TALES OF THE TAPE: DRI, THI, EAT, MCD, SBUX, DNKN, SONC, WEN

Notable news items and price action from the restaurant space including our fundamental view on select names.

 

 

MACRO

 

Gas prices were highlighted by DRI CEO Clarence Otis on the company’s most recent earnings call (March 25) as being a significant headwind for traffic.  Gas prices are down almost 7% since then and 16% since the peak on April 30th.  If gas prices continue to fall or, simply, not go up during the summer months, casual dining may continue to perform strongly.  As gas prices declined in May, the Knapp Track casual dining same-store sales index accelerated sequentially on a one- and two-year basis.

 

Cattle futures continue to rise as shorter supplies loom on the horizon, according to cattlenetwork.com.

 

Unrelenting rainfall may have slashed U.S. planting of durum wheat to the lowest level in more than 50 years, fueling a surge in the price of pasta and noodles as mills scramble for supply of the grain. Grain elevators in North Dakota are paying farmers about $14.40 a bushel for durum up from $9.50 a month ago; the peak was $23 reached in February 2008.

 

The outlook for the consumer - more Americans filed first-time jobless claims last week and consumer confidence fell according to the Bloomberg Consumer comfort index.

 

 

QUICK SERVICE

  • THI was mentioned in a list of names that Goldman expects to drive EPS growth via buybacks. EAT was not on the list.
  • MCD is planning its second Yuan-denominated bond issue, HKET says.  MCD spokeswoman Vivian Zhang has denied the claim.
  • SONC estimates were raised by Piper Jaffray.  FY11 revenue and EPS are now expected to come in at $546.8 million and $0.56 per share, respectively.
  • WEN opened its flagship restaurant in Moscow, Russia Thursday. The restaurant in Moscow’s historic Arbat District, was opened with festivities to celebrate the quick-service burger brand’s entry into the Russian Federation this month. The Russian Wendy - instead of the wholesome freckle-faced redhead in old-fashioned pantaloons, wears a short dress, bright red-striped stockings and stilettos.

HEDGEYE: For years WEN has been trying to cultivate an “international” growth story.  On the marketing front, upgrading “Wendy” to a sexier look can’t hurt sales…

 

  • Dunkin’ Brands is teaming up with Marvel Studios to promote “Captain America: The First Avenger.” The tie in — which marks the first time the parent of Dunkin’ Donuts and Baskin-Robins has partnered with a motion picture studio — includes themed menu items, a website where participants can win prizes, and a Facebook promotion.

HEDGEYE: The S1 filing for the IPO shows some of the slowest same-store sales trends in the breakfast category.  I know they are hoping this will give them a boost.  Not likely, movie tie-ins are a relic of the past.

  • When KFC Corporation filed a lawsuit in late April seeking to terminate the agreements of 10 stores owned by John R. Neal, one of its biggest operators, some critics charged that the system was getting back at Neal over his leadership in franchisees' successful lawsuit to secure more control over advertising. Late yesterday, Neal's attorneys filed court documents alleging exactly that - Restaurant Finance Monitor

HEDGEYE: YUM’S issues in the USA are not isolated to KFC franchisees the company has many problems with a number of franchisees across all its USA brands.

  • SBUX - Starbucks celebrated the opening of its 100th outlet in Indonesia on Friday, promising a more aggressive expansion plan in the future.  Jakarta-based retailer Mitra Adi Perkasa, which holds the license for Starbucks in Indonesia, said it planned to open 15 more branches throughout Indonesia by the end of 2011.

HEDGEYE: SBUX remains in the Hedgeye virtual portfolio. 

 

 

CASUAL DINING

  • DRI’s Red Lobster concept has seen an improvement in performance due to the four-course menu promotion, according to Wells Fargo.  The company’s outlook on DRI has strengthened as a result.
  • DRI could be facing higher food costs on top of the double-digit inflation being seen in seafood.  Bloomberg reports that pasta prices may surge on curbed durum supply.
  • EAT franchisee ERJ Dining LLC, which runs 122 Chili’s units, has deployed wireless, on-table touch-screen technology at 30 of its restaurants in advance of a full rollout by the company later this summer.

 

TALES OF THE TAPE: DRI, THI, EAT, MCD, SBUX, DNKN, SONC, WEN - stocks 624

 

Howard Penney

Managing Director

 


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