Still have time to blame the weather but cost cutting is a positive step




  • One of most brutal weather years ever
  • Weakness in December moved into January
  • Improved EBITDA margins at half of the portfolio
  • Davenport sale:  $12m reversal in tax provision
  • 6.6x leverage ratio

Q & A

  • February trends: same as Jan
  • Upper end of customer database: trends remain ok
  • Retail spending in FQ3: -3%, consistent with previous Qs
  • Pompano: better results due to more favorable racing schedule, poker room doing well; looking at opportunities for expansion; net of promotional, higher in every customer segment; retail play down a little bit; some pressure from opening of Dania Jai Alai.
  • MS: revenue battle ongoing; impact on new competitor in Natchez; competition from Arkansas
  • Bettendorf: down in-line with the Quad City market
  • Promotional environment: MS esp Vicksburg aggressive in free-play (ISLE market share up)
  • Cape Girardeau: ramp was slower; taking out labor/food costs to match with lower volumes
  • Firm sale? No comment on rumors.
  • Potential to go land-based in Bettendorf
  • MO, IA, CO:  most impacted by weather
  • 135% increase in # of days impacted by weather
  • In markets not impacted by weather, revenue trends flat or a % of points lower
  • Golden Nugget Q4 opening in Lake Charles: as much as 70% supply increase to market.  Will be a battle
  • Higher promotions line: promotions up in Cape Girardeau due to comps, also in Nemacolin; but advertising $$ lower
  • Philly license will be awarded in April   
  • How to get out of negative EBITDA in Nemacolin: revenue decline based on seasonality; PA market tough; trying to mitigate $10 entry fee; cut wages; repaired games 
    • In dialogue with govt to see if entry fee can be eliminated
  • Cash equivalents:  A1, P1 paper or better
  • Cage cash: $40-50MM
  • Lake Charles: employment relatively stable 
  • May have flooding concerns as winter ends
  • Nemacolin: Pay $150k rent,  pay a % fee if revenue > $35MM
  • Apart from Bettendorf project, primary focus is on delevering
  • Maintenance capex run rate: $40-50MM (closer to $40s)
  • D&A run rate:  $80-85MM



Not your Father's Hilton - A really solid quarter operationally. Don't fret about guidance, Q1 should be another beat.




  • HLT: Global leading RevPAR industry premium at 15%
  • #1 in pipeline, rooms under construction worldwide
  • Further migration to capital-light model; will consider divest RE in the future
  • Timeshare:  54% of interval (3rd-party); 78% of year-end inventory was capital-light
  • 2013 Systemwide RevPAR 5.2% with 3.3% in ADR and 1.3% occupancy gains
  • Transient growth outpaced group but group picked up in latter part of 2013
  • Group particularly strong in big-box hotels (+10%)
  • RevPAR industry premium grew 1% in 2013 
  • 60% pipeline outside of US
  • ME pipeline- largest in industry with 20k rooms
  • Rooms under construction: 25% higher than nearest competitor
  • Have not lost focus on growth in US
  • Net unit growth to accelerate in 2014/2015
  • DoubleTree:  fastest upscale brand in lodging; doubled in size since 2007
  • China:  +6.7% REVPAR in 2013
  • Asia/Pac: 55k rooms in pipeline
  • Waldorf-Astoria Beijing opened last week
  • Luxury: Conrad/Waldorf-Astoria:  doubled since 2007, 27 properties in pipeline
  • Hilton brand:  554 hotels opened; 150 projects in pipeline (95% non-US)
  • Home2Suites: opened 28 hotels and 100 in pipeline
  • Hilton Garden Inn: 214 in pipeline with 16 hotels in China 
  • Mobile:  8x increase in revenues; doubled in last few months
  • 2014:  
    • Rate up meaningfully; group business (8 big-box hotels) up 10%; medium-sized group business up 7%
    • Modest growth in US but better than 2013
    • Outlook for Japan is very strong 
    • China 5.5%-6.5% REVPAR in 2014, down from 7% from 2013
    • London will be stronger in 2014 due to stronger group revenue, trending +20% in 2014.
    • ME&A:  continue to be strong
    • Egypt remains highly volatile
  • Growth rate in Q4 slower than previous quarters due to decreasing govt business resulting from govt shutdown
  • San Fran/Hawaii:  +13%, +12% RevPAR
  • NYC:  +3.5% RevPAR;  owned hotels:  +4% RevPAR
  • EUROPE:  +3.9% RevPAR driven by occu (Germany, Austria, .....)
  • Asia-Japan:  +7% RevPAR
  • Hilton Waikiki new timeshare development: sales begin in 2014; construction will begin in 2016
  • Fixed/floating debt:  50%/50%
  • Term loan at end of 2013:  $6b
  • Weighted debt: 4.2%; 6.2 yrs maturity
  • UK-bad weather would impact fees in Q1
  • Share-based comp $25m benefit reversal from accrual

Q & A

  • $700-$900m 2014 cash balance for debt reduction
  • Debt repayment of $700-$900m result in coverage of 4.5x 
  • China:  GDP moderating; still generally pretty positive; higher-end hotel development has slowed, mid-scale development has picked up; the upcoming market will be more mid-scale (3.5-4 star space)
  • 2014 occupancy expectations:  73% in 2013, 0.5%-1.0% occupancy growth in 2014
  • Big group hotels still have more room for occupancy growth
  • Changing a big contract in Mecca which resulted in volatile incentive fees
  • 2014: IMF growth- 8-10% range; should ramp up to 20% in the future
  • Supply trends/growth: 
    • seeing little full-service, zero luxury, all limited service in suburbia 
    • Rooms supply growth 1.5% in 2014 vs 2%-2.5% long-term trend
  • New Brands: 
    • looking to develop as well as add brand extensions.. 
    • will do then announce and market
    • definitely developing boutique but will be different than peers
  • RevPAR 5-7% variables:
    • higher end: continued strength of transient at or better than 13
    • need group to show up
    • nothing big to go wrong in the World
  • Waldorf redevelopment: recently spent $125m but not yet rooms because considering all alternatives to maximize value to shareholders - including some sort of conversion.  Will layout plan for future of Waldorf Astoria later this year.  

Retail Callouts (2/27): JCP, KSS, M, DDS, JWN, BBY, BBBY, SHLD

Takeaway: 4Q Comparative Analysis of JCP, KSS, M, DDS, JWN. Why we’re still negative on KSS. Nike shoots itself in Manu’s foot. BBY BBBY MW DLIA SHLD


  • DECK - Earnings Call: Thursday 2/27, 4:30pm
  • GPS - Earnings Call: Thursday 2/27, 5:00pm




NKE - Manu Ginobili Rips Through His Shoe While Playing Defense



Retail Callouts (2/27): JCP, KSS, M, DDS, JWN, BBY, BBBY, SHLD - chart1 2 27


Takeaway: Seriously, is that even possible? Nike is going to have a PR field day with this one. No doubt that Manu will want some special mock-up of a shoe design to ensure that this never happens again. UnderArmour and AdiBok must be pumped.


JCP - 4Q Earnings


JCP bulls were definitely due for a win, and they definitely got one today. The quarter itself was nothing to write home about, but the reality is that several key line items improved on the margin -- and for a company like JCP, that's all that matters. We were less thrilled with elements of the company's cash flow, but net/net still think this was a positive event -- especially given the carnage in the retail space. *Link to our note on JCP (JCP: The Scoreboard Doesn't Lie)


Retail Callouts (2/27): JCP, KSS, M, DDS, JWN, BBY, BBBY, SHLD - chart2 2 27




Retail Callouts (2/27): JCP, KSS, M, DDS, JWN, BBY, BBBY, SHLD - chart5 2 27


SHLD - 4Q Earnings


SHLD's print was a little like JCP's but with far less emotion on the short side. It bear revenue estimates, which is the first time we've seen that in a while from SHLD, though it was in the context of a -6.4% comp -- by far the worst out of the department store group. EBITDA was $12mm vs $429mm last year -- no that's not a typo. They printed a loss of $0.96, which is far better than the Street at -$1.60. But in fairness, the Street was only 2 estimates.


Retail Callouts (2/27): JCP, KSS, M, DDS, JWN, BBY, BBBY, SHLD - chart3 2 27


KSS - 4Q Earnings


KSS' 4Q was the most in-line out of its peer group. One standout is that comps were -2%, but every other department store (sans SHLD) was within 40bps of +2%. KSS definitely broke that trend. We're most concerned with guidance, which stands at 0.5%-2.5% comp growth for the year. Please, timestamp us on this one…there's no way that comps are positive in 2014. The only way we get there is if there is a meaningful decline in Gross Margin, which KSS didn't exactly forecast either. The crux of our argument rests in our work that shows that KSS took upwards of $800mm in share away from JCP over the past two years. JCP wants it back. It will either a) succeed, or b) drive down KSS' gross margins while it tries. Either way, it's not a pretty ending.


Retail Callouts (2/27): JCP, KSS, M, DDS, JWN, BBY, BBBY, SHLD - chart4 2 27


MW, JOSB - Financing for Eddie Bauer Buyout Gets Delayed



  • "Goldman Sachs Group Inc. has postponed its efforts to syndicate a $400 million loan that would help finance Jos. A. Bank Clothiers Inc.’s acquisition of fellow retailer Eddie Bauer, according to people familiar with the matter, after the proposed takeover was challenged in court."
  • "The people didn’t give a reason for the postponement, but it comes after a development in a court case that cast the timing of the Eddie Bauer deal in doubt."


Takeaway: Financing gets delayed because the deal should never have happened -- and  it won't happen -- either because of Men's Wearhouse, or the courts.


BBY - Best Buy cutting 2,000 managers



  • "The nation’s biggest electronics chain...has begun laying off thousands of midlevel managers nationwide as it girds for even more competition, The Post has learned."
  • "No store closings are planned in this latest round of cuts, and the exact number of pink slips hasn’t yet been confirmed. But one insider said layoffs could affect upward of 2,000 managers and supervisors."


BBBY - Bed Bath & Beyond Inc. Names Eugene A. Castagna - Chief Operating Officer, Susan E. Lattmann - Chief Financial Officer, Renews Employment Agreements With Co-Chairmen



  • "Bed Bath & Beyond Inc. today announced the promotion of Eugene A. Castagna, previously the Company's Chief Financial Officer and Treasurer, to the role of Chief Operating Officer.  Susan E. Lattmann, formerly the Company's Vice President – Finance, has been promoted to Chief Financial Officer and Treasurer."


Versace - Blackstone nears deal to buy into Versace



  • "...Blackstone is nearing agreement to buy a minority stake in Italian luxury group Versace...The Versace family, led by creative designer Donatella Versace, was on Wednesday expected to grant exclusivity to the New York-based fund manager to purchase a 20 per cent stake in the company, said two people with knowledge of the talks."
  • "Blackstone’s offer may value the Milan-based designer at as much as €1bn including debt, one of the people said. A deal has yet to be finalized, however, one of the people cautioned."


DLIA - Valinor Management Takes Stake in Delia's



  • "Valinor Management LLC has picked up an 18.7 percent stake in teen/tween specialty store Delia’s Inc. and will nominate two individuals, including Valinor’s Seth Cohen, to the firm’s board of directors."
  • "Valinor disclosed the stake of nearly 14.4 million shares in the retailer in a regulatory filing with the Securities and Exchange Commission Wednesday. The second board nominee will be from outside Valinor but approved by Tracy Gardner, Delia’s chief executive officer."






Uncle Sam vs Union Jack

Client Talking Points


Let's be clear: Europe is not the USA. Not by a long shot. With #StrongEuro and Pound, my model still says you buy Europe over the U.S. (Cyclical Equities). Today’s pullback of -1.2% in Germany (DAX) and MIB Index (Italian business confidence hits new highs for February at 99.1 versus 97.7 January) are buys. Russia down -2%? Not so much. It's careening to fresh year-to-day lows (worst stock market in the world at -12.5% YTD).


The Yen is still ramping versus the Burning Buck as Janet "Mother of All Doves" Yellen prepares to chirp dovishly to the Senate Banking Committee this morning. USD/YEN weakness continues to keep a lid on every Nikkei bounce to lower highs (-0.32% overnight to -8.3% YTD).


A big week to be long bonds, and I like it (US #GrowthSlowing as inflation accelerates). Don’t buy them today with the 10-year yield signaling immediate-term TRADE oversold (within its bearish TREND @Hedgeye) at 2.65%. The risk range is 2.64-2.80%.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term. 


Las Vegas Sands has transformed into that rare stock that should appeal to “Growth,” “Value”, and “Dividend/Cash Flow” investors alike.  The stock now yields higher than the S&P 500 (43% sequential quarterly dividend increase), and the company is buying back $200 million + in stock a quarter, yet still retains a pristine balance sheet.  The significant capital deployment opportunities can be funded out of annual free cash flow of nearly $4 billion. Management has indicated they are willing to raise leverage 1.5x which would still keep them well below industry average and if directed toward dividends, would result in a yield of over 6%.  And we haven’t gotten to the $10-14 billion in mall assets that could be monetized. We know of no other stocks in consumer land that provide this combination of cash flow, growth, cash return to shareholders, and value levers.


Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road


GOLD: +0.1% this morning to $1323/oz = +10.7% YTD (vs $SPY -0.2%) @KeithMcCullough


"There are no seven wonders of the world in the eyes of a child. There are seven million." - Walt Streightiff


Tesla's grand expansion plans will be funded in part by raising $1.6 billion through a bond issue announced Wednesday. The money will be used to build what founder Elon Musk has dubbed the "Gigafactory" and for production of a more affordable, new mass market vehicle. The massive factory is expected to produce more lithium ion batteries annually by 2020 than were produced worldwide in 2013. (CNN)

WTW: Why We're Still Short

Takeaway: WTW price suggests limited room for error moving forward; meaning we can stay short until the street finally gets the secular decline theme


We have been mulling over what to do with WTW shares, wondering if there was anymore downside left in the short after selling off almost 30% since its earnings release.  


After further analysis, it appears WTW is now considerably overvalued, which implies that the street is baking in upside to 2014 guidance or a return to revenue growth in 2015.  We do not believe either is likely; particularly the latter (see our most recent notes and slide deck below for more detail).  


So even if the company can surprise to the upside in 2014, we doubt the stock will move much higher in response.  On the other hand, if WTW fundamentals deteriorate further, it could trade much lower; especially as we draw closer to 2015 when the secular themes become more evident.  


WTW: Staying Short

02/14/14 12:09 PM EST


WTW: Short Slide Deck

01/30/14 11:00 AM EST


WTW: Initiating Short

01/22/14 09:21 AM EST 


WTW is now trading near its peak LTM valuation on both a NTM P/E and NTM EV/EBITDA basis (both on an absolute and relative basis).  That statement seems counter intuitive given the considerable miss on 2014 guidance.


Prior to its 2014 guidance release, consensus was expecting 2014 EPS of $2.77.  WTW issued 2014 EPS guidance of $1.30-$1.60, missing EPS guidance by 48% at the midpoint.  However, the stock is down ~29% since its earnings release; resulting in a considerable divergence on P/E basis (the "E" declined more than the "P").  Net-net, WTW's trading multiples have expanded considerably since the 2014 guidance release


In the charts below, we're showing a time series of WTW's valuations relative to its historical peak and trough ranges over the past 1,3, and 5 years.  The first chart is WTW's NTM P/E and NTM EV/EBITDA valuations on an absolute basis; the multiples have expanded roughly 5x and 4x turns, respectively, since its earnings release.  


WTW: Why We're Still Short - WTW   PE Bands 2 26 14

WTW: Why We're Still Short - WTW   EV Bands 2 26 14


The same dynamic holds on a relative basis (vs. the SPX).  In the charts below, we are showing a similar time series of the spread between WTW's multiples vs. those of the SPX (in order to remove the impact of beta from WTW's valuation).  The relative valuations have expanded as well, which implies that the street believes WTW should be trading inline with the SPX on a NTM P/E basis, and 4x above on a NTM EV/EBITDA basis.  


WTW: Why We're Still Short - WTW   PE Spread Bands 2 26 14

WTW: Why We're Still Short - WTW   EV Spread Bands 2 26 14



Hesham Shaaban, CFA




Thomas W. Tobin



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