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

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more