• run with the bulls

    get your first month

    of hedgeye free



While the results were still good compared to historicals, MPEL's results missed the Street and our mark. We suspect commissions and higher fixed marketing costs are to blame.


"The first quarter of 2010 was the first reporting period to benefit from the full complement of hotel rooms and the opening of other non-gaming amenities at City of Dreams. VIP gaming volume at City of Dreams remained strong and our mass market gaming volume continued to show meaningful sequential growth. Additionally, the improvement in our mass market hold percentage is an important driver of revenue and EBITDA and is a consequence of operational improvements rather than table game volatility. We are pleased that our first quarter results provide an early indication of this property's potential, though we continue to believe there is considerable room for additional improvement."

- Lawrence Ho, Co-Chairman and Chief Executive Officer of Melco Crown Entertainment



  • Mass hold rate is in the low 20s today
  • As a result of the commission cap, they enjoyed margin improvement at Altira.
    • Actually it had nothing to do with the commission cap but rather a normal hold %.  EBITDA was the same in 1Q09 actually on lower VIP volumes
  • Increase in Mass hold % is sustainable
    • It is related to length of play
  • EBITDA split between the RC and Mass market was roughly 50/50 at CoD
  • Refinancing update for 2Q2010.  Have concrete plans and an announcement will come shortly. Will maintain a substantial part of the R/C at low rate, which is currently in place
  • 2Q2010 Guidance: D&A - $77MM, Net Interest expense - $20MM, Pre-opening expense - $4MM



  • Group wide cost controls? Confident that they can continue to find cost savings in their cost structure over the next 12 months
  • Serviced apartments? 
    • Their focus for the next 12-18 months are just on operations.  At this point in time, they aren't going to make any decision on serviced apartments. 
    • I'm sure they are also looking to see if the Four Seasons units actually close
  • Any impact from Singapore?
    • No
  • Next growth opportunity?
    • Sure there will be new opportunities in Macau beyond 2013 when the table cap expires
    • By the way they reduced their table count at CoD this quarter by 37 tables sequentially and by 95 tables since they opened
  • April looks like its up slightly up over March.  They are tracking in line with the market.
  • Grand Hyatt mix of customers?
    • 85% of the occupancy is from HK or PRC. Decent amount of the rooms are going to comps there
  • M&A opportunities?
    • I don't understand this question... N
  • Moving the Hyatt occupancy to 90% level?
    • Thinks they can get there over the next few quarters
  • Little correlation between property prices and the Macau market, according to Lawrence
  • 95% of customers in Macau "do not put a head in a bed in Macau"
  • Grand Hyatt is in the 70% occupancy level now
  • Still talking to the government on how the tables get accounted for.  Right now operators are really looking on how to yield their tables better
  • Main gaming floor reconfiguration and impact on yields?
    • Well they have less tables so that means less dealers to pay for and higher utilization
    • They did increase their slot count
  • Does the $20MM of net interest expense include the refinancing costs?  Will the rate be better than Galaxy's H + 450bps?
    • Interest expense is not pro-forma for the new R/C but they aren't looking for any material changes to their current interest rate
    • It sounds like they are getting an term extension in return for a commitment reduction
  • They love the new supply of course. Build it and they will come to Cotai
  • Expect minimum impact from Encore opening
  • 18% direct VIP play
    • Looked more like 15% compared to our numbers
  • All of the data that they have seen suggests that the month of April is running ahead of March. Thinks that the leaked data is erroneous. Simon's comment on hold rate having no impact on reported revenue numbers is just not accurate. Of course hold matters... and the leaked numbers are only related to revenues (at least mid-month) not volumes.
  • Striving to make City of Dreams a '"World of Wonder"
  • LVS's Venetian has 25%+ win rates on Mass consistently, according to Simon
    • According to LVS they have never had a 25% mass hold month. They did average 23.6% in 2009 - on $3,4BN of Mass Drop... which CoD is nowhere near. In 2008, Venetian's win rate on Mass was 19.9% and 17.3% in 2007




Sorry for the redundancy – 3rd note in a row – but even after a blowout Q1, the Street looks way too low for 2010.  Here’s why.



Yes, this is a new note. On top of our 3/1/10 note “PNK:  IS THE WORST OVER” and again on 4/22/10 with “PNK Q1 PREVIEW AND COST ANALYSIS,” we once again call for the Street to raise their estimates. The Street is still too low on PNK even after a blowout Q1. Consensus 2010 EBITDA estimate has climbed to $192 million but well below our $213 million estimate. Are we just smoking crack? I know I’m not, and I’m pretty sure Anna and Felix aren’t either. So how do we get there?


As you know, our models are very detailed, and we obviously model in a bottom up way, that is, by property. However, we’ve provided a top down view below to illustrate another way to get to $213 million.




PNK generated $173 million of EBITDA in 2009. The only negative adjustment in deriving 2010 numbers would be the move of $9 million in Argentina EBITDA into discontinued operations. The positive adjustments are the net impact – River City contribution less Lumiere Place cannibalization – of the St. Louis capacity addition, corporate savings of at least $4 million (we could be low), and the normalization of Q4 2009. As we’ve stated, Q4 was a “kitchen sink” quarter, in our opinion, and was understated by about $10 million in EBITDA. 


The Street is either not incorporating the impact of the crazy Q4, not projecting the removal of Dan Lee expenses in corporate, and/or is assuming significant degradation at the property level. Given the sustainable cost cutting and rationalization generated in Q1, especially in the marketing area, we think PNK will offset any continued revenue declines from last year. When incorporating the unrealistic Q4 2009 margins, most properties should show EBITDA growth in 2010.


So there you have it. The Street is always happy to slap huge multiples on gaming names to justify their price targets, however they rarely want to be way ahead of consensus when it comes to numbers.


The Macau Metro Monitor, April 28th, 2010



CEO Adelson said the planned sale of assets including the Four Season apartments, shopping areas in the Venetian Macau casino resort and in the Four Seasons hotel, and St. Regis condos (under construction) may raise as much as $12 billion and recoup their construction costs. “It will be like $12 billion if we add up all the apartments and all the retail in Macau, including those in buildings still under construction," he said. The company may start selling the Macau assets within 2.5 years, he said.



During the MBS opening, Adelson said that the revenue from Singapore “will be between the Macau and Las Vegas figures”, according to Bloomberg.  According to Reuters, Adelson said the Singapore casino will provide credit to selected gamblers rather than rely on junket operators as is the practice in Macau. Feedback from junket operators indicates most of them are not keen to operate in Singapore because of the disclosure requirements demanded of them by authorities, said Sheldon. “We don’t have junket reps in Las Vegas,” said Adelson. “It’s not a system that is seen worldwide. It’s uniquely Asian and primarily in Macau.” Adelson said his company will “seriously deal with the Macau government’s statement concerning the restriction on the number of local gaming tables”, the Chinese Wall Street Journal reported.



Sands China has launched its new lifestyle rewards club for its three properties in Macau which already has over 500,000 members. The company says Sands Rewards Club will offer a range of unprecedented benefits and services, and give back its members HK$1.5 billion in rewards. Kevin Clayton, Executive Vice President of Marketing Operations for Venetian Macau said: ''Sands Rewards Club will be one of Asia’s biggest and best rewards programs, giving customers more ways to earn and redeem points across all three of our properties and more rewards than other programs in Asia.'' Members can enjoy discounts on dining and shopping; suite upgrades, shopping vouchers, casino credits, entertainment tickets, invitations to casino events and special promotions, CotaiJet tickets, exclusive access to lounges and VIP areas and priority service at every property, among other options.


COTAI FOR ALL macaubusiness.com

All gaming companies in Macau will be allowed to have a footprint in Cotai, according to an unnamed source quoted by the Portuguese-language daily Jornal Tribuna de Macau. The source added that the government will keep the promises made to the gaming operators. Jornal Tribuna de Macau says that the decision to allow all gaming operators to expand to Cotai will not clash with the government’s cap on the number of gaming tables at 5,500 since the cap is valid only until 2013.

R3: WMT-Unclear Tell Signs


April 28, 2010





Whether its coincidental or not, just one day after Wal-Mart lost a critical court decision in its gender bias case that will allow the trial to proceed under “class action” status, an article appears in the Wall Street Journal focusing on smaller format growth for the world’s largest retailer. While this may be eye catching to some, it’s worth taking a few minutes to dig into the Journal’s speculation. Keep in mind that ever since Wal-Mart began operating the Neighborhood Market concept in 1998, there has been continuous speculation that Wal-Mart would eventually roll out the grocery-only format. Fast forward 12 years and there now 150+ units and the company has never addressed the concept as anything more than a test.


The bigger story here is not whether or not Wal-Mart may have something up its sleeve for unveiling come June at the annual meeting or perhaps in October at its analyst day. If anything is announced, even if it’s a concept aimed squarely at the dollar stores (which is doubtful given the sheer amount of boxes Wal-Mart would need to roll out to move the needle), it will likely take years of testing before anything comes to realistic fruition. However, given Wal-Mart’s strength in consumables retailing and price leadership, it would not be inconceivable to expect something centered around this core merchandising capability. Therefore, while it’s easy for us to make light of the Journal’s highly speculative and fluffy article this morning about future growth in new formats, it’s also worth keeping a close eye on any clues that may arise from such initiatives. This could have meaningful implications for companies like SWY, KR, SVU, FDO, and DG at some point. The last time we went through this exercise in a meaningful way, the Supercenter went from test to dominance in a decade and put the supermarkets in a position of permanent defense. For now, the “tell” signs are still unclear.


Eric Levine






- While some may still think of Under Armour as a company that remains heavily reliant on its first product, “compression”, the results paint a different picture. As the company continues to grow its loose and fitted apparel, footwear, and accessories, compression is shrinking as a percentage of the product mix. In 1Q, two thirds of apparel sales were non-compression.


- In a sign that soft-home continues to improve, Iconix noted strength with the company’s direct-to-retail brand, Charisma. Sales of Charisma, which is sold exclusively at Costco more than doubled year over year. Adding to this growth is additional “pallet” space, which was visible during a recent visit to a local club.


- Office Depot noted that while the Florida market continues to lag the overall company averages for growth, it is showing signs of improvement. On the flip side, California is a laggard and “remains a major concern”. Management noted that weakness was consistent in both its consumer and business-direct divisions.





R3: WMT-Unclear Tell Signs - Calendar





Footwear Companies Issue Last Chance Warning to Brazilian Leather Suppliers - Footwear giants Adidas, Clarks, Nike and Timberland have issued a last-chance warning to Brazilian leather suppliers, saying that they will drop suppliers which use cattle farms which are not registered with the domestic government by July.  <drapersonline.com>


Spanish Optimism in Footwear Despite Economic Crisis - A report published by the INESCOP technological center confirmed that in Spain 83.1% of businessmen in the footwear sector expect sales to increase or remian stable during 2010. The study carried out amongst 374 companies reflects the fact that there is most confidence in the development of foreign markets. Another piece of interesting data in the survey was that 78% of the participants thought that factory prices would remain the same during 2010 compared to 19.1% who predicted rising prices.  <fashionnetasia.com>


Puma Reports Strong Earnings - Puma AG expects 2010 full-year pre-tax profit to increase by at least 70 percent on an estimated low to mid single-digit sales gain as a cost reduction program and an uptick in orders are expected to work in the company’s favor. “We had a good start into the new year from a bottom line perspective which highlights the effectiveness of our comprehensive restructuring and reengineering efforts,” stated Jochen Zeitz, Puma’s chief executive officer. “We are now looking forward to the upcoming Word Cup and to a successful integration of our newly acquired Cobra Golf business.” <wwd.com/business-news>


R3: WMT-Unclear Tell Signs - PUMA SIGMA


US, India, WTO - The U.S. called on India Tuesday to list which export subsidies it would scrap on a range of textiles and apparel products found by the World Trade Organization to be ineligible because they have reached a “competitive” level of world market share. During a session of the WTO’s committee on subsidies, the U.S. asked India to identify the subsidy programs that would be phased out over eight years, trade officials said. The U.S. also expressed concerns about recent reports of new subsidy programs the Indian government is providing to its exporters in the sector. <wwd.com/business-news>


Macy's Upped Guidance at Investor Day - Macy’s Inc. has elevated its outlook for sales and earnings this year and will retrain 100,000 selling associates this summer to help reach its goals. “We have never trained 100,000 people before. This will be a big subject for us,” Terry Lundgren, Macy’s chairman. Earlier in the day, the $23.5 bn, 850-unit Macy’s forecast same-store sales for fiscal 2010 to grow 3 to 3.5 percent, compared with previous guidance of 1 percent to 2 percent. Earnings per diluted share for fiscal 2010 are now projected at $1.75 to $1.80, compared with previous guidance of $1.55 to $1.60. Aside from retraining sales associates, Macy’s expects momentum from the My Macy’s field organization, enabling the chain to get a better read on what consumers want and don’t want at each store, multichannel integrations and exclusive merchandise. The department store is also stepping up efforts to cater to younger demographics. “We don’t discount any area where we are looking for opportunities but definitely in the young area…there is an opportunity,” said Timothy Adams, chief private brand officer. <wwd.com/business-news>


Saks Works with Young Labels - Saks commissioned six youngish labels, including Doo.Ri, Aquilano.Rimondi, Christian Cota, Erdem, Marios Schwab and Gurung. Each designer conceived three new styles — except for Tommaso Aquilano and Roberto Rimondi, who created two dresses — that range from $700 (Erdem) to $7,059 (Aquilano.Rimondi) and will be available in a run of sizes at Saks’ New York flagship, with 10 percent of sales going to the Whitney Museum of American Art, another New York bastion of creative patronage. An in-store party will take place Thursday night to celebrate the dresses and their designers, all of whom, aside from Schwab, whose schedule was compromised by volcanic ash, will be there to toast Saks and hopefully sell some clothes. <wwd.com/retail-news>


Fortune Brands Raises 2010 Estimate - Fortune Brands, Inc. raised the low end of its 2010 earnings estimate Tuesday citing first-quarter results that are substantially higher than the year-ago quarter. The company said its home products and distilled spirits brands drove the growth, but that sales at its Acushnet golf unit also exceeded expectations. <sportsonesource.com>


UPS’ Package Volume, Revenue and Income All Increase - UPS today reported a 2.7% rise in average daily package volume for the first quarter versus a year ago, a 7.2% jump in revenue and a 32.9% increase in net earnings. <internetretailer.com>


Kohl's Extens Elle Line into Home Décor - Lagardère Active and Kohl's have entered into a multi-year licensing deal to expand the retailer's Elle-branded lifestyle products into a range of home décor, inspired by its sister publication Elle Decor. The exclusive Elle Decor range for Kohl's will feature home and domestic products, including decorative pillows, frames, accent items, candles and holders and small furnishings. The line will retail from $9.99 to $149.99 and be available in 350 doors and Kohls.com in September.




And BWLD lost it….


According to senior management, all of the company-owned locations entering the comp base in the last four months are negative.  Importantly, all these are units that opened in 2008 and have trended down from their opening volumes, and are “continuing negative on a year-over-year basis as they enter their 16th month of operation when they become a part of our same-store sales calculation.” On top of that, they have identified about a dozen restaurants that are not meeting sales expectations.


What is the significance of 2008?  In that year capital spending was $67 million, up 63% year-over-year on top of 74% growth in 2007.  In order to deliver on the street’s expectation of such rapid growth in a short period of time, site selection had to be compromised and the company was not opening “A” sites.  This is what we call “sustainability.”  It’s never about whether or not concepts can grow, but it is the “sustainable” rate of growth that produces the highest return on incremental invested capital - ROIIC.


Unfortunately, a bad unit will always be a bad unit until it is not.  What is making bad site selection even worse is a more competitive landscape. 


Management also noted last night that the company has experienced a decline in its alcohol sales, which “we believe is a result of aggressive competition and advertising for our bar business, as competitors, both local and on a national level, are offering significant discounts for both food and alcohol.”


BWLD is positioned as a growth company and as such, has “growth” related costs running up and down the P&L.  Going forward, as same-store-sales remain under pressure, these costs will become more evident. 


As the saying goes, “in a drought when the water goes down in the lake you can see all the stumps.”  For BWLD, the only fix is to slow growth and cut costs.  Last night management gave us no reason to believe that these measures are forthcoming.  In an effort to explain the weakness in 1Q10 and April same-store sales trends, management stated, “And we estimate the effect of planned cannibalization as we built out company-owned markets to be about 40 basis points in first quarter and in April.”  Companies that are growing too fast expect cannibalization.  Once they start openly communicating it and trying to explain it away, it is typically a sign of pending disaster.  SBUX used to say that cannibalization was not a problem before it had to close about 800 units in the U.S.


As we see it, the fix is not in…..




BWLD has opened 86 new restaurants in the past 12 months, a 14.9% growth rate. 


1Q SSS were at 0.1% company and 0.7% franchise

  • Increased bar competition
  • Weather
  • Event fluctuation



  • Guest feedback is strong
  • Successful flat bread flips became a favorite and will be added to core menu
  • Began new LTO, the new Southwest Steak Slammer
    • Providing over a 25% increase in burger capacity
  • March madness deep fried pickles are doing well
  • TV campaign



  • Increased by 15.7% yoy
    • Company increased 15.5%
  • SSS increased 0.1% for the quarter
    • Price was 2%
  • AWS decreased 5.6% in the quarter
  • AWS volumes were less than 4Q
  • 1Q10 AWS was 70 bps less than SSS
  • 5 new restaurants
    • Initial weeks are outperforming average
  • Royalty and franchise fee grew 18%
    • Franchise locations has a 0.7% SSS increase
    • 57 additional units vs 2009 in operation


Company owned

  • 30.6% cost of sales
    • Increase in wing price, up 17%, is the net cost
    • Wings as % of sales were the same as last year
  • Labor
    • Efficiency and favorable insurance costs offset by workers comp
    • Benefit from lower utilities continued but was offset by higher credit card fees and benefit in prior year
    • Restaurant level cash flow was 24.7m/17.9% of restaurant sales vs 18.5% last year
  • D&A was 6.3%, up 60 bp from last year
    • Accelerated depreciation in 1Q for the additional quarters targeting to close in future quarters
  • G&A
    • 7.1% of revenue
    • 100 bps down
    • Lower cash incentive plan expenses


Opened 5 new locations versus 10 new a year ago

  • 1.1m in preopening expenses



  • Investment income totaled 185k for 1Q compared to 76k in 2009
  • 324m in assets
  • 221m stockholder’s equity
  • CFFO 24.7m for quarter



Trends and details

  • First 4 weeks
    • -2.4% franchise SSS
  • Expected food and alcohol costs benefit slightly less than 2% for company restaurants
  • 2 restaurants in 2Q but 4 closures
  • Opening 11 franchise units this year
  • Price of chicken wings expected to be $1.58 vs $1.69 last year
  • Leverage on labor line is expected
  • Expect operating expenses to be higher than last year
  • G&A expected to be 11.5m excluding stock based comp


Same store sales

  • 1Q same-store sales and April same-store sales  are soft
  • Sizeable week-to-week fluctuations
  • Weather had a 50bp impact
  • Planned cannibalization was ~40bp in first quarter and April
  • Nearly all of company locations entering the comp group, are negative
  • About a dozen restaurants are not meeting expectations


Ways to drive sales

  • Launching new wing flavors
  • Return of margarita mayhem



  • Facebook and other social media
    • Coupons on website and Facebook page



  • Remodel 12 company locations in 2Q and another 7 in 3Q
  • Franchisees remodeling 12 this year



Q: Quantify new unit impact on comp base and alcohol sales, please.

A: Opening strong is our emphasis.  Comp base enters after 16 months and can be lapping honeymoon period.  Should be able to look at how we’re operating in closing months before they enter comp group.  Looking at 1Q of 2010 and 1Q2009, and every quarter really, there’s probably about 1% of SSS impact related to weather or cannibalization or underperfomance of stores

Same-store alcohol sales are down.


Q:  Looking at 20% earnings growth costs.  Extrapolating wing costs, what comp do you need?

A: We have other levers that we can pull but are not sure this far out what comps we will need. Moderate wing costs are a component and we are seeing decline in that market. If the market help where it is we would be under the $1.58 we were assuming.


Q: Looking to take price in new menu?  Costs?

A:  Haven’t decided.  If we kept it where it is now it would be just under 2%.  Boneless wings are locked in for the rest of the year.  Beef and pork are locked for the whole year.


Q: Even given the first 2 months of the quarter, your bias is that you can expand earnings at company owned stores?

A: That was on costs…


Q: G&A, anticipating faster growth in next quarter? Investments?

A: More headcount…back out the stock comp number…when you’re comparing cash G&A related items in 1Q it was 10.7m dollars and that was flat to last year.  Looking at change from 4Q it went down 0.2m.  11.5m is guidance for 2Q. 


Q: One specific region or locations that are getting hit harder?  Newer markets? Midwest? Who is the competition taking away alcohol?

A: Seeing a decline in alcohol same-store sales across markets


Q: On new stores entering the comp base negative…is that something you typically see?  How are those stores measuring up on ROIC?

A: Overall we’re pleased that 18% cash flow on the overall group is still working but we’d like less dip from high weeks.


Q: Which promotions do you think will most help SSS?

How did NCAA additional media go?

A:  March was a positive month, media helped.  Will be looking at about 7 restaurants that are not meeting expectations.  Company is going to emphasize BWLD as a place for happy hour, after work, late night. 


Q: More details on the general remodel costs? Also, where can you get leverage on the labor line?

A: Typical remodel costs 400k.  Remodeled one in the first quarter that was trending negative; after the remodel it was back to flat same store sales. 


Q:  What are the common characteristics of your 12 underperforming stores?

A: There is no specific market that has those restaurants and there are always 12 underperforming stores at any time.


Q: Can you comment on the day part mix?  Is it across the board? All day parts? Geographies? Alcohol? Can you also comment on Easter?

A: Easter was in April in ’09 and ’10.  Nothing stands out as significant from a day parts standpoint.  There is no day part either; it’s kind of across the board and partly because of calendar and restaurants coming into the comp group.  The only thing is that last year Easter fell after the NCAA tournament was over so this year the combination of the two wasn’t as positive.


Q: On the marketing front, do you think it can move the needle as much as it has in the past?

A: TV moves the needle.  We knew we were going to be on TV, on national, FOX Sports in June, when the calendar was signed at the start of the year. 


Q: On accelerated depreciation, will you be through most of that by the end of the second quarter?  Or are we going to continue to see that through the rest of this year?

A: We will be through that by the end of the second quarter.


Q: Looking at future development trends, should we assume that absolute number of stores maybe stay similar or slow down in ’11 and ’12 and beyond?

A: At a certain point there is a law of large numbers.  2011 will be similar but we will have to reexamine for 2012. 


Q: Can you give us your capital expenditure outlook for the year?  How much of that will be due to maintenance and then refurbishment of stores?  Can you also comment a but on what you’re seeing in the lease environment as these stores come up from renewal?  Are you able to lock down more attractive lease costs?

A: That is our goal with lease costs.  For new store openings, it’s averaging 1.8m when you blend in either end caps or free –standing locations.  For maintenance capex, as well as remodels, refreshes, that stuff, it goes to about 20m total


Howard Penney
Managing Director


PFCB – First Look

I said yesterday that PFCB had tried to set expectations low for 1Q10, and there was a reason for it.  Earnings came in at $0.38 per share relative to the street’s $0.49 per share estimate and my $0.50 per share estimate.  Same-store sales, on the other hand, beat expectations coming in -2.7% at the Bistro and +2.2% at Pei Wei, slightly better than my -3.0% and +2.0% estimates, respectively, and easily beating the street’s -4.1% and +1.8% estimates, respectively. 


The current trend in top-line numbers is the more important indicator of PFCB’s momentum going forward.  Even with this better-than-expected result, the Bistro continues to underperform the industry benchmark as measured by Malcolm Knapp.  That being said, 2-year average trends improved 150 bps sequentially from last quarter, which is a good sign considering both the weather factor and the negative impact from the shift of the high volume week between Christmas and New Year’s Eve, which fell in 4Q09 as a result of the 53rd week in FY09.


What drove the EPS disconnect?


The $0.12 per share earnings miss relative to my estimate was surprising in light of the better same-store sales trends.  The discrepancy between the two in my model stemmed primarily from the Bistro.  Management’s full year guidance assumed flat restaurant level margin, “primarily due to expectations of favorable cost of sales offsetting the anticipated impact of deleverage of certain fixed operating costs and higher planned marketing spend.” 


The upside in my model relative to the reported numbers fell in the COGS, labor and operating (includes marketing spending) lines at the Bistro.  I was modeling slight YOY favorability on the COGS line as a percentage of sales at the Bistro, which came in up 40 bps YOY.  On the labor line, I was modeling +100 bps YOY relative to the reported +150 bp increase at the Bistro and the reported 100 bp increase on the operating line (including higher expected marketing expense in FY10) was higher than the +20 bps I was modeling (assumed a similar increase to 4Q09 on a 2-year average basis despite better same-store sales growth).  Although the company guided to increased marketing expense, management had stated that the bigger YOY increase would come at Pei Wei.  Specifically, management said for FY10 the “incremental marketing spend puts pressure on the operating expenses, about 50 basis points at Pei Wei, 20 basis points at the Bistro.”


For reference, a $0.10 earnings miss at PFCB translates into only about a $2.3 million miss on the net income line so it does not take much incremental spending to move the needle on EPS.  PFCB could easily have spent $1 million more on marketing.  Being that that the company, along with Unilever, launched its new PF Chang’s Home Menu frozen food product this quarter, I would not be surprised to learn the company had to spend behind the launch during the quarter.  It is important to remember that management has not yet disclosed too many details about its licensing agreement with Unilever except to say that the new venture would not require any capital investment from PFCB.



Howard Penney

Managing Director

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