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TALES OF THE TAPE: PNRA, BWLD, PEET, SBUX, CAKE, SONC, BJRI, PNRA, KONA, CHUX

Notable news items and price action from the past twenty-four hours along with our fundamental view on select names.

  • PNRA shares gained 3.9% on accelerating volume.  Next to BWLD, PNRA is the best performing restaurant stock over the past thirty days. 
  • PNRA and BWLD report earnings today after the close.
  • PEET was downgraded to “Neutral” from “Outperform” at Robert Baird.  The twelve-month price target is $48 per share.
  • SBUX CEO Howard Schultz, responding to questions regarding his succession at a press briefing in Shanghai, said that he is “not going anywhere soon”.  He also stated that he expects the Via brand instant coffee to be a “billion-dollar” business in a “short number of years”, according to Bloomberg News.
  • CAKE traded higher on accelerating volume while EAT gained 0.9% on flat volume.
  • SONC, BJRI, CAKE, and PNRA were the only four stocks that traded with a gain in volume versus the thirty-day average.  In general, there was little volume in the restaurant space – or broader market for that matter.
  • KONA and CHUX traded down -2.6% and -3.6%, respectively, on accelerating volume.
  • MCD - raises prices by 2% in HK on wages: HKET

TALES OF THE TAPE: PNRA, BWLD, PEET, SBUX, CAKE, SONC, BJRI, PNRA, KONA, CHUX - stocks 426

 

Howard Penney

Managing Director


Currency Rodeos

This note was originally published at 8am on April 21, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.

“A national debt, if it is not excessive, will be to us a national blessing.”
- Alexander Hamilton

 

Like Keith, I’m a born and bred Canadian.  Despite my nationality of birth, after living in the United States for upwards of the last fifteen years, I can quite confidently say this is a great country.   At Hedgeye, we spend a lot of time critiquing the political leadership in Washington, DC in our research, but that shouldn’t be confused with a general critique of the United States. I’ll say it again, this is great country. 

 

In 1999, the 106th Congress passed a bill that allocated federal funds to renovate the Hamilton Grange, which was Alexander Hamilton’s family home.  In that bill, Congress indicated that this preservation was to “honor the man who more than any other designed the Government of the United States.”  At times, we’ve sided more with the Jeffersonian philosophy as it relates to governing, but there is no disputing Hamilton’s influence on the founding of this nation.  Indeed, as the first Secretary of the Treasury his words continue to have relevance in fiscal and monetary policy discussions.

 

Setting aside the discussion of the extent to which the government should be involved in our lives, I think we would all agree that government does have its place and can, with the right leadership, do great things.  In fact, to Hamilton’s point, based on a government’s ability to tax and borrow (if done prudently these don’t have to be bad words!) it can build infrastructure and provide appropriate social services, which make the outcome of any government debt a “national blessing.” That is, if its use is not “excessive”.

 

Late last week in our Q2 quarterly theme call, we called for a potential crash in the U.S. dollar.  Once again, we didn’t make this call because we lack American patriotism, but rather because of the fundamentals.  Stepping back for a second, though, we should frame up what exactly a crash means for a currency.

 

In the last 30 years, the largest annual decline in the U.S. dollar index was -18.5% in 1985, while the average decline for that period was 0.11%.  In the year-to-date, the U.S. dollar index is down -6.6%.  So, we are four months into 2011 and the U.S. dollar is already down close to 1/3  of its largest annual decline ever.  Our view is that the U.S. dollar could decline potentially another -5% through the course of the quarter and roughly -10%-ish through the course of the rest of the year.  If this occurs, it would be the largest annual decline for the U.S. dollar index in 30-years and that, my friends, is a crash.

 

This morning, we are seeing a continuation of this move with many currencies, once again, trading up close to a percent versus the dollar.  Interestingly, even in Europe, where sovereign debt woes continue to accelerate, the currencies are strong this morning with the British Pound up +0.92% versus U.S. dollar and the Euro up +0.73%.

 

We certainly get that being bearish on the U.S. dollar at this point isn’t exactly a contrarian call, but, to be fair, we’ve traded the U.S. dollar in the Virtual Portfolio 20 times since the firm’s inception and have been right 20 times. In addition, of the 46 currency positions we’ve taken in the Virtual Portfolio over the same duration, we booked a gain on 41 of them. Clearly, this isn’t our first Currency Rodeo. That said, according to a recent survey by Bank of America, all but 6% of their global clients are bearish on the U.S. dollar, which is not inconsistent with some of our internal surveys.  In addition, Barclays reported the commodity assets under management have reached an all-time high at $412BN.

 

Being long commodities is in many respects the same trade as being short the U.S. dollar, and we’d be remiss to not at least factor into our models that the investment community is leaning hard in one direction.  But the question remains: is consensus bearish enough on the dollar?  Our answer on this, until the facts change, is “no”.

 

As we analyze the U.S. dollar versus global currencies, we focus on three key factors: debt, deficit, and interest rates.  Currently, the U.S. dollar lines up negative on all three of these fronts, specifically:

 

1.  Excessive debt – In the last couple of years, it has become cool to quote Reinhart and Rogoff and bandy about sovereign debt-to-GDP ratios, so this isn’t new, but according to usdebtclock.org, the United States has a debt-to-GDP ratio of 96%.  This is negative for GDP growth, which is negative for the U.S. dollar as slower growth leads to longer term accommodative monetary policy and higher than expected fiscal deficits.  Further, the United States’ future debt trajectory is much steeper than any of its “AAA” peers (Canada, United Kingdom, Germany and France) due to a lack of a credible deficit reduction plan.  To add insult to injury, the politicians in Washington will once again debate increasing  the debt ceiling in mid-May while global currency traders watch real-time;

 

2.  Long term deficit – This year the United States federal government will run a deficit north of $1.5 trillion dollars, which is more than 10% of GDP.  (This is slightly better than Sierra Leone.)  The real issue with the deficit is a lack of a credible plan to reduce the deficit going forward.  While many nations globally have already begun austerity programs, the United States has no plan and the recently approved $38 billion spending reduction for the duration of this year is only likely to have a real benefit of some $380 million.  President Obama has given June as the time frame by which he hopes to have an agreement on a long term budget, but our view is that based on how far apart the Democrats and Republicans are on the tenets of the plan, this time frame will be blown threw;

 

3.  Monetary policy bifurcation - Simply put, interest rates and perceived future interest rates move currencies.   Almost every major modern nation in the world has either tightened policy (witness Sweden and China most recently) or is reporting data that suggests tightening is imminent.  In contrast, not only is the United States still implementing Quantitative Guessing Part II, but recent signals out of the Federal Reserve suggest we could see a version of QE-lite after June, so we think the U.S. Dollar will fall victim to additional easing in the face of the world tightening.

 

In order to shift our investment view on the U.S. Dollar we need to believe that these factors will improve absolutely and relatively and, as of yet, it is hard to make that case.  Meanwhile, the U.S. dollar index continues to be in a bear market in our quantitative models.

 

Currently in the Virtual Porfolio we are long the Canadian dollar, long the Chinese Yuan, and long the British Pound. We covered our short position in the U.S. dollar (UUP) yesterday.   This isn’t about politics or patriotism, but risk management.

 

Enjoy the long weekend with your families.

 

Keep our head up and stick on the ice,

 

Daryl G. Jones

Managing Director

 

Currency Rodeos - Chart of the Day

 

Currency Rodeos - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - April 26, 2011


Europe continues to be more right leaning on policy than America; a Bloomberg story says ECB “must solidly anchor inflation expectations.”  As we look at today’s set up for the S&P 500, the range is 21 points or -1.14% downside to 1320 and 0.43% upside to 1341.

 

SECTOR AND GLOBAL PERFORMANCE


The Financials remain the only sector broken on both TRADE and TREND. 

 

THE HEDGEYE DAILY OUTLOOK - levels 426

 

THE HEDGEYE DAILY OUTLOOK - daily sector view

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING GLOBAL

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING GLOBAL

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -259 (-1211)  
  • VOLUME: NYSE 697.93 (-14.13%)
  • VIX:  15.77 +7.35% YTD PERFORMANCE: -11.15%
  • SPX PUT/CALL RATIO: 1.30 from 1.60 (-18.48%)

 

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 21.29 -1.521 (-6.669%
  • 3-MONTH T-BILL YIELD: 0.07% +0.01%
  • 10-Year: 3.39 from 3.42
  • YIELD CURVE: 2.72 from 2.74 

 

MACRO DATA POINTS:

  • 9 a.m. S&P Case-Schiller, est. (-3.30% Y/y)
  • 10 a.m. Consumer Confidence, est. 64.5, prior 63.4
  • 10 a.m. Richmond Fed Index, est. 20, prior 20
  • 11:30 a.m.: U.S. to sell $30b in 4-week bills
  • 1 p.m.: U.S. to sell $35b in 2-yr notes
  • 4:30 p.m.: API inventories

WHAT TO WATCH:

  • Peru was the worst performing global market overnight after former Peruvian military rebel Ollanta Humala opened a six-point lead in a presidential poll before a June 5 runoff vote.  Concerns are he will strengthen ties with Venezuelan President Hugo Chavez.
  • FDA says it will not appeal ruling that it must regulate ecigarettes as tobacco products, not drug-delivery devices - WSJ
  • Tokyo Financial Exchange considering connecting its computer network with NYSE Euronext's - NQN
  • YouTube to launch movie-on-demand service charging users to stream - The Wrap
  • China raised capital adequacy ratios for its five largest banks in March - Bloomberg
  • US, China to resume strategic, economic dialog 9-10-May in Washington - wires, citing US Treasury statement
  • Yahoo Board Now More Open to Offers: WSJ All Things Digital

COMMODITY/GROWTH EXPECTATION


THE HEDGEYE DAILY OUTLOOK - daily commodity view

 

 

COMMODITY HEADLINES FROM BLOOMBERG:

  • Platinum Funds Expanding Fastest in Metals as Lonmin Seen Doubling Profit
  • Copper, Zinc Demand in Japan to Climb on Evacuee Housing, Power Generation
  • China May Buy More Sugar to Curb Fastest Inflation in Almost Three Years
  • Commodities Snap Four-Day Winning Streak on Fed Speculation, China Credit
  • Copper Drops Most in Seven Weeks on Concern China Tightening to Sap Demand
  • Oil Supply Climbs in Survey on Forecast for Higher Imports: Energy Markets
  • Gold, Silver Decline From Records as Investors Seek Cash to Protect Gains
  • Wheat, Corn Drop as Some Investors Sell Following Rally; Soybeans Decline
  • Sugar Falls as India May Allow Further Exports; Coffee Drops, Cocoa Gains
  • Copper-Alloy Product Output in Japan Declines 3.7% After March 11 Disaster
  • Investor ‘Euphoria’ to Drive India Silver Demand This Year, Exchange Says
  • Rubber in Tokyo Reaches One-Month Low on China Rate Concern, Car Output

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - daily currency view

 

 

EUROPEAN MARKETS

  • European markets are mixed and quiet with the holiday shortened week.
  • Greek 2010 budget gap wider than estimated as euro-area debt hits record
  • Indebted Spanish states pay Portugal-sized bond penalty rate: euro credit
  • Trichet says policy makers must avert any jump in inflation expectations
  • Dollar falls on speculation fed may keep supporting economy after qe ends
  • Greece, Ireland, Portugal yields hit records on default concern

 

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING EURO

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING EURO

 

 

ASIA PACIFIC MARKTES:

  • Asian Stocks Drop as Earnings Disappoint; Australia, Malaysia and Pakistan were higher on the day.  Japan and China were the two worst performing markets
  • China Said to Raise Capital-Adequacy Ratios for Biggest Banks to Curb Risk

THE HEDGEYE DAILY OUTLOOK - BEST PERFORMING ASIA

 

THE HEDGEYE DAILY OUTLOOK - WORST PERFORMING ASIA

 

 

MIDDLE EAST

 

THE HEDGEYE DAILY OUTLOOK - MIDEAST PERFORMANCE

 

 

 

Howard Penney

Managing Director


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.


Gaming Policy

“Conditions never persist. They change. Bureaucrats really hate that.”

-Jeffrey Tucker

 

That’s a quote from a book I read on my family vacation last week, “Bourbon for Breakfast – Living Outside of the Status Quo” (and, no I’m not taking up sipping on Canadian Club by the pool with my morning coffee). Nor do I aspire to ever be a professional politician in America.

 

Never mind understanding how the interconnectedness of the Global Macro market works, most professional politicians in America don’t get how a market works. Most of them still call this game of Big Government Intervention a “free market.”  I call that a joke.

 

The good news is that a lot of people get the joke. Gaming Policy is the new hedge fund game in town – so game or be gamed. There are  higher prices being paid (read: trading commissions) for “one-on-one” access to private meetings with DC bureaucrats than ever before. Sad, but true.

 

You don’t need inside information if you have a multi-factor, multi-duration, risk management process that flags real-time pricing of these “data points.” Anyone who has traded real-time risk capital in markets knows that someone always knows something…

 

We’ve titled one of our Q2 Global Macro Themes, “Indefinitely Dovish” (see yesterday’s Early Look) primarily because we think the market is pricing in Bernanke remaining dovish into and out of tomorrow’s FOMC meeting.

 

When we say “the market”, we mean the globally interconnected one – not just US stocks:

  1. Currency Market – the US Dollar Index is trading down again this week (for the 14th out of the last 18 weeks) and the Euro is making new highs by the day ($1.46 last) because, for the 1st time since Fed head Arthur Burns was attempting to monetize the US Debt and devalue the dollar (1970s), US monetary policy is more left leaning and dovish than even what the ex-Finance Minister of France is delivering. Jean-Claude Trichet’s comments overnight were explicitly hawkish: “it is extremely important to continue to solidly anchoring inflation expectations in a period which is marked  by uncertainties and turbulence.”
  2. Bond Market – global bond yields continue to push higher as Asian and European central bankers continue to back their rhetoric with rate hike action. Meanwhile, US Treasury yields are breaking down through our intermediate-term TREND support lines of 0.71% and 3.46% for 2-year and 10-year UST yields, respectively. Indefinitely Dovish in America is as dovish does…
  3. Commodity Market – higher-highs on rallies and higher-lows on corrections for Gold, Silver, and Oil. This is where the US Dollar Devaluation driven monetary inflation is – not in GDP growth oriented commodity pricing (copper, sugar, etc.). With the Saudis trying to talk down oil prices at these levels (calling them “uncomfortable” overnight), WTI crude oil sold off a whopping 50 cents.

And Equities, well – we’re right back to where we were in mid-February where Asian Equities (growth markets) are starting to negatively diverge versus US Equities (the Gaming Policy market). China, India, and Indonesia are rightly worrying about The Inflation that will be perpetuated by a US Currency Crash.

 

Have no fear however – The Bernank and Groupthink Geithner are here. They have the world’s back on this Currency Crash thing. Having never seen an oil price (including $150/barrel oil) that they thought was inflationary, we don’t think they’re about to start calling $113/oil inflationary now. While Bernanke will acknowledge rising commodity prices tomorrow, he’ll offset that hawkish shift with an incrementally dovish one on US growth.

 

In the Chart of The Day (attached), Darius Dale calls out how super duper the sell-side has become in leading The Bernank and The Groupthinker’s Washington boys to believe that US GDP Growth was going to be all good and fine in Q1 of 2011 – then not so much.

 

The good news here is that Gaming The Sellside is still one of the oldest and most profitable games in town. They haven’t learned much since missing US GDP Growth Slowing in Q2 of 2008.

 

If you are looking for leadership on the Currency Crash thing, the President of the United States had this to say over the weekend on gas prices:

 

“There’s no silver bullet that can bring down gas prices right away…”

 

Really? If The Bernank raised rates at tomorrow’s FOMC meeting, oil prices would break $100/barrel in a day.

 

We’d like to remind all of our friends and foes who are still beer-bonging the Keynesian Kool-Aid that there are 3 things that burning your currency at the stake with generational levels of leverage (debt) does to an economy:

  1. It perpetuates The Inflation priced in US Dollars
  2. It structurally impairs the sustainability of long-term economic growth
  3. It dares institutional investors to chase “yield”

No, we’re not saying that these conditions will persist as a perpetually preferred dividend for those of us who are long of The Inflation. Neither are we saying this will end well. What we are saying is that playing the game in front of us right now is the game of Gaming Policy – and, as sad a state of a “free market” as this is, when this game changes, it will change abruptly.

 

The bureaucrats are going to really hate having to deal with that.

 

My immediate-term support and resistance lines for the SP500 are now 1320 and 1341, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Gaming Policy - Chart of the Day

 

Gaming Policy - Virtual Portfolio


RESTAURANTS EARNINGS WEEK AHEAD: BWLD, PNRA, EAT, PFCB, SBUX, KONA

Last week the theme from the companies that reported earnings was those management teams universally underestimate the impact of inflation on margins and earnings in 2011.  Top line trends remain intact for the better positions companies, outside of one-off events like what happened at Taco Bell.

 

CAKE and MCD generated the most buzz as they both struck cautious tones, lowering guidance (from core operations), clearly surprising investors somewhat judging by the stock price action.

 

EAT (reporting 4/27 BMO): I continue to believe the EAT story.  I see three key components to the story.  First, the entire enterprise continues to benefit from the focus on the margin initiatives being put in place.   Second, I am looking for continued improvement in top line sales for the Chili’s brand.  Finally, I believe the street continues to underestimate the power of the margin initiatives and the improvement in sales trends at Chili’s, thus it appears that F3Q EPS estimates are low.

 

Key themes:

  • Same-store sales: The Street will zero in on Chili’s sales trends.  I think sales trend trended toward 0 to-1% at the end of the quarter.  Key topics will include results from Oklahoma City (the first reimaged market) and the performance of the new value lunch initiative.
  • Margin improvement:  Importantly, any update on the kitchen technology initiatives. 
  • Demand Destruction Update: DRI and RT have talked about demand destruction.  It will be interesting to see whether or not it will be a topic on the EAT call.  My guess is that this theme will not be used as an excuse for why expectations for the quarter were not met.

RESTAURANTS EARNINGS WEEK AHEAD: BWLD, PNRA, EAT, PFCB, SBUX, KONA - eat pod1

 

 

SBUX (reporting on 4/27 AMC):  At roughly11.1x NTM EBITDA, SBUX is trading at a fairly rich valuation.  I remain positive on the long-term trend of the business, with some reservations around near-term issues.  The company continues to transition through momentous changes in the overall business model as new growth channels are developed and more control is asserted over distribution and other facets of the enterprise.  The increased focus on higher-margin, low capex areas of the coffee industry – particularly CPG – and the increases in efficiency that should follow will drive higher returns over time.

 

Key Themes:

  • Coffee prices will be under the spotlight:  The most recent guidance includes a $0.20 hit from commodity pressures, primarily coming from coffee which is now locked for FY11.  
  • Limited upside to EPS: The significant increase in coffee prices and other commodities is limiting the upside in EPS outlook.
  • I expect same-store sales in the USA to be 5-7%.  This represents a marginal slow down on a one-year basis, but a continued acceleration on a two-year basis.

RESTAURANTS EARNINGS WEEK AHEAD: BWLD, PNRA, EAT, PFCB, SBUX, KONA - sbux pod 1

 

 

BWLD (reporting 4/26):  Looking at the stock price performance alone, one could conclude the BWLD is having a great quarter.  Relative to the rest of the industry, BWLD does not have commodity cost issues, so any up-tick in same-store sales will fully flow through the P&L and be a significant positive for earnings.  The uncertainty surrounding the NFL player-owner dispute has not slowed the stock’s performance. 

 

Key Themes:

  • Top line trends: The Company is facing an easier 1Q comparison and I would expect a slight acceleration in trends with same-store sales of 3-to-4%.  At the time of the 4Q10 earnings call, same-store sales were up 3.8% at company-owned restaurants.
  • Commodity costs remain favorable:  Since the 2Q call on 2/8/11, chicken wing prices are down 20%.
  • Margin trends:  Investors will be keen to learn of the impact, if any, from the January price increase and the trend in alcohol sales.  

 RESTAURANTS EARNINGS WEEK AHEAD: BWLD, PNRA, EAT, PFCB, SBUX, KONA - bwld pod1

 

 

PFCB (reporting 4/27 BMO):   PFCB needs to post a good quarter; I just don’t think this is the one.  As I wrote in February, I think the company’s fiscal 2011 guidance is going to be hard to achieve.  I’m wary of the company’s ability to pull off a 1-2% comp growth at the Bistro, which implies a significant acceleration in two-year average trends from where the company was tracking early in the quarter.  Although the +1% comp at the Bistro signals that company is on the right track toward achieving +1-2% growth for the full year, it is important to note that the company faced its easiest monthly comparison from 2010 in January when comps declined 4.4%.

 

Key Themes:

  • Margin improvement: PFCB’s FY11 guidance assumes a year-over-year improvement in restaurant level margins.  The bulk of this favorability is expected to fall in 1Q11 as the company laps the nearly 220 bp decline in margin that occurred in 1Q10 as a result of inefficiencies associated with last year’s Happy Hour rollout.  Margins should be helped in FY11 from the growing contribution of PFCB’s global brands business, which is a high-margin business (management guided to a nickel more of earnings from this business alone in 2011 relative to its reported $0.01 per share earnings contribution in 2010).  Offsetting this benefit, however, is the expected inflationary headwinds which are expect to hit the COGS, labor and operating expense lines of the P&L.  Specifically, management guided to a 3-4% increase in its total commodity basket, higher wage rates and healthcare costs and increasing energy and supply costs.
  • Traffic Trends: Traffic declined for the first time in 2010 during the fourth quarter when average check increased, not surprisingly, also for the first time in 2010.  Traffic declined 0.9% during 4Q10 versus negative traffic growth in 4Q09.  Traffic turned positive in 1Q10, up 0.8% and remained positive in 2Q10 and 3Q10, up 2.6% and 2.8%, respectively.
  • Sentiment:  With 22% of the float held short, the buy-side is decidedly bearish on PFCB.  Only 52% of the analysts that cover PFCB are positive and there are 12% that have an outright sell on the stock.

RESTAURANTS EARNINGS WEEK AHEAD: BWLD, PNRA, EAT, PFCB, SBUX, KONA - bistro pod1

 

RESTAURANTS EARNINGS WEEK AHEAD: BWLD, PNRA, EAT, PFCB, SBUX, KONA - peiwei pod1

 

 

KONA (reporting 4/27): is a name that is generating plenty of attention of late.  As the recent Knapp Track data for March illustrates, casual dining performed strongly through 1Q despite rising gas prices.  The Knapp Track report highlighted the inverse relationship between income level and share of wallet spent on gasoline.  The implication here is that higher-end concepts, such as KONA, will be less impacted by rising gasoline prices than will lower-end concepts.  With this in mind, as I wrote on 4/14 in my note titled, “KONA – GAIN ALPHA ON THE KONAVORE DIET”, I estimate that comparable restaurant sales were trending at approximately +4% in 1Q11, bringing an acceleration in two-year average trends to 0.8% for the quarter.  Operational initiatives are also set to add earnings power to a stock that I think will print its first profitable quarter as a public company in 2011. These factors, along with a relatively low valuation versus peer companies, should attract investors over the coming quarters.

 

Key Themes:

  • Same-store sales:  The Street will want to see continuing momentum after a strong 4Q10.  We know from management commentary that the same-store sales bounce in 4Q10 was broad-based; the key at this juncture for investors is whether or not it is sustainable.
  • Margin initiatives and inflation: Improving comps will go a long way towards offsetting inflation on the food line for KONA in 1Q11.  Exposure to seafood remains an issue and what management says on this subject during the earnings call will be of interest.  The company is targeting rent, G&A, and labor as areas of focus where margin can be gained to offset commodity inflation.
  • The road to profitability and growth: If comparable restaurant sales come in strong and management has positive news to report in terms of operational initiatives, I would expect that the earnings call may focus, in part, on returning the company to profitability and – ultimately – growth over the intermediate term.

RESTAURANTS EARNINGS WEEK AHEAD: BWLD, PNRA, EAT, PFCB, SBUX, KONA - kona pod1

 

 

PNRA (reporting 4/26 AMC):  PNRA has been a standout stock during 1Q; its stock gained appreciably on 4Q10 earnings results in February and the company, fortunately, has wheat prices locked roughly flat with 2010.  Early indications from this earnings season are that commodity outlook is going to be a central theme for the restaurant space.  Last quarter, PNRA raised the mid-point of its margin guidance 25 bps which, based on the maintained same-store sales guidance, implied an upward revision to EPS.  With sentiment as positive as it is, the company needs to both print a strong quarter and provide robust outlook for this stock to continue on its 2011 to-date trajectory.

 

Key Themes:

  • Same-store sales: Consensus is calling for an acceleration in two-year average trends for PNRA company stores and, given the generally strong/stable trends in restaurants of late and PNRA’s recent performance, I  would expect the company to meet expectations of a +3.9% comp for 1Q. 
  • Margin performance and outlook: PNRA currently has its commodity inflation guidance for the year set at 3% and, while wheat is locked for the year roughly flat versus 2010, it will be interesting to see if management raises its inflation outlook. Furthermore, to the extent that contracts are coming up for renewal, particularly the wheat contract, and the company could see pressure on margins over the intermediate term.
  • Sentiment: Sentiment on this one is as dovish as dovish gets.  Any deviation from the script that sentiment implies could see a meaningful swing in sentiment and – more than likely – the stock price.

RESTAURANTS EARNINGS WEEK AHEAD: BWLD, PNRA, EAT, PFCB, SBUX, KONA - pnra pod 1

 

 

Howard Penney

Managing Director


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