Takeaway: Great margins and strong VIP business drove an almost across the board beat

"Our third quarter is highlighted by the opening of L'Auberge Baton Rouge, a terrific addition to the Pinnacle Entertainment portfolio of properties. Our Company delivered very strong financial performance in the third quarter and achieved several operational milestones. L'Auberge Lake Charles produced all-time records...St. Louis produced the strongest year over year improvement in Adjusted EBITDA ..and achieved record Adjusted EBITDA margins in the third quarter."  


- Anthony Sanfilippo, President and Chief Executive Officer of Pinnacle Entertainment




  • L'Auberge Baton Rouge: VIP business has opened up ahead of pace. Attracting guests from local and regional markets. Saw strong visitation from their other properties in the areas which did not hurt the other properties. 
  • July was soft but business was better in August and September.  Trips were down modestly but spend per trip was up modestly driven by Belterra, Lumiere and River City properties.  On pace to grow their top 3 tiers of mychoice by double digits this year
  • Lake Charles: high profile events continued to drive strong VIP visitation
  • St Louis: 33.6% market share. Saw strong increases in VIP . Table revenues grew by 21%. Marketing expenses as a % of gaming revenues down 180bps. River City doing well at controlling construction disruption
  • Belterra: highest market share in 8 quarters. Continue to grow admissions in a declining market
  • Bossier: grew market share by 40bps
  • New Orleans: focused on removing non-value added expenses from the business 
  • Heartland Poker Tour: Belterra will host the champions event
  • Expect Retama park acquisition to close in 1Q13



  • St. Louis: No reason to why they can't continue to expand margins at their properties. Marketing is still one of their largest expenses so they continue to refine those.  With CZR's property leaving the market they believe that some of their loyal patrons will be up for grabs.  Penn will take time to build their reputation in St Louis where they are not known. 
  • Bulk of their visitation in Baton Rouge did come from local markets but they did get some visitation from the Gulf Coast and New Orleans (especially from their Boomtown customers).  They are ramping up advertising there. 
  • Vietnam remaining regulatory hurdles: gaming industry is going through a review now with the government. 
  • Believe that they have an opportunity to build the high end of table game play
  • Diluted share count at quarter end was just over 59MM
  • All of LA should be complete on one card system by the end of the year.  
  • Will rationalize their cost base in Baton Rouge over time.  Will take 2-3 years to get to steady state margins although each quarter should see improvement.
  • In Lake Charles: they continue to believe that the Texas market is underpenetrated.  They have improved their results by continuing to get better yielding customers.
  • River City has been open for a few years now and they continue to see improvements in operating margins
  • Belterra:  continue to think that they have the best property in the area but it's a destination.  They are yielding the quality of the guest coming into their hotel.
  • Thinks that their margins this quarter is sustainable and have room for improvement. 
  • Having a great time in the facility is the most important driver of client spend and return visitation. Gas prices aren't a major issues for most of their properties since their customers are local. For most of their customers, what's happening in the equity markets is not a big driver.
  • Vietnam: expect a lot of customers to come from China, Thailand, and S Korea
  • Growth in St Louis is not just coming from CZR's former customers
  • Demand that they see in Baton Rouge hotel is mostly weekend. On the weekends, they are finding that they were running out of parking. So they are moving forward with adding more parking. They put in a festival ground where they can do concerts and that's doing great. LSU game impact: their sports bar gets packed an hour beforehand and they get a lot of traffic afterwards. Believe that 200,000 people travel to Baton Rouge for the game. 
  • October trends? They have an unfavorable calendar with one less Saturday. 
  • Is the slight increase in spend per visit driven by mix? Yes, strength is coming largely from their top 3 tiers.



  • 8.0% YoY EBITDA growth was "driven by record L'Auberge Lake Charles results, strong St. Louis performance and the opening of L'Auberge Baton Rouge."
  • "Management estimates the impact from Hurricane Isaac negatively affected Adjusted EBITDA of the Company's Louisiana operating properties by $1.6 million in the 2012 third quarter. In addition, 2012 third quarter Consolidated Adjusted EBITDA included $0.7 million of severance and relocation charges. Adjusting for these factors, Consolidated Adjusted EBITDA for the 2012 third quarter would have been $76.4 million."
  • "Adjusted income per share, which normalizes for the effect of pre-opening expenses and other non-recurring items, increased $0.05 or 20% year over year to $0.30"
  • "Through October 23, 2012, the Company has repurchased 3.5 million shares of its common stock for $40 million under its $100 million share repurchase program"
  • "The Company is progressing toward an agreement to dispose of its land holdings in Atlantic City and expects to enter into a definitive agreement by year end. Separately, the Company expects to receive approximately $2.6 million from the New Jersey Casino Reinvestment Development Authority for the redemption of bond credits. In the 2012 third quarter, the Company recorded a non-cash impairment charge of $6.9 million related to its Atlantic City assets, which is included in Discontinued Operations."
  • "On September 5, 2012, the Company was refunded its $25 million completion guarantee deposit by the Louisiana Gaming Control Board upon the L'Auberge Baton Rouge opening."
  • "In August 2012, the Company entered into a Subscription Agreement and Amended and Restated Shareholders Agreement related to its investment in ACDL. The agreement provides that the Company invests $15.6 million in convertible preferred stock of ACDL or its pro-rata 26% share of a previously disclosed total capital raise by ACDL of $60 million."
  • "On July 2, 2012 the Company closed the acquisition of Heartland Poker Tour."
  • "So far, we are very pleased with the performance of L'Auberge Baton Rouge. The property is well on its way to establishing itself as a high quality regional gaming and entertainment destination. Since opening, the property has achieved over 48,000 mychoice player loyalty card sign-ups, over 267,000 casino admissions, and very strong non-gaming revenue performance."
  • L'Auberge Lake Charles: "Performance was driven by record gaming and cash non-gaming revenues, as well as more efficient marketing, and occurred despite disruption to business volumes from Hurricane Isaac."
  • St Louis: "Performance was driven by more efficient marketing and general operating expense discipline." 
  • "Belterra's 2012 third quarter performance was driven by a focus on removing non-value added expenses from the business."
  • "New Orleans performance was negatively impacted by Hurricane Isaac and generally difficult market conditions. Notwithstanding the hurricane impact, underlying property trends improved throughout the third quarter."
  • "We are dissatisfied with the performance of Boomtown New Orleans and are in the process of implementing changes to the property's operating strategy to drive profitable revenue growth. We are confident, through key operating changes, in our ability to improve New Orleans' performance in the coming quarters."
  • "The reduction in 2012 third quarter corporate overhead expense was driven principally by efforts to eliminate non-value added expenses at the Company's Las Vegas headquarters, as well as a ramp up of cost savings and property allocations related to the Company's shared service centers supporting our properties in the Midwest and Louisiana."
  • River Downs: "Our plans call for a gaming entertainment facility comprising approximately 1,600 video lottery terminals, multiple food and beverage outlets, over 1,600 parking spaces and new racing facilities. We expect the project to cost $209 million, excluding license fees, original acquisition costs and capitalized interest, and plan to open the facility in the first half of 2014."
  • "We continue to make progress on our expansion of River City in St. Louis. The 1,600 space parking structure is nearing completion and is expected to open by the Thanksgiving holiday weekend next month. Construction of the second phase of this expansion, a 200-room hotel and multi-purpose event center, has commenced with an expected completion date in the second half of 2013."
  • "In New Orleans, construction of a $20 million, 150-room hotel is expected to begin by the end of 2012 and is targeted for completion by the end of 2013."
  • "ACDL continues to make significant progress with Phase 1A of the MGM Grand Ho Tram project in Vietnam and the property remains on track to open by the end of first quarter 2013."
  • 3Q Capital expenditures: $102.8MM, including 
    • $81.2MM related to L'Auberge Baton Rouge
    • $9.8MM for the River City expansion
  • "Capitalized interest in the 2012 third quarter was $6.0 million versus $2.9 million in the prior year period."


NKE: Umbro Shareholders Made Out Like Bandits

Takeaway: Nike’s headache is finally gone by ditching this mistake.


Nearly 5-years to the day after it acquired Umbro, Nike is selling it to Iconix. The move was widely expected, and very well communicated by the company – both strategically and financially. Consideration for the company is $225mm, which turns out to be just under 1.0x sales by our math. The reality is that anything over a dollar is fine by us, as the division is a perennial money-loser.


We’d be remiss not to mention, however, that in October 2008 Nike acquired Umbro (named after the founders – the Humphrey Brothers) for 285mm pounds sterling, which was about $582mm in dollars at the time. Add the net income losses and working capital commitments, and this acquisition ranks up there in one of the poorest we’ve seen in this space.


But in fairness, the only thing worse than making a terrible decision is sticking with it. Credit to Parker and the team for moving the company past this mistake. The fate of Cole Haan remains undecided. Though an announcement on that one is likely not too far behind. Note that TPG is one of the top bidders there, and Matt Rubel – who used to run Cole Haan at Nike – is a strategic advisor to TPG. It is not difficult to put 2 and 2 together on that one. He ran it once. Why not run it again? We think there are major obstacles there – not the least of which is the (in)ability to leverage Nike technology in the future.  But this would presumably be ironed out in the deal.


Here’s a look back at what the company said on the date of the acquisition…


“Umbro is a brand with a powerful heritage and deep experience in the world's most popular sport and the world's biggest football market," said Nike, Inc. President and CEO Mark Parker. "With its close links to The Football Association and the England team, Umbro's future is even stronger than its past. This dynamic alignment of Umbro and Nike, with our complementary strengths and numerous ways to segment and grow the market, will lead the game at every level throughout the world. We are fully committed to helping Umbro reach its full potential, and we are delighted that Umbro's board is unanimous in its support of our offer."


…versus what they’re saying today

“It is a difficult decision to divest any business but this action will enable us to focus on our highest-potential growth opportunities,” said NIKE, Inc. President and CEO Mark Parker. “Umbro has a great heritage, but ultimately, as our category strategy has evolved, we believe Nike Football can serve the needs of footballers both on and off the pitch.”


“Umbro is a true, authentic football brand with a global loyal consumer fan base and we are thrilled to be adding it to our portfolio of iconic brands,” stated, Neil Cole, CEO Iconix Brand Group. “Umbro is an exciting acquisition with more than 30 licensees in over 100 countries with a devout following. We look forward to working with our international partners to maintain and expand upon the rich heritage of Umbro,” Cole added. (Note: does this sound familiar?)


BWLD: The Costs Add Up

Buffalo Wild Wings (BWLD) just reported a dismal third quarter for the year, missing consensus estimates and falling more than -11% on the open on Wednesday. We believe the stock can soon trade below $70 as the two pillars to our bear case strengthen: input costs are rising and so is the cost of growth. We expect earnings revisions from the Street, which remains at $3.21 for FY12.


Below is a slide from our January 19th conference call outline on BWLD showing our $3.05 estimate which was ill-timed.


BWLD: The Costs Add Up  - image010



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Takeaway: WYN reported an in-line quarter but performance was driven by timeshare. 2013 guidance was a little better than consensus.

“The third quarter was highlighted by exceptional performance from our Hotel Group.  Our timeshare business delivered another quarter of solid performance and I’m pleased with the ability of our exchange and rentals group to mitigate the impact of economic headwinds in Europe. Our share repurchase program continues to reduce our share count and contribute to strong adjusted EPS growth.” 


- Stephen P. Holmes, chairman and CEO



  • Each of their business units exceeded their expectations. 
  • In the hotel group, fundamentals continue to improve, albeit at a slower pace. RevPAR growth seems to be moderating. However, opportunities seems to be accelerating for them
  • Strong hotel and timeshare growth in Brazil today which presents a great opportunity for WYN
  • Making excellent progress on Apollo.  Relaunching the Wyndham Hotel and Resorts website in August. Room nights from initiatives are up 17% YoY
  • Exchange and rental business: 4 of 5 of their European business had increases in their transaction volume without significant discounting.  They entered Croatia in 2004 selling just 200 weeks and today they have already sold 30,000 weeks YTD and are the market leader.
  • In August they expanded their vacation rental business in the US by acquiring a business at the entrance of Smoky Mountain Rocky Park
  • Delivered several web enhancements to Chinese website and increased online booking functionality. On track to reduce phone transactions by 30% and have a goal of 40% by 2015.
  • In September they acquired Shell Vacations in WVO: immediately accretive to earnings
  • The demographic for VOI is shifting towards younger and more single owners too.  Median household income: $74k, 68% don't have children, 89% own their homes. 
  • Used the majority of their FCF this year for share repurchases
  • Shell will increase their VOI EBITDA by 10% and expect it to add a few pennies to 2013 EPS.  Unlevered return of 20% above hurdle rate.
  • Excluding higher inter-segment fees, Lodging EBITDA would have increased by 21% YoY. International RevPAR decreased 5% reflecting a mix effect due to growth in Asia which is their lowest absolute RevPAR region due to other international destination.  Compounding this is that their lower end brands like Super 8 are growing faster than their higher end brand.  SS international RevPAR was up 2% in constant currency.
  • 11,500 rooms opened in the quarter - driven by chunky deals like the HPT group
  • Emerging markets account for 28% of the portfolio
  • Exchange and rental business:  both revenue and EBITDA was flat ex. FX. 
  • VOI: VPG increase resulted from better close rates and yield management
    • 20,000 new owners entered the system this year and they are on track to meet their goal of 27,000
    • WAAM 2.0:  reflected sales of a project in Orlando
    • Provision for loan loss reflected higher sales and challenges in porfolio performance due to higher loan balances and fraud that they have already discussed
    • Excluding intersegment fees, EBITDA for the segment would have been up 7% YoY
  • New facility: Overall debt levels are unaffected
  • Expect High single digit EBITDA growth in Lodging and mid-single digit growth in VOI and rental and exchange
  • 4Q guidance:
    • Assumes 143MM shares
    • EPS guidance:
  • Driver guidance: 
    • RevPAR to come in at lower end of guidance
    • Tour and VPG to come in at the higher end of guidance
  • Full 2013 guidance will be given on their Feb call 


  •  Upside to FCF go higher due to acquisitions? 
    • Will likely be over $700MM this year and higher next year.  Don't want to create expectations that are too high.
    • All the acquisitions that they have done are FCF positive and should be additive
  • Portfolio issues (VOI): 1) high balance loans tend to have higher default rates- they are tightening underwriting standards which should help in the future on the large balance loan situation. 2) Default fraud activity: bit of a Wack-a-mole issue - but feel like they have addressed the issue and see some improvement in that arena over the next few months
  • Contribution of WAAM 2.0: no margin differential between WAAM 1.0 and 2.0.  WAAM 2.0 is just in time inventory wise. It will be accounted for as gross VOI sales vs. commissions on WAAM 1.0
  • VPG improvement: better close rates and better volumes
  • Shell aquisition did not impact their ability to buyback stock
  • Flow through on timeshare was a little lower than the normal rate/ margin.  Partly due to the higher inter-segment fee and the higher provisions for losses.
  • Provisions on loan losses:  if the remediation plans they have in place work, then there should be some moderation over time. 
  • Inventory didn't decrease because they added some with the acquisition of the Shell business
  • 3Q is a big quarter for lodging bc of strong leisure travel (which is where they are concentrated).  There were some shifts in leisure travel vs. last year but it wasn't massive and it's hard to tell how much of that is due to Apollo. They are getting good feedback from franchisees like - Tripadvisor on their website.
  • HPT was a big driver of room growth QoQ.  Pipeline is down a bit because they had some strong openings in Asia. Also looking at some large conversion opportunities. Even though RevPAR is moderating a bit they see more opportunity to increase their system size.
  • Their RevPAR will start to benefit from their WYN brand growth as well. Thinks that the impact of lower end brand growth in China will start moderating  because they have some full service hotels opening there as well
  • Slower RevPAR growth going forward is due to slightly higher supply growth going forward and that RevPAR has already recovered a lot. 
  • They continue to see a lift in new construction because of their concentration in the economy segment. They have seen a bigger pickup in Urban markets. 
  • Still see a lot of room to keep buying back the stock and that they are nowhere near their intrinistic value
  • WAAM 2.0 going forward:  Don't think that there will be a dramatic ramp up QoQ in 4Q. Have a number of deals that are still in the pipeline. Requirements: desirable location, quality, amenities (basically will their customers find the product attractive). Looked at a 150 deals last year about 50% met the criteria but they only did 2 of them
  • Pacific NW was up about 9% but that has an easy comp in 2011.
  • Mobile is becoming a large portion of the mobile machine. They added an easier click to chat feature on their mobile site. The goal is to make it as easy as possible for customers to book. Lots of customers are driving and looking to book what's closest to them. Likely that the mobile customers are younger. Almost 2/3 of their business is same day. Almost all of their mobile bookings are done within 5 miles of the location.




  • In 3Q, WYN "repurchased 2.6 million shares of its common stock for $133 million. From October 1 through October 23, 2012, the Company repurchased an additional 915,000 shares for $49 million. The
    Company has $608 million remaining on its current share repurchase authorization."
  • 3Q12 "included $3 million of acquisition costs, legacy adjustments and debt transaction fees."
  • "Free cash flow was $682 million for the nine months ended September 30, 2012"
  • Logding segment: "The increase primarily reflected RevPAR gains, revenues associated with the Wyndham Grand hotel in Orlando, which opened at the beginning of the fourth quarter of 2011, and higher intersegment licensing fees for use of the Wyndham brand trade name."
  • "Domestic RevPAR increased 5%... Total system-wide RevPAR increased 2%, or 3% in constant currency."
  • "The development pipeline included approximately 950 hotels and 108,300 rooms, of which 55% were new construction and 47% were international."
  • Vacation exchange and rental: "In constant currency and excluding the impact of acquisitions,
    revenues were flat."
  • "In constant currency, exchange revenues were flat, as a 2% decline in the average number of members was offset by a 1% increase in exchange revenue per member. The decline in the average number of members was due to the non-renewal of an affiliation agreement at the beginning of 2012."
  • "In constant currency and excluding acquisitions, vacation rental revenues were flat, reflecting a 3% increase in transaction volume offset by a 2% decrease in the average net price per vacation rental."
  • Increase in vacation ownership: "primarily reflecting increased vacation ownership interest sales."
  • Increase gross VOI sales primarily reflected "a 5% increase in both volume per guest and tour
  • Higher VOI EBITDA "primarily reflects the revenue increases, partially offset by higher sales and marketing expenses related to the increase in VOI sales and higher intersegment licensing fees for use of the Wyndham brand trade name."
  • Balance sheet items:
    • Cash: $230MM
    • VOI contract receivables, net: $2.9BN
    • VOI & other inventory: $1.1BN
    • Securitized VOI debt: $1.9BN
    • LT debt: $2.5BN

ENERGY: Counting Rigs

The Marcellus shale is one of Pennsylvania’s natural gas wonders. It’s a massive natural gas play that has the best economics of any gas play in the US and watching the rig count in Pennsylvania can tell you where natural gas is headed. The Marcellus rig count was the last to fall, and will be the first to come back.


ENERGY: Counting Rigs  - 1

Remember November






Our #EarningsSlowing theme kicked into gear yesterday as more companies continued to disappoint on earnings through not beating Street consensus and/or offering lower guidance for the rest of 2012 into 2013. This is one thing that can’t be easily fixed by actions from the Federal Reserve. Thus, investors are realizing how bad things are actually getting out there and that is one of the explanations for yesterday’s sell off. Expect more reports to come in looking less-than-perfect over the remainder of the week.



With the election less than two weeks away, the polls and major media feedback show that Romney and Obama are tied with Romney making the occasional jump ahead. But the fact of the matter is the race is too close to call right now. There’s still plenty of time for bombshells to come out and hit each candidate hard and Donald Trump may be doing just that today. Just keep in mind that whoever is elected will have a major impact on the market on the long-term side of things.






Cash:                UP


U.S. Equities:   Flat


Int'l Equities:   Flat   


Commodities: Flat


Fixed Income:  DOWN


Int'l Currencies: DOWN  








Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • TAIL:      LONG            



Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TAIL:      LONG



While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

  • TAIL:      LONG







“over capitalized over produced and under incomed -too much everything” -@fearlicious




“The cure for boredom is curiosity. There is no cure for curiosity.” -Dorothy Parker




Germany's PMI down in October to 45.7 vs 47.4 last month.

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