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

MACRO

For the first time in six months, the National Restaurant Association’s restaurant performance index sunk last month to a level deemed unhealthy. The National Restaurant Association spent $613,000 (up 24%) in 1Q11, lobbying the federal government on issues including food safety and granting temporary visas to hire workers from outside of the U.S. The size of this year's corn crop will be 92.3 million acres (the U.S. Agriculture Department) 9% larger than the average annual corn crop over the past decade. The only crop bigger in the past 67 years was planted in 2007.

QUICK SERVICE

On Friday, July 8, Chick-fil-A restaurants nationwide will celebrate the annual Cow Appreciation Day event by offering a free meal to any customer who visits one of the chain’s mall or stand-alone restaurants fully dressed as a cow. TAST, CBOU and THI were all up on accelerating volume AFCE - By July 1, Popeye’s Lousiana Kitchen, known for its fried chicken and Southern fare, will complete the rollout of Coke and Dr Pepper products to all its roughly 1,500 restaurants, as part of a five-year deal for Coke and Dr Pepper products, signed in December.

FULL SERVICE

DRI up on accelerating volume ahead of earnings

DRI Top 10 4Q11 EPS Takeaway:

  1. It’s nearly impossible to get all cylinders firing at the same time (just ask YUM)
  2. The after hours stock performance confirms our thesis that “top line” will be the key driver to the upcoming earnings season.
  3. The Olive Garden SSS disappoint, with the balance of the concepts outperforming consensus.
  4. 2-year trends slowed for all three concepts, with Red Lobster and Olive Garden down on a 2-year basis. (Red Lobster 2-year -0.4%; Olive Garden 2-year -0.8%). Long Horn’s 2-year number is +3.9%
  5. The Olive Garden is the biggest, most profitable concept the company operates. Part of the top line issues are structural, with the remedy (remodels) coming in late FY12.
  6. Red Lobster top line is strong, but the current trends in 1Q12 are being driven by a significant value promotion.
  7. FY4Q EPS met consensus, with FY12 guidance slightly ahead of consensus on sales and earnings.
  8. The cynic in me says the out-sized boost in the dividend is compensation (sending a positive financial message) for a slightly disappointing Olive Garden performance.
  9. Management did not take the annual 4Q price increase at the Olive Garden.
  10. The Specialty restaurant group is a drag on consolidated margins

CBRL - A woman got her order of fries with a side of human blood at a Cracker Barrel in Texas this week, prompting the restaurant to apologize and send the woman a $100 gift car.

TALES OF THE TAPE: DRI 4Q THOUGHTS, TAST, THI, CBOU, AFCE, CBRL - olive garden pod 1

TALES OF THE TAPE: DRI 4Q THOUGHTS, TAST, THI, CBOU, AFCE, CBRL - red lobster pod 1

TALES OF THE TAPE: DRI 4Q THOUGHTS, TAST, THI, CBOU, AFCE, CBRL - longhorn pod 1

TALES OF THE TAPE: DRI 4Q THOUGHTS, TAST, THI, CBOU, AFCE, CBRL - stocks 71

Howard Penney

Managing Director

Rory Green

Analyst