R3: Look at AmEx, not Just SSS


February 4, 2009


Let’s not overlook perhaps the most notable datapoint over the past day – which is from AmEx. Non discretionary spending is widening its gap versus discretionary. This plays into our view that even with ‘easy compares’ we need to look at share of wallet more than anything else, and that 2010 should be a difficult delta for discretionary categories.





While everyone is pouring over same store sales data this morning, let’s not overlook perhaps the most notable datapoint – which is from American Express. Note that spending is up year/year to no surprise, but non discretionary spending is widening its gap versus discretionary. This plays into our view that even with ‘easy compares’ we need to look at share of wallet more than anything else, and that 2010 should be a difficult delta for discretionary categories.


R3: Look at AmEx, not Just SSS - 1




  • With the American Living brand about to hit its two year anniversary, Ralph Lauren President Roger Farrah had some comments about the brand’s challenges and success so far. He noted that the launch of the brand came at a difficult time in the market overall, making it even more difficult to launch the premium priced line. The biggest learning was the delta between where the line was priced and what the customer was willing to pay for a brand with no history or heritage. The JC Penney customer was also not as receptive to the color palette of the line. Both pricing and colors have now been corrected for Spring and Fall ‘10. Granted, no CEO in this business ever says “we adjusted colors and pricing so that we still have it wrong in the upcoming season.”
  • Wolverine World Wide management expects product costs out of Asia (China) to remain favorable through the first half of 2010, with an uptick coming in the second half of the year. Management also noted that it is not entirely clear at this point how much costs will be up, but that in a few weeks after the Chinese New Year is complete the outlook will be much more clear. The company did not elaborate – but we think that this is a function of VAT and import/export duties, which are unlikely to change before the New Year.
  • It’s game on for American Eagle Outfitters and Hollister in Soho. It appears that AEO is moving its downtown flagship on Broadway in Soho, to a newer 20,000 square foot location just a few blocks north. Interestingly, the store will be situated directly across the street from ANF’s first Hollister flagship. Teen tourists are rejoicing all over at the prospect of one-stop shopping…


MORNING NEWS  (and Hedgeye Retail’s 2 Cents)


Karkus Exits Under Armour - Under Armour Inc. said Wednesday that Suzanne Karkus, senior vice president of apparel, has resigned to pursue other interests. The company has named Matthew Mirchin, senior vice president of sales for North America, interim head of its North American wholesale apparel unit while it searches for Karkus’ successor. In a regulatory filing with the Securities and Exchange Commission, the Baltimore-based performance apparel firm said that following Karkus’ departure on Feb. 16, she would be paid six months’ salary, or $200,000 based on her 2008 compensation, pursuant to the employment agreement inked when she joined the firm in January 2008. That contract called for her to receive a half year’s pay in the event her employment was terminated “under certain circumstances.” The company has yet to provide salary information for 2009. Karkus will also receive $120,000 “primarily to cover her transition and other expenses.” Prior to joining Under Armour, Karkus was president of Izod Womenswear for four years and, during a six-year tenure with Calvin Klein Jeanswear, advanced to president of its women’s division. While Under Armour has struggled with its fledgling investment in footwear, the apparel business has continued to flourish. In the fourth quarter ended Dec. 31, apparel revenues increased 26 percent to $192.1 million, 86.5 percent of the corporate total. By contrast, footwear revenues, while up 60.6 percent for the full year, fell 5.1 percent to $8.7 million in the quarter. Calls seeking comment from Under Armour weren’t returned. The firm’s stock dropped 3.4 percent to $25.88 in trading Wednesday. <>

Hedgeye’s 2 Cents: When the SVP in charge of 90% of the P&L either resigns or is forced out, it’s never a great sign. Granted, when Raphael Peck – former head of footwear – resigned last year, it was a precursor to Kevin Plank bringing on Gene McCarthy, who we think was the best free agent in footwear. Our sense is that McCarthy and Karkus were not exactly the best of friends. We’d expect to see a high profile hire here quite soon.


Jones Buys Robert Rodriguez Collection - Jones Apparel Group Inc. is continuing to expand its portfolio in the contemporary category. After buying a 50 percent stake in Rachel Roy in 2008, the apparel conglomerate has acquired Moda Nicola International LLC, which owns the Robert Rodriguez Collection. Jones’ plan is to help the Los Angeles-based designer of women’s contemporary sportswear and eveningwear and his business partner and chief executive officer, Nicola Guarna, grow the label deeper in its existing 600 doors, which include Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue, Nordstrom, Harrods and Holt Renfrew. According to Jones, the deal is valued at about $28 million, with Jones having made “initial cash payments to the selling members of MNI,” who are to receive future cash payments “upon achievement of certain financial targets set within the agreement.” Last year, MNI generated net revenues of about $17 million. <>

Hedgeye’s 2 Cents: Is it me, or is JNY getting back to its old destructive roots a bit too quickly?


Wal-Mart Cutting 300 Headquarters Jobs - Wal-Mart Stores Inc. said Wednesday it will eliminate about 300 jobs at its Bentonville, Ark., corporate headquarters as part of a strategy to improve efficiency and cut costs. The latest move comes after the retailer last week said it will break up Wal-Mart U.S. into three geographical regions, create a new merchandising execution organization, change the way products are sourced globally, close 10 Sam’s Club stores in the U.S. and lay off 11,000 employees. The positions at Wal-Mart’s headquarters are primarily in corporate support areas, said Mike Duke, president and chief executive officer. In a memo to employees, Duke said asking the home office to make staff reductions was only fair in light of the push for operations to become leaner and more customer-focused.  <>

Hedgeye’s 2 Cents: Non-event.


Adidas America Announces Restructuring - Adidas America Inc. on Wednesday said it laid off a small number of employees as part of a U.S. restructuring at its Portland headquarters but indicated that it still expects to see job growth in the U.S. this year. The company issued the following statement, "Today adidas America, Inc. announced a restructuring of its organization in support of the launch of a new US business plan. This action will result in a net increase to employee headcount at the company's Portland, Oregon headquarters. The purpose of this restructuring is to simplify the business, increase efficiency, prioritize resources and position the company for long-term growth and opportunity. While the company is ultimately creating more jobs, many of the new positions demand a different skill set and experience level, thereby requiring the company to release some employees and recruit new talent. Although these decisions are very difficult, the company is making the strategic moves necessary in order to not only maintain but increase market position." Adidas America spokeswoman Stephanie Von Allmen, speaking to, declined to divulge the specific number of job cuts, but said it would be fewer than the 60 jobs that will be added during the course of 2010. She said the company would release further details of the restructuring at a later date. The company employs 800 at its U.S. headquarters in North Portland. <>

Hedgeye’s 2 Cents: I think I’m pretty good at math, know this industry quite well, and have a decent enough memory. But if you were to ask me how many times the North America ops at Adidas has been restructured, I’d need to research it a solid half hour before giving an accurate answer.



CAA Among Investors That Buy J Brand Firm - Fashion’s Hollywood connection just got a little bit closer. J Brand’s rapid rise to prominence in the premium denim segment is getting an additional boost from a new private equity owner that includes an unlikely partner: none other than the powerhouse Creative Artists Agency. Star Avenue Capital LLC has acquired a majority interest in Los Angeles-based J Brand in a deal said to be valued in excess of $50 million. Star Avenue was established in early 2009 as a three-way partnership between Star’s management, private equity firm Irving Place Capital — a key investor in operations such as Aéropostale, Seven For All Mankind, Stuart Weitzman and The Vitamin Shoppe — and CAA to target emerging brands and concepts for investment. It’s the first major investment for Star Avenue. As part of the deal, J Brand will welcome as chairman former Jones Apparel Group Inc. chief executive officer Peter Boneparth, who joined Irving Place Capital in March as a senior adviser focusing on the retail and apparel sectors. “Premium denim was a category that we targeted early on as one that would be an obvious deal given our experience from Irving Place, and given how these brands respond so well to media activation,” Mark Genender, managing director of Star Avenue, told WWD exclusively. <>

Hedgeye’s 2 Cents: Banker Bonanza redux.


Cutter & Buck gets new CEO - Seattle sportswear company Cutter & Buck has named Jens Petersson chief executive officer, replacing Ernie Johnson. Seattle sportswear company Cutter & Buck has named Jens Petersson chief executive officer. He replaces Ernie Johnson, who took the helm in 2006, a year before Cutter & Buck signed a deal to be bought by European apparel distributor New Wave Group. Johnson, a former banker, now is chairman of Cutter & Buck's board of directors. Petersson, 46, who previously was deputy CEO of New Wave, said he plans to step up Cutter & Buck's marketing efforts and better communicate with customers on the Internet. Social-networking Web sites such as Facebook are "very much on my agenda," he said, citing the U.S. economy as another top concern. "We hope we've seen the bottom and a recovery is coming as soon as possible." Something else he hopes will blow over soon: the Tiger Woods sex scandal. Cutter & Buck specializes in golf apparel, and Woods' absence from the game "obviously is not a positive," Petersson said. "What's best for all of us in the industry is he comes back and plays." <>

Hedgeye’s 2 Cents: An often overlooked gem in golf apparel – seriously.


Esprit Plans China Online Sales as Retailer Expands - Esprit Holdings Ltd., the biggest Hong Kong-listed clothier, may set up an online sales network in China as it pushes expansion in the world’s most populous nation, where it says margins are similar to those in Europe. Chinese spending on casual clothing is growing and Esprit is likely to see a “stronger influence from China” in future fashion collections, Chief Executive Officer Ronald van der Vis, who took over in November, said in an interview.   <>

Hedgeye’s 2 Cents: Important move. US investors don’t know Esprit, but they should.


Burberry Promotes Janowski - Burberry has named Andy Janowski to the newly created post of chief operations officer, reflecting the brand’s increased focus on its supply chain. Janowski joined Burberry in 2006 as senior vice president, supply chain, and created a global team that transformed purchasing, manufacturing, sourcing and shipping, resulting in cost savings and reduced environmental impact and distribution processes, Burberry said. Burberry’s wholesale sales in the third quarter grew 10.5 percent, due partly to earlier, more streamlined shipments and an ongoing strategy to deliver new ranges more frequently to customers. “In his three-and-a-half years with the company, Andy has strategically built, modernized and shaped a leading, world-class supply chain team,” said chief executive officer Angela Ahrendts. <>

Hedgeye’s 2 Cents: “Increased focus on supply chain”? That was the buzzword catchphrase a few years ago (like 10). A bit late to the party boys.


PENN missed the Street but hit our EBITDA estimate on the nose. Wish we could same about Q1 and 2010 guidance.



We don't have a lot to add to the earnings release.  The takeaway is clear:  2010 is not off to a good start in the regional markets and the recovery duration looks farther down the road.  PENN provided 2010 guidance well below us and the Street consensus, particularly for Q1.  EBITDA and EPS guidance for Q1 was 17% and 39% below the Street, respectively.  Full year 2010 guidance was better, falling "only" 11% and 26%, respectively, under the Street.  However, visibility on gaming revenues is always limited so back end loaded guidance never gives us much comfort. 


At least three legs of PENN long thesis remain:  solid management, a deep long-term development pipeline, and a balance sheet to fund it.  Unfortunately, the significantly lower estimates probably mitigate the "cheap stock" fourth leg of the thesis.

Back To The Future

The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved."
While our Confucius (Keith) is on T.V. this morning, I’ve been handed the pen on the Early Look. The real Confucius is, of course, the ancient Chinese philosopher whose writings have influenced China in varying degrees for the last 2,000 plus years.  They espouse a practicality and logic that can be transferred readily to many types of societies.  The quote above suggests that the superior man, or government, will proactively plan for the future.  In money management, we call that a Risk Manager.  These are typically the guys or gals with long careers.
The United States continues to be the global leader in GDP market share, but its share has consistently eroded over the past ~35+ years.  Based on current and projected GDP growth rates, and GDP growth capacity of nations, it will not be long before China surpasses the United States.  While this may be shocking to some, the reality is that this is really Back to the Economic Future in terms of economic market share as China had a larger economy than the United States for most of the 1800s.
Many astute short sellers are incredibly bearish on the prospects for China.  Jim Chanos, an investor who we hold in regard for more than the fact the he roomed with current Yale Hockey Coach Keith Allain in college, is at the top of that list.  Having never spoken to Jim about China specifically, what I can surmise from reports is that his thesis is primarily based on the inaccuracy of government data (“they make it up”) and that there is serious risk to the banking system in China due to writing a lot of bad loans.
Even if Jim is correct, we would be remiss to believe that China’s GDP market share gains will slow for the longer term.  As Kenneth Rogoff and Carmen Reinhart write in their must read book, This Time Is Different:
“China’s four large state owned banks, with 68% of banking system assets, were deemed insolvent.  Banking system nonperforming loans were estimated at 50%.”  
They were referring to the epic bank failures in China in the late 1990s.  When 68% of your banking system is insolvent, it can’t get much worse.  But guess what happened over the ensuing decade? China recovered and continued to take massive GDP market share. This centralized communist government led the nation back from the financial abyss.
While our financial crisis is largely behind us, the reality remains in the United States: healthcare needs reforming, the longer term impact of entitlements needs to be addressed, mounting national debt issue needs to be resolved, and our financial system needs better regulation.  Absent a permanent super majority in congress, which seems unlikely to happen, the only way anything will be accomplished is if the parties work together in the spirit of a true constitutional democracy.
For that to occur, it will require a willingness of whomever the President is at the time to reach across party lines and work with his or her political opponents.  The four issues outlined above need solutions and if they aren’t addressed the longer term outlook for investment in the United States and in United States government debt (especially at current prices) is a lot less compelling than other nations.
With the startling victory by Scott Brown in Massachusetts, one would hope that that both the President and the Democrats realize that while they have the power, they need to respect the middle and independents it they have any hope to effectively govern and solve any of the major problems facing the nation.  
We have been writing to our subscriber base that we expect to see a shift in politics in the coming years.  A shift to more independents and independent candidates, as the electorate continues to lose faith in the partisan political system.  A recently poll from Rasmussen suggested that Americans unaffiliated with either party is now at 32.3%.  
The immediate term market reaction to this shift in the character of political and government leadership is a continued Buck Breakout. This morning the U.S. dollar is breaking to 5-month highs based on recent political events and the anticipation of continued change.  This change will come in the form of politicians whose core qualification for being elected is not already having been a Washington Weasel (an elected politician).
Our current political system is beholden to the attempts of both parties to implement a tyranny of the majority.  In the Federalist Papers, Publius defined the tyranny of the majority aptly:
“. . . a number of citizens who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community."
This quote embodies our current age of politics.  Yesterday, President Obama was out pumping that this remains, “the second largest Democrat majority in a generation.”  While this is factually correct, that emphasis is not exactly what the Founders had in mind.  The reality of continued attempts at tyranny of the majority in the United States is political deadlock and Back to the Economic Future for global GDP market share. China gains, we lose.
Keep your head up and your stick on the ice,
Daryl G. Jones
Managing Director

XLK – SPDR Technology
— We bought back Tech after a healthy 2-day pullback on 1/7/10.
UUP – PowerShares US Dollar Index Fund — We bought the USD Fund on 1/4/10 as an explicit way to represent our Q1 2010 Macro Theme that we have labeled Buck Breakout (we were bearish on the USD in ’09).
EWG - iShares Germany —Buying back the bullish intermediate term TREND thesis Matt Hedrick maintains on Germany. We are short Russia and, from a European exposure perspective, like being long the lower beta DAX against the higher beta RTSI as well.  

EWZ - iShares Brazil — As Greece and Dubai were blowing up, we took our Asset Allocation on International Equities to zero.  On 12/8/09 we started buying back exposure via our favorite country, Brazil, with the etf trading down on the day. We remain bullish on Brazil's commodity complex and believe the country's management of its interest rate policy has promoted stimulus.

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 mispriced and that TIPS are a efficient way to own yield on an inflation protected basis.


EWW – iShares Mexico
We do not want to be net long Latin America (Brazil) anymore. Mexico short is a solid compliment to our short position on oil and our concerns about sovereign debt risks.

USO – United States Oil
Fund We have been waiting, patiently, to short the US Oil Fund on an up day, which we got on 2/2/10. We are bullish on the Buck and bearish on China right now. These factors contribute to our multi-factor (bearish) intermediate term stance on the oil price.

EWJ – iShares Japan
We shorted Japan on 2/2/10 after the Nikkei’s up move of +1.6%. Japan's sovereign debt problems make Greece's look benign.

UNG – United States Natural Gas
Fund Macro DJ (Daryl Jones) and I remain bearish on Commodities. Natural Gas had a healthy price pop on 2/1/10, prompting us to short it.  

XLE – SPDR Energy
The Energy ETF was up +1.7% on 1/29/10 and we remain bearish on both oil and commodity prices for the intermediate term. Shorting green.

SPY – SPDR S&P 500
The SP500 broke our intermediate term TREND line earlier this week and remains broken. The 4Q09 GDP report confirms that Bernanke has to raise interest rates. ZERO is not a perpetual policy unless the USA wants to become Japan. We shorted SPY on 1/29/10.

GLD – SPDR Gold Shares
We re-shorted Gold on a bounce on 1/25/10. We remain bullish on the US Dollar and bearish on the intermediate term TREND for the gold price as a result.

IEF – iShares 7-10 Year Treasury
One of our Macro Themes for Q1 of 2010 is "Rate Run-up". Our bearish view on US Treasuries is implied.

RSX – Market Vectors Russia
We shorted Russia on 12/18/09 after a terrible unemployment report and an intermediate term TREND view of oil’s price that’s bearish. Russia’s GDP fell 7.9% in 2009.
EWJ - iShares JapanWhile 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.


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The S&P 500 declined 0.55% yesterday on decelerating volume.  Yesterday’s theme seemed to focus on the fact that sovereign debt issues will not go away.  While the European Commission backing of Greece's deficit reduction plan may have put that country concerns on the back burner, sovereign credit concerns shifted to Spain and Portugal.  As a result there was a pick up in the RISK AVERSION trade.  The dollar Index was up 0.45% yesterday and VIX was marginally higher too. 


The Hedgeye Risk Management models have the following levels for VIX – buy Trade (20.70) and Sell Trade (22.23). 


Given the sovereign debt issues, we do not want to be net long Latin America (Brazil), and as a result we shorted Mexico.  Mexico short is a solid compliment to our short position on oil and our concerns about sovereign debt risks.  The Hedgeye Risk Management models have the following levels for DXY – buy Trade (78.01) and sell Trade (79.73). 


On the MACRO front the ISM non-manufacturing index rose to 50.5 in January from 49.8 in December. However, the headline reading came in below the 51 consensus.  The data highlighted the extent to which the services sector continues to lag the recovery in manufacturing.  This was made clear in the employment component, which increased to 44.6 from 43.6, a slowing rate of improvement. 


Also on the MACRO front the ADP employment fell 22K in January vs. consensus expectations for a drop of 30K, marking the smallest decline since January 2008.


Yesterday, the worst performing sector was Healthcare (XLV); the XLV also broke TRADE.  The earnings miss from Pfizer (PFE) and scaled back financial targets for 2012 was not received well.  The managed care group also came under pressure with the HMO’s down 1.6% following reports that House Democrats plan to revive a small piece of their healthcare reform agenda that would repeal the HMO antitrust exemption.


The Financials (XLF) was one of the worst performing sectors yesterday.  While the insurance space was in focus following a number of earnings reports, the banking group provided a meaningful headwind with the BKX index down 2.4%.  The regional’s remained on the defensive amid concerns about the extent of their run-up on the back of the largely favorable takeaways from Q4 results.  Money center names held up better on the day, as the group has been a beneficiary of recent thoughts that regulatory concerns may be overdone.


Consumer Discretionary (XLY) was one of two sectors that finished up on the day.  Media names were a big driver of the strength following better-than-expected December quarter earnings.  MCD also outperformed after the stock was added to the Conviction Buy List at Goldman, while YUM was down 1.3% before it reported mixed results after the close. 


As we look at today’s set up the range for the S&P 500 is 33 points or 2.0% (1,075) downside and 1.0% (1,108) upside.  Equity futures are trading below fair value following yesterday's decline.  Earnings remain in focus and markets may try to draw some benefit from Cisco System's (CSCO) Q2 earnings reported after the close.


In early trading Copper looks to be headed lower for the 2nd day in a row.  The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.89) and Sell Trade (3.14).


In early trading Gold also looks to be lower on the strength in the dollar index.  The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,076) and Sell Trade (1,113).


Crude oil is headed lower on inventory gains and a stronger dollar.  The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (72.04) and Sell Trade (78.32).  We remain short the US Oil Fund (USO).


Howard Penney

Managing Director
















While Q4 consensus has come down, it may not be enough. The stock has fared poorly (down almost 30% since late November) so a miss is probably discounted to some extent.



PNK reports Q4 EPS tomorrow morning.  In projecting an Adjusted EPS loss of $0.13, we are below the Street consensus at ($0.08). Our Adjusted EBITDA estimate of $37.1 million compares to the Street at $40.3 million.  Louisiana, which has held up so well during most of this downturn, has been in a tailspin.  Total EBITDA from the state could fall over 30% from last year.  Recovery here is likely to take longer than the rest of the regional markets and will depress PNK’s profits for much of 2010.  Remember that 60-70% of PNK’s property EBITDA is generated in Louisiana.


The following “Youtube” highlights management’s forward looking commentary from the Q3 earnings release and conference call.





Property specific

  • “Residents from New Orleans have seen a significant increase in marketing from casinos along the Mississippi Gulf Coast, and that has in turn affected our business at Boomtown. The good news is that with October now largely complete, it appears that revenues have stabilized at Boomtown New Orleans. With revenues now stable, we'll use the remainder of the year to focus on bringing margins back up at the property.”
    • I assume he meant stabile relative to 3Q trends because in the 4th quarter state reported gross gaming revenues for the property declined 13.4% vs. an 11.6% decline in Q3
  • “In Reno, according to the monthly revenue statistics put out by the state, the entire Reno market continued to see declines in gaming revenues during the 2009 third quarter, caused by both additional Native American casinos in Northern California and general economic conditions. We were not immune to that trend. Based on recent trends, however, it does appear that gaming revenues are starting to stabilize for Boomtown Reno.  We hope to get profitable over the next, let's say 12 months going forward and hopefully improve from there.”
  • “I think the major single factor other than the economy that affected New Orleans was competition from the Mississippi Gulf Coast, which is not very far away. As they try to figure out how to keep their hotels built, since they weren't getting people from Florida or Atlanta anymore, they just reached out for people that are in our way.”
  • “What did happen in Lake Charles was Delta Downs got very aggressive with their promotions earlier this year. They took some market share from us. We got more aggressive in the recent quarter and I think we've got our market share back,that hurt our margins a little bit. So we've had a little bit of a promotions battle going on between us Delta Downs, we're twice their size, more than twice their size. And I think we'll continue to show good results at L'Auberge as we have.”
  • “If we never open River City, I think you continue to see strong growth with Lumière Place but obviously, River City will take a bite out of that. And we think between the two, we'll do at maturity, $120 million, $130 million a year EBITDA and maturity might be a couple of years away because of some disruption when we first opened.”
  • L’Auberge margins:  “I think it may take a couple of quarters for us to get the margins back up. We'll eventually get up there, I don't know if it will be the fourth quarter or not.”
  • L’Auberge: “so October was at a pace of third quarter, but we're more optimistic on November and December.”
    • Unfortunately, Nov & Dec gross gaming numbers were down 22% and 24% y-o-y, respectively
  • “I think we're on a positive trend in New Orleans. I think we're just starting a positive trend now at L'Auberge.”


Development update

  • “River City continues to move along on time and the same basis of budget that we previously outlined, the cash portion of that budget continues to be $357 million, of which we spent to date, $228 million approximately. And the timing of the project is expected to open in the spring of 2010 and we feel very good about the prospects of that property upon opening next year.”
    • On December 14th, PNK announced that the opening would be accelerated to March 2010
  • “Sugarcane Bay, we started driving piles earlier this month to put in the foundation for the project. The project that actually started last year when we started doing the road that expanded. The visibility of our property and access at L'Auberge and that would also be the road to Sugarcane Bay. With the project budget is the cash basis at $391 million, we expect to be on that pace and progress on that project as we move on through the fourth quarter and into next year.”
    • On Nov 24th the project's budget was updated to “approximately $305 million, excluding capitalized interest, and includes approximately $54 million spent to date” and noted that  completion is expected “ in late 2010 and open the hotel and related amenities in the first half of 2011”
  • Baton Rouge: “We will start construction of that project promptly after the approval of the contracts, which we would expect will happen in May of next year.”
    • On Nov 24th PNK announced that it “is proceeding with plans for its casino project in Baton Rouge, Louisiana, which represents an investment of approximately $260 million, excluding capitalized interest. As announced previously, the Baton Rouge project will include a new, single-level riverboat with an expansive casino; a 100-room hotel; an exciting mix of restaurants and lounges; and an entertainment venue.”
  • “Regards to CapEx, we expect Sugarcane Bay next year to grow somewhere around $225 million in a cash basis, excluding cap interest. And go through the rest, Baton Rouge, that number is somewhere near $60 million and you have 40 or so maintenance CapEx across the portfolio.”  I assume this will change with the revised budgets
  • “We hope both Sugarcane Bay and Baton Rouge do about a 15% cash-on-cash return.  That's 15% on the $400 million investment. And so that'd be an incremental $60 million of EBITDA above the 80 or 90 is doing now. The run rate I think is about 85, so...”

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