BYND - The revival
Or Something else?
Beyond Meat (BYND) soared 11.31% on Monday on a solid overall day for risk-on bets and stocks with a high level of short interest outstanding. Among the largest shorts in the Hedgeye Restaurant Coverage universe, Beyond Meat (BYND) stands out for having the highest stock borrow fees for all stocks, with more than $100M worth of short interest outstanding on them, per data from S3 Partners. "High stock borrow fees can test the conviction level of short sellers as financing costs can take a large bite out of expected Alpha," noted S3 Partners' Ihor Dusaniwsky. Beyond Meat is not due to report earnings until near the end of February. Twelve of the last 13 EPS revisions on BYND have been to the downward side. Options trading implies a swing of more than 9% when the report.
CMG - Raising Prices to invest in Food and People?
or to get paid the incentive comp?
In an article in Yahoo, the CFO of CMG says they are using pricing to invest in food and people, but there is no evidence of that in the numbers. "Meanwhile, in 2022, Chipotle Mexican Grill, Inc. increased menu prices at least three times. That's due to factors such as inflation in ingredient costs, wage inflation, and energy prices, CFO Jack Hartung told me late last year. "When we look at our menu prices compared to competitors, we're still a terrific value," Hartung said. "Our food cost and our people cost are by far the largest items on the P&L," he said. "We don't want to cut back on our food. We've never tried to reduce the quality of our fresh ingredients. We want to invest more in food and our people."
When asked specifically on the last earnings call, the CEO essentially said they are doing it to protect margins and not invest in the business. "The other thing we talked about was inflation over the last two years. Food inflation has been about 20%, but labor inflation has been more like 24%. So any time we take price increases to cover labor when labor is inflating at a higher rate than food costs, again you get some of that benefit in the food cost. So that's why it's under 30%. You're right; historically, we have not seen our food costs under 30%."
Below is how food and labor costs look on the P&L. SInce 2Q20, food costs have been down by 350 bps, and labor costs are down by 310bps. That move in food in labor does suggest that the company is not investing in food and labor to drive incremental customer transactions but instead to increase margins which helps senior management collect its incentive compensation.
SHAK LABOR COSTS
The following are some thoughts from a Hedgeye Restaurants sub located in CA.
"At a time when SHAK freely admits that it is having trouble staffing restaurants, why does the company become more labor intensive by introducing delivery to tables in a market ( Marin County, CA) that is one of the most difficult in the US in terms of availability of hourly labor? The sign shown in the photo was next to the order kiosks. On this particular day, the kiosks were not working, and the woman behind the counter indicated that the kiosks had been inoperative for some time."
We are always grateful for Hedgeye subs that provide thoughts on names in the restaurant space.
