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PENN Q1 2014 REPORT CARD

In an effort to evaluate performance, we compare how the quarter measured up to previous management commentary and guidance

OVERALL:

  • WORSE:  Sloppy quarter and worse guidance.  Removing Sioux City surprisingly surprised some people.  We think regional trends will improve sequentially from here but for now there is not much to get excited about.  Problems seem concentrated with Indiana and West Virginia.

Consumer trends:

  • WORSE:  Very soft visitation and revenue environment, particularly at Charles Town and L'Auberge.  Poor demand from the <$100 segment.
  • PREVIOUSLY:  Relatively soft and cautious consumer environment, particularly at the lower end worth statements of our rated database, those who typically spend a $100 or less per gaming visit.

Promotional environment:

  • BETTER:  Promoting less in St. Louis region. Other regions are still promotional but steady. 
  • PREVIOUSLY:  Promotional environments remain mostly rational in our competitive markets

Plainridge:

  • SAME:  Expect to open 2Q 2015
  • PREVIOUSLY:  
    • Feel comfortable with a 20% stabilized ROI
    • (03/14/14) broke ground on the property

New Competitors:

  • WORSE:  Competition is becoming more fierce in Lawrenceburg and Charles Town.  Mgmt blamed underperformance in these two markets for the lowered guidance.
  • PREVIOUSLY: 
    • Starting in Charles Town, clearly the opening of Horseshoe Baltimore in the August-September time period will have far less effect from what PENN saw with Maryland Live opening up in 2012 and then adding table games in 2013. 
    • Similarly in Lawrenceburg, the Horseshoe Cincinnati effect on Lawrenceburg will certainly have a much greater effect on the Miami Valley opening, which occurred about a little less than two months ago, and a less of effect of what's going to happen with River Downs or Belterra Park opening up. 

Cost efficiencies:

  • BETTER:  1Q corp expense and stock comp was better than forecasted
  • PREVIOUSLY: 
    • There are still some additional operating efficiencies out there to pursue...That includes, obviously, payroll. We still have approximately 25% of our labor costs remain variable, so there's opportunities there. 
    • [Marketing] tend to be very disciplined.

Toledo/Columbus:

  • SAME:  Toledo was impacted by the most snowfall on record in 1Q.  Absent weather, mgmt was encouraged by the property performance. 
  • PREVIOUSLY:  
    • Expect Toledo to grow bc PENN don't really any other supply affecting that business as they go into the balance of 2014 into 2015
    • (Columbus):  Dayton and Miami Valley operation will have some dampening effect on Columbus as PENN absorb that supply

Dayton/Austintown: 

  • SAME:  continues on budget and scheduled to open early this fall
  • PREVIOUSLY:
    • Fall 2014 opening
    • Opening up with 1,000 in Dayton and about 850 in Austintown and be able to grow beyond that as demand warrants.
    • Still looking at margins in those two racinos in the high 20%s or better.

Jamul:

  • SAME: Will open 1Q 2016 
  • PREVIOUSLY:  Early 2016 opening