The Dollar Remains Key

Takeaway: It doesn't look like the U.S. is turning Venezuelan this week. Phew.

Trick or treat? TREND or TAIL?


The Dollar's long-term TAIL support line of $79.21 was recovered. That’s good. It means we won’t look like Venezuela this week. Phew.


But the TREND resistance remains overhead at 80.16. So, unless you’re a long-term holder of dollars, you want to wait and watch on this thing. Pimco's Bill Gross begging for higher taxes this morning? Yuck. The Dollar Devaluation and Bond Bull Lobby is coming on thick.


The Dollar Remains Key - drake1



SBUX reported another all-star quarter in 4Q13 and appears to be firing on all cylinders heading into FY14.  A strong commodity tailwind, international growth, the beginning of a recovery in the EMEA segment, and expansion into new segments of the global food and beverage industry are all bullish factors moving forward.  The only slight negative stemming from what was, overall, a bullish conference call was management reigning in expectations for FY14, which, in our view, gives the company a better chance of surprising to the upside throughout the year. 


Last night, Starbucks reported global same-store sales growth of 7%, marking the 15th consecutive quarter above 5%.  Same-store sales in the Americas division grew 8% (including 5% traffic).  Total revenue growth of 13% produced a 28% increase in operating profit and a 30% increase in EPS.



  • Revenues +11% y/y
  • SSS two-year comp declined 50 bps sequentially
  • Operating income +16%
  • Operating margin +100 bps to 21.8%
  • Food contributed ~200 bps to the comp






  • Revenues +3%
  • SSS two-year comp decelerated 50 bps
  • Operating margin +1,170 bps to 9.3%
  • Indicated that an early turnaround may be underway






  • Revenues +29%
  • SSS two-year comp decelerated 150 bps
  • Operating income +46%
  • Operating margin +440 bps to 37.5%
  • Consumers are embracing the SBUX experience
  • Recent negative media attention appears to be a non-issue





Channel Development Segment:

  • Revenues +13%
  • Operating income +30%
  • Operating margin +450 bps to 35.6%
  • Exceeded aggressive growth plans for Evolution Fresh
  • Will continue to rollout new K-Cup flavors and varieties to the market in partnership with GMCR


Despite reporting a great 4Q13, the bears do have several legitimate concerns:

  • Sentiment is largely positive
  • Rich valuation
  • Ability to sustain such strong trends will be difficult
  • Elevated expectations could become an issue


While management did their best on the earnings call to reign in expectations for FY14, by guiding to full-year global comparable sales in the mid-single digit range, we suspect that the street is looking for more.  This guidance did appear to be fairly conservative but, as CEO Howard Schultz implied, it would be foolish to guide to high single-digit or double-digit comps.


All told, SBUX remains the best-run company that we follow and the long-term TAIL continues to seem unlimited.  The company’s geographical reach and size is highly impressive and management continues to find feasible, innovative ways to drive comp growth accretive to the whole SBUX system. 






Howard Penney

Managing Director



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:  What can we say?  It was well understood that the top line was under pressure, especially in September, but BYD didn't deliver the margin improvement.  Q4 guidance was awful, a little too awful if you ask us.  Guidance looks low ball.



  • WORSE:  While EBITDA improved 8% YoY, it was less than mgmt's previous expectations.  BYD reduced overall marketing spend by over $1MM.  They started the Penny Lane initiative and will roll out Penny Lane throughout Midwest & South - giving players more bonuses more often.  BYD will launch a new advertising and marketing campaign in the coming weeks. 
  • PREVIOUSLY:  We believe these improvements in our operating margins are sustainable and as revenues grow, these improvements will drive even greater EBITDA gains. And as the Las Vegas economy continues to move in the right direction, the future for our Las Vegas Locals business looks increasingly positive.
  • And with $6 billion in the development pipeline, more jobs are on the way. Home building activity is at its highest level in years and existing home prices are up approximately 30% in Las Vegas over the last year. As these trends continue, they should drive increased consumer confidence. As a result, we are optimistic in our outlook for our Locals business.


  • WORSE:  Casual players pulled back sharply in their spend in September.  Paradise & Blue Chip were materially negatively impacted by new competition.  These markets are also impacted by government and military spending.  Delta Downs was a bright spot.  Diamond Jo grew visitation and gained 2% in market share.  Kansas Star grew but so did expenses as they opened the permanant facility to accomodate revenue growth.
  • PREVIOUSLY:  While gaming supply has grown in many regional markets, general economic conditions remain sound and our confidence in our business throughout the Midwest and South is as strong as ever.


  • BETTER:  Had a huge summer session and saw a solid 4Q. Higher property taxes reduced EBITDA by $2.1MM YoY.  Mgmt believes there is further upside in Borgata. 
    • Positive trends have continued into the third quarter, which is the height of the traditional busy summer season. Borgata is clearly moving in the right direction.
    • We're very comfortable with where we are at competitively, and the position Borgata holds and kind of the current EBITDA trajectory of that property. So, I think with respect to continued efficiencies of that property, like all of our businesses, that there are always opportunities to continue to refine these operations and find ways to operate more efficiently.


  • SAME:  Borgata will be aggressive in attacking the NJ I-gaming market. They have allocated a significant budget to attract players.  
    • Borgata leads the Atlantic City market by a wide margin and we are confident it will capture more than its fair share of the New Jersey online gaming market as well.
    • Together, we plan to offer a full suite of games, including poker, slots, and table games under the Borgata and Party brands, including PartyPoker.


  • WORSE:  Construction, disruption and road work contributed to a 14% decline in EBITDA.  BYD continues to improve yield on their Hawaiian charter service and believes in their long-term redevelopment story at Downtown.
  • PREVIOUSLY:  We're also seeing a significant uptick in visitor traffic, as Downtown's popularity grows. This is particularly noticeable at the Fremont, which benefited from continued growth in pedestrian traffic along the Fremont Street experience. Our Downtown business is clearly moving in the right direction and we expect positive trends to continue.


  • SAME:  4Q guidance does not include any potential benefits from property tax credits.  NJ Tax Court ruled that Borgata overpaid ~$48.5MM in property taxes and $10MM in interest.  The appeal process is ongoing and BYD still have appeals pending for 2011 through 2013 so the ultimate amount to Borgata could be much greater.
  • (Media reported $40-50MM Borgata tax credit for 2009/2010) We recently concluded the trial phase of an appeal of our property tax assessments for 2010 and 2011 and a positive ruling could result in refunds and tax credits as well as lower assessments going forward. We expect the tax score to make its ruling by the end of the third quarter


  • WORSE:  Borgata visitation was strong while visitation in the Midwest and South segments declined.
  • PREVIOUSLY:  It's really kind of a market-by-market situation. I think when we heard from others about visitation, it's typically been outside of the state of Nevada, and we can certainly echo that. It's really more, what we would call frequency, the number of times during a month a person is coming in as opposed to straight out visitation, which is simply the number of people coming through the business, in a number of cases, our visitation is up but our frequency is down. And typically what happens as frequency declines, spend per visit goes up, not surprisingly as people have so many dollars for entertainment. In certain markets, and Nevada obviously was a bit of a better performer here, you've seen some more consistency year-over-year in frequency than maybe in other parts of the country.


  • SAME:  The competitive environment is a market-to-market situation. 
  • PREVIOUSLY:  From a promotional environment standpoint, our marketing expense was flat year-over-year on and so, so we've been pretty consistent. I mean, how we choose to direct those dollars obviously changes, can change dramatically on a month-by-month, quarter-by-quarter basis, just to be as efficient as possible. And I guess my sense is that the promotional environment is similar to where we were last year at this time.

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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




  •  WORSE:  "The stock went up that much for this?"  MGM missed in every region and proved our contention that a meaningful Las Vegas recovery is still far off.


  • SLIGHTLY WORSE:  MGM slightly missed Street expectations for LV 3Q EBITDA.  LV 3Q REVPAR was +3% YoY, in-line with guidance.  Luxury/international segments did well. 
    • LV 3Q REVPAR: +3%
    • The international is still strong. I mean I think our competitors saw that as well. We certainly did at our luxury properties.


  • SLIGHTLY WORSE:  Slot growth is slowing due to harder comps.  Mgmt will upgrade Supreme Land with 60-70 more premium slot machines in 2014. 
    • It seems to be pretty strong right across the mass segments.
    • We were able to drive main floor table game volume up 11% and revenue up 29% year-over-year with our continued focus on table yield management and strategically targeting the premium segment. Slothandle increased by 11% during the quarter and we remain the market leader for a single property in terms of slot gross gaming revenue.


  • MIXED:  4Q REVPAR flat guidance was than what Street expectations.  They are seeing Q1 2014 as almost a record for convention business with convention mix approaching 16% and convention room nights approaching record levels.  MGM is also optimistic on FY 2014 as currently 88% of the room nights are booked, higher than the typical 80% booked at this time of year.  However, mgmt was hesitant to give 2014 REVPAR guidance.
    • Convention trends for 2013 remained in line with our expectations that we had coming into the year. Our second quarter convention mix increased slightly and our rate grew mid single-digits. We continue to see moderate growth in convention room nights going into the third quarter and based on that, along with some solid retail booking trends we're seeing, we expect REVPAR in the third quarter to be up 3%.
    • These strong sales trends are solid indicator for our business in 2014 and going forward, and our 2014 pace remains up double digits. Recall in March of 2014, we have CON/AGG big citywide convention back in Las Vegas; some150,000 attendees usually show up for that show.
    • [Convention 2014 ADR] It's pacing right now up about mid single-digits right now in terms of its pace.
    • But looking beyond that, we're seeing significant pace increases in each of the second, third and fourth quarter next year. In fact, we're up at least high single-digits each quarter next year when you're looking at the non-CON/AGG piece of the business. So we're pretty excited about the pace of 2014 and the traction that we continue to make in the important segment of our room booking pace on the convention and meeting side.
    • Convention room nights as a percentage of mix, Robin, we're pacing right now for 2013 at about 14.5% to kind of 15% is the range that we're pacing with rate being up over last year.


  • SAME:  NY/NY and Monte Carlo remodeled sections will open in Spring 2014
  • PREVIOUSLY:  Next year, we'll see quite a bit of growth, we think, at New York-New York and Monte Carlo because they'll both benefit from the capital we're spending this year to significantly upgrade their food and beverage offerings and retail offerings and their street frontage.


  • BETTER:  Crystals continue to perform well.  3Q EBITDA was up 26%. They added 3 tenants in 3Q and another tenant in October.
    • Crystals had its best quarter ever, up 21% year-over-year. And we continue to add tenants as our second Starbucks is now open and we recently executed two additional leases.
    • Crystals is doing better literally every month. 


  • SLIGHTLY WORSE:  EBITDA was negatively impacted by $17MM due to low hold but missed even after adjusting hold.  Table drop increased by 12% YoY.
    • Our hotel business continues to improve due to greater brand awareness and increased convention room nights. This was our best REVPAR quarter ever at $194.
    • Aria had a little bit of a challenge for the quarter, partially because they held really well last year and they had some pretty strong play. But I would say the play is still there, maybe one or two customers that may came in last year, didn't come in this year for the quarter. But the solid base is still there. We're seeing a good volume of people coming in. And I think we're pretty happy with the international number.
    • Drop at Aria is up for the six months and so is the win in baccarat


  • SAME:  Maryland decision will be made by year-end.
  • PREVIOUSLY:  We think those presentations will happen in either late September or October. They've indicated a final decision is still expected by year-end. We're extremely excited about this opportunity and feel like we have the winning proposal.


  • SAME:  Licensing will be decided in November 2013.  Final decision is expected in April 2014.
  • PREVIOUSLY:  In Massachusetts, we had a big win with the special election in Springfield to approve the host city agreement. Now the company is finalizing the details of our RFP response, which is due by the end of this year. We think we can play a major role in the revitalization of that city in Western Mass and we look forward to delivering a very comprehensive proposal to the state. The state has indicated that that final decision is expected around April of next year.


  • SAME:  3Q corp expense was $51MM while stock comp was $6MM.  For 4Q, MGM projects ~$50MM in corp expense and $7-8MM in stock comp.
  • PREVIOUSLY:  We expect corporate expense to be in a range of $45 million to $50 million per quarter for the remainder of the year. Our stock compensation is estimated to be approximately $6 million to $7 million in the third quarter and depreciation expense is estimated to be consistent with the second quarter.


  • SAME:  MGM Cotai construction is progressing really well.  Piling/sitework will be done by the end of the year.  Basement/tower construction is up next.  MGM continues to target an early 2016 opening with a budget of $2.6BN.
  • PREVIOUSLY:  We are now anticipating an early 2016 opening.

EL Sustains Growth in 1QFY14

Despite investor fears, over the past month, of slowing momentum in the prestige beauty category, The Estée Lauder Companies produced a strong set of 1QFY14 results and reiterating its outlook for the fiscal year ending June.


Summary: EL continues to invest in growth and we continue to view the company as a category leader over the coming quarters. Ahead of earnings season, we highlighted the underperformance of EL as an opportunity for investors on the long side as peer weakness, and investor concerns that the stock had outgrown the company’s fundamentals, weighed on performance. We continue to have confidence in the long-term benefits of the SMI as the company focuses on cost savings supported by strong and sustainable organic sales growth as a driver of earnings.



What We Liked In EL 1QFY14 earnings:

  • EPS beat: $0.76 Adjusted EPS vs $0.73 consensus
  • Gross margin expanded 81 bps vs 4QFY13 22 bps decline
  • Mgmt reiterating top line guidance of 6-8% and a raised low end of EPS range
  • Organic sales growth of 6% erased fears of a more dramatic slowdown that some were expecting following NPD data as well as peer company commentary
  • Sales in EM picking up slack in core markets: 1Q Asia Pacific LC sales grew 11% while EMEA LC sales grew 7%
  • New product innovation resonating with consumers
  • High margin luxury brands achieving double digit growth
  • Dividend raised 11%


What We Didn’t Like In EL 1QFY14 earnings:

  • Only 2% organic sales in the Americas segment despite new brand launches
  • FY14 FX impact expected to be 1-2% vs 1% 1QFY14
  • “Temporary softness in U.S.” from 4QFY13 has continued into FY14 – becoming less temporary?
  • Inventory days moved sharply higher, increasing risk if future sales don’t materialize


Other Noteworthy Points:

  • Operating income declined, yoy, as the company increased investment spending behind recent major product launches
  • 2QFY14 guidance of $0.99-1.04 falls below the Street at $1.21 but, according to mgmt, this is due to the lapping of a favorable timing shift in 2QFY13.


Quantitative View:

Our macro team’s quantitative view of the stock is dictated by the intermediate-term TREND line of $69.19.


EL Sustains Growth in 1QFY14 - el levels 1031



Rory Green

Senior Analyst


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


MAR 3Q REPORT CARD - mar123 



  • MIXED: Q3 was solid and general commentary favorable.  Q4 guidance was a little weak but understandable given MAR's exposure to the DC area.  Stock buyback was a little light



  • SAME:  Transient and leisure trends continued to be the engines of growth in 3Q. Transient REVPAR increased 7% as business benefited from improving the mix of high rated retail business.  Weekend REVPAR rose 9% at Marriott, 10% Courtyard and 12% at Ritz-Carlton.  
    • Leisure business was hot. Weekend REVPAR rose nearly 8% at the Marriott brand, 9% at Courtyard, and 9% at Ritz-Carlton. Overall, REVPAR increased over 7.4% in North America as the business continued to improve their mix of luxury business eliminating discounts and selling more rooms at high retail room rates.
    • Transient demand is a very powerful bright spot. If we get towards the end of the fall and when we're doing our planning and continue to see transient perk along at that kind of pace, I think we will be captured by the strength of that business and will not look to group up in a way that would push some of that business away.


  • BETTER:  Group REVPAR rose 3%.  2014 pace for NA group bookings have increased from 2% in 2Q to 4% in 3Q.  Group revenue booked in 3Q for CY2014 was up 14% YoY.  60% of 2014 group business on the books. 
    • We look at Q4 being actually fairly strong with group revenue on the books up about 6% from the same time last year from last year's fourth quarter. But Q3 is essentially being flattish.
    • Bookings for 2014 and all future years, which were up above 18% in the quarter
    • I think for the Marriott Hotels & Resorts brand in the United States, we're in the 50% [range booked]...we should be something like 65% to 70% by year-end.


  • WORSE:  China's performance dragged down the Asia Pac's region RevPAR performance by 3% in the Q. Austerity still having effect on business.  Additional government meetings and restrictions on banquets take effect in January 2014 but comps will be easier.
    • Chinese economy looks to us to be performing, maybe it's growing a little bit weaker than it did a year or two ago but still, broadly recovering with really powerful trends in domestic travel particularly in China. And so, we see, even within this quarter, we saw Shanghai, for example, I think up about 6% in REVPAR – 5%, excuse me; while Beijing, by comparison, which is more dependent on government and had a little bit of that pollution hangover, was down something like 5%. Folks have asked about supply growth in China and clearly there has been some supply growth, it varies a little bit market by market. I suspect we'll continue to see supply growth be fairly high, but we expect we'll continue to see the Chinese economy produce more and more domestic travelers as well as global inbound travel growth and still think it's an extremely exciting market to bet on long-term.


  • SAME: The Middle East and Africa segment reported a 13% RevPAR decline in 3Q.  MAR expects mid-single digit RevPAR in 2014 from the region
  • PREVIOUSLY:  In the Middle East and Africa, across all brands, constant dollar REVPAR increased 11%, a result that is likely to reverse in the second half of the year, given the recent events in Egypt. Long-term, the region offers terrific opportunities and our pipeline today includes nearly 45 hotels.


  • LITTLE WORSE:  Government shutdown played a part in the lowering of North America and Worldwide REVPAR (chart above) for 4Q 2013 and caused the company to take down the upper end of guidance by 50bps.  For 2014, MAR expects 4-6% REVPAR growth vs HOT's 5-7% projection.
    • Our REVPAR outlook for 2013 assumes a steady-as-she-goes view of North American and European demand, and a more conservative view of demand trends in Asia and the Middle East.
    • What we see is sort of expectation of REVPAR growth in the plus 5%-ish, a little over 5%, hopefully, like we've done the last couple of quarters, for the next couple of quarters. We know that we've got better group bookings on the books for the fourth quarter than the third, so there's maybe a little bit more upside in the fourth quarter. So to drive the full-year numbers to something in the 6% to 7% range to us seemed very difficult. Group business I think on the books now for fourth quarter is plus 6%



  • SAME:  $2 million of pre-opening costs largely related to two EDITION hotels in 3Q.   
  • PREVIOUSLY:  Pre-opening costs for our EDITION hotel are expected to total $5 million for the year, of which we've already booked about $2 million in the first half.


  • BETTER:  MAR expects to return $1BN to shareholders through share repurchase and dividends.
  • PREVIOUSLY:  We expect to return $800 million to $1 billion to shareholders through share repurchase and dividends.


  • SAME: They have identified 30 sites and approved a dozen projects. The first hote is expected to open in Milan in the Spring of 2014.
  • PREVIOUSLY:  I think have got a dozen or so specific MOXYs that either have already been approved or are pending committee approval. And I think we'll open our first roughly the end of the first quarter of 2014.


  • WORSE:  -70bps in REVPAR from government impact in 3Q.  -1% REVPAR impact due to government shutdown for 4Q. 
  • PREVIOUSLY:  Government weakness is the overwhelming cause for weakness in the greater D.C. market. You see a little bit of a difference between urban D.C. and suburban D.C. because I think when you get to urban D.C., more of that business is independent from the government, so it would be your prototypical lawyers and lobbyists and tourists coming to see D.C. and folks doing business with D.C. companies of which there are a number. But aspects of D.C. which are less reliant on government, which is why there's relatively more strength there than there would be in the suburbs.


  • SAME:  Strong performance in Eastern Europe offset declines in London, enabling us to raise REVPAR 2%. Excluding London and Olympics impact, European REVPAR increased 4%.  Unrest in Egypt reduced  REVPAR in the Middle East by 3%.
  • PREVIOUSLY:  The third quarter will be tough because of the Olympics. The fourth quarter comparisons will be much easier and we would expect, as a consequence, Europe hopefully will strengthen as we go through the balance of the year. On the negative side, we've got Egypt, which is falling apart, and I probably shouldn't say that way, but from a hotel perspective, it's not looking very good. Our hotels are running at much lower occupancies today than they were even in the second quarter. And I think those comparisons will be tough because of that market.

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