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Malcolm Knapp released estimated casual dining comparable restaurant sales for May yesterday.  This data point will likely ease investor fears of a slowdown in Q2 after preliminary April data released by Knapp in May indicated a slowdown in casual dining trends. 

Estimated comparable restaurant sales growth in May was 2.2%.  Final April comparable restaurant sales growth was +1.5% (versus the prior estimate of +1.6%).  The sequential acceleration from April to May, in terms of the two-year average trend, was +50 basis points.

Comparable guest counts for the casual dining industry, according to Knapp Track, grew +0.4% in May on a year-over-year basis.  The final April guest counts growth number was -0.1% (versus the prior estimate of +0.2%).  The sequential acceleration from April to May, in terms of the two-year trend, was +15 basis points.

While our last Knapp Track data update took somewhat of a bearish stance, supported by gasoline prices, retail sales data, and increasing uncertainty, this month’s data is slightly more positive on the margin.  Gasoline prices have come down for the time being and it seems that casual dining comps were better in May based on the preliminary data.  Gas prices are still elevated, however, and with the possibility that operators may have to take price to protect margins absent a meaningful and near-term decline in commodity prices, the outlook for the summer is less than certain.  I still favor CAKE on the short-side; management’s guidance on commodity costs is too low for the back half of the year and the Street’s expectations need to come down.  The company should meet expectations, however, in 2Q.  CBRL is the obvious candidate on the short-side if one believes gas prices are set to bounce higher from here.  However, gas prices are just one aspect of my own bearish stance on CBRL, a concept that I think is clearly suffering from mismanagement and is in secular decline.

Howard Penney

Managing Director