SHORT LABOR-INTENSIVE COMPANIES
We remain SHORT most labor-intensive, casual dine-in restaurants stocks which sold off on concerns over the new COVID-19 variant that has been reported out of South Africa. The stocks have been under pressure for some time but the incremental selling pressure is well in front of any indication that dining restrictions in the U.S. will be widespread. That said the Delta variants definitely hurt 3Q21 performance. There are varying press reports the variant carries an unusually large number of mutations associated with increased antibody resistance and is "clearly very different" from previous incarnations. South African scientists have already detected 30 mutations to the spike protein, which play a big role in how the virus enters the body. The biggest concern is whether the virus could lead to more serious illness or decrease the effectiveness of vaccines and treatments, but internally we don't belive that to be the case. Notable decliners include some of my favorite shorts Dave & Buster's Entertainment (PLAY) -10.1%), Red Robin Gourmet Burgers (RRGB -8.6%), Brinker International (EAT -8.1%), Bloomin' Brands (BLMN -7.2%), Cheesecake Factory (CAKE -6.7%), Dine Brands Global (DIN -5.3%) and Texas Roadhouse (TXRH -4.6%). It's likely that the early breakdown from analysts is that the sudden share price drops of restaurant stocks could be overdone without any clear indication that the variant will ultimately impact U.S. traffic, but that is not the overriding investment thesis for this group.
The labor issues have created new sales-related problems this quarter and into next year. Some restaurants that are struggling with labor shortages and the return of customers to on-site dining are choosing to scale back the times delivery and to-go orders. Many Casual dining companies are cutting in that they, can't staff both the in-store delivery on both in-store and digital sales.
GLOBAL COMMODITY PERFORMANCE
Global Performance
