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Malcolm Knapp released estimated casual dining comparable restaurant sales for April over the weekend.  Casual dining companies have seen solid 1Q results but the sequential slowdown indicated by Knapp Track data for April could point to a more difficult 2Q sales environment.

Estimated comparable restaurant sales growth in April was +1.6%.  Final March comparable restaurant sales growth was +2.4% (versus the prior estimate of +1.9%).  The sequential decline from March to April, in terms of the two-year average trend, was -55 basis points. 

Comparable guest counts in the casual dining space grew +0.2% in April on a year-over-year basis.  The final March guest counts growth number was +0.40% (versus the prior estimate of -0.10%).  The sequential decline from March to April, in terms of the two-year trend, was -75 basis points.

If this latest Knapp Track data point does, in fact, point to a more difficult 2Q sales environment, it would corroborate with what we are seeing in the broader consumer economy for 2Q to-date.  Below is some text from Friday's Macro post titled, "INCREMENTAL THOUGHTS ON THE CONSUMER":

"Although consumer spending growth remains healthy, the latest retail sales data suggest that growth may be slowing on the margin (including the issues with seasonal adjustment for Easter).  The government reported that sales growth in April disappointed, with core sales growing 0.2% (the weakest result since December 2010.  Yes, rising gasoline prices are taking a toll on sales at retailers and there are some signs that discretionary purchases are beginning to slow.  Department stores and housing related retailers had a poor showing in April, while restaurants may be losing some share to the grocery store channel.  The government’s attempt to increase take home pay from reduced social security withholding is being fully absorbed by higher gasoline prices.  As noted above, the recent job picture is not good and wage income is growing only modestly and that growth is largely dependent on government.  Therefore, the outlook for retail sales has become less certain and the risk to the downside is growing every week."

That gas prices continue to be a concern for restaurant companies was noted by many casual dining and quick service management teams during the first quarter earnings season.  Expectations are for gasoline prices to moderate over the remainder of the year but, if gas price inflation does not moderate, it could have a dampening effect on comps for the restaurant space.  I have previously highlighted CBRL, CAKE, and CPKI as three names that could be negatively impacted by elevated gas prices.

We continue to favor EAT, RUTH, and KONA. 

Howard Penney

Managing Director