The Federal Reserve Senior Loan Officer Survey came out on Feb 1. There was no material change in trend from the last few surveys. That said, this survey did mark an inflection point of sorts in that the net percentage of banks tightening vs. last period was actually zero (for C&I loans). In other words, on average, banks have finally stopped tightening their lending standards on C&I. The following chart demonstrates. For reference, the chart shows a blend of the large, medium and small bank survey data.




The below chart looks back to 1992 and 2003 as the prior two instances when the banks stopped net tightening. Financials traded higher over the two-year periods following the point at which banks stopped tightening. However, we should point out that in both 1992 and 2003 Financials were relatively range-bound for the first 4-5 months thereafter, for the most part staying within a +/- 5% band. We use an equal-weighted basket of 20 mid-cap and large-cap banks that traded back to 1990 for our benchmark.




Banks are still tightening in some asset classes, however, such as CRE loans. The following chart shows that 30% of banks put the brakes even harder this quarter on the CRE front. That said, the trend clearly shows we're closer to the bottom than the top on CRE - an important read through to credit quality for the regional banks.




At the consumer level, banks continue to tighten on residential real estate loans.




Meanwhile, consumer demand for mortgage loans fell materially in the fourth quarter. The increase in prime residential mortgage loan demand dropped from +28% to -8% linked quarter, while the change in demand for nontraditional mortgages fell from -4% to -35%. Subprime data hasn't been recorded for 4 quarters now.




What we find really interesting is the fact that banks are now finally more willing to lend, but consumers are pulling back at a growing rate, even as unemployment is leveling off and starting to decline.




Conclusion. We think the conclusions are four-fold. First, Financials have historically risen in the wake of banks reaching the zero-line with respect to net tightening on C&I loans. The caveat is that they haven't done much for the first 4-5 months of that two-year period, which would correspond to Feb 2010 - June 2010. Second, commercial real estate tightening, while still underway, has fallen from 87% to 27% in the last 5 quarters in, more or less, a straight line. We think this bodes positively for regional banks with CRE exposure. Third, residential mortgage loan demand dropped in both the prime and nontraditional categories. We think this bodes poorly for future home price trends. Fourth, demand for non-mortgage consumer loans continues to drop at an increasing rate in spite of banks actually now easing their standards for such loans. This tells us that the consumer's demand for incremental credit continues to abate - a near-term negative for lenders, but probably a long-term positive for the country.


Joshua Steiner, CFA


GIL: Poised for Another Good Quarter

Gildan reports after the close today and looks poised for another beat with upside likely to continue over the next 1-2 quarters. Interestingly, this synchs fairly well with HBI. Though they are both perceived to be fairly similar from a business standpoint, their earnings trajectories over the past 3 years have been on different paths. For the next 2 quarters, they are both setting up to post solid results, but sustained intermediate-term outperformance will require the consumer to show up 3 quarters out as an offset to elevated commodity prices. As a reminder, GIL is far more exposed to cotton than HBI (~33% of COGS for GIL vs. ~6% for HBI).


Here’s a detailed look at the puts and takes for the quarter along with management’s prior outlook for 2010 from their Q4 conference call:


GIL: Poised for Another Good Quarter - GIL Q1Table2 2 10

GIL: Poised for Another Good Quarter - GIL Q1Table 2 10



F10 Outlook from 4Q Call:


Revs in excess of $1.2Bn (17%+)

  • Activewear unit growth ~25%
    • Will bring sales volume close to existing capacity
    • Assuming no industry growth
    • Continued penetration in Int'l mkts
    • Incl. new programs for underwear $70mm
      • mgmt commented could be conservative (is the minimum required sales for space they attained)
  • Sock unit growth ~5%
  • Approx. 5% decline in ASPs
  • Have several other programs in the hopper that could drive upside to topline

GMs: ~26% (impacted by promos & discounting)

  • cotton and energy costs for the first half of fiscal 2010 are expected to be materially lower than the first half of fiscal 2009 but are expected to increase in the second half of the fiscal year and to be higher than the second half of fiscal 2009

SG&A: ~11%-11.5% going forward (closer to 11.5% in F10)

CapEx ~$130mm (up from $45mm in F09)

  • Supporting retail strategy
  • Completion of Rio Nance 4 sock facility
  • Purchase of new office building in Barbados




If the rumors that Starbuck’s is testing or launching pour-over brew method equipment are true, it would signify a move back toward its coffee-house roots and providing customers with a fresh cup of coffee.  Suggestions include that the “pour over” launch could happen in approximately one month and that Starbucks will launch the “pour over” method in all non-Clover stores.  According to a blog on, the two “mercantile” non-branded Starbucks are already using the “pour over” as one of their main methods of brewing coffee.


Some are suggesting that this change could test baristas’ capacity and customers’ patience.  Either way, it shows a continuation of Starbuck’s policy of engendering a coffee-house feel for its customers.


I’m sitting in a Starbucks as I write and the Barista confirmed that the “pour over” method will be launched in a month.  Business continues to be very healthy for Starbucks.






Howard Penney

Managing Director

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.46%
  • SHORT SIGNALS 78.35%



"We continued to see tangible signs of stabilization in our business in the fourth quarter. Attrition and cancellation levels continue to normalize. The 10.6 percent same-store attrition we experienced in the fourth quarter is a significant improvement over 14.1 percent in the fourth quarter of 2008. Our average group room rate booked in 2009 for 2010 has been slightly better than the average room rate actualized in 2009, a sign that travel and convention budgets are potentially beginning to return to historical levels. Additionally, our holiday programs drove incremental business in the fourth quarter and demonstrated that leisure consumer demand is stabilizing."

- Colin V. Reed, chairman and chief executive officer of Gaylord Entertainment


2010 Guidance

  • "As we look towards 2010, we have been encouraged by signs of market stabilization including lower attrition and cancellation rates and solid advance bookings. That said, it is difficult to have total visibility into what remains an unpredictable political and economic environment. We have closely examined our business and the factors that could impact it moving forward and continue to believe that top line demand will likely be flat in 2010, though there is potential during the year for RevPAR growth to enter positive territory. We do expect to see labor and benefit cost increases in 2010, as well as the full impact of our completed union contract at Gaylord National. All of these cost increases will combine to impact profitability. As always, we will remain prudent in how we manage our business including capital expenditures."
  • FY2010:
    • RevPAR -2.0% to 1.0%.
    • Total RevPAR: -1.0% to 2.0%
    • CCF guidance: $210-$226MM
    • Opry and Attractions CCF: $10-$12MM
    • Corporate and Other CCF: Loss of $44-$41MM
    • Total CCF: $176-$197MM

Highlights from the Release

  • "Gross advance group bookings in the fourth quarter of 2009 for all future years was 736,736 room nights, an increase of 18.7 percent when compared to the same period last year. Net of attrition and cancellations, advance bookings in the fourth quarter for all future periods were 453,093 room nights, an increase of 8.7 percent when compared to the same period last year."
  • "Same-store attrition that occurred for groups that traveled in the fourth quarter of 2009 was 10.6 percent of the agreed upon room block compared to 14.1 percent for the same period in 2008 and 9.9 percent in the third quarter of 2009. Same-store in-the-year, for-the-year cancellations in the fourth quarter totaled approximately 6,278 room nights compared to 15,332 in the same period of 2008 and 14,375 in the third quarter of 2009. Same-store in-the-year, for-the-year cancellations for the full year 2009 totaled approximately 116,735 compared to 74,673 in the prior year."
  • "The Gaylord National continued to gain momentum this quarter despite a challenging economy and at times, challenging weather conditions that made travel in and around Washington, D.C. very difficult. We continue to grow our revenue base and improve our operations, which we believe will translate into additional growth in 2010."
  • "Gaylord Entertainment's planned resort and convention hotel in Mesa, Arizona remains in the very early stages of planning, and specific details of the property and budget have not yet been determined. The Company anticipates that any expenditure associated with the project will not have a material financial impact in the near-term."


  • Looking back at 2009, its clear that their business model "worked"
    • Clearly their model was more defensive and predictable than their lodging peers.  Didn't need to keep modifying their guidance throughout the year
  • Contracts that they locked in in prior years, they cancellation fees offset some of the fundamental weakness
  • Deployed $45MM of cost cuts throughout the year
  • Average group room rate booked in 2010 has been slightly better than 2009
  • Given the fragility of the US and broader market, think that it is prudent to assume a conservative and slow market recovery.  Higher health care costs and compensation will also impact margins on a flat revenue base.
  • Not going to move on any "distressed" asset or otherwise, simply because they have liquidity.  Will only consider such opportunities to the extent they enhance their core brand and create shareholder value
  • Some of the 2009 cost reductions where volume related and will come back when occupancies do.  However, other changes like centralized call/reservation center, centralized sourcing, etc are sustainable.  They are continuing to look for more cost savings in their business
  • Heading into 2009 they re-focused their sales people to focus on short term bookings when large group weren't booking.  As they look to 2010, they are encouraged by the improved pace of business. Groups are picking up more banquet and outside of just "room" events. Rate booked in 2009 for 2010 is slightly better than the rate realized in 09. 
  • For 2011 have 36 points of occupancy on the books and almost 29% occupancy for 2012
  • New website launch is targeting to capture a larger portion of direct bookings
  • Produced a 21% increase in ICE admissions from Thanksgiving to NY day.
  • Weather continues to be a factor impacting the National
  • Think that the top line in 2010 will remain flat to slightly up, but costs will be up a little (HC/labor costs). Anticipate that 2010 will be another challenging year.
  • $290.2MM of availability under the R/C
  • Other than maintenance capex they have no significant capex to deploy in 2010, therefore, if they meet their performance expectations they should product significant cash flow


  • For apples to apples need to add back proxy & severance expense to 2009 to compare to 2010 guidance
  • Headcount levels flat for 2010, increases in health care (double digits for everyone), increases in labor costs (merit increase for example), impact from a full year of ratified union agreement at the National
    • So adjusted Corporate and other guidance compares to $38MM 
  • What sub segments of their business are they expecting the most improvement?
    • Seeing more corporate and association group business (although the association business was already on the books). Did $269MM of group revenues in 2009 and have $248.5MM of group already on the books for 2010
    • Seeing more activity on the corporate side
    • Assuming flat spending per delegate though
    • Transient delivery systems are better than what they had 2 years ago, so they are reasonable more optimistic that they will see more traffic
    • Seeing less attrition
    • Pickup for smaller in the year for the year bookings
  • Did the sequential increase from 3Q to 4Q continue into 1Q2010.  Had a strong Oct, decent Nov and a very strong December.  That worries them if they pulled forward from January. However, that didn't happen as they saw a substantial increase in y-o-y net bookings in January
  • Las Vegas? Would like to be in the West Coast at some point in time since their customers want to go to the West Coast.  Getting a study back from meeting planners that will help them decide how much interest there is.  Time is their friend in Vegas.  Consumer appetite for spending isn't getting any better over the next 12 months, and thinks that things will still get worse in Vegas before they get better.
  • National? Future thoughts on where they can get to from a profitability standpoint over the next 4-6 quarters
    • Hotel has a few things going in its favor (customer satisfaction) and if you believe that the federal government will continue to spend more money and that people will continue to visit the nation's capital, the property should continue to experience growth
    • National Harbor destination is also getting better: Condos that were for sale are selling and more retail is opening.
      • National Harbor - really early on in capitalizing of what that destination can mean for them as a destination. Leisure wise they do a lot of entertainment to drive transient opportunities. So Opryland runs at 75% occupancy during the holiday season while the National was in the 30's ... so as ICE ramps this is a big opportunity for them. Same thing for 4th of July - so if they can produce the right events they can do a better job filling in times when Group is weak
    • "Optimistic about the future of this hotel"
    • Maybe in the 4th-5th innings of maturation of this hotel
  • Thoughts on presence in Vegas?  Think that their delivery system is very valuable. They aren't going to stretch their companies balance sheet to full fill short term goals. Won't speculate on how they can do something or who they can do something without stretching the balance sheet
  • Capex in 2010: $50-60MM (mostly maintenance) and includes planning a resort pool at Cactus property
  • Transient vs. Group in 2009: $64.5MM in 2009 for transient expect transient to be 20% or so of the business in 2010
  • Rates for 2011? Are seeing more rate integrity for 2011 & beyond then what they saw in the early stages of the financial crisis
  • All of their hotels increased market share - they are #1 in all their markets
  • Any pressure in Orlando from additional competition?
    • Its generally a competitive market because there are lot of hotels that look like theirs. Had a big supply shock last year and this year have the Peabody, but nothing really after that.  Holding back inventory for future years because they expect things to eventually improve
  • Cancellation and attrition rates for 2010? Budgeting returning to levels consistent with 2008 (so still a little elevated over historical levels but down from peak 2009 levels)
  • Sweet spot for acquisitions size wise?
    • Will let you know when we have one. Any asset that they intend to plug in will fit with their strategy and will be financed in a way that doesn't stretch their balance sheet


MCD reported January same-store sales that came in a little light in the U.S. relative to expectations but outperformed in Europe and APMEA.  MCD’s U.S. comparable store sales declined 0.7%, implying a 60 bp sequential decline in 2-year average trends from December, on a reported basis.  A calendar shift/trading day adjustment by area of the world, ranging from approximately -0.4% to 1.0%.  Even excluding this negative calendar shift impact, 2-year trends slowed somewhat from December. 


Management stated on its 4Q09 earnings call that underlying trends were looking better in January, but that weather had a big negative impact on trends in January.  Specifically, management said, “We don't normally like to talk about weather, but we can't avoid it when you look at the first 14 or 15 days of the month. And the severity of the weather, I think it was impacting us at probably around 3% a day in the sales because whenever we had a weather that was normalized, we saw much better results. And so if anything, I would say that the trends are a little bit better than they were in December.”


Regardless of the weather impact in January, top-line trends continue to slow in the U.S., with the company reporting negative comps for three out of the last four months.  For reference, MCD had not reported consecutive monthly declines since early 2003.  MCD launched the Dollar Menu at breakfast nationally in January and the company is facing an easier comparison in February of +2.8% (relative to +5.4% from January 2009), but as management also pointed out on its last earnings call, it does not expect to see a big improvement in trends until we see a recovery in jobs.  “When you look at trends in the industry and you look at the spending of our consumers and the consumer confidence, even though it's edged up over the last couple of months, with the unemployment where it is, until we start to see job creation and we start to see people get comfortable with the fact that they have a place to go to work and have a steady income, we're not going to see, in my opinion, enormous pickups or a big change relative to the trends in consumer spending.”


MCD reported a 4.3% increase in same-store sales in both Europe and APMEA, which signals an improvement in sequential 2-year average trends in both segments.  In Europe, 2-year average trends improved by 45 bps while APMEA’s number got better by nearly 400 bps from December on a reported basis.  Despite these sequentially better results, MCD still highlighted weakness in Germany and a tough comparison in China.  It will be important to see whether the better trends in January, particularly in APMEA, continue as we trend through 2010.










Howard Penney

Managing Director






While we don't closely follow MGAM, we thought the call may be of interest for other suppliers.  MGAM primarily operates in Class II / VLT markets and derives most of its earnings from leasing games to operators in Oklahoma, New York, Alabama, Washington, California and Mexico.


Highlights from the Release

  • "In addition to the impact from continued year-over-year reductions in consumer discretionary spending, the gaming operations revenue decline is primarily attributable to: 1) an approximate $1.4 million reduction related to the sale to Oklahoma customers of approximately 551 games subsequent to the fiscal 2009 first quarter; 2) the previously disclosed temporary removal of units at WinStar World Casino for a portion of the fiscal 2010 first quarter to allow for the redevelopment of older areas of the facility; and, 3) lower win per unit and blended revenue share from placements at WinStar World Casino resulting from the facility’s significant slot floor expansion completed subsequent to the fiscal 2009 first quarter."
  • Update on Alabama Charity Bingo Market:
    • "Three of the four facilities in Alabama which have installed charitable bingo units provided by Multimedia Games, as well as other game manufacturers, have recently voluntarily ceased operations for a yet to be determined amount of time, following an unsuccessful attempt by the Governor’s Task Force on Illegal Gambling to raid certain of those facilities."
    • "On January 29, 2010, the Governor’s Task Force attempted a raid on two of the facilities in Alabama where Multimedia Games has charitable bingo units installed. The operator of one of the facilities obtained a temporary restraining order that stopped the raid on its facility. The Governor’s Task Force promptly filed an emergency motion with the Alabama Supreme Court seeking to vacate the temporary restraining order."
    • "On February 4, 2010, the Alabama Supreme Court issued a ruling that vacated the temporary restraining order. The Alabama State Legislature is currently reviewing proposed legislation in the form of both a general bill and a constitutional amendment that are aimed at resolving the need for judicial intervention. The legislative or judicial outcomes are uncertain. If this legislation is not timely passed, the facilities of Multimedia Games’ Alabama customers could remain closed for an undetermined period of time."


  • Mississippi license granted in December.  Expect to make placements in the 3rd Q of the year
  • Currently having application reviewed in LA and hope to get approval there shortly
  • Seeing an increased interest in Washington State, shipped Class III there
  • Alabama - cannot determine the ultimate financial impact of the facility closures. If the facilities remain closed they will suffer a loss of cash flow from those facilities and may need to take a write down of their net exposure to that market
    • IGT will likely have similar impact - except they have a lot more exposure there
  • Oklahoma market (70% of the 4Q09 results) because of dilution of net win per unit per day due to lower participation rates and some units at Winstar being temporarily taken off the floor
  • NY lottery business continues to grow modestly. They are preparing for the Acqueduct expansion


  • For October approximately 400 games where out of commission at Winstar (due to renovation) and in March about 200 will be out of commission.  The games are Class II games and some of their better performing game. At the end of the quarter all 2.4k games at Winstar were operational
    • Have a higher revenue share of the floor in the older facility (Winstar), and as the facility gets renovated play spreads to some of the newer areas, so that impacts them to some extent. Although new entertainment options being opened should expand visitation and benefit everyone
  • Games operations install base: 5403 in Mexico, 2400 games in Alabama, most of the rest are in Oklahoma
    • Had 1100 units at Victoryland that were removed so have about 1300 left in Alabama
  • Will likely need to reduce their R/C capacity in return for covenant relief if they get close to the covenant levels due to the closure of certain facilities in Alabama ($60MM Min TTM EBITDA Covenant)
  • Timing of New York? Operating leverage in that market for them
    • Don't know about the timing, its 6 months after MOU signage- but who knows
    • NY is profitable for them, and 90% of the new revenues from Acqueduct would flow to the bottom line
    • Capex is $2.5MM for equipment plus labor
  • Washington was a market where MGAM used to have a great presence but then took their eye off of that market and lost share.  However, now they are gaining share again.
  • Lost 530 units at River Spirit in Tulsa facility (net of the games they lost from ops because they were purchased)

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