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DARDEN RESTAURANTS HEDGEYE POLL

Earlier this week Starboard announced that they intend to call a special meeting to halt the spinoff of Red Lobster.  We have expressed our concerns with management’s plan because, to us, it makes little strategic sense and doesn’t get at the heart of the problem.

 

Darden is still a company with an inefficient operating structure.

 

On the day Darden’s strategic plan was announced, the stock closed down 4% to $51.  This didn’t exactly strike us as a vote of confidence in management’s plan to create value.  Two days later, Starboard Value announced a 5.5% position in the company and the stock rallied 6%.  For the most part, the stock has traded sideways since then, until rallying 3% on the news that Starboard retained former Olive Garden president Brad Blum to serve as an advisor in its battle against Darden.

 

The takeaway from stock action and, in our opinion, sentiment since 12/20/13 is the stock rallies when there is movement toward replacing management and sells off when management publicly digs their heels in. 

 

We’ve heard management talk about a plan to fix Olive Garden for five years now, but, they continue to over promise and under deliver.  The current team has had ample time to fix the brand and has failed miserably.

 

It is time for significant change.

 

To review, we’ve included some brief thoughts on why management’s strategic plan makes very little strategic sense and could actually end up destroying value.

 

  • Red Lobster may become less profitable and, as a result, less valuable.
  • The plan does not address the issue of managing multiple brands.
  • Management’s proposed initiative simply removes one underperforming brand from a large portfolio.   
  • Clarence is building a moat around his castle.
  • They are not cutting unit growth or costs as aggressively as they should.
  • There is no real plan to fix Olive Garden.
  • Management has lost all credibility to hit targets.

 

We certainly have a strong opinion on the matter, but we’d like to hear from you.

 

PLEASE CLICK HERE TO TAKE THE POLL https://app.hedgeye.com/feed_items/33809-darden-restaurants-hedgeye-poll?page=1

 


BNO: Adding Brent Oil to Investing Ideas

Takeaway: We are adding BNO to Investing Ideas.

Hedgeye's Macro Team is adding added Brent Oil to Investing Ideas. 

 

We will send out a full report from Director of Research Daryl Jones detailing our bullish case.

 

BNO: Adding Brent Oil to Investing Ideas - brent



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MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING

Summary:  The softness in New Durable & Capital Goods Orders extends itself in January.  The labor market continues to improve but at a slowing rate.  Bloomberg’s high frequency read on Consumer Confidence printed its best reading in 6 wks but the current trend remains equivocal.    

 

Meanwhile, the preponderance of domestic, fundamental macro data continues to suggest slowing growth – a trend the market continues to discount as utilities, bonds, and gold/commodities continue to outperform pro-growth leverage.

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Eco Summary 022714 

 

 

DURABLE GOODS:  Unsurprising softness following January ISM and Retail Sales 

Headline New Orders: Durable Goods declined for two consecutive months for the first time since October 2011 as January New Orders declined -1.0% MoM, unable to comp Decembers -5.3% MoM decline.  The 23% MoM increase in Defense Orders in January helped buttress the headline reading against broader private sector softness

 

New Durable Goods Orders Ex-Defense & non-defense Aircraft:  Orders ex-Defense and Aircraft - perhaps the best of the sub-aggregates in gauging household consumerism - remained negative on a MoM basis and decelerated on a YoY basis.   

 

Capital Goods Orders:  The great 2014 capex resurgence narrative remains in a holding pattern as Core Capex Orders growth retraced Decembers MoM decline but posted its first YoY decline in 10 months.

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Durable Goods

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - IS Ratio

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Durable Goods Jan Table 022714

 

 

INITIAL CLAIMS:  SLOWING IMPROVEMENT

After last week’s counter-trend move to 4-weeks of steadily deteriorating improvement in the initial claims data, this morning’s data again reflects a deceleration in the rate of improvement in the domestic labor market. 

 

The year-over-year rate of improvement in rolling NSA initial jobless claims decelerated to -4.4% from -5.4% WoW as the YoY rate of change worsened to +0.13% YoY vs. -8.4% the week prior.    

 

On a seasonally-adjusted basis, initial jobless claims rose 14k to 348k from 334k WoW, as the prior week's number was unrevised lower by 2K. Meanwhile, the 4-week rolling average of seasonally-adjusted claims was flat WoW at 338K. 

 

To be clear, the trend in the labor market is still one of improvement but, in contrast to last year which was largely characterized by accelerating improvement, the prevailing trend YTD has been one of deceleration. 

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - CLaims NSA 022714

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - CLaims SA 022714

 

CONFIDENCE:  Bloomberg’s weekly survey of Consumer Comfort printed its best reading in 6 weeks but, across the primary confidence surveys, the data remains mixed and the current trend largely equivocal with the University of Michigan and Conference Board surveys flat and modestly lower sequentially in February, respectively. 

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Confidence 022714

 

MACRO MEDLEY: SOFT WITH A SIDE OF MIDDLING - Confidence table 

 

Christian B. Drake

@HedgeyeUSA

 

 

 

 

 

 

 


ISLE F3Q 2014 CONF CALL NOTES

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

 

 

CONF CALL

  • 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

HLT 4Q 2013 CONF CALL NOTES

Takeaway: NOT YOUR FATHER'S HILTON:

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

 

 

CONF CALL

  • 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.  

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