So the “Big Four” slot suppliers each increased or maintained ship share in CYQ4. That’s what they said.  Sound implausible? It does to us. IGT needs to rerun its numbers.



Here our some quotes from Q4 CY2009 conference calls:


IGT Management - “But our internal estimates should base on tracking of one order to the next, would suggest we're somewhere around 40% on the replacement side, which is consistent with where we were for Q4”

  • More like 30% for replacement demand by our estimation
  • 31% including sales into new and expanded casinos, down from 42% in CYQ3 and 39% in Q4 CY2008.

BYI Management - We estimate that we maintained our game ship share in the low 20s…”

  • We calculate ship share was more than maintained, it actually grew from Q3 CY2009
  • 20% looks like the right market share to us in Q4 but we could be off by one or two percentage points

WMS Management - We've said previously that we would be disappointed if we couldn't get above that 30% replacement share. We think we did very well for the quarter but until everybody reports, we're not going to know. I believe that if we did compare favorably to our biggest competitor who announced last week, but until the others report, we won't know exactly what our share is but we're guessing it's in the low thirties.”

  • We calculate replacement ship share at 31%, in-line with management’s assertion
  • WMS did compare favorably with IGT, increasing its overall ship share from 20% in Q3 to 26% in Q4.  Nice work.

ALL Management - In North America, an increased ship share and growth in our gaming operations installed base was more than offset by significantly lower demand, including in the systems market.”

  • We agree 100%.


The following chart shows the slot ship share trends for the “Big Four” suppliers.  Since some of the analysis involves assumptions, we may be off by a percentage point or two here and there but for the most part we feel good about our numbers.  While one quarter does not make a trend, the other three suppliers seemed to gain share in Q4 CY2009 at the expense of IGT.



Duration Mismatch: Greece

With Greece still a top story from the Manic Media, we thought it worth posting the charts below that indicate the “big moves” associated with a scenario in which Greece defaults on its sovereign debt are behind us, for now.


Note that we’re not ruling out default over the intermediate term TREND (3 months or more); not only is history on our side for this call, but it’s fair to say that while fears have waned marginally on the inability of the Greek government to repay its obligations (see CDS and 10-yr bond yield charts), Greek officials have failed to convince the European community and investors at large that it will systematically draw down its spending and shave away its budget and public deficits. 


Yet cutting spending could be easier said than done.  Don’t forget that calls for government spending cuts have brought people to the streets and that a massive demonstration [riot] is scheduled for tomorrow, with public and private sector unions representing half of Greece’s five million workforce expected to walk off the job for 24 hours in protest.


Our next catalyst is a possible Greek 10-year bond issuance of 3-5 Billion EUR that could take place as soon as later this week. The demand for the bond could say a lot about the future direction for Greece.


Matthew Hedrick



Duration Mismatch: Greece - G1


Duration Mismatch: Greece - G2


Duration Mismatch: Greece - G3



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

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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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