PNRA reported 1Q EPS $1.64 vs. consensus of $1.65 and SSS of 3.3% which missed the 4.3% consensus expectations.  The company pulled the weather card, citing an impact of -1.0% to -1.5% impact from traffic.  The quality of the earning was low in the quarter as EPS benefited $0.05 from resolution of tax matters.  The company left the full year guidance unchanged at +17-19% growth or $6.89-$7.01 (including an extra week).


During 1Q13, traffic was -2.4% vs. expectations of -0.9%, which was a sequential decline of -240 basis points from 4Q12.  Even adding back the weather impact of 1.5%, traffic declined 90 basis points sequentially. 


The bulls will likely highlight that the March and April comparable sales growth numbers seem back on track, with March running at +4.7% and the first 27 days of April seeing comparable sales growth at +5% at company locations.  Assuming +5.5% in traffic and mix this still suggests negative traffic and we expect traffic to remain pressured for the balance of the year.  Considering the national cable marketing effort that kicked off in February, as part of the higher advertising spending plan for 2013, this is a red flag.


Our short thesis remains intact and we expect consensus estimates to be revised down over the coming weeks.  Management maintaining FY13 guidance has heightened the risk that 2H13 earnings miss expectations.


The company is hosting its EPS conference call at 8:30am ET.  We’ll post on anything incremental after the call.



Howard Penney

Managing Director


Rory Green

Senior Analyst


TODAY’S S&P 500 SET-UP – April 24, 2013

As we look at today's setup for the S&P 500, the range is 46 points or 1.38% downside to 1557 and 1.53% upside to 1603. 










  • YIELD CURVE: 1.49 from 1.48
  • VIX closed at 13.48 1 day percent change of -6.32%

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, April 19 (prior 4.8%)
  • 8:30am: Durable Goods Orders, March, est. -3% (prior 5.6%)
  • 8:30am: Durables Ex-Trans, March, est. 0.5% (prior -0.7%)
  • 8:30am: Cap Goods Orders Nondef Ex Air, March est. 0.3%
  • 8:30am: Cap Goods Shipments Nondef Ex Air, March, est. 1%
  • 10:30am: DOE Energy Inventories
  • 11am: Fed to buy $1.25b-$1.75b notes in 2036-2043 sector
  • 1pm: U.S. to sell $35b 5Y notes


    • VP Joe Biden attends service for MIT police officer killed during Boston Marathon bomber manhunt
    • 9am: NTSB concludes meeting on how Boeing, FAA approved the 787’s lithium-ion batteries
    • 10am: House Transportation, Infrastructure Cmte hearing on freight transportation system
    • 10am: Full cmte markup of H.R. 807, which would require gov. to prioritize obligations on debt held by public in event the debt limit is reached
    • 10am: House Natural Resources Cmte marks up H.R. 3, “Northern Route Approval Act,” to approve construction, operation, maintenance of Keystone XL pipeline
    • 10am: House Fin. Svcs panel hearing on Sallie Mae wind-down as government-sponsored enterprise
    • 10:30am: Joint Economic Cmte hearing on long-term unemployment
    • 12:30pm: Sen. Sherrod Brown, D-Ohio, Sen. David Vitter, R-La., to disclose details of their “too big to fail” banking measure, including “exact” capital requirements
    • 2pm: House Oversight and Government Reform Cmte hearing on Fisker Automotive’s DoE loan, witnesses incl. founder Henrik Fisker


  • Apple to return $55b more to investors as growth slows
  • Apple says to have new products in the fall, in all 2014
  • Boeing faces 2nd day of Dreamliner U.S. safety investigation
  • United sends first 787 for installation of new battery system
  • Too-big-to-fail bill due today faces opposition in Senate
  • Patriot Coal wins court permission to probe Peabody spinoff
  • Anadarko seeks dismissal of investor suit over 2010 gulf spill
  • BMC said to get separate bids from KKR, Bain buyout groups
  • Dell approves retention bonuses for execs amid buyout talks
  • Clearwire sets May 21 date for vote on Sprint’s takeover offer
  • Toyota outsells GM for 5th quarter amid yen-led recovery
  • Billabong extends talks with Sycamore for A$287m bid
  • FedEx shuts out UPS to win $10.5b in Postal Service work
  • ZTE signs patent-licensing deal w/Microsoft over smartphones
  • Payday loan restrictions said considered by 3 U.S. agencies


    • Ashland (ASH) 6am, $1.54
    • Carlisles (CSL) 6am, $0.84
    • Thermo Fisher Scientific (TMO) 6am, $1.29
    • Whirlpool (WHR) 6am, $1.90
    • WR Grace (GRA) 6am, $0.80
    • WellPoint (WLP) 6am, $2.38
    • Evercore Partners (EVR) 6am, $0.45
    • Cenovus Energy (CVE CN) 6am, C$0.46 - Preview
    • Praxair (PX) 6:05am, $1.39
    • Prosperity Bancshares (PB) 6:05am, $0.84
    • Timken (TKR) 6:30am, $0.80
    • MarketAxess Holdings (MKTX) 6:30am, $0.37
    • Wyndham Worldwide (WYN) 6:30am, $0.67
    • Eli Lilly (LLY) 6:30am, $1.05 - Preview
    • Barrick Gold (ABX CN) 6:31am, $0.86 - Preview
    • Procter & Gamble (PG) 6:58am, $0.96 - Preview
    • Meritage Homes (MTH) 7am, $0.25
    • Northrop Grumman (NOC) 7am, $1.73 - Preview
    • Omnicare (OCR) 7am, $0.87
    • Valley National Bancorp (VLY) 7am, $0.18
    • Lorillard (LO) 7am, $0.64 - Preview
    • Tupperware Brands (TUP) 7am, $1.13
    • Asbury Automotive (ABG) 7am, $0.67
    • Teledyne Technologies (TDY) 7am, $0.97
    • EMC/MA (EMC) 7am, $0.40
    • Ford Motor (F) 7am, $0.37 - Preview
    • Motorola Solutions (MSI) 7am, $0.67
    • Sprint Nextel (S) 7am, $(0.34) - Preview
    • Metro (MRU CN) 7am, C$1.01
    • Rockwell Automation (ROK) 7am, $1.29
    • NASDAQ OMX Group (NDAQ) 7am, $0.62
    • General Dynamics (GD) 7am, $1.50 - Preview
    • Lumber Liquidators Holdings (LL) 7am, $0.42
    • Corning (GLW) 7:10am, $0.24
    • RPC (RES) 7:15am, $0.25
    • Rollins (ROL) 7:15am, $0.16
    • Owens Corning (OC) 7:28am, $0.19
    • Hess (HES) 7:30am, $1.59 - Preview
    • T Rowe Price (TROW) 7:30am, $0.89
    • Waste Management (WM) 7:30am, $0.41
    • Lithia Motors (LAD) 7:30am, $0.71
    • Silicon Laboratories (SLAB) 7:30am, $0.55
    • BankUnited (BKU) 7:30am, $0.45
    • Boeing (BA) 7:30am, $1.49 - Preview
    • Southern (SO) 7:30am, $0.50
    • Canadian Pacific Railway (CP CN) 7:30am, C$1.22
    • Allegheny Technologies (ATI) 7:30am, $0.12
    • Sherritt International (S CN) 7:46am, C$0.05
    • Iconix Brand (ICON) 8am, $0.52
    • Silgan Holdings (SLGN) 8am, $0.47
    • Wabtec (WAB) 8am, $1.41
    • Dr Pepper Snapple (DPS) 8am, $0.46
    • New York Community Bancorp (NYCB) 8am, $0.26
    • SUPERVALU (SVU) 8am, $0.11
    • Prologis (PLD) 8am, $0.40
    • Medicines (MDCO) 8am, $(0.27)
    • TC Pipelines (TCP) 8am, $0.64
    • Mine Safety Appliances (MSA) 8:30am, $0.63
    • SEI Investments (SEIC) 8:30am, $0.34
    • AVX (AVX) 8:30am, $0.15
    • Avery Dennison (AVY) 8:30am, $0.58
    • USG (USG) 8:30am, $0.08
    • OSI Systems (OSIS) 8:30am, $0.74
    • NuStar Energy (NS) 8:55am, $0.43
    • Cullen/Frost Bankers (CFR) 9am, $0.96
    • NuStar GP Holdings (NSH) 9:05am, $0.38
    • Toromont Industries (TIH CN) 11:15am, C$0.25
    • Euronet Worldwide (EEFT) Bef-mkt, $0.37
    • Stryker (SYK) 4pm, $1.01
    • QUALCOMM (QCOM) 4pm, $1.17
    • Sterling Financial (STSA) 4pm, $0.35
    • Open Text (OTC CN) 4pm, $1.30
    • Texas Capital Bancshares (TCBI) 4pm, $0.83
    • Crocs (CROX) 4pm, $0.34
    • Coherent (COHR) 4pm, $0.84
    • Interface (TILE) 4pm, $0.14
    • ARRIS Group (ARRS) 4pm, $0.24
    • Knight Transportation (KNX) 4pm, $0.18
    • Whiting Petroleum (WLL) 4pm, $0.91
    • Varian Medical Systems (VAR) 4pm, $1.02
    • Cliffs Natural Resources (CLF) 4:01pm, $0.33
    • LSI (LSI) 4:01pm, $0.12
    • On Assignment (ASGN) 4:01pm, $0.18
    • Bally Technologies (BYI) 4:01pm, $0.85
    • Tractor Supply (TSCO) 4:01pm, $0.62
    • Crown Castle International (CCI) 4:01pm, $0.04
    • Montpelier Re Holdings (MRH) 4:01pm, $0.90
    • Akamai Technologies (AKAM) 4:01pm, $0.46
    • Equinix (EQIX) 4:01pm, $0.76
    • Stericycle (SRCL) 4:02pm, $0.88
    • Service International (SCI) 4:03pm, $0.22
    • CNO Financial (CNO) 4:03pm, $0.20
    • Lender Processing Services (LPS) 4:03pm, $0.65
    • Zynga (ZNGA) 4:03pm, $(0.04)
    • Morningstar (MORN) 4:03pm, $0.58
    • Glimcher Realty Trust (GRT) 4:04pm, $0.14
    • Citrix Systems (CTXS) 4:05pm, $0.63
    • F5 Networks (FFIV) 4:05pm, $1.06
    • Cadence Design Systems (CDNS) 4:05pm, $0.20
    • Flowserve (FLS) 4:05pm, $1.95
    • Fair Isaac (FICO) 4:05pm, $0.63
    • Jarden (JAH) 4:05pm, $0.23
    • Waste Connections (WCN) 4:05pm, $0.33
    • Clearwater Paper (CLW) 4:05pm, $0.52
    • Fusion-io (FIO) 4:05pm, $(0.07)
    • Angie’s List (ANGI) 4:05pm, $(0.17)
    • PetroLogistics (PDH) 4:05pm, $0.68
    • ServiceNow (NOW) 4:06pm, $(0.03)
    • Aflac (AFL) 4:07pm, $1.62
    • Tyler Technologies (TYL) 4:07pm, $0.30
    • Equifax (EFX) 4:09pm, $0.87
    • Symetra Financial (SYA) 4:10pm, $0.34
    • Cheesecake Factory (CAKE) 4:15pm, $0.42
    • Ryland Group (RYL) 4:15pm, $0.28 - Preview
    • Western Digital (WDC) 4:15pm, $1.77
    • CoreLogic (CLGX) 4:15pm, $0.37
    • Brandywine Realty Trust (BDN) 4:15pm, $0.34
    • Lam Research (LRCX) 4:15pm, $0.37
    • Selective Insurance (SIGI) 4:15pm, $0.38
    • CoStar Group (CSGP) 4:15pm, $0.44
    • Oil States International (OIS) 4:15pm, $1.82
    • Aspen Insurance Holdings (AHL) 4:15pm, $1.10
    • Assurant (AIZ) 4:15pm, $1.55
    • Raymond James Financial (RJF) 4:19pm, $0.78
    • Xilinx (XLNX) 4:20pm, $0.45
    • Churchill Downs (CHDN) 4:30pm, $0.11
    • Graco (GGG) 4:30pm, $0.73
    • Susquehanna Bancshares (SUSQ) 4:30pm, $0.23
    • MKS Instruments (MKSI) 4:30pm, $0.03
    • Duke Realty (DRE) 4:37pm, $0.26
    • PTC (PMTC) 4:58pm, $0.36
    • Mullen Group (MTL CN) 5pm, C$0.50
    • Hill-Rom Holdings (HRC) 5pm, $0.50
    • EverBank Financial (EVER) 5pm, $0.29
    • NewMarket (NEU) 5:01pm, $4.82
    • TAL International (TAL) 5:01pm, $1.05
    • Capstead Mortgage (CMO) 5:15pm, $0.32
    • Terex (TEX) 5:27pm, $0.28
    • Lundin Mining (LUN CN) 5:35pm, $0.09
    • Teradyne (TER) 6pm, $0.03
    • Kirby (KEX) 6pm, $0.91
    • Cabot Oil & Gas (COG) 6:02pm, $0.24
    • O’Reilly Automotive (ORLY) 6:30pm, $1.35
    • Methanex (MX CN) Aft-mkt, $0.73


  • Gold ETPs Head for Record Monthly Drop as $20 Billion Wiped Out
  • Mysterious Lake Threatens Ethiopian Sugar Ambitions: Commodities
  • WTI Crude Climbs to One-Week High on ECB Rate Cut Speculation
  • Gold Resumes Climb as Physical Purchases Temper Drop in Holdings
  • Copper Rises as Commodities Advance Amid Stimulus Speculation
  • Corn Drops for Third Day as Drier U.S. Weather May Speed Sowing
  • Arabica Coffee Rebounds as Prices Fell Too Far; Sugar Advances
  • Lead Premium in Europe Said to Extend Drop on Battery Slump
  • Rebar Jumps Most in Five Weeks After Drop Spurs Investor Demand
  • Barrick Profit Tops Estimates as Costs Rise Less Than Expected
  • Kansas-Wheat Premium to Chicago Grain May Jump: Chart of the Day
  • Rubber Climbs to One-Week High as Weakening Yen Boosts Appeal
  • Midwest Diesel Gains as Farmers Sow Record Crop: Energy Markets
  • Record Carbon Plunge Means Pain for Europe’s Utilities: Energy
  • Mint Runs Out of Smallest American Eagle Gold Coin on Sales






















The Hedgeye Macro Team











HBI: Sorry, But It’s Not A Staple

Takeaway: This might not be a short, but the reasons against buying this stock stack up very quickly the way we see it.

Conclusion: This stock had so much going its way over the past year to enhance its multiple. While we can't point to any specific catalysts that would make the stock go down, we think that nearly every multiple-enhancer is in the final stretch. We can think of very few reasons to own this stock today. 



We think HBI is a ‘do nothing’ stock here (and that's being generous). Yes, we give the company a golf clap for taking up EBIT by 8x vs last year despite a decline in its top line, and by doing more to de-risk its balance sheet than most companies we’ve seen in a while.


But on the flip side, we simply have a tough time getting too excited about most parts of this story. Management keeps touting this company as a Consumer Staple. Sorry to say, but Staples a) usually don’t have sales down 2.8% in a given quarter, b) find a way to grow International sales at a rate greater than the US core (they were down 5% in dollars and +1% in local currency), and c) don’t face a +740bp change in gross margins due to a (favorable) swing in commodity prices.


We’re not trying to be punitive in our description of this company, but as it relates to valuing the stock, we can’t call it a Staple. Is 14-15x earnings and 9x EBITDA an egregious multiple for a company like this? As long as the current earnings trajectory sustains itself we think it’s fair – and we think that guidance for this year is probably doable. That's the sole factor that prevents us from shorting it.


But we can’t argue for multiple expansion for the following reasons.

a)      Sales were down 2.8% in 1Q, and to hit the company’s guidance we need to see sales growth accelerate to a low-single digit rate throughout the remainder of the year. A couple of points in growth is hardly heroic, and sales have picked up in recent weeks – as such we have no reason to think they’ll miss. But banking on a sales acceleration and multiple acceleration is not where we want to be.


b)      Same goes for the gross margin. There was 840bp improvement in 1Q – and only 100bp was driven by the company’s own ‘innovate to elevate’ initiative. The other 740bp was sheer commodity cost recovery. Those benefits are completely recovered within the next two quarters. Then we’re back to a gross margin that is 100% based on company pricing, innovation and efficiency initiatives. Again, we’ll be more generous with multiple expansion when we’re just entering the positive side of a potential gross margin recovery. Here, we’re nearing the end.


c)       Similarly, SG&A is up by $30-$40mm this year due to higher media spend – which alone accounts for about 3-4% growth in aggregate SG&A. That’s a big number for a company that considers it a victory when it grows its top line by 3%. Don’t get us wrong, we usually like when companies invest in their brands – it’s one of the more ‘Staple-like’ things that HBI is doing. It’s also one of the things that gives us a bit of confidence that we probably see sales tick up a couple of percent in the back half. But unfortunately, spend comes first and revenue comes second. It’s how the world works. And that reality rarely enhances multiples.


d)      Lastly, we have yet to meet a single HBI owner who has not had ‘delevering the balance sheet and improved use of cash’ as one of the top two reasons for owning the stock.  HBI has a) paid down 30% of its debt over the past year, b) just initiated a dividend, and c) has set expectations for the added pay-down of its $250mm 8% (expensive) senior notes in 4Q13. Our point here is that anticipation of all of this has helped the multiple, but it’s highly unlikely that we’ll see anything related to the balance sheet that get people incrementally more positive over the next year.


So…the punchline is that we can’t necessarily point to a catalyst to make this stock go down. But we think that valuation is relatively full, we need to bank on sales accelerating while commodity benefits are waning and media spend is headed higher, and there are no more positive surprises related to the balance sheet to sweeten the deal. Short interest has been lower only once – back in May of 2010 – but the difference is that today, there’s absolutely no shortage of insider sales.


It’s tough for us to find reasons to buy this stock today.


HBI: Hedgeye Sentiment Monitor -- Insiders Selling Strength

HBI: Sorry, But It’s Not A Staple - hbi sentiment


HBI SIGMA: Still In Sweet Spot, But Getting Worse On The Margin

HBI: Sorry, But It’s Not A Staple - hbi sigma


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.


Today we sold our position in FedEx (FDX) at $92.99 a share at 1:49 PM EDT in our Real-Time Alerts. We originally bought FedEx at $91.93 a share at 3:29 PM EDT on 4/18/13 and #timestamped it. We'll book our buck and continue to risk manage the FDX range within our bullish long-term TAIL view.



VIDEO: Apples To Earnings


Hedgeye CEO Keith McCullough appeared on CNBC Fast Money this evening to discuss the earnings report that every investor is focused on: Apple (AAPL). The company reported Q2 earnings that beat expectations and raised their quarterly dividend, but is it still a stock worth buying? Keith says that the stock remains a momentum stock. Keith won't trade the stock until it recovers and holds his line of support at $426 a share. 


Skip ahead to 5:15 in the video for Keith's take on Apple and what he thinks of the stock post-earnings report.



In preparation for BYI's F3Q 2013 earnings release tomorrow, we’ve put together the recent pertinent forward looking company commentary.






  • "With respect to games operations…  NASCAR is one of the most anticipated games and that should be coming out in the next few months. The Hot Shot Dual Wheel… is an internal brand. We recently introduced a WAP game with a dual wheel, a big cabinet. That has just hit the floors, very small sample size, not statistically significant, but very, very good start… Pawn Stars on the premium segment, we know the reports have been very good from casinos. So overall we feel very good about our product momentum."
  • "Our market share in WAP is probably about 10% now, give or take around that and that applies to the premium segment as well. So both in the WAP and premium segment we have tremendous opportunities for growth."
  • "Our game development capacity has gone up a lot. So there is a good set of WAP and premium titles that are being worked on now that will hit the market at a steady rate. And also we've become much better at handling brands and licenses, and when you do a good job with games like GREASE and Michael Jackson, what tends to happen is the next set of negotiations tend to become easier.
  • In the June, July, August timeframe we have a whole lot of new titles that come from these diverse studios and third-party partners."
  • [GREASE AND MJ] "Both of them beat that target of 750 very comfortably; so both of them did very well."
  • "In Canada VLT we were awarded two separate contracts for about 2,200 units. About half of those were sold in the first half of fiscal 2013, probably finish up the rest of that in the second half of the fiscal 2013." 
  • "Within Illinois, we have contracts in place for 4,000 units. We've sold, a little under 600 so far through December, probably take about two years to complete those with the bars and taverns getting licensed throughout the state. I think the market overall is probably about 15,000 to 18,000 VLTs, assuming that Chicago does not opt in."
  • "So Italy is not going to be a major needle-mover for us in the near term, but it's a very good market for us to be in the long-term. So that's an investment we are making for our long-term, because that's a significant market that we are committed to."
  • "The replacement cycle continues to improve; albeit at a measured pace, probably about 55,000 units replaced in calendar 2012. I think most people in your shoes think that it probably goes to about 60,000 in calendar 2013, which make sense to us."
  • "The other opportunity for us in game equipment margins is conversion kits as we build out a bigger presence of the newer cabinets, the video versions that should give us an opportunity longer term to sell more conversion kits into that footprint."
  • "As we continue to generate significant free cash flow, the best use beyond some of the smaller tuck-in acquisitions that Ramesh talked about earlier is to buyback our stock and return capital to shareholders and we've been doing that for about 21 quarters now and don't expect any significant changes in that strategy."


  • "Maintenance revenues for the quarter were a record…. as we continue to grow the number of units connected to our systems and the average maintenance revenue per connection. Sequentially, recent conversions of Class II systems to traditional SDS systems, which reduced our centrally-determined system unit count in Gaming Operations, drove additional maintenance revenue growth."
  • "We had approximately $126 million available under our current board-authorized share repurchase plan."
  • "Even with G2E expenses in both quarters, which approximated $2 million, we were able to increase our operating margins to 24% versus 20% in the prior year"
  • "We will be launching two additional titles, Hot Shot Progressive and NASCAR on the Cash Connection link during the coming months."
  • "We expect Tiki Magic, the much anticipated follow-up title to the very successful Cash Wizard theme to launch later this quarter."
  • "During the quarter, we announced an agreement to provide 650 VLTs to WCLC Canada and expect to begin shipping the initial tranche during the March quarter."
  • "International Games sales have been a disappointment once again… We have multiple product development initiatives currently underway focused on these international markets… We remain confident such efforts will pay off with improved International Games sales in the future."
  • "On the Systems front, we expect fiscal 2013 to be our best year ever with increasingly visible backlog strength for the quarters ahead."
  • "Our Cloud-based Mobile platform offering a non-wagering portfolio of content and services continues its strong momentum and has now grown to more six million users. Thanks to the measurable return on investment these mobile applications are generating for our customers, we are seeing significant growth both in new customer acquisitions, which has grown by more than 50% year-over-year to over 75% now and in the delivery of new applications and features for existing customers."
  • "For the quarter… we had some unusual SG&A expenses to the tune of about $2.9 million."
  • "With respect to the Atlantic Lottery… somewhere around 1,200 to 1,300 of those shipped, so the remainder of those will likely come into this fiscal year."