Changes to the Restaurant Position Monitor
We are making two changes to the Restaurant's Position Monitor.
We are taking BYND & CHEF to a top five SHORT and moving SG and SHAK lower on the list for now.
BYND Disaster
BYND is due to report earnings after the close on Thursday.
- Consensus EPS Estimates: -$1.27 vs. -$0.37 last year
- Consensus Revenue Estimates: $151.2M up 1%
- Gross margin 9.6%
Heading into earnings, BYND has been the best performing stock in our universe over the past month, up 42% on the back of short interest coming in by 6.6%, but remains the most aggressively shorted name at 33.8% of the float. While we have always contended that MCD will never be a significant customer for BYND, the rumors of MCD scaling back its test in the US further confirm that the BYND business model is broken. Long-term prospects for this company are dim, and we expect a significant announcement that the company is scaling back its global growth initiatives. The company needs to go into cash preservation mode, with alarmingly low gross margins and a highly leveraged balance sheet. The street is modeling 23-25% sales growth for BYND over the next two years, which is unlikely to happen. The stock is trading at 3.2x NTM sales, and the business model does not support that type of multiple. At 1.0x sales, there is a downside to $10 or 65%
Chef's Warehouse
Taking CHEF to a top five SHORT
CORE BUSINESS IS SLOWING - As we mentioned last week, Black Box said, "For the first time in over a year, segment frontrunner Fine Dining experienced its most significant drop in sales growth for June." Fine dining is the core of the CHEF business, and a slowing in the fine dining segment will be a significant headwind for CHEF in 2H22. The company has raised guidance three times so far in 2022, not leaving the company and wiggle for estimates in 2H22.
MANAGEMENT IS BULLISH ON CURRENT TRENDS - The company remains bullish on the reopening, staying on trend, saying on the last earnings call: "The cruise line business is coming back. So, I think it's, you know, we're still at least a year away from any sorts of normality for travel and figuring out really, you know, if you catch COVID, is it five days away, you know, is it two days in the future staying away from work, so, you know, the crystal ball says that there's a lot of upside still to come. So, you know, when I look at the crystal ball, I'm like, well, there's a lot of upside to come and maybe you get a little slowdown in spending, and you still could be a net positive. And, you know, you've heard me say, Kelly, for, I don't know how many years that, you know, our – I think our strength is our laser focus on the customer sector that we sell to."
DEFLATION IS LOOMING - In 2Q22, CHEF saw some sequential deflation in certain center-of-the-plate categories (46% of 2022 Sales), while overall pricing remained firm. As we said above, we will likely not see incremental volume growth in 2H22, and deflation will likely accelerate as the economy slows in 2H22
We see about a 25-30% downside to CHEF.
