Ameristar Casinos issued its Q2 earnings release and it couldn’t have been easier to predict. Similar to virtually every other quarterly release in the sector, Q2 Adjusted EPS met reduced estimates but exceeded GAAP EPS (see my 8/4/08 posting “ADJUSTED EPS: TAKE THE GOOD, LEAVE THE BAD”). Q2 revenues missed expectations but SG&A made up the difference. Layoffs were, of course, announced. Finally, ASCA implicitly lowered expectations for the rest of the year. Our summer interns could’ve predicted the contents of this release right down to the number of terminated employees.

So where does this leave us? ASCA is an economically sensitive stock with few catalysts. The positive catalysts that do exist are related to November state referendums: table limit betting increase in Colorado and the loss limit removal in Missouri. There are other ways to play those catalysts. The downside catalysts are more numerous: The economy and gas prices, a leveraged balance sheet and big debt maturities in 2010 ($1.3bn), and new casinos in Kansas and St. Louis. Let’s not forget the near term biggie: the hit on Ameristar East Chicago from the massive expansion and renovation of the Horseshoe in Northern Indiana.

PENN is not without its own economic vulnerability. However, I keep coming back to liquidity. To me liquidity is the single most differentiating factor in this struggling industry. Why would I pay the same multiple for ASCA as I would for PENN, the gaming company with the most liquidity, run by the best stewards of capital. PNK also looks more attractive at a 0.5-1.0x multiple discount and a buffer from the economic environment due to its Texas exposure. For those targeting ASCA as an acquisition candidate; that may eventually be the case but it likely won’t be PENN on the other end of that transaction. If PENN is buying any company it will be PNK.

If ASCA can raise $500m in sub debt this year liquidity runs dry in 2010. If they can't....

RT – One Day Until The Live Demolition

Ruby Tuesday is literally blowing up one of its locations on Tuesday, August 5 at 3 p.m. ET “to bid a final farewell to the past with one elegant, understated gesture: Demolishing the last old Ruby Tuesday,” as the company states on its website. The company has launched a massive reimage program, remodeling 650 restaurants in the last 12 months, as of 4Q08. So when it says the “last old Ruby Tuesday,” it is referring to a location that has not yet been upgraded.
  • This live demolition, in of itself, is funny. It is made even more ridiculous when you consider that the reimages have not yet proven successful as the restaurant upgrades represent a change in strategy with RT attempting to enter the more upscale restaurant market. These restaurant reimages have alienated a big portion of RT’s prior customer base. Management stated on its last conference call, “we probably hurt ourselves by taking the eye off the ball when we remodeled approximately 650 company-owned restaurants in less than 12 months, as well as by losing some of our guests, we believe lower end guests who maybe felt less comfortable in our reimaged restaurants.” The company is making a big deal about saying goodbye to the “old Ruby Tuesday,” but it is also saying goodbye to a lot of its former loyal customers.
  • Make sure to watch it live at!

EAT – 4Q Less Than Toxic

As I have said before, the company’s improved capital allocation decisions should generate more favorable returns going forward as should its move to a higher franchise ownership mix (expected to reach 35% franchise ownership by the end of 2008). Additionally, Brinker’s recent restructuring of its restaurant support center in 3Q08, which represented a 10% reduction of costs, should give the company some leverage on the G&A line.
  • 3 recent data points to think about:
  • Our proprietary grass roots survey gives us confidence that the favorable trends at Chili’s from last quarter have continued. Chili’s same-store sales were up 1.6% in 3Q08 after being down 2.4% in 2Q and negative for all of fiscal 2007. These improved trends seem to reflect management’s sentiment from its 3Q earnings call in April when they said, “so the short-term trend appears positive and we’re off to a good start and expect the stimulus checks to help in May and June. In addition it appears California and Florida are doing better. With still negative performance both those markets appear to have bottomed down in December and have shown improvement each month since.”
  • NPD data points to an uptick in traffic trends within the bar and grill segment in the March-May 2008 timeframe. According to NPD, casual dining posted a 1% increase in traffic with the bar and grill category posting the largest incremental year-over-year traffic gains, up 4%. The casual dining “varied menu” lost traffic, which suggested a trade off to bar and grill.
  • Bennigan’s recent filing for Chapter 7 bankruptcy protection and the subsequent restaurant closures should benefit Chili’s as Bennigan’s was a direct competitor within the bar and grill segment. Additionally, Chili’s more penetrated U.S. states overlapped with those of Bennigan’s so the closures should also help Chili’s from a capacity standpoint (please refer to my Bankruptcy Cycle Continues – July 30 posting for more details).
EAT Same-Store Sales

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Father Knows Best

I find it both amusing and telling to see the timeline below of the 3 years leading up to the demise of Boscov’s – which filed Chapter 11 today. The punchline is that the founders of the business saw this coming. They cashed out in early ’06 – the same time private equity money was free, and the writing was on the wall for the apparel retail business heading into ’07 and beyond. Boscov’s is not alone in founders cashing out at the top. Goody’s, Chick’s Sporting Goods (before sale to Dick’s), as well as others. Whenever a founding family looks to sell 100 years of blood sweat and tears. Run. Fast.

Thanks to First Rain for directing me to several articles on the topic.

Scary Growth Chart: Chinese PMI

Just the chart. Pretty self explanatory.

Asian Inflation Mapping

Andrew Barber put together this picture today as it summarizes a lot of what global equity markets continue to struggle with - the reality that it is "global this time" has far reaching (not always positive) implications.

Below is our Asian Inflation Chart (Korea, Thailand, and Indonesia) using the July reports that have been issued in the last week.

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