BROS BLACK BOOK
We recently moved BROS up to one of the top five shorts on our Position Monitor. Reflecting on the year since our inaugural Black Book analysis, it's evident that BROS has undergone numerous transformations. These changes, paradoxically, have both enhanced and hindered the company's trajectory. Over the recent quarter, there's been a noticeable uptick in performance, yet substantial risks and pitfalls in the stock remain glaringly apparent.
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Industry Traffic and Market Trends Analysis - January Review
The strengthening at the end of January will be a positive highlight on conference calls for the balance of the earnings season
As we closed January, industry traffic showcased a notable improvement, signaling a robust trend when examined over two years. This uptrend reflects positively on consumer behavior toward eating out despite the increased cost and spread between at home and away from home, aligning with some broader economic recovery signals. However, despite the strength in traffic data, the industry faces challenges on the employment front. Concerns have been raised regarding industry job growth, with the latest Job Openings and Labor Turnover Survey (JOLTS) data adding to the apprehension. The figures suggest a potential mismatch between job vacancies and available talent or possibly cautious hiring practices amidst economic uncertainties. Considering these developments and the strength observed in the data, we are updating our position monitor. This strategic adjustment involves recalibrating our investment approach, particularly concerning short positions. In this context, we have identified winners and losers, leading to the removal of specific stocks from our shortlist. Notably, we are no longer recommending short positions in Play (PLAY), Dine Brands Global (DIN), Chipotle Mexican Grill (CMG), DoorDash (DASH), and U.S. Foods Holding (USFD). This decision reflects our analysis of each company's performance, resilience in the face of industry challenges, and potential for growth amidst evolving market dynamics. We aim to optimize investment strategies, balancing risk and opportunity while navigating the complex landscape.
Some Notable company commentary
McDonald's Strategic Response to Market Dynamics and Recent Performance
In an impressive demonstration of marketing and product strategy, McDonald's witnessed a significant uptick in traffic towards the end of the month, likely attributed to its innovative burger redesign. The company has embarked on a mission to revitalize its burger offerings, enhancing the flavor and eating experience without altering the fundamental component - the beef patty. The company's strategic adjustments to the cooking and assembly processes are noteworthy. These include allowing patties more space on the grill to improve texture, reducing the batch size for optimal freshness, incorporating onions during the cooking phase to enhance flavor absorption, ensuring patties remain hotter post-cooking, and upgrading the quality of cheese and buns for a better consumer experience. This initiative is critical for McDonald's, aiming to boost traffic amidst varied consumer spending habits. Despite benefiting from previous sales uplifts through pricing strategies and attracting higher-income customers, sustaining traffic gains momentum, especially as economic pressures lead lower-income diners to reduce their fast-food visits. McDonald's recent efforts reflect a strategic pivot towards product quality and customer experience, aiming to counteract the broader trend of cautious consumer spending. The company's ability to adapt and innovate in response to changing market conditions will be vital to maintaining its competitive edge and driving growth in the challenging year ahead.
Starbucks' Strategic Initiatives Amidst Market Struggles
To invigorate sales and enhance customer engagement, Starbucks extended its "New Year, New Yays" campaign, introducing an additional week of savings from January 25 to January 28, but to avail. This campaign is part of a broader strategy to entice customers with special offers accessible through the Starbucks Rewards program online or via their mobile app. Participants in the program can earn stars for free food and beverages and enjoy complimentary in-store coffee refills, with promotions available across all company-operated and participating licensed stores in the U.S. and Canada.
Other January promotional highlights include:
- Triple Stars Tuesday: Reward members with triple stars on purchases every Tuesday in January when activated through the app.
- 3 Thursday: Offering a grande or more petite handcrafted drink for 3 from noon till 6 pm every Thursday, with additional costs for customizations.
- BOGO Weekend: A buy-one-get-one-free deal on handcrafted drinks on January 27 and 28, limited to a 10 maximum.
- Bring Your Own Cup: Encouraging sustainability by offering a 0.10 discount and 25 bonus stars for using a personal cup, with contactless handling assured.
Amidst these efforts, Starbucks launched Oleato drinks across the United States and Canada starting January 30, 2024. Despite the enthusiasm from the company, the delayed rollout hints at potential skepticism regarding the product's success. This move underscores Starbucks' continuous search for innovative ways to attract customers and boost sales in a challenging market environment. For Valentine's Day, Starbucks is celebrating with sweet treats. Last year, they introduced the Pink Drink with Chocolate Cream Cold Foam, and this year, they're unveiling two new Valentine's-themed drinks. Chocolate Hazelnut Cookie Cold Brew: A delightful blend of cold brew, hazelnut syrup, chocolate cream cold foam, and chocolate cookie crumbles. Rich and chocolatey, with a satisfying texture from the cookie crumbles, though some may find the hazelnut flavor subdued. Chocolate Covered Strawberry Crème Frappuccino: A decadent option resembling a strawberry milkshake with a hint of chocolate. Made with strawberry puree, milk, java chips, and whipped cream, it's perfect for those seeking a caffeine-free indulgence. The combination of strawberry and java chips adds an extra dimension to its dessert-like appeal.
It's important that Oleato serves as a catalyst to drive incremental traffic in February.
