PFCB is facing easy comparisons in 3Q10 on many fronts.  At the same time, trends are getting better at the Bistro, which should make for a strong third quarter.


I always look forward to hearing Co-CEO Bert Vivian’s candid and often colorful comments about reported quarterly results and current trends.  Early on in the call, I could not get a read on his tone because although he said that business was improving at the Bistro, he also sounded less than confident in the company’s ability to achieve its current FY10 $2.00 EPS guidance, saying, “If our sales momentum continues, we stand a reasonable chance of achieving roughly $2 in earnings.  If sales waffle in the back half of the year, we will not get there.”


His tone about current trends was less difficult to read, however, when he said he was feeling “fat, dumb and happy” about July trends.  We later learned that July comps are running up 3% at the Bistro and +2% at Pei Wei.  It is important to remember that PFCB is facing very easy comparisons in 3Q10 from a Bistro comp, margin and YOY earnings growth perspectives.  In 3Q10, the Bistro is lapping a -8.5% comp number from 3Q09, but we know July of last year started out stronger with AWS down about 7% (AWS came in -9.2% for 3Q09).  To that end, +3.0% in July implies stronger two-year average trends since the end of the second quarter, on top of the 130 bp sequential improvement realized at the Bistro during 2Q10. 


Traffic turned positive at the Bistro during the first quarter and going into 2Q10, I was a little concerned about the company’s ability to maintain that momentum based on management’s plan to implement a 1%-2% price increase in May.  Traffic continued to be positive during 2Q10, up 2.6% and held steady throughout the quarter. 


The Bistro is seeing an improvement in trends across all of its dayparts.  Specifically, management said that lunch business is stronger and that both weekday and weekend dinner trends are getting better.  The company did not break out what is driving these better results, but partly attributed the stronger weekday lunch and dinner to increased business spending and the sequentially better weekend dinner traffic to increased social spending.  Geographically, the company is experiencing stabilizing to slightly improved results in its California, Nevada and Arizona markets.


From a restaurant level margin standpoint, the Bistro continued to face some YOY pressure with margin declining nearly 100 bps.  This was a huge improvement from 1Q10 when margin was down 300 bps.  To recall, management attributed 180 bps of that decline to inefficiencies around the Happy Hour rollout.  During 2Q10, margin improved largely as a result of better execution during Happy Hour; though the May price increase helped as well.  Given that the Happy Hour margin did not normalize until late in 2Q10 (in June), restaurant-level margin should continue to improve during 3Q10 and turn positive, particularly if same-store sales trends continue to improve.


Comp trends continued to improve at Pei Wei in 2Q10 as well, with two-year average trends increasing about 150 bps from the prior quarter.  It is concerning, however, that traffic fell off so significantly in May and June from April levels.  The deceleration in traffic followed a 1% price increase in April; though management did not specifically attribute the slowdown to that price increase.  The +2.0% comp at Pei Wei in July also points to a slight deceleration in two-year average trends since the end of 2Q10.  Pei Wei is lapping a -0.7% comp from 3Q09, but like the Bistro, trends started out the quarter stronger with AWS -1% in July 2009 and -2% for the entire quarter.


As I already said, PFCB is facing easy comparisons in 3Q10 on many fronts.  At the same time, trends are getting better at the Bistro, which should make for a strong third quarter.   Given the softening consumer confidence metrics that have emerged recently, we will have to watch closely to see if the current sales momentum, which Vivian underscored as being essential for the $2.00 earnings target to be met, can be maintained.  Relative to our restaurant sigma chart, shown below, PFCB should move up and to the right into the “nirvana” quadrant (positive same-store sales and growing YOY restaurant level margin) during the back half of the year after starting out the year in the “deep hole” quadrant (negative same-store sales and declining YOY restaurant level margin).




Howard Penney

Managing Director


In preparation for the WYNN Q2 earnings release on July 29th, we’ve put together the pertinent forward looking commentary from WYNN’s Q1 earnings release/call and subsequent conferences.



Wynn Las Vegas Pre-announcement


On July 21st, Wynn Las Vegas pre-announced their results ahead of a new issue and tender for their 2014 notes.  For 2Q2010, Wynn Las Vegas reported net revenues of $318 million and Adjusted property EBITDA of $65.1 million.

  • “The EBITDA decline in the second quarter of 2010 is primarily attributable to higher healthcare and other employee benefit costs, customer acquisition expenses, as well as repairs and maintenance costs to preserve the property's overall quality.”
  • “Table games drop decreased 1.8% from the comparable period in 2009 to $485.9 million and hold percentage declined modestly from the 20.7% reported last year to 20.0% in the current quarter.”
  • “Slot machine win of $41.1 million was 1.8% lower than the comparable period in 2009.”
  • “Wynn Las Vegas achieved an ADR of $197 for the quarter, compared to $218 in the second quarter of 2009. The property's occupancy was 92.6%, compared to 86.6% during the prior year period, generating REVPAR of $182 in the 2010 period (3.2% below the second quarter of 2009).”


Post Earnings Conference Commentary

  • “Unfortunately, the market in Las Vegas is not so good. So outperforming here hasn’t really meant a whole lot. And our tone has been from the beginning of the financial crisis, in 3Q08, pretty much the same: we think that things are not getting worse in Las Vegas, particularly this year. We think summer is going to be tough and for us to make any real forecast of any recovery right now is premature. It’s not the right thing to do. This market’s been bombed with new supply and there’s another high-end hotel opening in December.”
  • “For us to make any call on Las Vegas right now on a turnaround would be premature. I don’t think anybody is really seeing that. You can point to 4 or 5 good things, yeah, we’ll have more convention room nights booked than we did before. But in the end, everybody’s rates have been cut in half and to retrain customers to get that leverage back, it’s going to take a long time.”
  • Macau:  “May looks like an unbelievable month, maybe the best ever.  I don’t think that’s news to anybody in this room. What might be news is that Encore has been very well received. It opened April 21.... We expanded our total VIP capacity by over 40%, and it has been very well received.”
  • Cost of room renovation at Wynn Las Vegas: “I can tell you it’s less than, just in terms of scale, it is less than $100 million.”
  • Las Vegas:  “The summer, I think, is going to be tough, as I said. I think a lot of people had maybe hoped that the summer would be better, but hope doesn’t seem to pan out in this town. People have been hoping that things will get better for years. Convention business, like I said, the lead volumes are up, bookings are up, all those things are back. So there are small; they’re encouraging signs but in terms of rate, increasing rate and things like that, we may have a slight increase. That’s plausible. People are saying by the end of the year.”
  • “What I would say is that City Center has impacted the market in terms of rate and occupancy. Without a doubt they have. It’s more capacity and they’ve been leading with price. They are priced lower than Bellagio and lower than Wynn and it’s hard when more product comes on and it’s a nice product. It’s fine. Our customers have continued to prefer Wynn, is what we’ve seen.”
  • “We haven’t cut our service levels like we could have. We’re running 9,300 FTEs here. That’s a lot. I think ARIA just announced they wanted to go to 6,000. That’s a big difference. Maybe they can, maybe they don’t need as many people to offer the same level of service. I don’t know, but – oh, it’s at 60% occupancy too.”


1Q2010 Earnings Release/Call



  • [About rate in Las Vegas] No, we’re not seeing any real improvement in rate going forward, it’s fairly stable. Our feeling is that with the growth in capacity that we absorbed in the early part of the first quarter, that’s impacted rates city-wide, certainly for us, and we don’t see that really changing through the summer.”
  • Why slot handle was so weak?
    • A: “The comp was a bit tough because we were going up against the opening of Encore where we had a tremendous amount of novelty and local traffic that came through the building and so we benefited from that. And then we are…nearly done with constructing our new Beach Club which basically closed down the whole front of Encore which has impacted what walk-in traffic we were able to generate off of the strip… And that comes to an end in four weeks (end of May).” 


  • “So we’re going to build on Cotai… We will build the destination resort and that will complement the other things that we’ve built in Macau up till now. But …it wouldn’t open until 2014.”
  • Q: “What happened with controllable costs in Macau during the quarter?”
    • A: “I think it’s a little over $1 million a day run rate versus 990 or so in the fourth quarter.” 


In preparation for the PNK Q2 earnings release tomorrow, we’ve put together the pertinent forward looking commentary from PNK's Q1 earnings release/call.



YouTUBE from Q1

  • “So I would tell you that I wouldn’t feel comfortable in saying that this is sort of the base [re: 1Q2010 EBITDA]. I would tell you we’re at the beginning of -- good results. But we’re at the beginning of really taking a look at how do we manage our company in a way that just doesn’t cut expenses out thoughtlessly?” 
  • “In 2010… we think the total spend at River City on a cash basis will be $53 million for the year. In Baton Rouge, we’ll get into approximately $45 million of that project this year with obviously the lion’s share of that spend in 2011. And then, we’re going to see uptick maintenance in CapEx this year, to approximately 40, maybe $45 million for the year as we continue our slot replacement cycle and maintaining our properties at very high levels.”
  • Q: “Wind-down cash costs associated with Sugarcane Bay?”
    • A: “Ballpark is about $10 million, of which $4.5 million to put things back in service. As you know, we tore up the facility in anticipation of doing the footing and foundation for the hotel. But approximately $10 million is your number. Some of that we’ll see in Q1. Bulk of it will flow through during Q2.”
  • “Corporate expense, I don’t think we can nail that down for you yet. We are working on that. For example, with the Falcon Jet sold last week, you’re going to see some fairly significant numbers come off the P&L associated with that specifically. But you won’t see that until Q2 because of an existing aircraft – hanger lease, excuse me – that goes through June, et cetera closing down that aviation department, those kinds of things. Obviously, the number you see on this P&L reflects approximately $1 million of severance as well... I would tell you, as reflected in the comments and the press release, we expect more progress there.”

  • On corporate expense: “What I can tell you is that we’re working on it pretty hard. And I feel like we are still a little bit bloated where we are. Maybe that’s the wrong word. We have slimmed down nicely in the last several months. I believe there’s more to come, but I can’t promise you a number.”

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Durable Goods Disappoint

Today’s durable goods report is consistent with our belief that GDP growth in 2H10 will be significantly below consensus and that MACRO reporting risk continues to be to the downside of expectations. 


To that end, the June US durable goods order is the latest disappointment in a string of weakening MACRO data that we have seen for the past month.  With every data point that goes by, the downside risk to the largely “guesstimate” GDP number goes up.  With the downward revisions to GDP estimates and the ever increasing US debt problems, the double dippers will come out of the woodwork.


As I said yesterday, given the weakness in the durable goods, we are setting ourselves up for a very interesting 3Q10 preannouncement season. 


Today’s Durable Goods number came in at -1.0% versus consensus of 1%, which was looking for a pick up from the previous -1.1% number (now revised to -0.8%).  Overall, this was the largest Durable Orders decline since August 2009.  The mainstream media is focusing on the bullish bias of the core capital spending figure, non defense capital goods ex aircraft, which improved 0.6%, but slowed significantly from the 4.6% rise in May.


New Orders

Demand issues? New orders for manufactured durable goods in June decreased 1.0%.  This was the second consecutive monthly decrease and followed a 0.8% decrease in May.  Excluding transportation, new orders decreased 0.6%.  Transportation equipment saw the largest decrease of 2.4% and is now down 4 out of the last 5 months. 



In June, shipments of durable goods in June were down 0.3% and are now down for 2 consecutive months.  And the “ever important” computers and electronic products (down four of the last five months) plummeted 4.1%.



Inventories have been the biggest driver to 1H10 GDP growth and was up 0.9%; Transportation equipment, up for six consecutive months, had the largest increase of 1.1%.


On Friday, we’ll get the BEA’s overstated estimate of Q2 US GDP. As a reminder, our Q3 Macro Theme of American Austerity continues to forecast that A) the denominator (US GDP) will slow in 2H10 and 2011 and B) the numerators for both the 2011 deficit and debt to GDP ratios will continue to grow. The Durable Goods number is further supporting this thesis.


Howard Penney

Managing Director


Durable Goods Disappoint - US Durable Goods




"We're pleased to report positive domestic RevPAR for the first time since the second quarter of 2008, due in large part to gains in occupancy and a gradually improving average daily rate environment from this year's first quarter. We expect RevPAR to continue to show improvement for the remainder of the year, however we believe the hotel transaction environment will remain difficult and thus continue to adversely impact our franchise sales results.  We are squarely focused on enhancing our ability to deliver reservations to our franchisees' hotels and strengthening our range of centralized support services designed to enhance our franchisees' profitability."

-Stephen P. Joyce, president and chief executive officer.



  • Outlook
    • 3Q Diluted EPS: $0.57
    • FY 2010 Diluted EPS: $1.70-$1.72
    • FY 2010 Adjusted EBITDA: $167.5-$170 MM
    • Unit growth: 1% to 2%
    • RevPAR: 6% for 3Q2010 and 0-2% FY2010
    • Royalty rate: increase 6bps
    • Share count: same as current
    • Tax rate: 35.8% for 3Q2010 and FY2010
    • No refinancing of credit facility


  • Saw relatively consistent increase in REVPAR in 2Q. Continue to see REVPAR growth for reminder of 2010.
  • Near-term franchise sales environment--"choppy"; YoY 50% decrease in domestic franchise sales--blame weak transaction environment; that's why unit growth forecast is weak.
  • Leisure travel
    • Roughly 2/3 of their business is leisure; people plan on taking vacations but shorter ones and a little less distance involved. However, they are encouraged that they are taking vacations. Leisure trends relatively stable for now. Upscale brands more aggressive on pricing will benefit transient leisure business.
  • Transactions/conversion market
    • brokers talking about higher level of applications; in general sense, banks are more aggressive of taking properties back
    • 1st mortgage financing environment improving
    • gap between buyer and sellers closing
    • "creeping" capital coming back from lenders for existing hotels
    • New build development will not pick up until at least 12 months
    • Because of capital limits and some uncertainty, transaction flow will be a gradual increase vs. significant inflow
  • For 2010, modest GDP growth and flattish employment are their expectation
  • Need to see improving signs of domestic franchise environment; transaction market should improve for rest of 2010.
  • Cambria Suites--great potential growth; priority is on the investment programs
  • Domestic royalty fee- $51.7MM ($50MM last year)
  • Continued weakness in application flow; in 2Q, declined by 28% (1Q declined by 29%); Outlook for year does not reflect strong REVPAR growth in 2Q due to this concern.
  •  Adjusted SG&A cuts sustainable?
    • In 2Q, retirement plans loss turns into credit for SG&A expense; for outlook, previously, adjusted SG&A up in low single-digit area--now looking flat for 2010.
  • Purchasing a brand?
    • Aggressively pursuing transactions but no opportunities yet
  • Sliver brand investment program for Cambria--will help the brand, ROI: "high single, low double-digits"
  • Cambria: consumer reaction to Cambria is very strong; to help brand. May need help from balance sheet; supporting Cambria owners through sales and distribution networks
  • Gulf impact on franchisees: do not see big drop off (similar to what happened with Katrina) since cleanup crews will help business; the issue will be in 2011 and 2012 (3-4 year impact from spill) on whether beach-goers will come back after beaches are cleaned up.
  • Special servicers opportunities: can give sliver money, lower costs for servicers who are looking to flip to another owner--can help in a more normalized conversion environment in near-term.
  • 12 Repos in 2Q
  • Corporate RFPs pickup further? Too early to tell. Major initiative underway to grow that base. More trade-down than trade-up.
  • Trailing 12 months: contribution to our US franchisees through direct channels (vs. 3rd party sites) has been increasing. The trend is also true globally.
  • US Central reservation contribution better YoY; Global central reservation: 3rd Party playing a bigger role.
  • Did not bid on Tryp brand that Wyndham acquired.

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