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Overall, low volume trading continues in the restaurant space with some exceptions including notable casual dining names trading down on high volume.

Coffee house concepts such as Starbucks, Green Mountain, and Peet’s declined yesterday as coffee continues along a parabolic path to the upside.  GMCR, saw no bounce after the sharp downward move on Friday due to disappointing guidance embedded in their earnings release on Thursday.  In fact, they underperformed all QSR peers on high volume, declining 5.5%.

Chipotle also declined 5.1% yesterday which was interesting.  I am hesitant to call capitulation here, given how strong this stock has been, but the valuation is certainly egregious and my view on their commodity exposure remains the same.  That is, they are largely un-contracted and food inflation is going to meaningfully impact restaurant stocks over the next few quarters.  Their operating margin performance has been terrific but the task of maintaining that level, with commodity costs rising so sharply, is an onerous one. 

Other notable moves yesterday:

  • RRGB: Activist shareholder, Oak Tree Capital Management, filed a 13-D on Friday
  • CHUX: Closing stores.  Right-sizing a business is a good sign for the long term prospects of a restaurant company and also reflects favorably on the sobriety of the management team
  • CAKE, PFCB, DIN, EAT:  All declined on strong volume.

In terms of commodities, here is a list of headlines to be aware of this morning:

  • Florida Orange Crop to Avoid “Killer” Overnight Freeze
  • Copper Climbs to Record in London on Speculation Demand to Exceed Supply
  • Cotton Advances by Limit as USDA Predicts Inventory Decline to 14-Year Low
  • Australia Reduces Commodity Export Sales Outlook on Weather
  • Oil to Exceed $100 in 2011 as OPEC’s Spare Capacity Shrinks
  • Corn May Extend Rally 5% to End Year on `Strong Note'
  • Gold Demand, Mini-Contract Trade in Korea to Climb, Exchange Operator Says
  • Sugar Production in Australia May Plunge to 19-Year Low, Forecaster Says
  • Corn Futures Decline as Gain to One-Month High Prompts Sales; Wheat Drops
  • Coal Imports May Rise 78% to China, India, Drive Up Prices: Energy Markets
  • Eveready Raises Prices of Some Batteries as Zinc Costs Rise; Shares Jump
  • Marubeni to Spend $297 Million to Double Global Water Assets by March 2013

TALES OF THE TAPE - qsr 1214


Howard Penney

Managing Director