Idea Hunt Today
Adding KRUS to the SHORT Bias and COCO to the LONG bias
We are hosting an Idea Hunt call for Restaurants and Consumer Staples on today at 2 PM ET. We were hunting for longs and shorts where our estimates differ materially from consensus expectations and where the multiple could be re-rated. We will present our analysis after a further round of vetting on a handful of companies. Our best ideas often are sourced from vetted Idea Hunt companies.
Details are in a separate invite.
PLAY's BLACK HOLE
Management's lack of transparency was noticeable, and not providing guidance for FY 2023 due to a May Investor day is a cop-out. The company gave unit opening guidance but did not give annual same-store sales (or anything else). I think the real answer is they have no idea what the real momentum is when the CEO said, "And so there’s just a little bit of uncertainty around exactly what that baseline is going to be." To offset this negative, the board approved an inconsequential share repurchase program authorizing the company to repurchase up to $100M of its common stock through the end of FY23.
PLAY reported 4Q22 Non-GAAP EPS of $0.80 (+54%), beats by $0.10, and revenue of $563.7M (+64.3% Y/Y) beats by $31.86M. Comps of +19% beat by +180bps. The cost of sales was 20bps lower than expected, with RLM of 30%, up 50bps YoY. Unfortunately, the reality is setting in, and against the strong Omicron recovery that occurred in Q1 of 2022, the company said quarter-to-date, comp store sales are roughly "flat to down very low-single digits" YoY. Like 3Q22, the quarter got off to t a slow start, and management expects sales to remain strong 1Q23 looks like 4Q22:
"There's tremendous momentum in this business, where we continue to be very pleased with what we see in our trends. We've gone through, and we've looked at our sales figures to try to understand if there's anything more than just time into spring breaks and lapping a difficult comparison. We're not seeing anything that would suggest that there is a change and a significant change in the fundamentals of this business."
What about economic gravity? How does that play into your thinking?
The company called out the special events business 12 times on the earnings call as an important driver of the 19% SSS; The CEO commented, "driven by strong comparable walk-in sales growth and the tailwind of our special events business continuing its recovery toward pre-pandemic norms.
Special events are the most cyclical aspects of the business and will likely suffer first if we head into a recession.
CMG & SBUX
The Labor issues don't seem to be going away.
Chipotle Mexican Grill will pay $240,000 to employees let go when the company last year closed its Augusta location, vindication for the workers whose jobs were lost when they dared to ask for better working conditions. Is this part of something much bigger, with employees organizing? At both CMG and SBUX, employees are demanding safety, dignity, and better pay. SBUX is the poster child for responding to the potential unionization by intimidating and firing the employees responsible, withholding benefits, or worse, hoping that they can stop the union movement from spreading. When employees at a Starbucks in Biddeford became the first from that chain to unionize, they were retaliated against by the company, which, employees say, continues to prevent them from posting union information, as they are allowed to by law. Chipotle seems to be following the same playbook. When the Augusta location was closed after employees became the first in the country to file for union recognition, the company instead cited its "remote" location as a deciding factor. But the National Labor Relations Board found that Chipotle violated labor laws, leading ultimately to the settlement announced this week. Under the agreement, in which Chipotle admits no fault, the money will be split among 24 workers who were on the payroll when the Augusta location closed. Chipotle must also post a notice in about 40 stores in Maine, New Hampshire, and Massachusetts detailing how the company broke labor laws in Augusta, along with a commitment not to interfere with the rights of employees, including the right to unionize.
