It doesn’t mean I’m bearish. It doesn’t mean I can’t re-short it either. It just means that we’re holding my most immediate-term TRADE line of support at 1217.


Across our 3 risk management durations, here are the lines that matter most: 

  1. TAIL = 1266
  2. TREND = 1254
  3. TRADE = 1217 

So the intermediate-to-long-term picture still supports selling all rallies that extend themselves toward 1. And, until the immediate-term TRADE is no longer bullish (1217 support), I’ll respect whatever it is that the market sees coming next. As the Keynesian central planners have proven in the last 3 weeks, anything can happen.


If 1217 snaps, there is no support to 1182. So that’s where you’ll see me get as active as I was up at 1258. I’m comfortable being neutral right here and now with 1 Sector ETF on each side.




Keith R. McCullough
Chief Executive Officer


Booking It: SP500 Levels, Refreshed - SPX


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



"Our conviction [is] that the value of our company is set to rise with an unprecedented and seemingly unstoppable growth in the ranks of a new class of affluent global business and leisure travelers.  This major secular trend will continue to fuel demand for our brands well into the future.”



  • “Occupancies have now reached the point where we expect rates to rise further, and as you expect, higher revenues mean higher margins
  • “With supply already tight in the U.S. and Europe, we foresee strong rate increases not just for the rest of this year, but also for corporate rate negotiations for next year.”
  • “Our leisure business is doing quite well as high-end guests fare better than the economy as a whole.  The strength of our business will mean less inventory sold through costly channels such as OTAs.”
  • “Tour flows steadily improved up 4% and for the first time in nearly four years, realized price increased.  Our vacation ownership team continues to do a stellar job driving sales and generating cash from the business.  We expect more of the same for the coming years.”
  • “Our outlook for the rest of 2011 is robust with solid group and transient pays and with good prospects for rate and margin.  In line with our baseline scenario, we expect REVPAR growth of 7% to 9% in 2012. We’re sticking to our 2011 EBITDA range to of $975 million to $1 billion and I should add that’s in spite of asset sales, which will reduce full-year EBITDA by about $20 million.  We’re also raising our EPS range to $1.67 to $1.77.  We have maintained the outlook range we first provided late last year despite a $25 million to $30 million EBITDA hit from the unexpected events in North Africa and Japan and an additional $20 million in lost EBITDA from asset sales completed in Q2 which were not included in our outlook”
  • “At this point, there is no discernible impact on our business from the much-discussed soft patch in the U.S. economy or the debt limit shenanigans in Washington.  Transient revenue pace, both corporate and leisure, is up double digits in Q3.  Leads are up, group pace is gaining steam and booking windows are lengthening.  So far in July, the momentum of the second quarter has been sustained.  As we’ve said before, rate is a make or break variable this year.  Rate trends are improving as occupancies enter the 70s percent.  Like you, we remain on high alert for any signs of a change in trend.  Since we do not see any evidence of that, our outlook assumes the normal cyclical recovery we have been experiencing in lodging will continue”
  • “The Euro crisis has not impacted our business so far in Europe which is one of our strongest regions in the quarter.  In local currencies, system REVPAR in Europe was up 12%.  Rate was up 5.1% and occupancies up 4.5 points.”
  • “Tour flows have improved while close rates are stable.  Mixed management is improving price realization. Default rates continue to improve and are now back to 2007 levels.  We expect these trends to continue.  We remain focused on cash flow generation with a securitization plan in the fourth quarter.  SVO will generate over $150 million in cash this year and over $700 million in total in the last three years.”
  • “Our SG&A declined in the quarter.  This is partially due to lapping incentive compensation accruals from last year.  We also had some legal expenses last year.  These positives were offset by higher cost of non-U.S. overhead due to the weak dollar.  For the year, we continue to expect a 4% to 5% increase.”
  • “We are more comfortable with the middle of the EBITDA outlook range rather than the high end where many of your estimates currently are.”
  • “On the fee front, North Africa and Japan hurt 2011 management fees by as much as $18 million or the reduction of almost 300 basis points in year over year fee growth.  Two-thirds of the impact is on incentive fees and most significantly in the fourth quarter when these fees were anticipated.  As such, our Q4 fee growth rate will be lower than the trend we have seen in the first three quarters.  Some of this impact is offset by favorable currency translation due to the weak dollar of 200 basis points positive for the year.”
  • “At Bal Harbour, construction is proceeding on schedule.  We’re also on track to receive our TCO in Q4. Our plan is to start closing in November.  Meanwhile, the sales pace is good this year, particularly from Latin-American buyers. Square foot rates realized on new sales are at pre-crisis levels and deposits are much higher, more than 40%. We expect that there will be revenue profits and cash from Bal Harbour in the fourth quarter as we start closings, which are not currently in our outlook.
    • “We’re approaching close to 60% of the value that is already on the contract, and the value we provided you before is north of $1 billion in terms of the condos.  Now there will also be a hotel there that we intend to keep.  We have got deposits already for many of the sales done prior to this year in the 20% range and then more recently our deposits have been much higher than that…more than 40%.  Our indications are very good that the closing rates will be high… The good news is the square footage rates we’re selling at right now are at pre-crisis level….It does vary depending upon the units, but it’s well north of $1,000 and could be north of $1,300 and $1,400 depending upon the unit.”
  • “We expect that ratings will move probably toward the end of this year or into next year and our priority is we have maturities next year, roughly $600 million in public debt as well as there’s some debt on assets which is a small amount, maybe another $50 million or so that can be pre-paid.  So there’s about $615 in prepayments and in repayments that we can make next year.  So our priorities remain, as we’ve said before, healthy reinvestment in our business, reducing our debt levels, and then, of course, returning cash to shareholders”
  • “The group pace in 2012 continues to improve particularly as you’re seeing the booking window lengthen.  Today, it’s still volume driven.  Rate is marginally positive, but as Frits mentioned in his comments, rate on newly booked business in the second quarter was up 9% and for periods beyond 2012, we saw rate increases closer to 13%.  Another interesting thing that we saw during the second quarter was a pretty big shift in percentage of business being booked more than 12 months out.  So we saw very strong pickup in terms of the business being booked for 2013 and beyond.”
  • NOLs: “There’s a fair amount of work underway that we’re comfortable that we will use most if not all of it before the end of the year and essentially be able to realize the value as asset sales are done in the future”
  • “We see a market for 1s and 2s as we’ve been doing, but not a market for a mega sale”


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




  • 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




  • “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 most important meal of the day.






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.





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





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.





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


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.