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:  Even adjusting for low hold and the impact from Hurricane Isaac, results would have still missed the low end of BYD's guidance


  • WORSE:  Low table hold and volume drove the big EBITDA miss.  According to BYD, low table hold affected EBITDA by $11 million.  However, if we use the 6 quarter trailing average hold of 13.3% and apply it to the $378MM of drop that was recorded this quarter, we come up with a revenue impact of just $7MM, and an EBITDA impact of $6MM.  Promotional expenses were also elevated in the quarter- equal to 38.5% of reported gaming revenue - the highest level since 4Q10. On the bright side, BYD was pleased with slot and hotel performance.
  • PREVIOUSLY:  "In Atlantic City, Borgata is contending with heightened competition, but we expect to see solid results during the busy summer season. We've really seen limited impact from our customers from Revel. They've had an impact on our food and beverage side of things, maybe some of the lower-end customers, but certainly not the core components of our business. And so, our thesis continues to remain intact; that is that we don't really expect to see the most significant impact from Revel until the fourth quarter just given the seasonality of the business."


  • WORSE:  Despite strong performance at the IP, record EBITDA at Delta Downs, and market share growth at Treasure Chest and Blue Chip, this segment missed expectations.  Mgmt blamed Hurricane Issac.
  • PREVIOUSLY:  "In our Midwest and South region, the results were more encouraging. We maintained or grew market share in every market where we operate. This has been the strongest region of the country for the domestic gaming industry for some time now and it is also our most robust business segment. As it relates to the rest of the Midwest and South operation, [promotional] spend is, I would say, stable on a year-over-year comparable basis in all markets relative to ourselves. We are also stable except for in Biloxi where we have made, obviously, a calculated decision to actually reduce marketing expense and drive profitability versus the prior owners."


  • SAME:  Kansas regulators will look at the transaction in the week of November 12.  BYD expects  to complete this transaction in the 4th quarter. 
  • PREVIOUSLY:  "Based on our progress to date, we anticipate this transaction will close as intended sometime in the second half of the fourth quarter. I think we plan to receive a management fee."


  • SAME:  Promotional spending continues to be heightened, the same state since this past summer.
  • PREVIOUSLY:  "We are contending with an aggressive promotional environment in the Locals business but, importantly, this competition has had no impact on our top tier business. In fact, the tremendous relationships we've built with our top tier customers has been a real bright spot in our Locals business this year, as business volumes among our core customers have continued to grow. The promotional environment has, however, had a significant impact on play of customers in our lower tiers, customers we consider to be casual gamers."


  • BETTER:  Stronger Hawaiian charter business attributed to changes in their weekly flight schedule contributed to a 6% increase in EBITDA.  BYD expects the positive trend to continue in 4Q.
  • PREVIOUSLY:  "We experienced an EBITDA decline in this business segment as well but are confident that the causes are temporary....expect business to stabilize in the third quarter and resume growing in the fourth."


  • BETTER:  Despite flat revenues, improved operating efficiencies and the introduction of the B Connected player loyalty program drove EBITDA 35% higher. 
    • "We recently began introducing our nationwide player loyalty program B Connected and it should begin to have an impact in the third quarter. This will allow us to make more strategic marketing investments which will drive more profitable business to the property [IP]."
    • "We are also seeing the positive effects of efficiency measures at the IP where we are saving money without compromising the IP's reputation for strong customer service and outstanding amenities. The IP is running ahead of our expectations and is demonstrating our ability to unlock significant value with acquisitions."


  • SLIGHTLY WORSE:  Regional environment remains competitive.  Borgata promotional spending was up 2% despite an 7% decline in revenues.  Revel was very active with marketing. Golden Nugget's recent renovation also increased promotional activity.  Pennsylvania continues to be more aggressive with promotions.  BYD expects the aggressive promotional environment to continue in AC.
  • PREVIOUSLY:  "When you look at the promotional spend in the numbers that come out of Atlantic City, you will see that some operators are down and other operators have really increased the level of promotional expenditures that they are spending. And so there's really a wide variety happening in the city right now. But Revel clearly is increasing the overall spend."


  • SAME: Senior secured leverage ratio in 3Q came in at 3.48x (covenant: 4.5x).
  • PREVIOUSLY:  "The secured leverage ratio is really not a pressure point for the company going forward. In fact, I think we've got plenty of cushion under there."

WTW: Decelerating Trends

We initiated a short position in Weight Watchers (WTW) in our Real Time Alerts this week based on our thesis that revenue is decelerating at the company. Our thesis is comprised of three main ideas: growth trends will decelerate in Q4 and 2013, WTW will guide down on EPS and the stock is unlikely to find support in the market.


Going forward, Weight Watchers will likely guide down on EPS on its next earnings report, which takes place on November 5. Management really needs to improve outlook and help stabilize attendance or WTW will continue to head lower in the market. Our theme of #EarningsSlowing continues to build with every report coming out week after week.


WTW: Decelerating Trends  - wtw2



WTW: Decelerating Trends  - wtw1




"We are encouraged by continued strength in our Midwest and South region, which recorded its eighth consecutive quarter of EBITDA growth. With the acquisition of Peninsula Gaming, more than two-thirds of our wholly-owned EBITDA will be generated by our Midwest and South properties, further expanding our operations in the strongest segment of the domestic gaming industry. Moving forward, our focus will be on generating sustainable long-term growth, continuing to manage our operations efficiently and strengthening our balance sheet." 


- Keith Smith, President and Chief Executive Officer of Boyd Gaming




  • Borgata: they are prepared to open the property as soon as they get the green light from NJ regulators
  • LV locals market remains extremely competitive. Softness from casual players is the main area of weakness. 
  • Kansas regulators are scheduled to give them approval for the Peninsula acquisition on November 12th
  • Expect the Peninsula gaming acquisition to be accretive to earnings in year 1
  • Business disruption from Isaac reduced EBITDA by about $3MM.  Property tax adjustment had a positive impact of $3.3MM in 3Q11
  • LV Locals:  trends bottomed out in July and stabilized in August and September. 
  • Downtown: growth resumed and anticipate the positive trend will continue in 4Q. Also encouraged by the continued renaissance in Downtown Las Vegas
  • IP recorded a 490bps improvement in margins YoY. 
  • Most of the decline at Borgata was due to weak table hold.  Hotel revenues were up 3% on slightly higher occupancy
  • $1.4BN was outstanding under their RC.  Cash balance (including the $200MM Peninsula contrinbution):  $320MM
  • Secured leverage: 3.84x; Total leverage: 7.35x.  
  • Borgata debt was: $805MM, cash $32MM
  • $4.7MM of their D&A was associated with IP
  • Higher interest was due to new financings completed at higher rates and higher debt balances
  • Capex:  $15MM and $4MM at Borgata
  • 4Q Wholly owned EBITDA guidance: $70-75MM



  • AC:  The table play that moved away from them was mostly lower end and some of that was due to Revel trialers. They increased their promotional dollars slightly. They continued to focus on their core customers. Q3 hold was clearly an anomaly.
  • Borgata has relatively minor damage. They kept power the entire time. Physically they can open but there is a travel ban to AC right now given that traffic lights aren't working.  They don't know what the claim will be under business interruption - depends on when they reopen.
  • Midwest/South:  property tax credit from last year was obviously known about when they provided guidance but they didn't know about Hurricane Isaac. Unfortunately, hurricane hit markets where they are doing the best. Still feels good about where they performed vs. their competitors in the weaker markets.
  • Growth in the locals market has been in the penny denomination area
  • Competition in the LV locals market has been heightened
  • There is seasonality in the IP market.  Biloxi market is a very competitive market. 
  • They are currently spending at a fairly normal level on capex.  They will need to spend a few million on wrapping Echelon early next year but don't see any significant increases in the near future.
  • Have been in talks with their largest lenders regarding the step down in leverage in 4Q and 2013.  Their lenders have been very supportive of them.  Should roll-out an amendment sometime in the 4Q.
  • The low hold at Borgata was related to losses from a few players
  • Table hold impacted them by about $11MM
  • Business interruption deductible is $1MM
  • With respect to promotional activity in AC, Revel was very promotional. PA continues to get more aggressive. Golden Nugget's remodel is also new to the market and had some impact.
  • Expects promotional activity going forward in AC to remain aggressive
  • Revenues were what bottomed in July in LV Locals market. Saw spend per visitor flatten out. Promotional activity is still the same. 
  • No weather impact on IP results
  • Peninsula happens to operate in markets with limited competition which helped margins
  • No indication that they will have staffing issues once they are ready to open at Borgata, but it's too early to tell
  • Sports wagering in AC?  Don't have any comments in respect to the litigation that's ongoing. If it were offered in NJ, they would want to offer it at Borgata. 
  • What happens once their doors open at Borgata and volumes are below normal levels? It's really a negotiation. Business interruption doesn't just cover the time of closure at the property, but it also covers the time leading up to the storm and perhaps right afterwards.



  • Wholly-owned Adjusted EBITDA was adversely impacted by business disruptions from Hurricane Isaac the a comparison from 3Q11 that included a favorable property tax adjustment 
  • Borgata "Revenue and Adjusted EBITDA were impacted by lower table game hold percentage and volume. We remain encouraged by strength in other segments of the business, as slot and hotel revenue increased year-over-year."  
  • Las Vegas Locals: "To improve our performance in the Locals market, we are implementing measures to grow business volumes from casual players, including a significant expansion of our low-denomination slot product."
  • Downtown: "Growth was driven primarily by effective marketing campaigns aimed at our Hawaiian customer base.  Additionally, we saw improved revenue and profitability at our Hawaiian charter service, as changes in our weekly flight schedule allowed us to grow revenue-per-seat by about 12%."
  • Midwest & South: "Regional results were impacted by Hurricane Isaac, which forced the closure of the IP and Treasure Chest in late August, and disrupted business throughout the Gulf Coast region through mid-September.  In addition, results reflect a favorable property tax adjustment in the year-ago quarter."
  • "The IP contributed $49.1 million in net revenues and $9.6 million in EBITDA to regional results during the quarter.  Net revenues at the property were even with the third quarter 2011 as compared to the property's historical results, while EBITDA rose 35.4%.  Improved operating efficiencies and the introduction of our B Connected player loyalty program drove significant EBITDA growth at the IP."
  • Peninsula Gaming acquisition: "We have already secured regulatory approvals from Iowa and Louisiana, and Kansas regulators are scheduled to consider the transaction the week of November 12.  Subject to regulatory approvals, we expect to complete the acquisition of Peninsula Gaming in the fourth quarter."

Early Look

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Takeaway: Higher beef prices are negative for TXRH, BLMN, WEN, JACK, CMG, and others.

Agricultural commodities price action continues to be mixed.  Grain and protein prices are up significantly higher than a year ago while coffee prices continue to sink lower.  The fundamental outlook suggests that the strength in beef prices should continue for some time.  Higher beef prices are negative for TXRH, BLMN, WEN, JACK, CMG, and others.


Summary View


Corn prices have been moving higher over the past week as global supply concerns drive sentiment.  Heavy rains in South America have delayed crop plantings. Theories that the world is going to need to turn to the US for supplies have not yet been confirmed by export sales prices.  The amount of corn inspected for export at U.S. ports did increase by 49% in the week ended October 25th, however, according to the Department of Energy.  


Beef prices moved modestly higher over the last week but trading has been mixed as bullish corn price action has been counteracted by uncertain near-term demand.  The U.S. cattle industry is under pressure as record feed prices and elevated feeder cattle prices are not being offset by beef demand.  The soft economic climate continues to limit retail and wholesale beef pricing power relative to the input price squeeze that feedlots continue to face.  Elevated beef prices pose a headwind for TXRH, BLMN, WEN, JACK & CMG, among others in the restaurant industry. 


Coffee prices declined -3.5% over the last week.  Coffee has been trading in a range between 150 cents/lbs and 190 cents/lbs since May and is currently 33% below year-ago levels.  On a global basis, indications are that supplies are ample.  Concern about global economic growth slowing is adding further pressure to coffee prices.  The continuing weakness in coffee prices is a positive for SBUX, PEET, DNKN, THI, CBOU, GMCR and other coffee retailers.





Gasoline Prices


Gasoline prices declined -1.3% over the last week but, as usual, regional trends are worth bearing in mind.  The gasoline shortage in the North East, caused by Hurricane Sandy, is likely to have an impact on restaurant traffic trends in the region for several weeks.  A similar impact was felt post-Katrina, in the gulf region, when tight gasoline supplies led to a decrease in miles driven which, in turn, led to a deceleration in restaurant traffic.












COMMODITY MONITOR - crb foodstuffs












COMMODITY MONITOR - chicken whole breast


COMMODITY MONITOR - chicken broilers


COMMODITY MONITOR - chicken wings









Howard Penney

Managing Director


Rory Green


Dicey Spot: SP500 Levels, Refreshed

Takeaway: Rolling the dice is not part of the process.

POSITIONS: Long Utilities (XLU), Short Industrials (XLI)


What worked yesterday (and for the last month and a half) isn’t working today. TRADE or TREND?


I don’t know. All I know is that tomorrow is a big political storytelling day with a made-up government number slapped on top of it as we head into the home stretch of this epic Obama/Romney election. I have no idea who is going to win that either.


What I do know is that, across our core risk management durations, here are the lines that matter to me most:


  1. Immediate-term TRADE resistance = 1431
  2. Intermediate-term TREND support = 1419
  3. Immediate-term TRADE support = 1388


In other words, 1 is your refreshed Risk Range (on our immediate-term TRADE duration) and 1419 is proving to be a pretty good trigger line for beta (which evidently moves both ways).


A close above 1419 would be bullish; a close below it bearish. After the next 2 market closes, we’ll let the market tell us which way to lean.


For now, the easiest thing to do is take down gross exposure. Rolling the dice is not part of the process.




Keith R. McCullough
Chief Executive Officer


Dicey Spot: SP500 Levels, Refreshed - SPX

HedgeyeRetail: October SSS = Shrinking Sales Sample

Takeaway: This morning’s Retail Sales are littered with one off company specific callouts and little by way of broader themes.

This morning’s Retail Sales are littered with one off company specific callouts and little by way of broader themes. For the second month in a row, a major retailer (KSS) is announcing that it will no longer participate in the monthly SSS exercise confirming its increasing irrelevance. Over the last two months, the exit of both TGT and KSS represents over 30% of last year’s SSS sample that has now withdrawn. With top-line results increasingly stressed, we expect additional defections in coming months.


All in October results came in marginally better than last month with 12 companies coming in ahead of expectations compared to 5 misses. Here are a few callouts worth noting:

  • With retailers and consumers alike still trying to measure the impact of Sandy, few details were offered.
  • The deviation of beats and misses were relatively tight with JWN and TJX the exception coming in well above expectations.
    • At JWN, the Rack continues to succeed with comps up +10.5%
  • One of the more notable callouts is the deviation between TJX (beat) and ROST (miss) given persistent strength in the off-price channel.

    • While momentum behind ROST has already started to fade, we expect today’s results to accelerate recent weakness.
    • At TJX, Europe comps up +11% confirm favorable weather helping to drive sales overseas, which is key differentiator between the two off-pricers.
  • KSS surprised to the upside after abysmal September results. In fact, when looking at the two months in aggregate, KSS’ hit its Q3 comp outlook. A notable outcome given weakness headed into quarter-end particularly given what have been very low expectations for the retailer and its inability to capitalize on share gifted from JCP. November results will be closely monitored re the sustainability of this improvement.
  • GPS results will have investors focused on the ~10% EPS 3Q beat, but a look under the hood reveals a major slowdown at Old Navy despite the most favorable setup of the year. We think GPS’s upward trajectory is increasingly unsustainable. Old Navy and Gap Domestic have benefitted significantly from JCP. Now GPS has to anniversary it.
  • TGT missed perpetuating what now marks three consecutive sequential months of decelerating underlying 2-year comp trends. With the setup getting tougher through year-end before it eases in early 2013, near-term results will remain pressured and reliant largely on cost management to drive earnings performance.
  • With underperformance at both Old Navy and ROST, we will be keeping a close eye on this development as two of the greatest beneficiaries of JCP’s share shift…dare we say an incrementally positive data point for JCP?


HedgeyeRetail: October SSS = Shrinking Sales Sample - OctSSS


HedgeyeRetail: October SSS = Shrinking Sales Sample - GPS Comps


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