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







Yesterday, the ICSC chain store sales index posted its fifth consecutive weekly gain.  Consumer spending does not seem to be impacted by the reductions in confidence as the debt-ceiling debate continues; even recent small increases in gasoline prices and stock market weakness have not hurt current trends. Year-over-year growth posted its best three weeks in more than a year, topping 4% for two consecutive weeks. 


Richmond Federal Reserve Manufacturing Survey


Also yesterday, the Richmond Fed Manufacturing survey contracted in July after rebounding in June. The composite index fell by 4 points to -1 and has now been in negative territory in two of the last three months.  In 1Q11 the index averaged 21.  The all important look at Job picture slowed significantly in July, with the employment index slipping from 14.1 in June to 4 in July, the lowest level since September 2010.


So far this week we have seen two regional Fed surveys that point to a continued sluggish job picture and an overall economic that is sluggish at best.  Despite that consumer spending remains resilient and that is showing up in the restaurant industry sales trends - for the better positioned concepts.  I view the slight uptick in consumer confidence as a non-event, as confidence levels are still consistent with a consumer recession. 




Food Retail and Food Processing were the leaders yesterday as full service restaurants continue to lag.  Quick service restaurants’ price action was also sluggish.






  • DNKN is now one of the most expensive stocks I follow, despite the massive surge in multiples over the past year, with no track record as a public company.
  • SBUX was upgraded to “Buy” at Janney Montgomery today.  The twelve-month price target is $48 per share.
  • DPZ traded higher on accelerating earnings after posting a strong quarter.  See our post from yesterday for further details.
  • COSI clearly has some real problems, trading down -3.8% on accelerating volume.


  • BWLD missed EPS expectations for 2Q but is still looking strong, in our view.  Restaurant level margins improved year-over-year, while operating margins declined on higher G&A and pre-opening expenses.   We are comfortable with the concept incurring “the cost of growth” so long as comps remain strong, which they are.  Commodity costs also remain favorable.  See our post from early this morning for more details.
  • BWLD was upgraded this morning to “Outperform” at Raymond James.
  • KONA posted a great quarter.  We continue to like the story as remodels are completed and sales trends remain strong.
  • PFCB posted a dismal quarter this morning.  The change of timing of the release is never good news.  EPS came in at $40 cents versus expectations of $0.55.  Guidance was lowered dramatically for 2011 to $1.60-1.70 versus prior $2.15-2.20 and consensus $2.09.  The stock traded down as much as -12% in premarket trading after the news came out.




Howard Penney

Managing Director


Rory Green


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