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Takeaway: Solid quarter and positive forward commentary about Macau.

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




  • SLIGHTLY BETTER:  Management seemed a little more upbeat about Macau, and Las Vegas had a surprisingly strong quarter in terms of volumes and revenues.


  • BETTER: The special dividend of $8/share is a nice surprise given that some analysts were expecting it post-election.  Also, WYNN will increase its regular quarterly dividend from $0.50/share to $1.00/share starting in 2013.
  • PREVIOUSLY: [Update on special dividend, annual dividend or share buybacks?] "I can't resolve that question in absolute terms. I can tell you that that is the order of business before the Board when we get together and it comes up at this time. The Board was naturally waiting to see how the financing would go."


  • SAME:  WYNN has given out as much promotional allowances as they can.  WYNN will not risk the bottom line.  
    • "We have been able to hold the percentage we pay the junket operators to 40% plus 3% or so for complementaries, and our competitors are about 5 points ahead of us in terms of what they give the junket operators."
    • "The price war has extended into the mass end of slot markets....we always focus on how much junket commission that's given out, but we are actually giving out a lot more incentives now in slots and mass market to also buy back business."


  • BETTER:  Continued its prudent philosophy.  As a result, collections haven't suffered. The feeling is things have stabilized.  Junkets are giving more credit recently.
  • PREVIOUSLY:  "We are very conservative about credit....we don't use a rolling program.....it's 15 day credit on the 15th of the month."


  • SAME:  75% of the Capex will be spent in mid-2014 to mid-2016.  WYNN Cotai is aiming for a Chinese New Year opening in 2016. 
  • PREVIOUSLY:  "~$150 million on foundations over the next nine months to 12 months."


  • SLIGHTLY BETTER:  Opex came in around $1.2 million a day in 3Q.  This is a pretty steady run rate.
  • PREVIOUSLY:  "We're running between $1.3 million and $1.4 million per day before we take into account commissions or bad debt or anything like that. I expect that to continue. But, there will be continuous cost pressures, primarily driven through the pressures on payroll."


  • SAME:  New junket room will open at the 1st week in November; one of the major Chinese operators will move in.
  • PREVIOUSLY:  "We built a new junket room that's going to be open for Christmas. Another retail space -  a small one for jewelry at the entrance of the casino."

Trade Of The Day: EAT

Today we bought Brinker International (EAT) at $30.00 a share at 12:57 PM EDT in our Real Time Alerts. Hedgeye Restaurants Sector Head Howard Penney is saying that the conference call confusion is why the stock is getting hammered, so Keith bought it in the Real Time Alerts on red. Pretty straightforward as the EAT hold's its long-term TAIL line of 29.11 support. 


From our Alpha Sheet:


"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."


Trade Of The Day: EAT - EAT




Bearish TREND: S&P 500 Levels Refreshed

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,



Bearish TREND: S&P 500 Levels Refreshed - KMchart1

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German Data Misses!

Takeaway: Germany may be leading the political cart in the Eurozone, however its economy is not immune to the region’s downturn.

Positions in Europe: Long German Bunds (BUNL)

Today we received German PMI data and German IFO confidence figures – both missed!  Our quantitative levels also show that the German DAX recently broke through its immediate term TRADE support level, which is a bearish indication.


From the Preliminary October figures for PMI Manufacturing and Services for the largest economies of the Eurozone, including the regional aggregate, it’s noteworthy that Germany’s PMIs fell month-over-month and missed versus expectations to remain under the 50 line indicating contraction (see chart directly below).


German Data Misses! - aa. PMI


While we’ve identified the German economy as the strongest versus its peers for many months, it is certainly not immune to the economic slowdown facing the entire region. The slide in PMIs (which began in January 2012) is therefore not a huge surprise.  Nor is the lack of confidence as measured by consumer and business surveys. 


Today IFO reported its German Business Confidence survey and Current and Forward-Looking Economic surveys.  All slid month-over-month, marking a move down since April 2012.  


German Data Misses! - aa. IFO


While the Eurozone’s political positioning on its debt, deficit and banking issues evolves on a daily if not hourly basis, we’re of the position that Germany wants to play ball in maintaining the fabric of the current Eurozone members.


Out of self interest, the Germans may not be the first to show their political cards simply because as the fiscally and economically strongest nation, it’s not to their advantage to sign off on paying for the entire region’s bills until it gets some support from other member nations. While this tactic could be view as delaying the process and leading to much of the inaction in policy over the last months and years, there’s plenty of evidence to suggest Germany’s support for the region, including most recently that Germany’s Finance Ministry is considering a debt buyback as a way to help reduce Greece’ debt burden.


News today also appears to suggest that Troika will give Greece a two year extension to meet its fiscal consolidation target and will receive its next 31.5B tranche of bailout funding. While we don’t think this will be the last concession/compromise concerning Greece or other peripherals from Troika, implicit in the Troika’s decision making is a sign-off from Merkel too.


So it’s under a scenario of a concerted commitment from Merkel and Draghi to save and/or maintain stability in the region versus the reality of an extended period of weak underlying fundamentals that would allow for mispricing across asset classes as the development of an evolving Eurozone are misunderstood. And to repeat, we believe that a fiscal union is a huge step for the region, one we think will be challenging to form given the inability of countries to give up their fiscal sovereignty to Brussels—so clearly there’s much runway for investors to manage around.


Our Real-Time Position in BUNL on the long side has worked against us as the last weeks have seen peripheral yields come in and push core yields higher. We are however, worried about the German equities given that the DAX just broke its immediate term TRADE line of 7,331.


German Data Misses! - aa. DAX


For now we have no other current Real-Time position in Europe besides BUNL.


Matthew Hedrick

Senior Analyst


Takeaway: $EAT is being valued in line with $RUTH by the market. We believe this presents a favorable opportunity to be long the stock.

The perception of the earnings call was negative and rightly so.  Management’s tone was cautious but we believe that the magnitude of the selloff has resulted in an attractive entry level on the long side.  This afternoon, Keith added Brinker, on the long side, to our Real Time Positions.  A chart illustrating his levels is below.  In short, we do not believe that Brinker is going to miss FY13 EPS guidance.  We are confident that Chili’s remains an outperformer and we expect margins to continue to expand through the year.  We see 20-25% upside from these levels.




Brinker’s shares are trading at $30 or 10% below last night’s closing price.  Management’s commentary on the earnings call has been the most significant factor driving down the stock; the print raised no concerns for FY13 earnings meeting our expectations.  The headline 1QFY13 EPS number was a disappointment but the shortfall was driven largely by increased G&A expenses.  The table below highlights the major components of the company’s income statement versus consensus.


Points of note:

  • Revenues came in slightly ahead of expectations as Chili’s comps continue to outperform Knapp by over 200bps
  • Chili’s comps actually strengthened into September while the industry slowed sequentially and, for the quarter, accelerated on a two-year basis
  • Restaurant level margins expanded year-over-year, at a greater rate than consensus was expecting as cost-saving initiatives are being rolled out



EAT FEAR OVERDONE - chilis pod1



Earnings call


Management mentioned two factors worth discussing:


"Employment growth continues to be sluggish, resulting in a persistently cautious consumer and industry sales are softening."

HEDGEYE: We hold a negative view of casual dining and have long highlighted the anemic level of job growth as a primary contributing factor to our thesis.  Chili’s is still producing best-in-class same-restaurant sales growth and, given the continuing rollout of new products, we expect its outperformance versus the industry to remain in the 2-2.5% range.



“We expect continued hours overtime associated with the accelerated rollout of new kitchen equipment and point of sale system at least through part of the second quarter…these factors will affect our second quarter EPS growth causing it to fall below the FY13 guided range of 17-25% to $0.48-0.50.”


HEDGEYE:  We believe that management is being especially cautious on the second quarter, given the uncertain macroeconomic environment and one-time incremental costs negatively impacting the P&L.  Even with EPS coming in at $0.49, we expect FY13 earnings per share of at least $2.45-$2.50.   The company remains confident of hitting its FY13 implied range of $2.39-2.45 and we believe that this “comp scare” as happened in January on 2QFY12 earnings.  At that time, skepticism was rife that the company’s 2-3% comp guidance would be met.  We believe that today’s sell off has been overdone, as it was in January.



Conclusion & Levels

Chili’s continues to perform well versus the industry as margin-enhancing initiatives continue to gain traction and drive strong earnings growth for Brinker.  While management’s forthright commentary is well-placed, we believe that the market is currently mispricing this stock.   We would not pay the same multiple for RUTH as we would for EAT; both stocks are valued at roughly 7x EV/EBITDA.  BLMN is a stock we would focus more attention on, as a short idea, at 8x.

Below are Keith’s quantitative levels for Brinker.  The stock has held long-term TAIL support at $29.11 and Keith’s model is highlighting immediate-term TRADE resistance at $32.89.


EAT FEAR OVERDONE - eat levels



Howard Penney

Managing Director


Rory Green



In preparation for BYI's F1Q 2013 earnings release on Thursday, we’ve put together the recent pertinent forward looking company commentary.


Bally Technologies Announces Illinois Contracts Totaling Sales and Lease of More Than 4,000 Video Gaming Terminals (9/25)

  • BYI announced constracts with various distributors in IL to provide 4,000 Bally Video Gaming Terminals (VGTs), expected to be deployed over the next 24 months.
  • Two of the largest terminal operators in the state have signed more than 50 percent ship share with Bally




  • "Our fiscal year 2013 holds excellent opportunities for Bally as we are initiating earnings guidance at $2.95 to $3.30 per fully diluted share. This guidance range contemplates revenue improvement in all three areas of our business: game sales, gaming operations and systems. We also expect gross margin improvement in gaming equipment and continued growth in our web footprint. As a result of these expectations, we anticipate an improvement in our operating margin in fiscal 2013."
  • "We still expect our game equipment margin will approach 48% to 49% within the next two to three quarters due to continued reductions in material costs on each of the Pro Series cabinets."
  • "We anticipate our effective income tax rate in fiscal 2013 will be between 38% and 39%. This rate does not assume reinstatement of the U.S. Research & Development Credit."
  • "We expect to have an installed base of around 1,000 VLT units in Italy by the end of FY 2013."
  • "We should also have our first systems installation in Australia successfully completed during the next few weeks."
  • "We expect to begin initial shipments both for sale and participation-based VLTs in Illinois beginning Q2 FY 2013 pending final approval of location."
  • "With respect to Michael Jackson and GREASE, I think we have said historically that we saw both of these games as having the potential to reach total placements of 750 each, and we still feel that way. The numbers are meeting or exceeding our expectations, and... cannibalization does appear low and low partly because Bally has a pretty small WAP footprint, and because these games are quite unique."
  • "We see normal trends from seasonality, but we haven't seen any impact yet from the consumer"
  • "Average win is meeting our expectations. Overall WAP footprint is up nicely year-over-year and in line with seasonal trends."
  • [Share repurchase] "We've been rather aggressive the last two quarters and going into the first quarter as we mentioned in the press release, but we've traditionally bought back in the $15 million to $20 million a quarter range."
  • "On Italy, we have fairly modest prospects because of our delays in getting approved. So, we have said that we expect to have 1000 machines by the end of this fiscal 2013. I think there is a chance to do much better in Italy over time, but we have to sort of earn our stripes after this delayed technical approval process."
  • "We are looking at further opportunities in New Zealand; we just went live over the last few months and of course, the South Africa installs are going on schedule."
  • "With respect to particularly Canadian VLTs, those come at a slightly lower ASP. They don't have quite as many bells, and whistles. We have guided to a higher margin, so the good news is on a margin dollar basis they are still accretive. Illinois, which is a VLT market, that will come at a little cost to ASPs."
  • "The third thing we are doing is transporting our games content of course, to the internet in legal jurisdictions, which should be again generating revenue for us early on in calendar 2013."

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