THE HBM: MCD, KONA, DIN, CAKE

THE HEDGEYE BREAKFAST MENU

 

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

 

MACRO

 

Two interesting data points pertaining to the restaurant industry have emerged over the past twenty-four hours.

 

Consumers in the U.S. are increasingly using credit cards to pay for basic necessities as income gains fail to keep pace with rising food and fuel prices; dollar volume of purchases charged grew 10.7% year-over-year in June.

  • The volume of gasoline purchases placed on credit cards jumped 39% year-over-year (compared with a 21 percent increase in June 2010).
  • Food shopping increased 5% year-over-year (compared to falling 7% last year).

Yesterday, the Restaurant finance monitor highlighted a survey from American Express business insights.  A recent report from American Express Business Insights has revealed that overall dining spend increased 1.6 % in the first quarter of the year. QSR sales grew 5.2%; Fine dining sales expanded 4.2% and Casual Dining flat.  Yet another example of the high/low society and the lack of a recovery in the 50-55 cohort, the biggest user of casual dining. 

 

THE HBM: MCD, KONA, DIN, CAKE - 1q sss growth by sector

 

 

Initial jobless claims were, once again, above 400k – coming in at 418k. The four-week rolling number declined by 3k week-over-week to 421k.

 

THE HBM: MCD, KONA, DIN, CAKE - initial jobless claims 721

 

 

Our subsector table shows that full service restaurants underperformed yesterday.  Food processing companies have started to perform less badly.

 

THE HBM: MCD, KONA, DIN, CAKE - subsector fbr

 

 

QUICK SERVICE

  • MCD lost a skirmish in a lawsuit over its Happy Meal advertising practices, as a U.S. district judge ruled the case could not be litigated in federal court.
  • MCD has unveiled sponsorship plans for the 2012 London Olympics. Dara Torres has been announced as global ambassador of a new global initiative focused on “balanced eating and fun play”.

 


FULL SERVICE

  • KONA has outperformed the market by 71% over the past month.  Yesterday volumes across the board were down day-over-day but KONA was up again on accelerating volume.
  • DIN announced today that it has signed a multi-restaurant franchise agreement with AMECO Foods for the development of ten new Applebee’s restaurants in Egypt.
  • CAKE served up earnings largely in line with expectations, although slightly below consensus on comps.  The stock is trading down pre-market.

THE HBM: MCD, KONA, DIN, CAKE - stocks 721

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


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