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Hershey Swirls (HSY), For the Shorts...

HSY had the sharks jumping today, closing +7% on good volume. This stock is up +24% since the "Event Driven" community blew it out into their June month end (HSY didn't get LBO'd, remember).

I've been riding the highway to Hershey Park for the better part of the year, and I've taken my share of emails from the folks who are probably covering it up here. If you've been on the strong side with us, I think you sell some over $40, and buy it back at $38.37.

Buy Low, Sell High.
KM
  • HSY: buy it back closer to $38.37
(chart courtesy of stockcharts.com)

Ralph Lauren (RL): This Short Squeeze Isn't Over

Shame on me and shame on you. When I first started working with Brian McGough, I was short this stock. Today, our Advisory Clients are long it, and the shorts are still talking about the height of Polo shirt piles at Bloomingdales.

Qualitative short thesis’ will get you about as far as I can throw you in this business, particularly when you're shorting a stock that has 18% of the float sold short like RL does.

Closing +7% today on 6M shares traded is your wakeup call. Next stop on this bus is $66.84, before it takes a breather, then charges to $71. Great quarter, and great call by McGough.
KM
  • RL is going to $66.84, then $71.11
(chart courtesy of stockcharts.com)

Bears Run For The Bushes: Volatility (VIX) Gets Smushed

If sharks we're jumping at their backsides, Bears wouldn't touch the water. That's what is happening out there again today. Bears are running for the bushes again, covering their shorts at the top of my range, and the VIX tanks for a -4.5% down day.

The reversal in the VIX is a bullish and material one that should be respected. Breaking down and closing below my critical support level of 21.49 was today's noteworthy event, closing at 20.18.

Look for the sharks to be jumping at anything that has short interest below that major "Trend" line of resistance.
KM
  • VIX Breaking Down Through 21.49
(Chart Courtesy of Stockcharts.com)

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Chinese Wage Inflation Isn't In the CRB

Inflation is unfortunately a more complex calculation than straight lining changes in commodity prices. The main reason why Asian inflation reported so far in July was up sequentially, despite commodities selling off, is wage inflation (see chart).

This is a secular "Trend" that needs to be understood. Particularly as the masses stare are the swan dive in commodity prices, which as of tomorrow, will be yesterday's news.
KM
Chinese Wage Inflation (Research Edge Chart)

RT – The Joke That Nobody Gets

Earlier this week, I wrote about RT’s media push around its intention to blow up one of its “old” Ruby Tuesday restaurants and broadcast it online. This broadcasted demolition was part of the company’s marketing campaign to highlight RT’s new, reimaged brand, which follows its massive remodel program. Following the explosion, RT posted a letter (posted below) on its website saying that due to all of the “sameness” within the casual dining segment that it mistakenly blew up Cheeky’s Bar and Grill restaurant rather than one of its own Ruby Tuesday locations.

I thought the initial public demolition was ridiculous (please refer to my posting from August 4), and the posted apologetic letter even more ridiculous. Then, this morning I saw a new RT commercial which shows RT’s SVP of marketing communicating the exact same thing as the posted letter while a television in the background broadcasts the explosion (you can view the commercial at RubyTuesday.com). I am now only wasting all of your time with this ridiculousness because this is just bad marketing and will not help RT’s already deteriorated top-line.

RT’s prospective customers (the group most ad campaigns target) will not get the joke because they have most likely never been to an “old” Ruby Tuesday so the fact that there is a lot of “sameness” in casual dining will not convince them to run out and eat at a casual dining restaurant.

RT’s former loyal customers have already proven that they feel alienated by the company’s recent reimages as evidenced by recent traffic results so the commercial will only remind them why they stopped going.

PINNACLE CAPITAL?

In its Q2 earnings release, PNK disclosed that it took a $23m write-down of its investment in ASCA common stock. To my knowledge, this is the first time the holdings were disclosed. Management should spend more time running casinos than trading stocks. From the chart it doesn’t look like they’ve done either particularly well.

PNK reported Adjusted EBITDA a little below formal expectations which is not a shocker. Of course, Adjusted EPS exceeded GAAP EPS by a wide margin. I’m actually not too concerned with the EBITDA miss. The stock is very cheap, the assets are generally of high quality, and their markets are attractive. My issue with PNK continues to be their capital deployment decisions. The ASCA purchase was just one more example. Whether the stock was purchased as an investment or the precursor to an acquisition (probably a little of both), the decision was poor. Hindsight is crystal but paying a higher multiple than its own to acquire similar assets with little strategic value is not a shareholder friendly maneuver. Luckily, the credit markets bailed them out.

In past posts, I’ve highlighted the attractiveness of a PENN/PNK combination. PENN is the best steward of shareholder capital in gaming and not surprisingly, they are the only company with liquidity. That is not by accident. PENN manages the company for good times and bad. Complimentary assets, cross-marketing opportunities, and built in growth are all important potential benefits to PENN in buying PNK. Most importantly, however, would be the instant value creation of Peter Carlino making better ROI decisions with PNK’s significant resources.


PNK EBITDA and ASCA stock price both in decline

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