In preparation for ASCA's Q3 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  •  Authorized the repurchase up to $75MM from time to time through Sept. 30, 2014 



  • “We’re operating right now in a rational promotional spending environment.”
  • “You can also see the tremendous stability overall in these margins, there is obviously some seasonality in the second quarter... and it’s most pronounced at Jackpot... The properties have very successfully managed to absorb increased volumes in the second quarter without an increase in controllable costs.”
  • “Six properties had year-over-year adjusted EBITDA growth with Black Hawk the only exception and there has been construction on the Canyon Road this summer that have had some impact on Black Hawk’s performance we believe.”
  • [Share count guidance] “We expect Q3 and Q4 in 2011 and all of 2012 to be approximately 34.5 million shares.”
  • “The credit facility side rates are generally compared to our previous bank facility at the time of its retirement. Despite an initial debt increase of over $500 million annualized interest, we expect it to increase annually only approximately $6 million pre-tax at current LIBOR rates.”
  • “On an year-to-date basis, approximately $156 million in year-to-date debt repayments have been made, including a $35 million payment that we made in July subsequent to the end of the second quarter.”
  • [Q3] “We estimate non-cash stock-based compensation expense will be $3.5 million to $4 million…. Capital spend will be in the $10 million to $15 million.  Net interest expense will be somewhere between $26 million and $27 million. Noncash interests expense to be $1.3 million.  The blended tax rate for the third quarter is going to be somewhere between 20% and 25%.”
  • “Including in Q4, we expect our blended income tax rate to be approximately 40% down from the 42% to 43% that we’ve been using again related to changes in our state tax allocation.”
  • “We expect to continue to generate significant free cash flow in the third quarter as shown by the $35 million debt reduction that took place in July.  We anticipate that for the quarter in whole we will be retained somewhere between $40 million to $45 million in debt; we’ll probably be closer to the $45 million number.”
  • [$12MM of corp expense going forward] “It might be just slightly less. I mean, we’ve obviously had some, as we defined in nonoperational expenses related over the last several quarters to the various transactions that we looked at and the stock buyback, but $12 million is a reasonable number to use.”
  • “To see improvements in gross revenue when operators are decreasing promotional giveaway dollars, which artificially lower the market revenues, I think you should look at it as a positive.”
  • [St. Charles bridge] “The bridge construction hasn’t started yet. It will probably start sometime late first quarter, early second quarter of next year.”
  • [Black Hawk construction] “There’s actually two projects going on. They were doing some sewer line work up close to our property in the city for a part of 2Q. They’ve now sort of reached a stopping point on that phase and will pick it up again in a few months and move it further down towards the bottom of the field leading into the city. But there’s a fairly long-term project to widen and straighten Highway 119, which is the road that comes up from the Interstate up into Black Hawk. And they’re doing the first portion of it over the next year and a half.”




"We saw strong RevPAR growth in the third quarter, especially at our owned hotels and those located in North America. In addition, performance at our comparable owned and leased hotels was strong, with margins expanding by 350 basis points. The significant renovations at five of our owned properties neared completion during the quarter and initial guest and meeting planner response has been overwhelmingly positive. We are enthusiastic about the anticipated long-term benefits of these renovations." 


- Mark S. Hoplamazian, president and chief executive officer




  • Hyatt House brand will replace their current extended stay brand.  Expect it to cost franchise owners less than $1MM to convert to this brand.  Getting good feedback from owners and developers.
  • Renovation at their 5 large renovation projects are going well and are on schedule.  Early indications is that the renovations will produce a large premium.  Most of the rooms are back in usage although there is still public, meeting and restaurant space under renovation; this should not cause any disruption to their results.
  • 1/3 of their group business and virtually all of transient has yet to book for next year
  • Corporate rate bookings are just starting and while they hope for high single digit increases, visibility is limited
  • Maintaining a strong balance sheet and liquidity is a top priority for them
  • Timing of the Jewish holidays helped them in the quarter
  • 3 cents per share of favorable tax rate
  • Changes of the rabbi trust benefits have no impact on EBITDA and EPS
  • Displacement from renovations impacted RevPAR by 200bps
  • 100bps of the margin improvement was due to non-operating items 
  • Higher margins on F&B and other revenues helped their owned and leased portfolio
  • North American mgmt and franchise business
    • Group - roughly flat revenues with slightly higher rate offset by lower occupancy
    • Continued to shift customer base toward higher rated business.  Mix shift had a positive impact on F&B
    • Continued to shift business from opaque and 3rd party challenges
    • F&B and ancillary revenues increased per occupied room
      • Banquet revenues increased 7% on a per group night basis
  • 50% of their fee increase was from new and ramping hotels and half was from same store hotels
  • RevPAR growth was negatively impacted by N. Africa and Japan.  China was negatively impacted by difficult comps from the Shanghai Expo.
  • International fees increased almost 4% ex currency - would be up 10% if not for Japan and Middle East
  • First 9M: Average rates are still 10% below 2007 in North America.  Transient occupancy is above 2007 levels though. 
  • Outside of NA, ADRs are still 5% below peak levels in the 9M ended 9/30
  • One third of the adjusted SG&A increase was due to higher bad debt, 1/3 due to higher headcount, 1/3 due to inflation and higher business levels
  • Tax rate: mid 20 range excluding discreet items for FY11
  • Higher D&A FY estimate is due to Lodgeworks
  • Higher Interest expense for FY11 is due to new debt issuance



  • Headcount increase does include the associates that came from Lodgeworks
  • Excluding one time items, SG&A is growing about 8%
    • Growth in headcount is demand base, wage inflation, merit increases, and increases in business activity
  • Park Hyatt NY: the developer has a defined price so there is no inflation risk to them. Looking at a 2013 completion date. 
  • Their investment portfolio has small strategic investments which will get wound down over time
  • 2012 capital investments will be lower than what they did in 2011 - since 2011 included 5 large capital improvement projects. 
    • Under $20MM of renovations for Woodfin properties, $70-80MM of maintenance
  • Owned and lease margins were due to property refunds (1/3 of the benefit)
    • Mix shift drives higher F&B and ancillary revenues and margins
  • Lodgeworks margin impact into their portfolio?
    • Just have a month of Lodgeworks in their results, but it should be accretive to their margins
  • They are bullish on NY in the long term. They have the benefit of 2 new Andaz property and the Hyatt they have is fully renovated and the other 2 are brand new product.
  • Europe: mid single digit in the quarter. Haven't seen any change in the recent weeks. Their presence in Europe is small - 5% of total room base (Germany, France, UK only).  
  • Extended stay - not seeing any significant change in length of stay
  • Share buyback as next round of lock ups expire:
    • They don't have a stock buyback plan
  • Use of cash?
    • Have commitments to several projects (NY for example)
    • Focused on enhancing presence in markets where they are not currently adequately represented
    • Looking at M&A opportunities (brand & M&A). M&A opportunities are to convert assets into Hyatt brands
    • Not really marketing properties for sale at this time 
  • There are large cities in the US e.g. Miami where they feel under-represented
  • A number of their hotels are still in ramping stages
  • Penetration with managed corporate accounts is rising with the growth in select service.  They are also seeing a web effect as they expand their market presence; they are also continuing to penetrate corporate accounts
  • Their comments re: peak RevPAR do not account for the shifts in their portfolio. 
    • So it's not really an apples to apples comparison since they have a lot more select service today



  • 3Q statistics (YoY):
    • "Comparable owned and leased hotels RevPAR increased 9.2% (6.9% excluding the effect of currency)"
      • "Comparable North American full-service RevPAR increased 7.1% (6.8% excluding the effect of currency)"
      • "Comparable International RevPAR increased 9.6% (3.4% excluding the effect of currency)"
    • "Owned and leased hotel operating margins increased 600 basis points" 
      • "Comparable owned and leased hotel operating margins increased 350 basis point"
      • "Owned and leased expenses decreased 4.3% ...Excluding expenses related to benefit programs funded through Rabbi Trusts and non-comparable hotel expenses, expenses increased 3.9%"
    • Capex
      • Maintenance: $22MM
      • Enhancements in existing properties: $72MM
      • Investments in new facilities: $4MM
    • Balance Sheet:
      • Debt: $1.23BN ($1.4BN of undrawn R/C capacity)
      • Cash & equivalents: $690MM 
  • 2011 information/ guidance:
    • Capex: $390-400MM
    • D&A: $300MM
    • Interest expense: $60MM
    • Opening of 35 hotels (including Lodgeworks acquisition)
  • "The Company added 26 properties during the third quarter of 2011, including 19 properties acquired from LodgeWorks"
    • Purchase price: $661MM 
  • "One hotel, Hyatt on Capitol Square, was removed from the owned and leased portfolio in the third quarter of 2011. The lessor of this hotel exercised a termination right"
  • "Selling, general, and administrative expenses decreased by 14.7%... Adjusted selling, general, and administrative expenses increased by 14.8%"
  • "As of September 30, 2011, [Hyatt had] executed management or franchise contracts for more than 150 hotels (or more than 36,000 rooms) across all brands. Approximately 70% of the projected new hotels will be located outside North America."


Retail: Here Come the Holidays


Here are some considerations headed into sales day tomorrow…


Let’s review the setup from a Macro level:

  1. While consumer confidence now starts with a 3-handle amongst a myriad of other reasons for concern from a Macro perspective, the consumer still appears willing to spend due in part to a notable drawdown in the collective savings rate to 3.6% in September from 4.5% in August. (positive near-term, negative long-term)
  2. Gross Personal Income compares are tough this month – as we’re going up against +4.0% compared to a previous run rate of about +3.3%. (negative point)
  3. The two main levers that account for the delta between Gross Income and Personal Consumption have offset each other for the most part.
    1. The consolidated personal tax rate is now at 10.9% vs. 9.5% this time last year. (negative point)
    2. The personal savings rate is now down to +3.6% compared to +5.4%.
    3. While both the absolute and yy change in unemployment has remained relatively stable at 9.1%, real wage growth has declined at a faster rate over the last two months through September down nearly 2%. (negative point)

    4. In looking at ‘Essential Spending’ (food, energy, healthcare), since decelerating to +2.9% in June it has increased every month since to +4.1%. (negative point)

    5. The balance of spending goes into the ‘Discretionary Spending’ line, which stood at +6.4% this time last year compared to +4.9% in September.
    6. In addition, consumer confidence is now at 39.8 compared to 49.9 last year.
    7. Based on our read out of POS data (NPD & SportScan), sales in October have increased sequentially from September in the department channel while weekly ICSC retail sales have held steady – one of the few positive deltas in the month. Though hardly representative of retail in aggregate, both athletic footwear and apparel decelerated sequentially as the month progressed.

The bottom-line is that we still think that there will be an increased bifurcation between upward and downward revisions in retail over the next quarter, and throughout 2012. During the month, we saw a few more retailers (CROX and CWTR) pre-announce lower while better positioned companies and retailers at the higher end continue to post strong results. While spending particularly at the higher end continues to remain healthy, the reduction in the personal savings rate remains one of the few levers left for the consumer to pull placing us in an increasingly precarious position heading into the 1H of F12. With prices at low-to-mid tier retailers not sticking, we would avoid exposure to what is becoming an increasingly more competitive battlefront in the domestic mid-tier market.



Casey Flavin



Retail: Here Come the Holidays - SSS Mo Seasonality 11 11


Retail: Here Come the Holidays - SSS CIS Table 11 1 11


Retail: Here Come the Holidays - retail sales  comps  PCE 10 31 11


Retail: Here Come the Holidays - unemployment 10 31 11


Retail: Here Come the Holidays - yy chg unemploy by education 10 31 11


Retail: Here Come the Holidays - FW and APP 10 31 11


Retail: Here Come the Holidays - CPI less impoat 10 31 11


Retail: Here Come the Holidays - TEU vs Retail 10 31 11


Retail: Here Come the Holidays - oct SSS preview 10 31 11




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Notable MACRO data points, news items, and price action pertaining to the restaurant space.




With all six companies reporting on the Hedgeye Alpha - Restaurant list we can report a 50-66% success rate depending on how you want to account for EAT.  The notable issues we had were on the short-side with bets against PNRA and BWLD.  We are going to be making changes to the ALPHA list in the coming days.  While we have not finalized the list yet, we still believe in BWLD on the short side despite having been early.  Although PNRA has significant challenges from a comparison stand point in 4Q, we’re not sure that is enough to cause a significant revaluation of the company given the momentum shown in the third quarter.  The other name on the short side was DNKN and we still hold a negative view of the company from a TRADE, TREND and TAIL stand point.  The implication of the announcement of the secondary offering is that Private Equity firms holding the stock are looking to book their gains.


On the long side, I still think MCD and YUM are going to perform ahead of expectations.





For the week ending October 28, 2011, the MBA purchased app index inched up 0.2% driven by an uptick in purchase applications. The purchase index increased 1.8% WoW; still well below year-ago levels.  The refinance index slipped 0.2%, but its upward trend is unchanged because of attractive mortgage rates.










The coffee sector was down on significant higher volume yesterday


PEET:  Peet’s Coffee reported another strong quarter, reporting adjusted EPS of $0.28 versus $0.27 consensus on the back of 14% revenue growth and flat EPS growth which was impacted by coffee costs which were up 53% year-over-year in 3Q versus up 26% year-over-year in 1H11.  The company is still on target to meet the higher end of the $1.43-$1.50 guidance range that it reaffirmed.


SBUX:  Starbucks is launching K-Cups this week.


DNKN:  Dunkin’ Brands dropped Goldman Sachs as an underwriter for its secondary because of a research note GS published today. 





TXRH:  Texas Roadhous is a name we have thought was a short and this was confirmed by the quarter they reported last night.  The company guided to 7% to 9% in food inflation for 2012.  The stock was downgraded to Neutral from Outperform at Credit Suisse.


RRGB:  Red Robin Gourmet Burgers is the latest casual dining chain to try its hand at a simplified, lower-price, limited-service concept via the crowded gourmet burger business.  The company plans to open a fast-casual concept with burgers, beer and wine called Burger Works.  We don’t see how this is good for the core business


CBRL: Cracker Barrel is fighting back against Biglari, the activist shareholder in their stock, with gusto.  Read the story here.





Howard Penney

Managing Director



Rory Green




In preparation for MGM's Q3 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.




  • Should poker legislation be enacted, and MGM Resorts would offer, subject to regulatory approval, an online platform that employs leading technologies and processes to ensure the integrity of the game and the security of player accounts and information.


  • Underway this week, the $160 million remodel includes all 3,570 guest rooms and 642 suites in the hotel's main tower and is expected to conclude by September 2012. The initial set of redesigned rooms will be complete by the end of November 2011.



  • “Tunica is now back on track and performing well.”
  • “We reported RevPAR up 10% due to a nice increase in short-term bookings and really strong demand across our portfolio.”
  • “Casino revenues were up despite the low hold that I talked about. Our hold was below our normal range. We didn’t do as well as we have been doing for many quarters internationally; we didn’t do well in April. But we had a really good quarter on our national rated play, second consecutive quarter of growth there."
  • “M life, has been rolling out with great momentum…we launched that on the strip here in January of this year and we’ve seen a nice increase in our active players and in trips in the quarter. Promotional spend, by the way, is down as a percentage of revenue largely due to more targeted marketing, more clever marketing from our perspective. We’re excited about this because next month in September we roll out all the non-gaming elements of M life into our regional properties. And then in the following month in October, we do the same thing here in Las Vegas. That will be the culmination of the full M life launch and with this rollout, we believe we’re going to see nice increases in the non-gaming revenues against even what we’ve been doing thus far this year”
  • “Depreciation and amortization expense will increase by approximately $85 million to $95 million per quarter as a result by the accounting adjustments for the consolidation of Macau”
  • “We are expanding further in Asia with our Hospitality division and they’re bringing the first hotel online literally this year in Sanya in Hainan Island.”
    • “Well on the management side… it doesn’t become substantial until we get into 2013 and ‘14.”


  • “The signs of the recovery here in Las Vegas is consistent; we’re going to see continued improvement as we move into the back half of this year and into 2012”
  • “We continue to expect to spend around $275 million in capital in 2011 which includes room remodel activity at both Bellagio and MGM Grand Las Vegas.  Bellagio’s room remodel program began on June 20th and will finish in time for the December holiday.  We have already turned two floors and the new rooms are receiving great feedback from our customers.  We expect we’ll earn up to an approximate $30 per night rate premium once these new rooms come on- line."
  • “We saw particular strength within the retail segment; or in other words, our FIT and leisure markets. And that led to additional increases in occupancy and in ADR and in fact June was surprisingly strong and was actually our biggest RevPAR growth month in the quarter, up in the low teens.”
  •  “Aria is seeing increased bookings in 2011 and beyond. Residential sales pace continues to be slow. However, we’re having a great deal of success with the residential component of CityCenter. To date, we’ve leased 346 units and we’ll produce total annual lease income of around $8 million.”
    • “On the win per unit slots at Aria, it’s up 9.4%. It’s $206 versus $188 a year ago.”
    • “We actually have 68% of our rooms booked for 2012 which is, as Dan pointed out, ahead of the pace we would normally expect and much better than last year.”
  • “Our booking pace is so far up quite nicely for the summer and really throughout the fall period as well. We expect RevPAR in the third quarter here in the Las Vegas strip to be up around 10%. We’re particularly encouraged in terms of second half of the year on our convention calendar, most notably the months of September and October; they’re exceptionally strong. And in fact, the third quarter convention mix is expected to be up about 300 basis points over last year’s mix.”
  • “We’ve seen zero impact to our call center. We’ve had no change in our cancellation activity at all. We had a very strong – we’re having a very strong August in terms of occupancy, great weekend trends; and I know it’s important to you, but we’re just in the real world living watching people coming to Las Vegas here, there has been no change at all.”
  •  “Our payroll is pretty flat, our expenses are up a little bit in terms of salaries, bonus accruals, the culinary contract. But in terms of any major cost savings beyond what we accomplished early and effectively, I don’t anticipate seeing anything significant. Every year we look to take costs out of our business. We do that in the January-February period as we get into a year; we’ll do that again. But at this point, we’re showing margin growth. We are seeing great occupancy across our portfolios. Our food covers are up; our retail sales in most every venue is up. Slot revenue is up and so I don’t see a need or even an opportunity to cut costs when our revenues are building”


  • “We opened the Platinum Lounge which is part of the main floor operation; that comes on the first phase in August… The upgrade for the in-house VIP customers, that’s now looking unfortunately we’re going to miss National Day holiday but we do have gaming capacity to cover that in late October, early November.”
  • “Philosophically, we have an under-leveraged asset today that’s generating a great return, but we want to grow that company nicely in Macau and Taiwan too if that should be a possibility.  So I would say that there will be an opportunity for both dividends to shareholders and growing in Macau, and I think that the future holds for both of them. But in terms of whether we’re going to do periodic distributions or quarterly distributions, we’re not prepared to discuss it at this time. We need to discuss that with our Board.”


This note was originally published at 8am on October 28, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“High absolute return is much more recognizable and titillating than superior risk-adjusted performance.”

-Howard Marks (The Most Important Thing, page 57)


I wasn’t short the SP500 until 326PM EST (1290) yesterday. I’d sold all of my long-term Treasuries (TLT) on Wednesday. I wasn’t short anything Commodities and/or European Equities…


So, yesterday could have been worse.


Where I got killed was in my long US Dollar position. The US Dollar Index was down huge (-1.7%), making a fresh low for the month as US stocks completed their biggest 18 day short squeeze ever.


Ever is a long time.


Like my “Short Covering Opportunity” call on October 4th, my “Buy The US Dollar” call on October 21st has a Time Stamp. While there were plenty of risks building a US Financial Services and Media firm in the 2008-2011 period, for me at least, one of them wasn’t showing you every position I take, when I take it.


Time Stamps are cool on Wall St 2.0 because they save you from having to take my word for it.


Back to the Global Macro Grind


Get the US Dollar right and you’ll get mostly everything else right – if that’s not obvious to someone who is confusing their “high absolute returns” yesterday (everyone nailed it, right?) with what we call beta, I don’t know what is…


Using our immediate-term TRADE duration to measure Correlation Risk, here’s a real-time update on the USD’s inverse correlations:

  1. SP500 = -0.97
  2. CRB Commodities Index = -0.88
  3. 10-year US Treasury Yields = -0.81

No matter where you go this morning, there it is. If you have been bearish on the US Dollar (and bullish on the Euro) for the last 3 weeks, you have absolutely crushed it.


If you’ve been levered-long beta since April’s YTD high in the SP500 of 1363, you’re still getting crushed. Over that time span, the US Dollar Index is up +2.7% and the SP500 is down -5.8%.


But today, all of what you’ve done for 2011 doesn’t matter to the market at all. Mr Macro Market doesn’t care about who is doing the crushing or who is getting crushed. She tends to inflict the most amount of pain on the most amount of players at the same time.


So, what do I do “right here, right now?”


I was asked that yesterday at a lunch meeting in Boston. My answer: “I finish our meeting then go to my next meeting. And if I see my immediate-term TRADE overbought level in the SP500, I’ll short it, for a trade.”


Then client then asked me, “at what price?”


I said, “I don’t know. I need to fire up my machine and remodel my volatility parameters for the draw down in the VIX and melt-up in the SP500’s price. I let my process tell me what to do, not my emotions.”


So, at 326PM, I hit the button, “shorting the SP500 (SPY) as it is immediate-term TRADE overbought.” Time Stamped.


What do I do with that position today?


Same answer. The risk management process will tell me what to do. All of my decisions are risk-adjusted to the market’s last price. In other words, Prices Rule my process. Period.


The SP500’s setup is now as follows:

  1. Immediate-term TRADE overbought = 1290
  2. Intermediate-term TREND support = 1257
  3. Long-term TAIL support = 1266

In other words, on any pullback towards 1257-1266, I’ll cover that short position and get longer of US Equity exposure. If 1266 doesn’t hold, I get shorter.


Currently, in the Hedgeye Asset Allocation Model, I have a 9% position in US Equities – that’s all in Consumer Discretionary (XLY). Obviously if I stay wrong on the US Dollar, US Consumption will be adversely affected by inflation. Strong Dollar = Strong America. So with Goldman telling you to chase beta this morning, remember what that implies longer-term – Debauched Dollar = Mad America.


If my long-term bullish case for the US Dollar doesn’t convince you of that – let The People. In the face of the biggest 4-week rally ever, Bloomberg’s weekly Consumer Confidence survey dropped to minus -51.1 versus -48.4 last week. Titillating.


My immediate-term support and resistance ranges for Gold (bullish TRADE and TREND again), Oil (bullish TRADE; bearish TAIL), German DAX (bullish TRADE and TREND; bearish TAIL), and the SP500 are now $1703-1756, $89.36-93.87, 6127-6428, and 1233-1290, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Titillating - Chart of the Day


Titillating - Virtual Portfolio

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