• run with the bulls

    get your first month

    of hedgeye free


HMA: Admissions Growth

Health Management Associates (HMA) recently reported third quarter earnings that were in-line with consensus estimates. Same Store Admissions and Adjusted Admissions both deteriorated sequentially on a one-year basis but improved on a two-year basis. Everything from weather to a decline in uninsured admissions played a role in lagging volume growth.


The company lowered its guidance for SS admissions to between -3.0% & -5.0% but affirmed its expectation for FY2012 SS adjusted admission growth between -1.0% & +1.0%


HMA: Admissions Growth    - HMAstock

JCP: Is This How America Dresses?

Takeaway: The new Izod shop opens a discussion for JCP’s customer acquisition cost rising faster than revenue and competitive pricing pressure.


We like much or what JCP is doing to its merchandise right now.Note, that is by no means a change in tone for us. Our call has never been about product. It has been about the cost associated with changing around a retailing strategy by such a startling degree, and the extent to which JCP will wake several sleeping giants (KSS, Macys, Gap) with its aggressive pricing strategy which will ultimately come back and haunt them.


With that mouthful said, check out  the images below from JCP’s latest Izod store. Authors’ note: I’d wear some of that stuff. But that’s not the question to ask. Johnson’s goal is to transform JCP into ‘America’s Store’. Ask yourself if an autoworker in Detroit will wear this? How about a police officer in Columbus? No and No. We realize that we’re being very narrow in our definition of customers, but the reality is that the cost of customer acquisition is going up very dramatically. It’s hard for this product to have such broad appeal to the people that they already count as customers.


So the punchline for JCP is that the revenue delta will improve - but it won’t outstrip the painfully eroding cost delta. That’s bad for JCP. For others like Macy’s, Kohl’s, and Gap, it means that JC Penney is – come hell or high water – bringing more product into the US to sell at what it thinks will be very sharp everyday low prices. The thing that people miss is that 100% of this product WILL SELL. It’s just a question as to what price it sells. 

If there’s significant discounting needed, then it is bad news for these other retailers that need to compete with JCP by offering similar product at what is today elevated prices. When that course corrects, it will be painful competitively for each of these retailers, but will also create a vicious cycle that will come back to haunt JCP as well.

In order of shorts, we like M, GPS, KSS, CRI, JCP, SPLS, and UA.


JCP: Is This How America Dresses? - JCP IZod



Bearish TREND: SP500 Levels, Refreshed

Takeaway: In other words, the market is now bearish TREND.

The stock market is not the economy. Growth and #EarningsSlowing has not changed; the markets re-rating of those economic risks have.


Across our core risk management durations, here are the lines that matter to me most:


  1. Immediate-term TRADE resistance = 1426
  2. Intermediate-term TREND resistance = 1419
  3. Immediate-term TRADE support = 1404


In other words, the market is now bearish TREND. What was support is now resistance. If TREND resistance remains, long-term TAIL support of 1354 is in play.


Risk moves fast,



Keith R. McCullough
Chief Executive Officer


Bearish TREND: SP500 Levels, Refreshed - SPX



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.


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



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.