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Property results were a little better than we projected. In this note we break down the numbers in a way the company will not.



MPEL reported property EBITDA slightly ahead of our estimate. In our preview, we forgot to model in corporate expense, so on the surface this appeared to be a miss. However, adjusting for our own mistake, MPEL reported a solid quarter; however, it was still below what the Street had hoped for. 


Since the company refuses to make our lives easy by breaking out win % and other data between the properties, we thought it would be valuable to estimate the breakdown for our clients based on our assumptions and proprietary database.




City of Dreams:

  • Net revenues were $11MM below our estimate, while EBITDA was $3MM better than we estimated
  • Lower net revenues versus our estimate of $347MM were driven by slightly lower gross casino revenues but were more than offset by slightly better hold percentages on mass drop and VIP RC
  • We estimate that the VIP win was $297MM and that hold was 3.03% 
  • We estimate that mass win was $98.5MM with a win % of 20.5%
  • Slot win percentage was 5%
  • We estimate that net casino revenues were $324MM and that the vast majority of the promotional expenses were at Altira
  • We estimate that fixed expenses (excluding costs for non-gaming revenues, taxes, gaming premuims, junket commissions and doubtful accounts) were roughly $51MM
  • If we use the midpoint of the MPEL's range for mass and VIP win percentages, EBITDA at CoD would have been roughly $56MM for the quarter
  • We project that CoD will do $255MM of EBITDA in 2010
  • For all the fuss over table caps, CoD removed 37 tables sequentially and 95 since opening


  • Net revenues were $1MM below our estimate, while EBITDA was $2MM better than we estimated
  • We estimate that the VIP win was $274MM and that hold was 2.77% 
  • We estimate that mass win was $10MM with a win % of 14%
  • We estimate that net casino revenues were $193MM and that non-gaming revenues and promotional expenses were basically a wash
  • We estimate that fixed expenses (excluding costs for non-gaming revenues, taxes, gaming premuims, junket commissions and doubtful accounts) were roughly $20MM
  • Altira also reduced their table count by 18 tables q-o-q and by 44 tables from their peak table count in 4Q08
  • Interestingly, management said that better results were due to lower commissions. They also told us that fixed costs were lower than last year....the math doesn't quite work since Altira had roughly $10MM more in casino win this quarter compared to 1Q09 and hold percentage looks fairly close (it was 2.79% in 1Q09). Management explained that the variance is due to different hold percentages on the RC and revenue share. So if RC program junkets hold high it's a bigger drop to the bottom line than if revenue share junkets drop. The only issue we have is that 80% of their rooms are on RC programs - so the variance must have been spectacular. I guess we will have to make a leap of faith here since management won't disclose win % for their properties.
  • We estimate that Altira can do $84MM of EBITDA in 2010

Other stuff

  • Mocha slots revenue was in line with our estimate and EBITDA was $1MM lower, for 2010 we expect Mocha to contribute $25MM of EBITDA
  • SG&A was $3MM higher then we estimated, offset by lower stock comp and pre-opening expenses
  • Factoring in corporate expense this time, we expect 2010 EBITDA of $316MM

Germany's Strong-Arm

Position: Long Germany (EWG)


While our macro team has been vocal on signaling global inflationary threats to keep your eyes on, today’s preliminary April report on German CPI confirms our bullish outlook based in part on the country’s favorable low inflation environment, registering +1.0% Y/Y, compared to +1.1% in March Y/Y, or a 10bps contraction month-over-month.  


As we highlighted in a post yesterday, “Merkel’s Struggle with Greek Junk”, Greece is just the beginning of the sovereign debt issues we see ahead.  Just today, Spain’s credit rating was downgraded by S&P to AA from AA+, and yesterday Greece and Portugal were reduced to BB+ (junk) and A-, respectively.


In the case of Greece, we believe the near-term weakness we’re seeing in government bond yields and the equity market (the Athex Composite is down -20.5% since 3/26), is overdone. While it is politically expedient for German Chancellor Angela Merkel to hard line Greece in receiving funds as her party campaigns for victory in an important state election on May 9th that addresses wasteful spending, we believe Germany’s contribution to Greece is inevitable.  Note that Merkel did say today that “it’s completely clear that the negotiations between the Greek government, the European Commission and the IMF need to be speeded up now” and the Athex close up on the news by +63bps as many European equity markets fell as much as 2.5% today. 


In view of the sovereign debt concerns, we continue to like Germany as a lower beta play on safety for an economy that should benefit from the government’s fiscal conservatism and an export base that should improve along with a weaker Euro (currently at a one-year low of $1.31), as companies benefit in margin from an environment of low inflation.  


Matthew Hedrick



Germany's Strong-Arm - deut



The 1Q earnings miss was attributed largely to greater-than-expected spending behind the January rollout of the Happy Hour initiative at the Bistro.  The inefficiency around executing this new program, along with some other incremental discounting activities at the Bistro, cost the company about 80 bps on the COGS line and 100 bps on the labor line, or about $0.13 per share.  As the company better refines the Happy Hour initiative and improves execution, this negative margin impact should diminish going forward.  For reference, in the Happy Hour test markets (Arizona and Pacific Northwest), it took about 3-5 months for margins to normalize so the company should continue to experience some margin pressure at the Bistro for the most of 2Q10. 


The company is working to offset this margin pressure by buoying average check with a +1%-2% price increase at the Bistro in late May, in addition to decreasing the company’s reliance on discounting.  It will be important to monitor whether the company can continue to grow traffic with prices moving higher; though it seems a little odd that for the first time in two years the Bistro saw traffic turn positive and management is quick to raise prices and slow the discounting that customers were looking for.  Management said it is comfortable taking price as it makes sense both internally (to combat increasing fixed costs and higher labor expense) and on a macro basis.


PFCB should also be better able to leverage these additional pressures as same-store sales improve.  Traffic was positive in the quarter at the Bistro and trends have gotten sequentially better for the last 7 months. 


April Trends:

Management stated that trends in April are trending 2% higher than 1Q10 trends at both the Bistro and Pei Wei, driven largely by traffic improvements. 


Current FY10 Guidance:

Management said it is still comfortable with its FY10 EPS guidance of $2.00; though due to the greater-than-anticipated spending behind Happy Hour, “there is not as much wiggle room” and “if you were thinking $2.10 or $2.20, strike that from your brain.”


From an earnings perspective, 3Q should be weaker than 2Q and 4Q.  Each of the three remaining quarters is expected to be better than its corresponding quarter last year.


Commodities are still expected to be favorable in FY10.  The company is fully contracted on all of its protein for the year and is expecting favorability for beef, rice and shrimp.  Chicken is flat for the year while produce hurt a bit in 1Q10.


Initial FY11 Commodity Guidance:

Overall, the company expects its cost of goods basket to be higher in FY11 than in FY10, but it has been a little more aggressive in extending its contracts beyond FY10 to mitigate some of the pressures from increasing costs in the market.  The company is locked in on 80% of its chicken needs through FY11 and on its rice needs through September 2011.  Management said it is monitoring beef and pork now.


Unilever licensing agreement – PF Chang’s Home Menu:

The company again did not provide too many details about its licensing agreement and expected royalty payments.  The product was just shipped last week and can be found in Wal-mart and in the grocery aisle in the next week or so.  Unilever has advertised the product on social media sites and will continue to do the same for the next few weeks.  We can expect to see additional support behind the product in the June timeframe. 




EPS still aiming for $2 for full year

  • Only $0.38 for 1Q – work to do


Positive comps at the Bistro

  • Taking modest price
  • Less discount activity moving forward
  • More revenue per transaction for the balance of the year at the Bistro
  • Happy hour promotion cost 80 bps in COG and 100 bps labor yoy
  • Generated positive traffic at the bistro.


Pei Wei

  • Traffic was positive
  • Unit level returns on IC increased in quarter
  • Margins expanding
  • Pleased with progress
  • Increasing capital allocation this year



  • 200 bp improvement from 1Q comp results so far in both concepts
  • Unilever has begun shipping PFCB packaged goods
  • Opening 2 domestic and 2 international Bistro units this year



Q:  80 bps of COG and 100 bps labor impact…what is affected by happy hour, check average degradation?  Going forward, how quickly will that pressure ease?

A: By and large that’s happy hour related.  Not as efficient as we’d like to be at the outset of this promotion.  Overspent on labor a little bit.  You don’t bring in someone for happy hour from 3-6pm.  You have to bring them in for longer so you over staff a little before or after.

Q: Do you have any units where efficiency in happy hour improved as you went – markets where you started happy hour well before rest of the system?

A: Yes, the same pattern.  It improved gradually.

Q: Can you comment on small plates at Pei Wei and check?

A: Small plates were tested with menu at Pei Wei running those.  They were observed as being accretive to check.  In Dallas testing there was short term pressure on check but as guest realized value that was available, it was good for traffic.

Q: Price increase timing?

A: in the third quarter probably in May.  It will be pretty modest, in the 1%-2% range when all shakes out. 

Q: Combined with discounting will this mean check will go up?

A: Goal is to help check.  Reduce discounting and increase price.  “Hopeful” that average check will show strength but the environment continues to get better on the margin and with sequential improvements at the Bistro we can see check move up in the balance of the year.

Q: Happy hour promotion, can you give us an idea on ROIC on that…COS, Labor…is the ROI meeting internal hurdles?

A: Pretty pleased with how happy hour is working.  We look at happy hour as marketing spend. 

Q:  Where is Unilever marketing the product and how?

A: Began shipping last week.  Marketing has been around social media sites.  Plan on doing additional support in the June timeframe. 

Q: Catering and to go business?

A: Probably more on takeout side than catering.  Product doesn’t lend itself well to catering like PNRA can.  For us, there is some opportunity in catering but it’s more on the catering side.

Q: What % of sales coming through happy hour, as you looked at AZ which was the first market to get it, how long did it take margins to normalize?

A: Happy hour is not a core of our business in terms of revenue contributions.

For AZ, it took 4/5 months before “we got our arms around it”

Q: Price at Pei Wei as well?

A: Just rolled a new menu April 19th. It has a little less than 1% price included.

Q: Looking at where you fell out on margin deleverage and EPS for the quarter was that in line with internal expectations?

A: Invested more than I (Vivian) had anticipated but that’s the side I want to err on.

Q: Looks like there was a larger drop off in AWS and SSS, can you explain the differences?

A:  For comps the weeks are lined up against comparable weeks of the calendar year.  For Q1 comp purposes we are not up against new years.  The New Year’s impact is seen more in AWS.

Q: Happy hour - how many stores got the rollout in 1Q?

A: 160 to 170 in total but some didn’t come on in 1Q since Arizona and Washington had test areas.

Q: Commodity cost basket and outlook for year

A: YoY Bistro COS up 40 bps Pew Wei down 10 bps. Bistro can be attributed to product enhancement, loyalty discount cards, happy hour.  Next three quarters should bring favorability in wok oil.  Favorability on beef rice shrimp and poultry was flat, fewer lettuce wraps cut per head of lettuce so produce hurt a little bit.  PFCB is being aggressive with contracts.  Company has contracted 80% of chicken through 2011. Locked in rice through September 2011. Seafood also.  Beef and pork are others the company is looking at.

Q: What are you seeing in terms of inflation?

A: We have a great supply chain groups.  We’ve been in some of our contracts for a couple of months.  Anytime you lock in for more than a year you can face a premium but we’re comfortable with our contracts.  You are directionally correct for 2011.  Basket is going to be higher in 2011 than 2010.  Trying to secure these things to mitigate anticipated cost increases, particularly in volatile items.  PFCB has been fairly successful with some of these contracts. We see some of the same things that you are seeing.

Q: Third quarter tends to be soft in terms of EPS.  EPS guidance assumes changes in seasonal relationships but can you drill down into underlying assumptions?  Marketing benefit is supposed to help change in seasonal trends with Unilever – can you give any more light?

A: We have more work to do in the back three quarters.  Expect all three quarters to beat their corresponding quarters of a year ago.  3Q will be the weakest of the three quarters.  Underlying assumptions haven’t changed but getting to $2 is more difficult now than it was a couple of months ago.  Momentum will continue build.  Positive buzz around Pei Wei will continue. 

Q: What have you seen for Pei Wei in terms of new opportunities?

A: Some existing markets have remaining territory.  Some other markets where some traction has been gained.  Will take one new market aggressively with Pei Wei which would be the Chicago area.  Patient plan for Pei Wei but we are definitely moving forward.

 There were many challenges facing Pei Wei in the past but lessons have been learned.

Q: Is the happy hour menu permanent?

A: It’s not going anywhere anytime soon but permanent is a long time. 

Q: How big is the frozen Asian market?  What is your royalty structure with Unilever?

A: We’ve been quiet on that. Creating a product that is going to surprise people.  There are 8 skews that have been rolled out.  Unilever tested these products with Bartoli product and ours will also be best in class.

Q: Happy hour is quasi permanent, where are you planning on pulling back in discounting?

A: some relates to tweaking happy hour marginally.  Also a loyalty card program that will be tweaked.  In 4Q last year there were some coupons given out that impacted 1Q.  Those types of programs are not going on for the rest of the year.

Q: How do you see traffic playing out?

A: That’s the risk. Some traffic has been driven by traffic but we have been arguably conservative with price. A little price and slightly less discounting will enable average check to move up as things hopefully improve going forward.

Q: Given the Pei Wei SSS number, should labor line not have been leveraged more?

A: Some unemployment insurance taxes impacted.

Q: stock buybacks?

A: Bought back 49k shares @ ~$43. 

Q: Traffic pickups from happy hour can you figure how much is incremental and how much is pulled forward from dinner?

A: No

Q: Is it safe to say that outlook is not different but adding pricing will make up for over spend in 1Q?

A: As you move through year some things go worse and you make adjustments.  Haven’t made any significant adjustments that we weren’t planning on making.

Q: Marketing spend?

A: Most of it going forward will be on LTOs…the last three exercises in LTOs have allowed the marketing message to be honed. 

Q: Weather impact? Snow and Dallas?

A: Yes. Impacted more than in years past.  Hurt Bistro 100 bps or more.  Pei Wei impacted primarily in Texas.  Got hit harshly on the weekends.

Q: Any headcount addition if comps keep steady?

A: No. Labor additions are around new unit openings.

Q: Is the decision to take price more about macro or is it about the margin structure?

A: We’ve seen increases in fixed costs over the past few years. Labor costs have gone up.  There comes a point when you can’t offset that anymore with efficiency.  As we’re moving into this year and traffic momentum and the environment are improving we’re seeing an opportunity.  We had hoped on doing things this year.  Makes sense internally and on a macro basis.

Q: On the 2% comp pick up is it safe to assume traffic in April or is it check?

A: Primarily traffic.

Q: Still 40m capex in 2010?

A: Development plans have not changed.

Q: On the 2% pickup in traffic, which day part does that skew to or weekday?

A: In 1Q, Bistro was positive comp at the lunch daypart.  Negative in dinner.  Both picked up.  Lunch for the week was positive for 1Q. That tends to support the thesis that business activity is increasing.  Seeing some people that are traveling. 

Q: Unliver deal…little contribution on the royalty? I thought that it would kick in a little more in back half of 2011 and 2012…there wouldn’t be a big contribution from PFCB?

A: That’s right.  Recognizing more of those royalties in the outlying years.  Still figuring out how and when we record those things.

Q: G&A decline…what is outlook?

A: Consolidated G&A may come up a little, not a whole lot.  G&A Q1 lower than 09 quarters.  There were a couple of items going the other way. 

Q: In 1Q at Bistro with traffic positive, was the incremental driver happy hour or was lunch a bigger part?

A: Difficult to tell exactly but there is no question that happy hour got great traction and anticipate that it will continue going forward.  We have seen continuing improvement in Bistro traffic and the macro environment has improved also.

Q: Large party group…any thoughts on that?

A: $85 and up bucket…that bucket hasn’t changed much year-over-year.  Higher ticket traffic activity hasn’t increased yet.  Lower tickets showing more improvement.

Q: $2 implies 25% earnings growth averaged out, is that right?

A: That works, yes.

Q: Big changes on a market basis between 1Q and 4Q. Where is the improvement?

A: AZ, NV, TX, FL, CA, NJ are the big states and we’ve seen improvement in all of them.

Q: Any 2010, 2011 healthcare impact?  Long term?

A:  Will be a long term cost, that’s as far as we’ll go with it. 

Q: Bistro comp trends, impact of Easter timing?

A: Holiday itself is not positive for PFCB.  Various spring breaks around the holiday are more impactful.  Not great at forecasting market-by-market spring break.  Looking at March-April together, 2010 was better than 2009. 

Q: March didn’t get a lot better than February even though February had bad weather.  Did April benefit from not having Easter in it?

A: Don’t overthink it

Q: How did you communicate it to customer base?  Is the happy hour offer going to get less aggressive as discounting is reduced?

A: If you are a happy hour customer you won’t notice a big change (contradicting what he said earlier?).  We didn’t spend a lot of money on advertising other than internal communication to loyalty card holders and social media sites. 



Howard Penney

Managing Director

Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.48%
  • SHORT SIGNALS 78.35%


We're below the Street for the Q and for the year. To some extent, ASCA is a victim of its own, early success in cutting costs.



ASCA reports earnings on Tuesday morning and we are projecting a $0.02 miss from the Consensus estimate of $0.26.  Our Q1 EBITDA estimate is $84.5 million of EBITDA, almost 4% below the Street.  For all of 2010 we are projecting EPS and EBITDA of $0.93 and $326 million, respectively, approximately 6% and 3% below the Street.  Given the Q1 positive surprises from PENN and PNK, a miss could be a disappointment.


ASCA maintains a portfolio of top notch and well run regional gaming assets.  Management cut expenses early and aggressively.  Unlike every other gaming operator, company-wide EBITDA margin actually expanded in 2009, by 340 bps.  That only makes further cost cuts more challenging, especially as the company is confronting new supply in St. Louis and a bridge closing in East Chicago.


The following is a "YouTube" from the Q4 earnings release and conference call.




  • "As you know, the Cline Avenue Bridge was closed by the Indiana Department of Transportation, it was indefinitely closed on November 13 due to the safety concerns. Probably, the earliest it can be, would be three to four years before there's a new roadway that would be opened up. Our best current estimate is there's probably an annualized EBITDA impact to the downside for the property (East Chicago) within the range of $10 million to $15 million from this."
  • "We anticipate a steady reduction of debt during 2010. As all of you know, we're generating substantial amounts of free cash flow from this point forward now that all of our major construction projects have been completed. We've obviously got to pay down the non-extended principal amount on the revolver later this year."
  • "Fixed charge coverage ratio has declined. This is a direct result of higher borrowing costs based on us restructuring our debt during 2009. We expect this ratio to continue to decline slightly in the first two quarters of '10. And then in July, the swaps that we currently have in place will expire and we anticipate seeing significantly lower interest rates if LIBOR stays in the range that it has for the last year, for the balance of this year."
  • "Capital spending for the first quarter will be $30 million to $35 million. We're weighting that what we'll spend in the year heavier in the first quarter. We still anticipate total capital spending to be somewhere in the $60 million to $65 million range for the year. "
    • Company clarifies during Q/A that the $60-$65 number is what they were going to put in place in 2010; the $70-$80 million forecast includes settlement costs on St. Charles and "little bit of payment left to our contractor in Black Hawk based on work done in 2009." 
  • On corporate expenditures, "we may see another slight increase in '10, but not material."
  • On Vicksburg market share, "with the way the economy is, the competitive environment, being in the 42% to 44% range is probably a reasonable ongoing expectation."
  • On Debt/EBITDA ratio, "By the end of the year, we would expect it to decrease by an additional 25 to 30 basis points for the current year."
  • "We're spending a little bit more in the first quarter because we're committed to keeping our assets fresh and a lot of our competitors are not doing what we're doing. We see it as a competitive advantage."
  • "Expectation is that dividends will remain flat, but as with all of the things where we spend our money, that continues to be a dynamically watched situation. Assuming that the business remains stable, I don't have any reason to think that the board won't continue to declare dividends at the same rate."

















Some thoughts on BKC ahead of tomorrow's earnings release.


I have not been paying close attention to CKR, but the last 2 months for Carl’s Jr. sales trends are showing why management is selling the company.  On a 2-year average basis, the Carl’s Jr. Concept is one of the worst in QSR.  While management is focused on things other than the core business right now, the comments about CA are interesting. 


From today’ CKE release:


“However, Carl's Jr. same-store sales continued to be negatively impacted by the poor economic conditions and high unemployment rates in our core California market, which continued to climb during the month of March," said Andrew F. Puzder, chief executive officer. "We continue to focus on the excellent value-for-the money of our premium products and combo meals, and have several new initiatives in the works to improve same-store sales and increase market share." 


Outside of the California centric Carl’s Jr concept, Hardee’s posted a +0.3% same-store sales number for Period 3 FY11 which represents a +2% number in two years trends and a 20 bp sequential acceleration.


Recently, CAKE also referenced that unemployment moved higher in March for CA to 12.6% but, nevertheless, CAKE saw improved trends in CA with same-store sales turning positive. 


Our expectations for BKC US same-store sales in FY4Q are for 3-4%, which suggest an improvement in March.  The consensus $0.29 EPS is achievable but somewhat of a mute point for BKC as management already indicated EPS to lower than last year. 


At 7.6x EV/EBITDA, BKC represents good value relative to the other major players in QSR, but lack of strategic market position puts the concept and company in a difficult position.   



Howard Penney

Managing Director

BOOOOOM . . . Spain Downgraded!

From the 1950s to the 1980s, a popular foreign policy theory was called the Domino Theory.  This theory postulated that when one nation came under the influence of communism, then the surrounding nations would follow in a domino effect.


Arguably, we are starting to see the domino effect of sovereign debt downgrades.  Greece . . . Boom.  Portugal . . .Boom.  And now, Spain . . . Ka-boom!


While downgrades are not defaults, they are likely somewhat of a leading indicator.  Also, if sovereign debt crises of the past have taught us anything, it is that sovereign debt issues do not end with just one nation defaulting.


In the charts below, we’ve highlighted the CDS spreads and equity market performance for Spain over the last 6-months.  The charts are not pretty. Risk, as in Bad, Bad Risk, has accelerated on both market measures of risk for Spain.


Why does Spain matter more than Greece? Well, simply put, it is substantially larger.   According to the IMF, Spain has the 9th largest economy in the world with a GDP of $1.5 trillion.


The primary issue with Spain is that real estate was an astonishing 16% of the Spain’s GDP as recently as 2008.  The decline of that boom has lead to massive growth in unemployment, which currently sits at 20%.  Yes, 20% unemployment.


Currently Spain’s budget deficit as a percentage of GDP is north of 11%, which is well above the European Union limit of 3% and beyond the red zone line of 10%. 


While Spain is still considered a AA investment grade credit by S&P despite this recent downgrade, the metrics outlined above suggest it will not stay there for long.


The Domino Effect of Sovereign Debt is happening at a country near you.  Stay tuned.


Daryl G. Jones
Managing Director


BOOOOOM . . . Spain Downgraded! - DAXIBEX


BOOOOOM . . . Spain Downgraded! - Spain CDS

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