We remember, vividly, the Street writing Brinker’s obituary in October 2012.


Specifically, it was October 24th and Brinker had just reported its 1QFY13 earnings.  The company reported a 23% increase in EPS on 2.8% Chili’s comp but that was not good enough.  The industry was experiencing a sales slowdown in September 2012 and was continuing into October.  Apparently, at the time, it was game over for Chili’s and the stock ended up down nearly 10% that day, closing at $30.00.


Fast forward to the just reported 3QFY13 earnings call the stock is now $37 and trading down on good volume all because Chili’s lost ground to the Knapp Track bench mark in the month of March.  Is the Brinker story over again for the second time in 6 months?


We need to ask the same question today as in October 2012: Has anything changed on the margin that has cause the story to change for EAT?

  1. Have the competition responded to counter the Chili’s sales momentum?
  2. Have the critical financial metrics of the company slowed?
  3. Did management use weather as an excuse to justify the slowing performance?
  4. Has management’s tone changed toward the future goals?
  5. Did guidance change?


Some of these questions are more difficult to answer but the most important ones for the long-term TAIL thesis, 2, 4 and 5, can be answered with resounding "no"s. The March results were certainly weaker than we were looking for.  Specific details on the quarter were positive, however, with the company reiterating its FY2010 promise to double EPS by the end of FY14 and emphasizing a recovery from initial operational difficulties around the roll-out of pizza in its Chili’s stores. 


While many on the sell-side view Brinker with more than a little skepticism, perhaps because of disappointments in the pre-FY10 era, we believe the current management team has earned a heightened level of credibility (particularly versus some competing management teams).  The company’s guidance of roughly $2.35 in FY13 EPS versus consensus $2.32 implies, to us, that the earnings power of the company has not deteriorated. We retain a positive bias on Brinker over the longer-term TAIL.



Howard Penney

Managing Director


Rory Green

Senior Analyst

S&P 500: Staying The Course

The S&P 500 is up +10.7% year-to-date and is outperforming other asset classes including fixed-income (bonds) and commodities by a wide margin. Comparatively, the CRB Commodities Index, which measures 19 different commodities, is down nearly -6% so far this year. One of the most widely traded bond ETFs out there, the iShares Barclays 20+ Year Treasury Bond ETF (TLT), is up only +1.19% for the same time period.


S&P 500: Staying The Course - SPXYTD today


To listen to the replay of this morning’s call on Emerging Market Crises led by Senior Analyst Darius Dale of the Hedgeye Macro Team, please CLICK HERE. To download the associated presentation, please CLICK HERE.


You’ll need your login information to access the replay; if you need those credentials or if you’re having trouble accessing any of the links, please email .


Emerging Market Crises: Identifying, Contextualizing and Navigating Key Risks in the Next Cycle

On the call, we walked through Hedgeye's proprietary model for identifying and ranking emerging market economies (EMEs) according to their levels of risk. In addition, we addressed the following key questions:


  • Today's Setup: What risks are our proprietary, multi-factor model signaling across the various EMEs?
  • Crisis Trigger Scenario Analysis: All crises need tipping points. What event(s) will trigger them this time around?
  • "BRICS" or Bricks?: How do these darlings of the investment community stack up relative to their peers?
  • Threading the Needle: Is China careening towards a financial crisis?


Summary Conclusions:

  • We currently see a pervasive level of risk across the emerging market space at the country level and have quantified which countries are most vulnerable
    • Generally speaking, the famed “BRICS” economies screen very poorly on our model
    • China is particularly vulnerable to experiencing a financial crisis
  • As such, we find it prudent for investors to reduce their allocations to emerging market equity and currency risk in favor of US equity and US dollar exposure
    • SHORTS: iShares MSCI EM Index Fund (EEM), Freeport-McMoRan (FCX), Latin American and African commodity currencies (PEN, CLP, COP, ARS, NGN, DZD)
    • LONGS: US Dollar (UUP), Healthcare SPDR (XLV) and Consumer Discretionary SPDR (XLY)
    • RELATIVE PLAYS: Long/Overweight Indonesia (EIDO), Philippines (EPHE) and Mexico (EWW) vs. Short/Underweight Russia (RSX), Brazil (EWZ) and South Africa (EZA)
  • #StrongDollar and commodity price deflation have been and should continue to be key catalysts for EM underperformance


Best regards,


The Hedgeye Macro Team

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.


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





  • Locals commentary:
    • "We saw reasons for guarded optimism in this region later in the quarter, as business trends started to improve. The declines we saw in October to November moderated in December, and that positive trend has continued into the first quarter."
    • "Customer accounts are up. Spend per visitor is down."
    • "We refined our marketing and advertising programs and made significant changes on our casino floor, and we began to see the benefits of this in the fourth quarter as visitation strengthened month-by-month across our Locals business. In 2013, we will continue looking for ways to improve our core business, not just in Nevada, but across our portfolio."
  • "As other companies in our industry have already reported, gaming customers nationwide pulled back in the fourth quarter due largely to economic uncertainty surrounding the elections and the fiscal cliff. While we actively worked to mitigate the impacts of these trends on our business, they did affect our operations. These trends continued into the first quarter. Our customers are now adapting to the impact of higher payroll taxes that took effect January 1; continued uncertainty from Washington over federal spending and taxes is affecting consumer behavior as well."
  • "We are encouraged by signs of continued improvement in the Southern Nevada economy. The unemployment rate has been declining in recent months and home prices rose substantially throughout 2012. Las Vegas is still far from the boom years, but the trend is in the right direction, and we believe we will see modest improvement throughout this business in 2013."
  • "Visitation remains solid, especially among our Hawaiian customer base, and we gained 250 basis points in market share from the third quarter to the fourth, further expanding our leading position in the Downtown market. We believe those positive trends will continue. Our Hawaiian business remains strong and we will benefit from the ongoing redevelopment of Downtown, which continues to drive new business, new visitors and new residents into the area."
  • [Midwest/South/Peninsula] "While business from our core players remained solid, we saw declines in both visitation and spending among casual players."
  • [Kansas Star] "With the permanent casino opened, the property is now on track to open a 4,200 seat arena by mid year."
  • "Looking ahead to the first quarter, Kansas Star will be comparing to a strong introductory period, when it was able to generate robust visitation with very little marketing spend. That is obviously not sustainable and customer reinvestment has increased to more realistic levels. Winter weather has presented more of a challenge in the first quarter of 2013 as well. But we remain quite optimistic about Kansas Star's long-term potential and we expect that Kansas Star's margins will remain the highest in the Peninsula portfolio and project that the property will generate about $100 million in annual EBITDA going forward."
  • "The transactions to dispose of the Echelon site and Dania will result in our leverage improving by over half a turn this year."
  • "So, regarding the property tax appeal at the Borgata, I think the only thing I can really say is it is going to trial in late March and we won't provide any commentary other than the fact it's going to trial in late March and we're hopeful of a positive outcome."

HOUSING: Raise The Roof

New Home Sales rose 1.5% this morning to 417,000 at an annual rate. This news is decidedly bullish for housing in general as home sale volumes continue to rise in tandem with home prices. Currently, new homes account for 7.8% of all sales and we expect growth to continue as inventory levels rise. The median price of new homes sold in March rose 5.3% vs the prior year, down slightly from the prior month's 5.6% year-over-year increase.











TREASURIES: How Low Can You Go?

Investors are running for the hills as the commodity bubble pops and Europe, China and gold all look weak. With people running out of places to store their money, capital is flowing into US Treasuries and in particular, the 10-Year Note. When Treasury prices go up, yields go down and that's what we've been seeing for the past month. Currently, the yield on the 10-year is at 1.65% and it's quite capable of going eve lower.


TREASURIES: How Low Can You Go? - 10YR

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.