In preparation for LVS's FQ2 2012 earnings release tonight, we’ve put together the recent pertinent forward looking company commentary.






  • "Our Four Seasons operations are evidence of our successes recently in the Junket area. We believe this is just the beginning of our ability to build the Junket segment throughout all LVS properties, be it Cotai or in the peninsula."
  • "But it's the mass tables that I believe present the most compelling case for the LVS investment in Macau. We will have over 1,000 mass tables before the year is out. Margins in this segment can exceed 40%, which is about roughly 3.5, four times the Junket segment and only we have the key components to the segment's success. One is capacity, which is a place to gamble, obviously; sleeping rooms, which we think are pivotal; and affordable food and retail. And the same attributes which drive mass tables also drive slot revenue."
  • "When we finish with Cotai Central, we'll have over 5,000, almost 6,000, slot/ETG positions. And contrary to opinion of 10 years ago, Asians do like slot machines and ETGs. We think someday this will be a very important market. Again, huge, huge margins and with our rooms and our ability to grow this market, we feel very good about it."
  • "We are the biggest driver of hotel rooms and we'll represent 40% of the market by the time 2013 comes to a close."
  • "We are looking at second-tier junkets, especially out of the North. We are looking to those upper provinces that have been underrepresented, the North and the Far East, and out of Shanghai because we think that's where the growth opportunities present themselves.
  • "We're 19% of the VIP market and 23% of mass gaming tables."
  • "There is a commission war happening in the peninsula in some of the second tier properties.  I don't think it happens in the major properties.  I think commission rates are pretty much, at this point, fixed. We upped ours a notch to get our competitive situation going.  We do bonus you in the back end, but we maintain a very healthy margin. I don't think it's a real issue at this point. Again, one of the problems is we'd like to have more tables, especially, obviously, Wynn, MGM, et cetera. I don't see them increasing commissions, nor would we. And so I don't think commissions are a material problem for the foreseeable future."
  • "I don't see it slowing, I think you're going to see junkets continue to grow."


  • "On the casino side, I would say Sunday through Thursday, capacity is not a problem. The problem comes in on weekends, high demand Saturdays and Saturday nights, Sundays, where you do have 85% usage on the slot machines and table games get maxed out...There's a couple of things you can do to address that. One, obviously you can change limits on the table side, which we do. We're very aggressive in the table limits. Two is we constantly move machines around to do a better job of providing the right machines because even 85% occupancy, in essence, you're sold out because maybe the remaining 15% aren't desirable to the customer."
  • "We have, at this point, no opportunity to add more rooms."
  • "I think more and more mainlanders will find their way to Singapore in the years to come. But again, I think the driver you must keep your eye on is the mass market has been the driver for the most part, the high end is certainly a wonderful place to be as well, but the two together have driven us so far to numbers we never anticipated two years ago. You also should be aware that the hotel runs 90% plus occupancy. The rates exceed US$300 a day. I believe that will continue to grow and grow."


  • "Our average cost of debt is, at the end of 2011 was about 3%. With the recently announced refinancing of our Marina Bay Sands credit facility, that number will go down below the 3% level."





  • "Not that we run our business for market share, but our re-affiliation with Macau's most important gaming promoters can help drive our market share above 25% or even higher in the future. I remember discussing this on a previous telephone call, that I expect that when our new relationships with new junket reps would bring us back to the mid- 20%s."
  • "The junkets we're seeing no issues on the collections side....Same thing on our direct business. We have no issues that we're concerned about whatsoever."
  • "I predict that we're going to outperform the market on the slot ETG."
  • [SCC] "I think I would look for VIP to start faster than mass, but then mass will catch up over time."


  • [Mass win per day]  "We're moving towards $5 million in my opinion. When that happens, I don't know, but I think it's achievable at the $5 million per day."
  • "Saturation point in yielding more on the [mass] floor? No."
  • "The foreigner percentage has increased to about 80%, which is very good because the foreigners come in with more money than the local Singaporeans."
  • "Our margins in rooms run about 83%, our margins in food and beverage close to 30%. The volumes continue to increase and our banquet margins are terrific. We have some pricing opportunities left there, of course. And we are managing our rooms in a way to maximize our room rates all the've got an 83% margin in retail as well. So all these nongaming areas represent significant margin, and they will continue to operate at that level."


  • "The anticipation is that the Sands China Board will approve in June the same dividend as was given out in the first
    quarter. Legally, the shareholders have to approve at the June meeting. The anticipation is that it will be an
    annual dividend given in two slots – one in February, and one in, I think, July."
  • "By the way, if and when we do lot 3 that will be an additional, an additional tables. It's not going to be moving
    around the tables that we have."


Buffalo Wild Wings reported 1Q12 EPS of $0.98 versus $0.95 consensus but missed on the top line.  We do not believe that management’s reiterated 20% EPS growth guidance will be met and, as such, are remaining bearish on the stock. 




1Q12 Company-Owned same-store sales came in at 9.2% which was below consensus of 10.7% and at the low end of the range of analyst estimates, according to consensus metrix.  The 9.2% comp in 1Q implies a sequential deceleration from the 12.9% same-store sales growth that management previously reported for the first six weeks of 1Q.  It is unclear how much of a benefit was derived from the weather benefit in 1Q and the extra day in February due to 2012 being a leap year.  Panera Bread also reported after the close and stated that 200 basis points of its 7.5% 1Q comp was due to the favorable weather conditions.  Gift cards also added 2% to same-store sales.


Revenue Outlook


Same-store sales during the first four weeks of 2Q12 have been growing at 6.7%.  Pertaining to the aforementioned impact of gift cards, it is worth noting that the impact of gift card redemptions tends to be seasonal – typically during the first couple of months after the holiday period.  As a result, we do not expect any significant impact from gift cards over the next couple of quarters.  Management's guidance of 6.7% for 2Q same-store sales, as the chart below highlights, implies the first sequential deceleration in two-year average trends since 4Q10.







The company managed to offset higher chicken wing prices by gaining leverage over Labor, Operating, and Occupancy costs through strong same-store sales.  Cost of Sales increased by 311 basis points as a percentage of Company Sales due to higher chicken wing prices and we expect that headwind to stiffen in the second quarter as wing price inflation is likely to exceed the level seen in 1Q. 


Margin Outlook


Decelerating same-store sales trends will make leveraging the company’s fixed costs at the restaurant level more difficult going forward.  Ultimately, wing price inflation is a known headwind among the investment community but our view is that same-store sales growth will not be sufficient in 2Q or 3Q to leverage fixed costs to the extent needed to fully offset that headwind.  Don Thompson, soon-to-be-CEO of McDonald’s, offered this insightful quote on the weather impact on his company’s top line and entire P&L:


The mild winter weather also benefited sales and traffic…this momentum helped offset some of the headwinds and margin challenges we're facing, due to pressures like commodities that we've mentioned before.


The question from here is whether or not the company can “manage through” elevated COGS in the next quarter. 





We think that Buffalo Wild Wings got out of jail this quarter.  The stock did sell off on the release but we believe that negative estimate revisions are still ahead and there is further downside in the stock.  If wing prices remain elevated, we believe management will be forced to revise full year guidance to the downside, also.


Howard Penney

Managing Director


Rory Green








In an effort to evaluate performance and as a follow up to our YouTube, we compare how the quarter measured up to previous management commentary and guidance.



OVERALL:  BETTER - IGT's quarter was strong and while gaming ops margins and international unit sales didn't live up to management's previous outlook, domestic unit shipments, international and domestic ASPs, and gaming ops placements more than made up the difference.


Here is the report card evaluating actual results against management's previous assertions. 

  • FY 2012 OUTLOOK
    • BETTER:  Raised guidance for adjusted earnings from continuing operations to $0.98 to $1.04 per share from $0.93-$1.03 previously, due to the Double Downs performance and better outlook on NA replacement market and international growth.
    • SLIGHTLY WORSE:  Gross margins were lower by 3% YoY and 1% QoQ due to higher depreciation and inclusion of interactive segment, even through IGT had indicated previously that it would improve throughout the remainder of fiscal 2012.  However, revenues and gross profit were better than estimates due to a higher number of placements.
    • From Q4 call:  "We are anticipating improving volumes and gross margin from our North American product sales over the course of 2012."
    • MUCH BETTER:  Units shipped increased 26% YoY, primarily due to a 32% increase in North America replacement units.  IGT recognized a lion's share of the Revel units and nothing for Ohio.
    • WORSE:  IGT had mentioned of mid-teens growth for their international business.  Units shipped grew 5.6% while revenues grew 11%.  However, 600 units were deferred.
    • From Q4 call: "We feel like it's headed north....And I think the way to think about it in terms of unit flow in total, on a consolidated basis is, a nice step up in the March quarter, and then kind of consistent in the June quarter."
    • BETTER:  Replacements were much better and IGT's language was more confident than previous call commentary.
    • SAME:  They still believe they have a mid-30s replacement share. 
    • SAME:  The first cloud trials are up and running across Europe.  Very focused on converting trials to commercial. US opportunity will be in late 2013-2014.  
    • SAME:  Repurchased $46MM in 2nd quarter.  Over the past 4 quarters, IGT has repurchased $100MM of stock, in-line with its fiscal goal. 

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IGT fires on all four cylinders: Unit sales, ASPs, gaming ops placements, and rev/unit/day were all better than expected.



“Every aspect of our business is providing a meaningful contribution to our strong financial performance. It’s gratifying to see the effort of our employees and the proficiency of our strategic investments generating eturns for our shareholders.”


- Patti Hart, CEO of IGT.




  • 1,000 unit growth in their mega jackpot footprint helped gaming operations growth continue for the 4th consecutive quarter
  • They got 18% floor share at SCC 
  • International business pace continues to accelerate with both quality and quantity of order flow
  • First Cloud trials are up and running across Europe
  • Double Down is accelerating gaming operations growth 
  • Expect that their financial results will continue to strengthen throughout the rest of the year
  • Gaming operations growth was driven by a combination of core business and interactive
    • For FY 2012, expect high-single digit growth in their install base and revenue growth in the low single digit 
    • Expect that GM will increase in the second half of the year and be up on a YoY basis, excluding Interactive\
  • Product sales
    • Expected continued growth in units (both domestically and internationally) and increases in ASPs
    • For the remainder of the fiscal year, they expect continued growth in units and average selling prices both domestically and internationally.  They expect gross margins to be at or slightly below last year's strong margin performance mainly due to product mix.
  • Anticipate returning at least as much cash to shareholders in the 2H12
  • Continue to sense increasing optimism from their customers
  • Raising their guidance, which includes the results from DoubleDown acquisition



  • Recognized the lion's share of their Revel units but not Ohio
  • A lot of the lease operations business (NY lottery and MD Live) just have lower yields and that's where a lot of the growth is coming from.  It's still good business for them.
  • International margins: expect that gross margins will strengthen as the year progresses (across the board and specifically in International (Asia Pac))
  • Focus for DoubleDown is to strengthen their product and expand their reach onto mobile platforms
  • They expect NA replacements to grow modestly (3-5%) for the rest of the year. There was nothing extraordinary in the quarter though.
  • Double Down accounting and integration:
    • They have drawn out the retention payments because they are currently not cash payments and they are temporary (for just the next few years)
    • Double Down contributed about 1 penny and expect that to be the case for the next few quarters as well
    • The point of breaking those out was to have analysts be aware of them and either treat them as an expense and therefore reduce the acquisition price or exclude them and include them in the acquisition price.
  • 15 cents of acquisition charges are predominately related to certain intangibles
  • So the high end of their guidance is just due to Double Down but the continuation of other positive trends that they are seeing
  • International ASP strength is partly due to moving up-market.  Focusing on locally tuned product - so they have been able to reflect the localization of content in the ASPs.  There was very little FX benefit this quarter.
  • SG&A? Expect $100-105MM/Q or 31-33% of revenue (which includes DD)
  • $35MM of Interactive revenue?
    • No comment
    • Next quarter will be the first full quarter of integration
  • The amortization of intangibles that they were adding back were only going to be amortized temporarily
  • There is nothing that reflects the Canadian VLT market in their current quarter.  It's really just strength in the US market.
  • Don't necessarily model 5,000 replacement units each quarter. 8,100 units is a good 6 month run rate for them.  Their stance on the replacement market is that it will be flat to growing with IGT getting a mid-30's share.
  • Gross margin for Double Down is a little skewed because of the way Facebook revenues come through.  The revenue growth is a little better than the margin growth.  So they expect stable DD gross margin and a pick up in other interactive margins.
  • They have not pursued their Cloud strategy in the US as of yet.  The US is really not going to happen until 2013/2014 given regulatory issues. Really focused on Europe for now.
  • Sex in the City is doing well internationally.  Dark Knight & Ghostbusters is also doing well for them internationally. Feel like they have a nice product sales line up in gaming operations.
  • They are not looking at any new acquisitions right now, but wouldn't comment if they were.  They are really focused in expanding their content distribution.
  • Asia is a great market for share pick up.  Latin America is more about new openings and some share expansion.  In the EMEA region, they are knocking on doors that they haven't knocked on for a while. 
  • Coming from mid-teens international shipshare but have their sights set on mid 20's
  • Update on Canadian VLT shipments?
    • Think that they may get some in September (maybe 1000 or so) but it's more of a 2013 event for them
  • The SCC units were recognized in the quarter.  Expect that Ohio units will be recognized in June.
  • To calculate the adjusted average yields, they have deducted the Interactive revenues from the numerator, divided by the same number of units.



  • Increased Adjusted EPS FY12 guidance to $0.98 to $1.04 per share
  • Gaming operations: 
    • Install base of 56,1k units and average daily revenue per unit of $59.09 (+5% YoY) --inclusive of interactive business
    • Gross margin decreased... primarily due to higher depreciation expense and the inclusion of the interactive businesses
    • Install base increase driven by NA and International lease ops
    • Excluding the positive impact from the interactive businesses, average revenue per unit per day in the second quarter was $52.34, up 3% sequentially but down 4% over the prior year quarter, mainly due to normal seasonality and a higher mix of lower-yielding units
    • DoubleDown Casino increased its monthly users by 24% to 5.6 million at the end of the March Q vs. December
  • Product sales:
    • Units: 10,200 
      • NA: 6,800 (5,000 replacement), up 19% YoY
      • International: 3,400 (flat YoY)
    • ASP: $15,8k
      • NA: $14.9k (+9% YoY)
      • International: $17.6k (+10% YoY)
      • ASP increase mainly due to a favorable mix of higher priced boxes, including G23 MLD and Universal Slant MLD boxes
    • Gross margin decreased...  primarily due to higher international non-standard manufacturing costs
    • North America product sales gross margin increased...due to favorable mix and lower non-standard
      manufacturing costs
  • Repurchased 3MM shares of stock at an average price of $15.43 for a total cost of $46MM

Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad?

Conclusion: Consumer confidence declined sequentially with a meaningful drop off related to the auto and major appliance sector.


Last week, we used a quote from Charles Dickens’ A Tale of Two Cities that started, “It was the best of times, It was the worst of times”.  Today’s consumer confidence seems to further exemplify the confused nature of the U.S. economy.  At 69.2, consumer confidence for April decreased 0.43% MoM, more significantly it was down -1.43% from March’s unrevised number of 70.2. The indicator has increased 4.8% YoY, yet it is still far from signaling a healthy economy, which would require a reading of at least 90. Consumers’ confidence have not reflected a strong economy since December 2007, at a level of 90.6. The average confidence reading for 2010, 2011, and 2012 YTD is 54.49, 58.13, and 67.95 respectively. April’s statistic is the second consecutive decline since a level of 71.6 in February (which was the highest data point since February 2011).


Although there were some segments within the index that experienced positive movements, largely the outlook does not appear favorable.  The measure of those who believe business conditions are “good” increased from 14.3% to 15.3%, yet those who view the business conditions as “bad” also increased from 33.2% to 33.5%.  Those expecting the business conditions to worsen rose from 13.7% to 14.2% and the measure of consumers anticipating the business conditions to improve dropped from 19.3% to 18.8%.  Consumers viewing jobs as “hard to get” declined from 40.7% to 37.5%, however those stating jobs are “plentiful” contracted from 9.0% to 8.4%.  The outlook that there will be fewer jobs in the months ahead fell from 18.5% to 18.0% as did the opinion that there would be more jobs, which decreased from 17.4% to 16.9%.  The fraction of people anticipating a raise from their current employers decreased from 15.5% to 14.0%.


The proportion of consumers expecting business conditions to improve over the next six months declined from 19.3% to 18.8% and consumers who believe business conditions will worsen increased from 13.7% to 14.2%. Consumer confidence in major appliances decreased 14.05% MoM and 15.01% YoY, and consumer outlook in the automobile industry was also decisively negative.  Some of the readings contradict each other, swinging from slightly positive to slightly negative, yet it is evident that the slow paced “recovery” is definitely not increasing its pace based on the latest consumer confidence measure.


Daryl G. Jones

Director of Research




Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? - consumer


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? - ConCof.hist


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? - ConCof.YoY


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? - ConCof.bus


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? -


Consumer Confidence . . . Cautiously Optimistic Or Relatively Bad? -



BYD beat our expectations and we were way above the Street.  Forward guidance was once again overly conservative and we're surprised investors haven't caught on.  


"Our first quarter results were led by strong performances at our operations outside of Nevada, with double-digit EBITDA growth at a majority of these properties... Looking ahead on a Companywide basis, we expect that the positive performance we posted in the first quarter will continue."


- Keith Smith, President and Chief Executive Officer of Boyd Gaming




  • Business continues to move in the right direction, and we expect this momentum to continue for the remainder of the year. 
  • Confident the IP will continue to perform at a high level in the coming quarters, and think that ultimately acquisition price for them will be well below 7x
  • The majority of our properties in the region posted double-digit EBITDA gains
  • In AC, Borgata benefited from better YoY hold comparisons.  Cash ADR was up over 5% and cash rooms sold were up over 4% in April.  F&B was also up YoY.  They also saw better visitation - so for now there has been no impact from Revel.  Expect that it will take a few quarters to see the real impact of Revel.
  • Focused on deleveraging the balance sheet by growing EBITDA and FCF to pay down debt.  The IP transaction has been deleveraging so far.
  • Gained share in the Midwest and South
  • Las Vegas Locals: Both table game drop and coin-in were comparable to last year’s levels.  Temporarily increased marketing expenses to test a few programs targeted at their lower tier customers, which turned out not to generate any flow through.  Results were impacted by low table game hold at the Orleans and Gold Coast that was below last year’s levels and impacted EBITDA by > $1MM.  On a positive note, trip frequency continued to grow and is at the highest level in three years.  Looking ahead, they expect steady EBITDA growth.
  • Downtown: Have about 1/3 market share.  F&B set a record at Freemont, but the flowthrough is small on F&B. Negatively impacted by $750K of additional jet fuel expense.  Lower YoY table hold also impacted EBITDA by about $1MM.  Rated play increased YoY driven by continuing strength in the Hawaiian segment.  Saw double digit increase in rated guest counts during the Q, which are now at their highest levels since the recession began. Excited about the long term impact of the 'Renaissance' in the Downtown area
  • Midwest and South: Saw increases in visitation and spend per visit.  Their two LA properties saw record coin-in levels in March.
  • In AC, poker grew by $1MM YoY and Borgata accounted for ~50% of the poker market
  • BYD: Debt $2.55BN; $1.6BN drawn on R/C with $175MM available. Cash was $122MM.
  • Next maturity is April 2014 ($216MM) which they expect to refinance prior to the debt going current
  • Secured leverage: 4.0x vs. 4.5x max and total leverage was 6.5x vs. 7.75x max
  • Borgata: Debt: $814MM ($22MM O/S under the $75MM R/C) and Cash: $34MM
  • D&A expense included $4.8MM associated with IP
  • Interest expense was ~$3MM higher than last year due to valuation adjustments related to purchase accounting at Borgata
  • Capex: $15MM at BYD and $17MM at Borgata
  • 2Q Guidance:
    • Wholly owned EBITDA: $90-95MM
    • Borgata EBITDA: $33-35MM
    • Adj EPS: $0.06-$0.10



  • Very modest LV Locals growth
  • February 22% market growth # reported for Boulder Strip benefited from higher YoY and higher promotional spending (so bought revenues).  When you strip those 2 factors out what you really had was very modest to flat YoY revenues for that region. 
  • Las Vegas macro signs improving—more demand for big-ticket items, and increase in sales tax receipts.
  • IP: BConnected will be live next week. Sees better margins in future quarters.
  • Don't think that Margaritaville will have an impact on them in MS
  • It's tough to determine how long the environment in the locals LV market will continue to be this promotional. 
  • Expect that the summer will be very robust.  You probably won't see the promotional pick up in spending until the fall. Really hard to say.
  • The higher end of their rated play is where they continue to see the most strength.  That segment continues to grow at a very healthy pace.  The lower end segment- is much more impacted by the economy and individual situations in Las Vegas.  Outside of LV, they are starting to see growth in lower end rated play and even better unrated play. They have gotten better at putting loyalty cards in the hands of their players.  There are less and less unrated players.  You can only stay at their properties and remain unrated for the first time. 
  • Weather - in 1Q, they definitely had better weather conditions this year which likely helped their Midwest & South results.  But last year, they had another benefit so it was a wash.
  • Continue to monitor the Echelon situation- still think it's 3-5 years away before they do anything with that land
  • Regarding their CA tribal investment - they hope to have something to announce before year-end but it's just a work in progress now
  • Their guidance does include some impact for the Revel opening but they don't expect it to be material in the quarter. It also includes some heightened marketing expenses to make sure their customers keep visiting.
  • Orleans has the lowest % of locals business - roughly 50/50.  Gold Coast and Sam's town skew more heavily local. Especially Gold Coast - 70/75%.  Sun Coast is 95% locals. 
  • Interest expense: Borgata's interest expense at about $20MM per Q is a good run rate. At BYD $160-165MM is a good run rate.
  • Guidance for corporate expense and D&A given last quarter hasn't changed
  • Borgata: Guidance of -12% at the midpoint for the year. 1Q did have a hold benefit.  They are trying to put out an achievable number.
  • Regarding M&A, they are looking at more deals like the IP that are complementary to their existing asset base.  Wouldn't want to buy an asset that they couldn't improve the performance at. 



  • "On a same-store basis, net revenue in our wholly-owned business grew for the fourth consecutive quarter."
  • "We were particularly pleased that the IP was accretive to EPS during the first full quarter since we acquired it, generating significant EBITDA growth even before most synergies have been fully realized. These results were only a preview of the IP's full potential, and show the tremendous value of this acquisition."
  • "In Atlantic City, Borgata contributed significantly to our positive results as the property reinforced its position as the leading resort in the market, posting substantial growth against heightened regional competition. While it is early, we would note that we have not seen any meaningful impact on Borgata's business from the opening of a new competitor. Looking ahead on a Companywide basis, we expect that the positive performance we posted in the first quarter will continue."
  • Las Vegas Locals: "Business volumes remained steady year-over-year; however, EBITDA was impacted by slightly elevated expenses associated with targeted marketing programs, as well as lower year-over-year table game hold at several properties."
  • Downtown: "Revenues rose for the fifth consecutive quarter, driven by strength in our Hawaiian customer base. However, EBITDA was impacted by higher fuel expense associated with our charter service."
  • Midwest & South: "Growth in EBITDA was broadbased, led by strong performances at Delta Downs, Treasure Chest and the IP. The region also benefited from revenue growth at most of our properties and continued efficiencies in operations"
  • IP: "The gains in EBITDA on lower revenues reflect more effective marketing programs, the initial benefits of efficiency initiatives, and more productive overall management of the property. We expect continued improvements at the IP in the quarters ahead, as we fully realize the benefits of anticipated synergies and the impact of our cross-property marketing program, B Connected, which will be rolled out early next month."
  • Borgata: "The gains were driven by increases in table game hold percentage year-over-year, as well as increased non-gaming revenue. Improvements in non-gaming revenue were led by our hotel business – which posted increases in both occupied room nights and cash ADRs – as well as growth in our food and beverage business. Borgata also benefited from greater overall operating efficiencies, including lower customer reinvestment"

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