"The continued growth in Las Vegas was driven by robust international play and higher room and occupancy rates at our properties. The outlook for continued strong group bookings and increased visitation to that market bodes well for the success of our Caesars Palace projects, including the Nobu hotel tower and restaurant additions and the Octavius Tower completion, which opened to the public in January this year. Work is progressing on the Linq retail, dining and entertainment experience that will open on the Strip in phases in mid to late 2013. Our regional performance continued to be impacted by reduced visitation, increased competition and, in the Illinois/Indiana region, the closure of a key access route to our Southern Indiana property, which has since reopened."


- Gary Loveman, CEO of CZR



  • 'Bullish' on Las Vegas market due to international customers- strength in group business, occupancy at all-time high
  • Will expand Total Rewards program
  • Still improvement in margins in several regions despite lower trips
  • Development pipeline: 'most robust' in Loveman's tenure'
  • Baltimore bid: feel good about the opportunity
  • Linq will open mid-late March 2012
  • Hainan project: expected to open 2014
  • 25 resorts planned for Asia-Pacific region
  • CZR Interactive: 3MM daily users (Playtika)
  • Online poker: encouraged by positive dialogue
    • Expect approval at federal level
  • Quiet period until March 5
  • $21.75BN net debt; $900MM in cash ex restricted cash.
  • Total Capex: $590-625MM: OpCo $540-580MM ($200-240MM (Octavius/Linq)); CMBS properties: $50MM
  • 2012 LV group bookings strong
  • Rivers casino continue to adversely affect Hammond property


  • Massachusetts: process a little slow; Suffolk Downs bid will be submitted in mid-2012; license may be decided in late 2012/early 2013. The winning property may open in late 2013/early 2014.
  • 4Q Las Vegas hold: pretty normal
  • 4Q Louisiana/MS: poor hold; less than $10MM impact
  • Nevada Gaming Commission: has 'one minor fix' to work through on online gaming license
  • 4Q 2010: IL/IN recognized $23.5MM tax benefit in OpCo. A tax accrual benefit since CZR was using a higher rate than needed.
  • LV: driven by hotel revenue growth; expected gaming rev contribution margin: 50-60%
    • Change in mix: from wholesale customers to group customers; about 2% transition
  • Playtika: margins are attractive; CZR has compared Playtika to Zynga/Double Downs.
  • 4Q LV REVPAR: ~$90 (~$80 a year ago); hotel revenues line includes both comp and cash revenues
  • Potential Capex
    • MA opportunity: equity ownership below 10%, so financing is not a concern
    • Baltimore: $300MM project; equity finance would be $50MM (CEOC/ unrestircted sub)
  • OpCo revenue breakout
    • Decided not to break out because of comments from SEC and IPO process
  • Vegas margins will be shown in 10K, in a couple of weeks
  • Revel competition: do not see loss of casino hosts
  • Gas impact: sees no anxiety yet; have seen spend per trip/gas price inverse relationship;
  • Japan: Casino Caucus (pro-casino 170 members); 2 step process (1) presentation of bill, (2) implementation of bill; stability of Japanese political system would help.
  • Use of Credit facility proceeds: could target certain tranches or invest in business
  • Tunica market--continue to be tough in visitation and spend
  • Linq: will see more LV construction in next few weeks; project on track
  • Cash (ex restricted cash): OpCo ($610MM), CMBS ($150MM), Parent ($145MM)
  • Genting New York impact on AC: a little bit but it's smaller than they anticipated
  • May break out Caesars Interactive in reporting in 2012, particularly if online poker gets legalized


  • "On a consolidated basis, trips in the fourth quarter of 2011 declined from 2010 as increased trips in the Las Vegas and Atlantic City regions were offset by trip declines in our other U.S. regions. Trip declines were the result of continued weak economic conditions in the Louisiana/Mississippi region, new competition and reduced access to one of our properties due to a bridge closure in the Illinois/Indiana region beginning in the first week of September 2011 that recently reopened, and the impact of marketing programs on trip frequency of certain customer segments in all U.S. regions."
  • On a consolidated basis, Q4 Cash ADR rose 7.1% YoY to $90 from $84. 2011 Cash ADR rose 6.4% to $91 from $86.  Total occupancy percentages in 2011 increased 1.3% in 4Q and 1.4% for the FY.
  • 4Q 2011 effective tax rate benefit was 56.9%; 2011 effective tax rate: 43.2%
  • Net Interest expense increased 32.2% in 4Q; Q4 2011 Cap interest was $10.6MM - majority related to completion of Octavius Tower.
  • "Caesars anticipates that the Company will have a permanently lower cost structure and will benefit from greater concentration of specified talent and quicker decision making. The Company estimates that Project Renewal and previous cost-savings programs produced $63.3 million and $268.9 million in incremental cost savings for the fourth quarter and full year 2011, respectively, when compared to the same periods of the prior year. Additionally, as of December 31, 2011, the Company estimates that, once fully implemented, these cost-savings programs will produce additional annual cost savings of $198.3 million."
  • "Our two Ohio casino projects with Rock Gaming are moving forward, with Horseshoe Cleveland scheduled to debut in May this year and Horseshoe Cincinnati progressing toward a second-quarter 2013 opening."  
  • "Our Caesars-Rock Gaming group, along with our local partners, is optimistic about getting the go-ahead for a 3,750-slot gaming operation in Baltimore. We're also excited about our alliance with Suffolk Downs that plans to bid for the Zone 1 casino license included in the casino-legalization bill signed late last year in Massachusetts."
  • "We registered and listed a limited amount of Caesars Entertainment shares on NASDAQ, and announced an amend-and-extend debt transaction in combination with a bond sale that reduced our scheduled 2015 Caesars Entertainment Operating Company, Inc. bank maturities to $2.1 billion from $5.0 billion and extends maturity dates on $2.9 billion of debt for an additional three to five years. We anticipate pursuing similar transactions to bolster our balance sheet as market conditions warrant."


Beauty is in the Eye of the Beholder:


2nd LTRO = €529 billion with 800 bidders 


-Your Hedgeye Macro Team


Yea!!! - 1. beauty

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Commentary from SAFM earnings call


Joe Sanderson, CEO of Sanderson Farms, is not getting bullish:


“…you can pick up bits and pieces that would make you be optimistic, I think there is a huge desire, more of a desire to be optimistic than there are facts that would make you optimistic.”


SAFM is cautious on soft demand from the food service industry and the overall macro environment.



Comments from CEO Keith McCullough


Higher-Highs into another month-end markup – how exciting:

  1. MONTH-END – with an oversupply in the asset management industry we continue to see the last 6 days of the mth, trade significantly higher than the 1st 6 days of the new mth – this was the case on the way down (May-Sep 2011) inasmuch as it is on the way up. The SP500 has been up for 4 consecutive days, so they may as well make it 5 into mth-end and get it over with. AAPL is only up +17.5% for the mth. Probably doesn’t impact the indices, right?
  2. US DOLLAR – the next move here will be as critical as the down move has been since Bernanke signaled his Policy To Inflate on January 25th. Don’t forget that the USD is down -4.3% from its YTD high (that’s a lot) and that has had a huge impact on inflation expectations (TIP, GLD, OIL, etc). As we push past the LTRO (530B this morn) and into the March sov debt maturity spike in Japan (53T Yen), the USD should start trading on fresh factoring.
  3. OIL – 2 down days does not even a hyper short-term TRADE make. Both Brent and WTI have corrected to their most immediate-term TRADE lines of support ($122.01 and $105.46, respectively) and bounced. Bernanke’s semi-annual USD Debauchery speech is today, so that should be interesting to watch in real time vs TIP, GLD, OIL, etc. Inflation from here is not growth. Déjà vu Q1 2011.


India’s GDP growth dropped to 6.1% and is now a good 200-300bps below its inflation rate – that’s stagflation and that’s why India’s Yield Curve is now flat.







THE HBM: SAFM, JACK, DPZ, MCD - subsector





JACK: Jack in the Box Domino’s Pizza held its first Investor Day since 2008.  We got a picture of how the company will look post Jack in the Box refranchising.  The company is going from cash flow negative to cash flow positive and generating $75 million in Free Cash Flow beginning in 2015.  We will have a detailed post up later today.  The company is anticipating nearly 100% profit flow-through on incremental sales at Jack in the Box.


DPZ: Domino’s Pizza was downgraded to “Neutral” from “Overweight” at J.P. Morgan.  The price target is $38 per share.


MCD: McDonald’s announced that half of the 225-250 new units in China opening this year will be drive-thrus.  The company is also launching a new ad campaign in China touting food quality in an attempt to compete with KFC. 




DPZ: Domino’s traded up yesterday on the strong 4Q EPS beat. 


TAST: Carrols underperformed on accelerating volume.







DRI, PFCB, EAT: Casual diners gained on accelerating volume yesterday.





Howard Penney

Managing Director


Rory Green



PSS: Domestic Drag Improves

"We've had limited blunt tools to work with…" – Michael Massey, CEO


It’s rare that we start off a note with a quote, but this one sums up PSS’ positioning over the 2H of 2011 pretty well. Despite this unfortunate circumstance, Q4 results suggest there are indeed signs of operational improvement underway – even if that improvement is simply getting rid of excess baggage of money-losing stores.  The offset is that while PLG blew out its revenue line, backlog slowed sharply.


The real question is whether these two changes on the margin are enough to impact the break-up of the company (90% of the reason why people own this thing).


We think it’s net neutral to positive.

  1. PLG: The key callout at PLG was the deceleration in Q1 PLG backlog up only +1% and down sharply from +17% in Q4. It’s worth noting a few items that are contributing to the decrease including 1) faster lead times so customers can order closer to need, 2) greater mix of auto-replenishment, 3) lower off-price and mid-tier bookings, and lastly 4) weather. It’s also important to recall that PLG production capacity was more constrained last year requiring a greater portion of backlog orders to secure the timing of orders, which is no longer the case. All in, it’s easy for the company to simply place blame here – as many companies do when orders slow or inventories build. They’ll need to explain this in far greater detail for someone buying the company outright. But enough of the factors at play pass the smell test for us initially.
  2. Payless Domestic: The simple fact that store count was down by 310 sequentially – or 6.5% -- at the same time we saw comps accelerate by 400bp sequentially (on a 1, 2 or 3-year basis) is proof positive for us that there’s value in the core. Check out our past research on store closure sensitivity. We’re gaining comfort with this part of the equation. We like the fact that we’re seeing some numbers work while the bankers are negotiating through the press for the highest bid. 

As we look out to 2012, we made a few adjustments to our model including a 1pt increase in comp to +3% with Q4 results turning positive, offset in part by a reduction in PLG wholesale growth to +11.5% from +12% reflecting weaker Q1 backlog trends. Offsetting these drivers is ~$120mm in lost revenue from underperforming store closures in F12, which we had previously modeled. The net result is a modest increase in our revenue growth estimate for next year to +1.6%.


We have gross margins expanding 106bps driven by fewer markdowns and easing product cost headwinds as well as modest SG&A leverage -30bps. The biggest delta is a lower tax rate (not exactly a high quality adjustment) accounting for the majority of the $0.10 increase to our F12 EPS estimate to $1.07 and $1.54 for F13.



PSS: Domestic Drag Improves - PSS S


The Macau Metro Monitor, February 29, 2012




Sands China has been granted 2,500 new quotas to import workers.  In order to take advantage of the additional foreign labor quota, Sands also needs to hire 3,100 new local workers until March 31.  The Human Resources Office says the grant was valid between August last year and February 2012 to fill jobs at both the Venetian and Sands Cotai Central when it opens, according to media reports.


The Office has not said how many workers Sands has hired already, however, Sands CEO Edward Tracy says that the gaming operator expects to hire as many as 500 local workers after the mass recruitment fair held on Sunday and Monday.



The Venetian has “no intention in investing in a project in Manila,” said Edward Tracy, CEO of Sands China. told Macau Daily Times, “after having spoken with Mike Leven” about the matter.  According to official sources, Manila Bay “does not fit the company investment profile”.


Sheraton Macao Hotel, Cotai Central is due to open September 12.  The facilities will include nine major meeting rooms, one grand ballroom, and 39 breakout rooms. The 3,863-room hotel is set to be “the premier meeting destination in the Asia Pacific."


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