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PENN 4Q 2013 CONF CALL NOTES

Consistent with our "Regional Reversal" call, better than awful was good enough.

 

 

CONF CALL NOTES

 

  • 4Q:  Hollywood St. Louis refurb was completed right before Christmas holiday.  Property will be wellreceived in 2014.
  • 2 OH VLT slots only Racetracks:  On target for Fall 2014 opening
  • Jamul property: early 2016 opening
  • MA decision will come at end of February
  • PA Philly license decision: 2nd quarter of 2014
  • Relatively soft consumer environment, particularly at low end segment
  • Cannibalization impact:  Lawrenceburg, Charles Town
  • Weather hasn't helped
  • Rewards program:  75% properties live; majority of remaining property will be implemented in 2014 including M Resorts later in Feb 2014 
  • Focused on cost structure; additional efficiencies ahead
  • Currently, promotional environment mostly rational and stable
  • 4Q 2013 
    • Spin off MD/Baton Rouge:  less $25MM revenue and less $5 EBITDA 
    • Impairment charge also the result of spin-off
  • 3 annual dividend payments to PENN employees who hold stock options as a result of spin off

 

Q & A

  • 4Q Rent coverage: 1.8x
    • Guidance reflects lower rents
    • 80% master lease fixed, 20% variable (1/2 resets every 5 years, 1/2 predicated on OH)
  • Assume a 'conservative customer' in 2014; assume current trends in 2013 will continue into 2014
  • Dayton/Austintown:  may not be 20% ROI (Toledo/Columbus) but will be good returns
    • Margins in the high 20s or better
  • Jamul project:  $81MM (capex in 2014)- $360MM total budget; June/July will get going; spread on financing is excess of 10% of revolver financing 
  • <$100 per visit: segment accounts for 20-25% of database 
  • >$100 per visit segment also declined
  • Horseshoe Baltimore:  impact on Charles Town will be smaller than Maryland Live! opening
  • Columbus:  new signups 10,000 per month (over 300,000 in the database)
  • 75% full-time employees, down from 80% historically
  • Jamul mgmt agreement:  7 years 
  • 1Q 2014 lower costs:  payroll and marketing costs; better operational costs in Toledo and Columbus
  • Cash balance:  looking for further reduction in cash which will be used to pay down debt
  • 2014 capex:  $88MM maintenance capex (60% spend on gaming floor refurb); $176MM new project capex (does not include $81MM for Jamul)
  • 4Q: corporate expense $26.5MM; going forward, $80-85MM corp expense (inclusive of $12MM dividend payments)
  • Other forms of gambling entertainment playing no role on gaming (e.g. i-gaming)
  • Middle income customers being squeezed
  • On non-weather-related days, revenue levels are comparable with what has occurred in the past
  • St. Louis property:  appealed on property tax calculation
  • 2014 guidance is conservative
  • 4Q Toledo: net slot win was up 5%, encouraging sign; expect that property to grow since there will not be additional supply in that market
  • Columbus:  Dayton customer shared with Miami Valley; Dayton racetrack opening may slightly impact Columbus 
    • Over 90% customers are local
  • Promotional expenses ticked up in 4Q
    • Largely been in new competition markets. 
    • Will continue to bring that number down 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING

Takeaway: Tomorrow's NFP print will be the main event on the labor front, but we think we already have a pretty clear picture of what's happening.

Labor is Slowing, but Only Modestly

The strength of the labor market has cooled off modestly. We key off the year-over-year rate of change in rolling NSA (non-seasonally adjusted) initial jobless claims. This week the data was better by 5.5% vs the same period last year. However, if you compare that with the preceding three weeks of data, it reflects a modest deceleration. The last four prints have been: -8.5%, -7.9%, -7.2% and -5.5%. It's important to remind investors that initial claims tend to hit a frictional resistance around 300k. As such, the closer we get to 300k the more we'd expect the rate of improvement to converge toward zero. As such, it's not surprising that the rate of improvement is slowing, but we're more interested in the short-term acceleration/deceleration relative to the trendline rate of change. On that basis, the last four weeks represent a bit more of a slowdown than what the trendline would suggest. To be clear, we're not overly concerned here, but in light of the weak ISM print and the elevated overseas concerns it's important to keep tabs on whether we're in the early days of a real slow down or just a short, counter-trend speedbump.

 

The Numbers

Prior to revision, initial jobless claims fell 17k to 331k from 348k WoW, as the prior week's number was revised up by 3k to 351k.

 

The headline (unrevised) number shows claims were lower by 20k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.75k WoW to 333.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -5.5% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -7.2%

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 1

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 2

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 3

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 4

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 5

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 6

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 7

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 8

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 9

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 10

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 11

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 12

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 13

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 19

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 14

 

Yield Spreads

The 2-10 spread rose 3 basis points WoW to 235 bps. 1Q14TD, the 2-10 spread is averaging 244 bps, which is higher by 4 bps relative to 4Q13.

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 15

 

INITIAL CLAIMS: SLOWING MODESTLY, BUT STILL IMPROVING - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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[video] Crash Goes the $40B Market Cap: $TWTR Report Validates Original Bear



FLASHBACK: Penney Shorts Casual Dining (He Nailed It)

Takeaway: It pays to listen to Hedgeye's Howard Penney.

Does Howard Penney have a crystal ball? No. He’s just one of the best (if not the best) restaurant analysts on Wall Street.

 

Earlier this week, Malcolm Knapp released sales results for January, estimating that same-restaurant sales and guest counts declined -2.6% and -4.4%, respectively, versus January 2013.

 

In other words, bad news for restaurants.

 

As you can see in the HedgeyeTV video below from a month ago, Penney was all over this bearish trend and well ahead of Old Wall consensus in making his call.

 

 

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