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There were several important moves in restaurant stocks yesterday that I’d like to call out.  While the day’s change for the S&P 500 was up 2.16%, restaurant stocks saw plenty of divergence.  Brinker and Starbucks both outperformed the market.  As was pointed out in our sales team’s Best Ideas email this month, EAT and SBUX are two of our favorite names.

SBUX:  During its investor conference in New York yesterday, management outlined plans to accelerate international openings (particularly in China), expand CPG globally, and improve multi-daypart sales in their stores.  Chairman, president, and CEO Howard Shultz also suggested that the company would look to make acquisitions “small and large” that are compatible with the company’s growth strategy.

PEET: Peet’s was also up on strong volume.  This is a great company that is operationally very strong and is being touted as a possible target for Starbucks given their distribution capabilities. 

EAT: Brinker has been outperforming on a one week and thirty-day basis and yesterday proved to be a good day for the stock, finishing up 3.5% on high volume.  My thesis is for sales stabilization and margin gains at Chili’s as we head into 2HFY11 to coincide nicely with the lapping of menu changes that caused sales to decline last year.  Additionally “2 for $20” is to become permanent and Chili’s will be rolling out a new lunch menu focused on gaining traction in a day part that has been challenging for the company.  Please refer to our Blackbook on EAT for a deeper dive on this thesis.

CMG:  This stock continues to perform strongly, finishing up on strong volume yesterday despite trading in the red for much of the day.  CMG’s ability to drive strong sales is trumping any underlying concern about the company’s commodity exposure.  

BWLD: Buffalo Wild Wings declined sharply yesterday on strong volume.  The companies favorable cost of goods sold outlook should continue for the next quarter or two, on a year-over-year basis. 


Howard Penney

Managing Director