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MGM may be looking to IPO a portion of its Macau operations.



Following on the fleet heels of WYNN and LVS, MGM may be looking at IPOing a portion of its Macau operations.  We are unsure if Pansy Ho is involved.  It probably makes sense to capitalize on the big multiples awarded Macau cash flow.  Moreover, unlike those in the US, Macau cash flows are not depressed and may actually be benefitting from somewhat of a VIP bubble.


A Macau IPO could generate $120-180 million in gross proceeds to MGM using the following assumptions:

  • 50% MGM ownership of MGM Macau
  • IPO 25% of MGM Macau operations
  • Long-term run rate of $150-175 million in EBITDA at MGM Macau
  • 12-13x multiple
  • Approximately $850 million in net debt at MGM Macau at 12/31/09

Pre-Game Fed Watching...

There is a very interesting Pre-Game developing here in both the US Treasury and Currency markets ahead of Ben Bernanke’s Game Time (2:15PM EST).


In the chart below, Andrew Barber and I show the immediate term TRADE line breakout we are seeing in 2-year Treasury rates. That breakout line is at 0.99%, and the marked-to-market rate is currently 1.02%, testing 4-week highs…


Coincidently, the US Dollar has stopped going down. Anything that isn’t down versus the Burning Buck’s YTD low (yesterday) is, on the margin, US Dollar bullish.


Understanding that bottoms are processes (not points) is critical, but so is respecting that Bernanke has the world power to crush short term Treasury Bonds (letting yields rise) by simply changing his rhetoric on the Fed Funds rate. ZERO percent isn’t a perpetual position.


Again, he doesn’t have to signal a rate hike absolutely. All he has to is signal one rhetorically, and that bearish intermediate term TREND line for 2-year yields at 1.07% (red line in the chart below) will be in play.


Dollar up, rates up = a lot of things REFLATION down.


2-year yields are where they are Pre-Game. Oil is getting hammered. Copper has broken its immediate term TRADE line ($2.85/lb) as well.


Stay tuned…


Keith R. McCullough
Chief Executive Officer


Pre-Game Fed Watching...  - a1


Yesterday's Today

“In questions of science, the authority of a thousand is not worth the humble reasoning of a single individual.”
-Galileo Galilei
On this day in 1846, the planet Neptune was officially recognized. Rather than through basic observation, this was the first planet revealed by mathematical prediction. Galileo, of course, “made the call” in discovering Neptune, albeit as a star, almost 250 years earlier.
I like math. I like science. I love my wife. I don’t like people who trade on inside information. I don’t like consensus. I don’t like the perceived “authority of a thousand” modern day financiers.
In print at least, I’m rarely accused of being humble. And I probably won’t be a candidate to lead the National Groupthink Convention as their key note speaker either. I am who I am and very comfortable with it. I’m in it to win it every day for both my subscribers and hard working teammates. Every morning. Rain or shine.
I had to get that off my chest this morning. Once in a while I get a note from someone who is on the other side of an investment position as me who says they don’t like what I have to say because I “go at other people” or “call people out.” Only on the professional field of Wall Street would these tactics by which a strategist attempts to conquer be misconstrued for something other than a will to prove he is right.
Yesterday, we were right. But it no longer takes the Father of Science to figure out the dominating mathematical inverse correlation between the US Dollar and everything that’s priced in US Dollars.
Yesterday, the SP500 hit a higher-high for the year-to-date, and the US Dollar hit a lower-low. Since March, the US Currency has crashed (down -15%), and US Equities had the most expedited REFLATION in a generation (up +58%).
Yesterday, Marc Faber of the Gloom Doom and Boom Report, explained the Burning Buck thesis to Bloomberg: “where there is inflation in the system as defined by money supply growth and credit growth, you have currency weakness… stocks can easily go higher. If you print money, they can go anywhere.”
Today, despite my respect for the investment strategy works of Marc Faber, I am asking myself whether what I don’t like (consensus) is staring me right in the face.
Today, I am asking myself why not sell everything?
Today, I am asking myself 30 different ways how I can be wrong tomorrow.
Today is not the day that you are going to see how hard I am on myself.
Today is one more day where I wake up to make the risk management call.
Today’s setup in the US Equity market is as follows:
1.      The immediate term risk/reward in the SP500 has moved back to neutral

2.      Immediate term support for the SP500 is 1058 and resistance 1080

3.      The daily range I see in my probability model is 43 SP500 points wide; perfectly tight and tradable

4.      The Volatility Index (VIX) remains broken across all 3 of my durations, with the TRADE line being $25.14

5.      Volume studies flashed bullish yesterday with daily volumes accelerating on the up move

6.      US Market Breadth remains perfect, with 9 out of 9 SP500 Sectors flashing bullish on both TRADE and TREND

Globally, the setup is marginally less positive versus yesterday:
1.      America’s Creditor (China) doesn’t get paid with the Buck Burning

2.      China was down -1.9% overnight, breaking the immediate term TRADE line on the Shanghai Composite of 2908

3.      Taiwan, Korea, India – they all closed down, after the US market hit a new YTD high. Is Asia leading us, or are we leading them?

4.      Dr. Copper backed off his immediate term TRADE line, and hard – that line = $2.85/lb

5.      Oil continues to impute political power to the likes of Putin; the Russian stock market is up another +1.4% this morning and now +101% YTD

6.      The US Yield Curve compressed overnight (10’s to 2’s) to 244bps wide; still great, but not as great as everybody and their brother upgrades Goldman

The global macro catalyst that matters this morning is the Fed’s meeting. The US Treasury market might be smoking Bernanke out of his hole ahead of his commentary. I’m seeing 2-year yields breakout above my immediate term TRADE line of 0.99% to +1.02% and climbing. That’s a 1 month high.
If, Bernanke sees the recession “very likely” to be over…
If, Bernanke will see what I see coming in Q4 reported inflation accelerating…
Then, what will the US Currency and Treasury markets do?
This could get interesting. Then again, it always is. That’s why I love this game. I love making the call.
Best of luck out there today,




SMH – Semiconductor HOLDRs We bought the semiconductor index on 9/21. We see demand creeping back with the book-to-bill ratio breaking 1 over the last two months.

EWG – iShares Germany
Chancellor Merkel has shown leadership in the economic downturn, from a measured stimulus package and balanced budget to timely incentives such as the auto rebate program. We believe that Germany’s powerful manufacturing capacity remains a primary structural advantage; with fundamentals improving in a low CPI/interest rate environment, we expect slow but steady economic improvement from Europe’s largest economy. Merkel looks to be in the driver’s seat for re-election on September 27th, while her coalition partners are less certain.

CAF – Morgan Stanley China Fund
A closed-end fund providing exposure to the Shanghai A share market, we use CAF tactically to ride the more volatile domestic equity market instead of the shares listed in Hong Kong. To date the Chinese have shown leadership and a proactive response to the global recession, and now their number one priority is to offset contracting external demand with domestic growth. Although this process will inevitably come at a steep cost, we still see this as the best catalyst for economic growth globally and are long going into the celebration of the 60th Anniversary of the People’s Republic.

GLD – SPDR Gold We bought back our long standing bullish position on gold on a down day on 9/14 with the threat of US centric stagflation heightening.   

XLV – SPDR Healthcare We’re finally getting the correction we’ve been calling for in Healthcare. It’s a good one to buy into. Our Healthcare sector head Tom Tobin remains bullish on fading the “public plan” at a price.

CYB – WisdomTree Dreyfus Chinese Yuan The Yuan is a managed floating currency that trades inside a 0.5% band around the official PBOC mark versus a FX basket. Not quite pegged, not truly floating; the speculative interest in the Yuan/USD forward market has increased dramatically in recent years. We trade the ETN CYB to take exposure to this managed currency in a managed economy hoping to manage our risk as the stimulus led recovery in China dominates global trade.

TIP – iShares TIPS The iShares etf, TIP, which is 90% invested in the inflation protected sector of the US Treasury Market currently offers a compelling yield. We believe that future inflation expectations are currently mispriced and that TIPS are a efficient way to own yield on an inflation protected basis, especially in the context of our re-flation thesis.


FXB – CurrencyShares British Pound Sterling
The Pound is the only major currency that looks remotely as precarious as the US Dollar. We shorted the Pound into strength on 9/22.

LQD – iShares Corporate Bonds
Corporate bonds have had a huge move off their 2008 lows and we expect with the eventual rising of interest rates that bonds will give some of that move back. Shorting ahead of Q4 cost of capital heightening as access to capital tightens.

EWU – iShares UK We’re bearish on the UK’s leadership and monetary policy to weather its economic downturn. Although we’re seeing improved fundamentals within the country and across Europe we continue to see the country’s financial leverage as a headwind and increasingly the data suggests that inflation is getting ahead of growth. We shorted EWU on 9/9.

DIA  – Diamonds Trust We shorted the Dow on 9/3.  In the US, we want to be long the Nasdaq (liquidity) and short the Dow (financial leverage).

EWJ – iShares Japan While a sweeping victory for the Democratic Party of Japan has ended over 50 years of rule by the LDP bringing some hope to voters; the new leadership  appears, if anything, to have a less developed recovery plan than their predecessors. We view Japan as something of a Ponzi Economy -with a population maintaining very high savings rate whose nest eggs allow the government to borrow at ultra low interest levels in order to execute stimulus programs designed to encourage people to save less. This cycle of internal public debt accumulation (now hovering at close to 200% of GDP) is anchored to a vicious demographic curve that leaves the Japanese economy in the long-term position of a man treading water with a bowling ball in his hands.

SHY – iShares 1-3 Year Treasury Bonds  If you pull up a three year chart of 2-Year Treasuries you'll see the massive macro Trend of interest rates starting to move in the opposite direction. We call this chart the "Queen Mary" and its new-found positive slope means that America's cost of capital will start to go up, implying that access to capital will tighten. Yields are going to continue to make higher-highs and higher lows until consensus gets realistic.

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Placing 4th in a 3-Person Race

Placing 4th in a 3-Person Race

SEPTEMBER 23,  2009





Cash Cycles: Here’s an interesting call-out. We all know that “inventories are lean” as just about everyone is managing to margin over growth. But check out the directional trend in cash cycle in both footwear and apparel. The punchline is that not only is the cash cycle turning up, but it is turning up across all three major components of the supply chain. Usually we see changes in cash cycle components roughly net each other out as Brand, Retailer, and Manufacturer play against one another. But with more cash being pumped into these models – perhaps they are more focused on managing for growth than we are lead to believe. I know I’ll get hate mail with dozens of examples as to why such build could happen mathematically given where we are in the cycle (note: I love being at the center of such comments…so keep ‘em coming!). But like it or not, inventories and receivables are headed up and payables are headed down.



Placing 4th in a 3-Person Race - FTWR Cash Cycle


Placing 4th in a 3-Person Race - Apparel Cash Cycle



Retail Trading Call-Outs:


The table below is an overview of both price trajectory and volume trends to support that trajectory.

Perhaps the main callout is that the group’s return over the past three weeks was 13.8%, 3.27% (1 week), and -0.3% (1-day). This has happened with volume momentum going in the exact opposite direction. Mind you, this also coincides with upwards earnings revisions finally coming to halt. Relative underperformane in that context is not only understandable, but expected.



Placing 4th in a 3-Person Race - 3





Some Notable Call Outs


  • I (McGough) got a chuckle in the car this morning while listening to an interview with Burberry CEO Angela Ahrendts live from London Fashion Week. “Our UK business has been on fire for quite a while now, and the luxury market 'can only get better' as it anniversaries last year’s pain." Don’t get me wrong…I think that Burberry is a decent company with astounding content (they are two separate things), but don’t you think that’s kind of a bold statement AFTER a 91% move in the stock? Unlike when you were at Liz Claiborne or Donna Karan, this is a YouTube world. Expectations are now officially that your business will improve meaningfully. Let’s hope you deliver.


  • Keep your eyes on a newly announced iPhone app called Micello which provides interactive indoor maps of shopping malls, college campuses, convention centers, and stadiums. The software essentially aims to be the “indoor” version of Google maps. This is particularly noteworthy for retailers as the software can point the user to locations within a mall that may sell a particular product. It’s probably too early to take the browsing aspect out of a mall visit entirely, but the technology nonetheless suggests more efficient and targeted shopping trips may become more commonplace in the future. Furthermore, mall operators are likely to embrace the partnership with Micello in an effort to get even closer to their customers. Could hyper-local marketing be the next step here? Scary, but possible…


  • Over the past year, a visit to Costco has provided lots of surprises given the dearth of excess inventory in the apparel and footwear pipeline. Last evening, while making a run to stock up some staples, I discovered a large selection of men’s Seven For All Mankind denim. The selection ranged from size 30-38 and was priced at $89.97 per pair.


  • As a follow up to yesterday’s IPO callout, Peak Sports (Hong Kong listed) completed its IPO yesterday. While the shares will begin trading on September 29th, early reports are suggesting the offering was 20 times oversubscribed by local investors and 8 times by international investors. The company raised $221 million in the offering, which appears to be in the middle of the expected range of $200-$250 million.





-Holiday 2009 could see profits victory snapped from the jaws of sales defeat - The annual guessing game that surrounds the all-important holiday season has become a study of contradictions — with observers believing that even as the holiday sales performance could be one of the worst on record, retailers’ moves over the last nine months to slash inventories and control costs could mean their bottom lines actually improve in the fourth quarter. A forecast from Retail Forward on Tuesday indicated a 2% drop in apparel and accessories sales for the fourth quarter, reflecting a continuation of the consumer retreat that pushed sales down more than 9% in the same period a year earlier. Overall retail sales, excluding auto, food and drug sales, are projected to come in flat after falling 4.5% a year earlier, teeing up the upcoming fourth quarter as the second worst in 42 years. The Retail Forward study adds to the steady knell of downbeat projections for holiday, with most projecting the season’s performance to range from flat to down in the single digits. And the consensus is that consumers — having been trained by last year’s steep discounts at retail — are going to wait until the last possible moment to see who blinks first. Even with the poor sales outlook, Wall Street remains generally bullish on the sector. Retail stocks, which dipped modestly Tuesday, are up 37.8% so far this year, and Wall Street is trumpeting the industry’s gross margin potential in the wake of better inventory controls and price reductions from factories. <wwd.com/retail-news>


-Students are spending more on gadgets and less on apparel - With classes under way on college campuses across the U.S., students are spending more on computers, cell phones, MP3 players and other electronic gear and cutting back on apparel.  A survey by the National Retail Federation said just less than $13 billion would be spent on electronics and computer-related equipment, compared with $11 billion last year. Clothing and accessories ranked second at $5.77 billion, down from $7 billion; dormitory and apartment furnishings, $3.9 billion, versus $4.74 billion, and shoe purchases, $2.82 billion, down from $3 billion in 2008. Despite the recession, college students and their parents will spend about $34.4 billion to return to campus this year, up 33.8% from 2004. Clothing and accessories purchases will average $118.56 per student, down from $134.40 last year and $149.85 in 2007, the NRF said. Footwear sales will average $57.85, compared with $58.46 last year. Electronics sales will rise to $266.08 per student, compared with $211.89 last year. The NRF study, conducted by BIGresearch and based on the responses of 8,367 consumers, found that 83% of students and parents said the recession had affected their spending, with 48% planning to spend less. <wwd.com/retail-news>


-Retailers, Non-Finance Firms Exempt From Obama Consumer Agency, Frank Says - Retailers, merchants and non- financial businesses will be spared from oversight by a consumer protection agency, Representative Barney Frank said in proposing to alter the Obama administration’s proposal.  <bloomberg.com>


-Strong demand for clothing and footwear was seen in the UK, contributing to a 16% year-on-year jump in online sales - According to IMRG Capgemini e-Retail Sales Index, British consumers spent an estimated GBP3.8bn (US$6.2bn) during the month, while total month-on-month sales dropped by 10% in August. However, online shoe sales rose by 3% as parents purchased back-to-school uniforms. "The continued annual growth in the online retail market is evidence that this medium is withstanding the challenges of the economic downturn and the retailers that continue to expand and improve their online presence will no doubt reap the benefits during the festive trading period," notes Tina Spooner, director of information at IMRG. The Group also points out that clothing sales was boosted as retailers offered greater choice, price competitiveness and convenience from buying online. <fashionnetasia.com>


-USDA projections for 2009/10 indicate that world cotton stocks are expected to decline for the third consecutive season - Global ending stocks are currently forecast at 56.3 million bales for 2009/10, 5.2 million bales (8.5%) below 2008/09 and the lowest since 2003/04s 48.1 million bales. For 2009/10, the world stock reduction is largely attributable to China—the leading cotton producer and consumer—where 45% of the global decline is expected. However, stocks are expected to decline in most of the cotton-producing countries this season. In China, stocks are forecast to decline 2.3 million bales to 17.6 million, their lowest in 7 years. US ending stocks are expected at 5.6 million bales in 2009/10, 600,000 bales below 2008/09 and the lowest in 5 years.  Meanwhile, stocks in India—the second largest producer and consumer—are forecast only marginally lower and will likely play a key role in the global trade of raw cotton in 2009/10.  <fashionnetasia.com>


-Severe floods affect Atlanta mall traffic - Some retailers here are suffering because of torrential downpours and record flooding that have caused major disruptions and at least eight deaths. There was reduced activity at a few malls that depend on major roads such as Interstates 75 and 85, which were partly shut as floodwaters trapped motorists in their cars during the evening rush hour on Monday. The Arbor Place mall in Douglasville, which has 140 stores and is about 20 miles west of downtown Atlanta, closed Monday afternoon, although department stores such as J.C. Penney and Belk stayed open for regular hours. There was a fallout in traffic as consumers have sort of hunkered down over the last couple of days. The Perimeter Mall, which features Bloomingdale’s, Macy’s, Nordstrom and Dillard’s among its almost 200 stores and is 13 miles north of downtown, had “very light” shopper traffic Monday, said general manager Dennis Kemp. The National Weather Service forecast more rain this week, but said the severity will decrease. <wwd.com/retail-news>


-Shoebuy.com has joined the ranks of companies offering designer footwear on the Web -  The IAC-owned company this week launched a new Web site called Designer.Shoebuy.com, which features high-end designer names in shoes, accessories and apparel. The site offers more than 150 brands for men, women and kids, including Hugo Boss, Stuart Weitzman, Kenneth Cole and Bally. Like its sister site, Designer.Shoebuy benefits include free shipping, free return shipping and user reviews. However, the site's layout has been pared down and includes features such as brand microsites. With Designer.Shoebuy.com, we are now able to offer our design-conscious customers a streamlined way to shop for their favorite brands, while extending the same great benefits we offer to all Shoebuy.com shoppers," Shoebuy COO Bill Pryor said in a statement. <wwd.com/footwear-news>


-EPA Sues VF Corp Over TNF Foot-Odor Prevention Claims - The U.S. Environmental Protection Agency has filed suit against VF Corp., claiming The North Face made unsubstantiated public health claims regarding unregistered products, and their ability to control germs and pathogens. VF Corp is facing nearly $1 million in fines over the issue. VF Outdoor, TNF's parent, said the EPA had "not made any claims that The North Face products are unsafe or contain any unsafe substances." <sportsonesource.com>


-The Forzani Group Ltd. reported that consolidated same-store store sales for the back-to-school period increased 0.1%  - Corporate store comps were down 1.6% for the period and franchise stores rose 3.8% for back-to-school. Forzani reported that comps jumped 7.0% in the corporate stores in the last two weeks.  <sportsonesource.com>


-Perry Ellis reaches licensed agreements for Jantzen and ProPlayer - Perry Ellis International has signed two new licensing agreements for its Jantzen and ProPlayer brands with MAG Brands LLC/Millennium Apparel Group and IFG Corp. (Innovative Fashion Group), respectively. Both MAG Brands and Innovative Fashion Group are part of the Adjmi Apparel group of companies. <sportsonesource.com>


-Macy`s predicts a 13% rise in web sales this year, CEO says - The department store retailer`s web sales are expected to surpass $1 billion this year, CEO Terry Lundgren said today at the Shop.org Annual Summit. <internetretailer.com>


-Burberry Climbs After Chief Ahrendts Says U.K. Luxury Market Is `On Fire' - Burberry Group Plc rose as much as 5.8 percent in London trading after Chief Executive Officer Angela Ahrendts said the clothing maker’s U.K. business has been “on fire” as demand for luxury goods improves.  <bloomberg.com>


-Hanesbrands Inc. and Its Champion and Duofold Apparel Brands Launch Mount Everest Expedition  -  Hanesbrands Inc. announced today that its Champion and Duofold apparel brands are going to the top of the world, leading a Mount Everest expedition to drive brand awareness and showcase the company’s research and development innovation and textile science leadership. "Expedition Hanesbrands: Climb With Us” will be lead by accomplished international mountaineer and motivational speaker Jamie Clarke and will begin next month with a training climb of Mount Pumori in Nepal, a 23,494-foot-high Himalayan neighbor to Mount Everest. The Everest summit bid will take place in the spring 2010 Himalayan climbing window.  An expedition launch news conference will be held live today at 10:30 a.m. EDT from North Carolina State University’s College of Textiles in Raleigh, N.C. <newsticker.welt>


-Bernard Krief Consultants, which has submitted an offer to buy Christian Lacroix out of administration, also has made a bid to acquire embattled lace manufacturer Societé Lucien Noyon SAS with a view to developing a pole of luxury French textiles artisans, said Krief’s international director, Beatrice Alba. Battered by competition from Asian lace manufacturers, Noyon is in the final stages of its administration period. It is not known if any other suitors are after the company. Alba noted Bernard Krief’s bid concerns only Noyon’s Calais, France, site and not its factory in Sri Lanka. Krief plans to maintain the company’s Leavers lace department, which employs 80 workers, she said. <wwd.com/business-news>



RESEARCH EDGE PORTFOLIO: (Comments by Keith McCullough): KR


09/22/2009 09:53 AM


Kroger is down again today, making new lows. I like new lows, especially when I can cover for gains. Great call by Levine and McGough. Re-short higher. KM





GES: Paul Marciano, Vice Chairman & CEO, sold 50,000shs ($1.9mm) less than 3% of total common holdings.


BGFV: Steve Miller, President & CEO, sold 2,000shs ($30k) less than 1% of total common holdings pursuant to 10b5-1 plan.



  • John Fisher, General Partner of Fisher Holdings (founding family), 500,000shs ($11mm) less than 3% of total common holdings
  • William Fisher, General Partner of Fisher Holdings (founding family), 1,000,000shs ($22.1mm) nearly 10% of total common holdings


CHS: Manuel Jessup, EVP – Human Resources, sold 6,666shs ($89k) after exercising the right to buy 6,666 shares less than 15% of total common holdings.


DECK: Constance Rishwain, President Simple & UGG, sold 2,000shs ($160k) approximately 5% of total common holdings pursuant to 10b5-1 plan.


JWN: Ernst Campbell, VP & Treasurer, sold 3,221shs ($101k) nearly 25% of total common holdings.




Many commentators are claiming that Macau casino revenues have increased up to 60% year-over-year after the first 20 days of September and are on pace to repeat August’s record of MOP11.27 billion.  The growth is said to be due to Beijing relaxing visa restrictions, increased spending per gambler, and an easy comp with last year. 


The head of Macau’s Travel Industry Council said last month that Guangdong residents could visit Macau once a month from September 1, up from once every two months previously.  In addition, effective yesterday, the official implementation of a VIP junket commission cap will further help operators’ earnings.




Steve Wynn, speaking at a news conference Wednesday, confirmed that Chinese authorities recently relaxed travel restrictions for Guangdong residents visiting Macau.  Wynn said the Chinese government considered macroeconomic factors and made the decision in conjunction with the Macau government.  Wynn Resorts is planning to raise up to US1.6 billion in a Hong Kong initial public offering of its Macau assets.


PFCB’s Co-CEO Bert Vivian presented at an investor conference this afternoon and provided some commentary on 3Q trends and a first glimpse at 2010.  Mr. Vivian maintained his less than encouraging near-term outlook for the industry but appeared optimistic about the long-term prospects at PFCB.  In 2Q09, same-store sales growth declined 6.8% at the Bistro and was relatively flat at Pei Wei.  At that time, management had said that the Bistro had underperformed relative to internal targets while Pei Wei outperformed.  Looking at 3Q09, Mr. Vivian stated that sales trends at both the Bistro and Pei Wei are similar to what we saw in 2Q with the Bistro continuing to struggle. 


The company is currently planning for muted development in 2010 with about 4-5 Bistros in the pipeline and about 2 Pei Wei units.  Management is exploring additional sites for Pei Wei development, primarily in existing markets, but these sites are most likely slated for 2011 openings.  So, overall, new unit development will come down again in 2010.


Mr. Vivian stated that he has to believe that the environment will get better in 2010.  That being said, with reduced unit growth, he is not expecting much in the way of revenue growth.  He even said, “If comps somehow magically went plus 10%, you’d probably find me dancing naked in the streets.”  Instead, he thinks that -5% to +5% revenue growth is a more reasonable range.  Assuming flat revenues in 2010, Mr. Vivian expects that based on the company’s current outlook that cost of sales will be somewhat favorable relative to 2009 (outside of produce which is not contracted), PCFB will be able to hold labor and cost of sales (60% of restaurant expenses) flat as a percent of sales. 


If these revenue and cost expectations prove to be right, the company should continue to generate more free cash flow in 2010 (guided to $70-$80 million in free cash flow in 2009).  With this cash, PFCB will continue to pay down debt (and expects to be debt free by mid 2010) and buy back shares.  Additionally, Mr. Vivian said that management could discuss paying a dividend.

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