Here is a look at TXRH guidance going into earnings on Monday.


Comparable-store sales

  • TXRH  needs to post company-owned same-store sales of 1.9% to maintain two-year trends
  • Per Factset, the Street is expecting two-year trends to slow sequentially from 1Q.  Company-owned same-store sales are expected to come in at 0.6%.  Tellingly, the highest estimate of the twelve estimates that make up the Factset estimate is +1.5%.  This would still imply a slowdown in two-year top line trends.
  • Earnings estimates have been holding steady recently, but in the past 6 months have increased 18% on a next fiscal year basis


  • G&A will be tough to leverage without positive comparable restaurant sales for the year
  • Anticipating a tax rate for 2010 of 33%
  • We anticipate continuing to generate excess cash flow and paying down more debt throughout the balance of 2010
  • 2010 EPS growth up 14% to 18% - assuming flat to+1% comparable restaurant sales growth, food cost deflation of 2.5% to 3% and total capex of approximately $50 million
  • Food cost deflation will be less for the balance of the year with the lowest deflation in 2Q
  • April trends were better and management expects this to improve
  • On pace to open 14 to 15 new units this year – slowing growth in 2Q, picking up in 2H



  • All locations in 2010 will include the new kitchen design which is reducing development costs by $100k
  • Plans to open a few locations that are ~10% smaller in terms of square footage – expecting to see these perform well
  • There is no price increase on the new menu and no imminent plans to take price…maybe in 2011
  • Increased seating capacity at 47 locations thus far – 4 in 1Q and doing 6 or 7 for the balance of 2010
  • Close to 100% locked on beef for 2010


Howard Penney

Managing Director


The Economic Data calendar for the week of the 2nd of August through the 6th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.




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With estimates coming down and low baccarat hold generally well known, we don’t know if a subpar Q2 will matter. If Steve Wynn is slightly more optimistic about LV, then it’s a safe bet that MGM will be downright bullish.



Steve Wynn’s market commentary has generally proved to be realistic.  So when he sounds slightly more optimistic about Las Vegas, we assume that Las Vegas is getting a little better.  So what should we expect from the MGM commentary Tuesday morning?  Well, after applying the typical MGM multiplier (not to be confused with the Keynsian multiplier although both have been proven wrong), we’d have to say Tuesday’s conference call will be a party!


MGM should report a poor quarter on a lot of metrics.  To be fair, their high end properties played very unlucky during the quarter on the Baccarat tables.  We estimate MGM’s Baccarat volume share was roughly 50% during the quarter.  We know that Strip Baccarat hold the first two months of Q2 was only 8.4% versus 11.9% (fairly normal) in April and May 2009 combined.  Since LVS and WYNN already reported Las Vegas results and table holds were below normal but not as low as the Las Vegas numbers indicate.  Thus, MGM must have held below even the 8.4% for the Strip Baccarat total.


Given the Baccarat results and a much slower than expected overall ramp we think CityCenter will be once again close to break even on EBITDA basis.  Overall, we are projecting total consolidated EBITDA of $271 million on revenues of $1.45 billion and consolidated property level EBITDA of $310m.  On an economic basis with JV EBITDA factored in, our projection rises to $332m. 


We still think forward estimates need to come down and we are below the Street for 2010 and 2011.  However, Q2 expectations are low and management is likely to be extra bullish on the call.  So while we think this v-shaped recovery implicit in MGM’s recovery will remain elusive, Q2 may not be the negative catalyst despite the likely poor results.

Bear Market Macro: SP500 Levels, Refreshed...

I’ve had my fill of the Fiat Republic’s representatives defending another sequential slowdown in US GDP growth for today. The math doesn’t lie; politicians do. In the aftermath of the most government “stimulus” spending in the last 13,000 years of mankind, US GDP growth has been more than CUT IN HALF in less than 6 months down to +2.4%.


The worst part about this morning’s Q2 GDP report is how much more realistic it makes our Q3 estimate of +1.7%. Consensus is still double our estimate. Once earning’s season is over and the he said/she said about European stress tests subsides, the market will once again be focused on what we call Macro Time.


There are very few leading indicators that are not flashing bearish for US economic growth on an intermediate term TREND basis. Three of the most important ones (US Treasuries, US Stocks, and US Currency) look flat out frightening on a 3 month basis: 

  1. US Treasury short term yields are hitting record lows today (with 2-year yields 0.55%)
  2. US stocks remain well below our Bear Market Macro intermediate term TREND line of 1144 (TRADE line support = 1076)
  3. US Currency is down for the 8th consecutive week and looks as depressing as Paul Krugman. 

Don’t worry though – President Obama is speaking at a Chrysler plant this morning saying “I’m just doing the right thing.”


So much for Transparency, Accountability, and Trust.



Keith R. McCullough
Chief Executive Officer


Bear Market Macro: SP500 Levels, Refreshed... - S P

Reading Europe’s Pulse

Position:  Bullish Bias on Germany (EWG)


Looking at the data out of Europe over the last two days one could be led to conclude that the fundamentals look great: European economic confidence rose to the highest level in over two years (see chart below), Germany’s unemployment rate declined for the 13th straight month, German and Swedish retail sales were up 2.8% Y/Y and 3.1%, respectively, and even Spain’s total housing Permits improved on a month-over-month and year-over-year basis!  Further, there have been some impressive Q2 earnings beats from European bellwethers.


We’re however cautious on the European outlook in the back half of 2010 for a number of factors, including: growth prospects due to austerity policies; Housing Headwinds (in particular in the US, UK, and Spain); the winding down of the earnings season; the risk of sovereign debt leverage on European banks that the European stress tests largely ignored;  and slower growth in the US—our forecast is for annual growth of +1.7% in 2010 and 2011, well lower than consensus of 3-4% range for 2010. 


Interestingly European equity markets largely sold off on the positive European confidence numbers yesterday. Today, we’re seeing follow-through selling on the back of the slowing Q2 US GDP print. With markets highly sensitive to US and Chinese data, we believe that the US government’s failure to address its rising deficit and debt levels could drag markets down in 2H10. Certainly the lack of confidence in US policy and economic health is showing up in the data: 2 year US treasury yields are hitting rock bottom!


Currently, we’re not invested in Europe in our virtual portfolio as we're waiting and watching for confirmation from the DAX and FTSE.  The FTSE broke its intermediate term TREND level of 5298 today, while the DAX is holding its level of 6072; we’ll be waiting for confirmation of the moves before we act.  We sold our long position in the Pound via the etf FXB on 7/28 at its immediate term over-bought level of $1.55 and would buy it back at $1.52.  As a note, our immediate term over-bought level on the EUR-USD is $1.30, and we’d buy it back off these oversold levels at $1.27 (intermediate term TREND support).


Matthew Hedrick



Reading Europe’s Pulse - image001

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