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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




  • In-line:  The bottom line missed expectations but hold played a material role.  With the stock down 9% into the print and the quarter better than bad, a strong feeling of relief has emerged.  PNK did exclude a whopping $17.2 million in one-time charges which seems excessive.


  • SAME:  In the 1st half of 2Q, they completed 1st phase of room renovation (5% of rooms available).  2nd phase of renovation will begin in Fall 2013.
  • PREVIOUSLY:  "In Lake Charles, we've been performing an extensive room renovation program with approximately 16% of year-over-year room nights out of service. This is particularly impactful on our weekends. The good news is our newly refurbished guestrooms are terrific, and our guests love what we are doing." 


  • BETTER:  Margins and revenues were above reduced expectations.  Construction disruption was lower than expected.  Both properties continue to be cost contained.  River City hotel remain on track to open by Labor Day.
  • PREVIOUSLY:  "In St. Louis, we are on the homestretch of our $82 million expansion....We continue to look for ways to grow the market by leveraging our existing assets, such as the Four Seasons, where we increased casino guestroom utilization by 43% over prior year. And we await the completion of new assets with the Event Center at River City opening in June and the hotel coming online in late September."


  • SAME:  We believe low table hold impacted EBITDA by $1MM.  Even in a heightened promotional environment, the property has been pretty disciplined in costs.
  • PREVIOUSLY:  "In Belterra, we believe we have the right strategy in place to maximize our position in a market that continues to experience increasing gaming options. We remain focused on differentiating Belterra with its resort destination positioning and have recently completed an extensive buffet remodel, are in the process of building a new Stadium Sports Bar and we'll undertake a hotel renovation project this year."


  • SAME:  Spend per visit remain at historical levels while trips declined.  However, July is shaping up to be better than 2Q, although weaker than earlier in the year.
  • PREVIOUSLY:  "In terms of guest behavior, in January and February, we saw that trips declined at a greater rate than spend per trip. Meaning people came less often, but their spend was pretty much in line with historical play levels. In March and then into April, both trips and spend patterns came back close to prior-year levels."


  • SAME:  Adjusted EBITDA margin was 15.7% vs 13.9% QoQ.  Repeat visitation was 55%.  Hotel occupancy continued to be in the high 90s.
    • "Guest acquisition continues to be very strong with over 27,000 people visiting the property for the first time during the quarter. Repeat visitation is also very strong, with over 50% of those who have visited returning for a second trip. The hotel continues to be a good story, with occupancy now over 90% and RevPAR increasing over 30% since opening.  We're very pleased in the progress made by L'Auberge, Baton Rouge over the quarter and are confident of the ramp-up of that facility as we continue to go through the rest of the year."
    • "You should continue to see improved operating margins there as time goes on. As long as we continue to build the revenue we'll have corresponding margins with that revenue."


  • BETTER:  Ohio competition on Belterra continues to affect visitation but impact from Horseshoe has been less than expected. 
  • PREVIOUSLY:  "We continue to see the impact of new competition in Columbus, affecting visitation. In terms of the Horseshoe Cincinnati opening in March, it's still too early to quantify but thus far the impact has been muted."


  • SAME:  will open 2Q 2014; plan for 1,600 terminals
    • "On River Downs, demolition of our grandstand and the other older facilities is complete and we have begun construction of the new facilities with a scheduled opening in the second quarter of 2014."
    • "The heavy spending will start going into the third quarter in reality. And really the fourth and first quarter will be the bulk of it, the fourth quarter of this year and the first quarter of next year with the property opening in the second quarter of 2014."


  • SAME:  Transaction is expected to close by the end of 3Q 2013
  • PREVIOUSLY:  "It relates to the NOL being created, yes, that will happen as soon as the transaction gets consummated. And our expectations are that that will happen in the third quarter of this year."


  • SAME:  Proceeds from Lake Charles will be used to pay down debt - lowering the leverage ratio 
  • PREVIOUSLY:  "We think that we will be able to de-lever pretty quickly. Not only will we, following capital expenditures both in Lake Charles and River Downs, will we have cash flow to actually pay down debt. But obviously those -- our cash flow base is growing, both by virtue of Baton Rouge maturing as well as River Downs and Lake Charles adding to that base. So we have talked publicly about our targets between 3.5 and 5 times of leverage. We think that we will get there relatively quickly at a faster pace than would be normal because of the dynamics that I just talked about. And really our goal is to get to 4 times or lower within a few years."


A better than bad quarter combined with strong margins reported at ASCA should provide a good environment for the stock today.


"We have entered into a definitive agreement to sell the Ameristar Casino Lake Charles development project to Golden Nugget and are pleased that the consideration we expect to receive will recuperate a vast majority of the capital invested in the project. In St. Louis, the Lumiere Place Casino and Hotel and Four Seasons sale process is also progressing rapidly."


"We are confident we can achieve at least $40 million of synergies and efficiencies of scale between the two companies (ASCA/PNK) and hope to meaningfully exceed that target."


-Anthony Sanfilippo, CEO of PNK




  • Having Golden Nugget next to L'Auberge in Lake Charles will be a great outcome; will bring some customers from Texas market
  • Expect to close ASCA acquisition in early August 
  • Expect to exceed $40MM in synergies, even after Lumiere and Lake Charles sales
  • July has rebounded from May/June performance but not as strong as March/April #s; July is trending above 2Q levels
  • Spend per visit is in-line with historical levels; trips declined though
  • L'Auberge Baton Rouge:  Repeat visitation is strong: 55% returning; Hotel occupancy continue to be in the high 90s
  • L'Auberge Lake Charles:  1st half of 2Q they completed 1st phase of room renovation (5% of rooms available).  2nd phase of renovation will begin in fall 2013.  If you normalize hold, Lake Charles had one of the top 5 quarters of all time.
  • Belterra:  Ohio competition continues to affect visitation but impact from Horseshoe has been less than expected
  • New Orleans:  continue to see operating improvements
  • Focus on cost containment have offset revenue weakness
  • River Downs: will open 2Q 2014
  • River City:  hotel will open by Labor Day; on budget and on schedule

Q & A

  • Golden Nugget Lake Charles:  fair outcome of sale
  • Lumiere sale:  a lot of interest in the property (multiple parties); expect further information to share in the next few weeks
  • Trips lower YoY:  Midwest more pronounced than down South but pretty much across the portfolio
  • St. Louis margins:  bullish on mgmt there; Lumiere and River City both run very well 
  • Belterra:  recently opened a buffet and 3rd Stadium concept; very confident property is competing well with new competition in the region; heightened promotional environment; pretty disciplined in costs
  • Proceeds from Lake Charles will be used to pay down debt; leverage ratio will be lower as a result of this
  • Leverage ratio:  will have robust cash flow to pay down debt
  • Houston is underpenetrated
  • ACDL Vietnam: property scheduled to open tonight on Ho Tram Strip; cautiously optimistic; highly unlikely PNK will participate in capital call
  • Baton Rouge:  sees further margin improvement; hotel is executed well
  • 2Q NOL:  $270MM, not including impact out of Atlantic City; should end up around $500MM
  • Lumiere NOL tax base: $400MM 
  • Weak consumer environment:  impact more coming from lower tiers
  • Corporate expense run rate:  $5M to mid $5MM

Growth Signals?

Client Talking Points


Our intermediate-term TREND support line of $81.63 held and the US Dollar had a good day yesterday. Commodities? No, they did not fare as well. Incidentally, they aren’t having a good morning today either. This keeps the bullish US growth theme intact and moving along. Exactly what we want to see.


Brent is backing off our long-term TAIL risk line of $108.14. And that is a very good thing. It's the most bullish macro event of the week. The bad thing is our intermediate-term TREND line of support ($106.37) is still intact; we need that to snap to get this massive net long futures/options position under pressure. We are watching this one closely.


Russian stocks do not like Bernanke tapering. Good. And they don’t like down Oil either (For the record, I like both!). With #RatesRising (10-year yield of 2.58%, great week) Russian stocks lead the losers down -1.3% this morning after failing to recapture TREND resistance of 1374. It ain't a pretty picture for Mr. Putin. Russia is down -9% year-to-date. I like it.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Gaming, Leisure & Lodging sector head Todd Jordan says Melco International Entertainment stands to benefit from a major new European casino rollout.  An MPEL controlling entity, Melco International Development, is eyeing participation in a US$1 billion gaming project in Barcelona.  The new project, to be called “BCN World,” will start with a single resort with 1,100 hotel beds, a casino, and a theater.  Longer term, the objective is for BCN World to have six resorts.  The first property is scheduled to open for business in 2016. 


Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road. 

Three for the Road


OIL: Brent backs off the @Hedgeye TAIL risk line of $108.14; most bullish macro event of the week



He who lives by the crystal ball will eat shattered glass.
- Ray Dalio 


One big reason for Facebook's surge (up over 23% pre-market this morning): The number of people using Facebook on mobile phones or tablets increased by 51% to 819 million, year-over-year. That said, FB is still off its May 2012 IPO price of $38 per share.

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.

July 25, 2013

July 25, 2013 - 7 25 2013 8 17 14 AM

Bernanke's Society

This note was originally published at 8am on July 11, 2013 for Hedgeye subscribers.

“Any society that would give up a little liberty to gain a little security will deserve neither and lose both.”

-Benjamin Franklin


Who is this guy? Seriously. Bernanke is un-elected and un-accountable – but, evidently, has the power to change the entire risk parameters of the economy with an un-qualified market timing opinion that spits in the face of economic data.


I get the whole fear-mongering love for Ben thing. Politicians and bankers who put the country on the brink saved us from themselves in 2008 – or so they claim. Nailed it. Even if you believe that, it was so 2008-2009. We’re half-way through 2013 for God’s sake.


The last time I saw Dick Fuld, he was living large at my golf club; Timmy Geithner just got paid $200,000 to speak at an #OldWall conference ; and bankers who are long FICC (Bill Gross too) are begging Bernanke for more. Is this the society Franklin and Jefferson had in mind?


Back to the Global Macro Grind


Thanks for letting me get that off my chest. If it’s not self-evident to you that markets are going right squirrel on this, your internet connection must be down. Pardon the pun, but in a nutshell:

  1. American Purchasing Power (US Dollar) is getting pounded on this
  2. Gold, Silver, Oil, etc. (Bernanke Bubbles) are all ripping
  3. Treasury Yields are having their 4th down-day in a row, after rising on employment #GrowthAccelerating

So here’s the deal - Ben Bernanke is not only going to A) time the economic cycle (even though his growth forecasts have been wrong 58-73% of the time, depending on what year you use), he’s also going to B) time the market cycle.




Actually, to be balanced, what he’d say he’s attempting to do (which is unprecedented by the way during a recovery) isn’t timing, per se. I think these Keynesian types who have never risk managed a market or run a business in their life call it “smoothing.”


I call that reckless.


Mucker’s Policy Advice: longer-term, Mr. Market is already pricing in #StrongDollar and #RatesRising, so just let it go pal. Let free-market prices and economic cycles clear; or your legacy will be that of someone who kept trying to re-flate bubbles as they were blowing up.


If Bernanke doesn’t take Mr. Market’s advice on this, here’s what is most likely going to happen:

  1. US Dollar Debauchery = Commodity Reflation
  2. Commodity Reflation = Consumption #GrowthSlowing

In other words, with Oil prices ripping a move above our long-term TAIL risk line of $108.11/barrel this morning, Bernanke is going to effectively give everyday Americans an enema again. Not cool.


This is not new territory for this conflicted cat. Remember what he did with his “communication tooling” in September of 2012? He said he would print to infinity and beyond and commodities (Gold) had their last hurrah on that.


Then, within 2-3 months, markets were in bedlam, US Consumption growth tanked, and the USA printed a Q412 GDP number of 0.38%!




It’s especially awesome for the guy who gets paid to run Gold Bond funds. Why don’t we take rips on this volatility roller coaster over and over and over again? Bernanke is on the switch – we’ll have 3 coasters on the same track at the same time; he’s wicked good on timing!


What’s my economic strategy this morning?

  1. Prayer

Seriously. What on God’s good earth am I supposed to recommend you do on this? Lever yourself up with asset classes that are crashing? Fortuitously, we aren’t short anything related to Bernanke’s banker boy bonuses (FICC – Fixed Income, Currencies, Commodities). And we’re not short anything PIMCO yet either, so maybe I’ll just sell everything and take the rest of the summer off.


I’m getting really tired of all this un-American central planning anyway. We’ve had a great year, and there’s no way I’m letting whoever this guy thinks he is make me give it all back.


Our immediate-term Risk Ranges are now as follows:


UST 10yr 2.41-2.77

SPX 1627-1669

VIX 13.51-15.66

USD 82.64-83.95

Oil 105.56-110.28

Gold 1237-1302


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Bernanke's Society - Smoothing


Bernanke's Society - vp 711

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