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    MARKET EDGES

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

MACRO

Unemployment continues to be a concern as Initial Jobless Claims came in at 428,000, leaving the rolling number at 426,750.  Considering that the level of claims needs to drop to ~375,000 before a reduction in the unemployment rate can come about, this is another reminder of the gravity of the employment situation in the U.S.

Commodity prices are not moving in tandem, as they have – straight up – over much of the past nine months, but there seems to be considerable inflation in many foodstuffs. For instance, rice supply in China, the world’s biggest grower and consumer, may decline after drought and floods damaged crops, potentially boosting inflation and increasing imports. 

Corn rose in Chicago, reducing the decline seen in 2Q, on speculation that the government will reduce its estimate for national acreage and stockpiles of the grain.  Delayed planting, poor weather and flooding may limit crop yield potential, according to some commentators.

For the week ended June 24, gasoline demand dipped 1.8% below year ago levels as pump prices were 32% higher than in 2010, according to Mastercard.  We are short CBRL in the Hedgeye virtual portfolio.

QUICK SERVICE

  • DNKN is said to be setting its IPO price range as soon as next week.
  • WEN spoke at the Oppenheimer Consumer Conference and provided guidance for same-store sales of +1 to 3% and food inflation of 5 to 6%.  The stock gained 1.4% on slightly-higher-than-usual volume.
  • CBOU declined 4.6% on accelerating volume.  Over the past month, the stock is by far the best performing in QSR.

CASUAL DINING

  • RUTH declined on accelerating volume.

TALES OF THE TAPE: DNKN, WEN, CBOU, RUTH - stocks 630

Howard Penney

Managing Director