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

Run Rick Run

Conclusion: Texas Governor Rick Perry seems to have the hot hand in the race for the Republican nomination, but his emergence verifies our continued belief that this is a weak and poorly organized field of candidates.  This bodes positively for President Obama’s re-election efforts.


This weekend, two-term Texas Governor Rick Perry spoke at the Republican Leadership Conference in New Orleans and according to reports, he brought the house down.  Governor Perry drew a sharp and partisan line between the political left and right that played well with his audience.  The three key themes of his twenty-five minute speech were the need to cut government spending, cut government interference, and to, generally, get the United States back on track.  It should be no surprise that Perry received favorable reviews after this speech, as he himself said, “I’m preaching to the choir here. I understand.”


This speech capped off a strong month for Governor Perry in terms of perception of being a legitimate presidential candidate.  While he isn’t yet making a serious dent in national polls and hasn’t yet participated in candidate debates, he has seen a startling move on the InTrade Republican nomination futures market.  We’ve posted the chart of the futures contract for whether he will gain the Republican nomination below.  In the span of one month, this contract has gone from being priced below $3, to a current price of $18.80, so an effective increased of likelihood of his getting the nomination from 3% to almost 19%.  This has occurred despite the fact that he has not officially entered the race.  Interestingly, according to InTrade Perry has almost double the chance of receiving the nomination versus Governor Pawlenty of Minnesota.


Run Rick Run - 1


The rapid ascent of Governor Perry, at least on this measure, verifies the obvious challenge to Republicans in this electoral cycle, which is that they do not have a candidate, or candidates, that will clearly drive the Republican base.  While former Massachusetts Governor Mitt Romney is currently the front runner in many polls, and according to InTrade has a 32.5% change of obtaining the nomination, his position remains precarious as front runner. 


In the broader polling data related to the Republican Presidential Nomination at Real Clear Politics, the RCP averages for the Republican nomination show a similar story.  That is, a race that is poorly defined with no real front runner.  While much of the data is about a week old, Romney still leads with 24.4% of those polled saying they are going to vote for him in the primary.  Interestingly, his two closest competitors, Sarah Palin and Rudy Giuliani, at 16.0% and 11.0% respectively, haven’t even declared they are running for the nomination.  We’ve posted a summary table of these polls below.


Run Rick Run - 2


Currently, if the advisors of any Republican candidate are concerned, it would have to be those of Romney.  In effect, Romney has been running for President for well over  six years, has substantial name recognition advantage over the competition, and, clearly, has a much more developed fundraising network.  Despite these advantages, Romney still has only a narrow lead over the field.  As well, the recent visibility of Governor Perry provides support to the idea that Romney remains very vulnerable.


Some political strategists that we are in contact with have suggested that Governor Perry is just what they Republican Party needs to defeat Obama.  Perry is a motivational and fiery speaker, has strong views related to the minimal role of government, has a largely successful track record as Governor in Texas, and has the social conservative credentials that will aid him immensely in the Republican primaries. 


President Obama is going to have a very difficult time defending the economic performance of his administration.  More than anything else, perhaps the best proxy of this is the misery index. The misery index is basically a combination of unemployment and consumper price inflation and hit a 28-year high last month.  We have an index that measures a similar dynamic called the Hedgeye Inflation Index, which is posted below.  Specifically, this index measures the delta between what people pay versus what they make.  Collectively, both of these indices show that that average American isw getting squeezed.  It is likely that by September 2012, there will be limited improvement of these measures.  So, to the extent that President Obama can shift focus away from the economy, he stands a much better chance of gaining re-election.  In theory, a candidate such as Rick Perry would open that door for President Obama.


Perry has two characteristics that may not aid in his ability to win a general election for the Presidency.  First, he is extremely socially conservative.  He opposes all legal recognition of same sex marriage.  In addition, he is pro-life and has opposed government funding for elective abortions.  Much of this is underscored by his evangelical faith, which has led him to, among other controversial decisions, encourage the teaching of intelligent design in schools.  Second, Perry has been a strong advocate of State rights, so much so that he has mused publicaly about Texas seceeding from the Untied States.  As he said on April 9, 2009:


“I believe that our federal government has become oppressive in its size, its intrusion into the lives of our citizens, and its interference with the affairs of our State. That is why I am here today to express my unwavering support for efforts all across our country to reaffirm the States' rights affirmed by the Tenth Amendment to the U.S. Constitution. I believe that returning to the letter and spirit of the U.S. Constitution and its essential 10th Amendment will free our State from undue regulations, and ultimately strengthen our Union.”


Collectively, these views are increasingly out the mainstream believes of Americans. 


This, of course, is a short and nuance summary of some of Governor Perry’s more controversial stances, but they are important to consider especially given the positive response Perry has received.  In a short period of time, he has become a legitimate Presidential candiate.  The question remains: which party wants him to run more?  Just perhaps, there are a few Democratic strategists out there who are saying, “Run Rick Run”, as well.  If nothing else, it will certainly elongate an already muddy Republican primary.


Daryl G. Jones

Managing Director


Run Rick Run - 3

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In preparation for CCL's 2Q 2011 earnings release tomorrow, we’ve put together the pertinent forward looking company updates since its 1Q 2011 earnings call and as well as an 1Q 2011 earnings call YOUTUBE.




  • “Prolonged conflicts in the Middle East and North Africa region, as well as the earthquake and nuclear disaster in Japan, which combined resulted in over 300 deployment changes, will cost the company an additional $0.15 per share (previously forecasted cost disruption of $0.05 per share) for the second half of 2011.” 
  • “Increases in fuel prices net of currency exchange rates will cost the company approximately $0.05 per share in the second half of the year. “ 
  • “The company has also experienced softness in bookings for the Southern Europe and UK markets, which will result in reduced revenues costing an additional $0.05 per share for the second half of 2011. However, the company expects to offset the effect of this $0.05 per share in other cost areas of the business. Revenue performance for the North American brands remains strong and the company continues to expect sequential improvement in the second half of the year.” 







  • “A 10% change in the price of fuel for the remaining three quarters of 2011 represents a $0.22 per share impact. With respect to FX movement, a 10% change in all currencies relative to the U.S. dollar for the – also, for the remaining three quarters of 2011, would also impact our P&L by $0.22 per share.”
  • “On a fleetwide basis, occupancies are slightly lower than a year ago on a 5% increase in cruise capacity for the next three quarters. Ticket pricing for these bookings are nicely higher than last year. Looking at this picture by major markets, North American occupancy is slightly behind last year, with nicely higher pricing. Bookings for Europe, Asia, Australia, or EAA, are also slightly behind last year at higher prices.”
  • “On a fleet-wide basis, bookings have been running higher year-over-year at higher prices. In North America, wave bookings have paced the increased North America capacity with solid increases in year-over-year pricing.
  • In EAA, bookings have also been higher during this wave period, at approximately the same year-over-year prices. But the booking pace has lagged the 8.6% capacity increase for the period.”
    • “The EAA brands in particular, Costa and Ibero Cruises, have felt the effects of the political unrest in the Middle East and North Africa and the related disruptions to their itineraries, which visited these countries….The reaction of the North American brands have been more muted and they have a lot less calls in those countries, as well.”
    • “As far as pricing for the summer, yes, I think because we’ve been able to achieve higher prices, we have been holding out for those higher prices, and that’s why you’re seeing a little bit lower occupancies to compensate for those higher prices. But that’s versus last year. We’ve obviously filled last year and the feeling is that we can hold out for the prices and still fill this year.”
    • “For 2011, we expect to have free cash flow of about $1 billion and, given that we raised the dividend in January, the dividend in this year would be $700 million. So there isn’t that much significant extra cash flow this year, only $300 million.”
    • “Demand in North America has been pretty solid since wave season, both for European cruises, Alaska cruises and other kinds of itineraries. So demand seems to be pretty solid. I would say if you could – if you look at it from premium brands versus contemporary brands, we’re seeing I think pretty good strength in those premium brands, where for longer cruises, European programs, Alaska programs and for Caribbean programs, it’s good. But I think that we’ll see a lot of the yield improvement that we’re expecting to come from most of those areas where we’ve received good historical demand for those types of cruises from the North American market.”
    • “And we also reevaluated our income taxes. We had a pretty substantial increase in our income tax expense from 2010 to 2011 in our December guidance. And now that we’ve got a little bit more experience during the first quarter and have a better picture of the year, we just reevaluated that. We took it down, but we still are up versus the prior year in terms of income taxes. So all of that, as I said before, kind of offset some of the inflationary pressures in cruise costs.”
    • “I think Alaska, based on the agreements we reached with the Governor last year, lower head taxes and much higher marketing spend by the Alaska – the State of Alaska, has really helped, plus obviously, capacity is down versus the peak. So the combination of those things, I think, really helped Alaska.”
    • “On the Caribbean side, I mean, typically there is lot less Caribbean capacity in the summer and so – and we have a little bit less. So I mean, I think Caribbean pricing is holding up a lot better.”
    • [Net cruise costs] “And one of the reasons why the second quarter is a bit higher is because they’re projecting perhaps some more advertising expense over and above last year….We were expecting the third quarter to be up and the fourth quarter to be down and that’s how we got to flat to up 1% for the year.”
    • “Onboard spend is up across the board in all the brands, really hasn’t been significant changes in the different marketplaces. By category, most of the categories are up. We’re still struggling a little bit in the casino and art, which is something  we’ve talked about over the last couple of years. But all the brands are up and I don’t – there aren’t any discernible differences by brand or by region.”

2Q 2011

  • "Fleet-wide capacity in the second quarter of 2011 will be 5% higher, 2.9% in North America brands and 8.6% for EAA brands. On a fleet-wide basis, occupancies are at approximately the same levels as last year and local currency pricing is higher. than a year ago. At this juncture, we have only a small amount of inventories left to sell in the second quarter. North American brands are 55% in the Caribbean, with the balance in various other itineraries. Currently, pricing for North American brands in the second quarter is higher than a year ago, with occupancies at the same levels."
  • “Caribbean pricing has shown improvement from the first quarter and is down only slightly from last year’s second quarter Caribbean prices. Pricing for the various other North American brand itineraries, including shoulder Alaska and Europe seasons and most other itineraries, is higher than a year ago. For EAA brands, they are 54% in European itineraries, up slightly from a year ago, with the balance in various other itineraries. Local currency ticket pricing for EAA brand cruises in Europe is slightly higher than a year ago. Pricing for EAA brands, various other itineraries taken together, is also slightly higher than last year.”


3Q 2011

  • “Capacity in third quarter is expected to increase by 4.8%, 3.4% in North American, 7.2% for EAA brands. Third quarter booking patterns are progressing quite well, with fleet-wide pricing well ahead of last year at lower occupancies. North American brand capacity for the third quarter is 36% in the Caribbean, down slightly from 41% last year; 25% in Europe, an increase from 17% last year, which is almost a 50% increase, or about a 50% increase, and 23% in Alaska, which is about the same as last year.”
  • “Pricing for all North American brand itineraries in the third quarter is well ahead of last year, with particularly higher occupancy than pricing in this year’s Alaska season. Pricing for North American brands in Europe is also ahead of last year at lower occupancies, which is not surprising, given the approximate 50% increase in European capacity for our North American brands this summer.  Caribbean pricing for the third quarter is higher than a year ago, also on lower occupancies. This is a refreshing change for our Caribbean programs, given the challenges we’ve had during the first and second quarter. For EAA, brand capacity is 88% in European itineraries. EAA pricing is nicely ahead of last year at slightly lower occupancies, notwithstanding the challenges resulting from the political unrest in the Middle East and North Africa.”
  • “We are forecasting fleet-wide pricing for the third quarter to be up nicely for both North America and EAA business segments.”
  • [Yields] “It came down a half a point primarily because of the Middle East, entirely because of the Middle East. I should say also there’s been some itinerary changes relating to Japan that we’ve tried to include in our numbers, as well. But they were really small.”

4Q 2011

  • "For the fourth quarter on a fleet-wide basis, capacity is up 5.9%, 3.3% for North America brands and 10.1% for EAA brands.
  • Pricing on a fleet-wide basis is nicely higher year-over-year, with a similar pattern to the third quarter. Occupancies are lower than last year, which is also consistent with the pattern that we are experiencing in the third quarter.
  • Fourth quarter booking picture is encouraging, but it’s early in the booking cycle, so I caution not to read too much into the fourth quarter booking picture at this time. North American brands are 42% in the Caribbean, down from 50% last year; 14% in Europe, up from 9% last year and 10% in Orient and Pacific cruises, which is about the same as last year. Pricing across North American brand itineraries is running higher than last year, at slightly lower occupancies across the fleet. EAA brands are 72% in Europe, up from 65% last year, with the balance in various other itineraries.
  • Pricing for European cruises is nicely higher year-over-year, with pricing for the various other itineraries taken together also higher on a year-over-year basis. Occupancies are lower for European itineraries, which is not surprising, given the 20% increase in European brand deployment for the fourth quarter.
  • While it’s still early to have a more precise picture for fleet-wide fourth quarter pricing, on a fleetwide basis, we are currently forecasting local currency revenues will be nicely higher in the fourth quarter."
  • “Caribbean pricing is strong in the fourth quarter. Similar to the third [quarter].”

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