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Sanderson Farms stated today on its earnings call that the 36.4% increase in fiscal 1Q10 average jumbo wing prices was driven largely by continued strong demand for wings in both the food service and retail grocery channels.  BWLD’s same-store sales slowed throughout 4Q09 and restaurant level margin declined 90 bps YOY.  Sanderson Farms’ comment does not bode well for BWLD from a top-line or margin standpoint.


Increased Competition:


BWLD’s 4Q09 same-store sales came in +2.6% after being up nearly 6% in the first four weeks of the quarter, implying a significant slowdown in November and December.  Comparable store sales trends in the first six weeks of 1Q10 are only up 0.5%.  The company is lapping a +8% number from the same six week period in the prior year, but regardless, the +0.5% is soft relative to expectations.  Management attributed the soft start to the quarter to weather. 


Sanderson Farms does not appear to be seeing this same fall off in wing demand, which could signal that BWLD is losing share.  BWLD did comment that it will be promoting a Boneless Wing Thursday during the first quarter, in addition to its long-standing Wing Tuesday, in order to stay competitive as the value equation is top-priority for its guests.




Increasing Costs:

During 4Q09, the cost of traditional wings increased 40% YOY to $1.78 per pound.  Through the first two months of the first quarter, this cost has moved up to $1.95 per pound.  Assuming this $1.95 level for the entire first quarter implies a nearly 20% increase YOY (wing prices started to move relatively higher in 1Q09).  Management guided to 50 bps of YOY cost of sales pressure in 1Q10.  It is important to remember that traditional wings accounted for 22% of BWLD’s restaurant sales in 4Q09, up 100 bps from the prior year. 


When asked specifically about its full-year outlook on traditional wing prices, management stated, “We always would like to think there's an opportunity for wing prices to move lower. The average of the first five months was $1.95. We did see it go up from December through just shortly before Super Bowl and then there actually was a little bit of weakness in the market about that time, which typically you don't see. So I mean we'll still watch it and I'm sure everybody else will as we go through the month of February. But knock on wood, you'd like to think that it will start to trail off here as we get into the second quarter.”


Sanderson Farm’s comments about continued strong wing demand will have the biggest impact on the BWLD story from the cost side.  If demand continues to be strong, it is unlikely wing prices will start to trail off during the second quarter, putting increased pressure on BWLD’s margins.




Howard Penney

Managing Director


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

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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.



"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

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