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Last night, Malcolm Knapp released sales results for February, estimating that same-restaurant sales and guest counts declined -1.5% and -4%, respectively, versus February 2013.  On a two-year basis, same-restaurant sales and guest counts declined -3.5% and -5.2%, respectively. 


February also marked a period of sequential deterioration.  The results imply a sequential deceleration of 13 bps and 119 bps for same-restaurant sales and guest counts, respectively.  On a two-year average basis, the results imply a sequential deceleration of 200 bps and 200 bps for same-restaurant sales and guest counts, respectively.


Knapp noted that only one of four weeks in February had positive same-restaurant sales and guest counts. Weather continued to be widespread and fluctuating issue during the month, particularly hitting the first week hard.  Parts of the East Coast and Midwest once again fell victim to the harsh weather.


We will release more data when Black Box Intelligence reports, including any revisions to company specific 1Q14 same-restaurant sales estimates in February.



Howard Penney

Managing Director



Setting up for Q1 beat but FY2014 guidance better than we thought. Japan?




  • Wholly-owned business performed in-line in 2013
  • Relaunched Penny Lane at 4 LV properties in November
  • Penny Lane now in place at 12 BYD properties; seeing better response by Penny Lane
  • Earliest debt maturity is 2018
  • Open to more acquisitions
  • Wilton Rancheria:  early stage design work under way 
  • Interested in Japan
  • Online gaming:  Borgata has 1/3% of market
  • Discontinuing quarterly guidance for Borgata
  • October- mid Nov: strong trends
  • Casual players visitation declined outside of Nevada
  • Top-tier players doing well
  • LV Locals
    • reduced marketing spend by $2MM.  Improved operating margins by 120bps.  Non-gaming promising area of growth
  • Downtown
    • Hawaiian charter service running much more efficiently
    • Optimistic on Downtown business in 2014
  • Midwest & South
    • $9.3MM one-time property tax adjustment at Blue Chip
    • Winter weather has been a record
    • Severe weather reduced EBITDA by $3MM
    • Delta Downs:  notable bright spot, posted double digit EBITDA growth; annual records for EBITDA, rev, and coin-in.
  • Borgata
    • Below expectations
    • Unusally low hold in December reduced EBITDA by $3.6MM, higher property tax decreased EBITDA by ~$2.1MM in the quarter and $8.4MM for the year, and bad weather impacted EBITDA by $1MM
    • Borgata/PartyPoker:  43% share of I-gaming, 85% of online players have not had rated play in the last 2 years
    • Significant uptick in promotional spending, although Borgata have not matched the increase
    • In Feb, launched online/mobile platforms for 1st 3G/4G devices
  • December:  redeemed $950MM 2015 note
  • Peninsula has expanded FCF by $100MM
  • $1.1 bn tax loss carryforward (couple of dollars per share)
  • Cash:  $268MM at Boyd, $27MM Peninsula, $17MM Borgata
  • Boyd senior leverage:  4.2x (covenant 5.0x)
  • Boyd total leverage:  6.5x (covenant 8.5x)
  • Peninsula leverage:  6.3x (coventnat 7.0x)
  • Borgata's covenant EBITDA was $121.8MM compared to acquired minimum level of $110MM
  • 2014 maintenance capex:  $125MM ($15MM Peninsula, $25MM Borgata)
  • Final Phase of Kansas Star will cost $20MM
  • 2014 guidance
    • Total D&A:  $255-$260MM (Boyd:  $130MM, Peninsula $72MM, Borgata $55MM)
    • Total interest expense:  $300MM (Boyd: $155MM, Peninsual $75MM, Borgata $70MM)
    • Deferred Rent:  $4MM
    • Pre-opening:  $5MM
    • Share-based compensation:  $16MM
    • Shares outstanding:  110MM
    • Do not expect weather to be an issue going forward.  $8MM in quarterly and annual impact
    • Expect LV Locals rev and EBITDA growth to be similar to that in 2013
    • Downtown Locals: minimal EBITDA growth
    • Midwest/South expect growth in 2H 2014
    • Borgata EBITDA similar to 2013 - does not include I-gaming or lower property taxes
    • Corporate expense:  $55MM  

Q & A

  • LV Locals why flat revenue despite market up?  False positive in December #s.  No major change in direction or slope of LV market.  Have to look at Jan/Dec together.
  • Hotels have benefited from increased convention business on Strip, particularly in March
  • Midwest/South Cannibalization:  a lot of disruption from weather; lapping Shreveport competitor in June
  • NJ I-gaming:  ramping slowly but nicely
  • Bad weather will impact EBITDA by $8-10MM in 1Q 2014
  • Japan:  exploring options
  • Regional acquisitions:  fewer opportunities but looking
  • AC market :  closing of Atlantic Club had no impact on Borgata
  • Selling assets?  Open to it
  • Acquired IP in the low $30MM EBITDA; today, it is #2 in Biloxi and generating above $30MM

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Daily Trading Ranges

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CCL the positive standout in our most recent survey. NCLH still struggling a bit.



Snowstorms abating, but are consumers still booking?  In the Caribbean, we saw discounting across the board among the lower priced itineraries in the Caribbean in mid-February, but the Carnival brand pricing stood out in March, outperforming its peers.  Carnival sequential pricing picked up among the Eastern Caribbean itineraries.  More importantly, sequential pricing rose among the Western Caribbean itineraries for 2H 2014.  This is encouraging given Western Caribbean pricing has lagged.  While Caribbean pricing overall remains sluggish and pricing has been quite volatile in the busy, promotional period of Wave Season, we continue to see Carnival as best positioned due to easy comps and low Street expectations. 


Not surprisingly, the picture is starkly different in Europe.  The RC brand and Norwegian are leading the charge in a rosy booking and pricing environment.  CCL has the most exposure to Europe but it is still trying to find a solid footing there with mixed pricing performance in March.  The Ukraine-Russia situation could be a wild card.  So far, no Black Sea sailings have been rescheduled or canceled on RCL and CCL brands.  There’s speculation that Baltic Sea itineraries could eventually be impacted; that would be significant for CCL and RCL if it happens. Alaska will be the weakest market pricing wise in 2014 – who wants to go somewhere cold nowadays?


While our study focuses on sequential pricing trends and pivots, we would point out that YoY pricing for Carnival is up significantly due to the lapping of the Triumph fire incident in 2013.  RCL and NCLH face more difficult comparisons in the Caribbean.  The Street is finally catching on to the low bar set by Carnival as even the most bearish sell-side have been raising yield and EPS estimates for CCL before they report earnings in three weeks.  According to Factset, recent FY2014 estimate changes have trended around the $1.75 EPS range (at the upper end of CCL’s $1.40-$1.80 guidance).  Our $1.90 EPS and 0.3% yield forecast for FY2014 remains unchanged from our note in December “CCL: $2 ON THE HORIZON.”


Here are the highlights from our latest pricing survey (+13,500 itineraries) on March 3-4. 



  • CCL: Positive
  • RCL: Neutral
  • NCLH: Negative



  • Caribbean 
    • Carnival brand showed the greatest positive momentum in sequential pricing among the big 3 operators in March.  This is a big reversal from weaker pricing in mid-February. 
      1. Better pricing pretty much across all brand names especially Sensation and Paradise
      2. While F2Q pricing was pressured in the Western Caribbean, they may be some light at the end of the tunnel for 2H 2014 as the chart below shows
    • Princess has been busy with promotions but pricing for FQ2 itineraries have been higher.  This is offset by heavy discounting by Holland America; a recent high profile on board crime may be the cause of the discounting across all itineraries for the brand.
  • Europe
    • Costa lost a little bit of pricing power in March, although overall Summer ‘14 pricing is still solid
    • AIDA continues to be mixed.  Baltic Sea strength is offset by discounting in the Mediterranean particularly in F3Q.  This could be a potential red flag as we roll into Spring.
    • Princess pricing improved slightly, helped by Ocean Princess
    • Cunard pricing remain higher for summer ’14 while Holland America pricing plunged.
    • P&O Cruises UK pricing backed off in F2Q but remain higher in F3Q/F4Q
  • Alaska
    • Holland America sequential pricing fell slightly
    • Princess pricing recovered somewhat after heavy discounting the last couple of months
    • While a small market player, Carnival brand outperformed in pricing in the Alaska market
  • Asia
    • Princess pricing slightly higher in FQ3 and FQ4


  • Caribbean
    • Overall, RC brand pricing was flat sequentially and remain slightly lower YoY. 
      1. Close-in pricing for 1Q lost momentum in March
      2. Quantum pricing unchanged relative to February
    • Celebrity pricing remain at depressed levels.  We’re hearing good feedback for its popular 1-2-3 program.
    • Pullmantur pricing steady
  • Europe
    • Easiest the best region for the RC brand – pricing up high double-digits for F2Q and high single digits for F3Q-F4Q
    • Celebrity pricing showed sequential gains for FQ3/FQ4
    • Azamara pricing was generally positive
    • Pullmantur pricing showed decent growth considering very easy comps
  • Alaska
    • Both RC brand and Celebrity pricing were down close to double digits YoY with trend stabilizing


  • Caribbean
    • More discounting off of already low prices for F1Q-F3Q.  F4Q pricing is stable.
    • Getaway 2Q premium increased for 2Q but it’s misleading because its comp brands (Sun, Pearl, Sky, Epic) pricing fell 20% on average since February guidance while Getaway pricing declined 10%.  Getaway premiums for 4Q was steady around 26% but only flat with Epic prices
    • Breakaway 3Q premium remain in the low single digits for F3Q and ~25% for 4Q.
  • Alaska
    • Bleeding stopped in March but pricing remain modestly lower
    • NCLH has 10% and 19% exposure to Alaska in FQ2 and FQ3.
  • Europe pricing looks outstanding for the summer
  • Hawaii summer pricing stable




ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown?

ISM Services printed its worst headline number since February of 2010 as the Employment series went sub-50, posting its largest MoM decline since November of 2008 and its first contractionary print in 25 months. 


ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - ISM Services Employment MoM Chg2


The dead cat bounce for New Orders off its worst print in more than 4 years in December continued as the series gained just +0.4 MoM in February - with a cumulative 2-month gain of just 1pt. 


Indeed, the rolling averages (3M/6M/TTM) in New Orders across both the Manufacturing and Non-Manufacturing survey’s continue to slow. 


ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - New Orders


On the positive side, Prices Paid slowed sequentially and the Backlogs index ticked above 50 for the first time in 4 –months.  Unsurprisingly, weather remained the ubiquitous caveat for both pundits and ISM survey respondents


ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - ISM respondent 



In the end, the takeaway is really just this:   


We’ve seen multi-decade/record MoM declines across a number if the sub-indices in the two ISM survey’s in recent months.  Yes, perhaps the weather is providing a modest-to-moderate negative distortion but, even if you discount that, the current Trend is one of deceleration.    


Overall, the ISM data remains in agreement with the preponderance of fundamental, domestic macro data which continue to reflect a slowdown from a second derivative perspective.  


ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - Eco Table 030514


HOW IS THE MARKET SCORING 1Q14:  Equity Indices are up but the market continues to provide a relative bid to slower-growth sector/assets (Bonds/Utilities/Gold).


Low Beta/Large Cap/Low Leverage Style factors continue to outperform and, with commodities and inflation hedge assets outperforming as well, investors (seemingly) continue to expect a rhetorical shift in policy out of the Fed in response to the fundamental deterioration.


More broadly, if the high-end is reigning in consumption (see Monday’s note:  Consumer Spending: High End in Retreat) alongside a slowdown in housing and portfolio appreciation and energy and commodity inflation continues to drive the deflator higher while taking a larger share of wallet for the bottom 80%, the upside for consumption growth in the immediate/intermediate term remains limited. 


ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - SFP


TAKING HIGH PROBABILITY SWINGS:  Will warmer weather bring a bounce in the reported data and, in reflexive fashion, drive confidence/hiring/etc higher, and a resurgence in pro-growth equity flows? 


Perhaps, but neither the fundamental data nor the price signals are supportive of that probability currently.  


We’ll change alongside the data, but until then we’ll continue to keep our gross and net domestic equity exposure tighter than we did over the Nov 2012 – Dec 2013 period, tilting that exposure towards slower growth sectors or those with positive leverage to inflation (vs. our focus on high beta, pro-growth, consumer leverage in 2013) while holding higher allocations to bonds and select commodities. 


Looking forward to more manic weather and labor force participation rate related commentary come Friday…..


ISM SEES ITS SHADOW: 6 More Weeks (Months) of Slowdown? - ISM NMFG


Christian B. Drake



Just How Understated are E&P MLPs' Maintenance CapEx Figures?

CLICK FOR FULL REPORT: Just How Understated are E&P MLPs' Maintenance CapEx Figures?


Companies in this Analysis:

Atlas Resource Partners (ARP)

BreitBurn Energy Partners (BBEP)

EV Energy Partners (EVEP)

Legacy Reserves (LGCY)


QR Energy (QRE)

Vanguard Natural Resources (VNR)


Summary Points

  • In our view, understated maintenance CapEx (and overstated DCF) is endemic among the upstream MLPs.
  • VNR strikes us as especially aggressive, because they only replaced 17% of produced reserves with the drill bit in 2013, but did not include any capital spent on acquired PDs in maintenance CapEx.  We calculate that VNR’s maintenance CapEx should have been ~5x higher than what it was in 2013, which would've reduced VNR’s reported DCF to below $0.
  • Understated maintenance CapEx is not a free lunch.  While it boosts the distribution in the near-term, it’s a long-term headwind, as the MLP needs to raise additional debt and equity merely to sustain that distribution.
  • This is one important non-GAAP accounting issue with respect to the E&P MLPs, but not the only one.  Other issues that we often see include aggressive hedge accounting (like adding back the cost basis of commodity derivatives to DCF); adding back unit-based compensation to DCF; adding back non-cash interest expense to DCF; adding back acquisition-related G&A to DCF; and more.
  • We remain negative on the upstream MLPs.  Aggressive non-GAAP accounting, particularly with respect to maintenance CapEx, is a serious concern.  Valuations are difficult to justify on any metric other than reported DCF.

Kevin Kaiser

Managing Director


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.48%
  • SHORT SIGNALS 78.35%