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You Can't Stop Howard! Penney Nails Another 'Best Idea' Short | $BLMN

Takeaway: Hedgeye restaurant analyst Howard Penney saw bad news for Bloomin' Brands coming back in November.

A couple of weeks ago, we highlighted how Hedgeye restaurants analyst Howard Penney nailed his short call on Panera Bread. 

 

He's doing it again today with Bloomin' Brands (BLMN) which he added as a Best Ideas SHORT back on 11/27/13. 

 

You Can't Stop Howard! Penney Nails Another 'Best Idea' Short | $BLMN - blmn

 

Not bad eh?

 

During his appearance on HedgeyeTV this past April 7, Penney discussed BLMN as one of his favorite short ideas. Here's the video and performance of the stock since then. 

You Can't Stop Howard! Penney Nails Another 'Best Idea' Short | $BLMN - blmn1

 

It pays to watch HedgeyeTV.

 


STN 1Q 2014 CONF CALL NOTES

Business trends still slow in Vegas.  Increase in LV promotional environment.

 

 

MGMT COMMENTARY

  • 1Q revenues increased in casino, F&B, and hotel
  • Revenue environment still challenging; customer discretionary dollars still low despite uptick in casino visitation
  • Highest occupancy / cash revenues in 1Q
  • SS LV margins:  32.7%
  • 1Q LV EBITDAM:  $111m
  • $7.4m in mgmt fees earned from Graton
  • Graton will hold conference call on May 12
  • North Fork project:  no additional updates
  • Macro environment:
    • Las Vegas Strip:  continues to improve
    • LV Locals 1Q:  growth in population, employment, housing prices, retail sales
  • Existing LV home prices remain 40% below peak.  
  • Cautiously optimistic on future of LV market
  • Red Rock:  $35m F&B upgrade at Red Rock; will also upgrade suites and spa
  • Green Valley Ranch:  will upgrade F&B, suites, spa, and high-limit rooms
  • Owns 57% of Fertita Interactive
    • 1Q 2014:  STN recorded -$4.8m in investment; attributable to marketing and operation plans in NJ
    • On-line gaming slower than expected start
  • 1Q capex $21m; $110-120m expected for 2014 (includes Fertita Interactive)
  • Debt:  $2.15bn (excludes $112m non-resource land loan)
  • 5.1x leverage ratio

Q & A

  • Promotional environment at Graton:  little bit of step-up in promotions from Cash Creek and Thunder Valley
  • LV promotional environment:  select competitiors have gotten more aggressive i.e. point multipliers.  STN's promotional allowances down for 5th consecutive quarter
  • Genting project:  will start construction in Q4 2014
  • Shops at Summerlin will open in October;  traffic will increase for Red Rock; will benefit F&B
  • No comments on acquisition strategy
  • LV locals:  Higher-end performing better than lower-end
  • Promotional environment in NJ i-gaming:  very aggressive; reinvestment rates are double/triple than what you see at land-based properties; do not see cash flow positive for 2014 in i-gaming
  • Benefited from strong 1Q Strip convention calendar at Red Rock and Green Valley.  Strong REVPAR: up mid-single digits; some attribution from government rooms
  • NJ I-gaming payment processing:  improving but significant challenges in geolocation issues.  Also lack of awareness across the state- more on the casino side than poker side.
  • Graton money owed to STN:  total of a little over $48m.  Refinance is one option.

ECB Opens Door For Rate Cut?

Takeaway: The EUR/USD dips on ECB President Mario Draghi's shift.

ECB Opens Door For Rate Cut? - 4

European Central Bank President Mario Draghi made some noise in this morning’s ECB conference call (and it wasn’t by keeping the main and deposit rates unchanged) – he strongly hinted that the ECB could cut the main rate in its next meeting in June, citing:

  • “The strengthening of the exchange rate with low inflation is a serious concern.” 
  • “ECB is not resigned to have inflation too low for a long amount of time.”

The EUR/USD (up ~ +0.5% heading into the Draghi comments) backed off hard following them.

 

The cross is now flirting with a breakdown at our immediate term TRADE line of support @ $1.38 – we’d interpret that a breach of TREND support in the Euro and an associated breakout in the dollar would be cause for us to consider shifting our current positioning, but that’s not the case currently.  The USD is still broken in our model, so we’ll let the trade breathe for a bit here. The EUR/USD remains above our intermediate term TREND and longer term TAIL lines of support.


ECB Opens Door For Rate Cut? - vvv. eur

 

Today’s shift in tone demonstrates that Draghi is focused on weakening the Euro and stoking inflation. 

 

This position inflects from more recent meetings that focused on how the Bank was managing a “prolonged period of low inflation” that it believed would grind higher to its 2.0% target rate over the longer term. It also deviates from recent focus on devising lending programs to support the flow of credit to the “real” economy.

 

The June meeting will also include updated GDP and inflation projection from the ECB’s staff. This data, which will likely lean light on GDP and inflation vs. previous projections in March, could further support a decision to cut the main interest rate.

 

For reference, here are the March projections:

  • GDP Staff Projections:  1.2% in 2014; 1.5% in 2015; 1.8% in 2016
  • CPI Staff Projections:  1.0% in 2014; 1.3% in 2015, 1.5% in 2016

Draghi said today that there are downward risks to the region’s growth based on 1) a weakening global demand; 2) geopolitical risks;  and 3) the (high) exchange rate.


Nothing like a rate cut to influence what he most directly can: the exchange rate (point #3)

 

*   *   *   *   *   *

 

Editor's Note: This research note was originally provided to subscribers on May 8, 2014 at 10:37 a.m. EST by Hedgeye Macro analyst Matt Hedrick.

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ECB Opens Door For Rate Cut Next Month!

Draghi made some noise in this morning’s ECB conference call (and it wasn’t by keeping the main and deposit rates unchanged) – he strongly hinted that the ECB could cut the main rate in its next meeting in June, citing:

  • “The strengthening of the exchange rate with low inflation is a serious concern.” 
  • “ECB is not resigned to have inflation too low for a long amount of time.”

The EUR/USD, up ~ +0.5% heading into the Draghi comments, backed off hard following them. The cross is now flirting with a breakdown at our immediate term TRADE line of support @ $1.38 – we’d interpret that a breach of TREND support in the Euro and an associated breakout in the dollar would be cause for us to consider shifting our current positioning, but that’s not the case currently.  The USD is still broken in our model, so we’ll let the trade breathe for a bit here. The EUR/USD remains above our intermediate term TREND and longer term TAIL lines of support.


ECB Opens Door For Rate Cut Next Month! - vvv. eur

 

Today’s shift in tone demonstrates that Draghi is focused on weakening the Euro and stoking inflation. 

 

This position inflects from more recent meetings that focused on how the Bank was managing a “prolonged period of low inflation” that it believed would grind higher to its 2.0% target rate over the longer term. It also deviates from recent focus on devising lending programs to support the flow of credit to the “real” economy.

 

The June meeting will also include updated GDP and inflation projection from the ECB’s staff. This data, which will likely lean light on GDP and inflation vs previous projections in March, could further support a decision to cut the main interest rate.

 

For reference here are the March projections:

GDP Staff Projections:  1.2% in 2014; 1.5% in 2015; 1.8% in 2016

CPI Staff Projections:  1.0% in 2014; 1.3% in 2015, 1.5% in 2016

 

Draghi said today that there are downward risks to the region’s growth based on 1). a weakening global demand, 2). geopolitical risks,  and 3). the (high) exchange rate.


Nothing like a rate cut to influence what he most directly can, point #3, the exchange rate. 

 

Matthew Hedrick

Associate



VIDEO | Keith’s Rant of the Day: Ignore These Market Signals at Your Own Peril

*Make sure to watch this 1-minute video to the end. CEO Keith McCullough is in rare form and takes a hard look into current market internals and how to play the market.

 


HLT Q1 2014 EARNINGS PREP

Consensus estimates, management guidance and commentary, and questions for management in preparation for the earnings release/call tomorrow.

 

 

Q1 2014 CONSENSUS ESTIMATES

• Total revenues:  $2,366 million

• Adjusted EBITDA:  $490 million

• EPS:  $0.09/share

 

MANAGEMENT GUIDANCE

Q1 2014:

  • System-wide RevPAR:  4.5% to 6.5% - in the U.S. and UK, we expect the weather to marginally affect Q1 RevPAR growth. However, this should be somewhat offset by the lapping of the beginning of the U.S. government's sequester during the Q1 2013
  • Adjusted EBITDA:  $480-$500 million, including a 1x benefit of approximately $25 million from the reversal of an accrual related to the conversion of our prior cash-based long-term incentive compensation plan.
  • Management and franchise fees:  +10% to 12%
  • Diluted EPS:  $0.08 - $0.10

FY 2014

  • System-wide RevPAR:  5% to 7%,
    • 60% to 70% ADR driven.
    • between 0.5% and 1% of occupancy growth
  • Ownership segment RevPAR:  4.5% to 6.5%
  • Adjusted EBITDA:  $2,365-$2,435 million
  • Management and franchise fees:  +10% to +12%
  • Incentive Management Fees:  sort of in the 8% to 10% range
  • Timeshare Adjusted EBITDA:  $310-$325 million
  • Corporate and other segment expense: +3% to 5%%, including incremental public company costs.
  • Diluted EPS:  $0.57 - $0.61
  • Capital expenditures:  excluding timeshare inventory, total approx. $350 million including about $250-$260 million in hotel CapEx, which represents roughly 6% of ownership revenue
  • Net unit growth: 35,000 rooms to 40,000 rooms.
  • Tax Rate: 32%
  • Overall basis, we're optimistic that 2014 will be stronger than 2013

 

QUESTIONS FOR MANAGEMENT

  1. Expectation for additional Owned & Leased margin improvement and flow through for the remainder of 2014 and 2015?
  2. Group pace update at Big 8 owned hotels for 2014 and 2015 (early 2014 comments were stronger than peers, but peer commentary has caught up)?
  3. Outlook for ADR vs. occupancy growth in RevPAR?
  4. What are the opportunities to move-out lower yielding government/flight crews for higher priced transient?
  5. Additional updates on value creation opportunities Waldorf Astoria, NY Hilton, Waikoloa, Park Lane? 
  6. Update on new brand development/brand extension, boutique offering?
  7. How is Europe looking for this coming summer?
  8. Which parts of the World are experiencing weakness? 
  9. Where are inflation pressures negatively impacting margins?
  10. ITYFTY trends?
  11. Viability of asset light timeshare strategy?
  12. Exposure to China and thoughts on macro impact?

 

RECENT MANAGEMENT COMMENTARY

Embedded/Value Drivers

  • Margin expansion in ownership segment due to group strength
  • Higher and better use land opportunities
  • Migration to capital-light & divesting of some or all of the real estate over time

Big 8

  • Up 10% in group in our Big 8 last year, we're up 10% again this year
  • Expect 2014 to have very good RevPAR growth higher than the high end of our guidance driven by these factors, which is building both occupancy but also rates in the group side and providing that strong foundation for us to continue to squeeze out lower-priced transient business and only take the best transient business

Group

  • We are in the sweet spot of the cycle with group demand driving premium revenue growth in our big group boxes
  • Picking up momentum during 2013 and into 2014
  • A very positive outlook for 2014 group business with both rooms on the books, and rate up meaningfully versus last year (2013).
  • 2014 group revenue position at our Big 8 hotels is up 10% compared to the same time last year (2013).
  • Group business for the same period for our larger group of managed hotels in the U.S. is up 70%.

Asia Pacific

  • Expect continued strong performance again in 2014.

  • Japan was particularly strong as all our hotels delivered double-digit RevPAR growth in 2013.

  • Japan's outlook for 2014 remains very strong, as the government continues to inject liquidity into their markets.

  • China to moderate a bit, and we expect to see slightly lower RevPAR growth in 2014 of 5.5% to 6%, down from nearly 7% in 2013.

Europe

  • Expect the improving economic climate experience in 2013 to continue into 2014 and we expect HLT's RevPAR performance to continue to improve

  • London continues to pick up and in 2014, group revenue position in the region overall was up significantly at 20%.

Middle East & Africa:

  • A tail of individual markets.
  • Africa, Indian Ocean, Arabian Peninsula, and Kingdom of Saudi Arabia markets have been and are expected to continue to be strong, and of course
  • Egypt remains highly volatile.

Time Share

  • In 2013, 54% of our interval sales were on behalf of third party and 78% of our year-ends inventory was capital-light.

  • By expanding our new capital-light deals, combined with continuing to develop additional smaller phases of new developments on our own balance sheet, we can continue to grow our timeshare EBITDA at a steady pace with significantly less capital investment than has been spent historically

  • Can continue to grow timeshare EBITDA at a steady pace

Margins

  • Group demand driving premium revenue growth in our big group boxes, combined with our disciplined approach to managing costs should allow us to continue to drive premium margin growth.

Additions/Attritions/Cancellations

  • Expect net unit growth to accelerate in 2014 and 2015 (as compared to  2013, opened 207 hotels with nearly 34,000 rooms, conversions accounted for 35% of the openings, and after removals had net unit growth of more than 25,000 rooms representing growth of over 4%)

Balance Sheet

  • The outstanding balance of the term loan facility at year-end was $6 billion
  • Ended the year with cash and cash equivalents of $860 million including $266 million of restricted cash.
  • No borrowings outstanding under our $1 billion revolver
  • About $700 million to $900 million should be available for debt reduction in 2014

  • Finish 2014 at about 4.5 times net debt/EBITDA

Asset Sales

  • Do not have a lot that we intend to sell in 2014.
  • We do have a few, what I would describe as dribs and drabs, very small assets, a few in the UK that we've been working on

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