In preparation for WYNN's Q1 earnings, we've aggregated some forward looking commentary from the company's Q4 release and conference call.



Q1 should be a strong quarter for WYNN, but given the run in the stock it may not matter.  We're above the Street in revenues but in-line for EBITDA this quarter due to a low hold percentage - and the associated margin impact - despite record VIP volumes.  While we think that Wynn Encore will have solid performance, we think that perhaps the Street is ahead of themselves in modeling margins for the backhalf of 2010.  Below is a "YouTube" from last quarter's call and some our thoughts.



  • "Although I don't make forward-looking statements as a rule, we're tracking substantially ahead of that the first two months of the year....and incidentally, we're not holding high, we're holding 2.8"
    • The market was indeed on fire in 1Q2010 and Wynn did perform well...although they did suffer from weak hold - we estimate 2.6% on VIP since March hold was a pathetic 2.3%
    • Our Macau 1Q2010 estimates are as follows:
      • RC of $20.6BN, VIP win % of 2.6%, and VIP win of $536MM
      • Mass win of $117MM, Slot win of $50MM
      • Net revenue of $555MM and EBITDA of $144MM
  • Vegas: "I don't see any major change in the future. I don't see it getting worse per se"
  • "We're about to refurbish our rooms in Wynn because they're five years old. It puts more pressure on our competition because our service levels and the targeted attractiveness of our facilities gets more and more effective. Nothing left to do but the basics better."
  • "The danger that you described is real. I mean, rates stay down in Las Vegas, how long do rates stay down in Las Vegas before they become the norm? You asked me that question, and I say to you, I don't know. But what should I do? Have empty rooms?"
  • "We had a very big Baccarat year last year in Las Vegas in spite of everything else."
  • "If you're talking about strictly convention booking, you can say that '10 is better than '09, and you can say you see a trend of increased bookings. It is totally irresponsible and naive for anybody to say based upon this slight trend we project this infinitely into the future and give you some rosy baloney story about what's going to happen in '11."
  • "How about for the Southeast Asia customer percentage?" [of total customers to WYNN Macau]
    • "It's less than 5%."


  • "The workforce in Macau is totally delicious."
  • "We're more of a Chinese company than American company today as we're having this call. I love it. Thank God for being outside the United States today."
  • "I love the idea that they're going to start five and six because it's a Sheraton, they're lower-end products.  And that's lots of folks.  And then they, Sheldon, built all those ferry boats.  I think that's good too.  And he was subsidizing everybody else on Cotai by those ferry boats and it's also worked out well for him.  That's all great stuff, it all happened and what I'm looking forward to is opening the nicest place in that neighborhood and skimming off the top end of the business just like we did downtown in Las Vegas on the Strip, in Atlantic City and we're doing it now in Macau. That's our stick, we do that. We love overdeveloped markets, it's where we thrive."
  • "Would I build Encore if I had to do it today, no, I'd keep my money."


Our first look at the BWLD Q1 earnings just released.


Our proactive approach to restaurant sustainability trends led us to write a short thesis Black Book on BWLD In October 2009.  While holding on to a short bias in a raging bull market is painful, the thesis continues to play out as penned late last year. 


We contended that BWLD aggressive growth position is causing unit level performance to deteriorate, which was not fully reflected by the market.  Today, the most telling proof to our thesis is from CEO Sally Smith saying “we are addressing specific unit performance.”  Same-store sales growth has outperformed AWS growth for the last 3 quarters, which is another indication that new unit volumes are declining.


Company same-store sales came in relatively flat (vs. the street’s +1.4% estimate) during the quarter, implying a 30 bp sequential slowdown in 2-year average trends from the prior quarter.  This is the third consecutive quarter that comps have come in light relative to street expectations.


Management’s remarks from the press release include:

“We are experiencing softness in April same-store sales of (3.7%) at company-owned and (2.4%) at franchised locations.  We are addressing unit performance as well as implementing system-wide strategies to drive sales.”


“While we expect that our previously-announced net earnings growth goal for 2010 of 20% may be achievable, improvement in same-store sales and moderate wing costs are key to meeting this goal.”






Howard Penney

Managing Director


Merkel’s Struggle with Greek Junk

Position: Long Germany (EWG)


While Goldman claims the spotlight today, European sovereign debt concerns remain at large; in fact risk has heightened for the PIIGS in recent days (particularly Greece) despite a European and IMF guaranteed loan of €45 billion to fund Greece’s debt. We’re seeing confirmation of our 2Q10 theme of Sovereign Debt Dichotomy via rising CDS spreads, higher yield spreads, and weakness in equity markets from the PIIGS (see charts below). What is Germany’s role in this risk equation?


In the near term, the PIIGS continue to shake as conservative German Chancellor Angela Merkel reiterates her position that Greece must do more, i.e. increasing austerity measures, before funds are certain. [Note that Germany is on hook to contribute some €8.4 Billion Euros to Greece, the largest contribution of all Euro member states].


While we believe Germany’s “contribution” is inevitable, what we’re currently seeing from Merkel is political posturing. On May 9th, Germany’s largest state by population and the industrial heartland, North Rhine-Westphalia (NRW), holds a state election.  Merkel’s Christian Democratic Party (CDU) along with her coalition partners the Free Democrats (FDP) need a win to retain the majority in the Bundesrat (upper house of parliament), which is critical for her party to carry out scheduled reforms, including tax cuts and health care reform. 


Recent polls suggest that Merkel’s opposition, the alliance of the Social Democrats-Greens, has a slight advantage. With government spending a hot topic in the election, Merkel must show that she’s not writing a blank check to the Greeks, and will continue to drive a hard line.


In the longer term, we believe that the deeper debt-laden countries, globally, will underperform more fiscally conservative countries, like Germany. Please see our post titled “Q2 2010 Themes: Sovereign Debt Dichotomy” on our portal that lays out one play: long Germany, short Spain.  Currently, the DAX is outperforming Spain’s IBEX 35 by a spread of 1,560 bps YTD. It may not be long before we see equity and credit charts from the likes of Spain or Portugal that resemble Greece. That said, we also believe the selloff in Greek equities and bonds is overdone given Germany’s ability to support Greece when it is politically expedient.  Stay tuned.


Matthew Hedrick



Merkel’s Struggle with Greek Junk - g1


Merkel’s Struggle with Greek Junk - g2

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PFCB – Earnings Preview

PFCB reports 1Q10 earnings tomorrow morning.  To recall, PFCB management said that from an earnings standpoint 1Q10 would be the low point of the year.  The company guided to FY10 EPS of $2.00, stating that 2H10 should be stronger than 1H10 and 2Q10 better than 1Q10, which implies 1Q10 earnings of below $0.50 per share.  Management also said that although top-line trends continued to improve on a sequential basis early in 1Q10 when you exclude the weather impact, weather had been a factor.  Specifically, CEO Bert Vivian commented, “ We’ve had starts and stops with respect to Mother Nature, so it’s tough. I would just caution everyone that as we look at our first quarter, we are off to a little bit slower start than perhaps we would have liked due to the weather. We’ll see how the back half of the quarter turns out.”  The shift in PFCB’s reporting calendar around the 53rd week in 2009, which was the week between Christmas and New Year’s Eve, will also negatively impact reported 1Q10 top-line trends.  The week between Christmas and New Year’s Eve was a high volume week for the company and produced average weekly sales of roughly $119,000 at the Bistro relative to the average of about $90,000 for all of 4Q09.  The benefit of this critical week in 4Q09 will be offset in 1Q10. 


Based on this less-than-favorable outlook, investors may not be expecting too much tomorrow.  I think PFCB management tends to be conservative.  To that end, I would expect earnings to come in a penny better than the street’s $0.49 per share estimate and above management’s implied quarterly guidance. 


The company did not give any specific same-store sales guidance for the first quarter but full-year comps are expected to be negative at the Bistro (negative in 1H and positive in 2H) and positive at Pei Wei.  Relative to industry trends as reported by Malcolm Knapp during the first quarter, PFCB’s aforementioned comments set low expectations, particularly regarding the Bistro.  The street is estimating that comparable sales at the Bistro come in -4.1%.  Although a -4.1% number would imply a sequential improvement from 4Q09 of 110 bps on a 1-year basis, it only points to an 80 bp improvement on a 2-year average basis.  Malcolm Knapp reported last night that the industry as a whole improved about 220 bps during the first quarter on a 2-year average basis from 4Q09.  That being said, if PFCB only manages to meet street expectations at the Bistro during 1Q10, I don’t think investors will be too excited because weather was an issue for all industry players. 


My comp estimate of -3% at the Bistro still implies that the concept is lagging its competitors as it would highlight a sequentially wider gap-to-Knapp on both a 1-year and 2-year basis, but it would indicate that trends are improving materially.  For Pei Wei, I am modeling +2% comparable sales growth (in line with the street’s +1.8% estimate).  PFCB has really turned the corner with Pei Wei and a +2% comp would mark the concept’s second quarter of positive same-store sales growth, which would be impressive in this environment.  Margin comparisons are tough in the first half of the year, particularly at the Bistro, as the company began to benefit from its operational initiatives in early 2009. 


It will be interesting to see if management provides any additional details around its agreement with Unilever and its new frozen food venture.  The company has not commented too much on the new agreement, except to say that it does not require any capital investment on the part of PFCB.  On the last earnings call, management said the product would be introduced in 2010 and PF Chang’s Home Menu was since launched in April.  If this agreement turns out to be anything like the one CPKI first developed with Kraft, then it has the potential to add a high margin royalty stream to PFCB’s earnings. 


PFCB – Earnings Preview - PFCB Home Menu


Current FY10 Guidance:

EPS: $2.00 (2H better than 1H and 2Q better than 1Q)


Revenues: roughly flat (slightly negative comps at Bistro, slightly positive at Pei Wei and reflects the impact of a 52 week fiscal year in 2010 vs. 53 weeks in 2009)


New units: 3-5 Bistro restaurants and 3-5 Pei Wei restaurants


Restaurant level margin: flat YOY (favorable cost of sales offsetting the anticipated impact of deleverage of certain fixed operating costs and higher planned marketing spend)


Depreciation: up a little bit vs. 2009


Pretax margin: better YOY (YOY favorability in preopen, interest and G&A expense)


FCF: $90M+ ended FY09 with cash balance of $63M above the typical $40-$50M range (expect to pay down $40M credit facility, $40M in share repurchase and about $20M in dividends based on 45% payout ratio)


Capex: $40M



Howard Penney

Managing Director

SP500 Risk Management Levels, Refreshed

Now that the initial round of this Goldman grilling is over with (5 hours and 15 minutes), it’s a good time to look at some legitimate risk management levels. What I heard from these young guns about risk management reinforced a lot about why I think global markets reached the heights that they did in 2007. The alleged smartest guys in the room truly didn’t know what they didn’t know. Birnbaum is really the poster child of this.


At least for the immediate term TRADE, an important top in the SP500 may have been reached on Friday at 1217. Today, we finally broke down through an important immediate term momentum line of support at 1205. Watch for that line to confirm into the close. If it does, the next line of support is the dotted green line in the chart below down at 1188.


Given the negative sentiment that the market has today with this pending Blankfein grilling, and that the line of support at 1188 is meaningful, I have covered our short position again in the SP500. What was support at 1205 is now resistance, which we could easily rally toward in the coming days. The VIX has also broke out above both my immediate and intermediate lines of resistance at 16.81 and 19.12, respectively. We haven’t seen that since late January.



Keith R. McCullough
Chief Executive Officer


SP500 Risk Management Levels, Refreshed - S P





  • “The second quarter is seasonally the weakest quarter for gaming operations. However, revenues from the gaming operations for the quarter increased by $2.2 million over last year to $68.6 million, despite the frigid weather in many parts of the United States during December, which negatively impacted our results.”
  •  “Even with our older range of product, our current product performance is strong and our new product pipeline is very exciting. We are especially pleased with our showing at G2E last November and now at IGE. A best-of-show suite of products has generated significant customer interest, which we believe will begin to translate into revenue from both games sales and gaming operations starting in the June quarter.”
    • They are referring to the rollout of Alpha 2. We would not be surprised if BYI’s shipshare slipped in the March quarter as some operators may be holding out for the release of Alpha 2 to place BYI orders.
  • "In our premium product range at Digital Tower Series of products and our Jumbo Cabinet continue to perform well. Our Fireball Digital Tower game is our fastest growing premium game ever. New demands for installations of it and Jackpot 7s remained strong…. We are very excited about our new spinning wheel games and the Dual Vision community games, both of which will launch in the March quarter for gaming operations. Hot Shot Cash Wheel will be released in about two weeks. Our current order backlog for these newer premium products continues to improve.”
  • "Cash Spin Touch Wheel product won Best in Show at G2E and will be released in March. Our new Pro Series cabinets and our new ALPHA 2 platform will allow us to compete more effectively against the latest offerings of our competitors and will be released beginning in the June quarter. And we plan to release almost twice as many game titles this year as compared to last.”
    • We expect BYI to provide an update on interest in their Cash Spin Touch Wheel Product on their next call.
  • "63% of our shipments this quarter were video products. So our normal target is sort of… 40% to 60%. And so we continue to get better and better video with the release of the Pro Series cabinet, which is the dual-screen cabinet that really acts as one screen or two screens, if you choose, will clearly enhance video; as well the ALPHA 2 platform, where we'll have enhanced sonographic capabilities”
    • This is an important statistic since video has always been BYI’s Achilles heel.
  • "ASP was still flat or even down a little bit, probably due to a fairly large international sale of a sort of a stripped down cabinet with basic functionality, good margin, but not a very high price point. So as we look to ALPHA 2, we do expect the higher price for that cabinet due to the increased power that ALPHA 2 will have in that cabinet, and look for that to ramp over a 12-month period or so. So if we begin the launch of Pro Series and ALPHA 2 this summer, you will get a really robust set of titles. It builds up steadily over a 12-month period from the release date this summer.”
  • “We do not see capital as clear as you would like it or we would like it. We see, even if somebody has capital allocation, they always have the ability to modify that based on how the next month goes or the next quarter goes. Not in every case, but we see more variability in what we would've expected years ago in capital allocations these last 18 to 24 months where it still can move around quite a bit.”


  • "We expect the margin on our games sales will be north of 50% in the next few quarters. As we roll out our new product lines in the coming quarters with their increased functionalities, we believe there will be opportunities for further margin enhancement.”
  • “We now expect an effective tax rate for the year of between 34% and 36% due to higher income and lower tax international jurisdictions.”
  • “We continue to build international infrastructure and expect these revenues to grow from 19% to as much as 30% of total revenues within the next several years.”
  • “We have the potential to increase our operating margin from 25% this quarter to 28% to 30% over the next couple of years.”
  • “We expect an improving replacement market”
  • “We also reaffirmed our previous guidance of diluted earnings per share for fiscal 2010 of $2.30 to $2.55 per share with our fourth quarter expected to be stronger than Q3.”
    • We have F3Q2010 at $0.62 and F4Q2010 at $0.64 


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