Today’s upgrade of BWLD (by an analyst that made a superb call downgrading the company right at the top) centered on the conversation about chicken wing prices turning from “higher prices” to “lower prices” and the impact that would have.  In the same paragraph, in highlighting the sensitivity between the year-over-year change in wing prices and EPS, the report reminded us of the truth: cents per pound do not matter as much as year-over-year inflation for BWLD earnings.


Another notion supported by the upgrade was that egg sets and chick placements are lapping last year’s decline and, therefore, are likely to be supportive of moderating wing prices.  That may be true but, pertaining to BWLD; the question is whether or not it will come soon enough to save 2Q.  For two reasons, we do not think it will.

  1. Egg sets will likely not increase, year-over-year, until the last week of the second quarter even under aggressive assumptions. 
  2. Even if we are wrong on #1, the actual supply of chicken does not influence the market for two months.  Egg sets being placed today reflect chickens that will hit the market in the last days of 2Q.  Demand in the summer months is also expected to be strong, according to SAFM. 

Conversation about chicken wing prices moving lower will not change the likelihood that BWLD misses 2Q as costs increase as a percentage of sales and comps decelerate sequentially.  As the chart below illustrates, as of 4/20, the leading indicator of supply – egg sets – is declining ~5% year-over-year.  We expect that line to remain negative through June.


BWLD & WEEKLY COMMODITY MONITOR - egg sets wing prices




Overall, proteins moved lower last week while grains, dairy, and coffee moved higher.  Beef prices were hit by the BSE news but it seems that the livestock disease “firewall” in the U.S. food system was effective.  Larry Hollis, beef veterinarian at K-State, commented on CattleNetwork that the particular strain of BSE that was detected in the animal in question is unlikely to involve any transmission to another animal or consumers.  The condition did not, apparently, arise from any feed but rather was naturally occurring and the “firewall” procedures in place worked well to identify this one instance. 


Coinciding with the concern around “pink slime” or Lean Finely Textured Beef, the news was certainly not positive for beef prices.  The market today seemed to reflect a degree of stability in beef prices.  Japan, Canada, and the European Union today said that they’ll continue to import American beef.






















BWLD & WEEKLY COMMODITY MONITOR - chicken whole breast









Howard Penney

Managing Director


Rory Green





CROX: Conference Call Puts & Takes

CROX beat both the high end of guidance and the street by a nickel in Q1 and despite guiding below consensus for Q2, reassured investors this evening on the call that revenues would grow 15%-20% in F12 and earnings would exceed the current street estimate of $1.43.


Below are the key deltas relative to forward looking commentary given on the 4Q11 conference call as well as key takeaways from this evening’s call.



Key Deltas Relative to the Fourth Quarter Call



Financial Guidance (Headed into this evening’s call):


"For the first quarter of 2012, we expect to generate revenues in the range of $263 million to $268 million with EPS estimated in the $0.24 to $0.26 per share range." Both Revenues and EPS exceeded Guidance at $272mm & $0.31 respectively


"We expect gross margins to be consistent with last year and foresee an increase in our effective tax rate to 24%. Currency estimates used for the quarter are $1.32 U.S. dollars to euro and ¥77 to the U.S. dollar." Gross Margins improved 70bps YoY


"However, as we enter into 2012, the backlog for Europe is down versus the same time last year. " Europe revenues were down 3% (+2% FX neutral)


"Moving on to bookings, we ended the quarter with backlog of $307 million, which represents about a 19% growth rate over last year. The 19% increase is on top of a 57% increase from a year ago." Backlog currently stands at +11%

"Of the backlog, orders for Q1 deliveries are up about 18% to $190 million. Orders for Q2 deliveries are up about 21% to $117 million. ASPs in our backlogs are about $18.71 compared to about $16.50 last year." Q1 ASP increased 11% to $19.22




Updated Guidance (Provided on this evening’s call):


“Moving on the guidance for the second quarter of 2012 we expect to generate revenue in the range of $335 million to $345 million.” (Note: Consensus: $352.7)


We estimate EPS (for 2Q12) into $0.63 per share range, currency estimates used for the quarter are $1.31 to Europe and 82.5 Yen to the U. S dollar.” (Note: Consensus: $0.65)


“We still expect full-year sales on a currency neutral basis to increase 15% to 20% over 2011. We pleased with the increase backlog growth in the America and Asia.”


“Based on where we are today, we feel comfortable that we will exceed the current first call diluted earnings per share consensus of $1.43 for 2012.”




2012 Store Additions (Headed into this evening’s call):


"In 2012 we plan on opening 25 to 50 stores in Asia" On Track


"Retail locations in Europe are expected to increase by 20 to 25 in the year. Our focus in the 2012 retail expansion will be to expand stores in northern Europe where our stores are presently concentrated in countries such as Germany, UK, France, Finland and the Netherlands. " Planning 25-35 openings in Europe


"We have identified and will open additional sites in the U.K., France and Germany in the second quarter with plans to open 20 to 25 new stores, bringing our total count to 55 to 60 by the end of 2012. In total, we anticipate opening between 80 and 100 net new stores globally in 2012." On Track


"Our (wholesale) door count is up modestly in 2012 with expansion to all Kohl's locations for men's and kids products." Continue to gain shelf space and expand doors


"In 2012, we will be closing about half of our remaining 50 kiosk locations in the USA Some of these will be converted into stores within the same shopping center but some centers will be exited all together. Moving forward, changes in our retail formats and portfolio of stores will periodically result in certain one time expenses. We expect this to impact Q1 EPS by $0.01 to $0.02 which is included in our guidance. For the full year 2012, we anticipate opening about 25 to 50 stores in the Americas before the kiosk closings." On Track- closed 11 kiosks in Q1 which impacted EPS by $0.01




Key Takeaways from the conference Call


Recap of the Quarter:


Revenues: +20% (+21% FX neutral, FX impacted Q1 revs by $4.3mm)

  • Comp: +10% (FX neutral)
  • Americas: +9%
  • Asia: +9%
  • Europe: +21%
    • Growth broad based w/new introductions representing 38% of Q1 sales
    • Non clog silhouettes made up more than half of quarterly volume
  • Top performing platforms:
    • Daily Collection
    • Women's flat & wedges
    • Duet sport line
    • cross mesh series
  • Americas: +17% (+18% constant currency)
    • Retail: +25% (driven by larger locations, product breadth, ASP growth and positive comps)
    • Internet: +28%
    • Wholesale: +12%
  • Asia: +40% (+39% constant currency)
    • Japan: growth enhanced due to tragedy last year which resulted in a $3mm delay in sales
    • Retail: +46%
    • Internet: +57% (small base last year)
  • Europe: -3% (+2% constant currency)
    • Wholesale: -7%
    • Retail: +52%
    • Internet: +3% 
  • GM +70bps
    • Benefitted from leveraging infrastructure cost and improved economics of new product launches



Store Count at End of Quarter:

  • Americas: 190 locations
    • Closed 11 kiosks and remain on track to close 20-25 kiosks this year
  • Asia: 211 stores
    • On track to open 25-50
  • Europe: 38 stores


Product Performance:

  • Clogs represented 49% of sales
  • New product intros were 38% of unit sales
  • ASP +11%
  • Unit sales +8%



  • Up 11% overall
  • Americas: +12%
  • Asia: +18%
  • Europe: -13%
  • Q2 backlog: +11%
  • 2H backlog: +11%




  • 2Q12 Revenue: $335-$345 (currency will negatively impact sales by 3% in Q2)
  • EPS: $0.63 (assumes $1.31 USD to Euro)
  • Assumes 22% tax rate
  • Continue to expect full year revenues growth of 15%-20%
  • 1H performance remains on track with Q1 outperforming and Q2 slightly below expectations
  • Comfortable that CROX will exceed current F12 consensus of $1.43


Additional Forward Looking Commentary


  • Global internet expansion in Japan, Korea, Holland & Brazil slated for completion later this year
  • Expect FX impact to begin in Q2 (55% of business overseas)
    • Expected to impact Q2 revenues by $10mm or 3%
  • Plan to open 25-50 stores in the Americas in 2012
  • Plan to open 25-50 stores in Asia in 2012
  • Plan to open 25-35 stores in Europe in 2012
  • Globally, expect to open 80-100 net stores


Q&A Rundown:


Expectations for 2H

  • Crossover between Q1 and Q2- first half performance expected to be inline with expectations
  • Q1 & Q2 revs combined are more inline with 1H consesnus
  • Bottom line will be anywhere from $0.01-$0.03 ahead of 1H expectations coming out of Q2
  • More revenue will be driven by direct channel in 2H
  • Expect favorable Gross Margin trends with backlog ASPs up $4


Backlog: +11%

  • Main weakness in 2H
  • 2Q bookings above last year so positioned to execute on the "at once" business
  • Q3 and Q4 deliveries are up but slightly lighter on Q4 deliveries at this point
  • In some markets, have not booked orders for Nov and December deliveries
  • Will give an update on Q4 bookings at investor day at the end of May
  • Q4 component of backlog is less important, currently represents ~20% of backlog
  • Q2 and Q4 are typically more "at once" weighted quarters vs. Q1 and Q3


Retail Comps:

  • Converting half the remaining kiosks into full price retail stores
  • Comp performance benefited from Easter shift
  • Get more difficult in 2Q reflecting Easter Shift and the Japan Tragedy compare in Q1
  • About 1/3 of comp in America/Asia driven by units, 2/3 driven by price


Inventory positions:

  • +10% QoQ and YoY, have adequate outlet channels built up to work through inventory levels if necessary
  • Quality of inventory in Europe and the US and manufacturing facility in Mexico well positioned to capitalize in Q2


Gross Margin puts & takes:

  • Benefited from expansion of new product and leveraging COGS infrastructure
  • Controlled products costs in the Q controlling both labor and product costs as well as streamlining the design process to mitigate excess costs 

CROX: Conference Call Puts & Takes - CROX SIGMA


Huge EBITDA quarter that got over $100MM boost from high hold




  • 40% of annual retail sales are done between Thanksgiving and Christmas. 
  • Will open PH2 of SSC in mid-September
  • Singapore:
    • Mass win per day increased to $4.7MM/ day
    • RC was up 26% YoY
  •  There will be no additional concessionaires in Macau
  • On a daily basis they are always shuffling around their gaming tables in Macau to improve table yields
  • The government committed to give them 400 tables and gave them 200 additional tables so far
  • Spain: They are current planning to build a property over the course of 9 years.  The first phase will cost $8-12BN. 25-35% of that will be equity. So the most that they will have to lay out is $4BN. They will no look at any investments where they don't think that they can make a cash on cash return. Equity goes into the first phase only and then phase 2 is financed with earnings from Ph1.
  • SCC: Only product opening in the next 3 years
  • Lot 3: can hold 3,600 rooms. They are applying to the government to build there. 
  • Galaxy is going to announce a non-gaming hotel and exhibition center for Ph2


  • Spain: They are the point where the Board of Directors will opine on a decision. Negotiations are continued with Barcelona and Madrid.  Then there needs to be various legislation set once a location is picked. Thinks that the tax rate will be 'highly' favorable compared to other jurisdictions.
  • Junkets in Singapore? 
    • Junkets reps in Singapore: Cannot share commissions with anyone else - so it takes away incentives to get players. Secondly, they can't give credit. In Singapore, they are really just international marketing representatives.
    • Their field representatives can bring in customers and get paid for bringing in customers
    • They don't see any value in the Junket model of Singapore since MBS already has 100 people that have a similar function working in house
  • Hold impact in Singapore: 200 day moving average was 2.85%
    • By our quick math it was about $80MM.
  • There is no cannabilization in Macau.  Supply creates demand.
  • Impact of CNY in Singapore? 
    • Definitely helped in the quarter, but its hard to estimate seasonality since their operation is fairly new
  • Margins at FS? 
    •  Are these low 20's margin a good run rate? Retail operations decreased by $13MM sequentially so that impacted margins.
    • They did have bad mix on their RC vs. RevShare business and that cost them $10MM. Should have normalized profit of 4x of that in 1Q11.
  • Retail value of their assets is so great that they could pay off all of their debt
  • Unless there is a change to the way the regulations in Singapore are written, they don't see any reason to use the junkets there. Basically junkets are neutered by the law there.
  • They are lobbying the governments in Japan and S. Korea to get the legislation drafted and to get a piece of the action.  There are elections in both countries this year.  They are also looking at Vietnam and Taiwan.  Most governments want to follow the Singapore model.
  • In Spain they will have committed financing before they put a shovel in the ground.  They will not repeat what happened in the past. They are not dependant on the Asian player coming to Spain.
  • Sheldon has recused himself from voting on dividends
  • SCC what's open:
    • Opened all the rooms aside from one junket room- which should be open by May
  • Will start renovations at the Venetian Macao.  The new rooms that they are building are very nice.
  • 3.05% is their 200 day moving average for Macao and Singapore VIP 
    • Even so there was a huge hold benefit this quarter.  We also wouldn't use a 200 day rolling average across 2 separate markets to calculate the "base" hold rate.  We use each properties' historical VIP hold rate to adjust our numbers and calculate impact
  • Given the duopoly nature of Singapore, it almost guarantees them good YoY growth for many years to come



  • "We expect to realize additional benefits from our initiatives in the VIP segment in the future, as we roll out additional enhanced VIP facilities and service offerings throughout our property portfolio in Macao."
  • "As Singapore's complementary business and leisure tourism offerings and transportation infrastructure continue to expand, we are confident that Marina Bay Sands will continue to generate outstanding returns for our company."
  • In Las Vegas:
    • "Table games drop was up 27.8% during the quarter reflecting strong baccarat play." 
    • "Stronger group meeting and convention business during the quarter drove a 4.9% increase in cash hotel ADR."
  • "The property's 300-room hotel tower opened on May 27, 2011, and contributed $1.9 million of room revenue during the quarter ended March 31, 2012. The hotel, together with the addition of the retail mall, the first phase of which opened in November 2011, and the events center, which will debut in May 2012, should contribute to future growth of both gaming and non-gaming offerings at the property."
  • "Company's retail malls at The Venetian Macao, the Four Seasons Macao and Marina Bay Sands in Singapore reached $71.1 million for the first quarter of 2012, an increase of 27.3% compared to the first quarter of 2011. Operating profit derived from these retail mall assets increased 25.2% for the quarter to reach $55.2 million."
  • "Pre-opening expenses, related primarily to Sands Cotai Central ...increased to $51.5MM" 
  • "Capitalized interest was $22.1 million during the first quarter of 2012"
  • "Corporate expense increased to $49MM... primarily driven by higher legal fees."
  • The impairment loss of $42.9MM was million related to the closing of Zaia at Venetian Macao.
  • Balance Sheet items: 
    • Unrestricted cash: $4.06BN
    • Restricted cash: $7.3MM
    • Debt: $9.9BN
    • Principal payments (mostly Singapore): $352MM in 2012 and $543MM in 2013
    • Redeemed all of 6.375% Senior Notes due 2015 at a total cash cost of $193.2 million in the Q
  • 1Q12 Capex: $398MM
    • Macao: $305MM
    • MBS: $62MM
    • LV: $22MM
    • PA: $9MM

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In preparation for BYI's FQ3 2012 earnings release tomorrow afternoon, we’ve put together the recent pertinent forward looking company commentary.




  • "Game sales and gaming operations are both performing very well, even better than our expectations, with the ALPHA 2 games getting an excellent reception in the market and a strong pipeline of new games."
  • "Revel in Atlantic City allocating over 20% of the floors to Bally's products."
  • "Our North America replacement unit sales were up 22% over the same quarter last year, which marks the second consecutive quarterly increase in replacement sales for Bally. In fact, we estimate that North America industry replacements were up 5% to 10% during the second half of calendar 2011, while our replacements were up 23%."
  • "During the quarter, sales of the Pro Curve exceeded our expectations, which contributed to the higher than expected ASP, but impacted our gross margin percentage. We do not expect similar growth in ASP's over the next few quarters due to anticipated product mix."
  • "The Pro Curve drove some good ASPs. Just looking at the mix coming forward with Revel and some of the new openings, I think you'll have more of a mix towards our Uprights and Slants, which is more reminiscent of the prior two quarters."
  • "We continue to expect margin percentages to improve slightly over the balance of this year although this expectation is dependent on product mix.  Based on forecasted reductions in material costs on each of the Pro Series Cabinets, we expect to approach 48% to 49% over the next several quarters."
  • "In terms of moving forward and ultimately getting to that 48%, 49% margin, there's a couple of things, part of that is volume-based, part of it is raw material-based. As you can imagine, our procurement department has a pretty good forecast say over the next six months for what they're going to be able to decrease the raw materials by and part of it is where we are in the product cycle."
  • "Our progress in Australia has been slower than anticipated mainly due to product approval delays. Our games operating system was approved by regulators in New South Wales during the quarter. The initial games we have placed in Australia so far continue to perform well. We continue to expand game sale systems and recurring revenue opportunities in various countries in Asia including Cambodia, South Korea and the Philippines. Among new domestic opportunities, Illinois deserves particular mention where we are making great progress in terms of positioning ourselves very well for the upcoming expansion."
  • "We shipped a portion of the units for partial 5 and 6; they're staging some of those units. So some now, a few more in Q3."


  • "The margin on gaming operations was within our expected range at 72%."
  • [Italy] "We seem close to receiving approval for our systems products for one of our concessioners. Approval for systems products is a requirement for placing games in Italy.  However, future approvals for other concessioners could face more delays due to new regulatory requirements that have come up recently. Please note that there is minimal revenue expectations from Italy in our guidance for the remainder of fiscal 2012. However, we continue to carry the costs associated with entering this market. We expect Italy to be an important market for us in the long-term."
  • "We… think Italy will be slower than we thought 6-9 months ago and probably somewhat less profitable to us just given these time delays. So we'll kind of keep you posted as that – as that happens but I think we are looking at Italy today less optimistically as a profit generator than we did a year ago."
  • "We expect Grease deployments to get started towards the end of fiscal Q3 and Michael Jackson in Q4. We remain optimistic about these games based on the overwhelmingly positive feedback received so far from customers and players."
    • "If we reach a level of 700 or 800 games in six to nine months we consider that a good rollout. We don't know what these games are going to do, but we don't see any reason why we can't get to those levels.  In terms of cannibalization because Bally doesn't have a very big WAP footprint, just over 1,000 games – much smaller than some of our competitors, we think that the likelihood of these games cannibalizing our existing footprint is lower than our typical gaming ops games and also given the unique branding characteristics, which has not been in our recent history. So, again we would expect the cannibalization rate to be lower on both Grease and Michael Jackson."
    • "I'd say today, it's probably about 55% to 57% fixed.  The rest variable but with Grease and Michael Jackson I'd expect that dynamic to change over the next 12 months."


  • "The outlook for our systems business for the coming years remains very positive with a good backlog in pipeline and growing acceptance for iVIEW DM."
  • "A string of exciting installations coming up all across the world is going to make this calendar year a very exciting one for Bally systems. Virtually all of them involve products like iVIEW DM and the Elite Bonusing Suite setting up these products for a crucial breakthrough phase. We expect these installations to create a significant pull for the products going forward. Please consider the following."
    • "One, we have more than 1,600 DMs installed recently at Mohegan Sun." 
    • "Two, another customer is all set to run a world record slots tournament across 1,000 games powered by iVIEW DM."
    • "Three, one of the most successful operators in the south east is just going live with DM and the Elite Bonusing Suite across the floor."
    • "Four, a new East Coast site is getting ready to open with all our cutting edge products creating instant player excitement."
    • "Five, we expect a Southern Nevada site to go live with iVIEW DM and EBS during the coming months."
    • "And six, the next six months we'll see big installs featuring all our key products all across the globe, in New Zealand, in South Africa, in Canada, among other places."
  • "Canadian systems opportunity and Sun International are some larger opportunities.  We expect to begin recognizing go-live revenues from those contracts starting sometime this summer and running for two years to three years. So those are not in this year's forecast."


  • "Overall, our outlook for the rest of this year in fiscal year 2013 and 2014 is very promising."
  • "During the quarter we repurchased approximately 330,000 shares for $10 million and have approximately $111 million remaining under our Board authorized share repurchase plan."

AAPL: Pay Attention iConomy!

Let’s not even attempt to tear into the AAPL quarter. High quality print from the highest quality company.  The stock is > Keith’s $606 support line, which is very bullish if it holds. However, anyone that debates that this is a high expectation stock is smoking something. But let’s look at the double-helix that is Apple’s growth-setting expectations. The iConomy should be aware of this.


Let’s look at how expectations have changed over time. Specifically, we can YouTube the following factors…

a)      Expectations for a given quarter 4 months prior to the print (ie before guidance is given)

b)      Actual guidance given by the company for a given quarter.

c)      The haircut/upcut that the Street applied to such guidance (ie the Consensus numbers 4 weeks ahead of the print)

d)      Actual EPS


Before yesterday, there had been only one quarter (4QFY11) out of the past 10 when the company took down estimates >10%, and that was by 13.7%.  But when all was said and done, the Street came in 30% ahead of guidance. AAPL printed 1% below that.


With this print, the company took down expectations by 15.2%. That’s now 2 quarters out of 10 where expectations were taken down greater than 10%. Regardless, over the past 10 quarters, AAPL has exceeded its own guidance by an average of ~50% as well as expectations 1 month prior to the print by an average of ~30%. For AAPL to keep their expectation-beating trend in place, we’re going to need to see an EPS number next quarter just above $13.





AAPL: Pay Attention iConomy!  - AAPL SIGMA


AAPL: Pay Attention iConomy!  - AAPL TTT


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



OVERALL:  BETTER - You wouldn't know it from the stock action but HST more than delivered in Q1 and forward commentary remained positive.  Guidance was raised.

  • 2012 GUIDANCE
    • BETTER:  HST raised RevPAR guidance by 1%, EBITDA guidance by $20-30MM and Adjusted FFO by 4 cents
    • BETTER:  Stronger demand has driven group bookings up 7.5% YoY for the remaining three quarters.  ADR is up 2% and recent bookings were up 8%.  Transient bookings also continue to run well ahead of last year's levels and suggest strong rate growth.  
    • SAME:  Reiterated a growing investment pipeline and expect further transactions later in 2012. 
    • SAME:  The disposition of the San Francisco Airport Marriott at $113MM is in-line with its guidance of $100-115MM for the 1H of 2012.  
    • SAME:  2012 comparable hotel adjusted operating profit margins is expected to increase 50 bps- in the middle of HST's previous guidance range of 25-75 bps.   
    • SLIGHTLY BETTER:  Most of the markets' REVPAR expectations came in as expected.  Atlanta outperformed in 1Q with 2Q looking rosy as well.  
    • SLIGHTLY BETTER:  European JV REVPAR (in constant euros), excluding the Sheraton Roma, came in at 4.8% in 1Q.  Even though this is within the company's previous guidance of 3-5%, HST had mentioned that they were more conservative with the REVPAR assumptions at the corporate level. The Westin Europa & Regina in Venice, the Sheraton Warsaw, the Sheraton Skyline in London and the Paris Versailles all had double digit RevPAR increases 1Q.
    • SAME:  The $48MM spent on redevelopment and ROI capital projects is on schedule with HST's plan to be an active recycler of capital in the next 2-3 years.  HST expects to spend $150-170MM in 2012 for these capital reinvestment projects.  

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