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IT’S ALL ABOUT POKER SHARE

I-gaming revs are growing in AC but way below expectations.  We don’t find that as relevant as poker share.  Here, BYD leads the pack.


  • NJ I-Gaming revenues increased 15% MoM to $11.9 million while I-Poker eked out only a 3% gain
  • The reality was that New Jersey online gaming was never going to move the needle for the publicly traded gaming companies
  • We continue to focus on Poker share as I-Poker is likely the only form of internet gaming to roll out nationally (through interstate or federal legislation).  Poker relies heavily on player liquidity and with New Jersey the most populous state to offer the online game, first mover advantage here is critical.
  • While most of the investment community has downplayed online gaming as a value driver for any of the stocks, BYD’s interest in the market leading Borgata poker effort has us excited as the site’s share grew in March and commands 51% of the volume.

IT’S ALL ABOUT POKER SHARE - nj


Poll of the Day Recap: Majority Says Geopolitics, Inflation Cause of Rising Oil Prices

Takeaway: At the time of this post, the majority went to 66% saying YES and 34% voting NO.

Poll of the Day Recap: Majority Says Geopolitics, Inflation Cause of Rising Oil Prices - americas oil fuled collapse

 

The price of crude oil has been volatile. WTI broke out above Hedgeye’s TREND line last week, and it was up again this morning to +6% year-to-date.  
 

Our question was simple today: Do you see oil prices heading higher the next three months?
 

At the time of this post, the majority went to 67% saying YES and 33% voting NO.
 

Voters who said YES largely agreed that it had to do with two things: geopolitics and inflation.
 

  • “Geopolitics [in terms of] mostly Russia holding the Ukraine hostage until the West backs down. If the EU doesn't back away from Ukraine, Russia will invade. This dance could escalate before there is relief.”
     
  • “Inflation is accelerating. Oil is the liquid gold; therefore, it's accelerating as well.”
     
  • “The combination of geopolitics and the upcoming summer driving season will lead to prices trending higher.”
     
  • “Commodities have been ripping humanity a new one all year.  If global central Keynesian drug overlords want the inflation, they will get it.”

Of the group who voted NO, one person explained, “I don't see consumer demand for gas as particularly high these days. All data points to people driving less, and that's a crucial point ahead of the summer driving season.” Another believed a drop in oil price is the United States’ best weapon against Russia.
 

This morning Hedgeye CEO Keith McCullough noted that he gets a lot of questions specifically about oil because it was one of the few commodities not going up.  But now, he said, “this move plus Natural Gas up +13% YTD isn’t good. It equals #ConsumerSlowing.”
 

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The Casual Dining Dilemma

We remain cautious on select names in the casual dining sector as we believe sluggish sales trends, decelerating consumer spending and accelerating inflation will continue to pressure margins and, ultimately, stock prices.  This raises the question: does the casual dining industry have pricing power?

 

We continue to like CAKE, PBPB, BLMN and PNRA on the short side and DRI on the long side in the casual dining space.  We will be publishing brief updates on all of our favorite ideas – both long and short – in the coming days.

Same-Store Sales

Black Box Intelligence reported that same-store sales grew +0.7% in March 2014, a 140 bps sequential improvement from the -0.7% reported in February 2014.  On a two-year basis, sales were positive (+0.6%) for the first time since November 2013.  For 1Q14, same-store sales were down -0.3%, a 20 bps sequential deceleration from the -0.1% reported in 4Q13.  On a two-year basis, same-store sales declined -0.8% in 1Q14.

 

The Casual Dining Dilemma - sales

Same-Store Traffic

Same-store traffic declined -1.2% in March 2014.  This represents a significant 200 bps sequential improvement from February, but continues to confirm that casual dining traffic is in secular decline.  On a two-year basis, same-store traffic declined -1.6% in March.  For 1Q14, same-store traffic was down -2.2%, a 10 bps sequential improvement from the -2.3% reported in 4Q13.  On a two-year basis, same-store traffic declined -3.0% in 1Q14.

 

The Casual Dining Dilemma - traffic 

Food Inflation And Limited Pricing Power

Given the secular decline in traffic, the casual dining industry has limited pricing power to protect against food inflation.  With the CRB Foodstuffs Index up +18.6% YTD, we believe the casual dining will experience significant food inflation over the next twelve months, particularly when current contracts expire.  How will the industry manage the pressure?

 

According to Black Box, the per person average check was up +1.8% in March and up +2.0% in 1Q14.   This is slightly less than the CPI for food away from home, which is running up +2.25% in 2Q14 and significantly higher than the CPI for food at home, which is running up +0.55% in 2Q14.

 

As we head into the later stages of 2Q14 and into the fall, we expect to see more companies talk about price increases.  We believe raising prices is risky for the industry given the secular decline in traffic and knowing the consumer can find better value at the supermarket.

 

The Casual Dining Dilemma - rest value spread

 

 

 

Howard Penney

Managing Director

 

Fred Masotta

Analyst

 


Ralph Lauren Gets Candid | $RL

Takeaway: It's very rare that you see this much candor from Ralph.

Ralph Lauren Gets Candid | $RL - 2

Q&A: Ralph Lauren Now

Below is an excerpt of an article that ran in Women's Wear Daily: 

  • WWD: There’s so much going on at Ralph Lauren right now, not the least of which is the Polo Women’s launch. Why now?

    R.L.: "All of a sudden Blue Label looked like Ralph Lauren’s less-expensive line. It needed an identity. So I thought that this is a good time to do Polo, and that the growth potential was fantastic. I built some men’s stores but I didn’t build men’s and women’s. I didn’t put them together. And that’s why I did it. I felt like I was ignoring a whole business that was sophisticated."
     
  • WWD: As the head of a public company, you have to think about succession.

    R.L.: "People ask me that all the time. I have a lot of good talent working in my company and we have a team of people; it doesn’t depend on one person, so my business won’t go down the drain if I’m not here tomorrow. I like to think that I’m vital to the company and that I’m exciting and important. I also know that I have built into this company people who are talented, who can do a good job and really understand everything I’m talking about…"
     
  • WWD: You recently brought in Valérie Hermann to oversee luxury. What is your luxury strategy?

    R.L.: "My luxury strategy is to almost divide the company on some level. We brought in Valérie as president of luxury so she’s going to look at what stores to show to. When you have a lot of different products sometimes it gets mixed and they use the high price to sell the low price and it doesn’t stand on its own. When you go into a private luxury store in Europe the voice is very clear: This is Gucci; this is Prada… They’re not department stores. So there is a difference.

    Department stores are very important, their growth is very important. But at the same time, the specialty stores, the quality level, the voice comes out…"
     
  • WWD: How do you spin off luxury internally? Valérie came in with Jacki [Nemerov, president and chief operating officer, Ralph Lauren Corp.] already here.

    R.L.: "They work together. Jacki is a strong executive; she runs a big amount. They’ll work together and talk together; they’re not behind closed doors. [Valérie’s] mission is to build that specialty store sensibility, [make sure] that we’re not in the wrong stores and that we sell in the stores that we believe can carry the clothes. A lot of people say, 'Oh that’s Ralph Lauren; it’s not luxury.' They think you belong in one department. It’s clarity for the brand, it’s like cutting the company in half."
     
  • WWD: How do you deal with it when someone major in the company—Roger Farah, for example—says “I’m retiring” or “I’m leaving?

    R.L.: "Roger is one of the very good talents. I’d say that Roger really helped me have a successful company, someone I have great respect for. If he decides to go, then hopefully he’s built enough people behind him. Jacki was a licensee first and then I asked her to come here because I thought she was great. She’s now COO. She and Christopher Peterson who is [chief financial officer] work very well together; they’re both very smart. Roger’s not out of the company. He’s vice chairman. He’s here, but not as full-time as he was. But you need talent."

Takeaway From HEDGEYE's ALEC Richards:

It's very rare that you see this much candor from Ralph. He addressed a number of topics in this one-on-one, but we found the comments on growth drivers (Polo & International), succession plans, and the C-Suite particularly notable.

 

Editor's Note: This is a complimentary research excerpt from Hedgeye Retail Analyst Alec Richards. Follow Retail Sector Head Brian McGough on Twitter @HedgeyeRetail

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