HOT's negative stock performance relative to MAR should narrow and close over the coming weeks/months.



Call to Action:

We expect HOT’s negative stock performance relative to MAR to narrow and close over the coming weeks/months due to the reactivation of HOT’s share repurchase plan.



  • Last night, HOT announced it intends to utilize the approximately $614 million remaining on its share repurchase authorization by year-end.
  • Based on yesterday's closing price per share, the potential repurchase is about 8 million shares or 4.1% of the outstanding shares. 
  • Since the Company did not repurchase any stock since October 2013, we expect HOT to be an aggressive buyer of shares over the next several weeks.
  • Recall last week’s Q1 earnings conference call where analysts and investors lodged a very intense and vocal challenge to management for the lack of any share repurchase activity as well as an under-levered balance sheet despite a very positive and upbeat lodging industry and company outlook.  Then, on Wednesday, Starwood announced the resignation of CFO Vasant Prabhu.
  • Based on the events over the past week, it may be safe to conclude the person preventing the share repurchase was Mr. Prabhu, himself.  


  1. HOT average daily trading volume for the prior 10 and 20 days was:  2.18 million and 1.80 million shares respectively.
  2. Assuming average daily trading volume increases to 2.5 million shares per day and HOT is a 10% VWAP buyer (250,000 shares per day), the company could complete the repurchase transaction over 32 business days. 
  3. However, given the market announcement, HOT could be more aggressive as a percent of daily volume and thus complete the repurchase more quickly.
  4. Most recent data indicated HOT short interest of 2.3 million shares or 1.19% of the outstanding
  5. On a YTD basis, HOT -4.3% vs. MAR +18.6%, more than two standard deviations of underperformance.
  6. Over the last twelve months, HOT +17.9% vs. MAR +36.7%, a 3.2 standard deviation of underperformance.

TGT - Why We Think TGT Is A Short

Takeaway: This model leaves no room for error. We’re 27% below consensus by Yr3. 2.5/1 down/up. TGT has more to worry about than just the data breach.

Conclusion: We’re short Target. We think that the model that management is selling to the Street leaves no room for error. Everything has to go right, and nothing can go wrong. We’re in the twilight of a department store margin cycle, margins are at peak, our proprietary survey shows that visitation at Target stores is down materially, and worse yet, the share appears to be going to Wal-Mart. We could make a case that is one of the worst e-commerce businesses in retail, and it is certainly not making up for the shortfall in stores. Lastly, Canada expectations are extremely high, and our analysis of demographics around new Canadian stores leaves us with the view that management growth and profitability expectations are a pipe dream. In the end, we’re 27% below the consensus in year 3 of our model – which is a huge delta for this company. We get to downside to the high $40s ($13/14) if we’re right, but about $5/$6 upside if we’re wrong – that’s nearly 2.5 to 1. We’ll take that anyday on a sleepy mega cap retailer like Target.  


TGT - Why We Think TGT Is A Short - tgt financials


Earlier this week, we published our 47-page deck on why we think Target is a short.  We can’t print all the slides here, but here are five that we think are among the most notable.


1. The Macro Setup is not pretty. We just finished the fifth year of a margin expansion cycle for department stores. When we look back historically, we don’t think that there’s ever been a ‘year 6’. And by a country mile, we’re trading at peak valuations on these margins. The core of the TGT call goes far beyond this, but this is an extremely uninspiring backdrop.


TGT - Why We Think TGT Is A Short - tgt1


2. Visitation is down. We’re all tired of hearing about the Data Breach. But the reality is that the fallout is extremely notable. We just conducted our third Department Store consumer survey and we can gauge sequential changes in visitation intent on an absolute basis, and relative to other retailers. This shows how TGT went from 13 visits (TTM) in 3Q, to near 14 in 4Q (pre-Breach), to 11 today. That might not seem severe, but that’s 20% by our math.


TGT - Why We Think TGT Is A Short - tgt2


3. Share is going to Wal-Mart. Not exactly the retailer we’d want to lose share to if we were Target. When WMT takes share, it has a tendency to not give it back. We have a lot of research in our deck that shows how consumers rank them on price, discounts, and product quality. The trends are compelling.


TGT - Why We Think TGT Is A Short - tgt3


4. Dot.Com can’t save TGT. When other retailers get into trouble with their stores, often e-commerce makes up the difference. Our analysis of’s traffic trends suggest that is performing just as poorly as the stores – if not worse. Based on our research, we can make a case that Target has one of the worst e-commerce businesses in all of retail.


TGT - Why We Think TGT Is A Short - tgt4


5. Canada can’t save Target, either. We pulled up the lats and longs for both Canada and US stores, and then analyzed demographics in a 20-minute driving radius. Canada lacks the density and income characteristics around its stores that Target enjoys in the US. That’s not to mention that there is a cannibalization issue given that 11% of target customers already shop in Target US stores. Consensus revenue estimates assume that Target Canada outstrips share of wallet levels Target has in the US. The company’s guidance assumes productivity levels above US levels. We think both are extremely unrealistic.


TGT - Why We Think TGT Is A Short - chart5


Call replay can be accessed by clicking the link below:


VIDEO | Real Conversations: Improve Your Probability of Success and Invest With Conviction

Part 1: Improving Your Probability of Success

In the first of three parts of an interview with Chris Ciovacco, the founder of independent money management firm Ciovacco Capital, Keith and Chris discuss the cornerstone to a top investor – the investing process.

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In the second of three parts of an interview with Chris Ciovacco, Keith and Chris discuss three market bubbles and their overall effects.

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Solid Q, particularly in systems. Wide FQ4 guidance equally brackets consensus.




Financial Results:

  • F(x) losses FYTD $0.09/share
    • $0.02 impact in FQ2
  • Sold, 5,278 with 3,459 units in North America and 2,496 were replacement units
  • ASP $17,203, up 7% 1,100 premium Pro Wave cabinets and higher ASP in Int'l markets and lower VLT/VGT  
  • Gaming Ops: down based on rental and daily fee revenue due to customer buy-out of older non-premium units.  Gross Margins were 65% driven by higher Jackpot expenses of $1.5M vs. last 8 qtrs   2,198 leased at lower margins and $1M of asset charges - expect segment annual Gross Margin 67-71%
  • Systems Revenue:  ahead of expectations due to end game hardware upgrades.  Gross Margins 71%, down from 73% due to higher mix of hardware revenues = 45% of total revenues vs. 38% last year.
  • Maintenance Revs:  $24.4M
  • Table Products:  $29.5M of utility  $14.6M proprietary table game revenues.  Leased 70% of total revenues.  Margin 76% ex $2.3M of charges
  • Eff Income Tax Rate 37%,  F4Q 36%-37%
  • $1.9B of debt outstanding, since SHFL paid down $102M of debt.
  • FCF was $166M YTD, inclusive of acq costs vs. $150M year ago
  • Paid down $64M of debt, 3.9x leverage debt while repurchasing approx 150,000 share for $10M of common stock
  • Leverage Ratio below 3.75x, then borrowing cost fall by 25 bps
  • Allocate majority of FCF to debt repayment to reduce leverage to 3x by end of Calendar Year 2015.
  • Updated full year fiscal 2014 guidance for adjusted EPS to a range of $4.35 to $4.50.
  • Annual guidance includes $3.21 per share for the nine months ended March 31, 2014, which is comprised of adjusted earnings per share of $3.12 plus add-back of $0.09 per share loss from unfavorable foreign currency movements incurred during the first nine months of fiscal 2014.
  • This results in a range of adjusted EPS expected for the remaining three months of fiscal 2014 of $1.14 per share to $1.29 per share. - consensus is $1.21

General Commentary:

  • First full quarter of combined, SHFL $40M cost synergies by end of calendar year 2014
  • Reorganized sales structure by region and yielding value
  • Good utilization of India development centers for SHFL products
  • EGM sales good quarter 22% 
  • First YoY increase in NA replacements ex Canada
  • Illinois during FQ3: 739 VGT units sold, sold >4,100 units thus far, expect to continue to sell into IL until 2015
  • Expect to sustain the year-over-year improvements in North America replacement sales during Q4 as well.
  • Equinox cabinet doing well in Asia (Macau, Philippines, Singapore and Cambodia), Australia - 1,819 units shipped to international regions in Q1
  • Optimistic to leverage SHFL content worldwide,
  • SHFL EGMs shipped 5,278 across the globe
  • Despite a 60 units sequential decline in overall WAP installed base, cash connection grew by 30 units and WAP revenue set an all-time quarterly record with yields up about 11% versus the previous quarter.
  • MD3 Shuffler replacing MD2 and MD1 Shufflers
  • Interactive: I-Gaming gaining traction in NJ and more free to play gamers signing up daily
  • Systems: iVIEW, iVIEWDM and Elite Bonusing Suite - top 5 customers = 35% of revenues vs. 45% previously.
  • Added two new Ohio casinos to systems business.
  • The majority of the 450,000 slots connected to BYI systems are still either without an iVIEW or have an old version of it and thus may not be capable of leveraging the newer system software features including the Elite Bonusing Suite, bonusing modules. And to-date, there are only 34,000 iVIEW DMs in the field.
  • Systems revenues at least >25% greater in 2014 than prior year, but 2015 likely lower than 2014 but at higher margin than 2014.
  • TableView optical chip recognition product is very close to completing its field trial at two casinos with a very high accuracy level. 
  • Strength of BYI and SHFL, producing higher revenues and add'l cost saves.   
  • Gross profit from North America replacement sales represented only 11% of gross profits during the quarter and in Gaming Operations, only 45% of revenue was variable fee based. Even within variable fees, a significant portion was based on the highly stable New York lottery market.
  • Asia: strong systems pipeline
  • More than 50% of revenues are recurring.
  • R&D spend rising with revenues
  • Focused on innovation and the future - core business will never waiver as look to drive new revenues
  • Look to new technology areas that will accelerate revenue and profit growth


  • ASP trends, seeing any aggressive pricing or financing? value is found in BYI products, maintaining price discipline on game content, pricing flat to better since G2E.
  • ASP 7% increase - how frame ex. Star Games?   Domestic ASP +7% (Wave) and overall ASP +7% (Australia higher ASP and pulled overall ASP higher).
  • $10M repurchase, how frame vs. debt reduction - when see dislocation in market, will enter market.  Currently have just under $140M of add'l share repurchase activity remaining, also limited by debt covenants. Focused to achieve 3x leverage or lower.
  • Why 15c spread to guidance with two months remaining - delta of range is 3%...and early in integration of SHFL and now more broadly based
  • Pipeline - a lot more visibility by customers and hardware across all segments, and seeing lots of interest in I-View products. Customers desiring upgrading software.
  • Quick customer decisions may repeat, not specific to this quarter - was two customer specific. 
  • Systems maintenance side - why decline last two quarters while rest of systems increasing - FY15 > FY14 > FY13, last few quarters unique due to game count reductions, maintenance happening later.
  • Back out 1x, SGA line, adjusted SGA be down FY14 vs. FY 13, but look at SGA as % of revenue and drive toward an adjusted operating margin and want to increase adjusted operating margin. 


Q1 almost exactly in line with our property level EBITDA estimate and nicely above the Street. Positive forward commentary





  • Construction of Wynn Palace on schedule, will open 6 quarters from now (552 tables).  Still want to open up in 1Q 2016 before CNY.
  • LV hotel occu +12.6%, REVPAR up 12.7%; ADR; most profitable hotel in Nevada
  • Low hold impacted LV by $10MM.  Hotel room pace for 2014 is going well.
  • LV 2Q:  6-7% higher than previous year
  • Steve Wynn thinks LV is growing into additional capacity that was added in the past and feels good about it, finally
  • Wynn Macau:
    • No hold impact in 1Q; junket margins stable
    • Flow through very very strong
    • Moving poor performing mass tables into premium table games (62 premium mass tables games); 492 total tables
    • April mass revenues up 55%; April: VIP up 10% (outpaced the market)
      • This translates into US$122m in mass revenues and US$257m in VIP revenues
      • We think Wynn gained mass share in April and possibly VIP share as well if the VIP market was flat or worse.
    • Slot win outpacing market 
    • EBITDA per position trending 35/40% higher than nearest competitor
  • Wynn Palace:  no trouble finding construction workers.  Have 2,000 workers on site; will have 3,000 people by October.  
  • Other Cotai sites under construction look more disoriented
  • In 60 months, Macau/Henqian Island will be most robust tourist destination in the world, competing with Orlando, Los Angeles, etc.

Q & A

  • Macau:  213 average mass tables in 1Q; converting some of junket space into premium mass business
  • $5MM receivable credit in Macau:  collected receivables that were 100% reserved
  • % of EBITDA coming from Mass:  not buying the business
  • Table win per unit
  • LV:  when customers get lucky, drop goes down.  When win is down, credit is also down.
    • Handle:  credit slips with markers and cash
    • Do not have 'table drop' until the customer loses
  • No construction disruption on mass business
  • Table mix at Wynn Palace will be similar to Wynn Macau
  • In the past few weeks, have migrated some VIP tables to premium mass tables. 
  • Wynn Palace:  Hotel Cash room:  700 sq ft; majority of rooms will be +900 sq ft
  • Do not advance VIP credit for more than 30 days.  WYNN settles at end of every month.  Not worried about VIP credit.
  • Thinks Venetian Macau cannibalized Sands Macau
  • Wynn Macau earnings went up, even with all the new casino openings; has held their market share; believes market share will hold its own at Peninsula when Palace opens.
  • China:  Corporate credit is very different from consumer credit
  • Finished financing recently.  Last tranche: $750MM bond at 5.09% with no covenants, non-recourse.
  • Total Cotai financing at $3.85bn at average cost of 3.3%
  • Capital structure is in 'nirvana' - low interest rates, long maturities, low covenants
  • Highly confidence in getting the 552 tables for Palace
  • Want to do the basics better in Macau
  • Most successful largest grossing casino on Gulf Coast is Beau Rivage.
  • Japan:  Diet will discuss study bill in May.  Tokyo, Osaka, Okinawa - potential sites.
  • More optimistic than ever on Japan

Poll of the Day Recap: 71% Believe the Economy Is Getting Worse

Takeaway: 71% WORSE; 29% BETTER

The U.S. economy stalled in the first three months of 2014 "growing" at a dismal 0.1% annual pace. "Don't panic," say consensus economists, "it's probably just the winter weather."


We know what we think, but we wanted to get your opinion in our poll of the day: Do you think the U.S. economy is getting better or worse?


Poll of the Day Recap: 71% Believe the Economy Is Getting Worse - brokenpig

At the time of this post, 71% agreed that it’s getting WORSE; 29% said BETTER.

Believing that the economy is getting WORSE, voters largely pointed fingers at the Fed:

  • “The real economy is getting crushed by the inflation that ‘doesn't exist.’ If the economy was really improving, the Keynesian demagogues wouldn't have to cheerlead so hard to convince everyone.”
  • “The market is where it is because of the FED, as they keep tapering the market will crack, they will then come back and confidence will be shot!”
  • “Consumer spending and borrowing will not come back for real until there are structural changes in this country to support job growth and keep real inflation under control.”
  • “I don't care what the stats/Fed/academics say about economy. If you don't see inflation accelerating across the broad in your daily living expenses, then you really have been living under a rock. Inflation slows growth = Fact.”

However, those who said the economy was getting BETTER noted these signs in contrast:

  • “Consumer spending, which accounts for roughly two-thirds of the economy, finally seems like it's picking up again.”
  • “Exports continue at a record pace and that's good for an economy in transition back to more manufacturing based economy.”
  • “A lot of stats look weak right now, but the Fed looks like they will actually prolong the taper. If they really shut down the printing press, the economy will finally be able to stabilize. It’s a longer term view - for the next quarter or two, things could suck wind and the equities market will probably correct - in this context a correction could be a harbinger of a stronger economy.”


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