Lin-Life Support

LINsanity is on life support.

Modell's NYC

Lin-Life Support - 8 1 2012 12 37 27 PM


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




  • WORSE:  A pretty big miss and back half numbers look like they are coming down.  Margin improvement stopped this quarter as ASCA has pretty much gotten its costs as low as they can go.  Consumer is under pressure to some extent and July faces a difficult calendar comp. 





    • LITTLE WORSE:  Capex estimate increased to $560-580 million (includes $32.5MM purchase price to Creative) from at least $500 million previously.  The new estimate included additional F&B amenities and higher % of new gaming machines vs old.  Target opening of 3Q 2014 remains on track.
    • PREVIOUSLY:  Completion: 3Q 2014/ Capex: >$500MM (minimum investment requirement)


    • SAME:  ASCA took control of the property in May.  Demoltion and site grading was also completed in May.
    • PREVIOUSLY: "In Springfield the demolition and site grading are almost complete. We expect to take control of the property by the end of May." 


    • WORSE:  Increased competition drove ASCA Kansas City 2Q EBITDA down 13% YoY
    • PREVIOUSLY:  "I think another quarter or two and we'll start to get a more stabilized trend line of what things are going to look like, but we're very encouraged by the strength of our Kansas City property. We've always said it's the best quality property in the market, it's the furthest away from the competition and I think we're going to do just great."


    • Worse:  While management was cautious during their Q1 call they definitely noticed a downtick in Q2
    • PREVIOUSLY:"I don't think consumer confidence has seen a huge boost... They've had lower utility bills this year versus last year where they've had a little bit higher gasoline prices. Employment is changing in some respects in some of the markets. But I think ... people are still being a little guarded with how they're spending. I don't see long-term trend lines developing yet."

CRR: Feeling The Pressure

We’ve been bearish on CARBO Ceramics (CRR) for a few weeks now and last week’s earnings confirmed our concerns over demand for ceramic fracking proppant in the energy space. The stock sunk from $83 a share to $68 a share and has continued to sell off since then.


Hedgeye Energy Analyst Kevin Kaiser sees further contraction in CRR as ceramic proppant becomes more commoditized. We doubt that CARBO Ceramics can continue to trade at a 12x multiple on forward P/E as the downfall continues. Like other players in the energy space, CRR needs to lower guidance for the back half of 2012 and into 2013 as margins decrease and proppant costs come down. Looking at the chart below, you can see what the future holds for CRR.



CRR: Feeling The Pressure - CRR peforward

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.


Volatility in Q2 regional performance continues. ASCA margins stopped going up, finally.



"The combination of new competition, construction disruption and a pull-back in consumer discretionary spending impacted the quarter."


- Gordon Kanofsky, Ameristar's Chief Executive Officer



  • In St. Charles, they had some floor disruption from a systems upgrade underway.  
  • Just lapped the opening of Des Plaines in July so comps should get easier going forward
  • Jackpot hotel rooms were completed in July and should really complete the competitiveness of the property.  Highway repavement should be completed by September 20th.
  • Kansas City and Jackpot basically accounted for the entire downside in the Q
  • Through Q3, they will be able to fund capex through FCF without drawing the R/C
  • Lake Charles funding:  50/50 between FCF and revolver
  • Springfield:  demolition and site grading completed in May 2012


  • Promotional environment:  pretty choppy economic conditions; will move along with customer spending habits
  • Massachusetts timetable:  legislation is not being rushed.  Pre-qualification stage will be later in 2012.  Late 2013/1H 2014 is estimated license selection time.
  • Springfield referendum will take place some time in 2013.  City is currently getting some guidance from the gaming commission.
  • Lake Charles project:  hurdle rate of 15%; after Lake Charles ramps up, confident they will exceed that.
  • Consumer trends:  a little deceleration at end of 1Q/beginning part of 2Q but has stabilized somewhat; consumer will continue to be cautious in the short-term.
  • Lakes Charles capex:  $560-580MM vs +$500MM previously is apples to oranges.  The $500MM is the minimum investment requirement; the $560-580MM includes the $32.5MM purchase price to Creative.  The updated capex guidance involved the addition of some F&B amenities and opening up with more new gaming equipment than used, and some maintenance changes.
  • July:  worst comparable month of the year from a calendar perspective (e.g. July 4 unfavorable timing, extra Sat/Sun last year)



  • "Our Black Hawk property was a notable contributor to the consolidated margin as it produced the best quarterly financial performance in its history"
  • "We are pleased with the progress made on our casino hotel spa development in Lake Charles, La. Within the last two months, we received the necessary regulatory approvals, completed the acquisition and commenced construction." 
  • "We believe the slower growth in consumer discretionary spending adversely impacted our top-line results."
  • "New competition continued to adversely impact our Kansas City and East Chicago properties"
  • "Net revenues at our Jackpot properties decreased... due mostly to the combined effect of road repaving on Highway 93 between Twin Falls, Idaho and Jackpot and a hotel renovation that was completed in late July 2012." 
  • Ameristar Lake Charles: 
    • "The cost of the project (including the purchase price) is expected to be between $560 million to $580 million, excluding capitalized interest and pre-opening expenses. We anticipate funding the project through a combination of cash from operations and borrowings under our revolving credit facility. We expect to open the resort in the third quarter of 2014"
  • Cash & equivalents: $135.5MM; Debt: $1.9BN
  • Total Net Leverage ratio: 4.99x vs. 6.5x covenant
  • Capex: $20.3MM
  • Outlook for 3Q12:
    • D&A: $26.5-27.5MM
    • Interest expense (net of capitalized interest): $29-30MM (includes non-cash interest of $1.4MM)
    • Tax rate: 40.5-41.5%
    • Capex: $75-80MM (including $31.5MM due for the purchase of Creative and $30MM on design and construction of the Lake Charles casino)
    • Non-cash comp: $3.5-4MM
    • Corporate expense: $13-14MM

JCP: Not Ready For Primetime

JCP: Not Ready For Primetime - JCP concept5


Despite the hype surrounding the new JCPenney (JCP) stores due to rollout this year into 2013, we remain bearish on the stock, a call that we’ve stuck with for about a year now. Ron Johnson and executive management continue to fail to execute on their turnaround plan which has helped the stock fall from $40 a share to $20 a share in under a year.


JCP proudly announced the unveiling of its new store concepts yesterday in a release, showcasing the mini-stores for the Levi’s and Arizona brands. While the video they produced was entertaining, showing off their concept of a “denim bar,” the Hedgeye Retail team begs to differ noting that there are noticeable hiccups in the rollout.


The team checked out a JCP store yesterday and instead of a hip, modern concept, found a half-completed store that resembled a warehouse more than anything. The Arizona stores were not ready due to a late shipment of wallpaper and the entire store had construction going on for other mini-stores that gave the store an unsightly appearance.


Here are the takeaways from our team, along with some choice photos below:


• The women’s Levi shop is already open although there we no i-pads in sight. This could simply be a store that did not receive the full blown Levi “store” however notable given the “denim bar” innovation.


• The Arizona shops (both men’s and women’s) will not be opening on time despite having been scheduled to open with the Levi shop due to wallpaper arriving late. The images below show a view into the women’s shop which has no décor as well as the men’s shop which is just to the right of the store’s entrance; neither is complete.


• The overall atmosphere of the store has a warehouse feel despite the areas under construction being concealed. Interestingly, with 2-4% of the location’s selling square footage remaining under construction over the next 2 years, there were concealed areas with no work complete inside. Our sense is this area is sectioned off for the September shops but we found this interesting nonetheless given the amount of the store already under construction.



JCP: Not Ready For Primetime - JCP concept2


JCP: Not Ready For Primetime - JCP concept3


JCP: Not Ready For Primetime - JCP concept4

Waiting For Ben






ADP numbers aside, everyone will truly be focused on the Federal Open Market Committee (FOMC) minutes and the language the Fed uses. Expect low volumes until the details are out; people want to know if we’re getting another dose of QE or not. If we do, gold and oil will rip to the upside. If not, expect King (US) Dollar to make an appearance. We’re of the belief that QE slows growth and simply hasn’t been working. Swallowing a bitter pill is difficult but necessary sometimes. Let’s see what Bernanke has on his mind later.




Doctor Copper is back in play this morning. The #GrowthSlowing case in China does not bode particularly well for this commodity but ultimately, the fate of price lies in the hands of Ben Bernanke. The Federal Reserve Chairman has proven that he is willing to do anything to buoy commodity and equity markets, even if the rapid inflation includes feeling the heat at the pump and your local grocer.




Tim Geithner has been making the rounds around the world, meeting with central planners cut from the same kind of cloth has he is. By that, we mean people who aren’t afraid of a bailout or five. He seems to forget that inflation is NOT growth. Per Keith in this morning’s Early Look:


US Consumption represents the 71% that I don’t hear the Democrats talking about inasmuch as I didn’t hear the Republicans talking about it under Bush. That’s the 71% of the US Economy (GDP). And it’s been getting jammed by the likes of Bernanke and Geithner since at least 2006. Policies to debauch the Dollar and inflate oil prices at the pump are a colossal failure of Keynesian sense.”


Isn’t the global economy just peachy?







Cash                Flat                        U.S. Equities:   DOWN


Int'l Equities:  Flat                        Commodities:   Flat


Fixed Income: UP                         Int'l Currencies: Flat









This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.

  • TAIL:     LONG            



The former Liz Claiborne (LIZ) is on the path to prosperity. There’s a fantastic growth story with FNP. The Kate Spade brand is growing at an almost unprecedented clip. Save for Juicy Couture, the company has brands performing strongly throughout its entire portfolio. We’re bullish on FNP for all three durations: TRADE, TREND and TAIL.

  • TAIL:     LONG



We continue to expect outpatient utilization to pick up in 2H12 alongside stabilization in acuity with ortho and cardiac/ICD volumes supporting both pricing and inpatient admissions growth. Births should serve as a tailwind into year-end, recent and prospective acquisitions offer some upside to 2012/13 numbers and the in place repo offers some earnings flexibility. With European and Asian growth slowing, we like targeted domestic revenue exposure as well.

  • TAIL:     LONG







“BREAKING: US mortgage demand (MBA weekly mortgage applications) falls for the 3rd consecutive wk (-2.3% wk-over-wk) $XLF” -@KeithMcCullough




“It is nobler to declare oneself wrong than to insist on being right - especially when one is right.” - Friedrich Nietzsche




Chinese PMI fell to 50.1 in July from 50.2 in June, falling below economists’ consensus estimate of 50.5.

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.