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Here is a look at guidance ahead of earnings tomorrow



  • To maintain or sequentially improve two-year average company same-store sales, Jack in the Box will need to post -7.2% or better for 3Q
  • Per Factset, the Street is expecting a company same-store sales number of -8%, which would imply a sequential deceleration of 40 bps.  It is worth noting that on four of the past five quarters, the Street’s Factset estimate has been between 0.9% and 1.8% overly-aggressive.


  • Same-store sales are expected to decrease by 7-9% for Jack in the Box in 3Q, and decrease by 6.5% to 8.5% for the full-year
  • Same-store sales are expected to increase 2-4% for Qdoba in 3Q, and increase by 1% to 3% for the full-year
  • Diluted EPS full-year guidance is $1.85 to $2.05
  • Commodity outlook for the year is for a decrease in cost of ~1% (Commodity costs are expected to increase by about 2% in 3Q and 3% in 4Q)
  • Beef costs are anticipated to be flat for the full-year with low double digit increases in 3Q and 4Q
  • Sequentially increasing beef costs are expected to be offset by declining chicken and bakery costs of ~6% for the balance of the year
  • Capex is expected to be $125 to $135 million for fiscal 2010
  • “We plan to increase our ad spend in the back half of the year (FY10)”
  • Gains related to franchising activity should be higher for 3Q10 than they were for 3Q09
  • Full year gains in the sale of approximately 200 Jack in the Box restaurants are expected to total between $60 and $70 million with total proceeds of $85 to $90 million


  • “44% of our restaurants are located in the 10 states with the highest unemployment, while only 2% are in the states with the lowest unemployment
  • “3 for $3” promotion was launched in late April and it is margin friendly while offering a great “value proposition” for guests
  • Jack in the Box added a raspberry flavor to its smoothie and real ice cream shakes – will be interesting to hear how smoothies are performing with MCD’s big push…
  • California is outperforming the Texas market; both improved in 2Q but Texas remains the more challenged market for JACK.

Howard Penney

Managing Director


Including slots, the market grew 70%, slightly higher than the 67% we reported yesterday, which was due to stronger slot revenue and Fx rounding in the data we received. 



VIP hold percentage was very high in July, which helped drive VIP revenue up 87% YoY.  VIP turnover (Rolling Chip) increased “only” 55% while Mass revenue climbed 39%, in-line with the growth rate this year.  Of course, the comp was more difficult than in the prior months but was still easy on an absolute basis.  Mass revenue fell 5% last year and VIP turnover increased 9%, contributing to an overall table revenue increase of 3% in July of 2009.  Slots set a monthly record of HK$701 million in July 2010.


We discussed market share in our note yesterday and the shifts were confirmed today.  WYNN and LVS lost a lot of share, 280bps and 260bps, respectively, from June.  The good news is that the decline was not in Mass where both companies increased share sequentially:  LVS to a normal 26.7% and WYNN to a recent high of 11.0%.  Rather, both lost share in VIP turnover and VIP revenue - hold % played a big role.  Both LVS and WYNN have held very well, above the market, but their hold percentages fell sequentially while the market played luckier in July than June.  On a YoY basis, WYNN table revenue increased 74%, slightly higher than the market while LVS grew 51%.  On the Mass side, WYNN and LVS grew 44% and 27%, respectively, versus the market at 39%.  WYNN obviously benefited from the April opening of Encore.


In terms of market share, SJM, MPEL, and Galaxy were the big winners.  MPEL was probably the standout relative to expectations.  Total table market share went up 150bps sequentially and Mass revenue increased 91% YoY.  MGM’s table revenue actually declined 5% YoY, due to lower hold, and total table market share slipped 50bps sequentially.








To access the replay and the slides, please copy and paste the links below into your URL. 


Podcast: https://www.hedgeye.com/feed_items/8837



Slides: http://docs.hedgeye.com/US%20Sovereign%20Debt.pdf




The Hedgeye Macro Team, led by CEO Keith McCullough and Managing Director Daryl Jones, hosted our August Macro Theme Call focused on one of the most timely economic questions facing investors:


"Should U.S. Government Debt Be Rated Junk Status?"


 As a reminder, key topics discussed on the call were:

  • The implications for the U.S. economy of the massive build up of debt
  • Various federal budget scenarios and their key drivers
  • GDP growth implications based on accelerating debt balances
  • Implications to the deficit under different interest rate regimes
  • Comparison of the U.S. to the PIIGS on key ratios
  • Appropriate investment vehicles for this long-term TAIL theme

As always, if you have any questions regarding any of our processes or conclusions, please email . 


We kindly thank you for your support. 


Best regards, 


The Hedgeye Macro Team

RL: Ammo For the Beat

 [Farah On Core Luxury Customers]

  • Q4 dynamics also suggest something of an inflection point of change in the marketplace. Worldwide, we are seeing our core luxury customers returning to the stores with an openness to spend. [In the US] the aspirational customer remains cautious, and has not returned to the stores in any way. While [our customers] are not spending at pre-recession levels, and they can be focused on value, they do recognize that product availability is limited and there is no price resistance on unique or novel items.
  • We also saw things get progressively better every month during Q4, and the rebound has been most pronounced in our women’s products
  • Urban and tourist destinations are outperforming stores that cater to more regional or local customers
  • As we’ve highlighted in the past, our performance in Europe has been spectacular over the last 10 years when we’ve grown revenues 5-fold, and the momentum continues to be with us
  • While aggregate wholesale shipments were down, we experienced progressive improvement from Q3, which reflects a more stable environment among our wholesale customers worldwide


[On Asia Expansion]

  • Given our commitment to the Asian expansion, we are studying how and when it makes sense for us to launch e-commerce capabilities there
  • In Asia, our focus and primary concentration will be in 2 countries, Japan and China
  • [China] As you know, we spent much of FY2010 building a world-class organization of over 700 employees and putting in a new infrastructure to support the transformational growth our company expects in the long term.


US Wholesale

  • Should be fueled by share gains and new product initiatives, such as Handbags.
  • The Lauren handbag product will initially be available in approximately 150 of the best North America department stores, and select e-commerce sites beginning in August, with additional distribution already being planned for holiday and beyond.
  • Key price points range from 150 to $400 and the introduction will be supported with product specific advertising both at the national level, and in conjunction with our various wholesale partners


Retail/Consumer Direct

  • With only 20 directly operated and 8 licensed Ralph Lauren stores and 24 factory stores, there is clearly room to expand our direct to consumer reach throughout Europe
  • And an exciting new evolution on our European growth strategy this year is e-commerce.  Based on the success of ralphlauren.com in the United States, and the growing importance of this channel worldwide, we intend to launch e-commerce capabilities in Europe, beginning with the U.K. this fall
  • While our European e-commerce initiative will be managed in-market, we are leveraging our ralphlauren.com team in the United States and our existing technology and distribution partners to help ensure a successful launch
  • Although the investment we are making will be dilutive in the near term, we are excited about the long term sales and profit potential of international e-commerce

Other Geographic Callouts

  • In Europe, geographic trends at our Ralph Lauren stores remain consistent with those we have articulated over the last several quarters with the U.K. and Scandinavia remaining strong, and some improvement in Italy
  • European factory stores have maintained their broad based strength across regions
  • In Japan, comp trends at our Omotesando flagship store and at our factory stores were quite robust, and clearly outperformed the broader retail market
  • Our concession shop performance was also noteworthy, particularly for our men’s products



  • [FX] Comparing yesterday’s 1.22 euro per dollar rate to the average 1.4 rate we experienced in FY2010, which is a 13% decline, there is obviously a substantial translation impact
  • Based on our geographic sales mix, we currently anticipate approximately 250 to 300BPS of negative currency translation on our sales, a portion of which will flow through to profits for the full year of FY2011 period, with more pronounced pressure related to exchange rates in the back half of the year
  • There is an additional and approximately equivalent amount of unfavorable transaction exchange rate impact on our operating profits in FY2011
  • [Sourcing] Another profit headwind is higher sourcing costs, which we are beginning to experience with rising raw material, freight and labor expenses, as well as tightened factory and freight capacity in our global supply chain
  • Historically, we have generally been successful in our efforts to contain cost of goods inflation, although we appear to be up against the perfect storm in the back half of FY2011, particularly with our spring 2011 merchandise deliveries



Financial/Accounting Notes:

  • “Before I begin the segment highlights for the quarter, as you read in this morning’s press release, we are now reporting our Japan concession shop sales and profits, which had previously been captured in our wholesale segment, in our retail segment.”
  • As a reminder, our revenue growth outlook for FY2011 is for a 52 week period and compares with FY2010’s 53 week period


Net Revenues

  • For Q1 FY2011, we currently expect consolidated net revenues to increase at a low double digit rate
  • Our expectations are based on low double digit growth in global wholesale shipments with increases across all major regions and high single digit comps, which now include our Japanese concession shop locations on a comparable basis

Operating Margin

  • Our operating margin for Q1 is expected to be modestly above the 11.4% achieved in the prior year period, with gross margin improvement being mostly offset by higher operating expense deleverage related to the continued investment in our various strategic growth initiatives across geographies, distribution channels and emerging product categories

Retail Segment

  • For the full year FY2011 period, we expect consolidated revenues to increase at a mid single digit rate, led by our retail segment, and mitigated by a low double digit decline in licensing revenues, which clearly reflects the impact of our assuming more direct control over certain product categories and geographies
  • We currently expect to achieve a low double digit operating margin rate in FY2011, the net effect of gross margin pressure that is more back half weighted and a modest deleveraging of operating expenses that is more front half weighted, as we are currently forecasting a modest leveraging of our operating expenses in H2
  • Our FY2011 tax rate is expected to be 34%
  • Again as a reminder, our FY2009 and FY2010 tax rates were advantaged by the favorable resolution of certain nonrecurring discrete tax items that we do not expect to have this year.


Capital Spending Plan

  • The higher level of investment that is flowing through the P&L is also reflected in our capital spending plans
  • We are planning approximately 280mm in Capex in FY2011 to support our retail, wholesale and infrastructure investments and initiatives that Roger and I have outlined on this call today
  • About half of our capital is allocated for 15 to 20 new stores and shops; including a new 30,000 square foot flagship location to showcase our women’s and home collection merchandise across from the Rhinelander Mansion on 72nd and Madison Avenue in New York City


Bear Market Macro: SP500 Levels, Refreshed...

As of 3PM EST, the SP500 continues to trade within the daily range that we outlined in both this morning’s Early Look note and on this morning’s Macro Call (1117-1133), with the low of the day actually being 1117.


What was immediate term TRADE resistance for the last 5 days is now support. This is an important risk management reality to acknowledge. It doesn’t mean that the intermediate term TREND (1144) in the SP500 isn’t bearish. It simply means that the immediate term TRADE has a support line that I am going to respect until the math tells me not to.


As a result, all you’ve seen me do today is cover 2 short positions (RT and DBB) and buy 2 long positions (WMS and IDX) in the Hedgeye Virtual Portfolio. There is no bullish catalyst for making these 4 moves that’s more important than price.


If the SP500 breaks down through (and closes below) 1117 again on the downside, I’d expect to not look so smart with these risk management decisions as there is no significant support line for the SP500 until 1089.


On the 16.5% of the time that I am wrong on my short positions (our batting average is 83.5% on the short side since Hedgeye’s inception in 2008), you’ve probably figured out that when I capitulate and cover some of my shorts for losses, it’s right around intermediate term tops.


Since I use stop losses, that’s a risk management reality of life that I am aware of, not often happy about, but willing to live with.



Keith R. McCullough
Chief Executive Officer


Bear Market Macro: SP500 Levels, Refreshed... - 1


A rough quarter followed by a rough conference call. Not much positive going on at BYD. Here are our notes from the call.



"Despite a difficult May and June, our overall performance was consistent with the previous two quarters, and generally in line with our expectations. The lingering effects of the recession have left consumers unusually sensitive to shifts in the economy, and they now react more quickly to economic data and other developments, such as fluctuations in the stock market. Although conditions remain uncertain, we believe long-term stabilizing trends are still in place, and that year-over-year growth is achievable by the end of 2010."

- Keith Smith, President and Chief Executive Officer



  • "In Las Vegas, the Locals business declined at a slightly higher rate than the first quarter, but still showed marked improvement over the large quarterly declines we saw throughout 2009."
  • Downtown: "Continued lower spend per visit and reduced visitor volumes."
  • Midwest & Southwest: "Our Louisiana properties continue to account for the majority of the region's year-over-year decline, as they face tough comparable results from the strong levels experienced throughout most of 2009. Overall, the Midwest and South region continued to show trends similar to the previous two quarters."
  • Borgata: "Quarterly performance was negatively impacted by higher promotional activity from competitors in Pennsylvania, higher utility costs due to unseasonably hot weather, and reduced day trip visitation to the Atlantic City market in June."
  • Additional information: 
    • Cash, excluding Borgata: $78.2MM
    • Cash at Borgata: $21.9MM
    • Debt, excluding Borgata: $2.52BN
    • Debt at Borgata: $626.9MM


  • Fragile state of the consumer is impacting their results.  
  • However, they still believe in the long term stabilizing trend and that YoY growth is possible by year end
  • Discontinuing their efforts to acquire STN's assets and spend on those efforts given the Ferritta's advantage
  • Will focus on strengthening their balance sheet and reducing leverage
  • The stabilizing trend that Las Vegas locals experienced in the first quarter moderated in the second quarter
    • However, for the 4th consecutive quarter, they saw normal seasonality in that market
    • Orleans EBITDA was flat YoY for the first time in over 2 years
  • Downtown results showed improved trends
  • So far, no impact of the oil spill
  • Anticipate that the 3Q results will be down again YoY but expect to improve some due to easier comps in 4Q
  • AC: July trends have normalized and improved vs. June results. Too early to predict impact of tables games in PA on Borgata. Unseasonally hot weather impacted utility costs at Borgata in 2Q. Adjusting for weather, results are running in line.
  • Refinancing of Borgata debt will provide them with a $100MM distribution if approved by the NJ regulatory authority
  • Total corporate expense for 2010: $40MM
  • Pre-opening was related to Echelon
  • Expect 30% tax rate for the remainder of the year
  • Las Vegas locals market - what changes they have seen vs. a few months ago?
    • As they got into June & July, which are the slowest time of the year for the locals market, they saw similar trends to 1Q and 2Q and expect similar trends for the rest of the year.
    • Any improvement YoY given how dismal last year was?
      • Optimistic but guarded given the sensitivity of the consumer
  • Incremental impact of slot promotions with the introduction of table games in PA
    • Their slot business continues to perform quite well.  They think that the promotional activity is just to facilitate the rollout of table games and is low margin.
  • Utility cost impact was just an impact of a very hot summer. Don't expect it to be replicated in 4Q. Was a usage, not rate, issue
  • Any interest in getting in PA?
    • Not currently looking there. No particular interest in that market
  • Echelon?
    • Years away before they decide to do anything with it. The improvements that the strip is seeing is just a slow gradual build.
  • Borgata - Any contingency plan to cut costs if they get hit harder than expected by table games in PA?
    • Will wait and see - they are prepared to manage around any impact that they see from PA
  • Frequency of visitation to their properties has trended upwards, but spend levels continue to be depressed
  • Midwest/ South?
    • Louisiana contributed to the majority of the decline. Delta Downs had record performance last year this time - so the comps are very hard and that will continue into 3Q.  Expect an improvement in the 4th quarter.
    • Louisiana and TX were hit with trends just later on
  • Given the lack of acquisitions opportunities, is there a point to ramp up capex?
    • Claim that their properties have been well maintained
    • Expect Capex to increase in 2011
  • What's the strategy, aside from waiting for a recovery, given that Echelon is on hold and STN is no longer a priority?
    • Still focused on Las Vegas - just don't have any compelling M&A opportunities. Think that it is better to buy than to build EBITDA today. The best opportunity for them is in the locals Las Vegas business. It's all about gaining distribution points. If valuation makes sense though, they will look elsewhere
    • Bid on M Resorts? No comment - according to Lerner they bid on it.
  • Given that FTE's in Vegas are down despite high occupancies with no plans to add FTEs, what's their plan?
    • Construction segment is the real problem for them, and may get worse as more projects wind-down
    • Those people have already adjusted their spending levels to the new reality
  • Texas?
    • If it happens, they would be interested in participating
  • July in Louisiana?
    • Still tough comps - won't improve until comps ease
  • They did take out some machines at Borgata when they reconfigured the floor - to be more efficient
  • Refinancing by mid 2011
  • Would buy EBITDA if it was deleveraging and had a good cash on cash return, and how it strategically fits into their company.
  • Will use FCF to delever
  • They wouldn't risk the company to do an acquisition. Factor in their capital structure/ refinancing needs going forward.

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