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




  • MIXED:  PNK posted lower revenues than contemplated by the Street but beat on EBITDA due to cost controls.  However, earnings had come down considerably as States released a continuous stream of soft gaming revenues through the quarter.  Cost controls were impressive but at some point someone needs to call out some of these gaming operators for the recurring "non-recurring" adjustments made (mostly up) to arrive at Adjusted EBITDA.

Business Trends:

  • MIXED:  Trip frequency continue to decline, while spend per trip increased 6% YoY in 1Q.  The trip decline was even more evident in the markets with new competition.  Management indicated that Q1 softness continued into April.
  • PREVIOUSLY:  Similar to 2013, trip frequencies continued to decline with people visiting less often, while spend patterns have remained relatively stable.  Trip declines are particularly pronounced in the less than $100 average daily theoretical segment and end markets with new competition.

Marketing Spend:

  • BETTER:  Marketing reinvestment as a % of GGR was down 380bps YoY in 1Q.  There is still room for improvement.
  • PREVIOUSLY:  Continue to be very focused on driving profitable revenue and applying a rational approach to marketing spend. Reinvestment declined both in terms of dollars and as a percentage of gaming revenue, down 240 basis points year-over-year.

Database integration spend:

  • WORSE:  Too many excluded costs recently.  Integration of myChoice program into ASCA properties for 2014 and portion of 2015 benefit results in an upfront aggregate non-recurring charge of $5m in 2Q.  Another $5.1m in Player list amortization costs associated with ASCA acquisition excluded in 1Q.
  • PREVIOUSLY:  Expect this year to have roughly about $10 million or so that will be spent on that in 2014. It'll be largely done by the end of this year.

L'Auberge Baton Rouge:

  • SAME:  L'Auberge Lake Charles and L'Auberge Baton Rouge particularly did well on the cost side, boosting EBITDA and EBITDA margins.  L'Auberge Baton Rouge continued to ramp up its high end regional gaming volume. 
    • Market share increased 420 basis points from prior year with healthy growth from both the local and regional play
    • Hotel also continues to be a very good story with this property achieving the second highest RevPAR in the company.

River City:

  • SAME:  Had all-time high in revenues in March.  Combined with St. Charles, market share in St. Louis market increased 200bps.
  • PREVIOUSLY:  Continues to outperform the market with a 230 basis point improvement in market share during the fourth quarter.


  • SAME:  Struggled with polar vortex (~roughly $5m impact) but operational efficiencies led to a 680bps improvement in EBITDA margin.
  • PREVIOUSLY:  Performed pretty well in the face of a challenging environment, as our margins in the Midwest also improved despite a 4% decrease in net revenues.


  • BETTER:  $53m annualized as of Q1 2014 - includes $5m cost related synergies and  $11m of cost avoidance (healthcare benefit cost); expect more synergies ahead
    • Feel very confident in ability to meaningfully exceed the target of $40 million of annualized merger synergies.  In fact, PNK expects to exceed this $40 million number of implemented synergies by the end of 1Q 2014, with more to come. 
    • The loyalty program will launch in April, so haven't seen any impact at the Ameristar properties along those lines. VIP marketing, house coding our branch offices, all of those efforts are very early in the execution stage. Some are still in the planning stage, but we are beginning to execute most of our revenue synergies in the first and second quarter of this year.

New Orleans hotel:

  • SAME:  Will open this summer
  • PREVIOUSLY:  The project remains on budget and is expected to open early summer.

Buy in May and Pray?

Client Talking Points

Month End

As the “Ides of April” come to a close, US Consumer (XLY) and Financials (XLF) lead the losers down -1.8% for April. On the other hand, slow-growth-yield-chasing Utilities (XLU) are up +4%. If buying inflation and slow growth ain’t broke, don’t fix it.


The Wall Street Journal is “cautious” on Twitter (TWTR) now – thanks for coming out. TWTR, YELP, and FB remain in Bearish Bubble Formations at Hedgeye! Buy in May, and pray? Not on the US consumer, social bubbles, or housing stuff – no thank you!

US Housing

There’s a nasty weekly mortgage demand print this morning out of MBA (total, purchase + refinance, index) slammed for another -5.9% loss after last week’s -3.3% drop. Rates Down = Demand Down – Janet? Our Q2 Macro Theme of #HousingSlowdown remains intact. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.


Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.


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


Rates Down, US #HousingSlowdown Accelerates - Janet? @KeithMcCullough


"The ability to honestly and quietly reflect on one's life is one of the most powerful tools for personal growth." - Richard Carlson


Venezuela will raise the minimum wage by 30% on May 1, President Nicolas Maduro has announced. The increase is below the level of annual inflation, which official figures put at 56.2% for 2013.The announcement comes after almost three months of mass protests against Mr. Maduro's government triggered by rising inflation, shortages of some basic goods and a high crime rate. (BBC)


Soft top line but very good cost controls. Comments on April softness and apparent low enthusiasm for REIT spin were only conference call negatives vs investor expectations.




  • Belterra Resort:  continue to improve facility; very competitive part of country
  • Belterra Park:  within 60 mins of Belterra Resorts
    • F&B offerings received well
  • 2 primary goals:  Revenue synergies, marketing expense discipline
  • New myChoice program:  Owner's club positive response 80%, ASCA guests positive response 86%
  • 2 St. Louis properties will be connected by loyaty card program by end of June 
  • Trip frequency continue to decline, while spend per trip increased 6% YoY
  • Bad weather impacted 1Q
  • Markets with new competition:  double digit declines in trips
  • Bossier/Southern Indiana - particularly tough environment due to competition
  • Marketing reinvestment as a % of GGR:  down 380bps YoY
    • Rightsized media spend; 
    • no more launch mode out of Baton Rouge
    • Eliminated low margin programming
  • ASCA Black Hawk:  made adjustments to reinvestment that led to 28% decline in marketing spend and 11% EBITDA improvement YoY; also implemented improved hotel yield system earlier in April 
  • St. Louis
    • River City:  all-time high revenues in March
    • ASCA St. Charles:  had benefit of entire quarter with new hotel yield system; Early results are positive with a 5% increase in RevPAR and healthy increases in hotel cash revenue.  Combined both properties increased market share by over 200 points during 1Q
  • East Chicago:  highest table game share since 2011 due to increased programming; slot share increased as well
  • Vicksburg:  Heartland Poker Tour contributed to highest table share ever at 65%
  • Impact of Winter weather on 1Q EBITDA:  $5m (most felt in Midwest)
  • South segment demand performed better than Midwest
  • Broad softness in visitation in April:  Easter holidays usually softer week.  Spring Break softness but more encouraged in the past week as business picked up.  
  • Another record cash flow quarter at Baton Rouge
  • myChoice at ASCA integration for 2014 and portion of 2015:  upfront aggregate non-recurring charge of $5m
  • Synergies:  $53m as of Q1 2014 - includes $5m cost related synergies and  $11m of cost avoidance (healthcare benefit cost); expect more synergies ahead
  • Belterra Park opening this weekend alongside Kentucky Derby
  • Revamped New Orleans hotel will open this summer
  • Paid down $260m in term loans; completely paid down term loan B1 loan; term loan B2 now under $1bn
  • REIT comments:  
    • Appreciate shareholder feedback
    • REIT idea not new idea
    • Currently focused on successful ASCA integration
    • Will evaluate ways to enhance shareholder value

Q & A

  • Corporate expense: $20m per quarter, good run rate
  • Softness in beginning of April but encouraged by launch of myChoice on ASCA side (10 days into April)
  • Have not seen increased promotional activity in Belterra market
  • ASCA legacy properties:  promotions steady
  • Marketing efforts done extremely well.  Not focused on mass market guests (promotional business)
  • NY:  not focused on specific region.  cash-on-cash return: minimum of 15% required;  will explain on 2Q CC if they decide to move forward from June 30 deadline
  • Delevering a priority
  • Level of future reinvestment:  early in the program in understanding sweet spot of where marketing reinvestment % should be 
  • Japan: not interested

Chart of the Day: $TWTR Revenue Estimates (Hedgeye vs. Consensus)

Chart of the Day: $TWTR Revenue Estimates (Hedgeye vs. Consensus) - 777



"Tweet Tweet" Tomasso

“It's just a job. Grass grows, birds fly, waves pound the sand. I beat people up.”

- Muhammad Ali


As a youngster growing up in southern Alberta, I was an enthusiast of Stampede Wrestling.  Back in those days, before World Wrestling Entertainment began to dominate, professional wrestling was split into territories and Calgary-based promoter Stu Hart was recognized as one of the top promoters in the field.   He had many colorful wrestlers in his stable, but one of the more interesting was Joe “Tweet Tweet” Tomasso.


Tomasso was a scrappy Italian from Hamilton, Ontario. He earned his nickname “Tweet Tweet” for talking about his imaginary pet bird (incidentally, he also spoke with a pirate’s accent).  Tomasso had decent success in the ring and shortly before his retirement, the famed Stu Hart said, “He was an indestructible little bastard.”  High compliments from the Canadian godfather of wrestling to a small undercard wrestler like Tomasso.

"Tweet Tweet" Tomasso - twtr 

Speaking of imaginary tweets, Twitter (TWTR) reported earnings last night after the close.  While the $250 million in quarterly revenue suggests the business model isn’t a total façade, the fundamental sell call we’ve been making on Twitter is playing out in spades with the stock down over -11% this morning to a new 52-week low. 


(Our internet analyst Hesham Shabaan reiterated his thesis in this video.)


A few key takeaways from the quarter:

  • User Growth: Decelerated sequentially.  US was up 19% y/y vs. 20% in 4Q13.  Global up 25% vs. 30% in 4Q13.  Int’l slowed to 27% vs. 34% last quarter.
  • Engagement (timeline views/user): Decelerated globally, decline moderated in the US (-2% vs. -5%), deteriorated in int’l (-10% vs. -2%).  Users gravitating toward Tweetdeck will remain a secular headwind.
  • Guidance: 2Q14 revenue of $270-$280 vs. consensus of $272.  Raised 2014 range by $50M to $1.20B-$1.25B, ahead of the beat on 1Q guidance.

The best way to describe the Twitter quarter is Shakespeare’s oft used expression, “expectation is the root of all heartache.”  At more than 20x this year’s market cap to revenue, Twitter’s expectations were high, indeed.


"Tweet Tweet" Tomasso - 777


Back to the Global Macro Grind...


Staying on the stock specific side our wily veteran and head of Retail research Brian McGough is adding Target (TGT) to our Best Ideas list as a sell in a conference call today at 11 a.m. EST.  According to McGough:


“The crux of our argument? Wall Street's perception of Target's financial trajectory is more upbeat than Main Street. When the stock glossed over the company's weak 4Q earnings report, it was because Steinhafel (CEO) issued guidance that he hoped the company would grow into if the Company repaired its reputation after the data breach - not guidance that he knew TGT could meet or beat. We don't think that the Street is giving TGT credit for a) a miss this year, and b) another one in 2015.  The reality is that when a customer has a great experience in retail, they tell a friend. When a customer has a bad experience, they tell 20. Just ask JC Penney or Lululemon. Some of these 'fire your customer' events are worse than others, but there's one commonality - they take a very long time to recover.”


If you don’t currently subscribe to our Retail research and would like details on how to access the call, please email .


Keith was off seeing clients in the Midwest the last couple of days and, despite getting in late last night, hit us and subscribers on the “Direct From KM” list with some key thoughts this morning...


Buy in May, and pray? Not on the US consumer, social bubbles, or housing stuff – no thank you!

  1. Month End – as the Ides of April come to a close, US Consumer (XLY) and Financials (XLF) lead losers at -1.8% for APR, whereas slow-growth-yield-chasing (Utilities) XLU = +4%; if buying inflation and slow growth ain’t broke, don’t fix i
  2. #Bubbles – the WSJ is “cautious” on Twitter (TWTR) now – thanks for coming out. TWTR, YELP, and FB remain in Bearish Bubble Formations @Hedgeye!
  3. US Housing – nasty weekly mortgage demand print this morning out of MBA (total, purchase + refi, index) slammed for another -5.9% loss after last week’s -3.3% drop – Rates Down = Demand Down – Janet? Our Q2 Macro Theme of #HousingSlowdown remains intact

On the last point of housing, D.R. Horton, one of the nation’s largest homebuilders, recently announced they will build homes in the price range of $120,000 to $150,000.  This appears to be a reaction to the obvious, which is that housing demand is tepid at best, and more aptly anemic for first time buyers.  In fact, in February first time home buyers account for a mere 28% of purchases, which is the lowest level since October 2008 (the veritable apex of the financial crisis).


Not that we need more confirmatory data points, but U.S. MBA mortgage applications index came out this morning and showed applications down -4.4% for the most recent week and the total market index down -5.9%.  This compares to -2.6% and -3.3% respectively in the prior week and is obviously a deceleration. 


As mortgage applications go so goes housing demand and ultimately home prices.   As home prices continue to stagnant or decline, it will be increasingly likely that the almighty Federal Reserve continues to be one of the more globally accommodating central banks, which will be negative for the dollar but continue to drive commodity prices higher.  Reflexivity anyone?


Our immediate-term Global Macro Risk Ranges are now as follows:



Russell2000 1101-1155

UST 10yr Yield 2.63-2.73%

VIX 13.03-14.72

EUR/USD 1.37-1.39
Brent 108.02-110.67


Keep your head up and stick on the ice,


Daryl G. Jones

Director of Research

LEISURE LETTER (04/30/2014)



Wednesday, April 30

  • PNK Q1 – 8 am , Passcode: 27759612
  • GLPI Q1 – 9 am
  • MGAM Q1 – 9am
    MAR Q1 – 10 am , Passcode: 10575194
  • H Q1 – 11:30 am , Passcode:  11561402
  • BYD Q1 – 5 pm , Passcode:  44440004

Thursday, May 1

  • HST Q1 – 10 am
  • OEH Q1 – 10 am , Passcode: 22074904
  • FCH Q1 – 12 pm , Passcode: 28469900
  • WYNN Q1 – 430pm , Passcode:  17666834
  • BYI FQ3 – 4:30 pm
  • EXPE Q1 – 4:30 pm

Friday, May 2

  • April Employment Report
  • HT Q1 – 9 am , Passcode: 1398938

Tuesday, May 6

  • RHP Q1 – 10 am , Passcode: 25122491
  • SHO Q1 – 12 pm
  • TRIP Q1 – 4:30 pm
  • DIS FQ2 – 5 pm , Passcode: 36995300

Wednesday, May 7

  • STAY Q1 – 8:30 am


BYD – COO Paul Chakmak featured in a Executive Profile Q&A article in the Las Vegas Review-Journal. 

Takeaway: Would BYD allow an article to run this week if the company were going to "miss" earnings expectations tonight?


WYNN – announced it has reached "surrounding community" agreements with Cambridge and Medford and "neighboring community" agreements with Lynn and Melrose. The communities join Malden, which entered into a "surrounding community" agreement with Wynn in 2013. The announcement comes as the gaming commission is set to hold a public hearing May 1 on Boston's bid to be designated a "host community" for Wynn's proposed Everett casino and Mohegan Sun's proposed casino in Revere

Takeaway: Additional steps in the development process.


Suffolk OTB -will attempt to sell $90 million in bonds to finance their land acquisition and construction of a 1,000 slot casino and $65 million facility.

Takeway: widely discussed, but timing and subsequent opening seems faster than anticipated.


California Internet Poker - we've read an increasing amount of commentary that while internet poker is a low probability event this year, 2015 is looking significantly more likely as 2015 is a non-election year.

Takeaway: Given the strains on tax revenue, California needs to be creative in generating additional revenues - away from personal income taxes.  This is obviously an important market given the population. Operators that can secure the players here will have a leg up as internet poker goes interstate.


Philippines Gaming - Travellers International Hotel Group Inc. said it received approval from PAGCOR to expand its gaming area within the 11.5-hectare leisure and resort complex Resorts World Manila in Pasay City. The expansion of the gaming capacity would increase the number of gaming tables to 420 from 287 as of end-2013 and also double the number of gaming machines at Resorts World to 4,148 from 2,030 as of end-2013.  Phase 2 is expected to be completed by September 2015.

Takeaway: The buildout of the Philippines continues.


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.






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