There is a disconnect between how the government is reporting the economy’s performance and how the consumer feels the economy is doing. 


As the Obama administration tells the story through its heavily padded economic data points, the US economy is improving and borderline hot.  The latest unemployment reading fell 30 bps to 9.7%, GDP is white hot at 5.7% and retail sales in January rose a better than expected 0.5% versus a -0.3% decline in December .


Today, the Conference Board is telling us that consumer confidence is at a 10 month low.  What gives?  The average consumer is just not seeing what the government is reporting. 


Following a disappointing University of Michigan confidence reading on February 12th, the Conference Board’s confidence index declined from a revised 56.5 in January to 46.0 in February, the lowest reading in 10 months.  According to the median of 68 estimates in a Bloomberg survey, Economists forecasted that the confidence index would decline to 55.0 from a previously reported 55.9 January number.


Could this month’s confidence number be an aberration or have consumers been too optimistic about how fast the recovery would actually impact their lives?  While a monthly aberration is always a possibility and the winter doldrums are surely a negative, this month’s decline in confidence was broad based.  There were declines in all of the elements of the present situation and expectations subcomponents, in all income classes, and in two of the three age groups. 


On the margin, some segments of the retail landscape (including Restaurants) have been showing sequential improvement in January.  While we are still cycling against very easy comparisons from last year, the decline in confidence does not help to maintain the positive momentum.


Another related, but not as relevant (it’s a December data point) consumer stat reported today is that home prices in the Case-Shiller Composite-20 City Home Price Index rose in December for a seventh consecutive month.  The index increased 0.3% from the prior month on a seasonally adjusted basis, more than anticipated and matching last month’s improvement.  On a year-over-year basis, the index was down 3.1% from December 2008, the smallest YOY decline since May 2007.  We will have more to say on this in the coming months, but for now, the Case-Shiller data is not statistically significant.


We remain bearish about the prospects of a consumer led rebound anytime soon…


Howard Penney

Managing Director





We think Feb table revs will be at least HK$11BN, up at least 54% YoY and down 15% or less sequentially. Market share gainers should be SJM and Wynn while LVS and MGM probably lost share.



After a slow start to the month, the Chinese New Year celebration kicked February into high gear.  Based on HK$9BN in table revenues through 2/21/10, we think the month could exceed HK$11BN. 


Despite a Rolling Chip hold percentage below significantly below January, both Wynn Macau and SJM managed to increase market share through the Chinese New Year Celebration by about 100bps each from January.  LVS and MGM gave up about 100bps of share each from January. 


The following chart shows the market share trends by company including February through 2/21/10:


MACAU: FEB SHOULD REACH HK$11BN - Macau Total Revenue Market Share


Sanderson Farms reported fiscal 1Q10 earnings this morning for the period ending January 31 and despite the significant sequential improvement in casual dining top-line trends in January as reported by Malcolm Knapp, the company is less than optimistic about current food service demand trends.  Specifically, the company stated in its press release, “Our food service business remains soft, reflecting the prolonged slowdown in restaurant traffic caused by current economic conditions. We expect these demand trends to continue until we see a meaningful improvement in the national job market and consumers resume spending and dining out again.”


Management went on to say on its earnings call that increased demand in the food service segment relies on “getting jobs back in large numbers,” which it does not think will materialize this year.  Although management said we could see some improvement in food service trends this year, it does not expect a return to robust demand for some time.  That being said, demand for chicken at the retail grocery level remains strong.

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"The ongoing pressure the macroeconomic environment is placing on our markets has negatively impacted our revenues. Overall, as we are bumping along the bottom of this economic cycle, we continue to generate free cash flow while managing with a solid operating plan and an eye towards increased future profitability."

- James B. Perry, Chairman and CEO



  • "During the quarter, while our average spend per visit declined, our successful marketing efforts produced an increase in the average number of visits per rated patron and led to a significant number of new customers to our database with whom we are building strong relationships."
  • "While we were able to decrease property operating expenses by approximately $4 million during the quarter, and while we continue to trim expenses wherever possible, we remain resolute that we will not cut costs to the point where they begin to negatively impact the customer experience and erode the important progress we have made."
  • "Average year-end unemployment in the areas in which we operate has risen from 7.0% to 9.2%, contributing to the decline in revenues. Through innovation and discipline in a tough market, though, we maintained our margins in many locations while we are also addressing specific instances where improvement must be made. Across the portfolio, we are committed to continued improvement in our operations to best position our properties in an increasingly competitive marketplace."
  • "As a result of the amendment to the Credit Facility, we expect to incur a charge of approximately $2.2 million in the fourth quarter of FY 2010 related to fees and the write-off of certain unamortized deferred financing costs, of which approximately $0.3 million is non-cash. Based on current debt levels, the Company expects interest expense to increase by approximately $15 million to $18 million annually, as a result of the amendment to the Credit Facility."
  • "Capital expenditures for the nine months ended January 24, 2010 totaled $21.6 million, which included approximately $18.3 million of maintenance capital expenditures. The Company expects maintenance capital expenditures for the rest of the fiscal year to be approximately $10 million."


  • Visibility as to the timing of a recovery is limited
  • No capitalized interest in the quarter
  • R/C is about $50MM drawn, $1.231BN in total debt
  • Covenant calculations: 5.2x leverage calculations (debt gain from a year ago is still in that number and rolling off in the 4Q09)
  • Amendment to Credit facility - expect interest expense in the $75-80MM range


  • Capex spend is commensurate with what they have seen in the industry.  Competitive spend depends on the market.
  • Iowa competitive landscape/ outlook?
    • Marquette's EBITDA was up 17%
    • Waterloo was up in both EBITDA and margins
    • Bettendorf had its best quarter in a year, because Jumer's has been lapped on a annual basis
  • Corporate expense will still be around $10MM for the year
  • Florida market - margin & EBITDA improved. One of the few signs of light. Saw a 5-6% increase in retail play in Pompano - first time they saw any lift in over a year.  Seeing more snowbirds than last year.
  • Asset sales?  Aren't actively looking to sell anything but are always receptive to attractive bids
  • Credit Facility allowing them to spend $100MM to seek management agreements?
    • Have a large basket of permitted investments ($200MM) under the credit agreement and this is just another bucket. Aren't looking to invest anywhere close to $100MM on any single investment
  • Swaps piece is still 8.5-9% (swapped on $400MM of the T/L)
  • Biloxi is just a function of competition. Black Hawk was also impacted by competition
    • Black Hawk - competitor spent a couple hundred million and so people are going to see that. ASCA grew the market and captured almost all that growth. Because ASCA grew the market - they have been able to keep their hotel at 90% occupancy on the weekends. Claim that ASCA is really promotional - but I guess for ASCA those are $$ well spent. Down significantly midweek though -  but still better than before the increase in loss limit. Rated play spend per visit is up but retail is way down.
  • Quad City convention center is benefiting them - see some rebound in the convention business
  • They are getting more revenues from higher tax environments (Pompano was up but Biloxi was down)
  • Sugarcane Bay and Kansas are the only other competitive threats coming online eventually for their portfolio
  • Have the ability to issue up to $300MM sub notes. They don't have any maturities for a couple of years.
  • Lake Charles has been a bit of a trial for them - Louisiana market and feeder markets in TX have been soft and they weren't as aggressive in marketing and cost controls.  Have a new team there focused on improving operations.  New team started in the 4th FY Q of 2009
  • The issue is that the volumes haven't declined as much as spend per visit, so its hard to adjust staffing without impacting service
  • Biloxi - issue is that they were the first up and running post Katrina because the casino is in the ballroom space. Which means that they miss out on holiday parties - since they don't have a space to host those.
  • The low hanging fruit is gone at this point.  Now they are just looking at ways to save money by cross training staff and increasing efficiencies
  • Florida's legislative session starts this week and ends in April (so will know shortly if anything is to pass) and TX is a long shot (they've failed to pass gaming legislation for 15 years now)

HBI: Analyst Meeting Live

Bullish lead-in from Rich during which he mentioned they see an opportunity to grab a few more point above the 5-8% range in top-line growth and then decided to throw up this scenario for EPS LT.


HBI: Analyst Meeting Live - HBI AnalystDay 2 10



Expect roughly 2/3 of top-line growth from Innerwear with the remaining 1/3 coming from Outerwear in 2010. On the margin front expect any increase in cotton prices to be more than offset by a combination of both pricing and cost reductions. There's much more detail to hit on here following the meeting.


HBI: Analyst Meeting Live - HBI AnalystDay2 2 10


HBI: Analyst Meeting Live - HBI AnalystDay3 2 10




  • Only six months into their operational turnaround
  • Faced challenging trading conditions across all jurisdictions – many openings delayed or canceled
  • Saw stronger y-o-y results in Australia & North America in 4Q09 and also held market share.
  • Grew install base in North American gaming operations in the 4Q09
  • Estimated that the NA market shrank 30%, Australian market was flat, and Japan market as a whole was down 30%
  • Price mix was adversely affected by discounting on Indian Dreaming following its revocation in Australia and by product and customer mix in North America
  • Partially mitigated by recognition of a product license by an Australian customer
  • No 2H09 dividend will be paid, however, they will revert to a payout ratio of 50-70% in 2010
  • North America:
    • Sold 8,262 units, down 23.8%
    • Sold 7,723 conversion kits down 11.1%
    • Price decreased 2.9% to $14,675
    • Claim that they grew their ship share, albeit in a smaller market
    • While the Veridian RFX stepper cabinet has performed well in the field they only sold a few hundred units as they are still developing a game title library
    • Gaming operations installed base increased to 6,409 (17.4%) but was partly offset by an 8.1% decrease in win per day to $42.12 (principally reflecting reduced operator revenues)
  • Australia:
    • Sold 5,292 units, up 37.3%
    • Sold 11,636 conversion kits down 13.5%
    • Price increased 3.8% to $17,241 (driven by increased Veridian mix)
    • Ship share improved 4.2% y-o-y driven by new titles and 3-year licensing model
  • Japan:
    • Units sold declined to 29,760 or 48.2% (57.4k in 2008) due to the launch of only one major license title vs. two in 2008
  • Rest of World:
    • Units sold decreased 35.9% to 6,123
    • However, they held share.
    • New Zealand benefited from regulatory reform
    • Maintained 55-60% share in Macau but rest of Asia declined with the closure of the Cambodia club market
    • Results in Europe & South Africa declined as a result of lower operators revenues and budgets
    • South America declined due to fewer expansions. They also established a presence in Mexico and sold units there this quarter
  • Still plan to double their market share (by value) of North American gaming operations over the next 5 years
    • Increased investment in games development, stepper and systems businesses
    • Building a new stepper business, so it will take some time. Need to build up library
  • Australian business is continuing to undergo significant change
    • Focusing on getting closer to customers and their needs
  • Increasing focus of Japan business
    • Put in place a 3 year product pipeline
    • Subsidiary is making a strategic acquisition
    • Goal is to make this segment more predictable and have more consistent releases of titles
    • Expect to release only 1 key license title
  • Exited over 40 non-core jurisdictions and have outlined criteria and processes before entering new markets
  • Verve cabinet will be released on the US shortly
  • Reduced headcount by 7%  (roughly 140 FTEs)
  • Outlook expectations for 2010:
    • North America: expect a slight improvement in the replacement cycle but that will be more than offset by lower openings and expansions.   ALL will continue to focus on their strategy of growing their gaming operations install base through new title releases
    • Australia: Expect market shipments to be flat but for competition to increase.
    • Japan: Expect the market to be flat. Will continue to streamline their operations and integrate their acquisition
    • Worried about the higher AU Dollar
    • Does not expect broader growth in their key rest of world markets until 2011
    • 2010 will continue to be impacted by macro factors


  • Even without the upfront payment of the license fee, revenues would have been up in Australia
  • NA Pricing – saw some discounting in 2H09, but also some impact of bigger orders in the 2H which warranted volume discounting
    • Expect to see price increases going forward and less price discounting
  • Participation - very happy with their result. Win per day declined simply due to the fact that their operators experienced a 7% decline in their win per day.
  • Very pleased with their market share – especially in 4Q09
  • US  - how much visibility on forward orders?
    • Very little visibility
  • 90% of their unit sales were to jurisdictions outside of Nevada
  • 3 year licensing model in Australia – they record it as a sale with a deferred component
  •  Won’t be able to consistently release key titles in Japan every 6 months for 2-3 years.  Need to acquire more licenses and build the studios
  • Supply chain benefits are due to the fact that they are selling more Veridians – so there’s some scale benefit in procurement
  • Verve is going to be for participation only – it will not become the replacement for Veridian though- its only meant to be a premium niche participation cabinet
  • Illinois – don’t expect to see any shipments until 2011
  • NA split for 2010 between replacement/expansion: replacements to be a little better than 45,000 (think that 45,000 shipped in 2009- we’re lower than that). Expansion & new shipments in 2009 were roughly 23,000 and expect 15-17k in 2010
  • Japan? 
    • Don't want to comment too much on their acquisition. Need to increase their success at getting through the approval process bottleneck.  So this acquisition just buys them a few more slots to lessen the bottleneck - otherwise it's not that material
  • Italian opportunity in 2010
    • Are working with Cogetech - expect to have a material presence in the market
    • Italy will allow them to increase their VLT shipments and make money off of their ACE platform
  • Australia becoming much more competitive on what will they do to keep their market share
    • Just need to produce better product
  • Participation in the US?
    • Don't think that its becoming a bigger % of the market.  Their focus is simply to increase market share
  • Singapore - very good share in Singapore ... reflects their dominance in Macau ... although Macau share isn't quite as high as that in Singapore
  • US total install base (May? 6 games - 85,000?) & opportunity to replace that... unclear - they will still support that platform for 2-3 years and perhaps longer on a reduced basis
  • Can't see that Australia will allow the use of full US like games anytime soon.  However, they will partake in any regulatory modifications... right now it's just New South Wales. It's very early stage to see how the  market and players will react to WMS's games
  • ALL is also moving a lot of their lower level tech and systems work to India (following BYI best practices)
  • Total stepper sales were 400 in 2009. Only have 10 for sale titles at the moment, and are working very hard at growing that library. Are also launching Kentucky Derby linked progressive participation title in March. They are working on several participation stepper titles are well
  • Brazil?  Not expecting to see any legislative activity until 2Q2010, and if it's passed, then earliest timing of shipments is 4Q2010
  • Current participation share (of coin in) is mid-single digits. The 950 install increase is a net increase- they put in 1,200 new Jaws games alone.

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