NEW EVENt - CMG SHORT
We will be hosting a CMG short call on 3/21/22 @ 2 PM
On Monday, we added CMG to the SHORT list on three primary concerns:
- Slowing leverage in the business model
- Is the CMG stage-gate process is getting stale?
- CMG "AUVs above $2.5mm with margins at or above 25%; all of which is a question of when not if?" Not so fast!
While there are some reasons to be LONG CMG (digital, chipotle lanes & unit growth), other elements might make their way to center stage as we move past the covid era and enter a more normalized eating-out environment.
WING GETs A NEW CEO, BUT WHY?
I am taking WING off the LONG list. The way the CEO is leaving raises a red flag.
In an extraordinary move, Wingstop (WING) announced the resignation of its Chairman and Chief Executive Officer Charlie Morrison, who took a position to head Salad and Go.
WING appointed President and Chief Operating Officer Michael Skipworth as successor CEO. Meanwhile, Lynn Crump-Caine, the Lead Independent Director of the Wingstop board, was appointed to succeed Morrison as Chairman.
There are very few "rock star" CEOs in the restaurant industry, and Charlie is one. As the company said on the earnings call since its IPO, the five-year track record is impressive. The five-year stacked domestic same-store sales are nearly 50%. New unit development averaged a growth rate of 11.5% annually. System-wide sales growth averaged 19%, and adjusted EBITDA growth averaged 20%. Much of that growth is why the stock trades a premium valuation to the group. The CEO's departure for a little-known concept is unusual, and you have to ask the real reason for the CEO's departure and what that means for the future growth and valuation of WING? Neither is likely a positive for the stock.
YUM CHINA
YUM is a LONG, but the concerns over China will be an overhang for the foreseeable future. Taco Bell continues to be one of the best-positioned QSR concepts in an inflationary environment.
YUMC reported comps (4%) y/y for combined months of Jan and Feb, but are down (20%) y/y for the first two weeks of March and are remain at lower levels. Operating profit declines ~(20%) y/y for the two months combined in January and February, primarily due to the significant sales deleveraging and cost inflation; an estimate that operating profit for 1Q22 to be $165-$200M below FactSet's EBIT consensus of $255.8M. The company said that 500 stores were closed or offering only takeaway/deliver at the peak in January 2022 and now 1,100 stores as of March 13th. Operations are significantly impacted by the latest outbreak, with QTD case counts for 2022 surpassing the full year 2021. Stricter preventive health measures and containment measures have been observed nationwide, including multiple rounds of city-wide testing and partial or complete city lockdowns.
