Long shares in Cheesecake Factory was one of the two ideas we pitched yesterday during our consumer sector heads’ Best Ideas call, the other being short Burger King.


We have been vocal about our bearish stance on casual dining for some time and have focused that call on two stocks in particular: BWLD and DRI.  The DRI call was particularly impactful given that it was highly contrarian, but also because of the ramifications for the space.  The crucial ingredient in Darden’s most recent quarter was its statement that the company’s strategy was to be less protective of margins going forward.   We believe CAKE is one company within casual dining that will see limited impact from Darden’s “price war”.  The stock has underperformed the market of late but we believe bottoming earnings estimates and other fundamental factors could make the stock an attractive long at this price.

  • Strong marketing presence, loyal consumer base, and high average unit volumes
  • Improving housing outlook benefits the core CAKE consumer
  • Negative sentiment in the stock
  • Modest same-restaurant sales expectations vs optimism in casual dining trends outlook








Potential For Upside Surprise


The company is set to take roughly 2% in price during 2013.  Consensus is modeling roughly flat average check growth despite traffic outperforming industry trends (Knapp) by an average of 270 bps over the past four reported quarters and mix running between -0.4% and -1%.  Management’s guidance on average check was quite firm during the most recent earnings call: “We're not considering a negative. The average check has never gone down that I know of, not in years. So no, we're not considering a negative average check.”



Howard Penney

Managing Director


Rory Green

Senior Analyst




In preparation for HYATT's 4Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.



  • "The Hotel Nikko acquisition in Mexico City which we acquired and rebranded as the Hyatt Regency in Mexico City this past May is performing well.  We're on track to begin renovations to this property next year."
  • "The public space renovations of the Grand Hyatt San Francisco are expected to be completed by the end of this year."
  • "Our international loan-to-lease hotels were relatively weaker in a number of markets with the exception of London, which benefited from the Summer Olympics."
  • "For the full year 2012, we expect to realize approximately $15 million of savings relative to our prior estimate, about half of which is a reduction of run rate expenses driven by savings from personnel and staffing changes and about half is due to other cost savings initiatives that are more one-time in nature."
  • "In terms of adjusted EBITDA impact from these asset sales for the full year of 2013, earnings will be reduced by about $11 million to $12 million relative to 2012, or about $15 million on a full year run-rate basis."
  • "We've approximately $131 million remaining under our authorization. We remained committed to a balanced strategy of investing in growth and also returning cash to shareholders when appropriate."
  • "In the coming quarter and then into early 2013, we're likely to see a carryover of the same type of issues that we saw in the third quarter... We do think that there are some signs of a more modest overall growth trajectory. Longer term, we continue to feel very confident about the strength of our brands and about the prospects for the industry."
  • "The election in the U.S. next week, the party Congress in China that begins next week, and the timing of other holidays are likely to negatively impact the fourth quarter."
  • "Fee growth will be negatively affected in the short-term by ongoing renovations at large managed hotels, notably in the fourth quarter we expect the Grand Hyatt, San Diego, the Grand Hyatt and Hyatt Regency hotels in Washington, D.C., and the Hyatt Regency Dallas to be under renovation."
  • "As we look to next year, several of our large Grand Hyatt hotels in gateway cities in the Asia-Pacific region are planning renovations. These renovations are great for our brand presence and for our guests and for the owners over the long term, but do lead to short-term impact on RevPAR and fees."
  • "Our negotiated corporate volume business is actually increasing year-over-year and I think that that will continue to be the case as we continue to focus on the expansion of our Select Service presence around the country."
  • "We expect the realignment savings to continue into 2013, partially offset by wage and other cost inflation, and the selected increase in resources as we allocate some resources towards growth initiatives. Overall, we expect the net impact to result in sort of a flattish SG&A growth in 2013."
  • "In the third quarter and heading into fourth quarter, definitely a slowdown in the rate of growth in group bookings for corporate customers. And I think a lot of that has to do with uncertainty due to the fiscal cliff, the election and the like. Government business was particularly weak, it was down in the third quarter for us significantly, so if you look at our third quarter results we had a slight decline in room nights for group bookings for the quarter. More than a 100% of that decline was derived from government business. Part of that is demand and part of it was yield-management decisions that we undertook to actually trade away from some of that business, so some unusual short-term impacts from the government side."
  • "The short-term booking pace in the quarter, for the quarter and in the quarter for the year bookings is still dominated by corporations. And when we see the production in the third quarter, our total production in the third quarter was up significantly, up 12% year-over-year, the vast majority of that was associations booking into 2014. And we believe that the reason we're seeing that is because associations are looking out further into the future. They are seeing higher levels of overall occupancy and are now beginning to secure dates for major meetings that they've got planned for 2014. So we have a bit of a barbell going on in the sense of very different dynamics, short term among corporate groups and longer term among associations."
  • "In terms of overall pace, it's still positive for 2012, 2013 and 2014. The pace of growth, or the rate of growth, has actually declined a bit, and rate growth continues to be positive across all the booking periods. So I would say that there is a bit of a mixed picture here, and but the key drivers that we're looking at are this segregation of prebooking in the winter period, but also looking at rate progression that remains positive across all the period."
  • [Margin impact]  "We continue to experience some challenges in some of our international markets, which contributed about 50 basis points. We have overall lighter food and beverage than expected, particularly in the high margin banquet revenues."
  • "RevPAR performance is expected to be weaker in China given the political changes. In addition, Beijing has seen a drop in corporate business which has been postponed until after the elections. We've seen a tightening of government spending, particularly in the south of China. Once the election is over, we anticipate corporate demand will return to more normalized levels."
  • "India RevPAR was also weak due to additional supply and the decrease in demand as a result of slowing economic growth. Most markets are not expected to see a rate increase as a result of the increased supply, near term, such as Mumbai and Delhi."
  • "Two-thirds of the realignment cost is related to severance and personnel expense, and one-third is owing to professional fees. The expectation is that minimal impact in the fourth quarter from the realignment cost perspective, and there are no realignment costs in 2013 as we perceive now... With respect to – and so therefore a lot of the run rate expense which is about half of the $15 million that we
    described this year relates to personnel and staffing issues. With respect to the remainder, there are other thirdparty contractual – we underwent a third-party contractual review around the world. We looked at professional  fees and expenses. We also recognized that under the old organizational structure we had a number of open positions embedded in our SG&A estimate that would no longer apply by virtue of the changes that we made structurally"
  • "In terms of our pipeline, we about 75% of our total pipeline is outside the U.S., and virtually all of that is for managed properties and within the U.S. it's a mix of management and franchise but more franchise than managed and mostly and more of Select Service than full service in North America at least."
  • "Since we do have a large portfolio of Select Service properties, we will continue to look at different ways in which we can utilize that asset base through sales or in some cases JV. So, we contributed I think it was eight hotels to a JV with Noble last year, or possibly the year before"
  • "We will continue to pursue transactions for both full service and Select Service properties, but on the Select Service side, we've been highly focused on trying to find new and different ways to expand our ownership and end up with good owners long-term for our properties."


Takeaway: The path towards a lower yen is once again clear with the recent mollification of int’l criticism of Japan’s “beggar thy neighbor” policies.



  • The path towards a lower yen is once again clear with the recent mollification of international criticism of Japan’s “beggar thy neighbor” policies among G7 finance ministry and central bank officials.
  • While the direction of our bearish thesis on the Japanese yen has certainly become consensus over the past few months – speculators were net long the JPY to the tune of 21.9k contracts back in late SEP (vs. 59.1k net short today) and the Bloomberg Consensus 2013 EOY USD/JPY forecast was for ¥84 then (vs. ¥93.5 now) – we still contend that market participants do not fully appreciate the scope and magnitude of the pending phase change in Japanese monetary policy.
  • In fact, our previous call for the USD/JPY cross to hit ¥100 in this calendar year may ultimately prove not bearish enough if the Abe administration continues to encounter limited blowback to their Policies To Inflate.




  • The G7 “bows” to Japan: Today, the G7 released a statement designed to assuage growing – albeit late – fears of a Currency War by jointly pledging to avoid devaluing their respective exchange rates in the pursuit of stronger economic growth. “We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates,” G7 finance ministers and central bank governors said in the statement, which was released today in London. Japan’s Finance Minister Taro Aso said the G7 acknowledged that Japan is not necessarily pursuing a weaker yen, but that its recent monetary and fiscal policy measures are aimed at overcoming entrenched deflation.
  • Not fooling us: Who exactly are these people trying to kid? Everyone in that room and everyone who’ll attend this weekend’s G20 summit in Moscow knows full well that each of their respective countries are engaged in “beggar thy neighbor” currency policies to varying degrees. We personally find it odd that few in the Western media, if any, have spoken out against the Fed and ECB’s currency debasement strategies over the previous 2-3yrs. Now that Japan wants a turn in the devaluation driver’s seat, all ‘heck’ has broken loose…
  • It’s Japan’s turn anyway: As we’ve quantified in our #Quadrill-yen presentation, it’s the BOJ’s rightful turn to take center stage in the competitive devaluation arena. Inclusive of the yen’s -17.7% decline vs. the USD since we outlined our bearish thesis back on 9/27/12, the Japanese currency is still up +13.9% vs. the dollar over the past 5yrs of debt, deficit and devaluation strategies employed by the US Treasury and Federal Reserve. With respect to the EUR, those deltas are -20.8% and +23.6%, respectively.
  • … And Japan is poised to get real busy: Indeed, it would seem Japanese policymakers have a lot of hay to bale if they are to continue to make up for previously lost ground during this multi-year Currency War. With the relatively hawkish Masaaki Shirakawa stepping down early as BOJ governor on MAR 19 (along with his two deputy governors), we continue to believe a new era of unprecedented monetary policy aggression is coming to Japan with full support from the Abe administration.
  • The Japanese bond market agrees: Japan’s bond market is definitely starting to agree with our call for the BOJ’s balance sheet and policy toolkit to expand in a relatively aggressive and potentially creative manner over the intermediate-to-long term:
    • 5Y nominal JGB yields hit a record low today (0.138%) on speculation that the BOJ will eventually increase the duration of its purchases;
    • Japan's 5Y breakeven inflation rate hit a new all-time high of 1.05% today; and
    • Also, the spread between 30Y and 10Y nominal JGB yields reached 122ps wide today – a mere 9bps shy of the all-time wides reached in NOV ’00.
  • The BOJ leadership transition remains a key catalyst: Potential candidates to replace Shirakawa include: Asian Development Bank President Haruhiko Kuroda, former BOJ Deputy Governor Toshiro Muto and former BOJ Deputy Governor Kazumasa Iwata.
    • In his latest [shameless] campaign plug, Kuroda – who once wrote that the BOJ should pursue a +3% inflation target – spoke out today calling for more aggressive easing out of the BOJ: “The Bank of Japan could usher in a growth spurt unseen in a generation by stepping up stimulus and ending deflation… Japan, along with other nations, has really substantial room for monetary easing… There’s the equivalent of trillions of dollars of financial assets that could be bought by the BOJ.”
    • Muto, chairman of the Daiwa Institute of Research, said in an recent interview that he’s revised his views on monetary policy from 2007. Then, as a deputy governor, he repeatedly said that keeping interest rates too low could be problematic for the economy. Contrast that with his recent commentary: “Ending deflation is the top priority and a policy of monetary easing is justified… No potential monetary step should be considered taboo.”
    • Iwata, head of the Japan Center for Economic Research, has championed the idea of the central bank buying foreign-currency bonds to help weaken the yen – a proposal the LDP is said to be considering, as it would require approval from the Finance Ministry. Some of his recent comments indicate he may be just as aggressive as Kuroda appears to be: “Deflation and strong yen can be overcome with monetary policy alone… The central bank governor should be prepared to resign if targets are missed… The BOJ law should be changed to oblige the central bank to publicly explain should inflation be more than 1 percentage point off target.”
  • T-minus 2-3 weeks: The Abe administration plans to officially introduce its endorsed candidates to the Diet for vetting at the end of this month. Regarding the appointment process specifically, it should be noted that no party has an outright majority in the Upper House of the Diet/House of Councillors, which is on equal footing with the Lower House/House of Representatives as it relates to approving appointments to the BOJ board.
  • Will the LDP get “their guy”?: That means the LDP and NKP (83 and 19 seats respectively) will have to gain the support of smaller regional parties to push through any of their preferred, ultra-dovish candidates. Eleven votes from Your Party – which has rhetorically aligned themselves with the LDP-NKP platform on this agenda – would put them at 113 seats, leaving them 9 seats shy of a decisive victory, but still well within reach because we think the smaller parties will be more inclined to associate themselves with the LDP’s drive to reflate the Japanese economy ahead of the JUL ’13 Upper House elections, rather than side with the DPJ, which was blown out in the DEC Lower House elections.
  • Where to from here?: While the direction of our bearish thesis on the Japanese yen has certainly become consensus over the past few months – speculators were net long the JPY to the tune of 21.9k contracts back in late SEP (vs. 59.1k net short today) and the Bloomberg Consensus 2013 EOY USD/JPY forecast was for ¥84 then (vs. ¥93.5 now) – we still contend that market participants do not fully appreciate the scope and magnitude of the pending phase change in Japanese monetary policy. Our previous call for the USD/JPY cross to hit ¥100 in this calendar year may ultimately prove not bearish enough if the Abe administration continues to encounter limited blowback to their Policies To Inflate.
  • Why?: Because “they” said so. Macro investing ≠ micro investing. In macro investing, people (i.e. policymakers) have a funny way of determining what is and isn’t priced in on the fly. Just because a macro trade has become consensus doesn’t mean it will cease to work (think: gold and US Treasury bonds over the past 10yrs).


Darius Dale

Senior Analyst












CURRENCY WAR UPDATE: THE G7 BOWS TO JAPAN - Japan House of Councillors







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"We are very pleased to begin our journey as a public company by posting strong results for 2012. In addition, our fourth quarter results marked our eighteenth consecutive quarter of year-over-year Adjusted EBITDA growth" 


- Kevin Sheehan, President and Chief Executive Officer of Norwegian Cruise Line




  • Despite the weaker than expected results from Europe and impact of Super Storm Sandy, Net Yields increased 2%. Full year load factor was only down 0.6%. Capacity for the year increased 1.7%. 
  • Hedging strategy of using swaps and collars.  Also look at ways of cutting fuel consumption.
  • Leverage is now below 5x and both rating agencies have upgraded their ratings as a result of the IPO and debt transactions consumated post IPO
  • Capacity for the next Q will be lower YoY but higher for the year of 2013.
  • Taking delivery of Norweign Breakaway in a few months, will bring the best of NYC to the seas


  • Seeing a lot of momentum on booking patterns over the last 5 weeks
  • Demand during WAVE season by region?
    • This year Christmas and NYE fell on Tuesday so it impacted bookings these weeks, however, since then they have been booking in that 20%ish zone similar to RCL.  
    • Europe is booking in-line with the rest of their itineraries for now.  When they get closer in, that's when they would drop prices or raise prices on Europe depending on booking patterns towards the end of Q1. Still too early to tell.
  • Seeing a healthy booking period - which has extended from 2012.  Reason for the wide guidance is that they are being cautious since it's their first quarter as a public company. Hope to narrow guidance as the year progresses. 
  • Only have 11 ships so they have more volatility when it comes to dry docking and NCC costs ex Fuel. They bought the Genting ship and that came with a $5MM charter fee.  Now that goes away.  3 dry docks per year are the right number for them.
  • Nothing unique to the Epic vs. their other ships.  It's a double digit improvement to the other ships - people stay up later and spend more money on drinks and the casino. The design of these new ships are probably even a little better than Epic.
  • Back on Jan 23rd they issued a statement to their passengers on the Jade that they wouldn't enter the Holy Land region given what was occurring and that cost them a little yield.
  • Alaska: Had 3 ships in the region up until a few years ago when the state put a large tax on their gas. Then the taxes were rolled back and they are bringing the 3rd ship back. 
  • Putting a scrubber on the Pride of America - costs a lot but allows them to use fuel more efficiently. Will do that with their new ships.
  • Drove down their fuel consumption by 1.5% last year due to efficiency measures and feel like they can continue to do that.





  • "Contributing to the increase in revenue were slightly higher Capacity Days in the quarter and a Net Yield improvement of 2.5%, or 2.7% on a Constant Currency basis, from higher ticket pricing and onboard spend per Capacity Day."
  • " NCC ex Fuel decreased ... from the timing of certain repairs and maintenance expense, including dry-docks, and business improvement initiatives."
  • "The delivery of our Breakaway and Breakaway Plus class vessels, designed to improve on the already successful platform of Norwegian Epic, along with our strong product proposition that offers a consistent experience throughout our fleet, has Norwegian well positioned for 2013 and beyond."
  • [1Q13] "Adjusted EPS guidance based on net income excluding one-time charges related to the Company's initial public offering, issuance of $300 million in senior unsecured notes, redemption of the full amount of the Company's outstanding $450 million 11.75% senior secured notes due 2016 and partial redemption of our outstanding $350 million 9.5% senior unsecured notes due 2018."
  • "On January 24, 2013 the Company closed on an initial public offering ("IPO") of 27,058,824 of its ordinary shares, including shares sold as a result of the full exercise by the underwriters of their option to purchase additional shares, at a price of $19.00 per share."
  • "On February 6, 2013, the Company closed on the sale of $300 million of senior unsecured notes due February 2018 at a coupon of 5.00% per annum. The notes were issued at a price of 99.451%. The aggregate net proceeds of the IPO and the notes offering, after deducting underwriting discounts, commissions, initial purchasers' discount and estimated fees and expenses, were used to prepay certain credit facilities, repay amounts pursuant to the Norwegian Sky Agreement, redeem the full amount of the outstanding $450 million 11.75% senior secured notes due 2016, redeem a portion of the outstanding $350 million 9.5% senior notes due 2018 and for general corporate purposes." 


Week 1 of Feb Sales Underwhelming

Takeaway: After a promotional-driven January, the underlying cadence of consumer spending does not appear to have changed meaningfully in Feb.

The sequential change in sales into the first week of February leaves much to be desired. The chart below (ICSC Retail Sales Data) allows us to layer the current year's sales trajectory over what we saw in 2012, 2011, and 2010. What we're seeing in 2013 is nothing to write home about. Perhaps we saw a negative impact from the storm that hit the East coast -- though we could have very well argued the opposite should have taken place.


Its only one data point for the first quarter of the new retail year -- so let's not get too bent out of shape over it. But after a promotional-driven January with decelerating spending towards the back of the month, the data (outlined by the red line in the chart) suggests that the underlying cadence of consumer spending has not changed meaningfully.


ICSC Sales Index By Year

Week 1 of Feb Sales Underwhelming - salesfeb


In preparation for PNK's 4Q earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.



Pinnacle Entertainment Completes Acquisition of Retama Park Racetrack in Texas (1/30/2013)

  • Paid cash consideration of $15 million to acquire a 75.5% equity interest in Pinnacle Retama Partners, LLC (PRP).  PRP will use the  proceeds of the transaction primarily to refinance the existing indebtedness of Retama Development Corporation ("RDC").  In addition, the Company entered into a management contract with RDC to manage the day-to-day operations of Retama Park. In conjunction with the closing, RDC repaid approximately $3.3 million of loans owned by the Company that were used to maintain continuity in the operations of Retama Park Racetrack."

PNK acquires ASCA (12/21/2012)




  • “L'Auberge Baton Rouge... we have seen strong visitation as evidenced by over 48,000 new mychoice sign-ups during the first month of operations. VIP business has opened up ahead of pace and we're optimistic about our ability to drive continued pace in this segment given the high quality amenities at this property.”
  • “These results are being delivered with more efficient and effective marketing spend. For the quarter, marketing expense as a percent of gaming revenue was down 60 basis points. This marks the third consecutive quarter where marketing reinvestment has been reduced versus prior year.”
  • “Table game growth continues to be a great story at Lumière, up 21% year-over-year in table field for the quarter. River City's growth was driven by increased play on day of trips and overall increased frequency of visitation. Our continued focus on driving profitable revenue is again evident in the results coming out of St. Louis, with marketing expense as a percentage of gaming revenue down 180 basis points versus prior year.”
  • [Belterra] "We continue to grow admissions in a declining market, and we remain focused on leveraging our unique assets while maintaining marketing spend discipline.”
  • “In New Orleans, the property and the market are clearly struggling, but underlying trends at Boomtown got progressively better throughout the quarter, notwithstanding the impact of Hurricane Isaac.”
  • “We have tremendous conviction in the value of our company and are very pleased to be purchasing shares in what we view as very compelling levels.”
  • [River Downs] The project's expected to cost $209 million, excluding license fees, land and capitalized interest. We expect to begin construction this year with the entire facility scheduled to open in the first half of 2014. We have master planned this facility for future expansion should demand conditions warrant the additional investment.”
  • “At River City in St. Louis, the $82 million expansion is progressing rapidly with the parking garage expected to open in about a month. The multipurpose event center is expected to come online before the end of next summer, and the hotel will open in the second half of 2013.”
  • “To date, we have contributed about $14 million of the $15.6 million, and we expect the remaining funds to close in the fourth quarter. ACDL continues to make meaningful progress on the development. And while there is work to do on the regulatory front, the project remains on track to open the first quarter of next year.”
  • “We continue to improve our margins, not only in this property, but all of our properties.  We believe margins this quarter are sustainable going forward.”
  •  [L’Auberge Baton Rouge]  “We're pleased with September and initial results. October has a bit different calendar and – but we're pleased with what we see in October and most important, we really feel like we nailed this facility. It's a terrific facility with a wonderful management team that we're very optimistic over time. We're going to build profitable revenues and have really good financial outcomes here.”
  • [L’Auberge du Lac] “Houston is a very underpenetrated market where we think that there is a lot of unmet demand, and we've been able to yield that facility – meaningfully better over the last couple of years mostly by having more profitable guests that come through our place but given the depth of that market. So we think that there is certainly room to go there and we've made enhancements to our facilities to make sure that we can take advantage of that demand. And on the non-gaming revenue side, we've continued to make enhancement that drive non-gaming cash revenue which is part of the story.”
  • “In terms of the spend per visit increase, it is coming largely from our top three tiers, the quality of the guests that are visiting our properties and the incentives that we're providing to them are yielding higher spend per visit.”

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