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

MACRO

Commodities over the past week have largely gained in price.  Coffee and cheese prices are exceptions, their prices declined -2.7% and -3.2%, respectively.  We will be following up with a more detailed commodity post this morning.

In terms of consumer subsectors, quick service restaurants stood out on the downside yesterday as the high-flying coffee names retraced some of their outperformance.  The beverage space declined sharply also, led by SODA and LBIX.

TALES OF THE TAPE: YUM, CBOU, GMCR, PEET, SBUX, DNKN, PFCB, CBRL - subsectors 713

QUICK SERVICE RESTAURANTS

  • YUM is reporting today after the close.  Consistent with my view of this earnings season’s trends, top line is what matters most.  I expect YUM to be strong on the top-line where it matters most: China.  Inflation in China is starting to impact consumer confidence but the KFC value promotions/day-part expansion is driving double-digit same-store sales.  In the USA, the consensus decline of -1.6% is too meek, in my view.  I believe the number could be down as much of 3 or 4%.  YRI will likely be in line, with same-restaurant sales of 1-to-2%. 
  • CBOU, GMCR, PEET, and SBUX all declined yesterday. CBOU and GMCR declined -6.4% and -5.1%, respectively, on accelerating volume.
  • DNKN’s IPO is expected to price on July 26th.

CASUAL DINING

  • PFCB will be celebrating its 18th anniversary this month by giving away free lettuce wraps between now and July 31 to anyone who “likes” their Facebook page.  The offer of free lettuce wraps is resulting in a strong uptick in traffic to the company’s Facebook page.
  • CBRL is trading ex-dividend and is currently a SHORT in the Hedgeye virtual portfolio.

TALES OF THE TAPE: YUM, CBOU, GMCR, PEET, SBUX, DNKN, PFCB, CBRL - stocks 713

Howard Penney

Managing Director

Rory Green

Analyst