THE HEDGEYE BREAKFAST MENU
Notable news items and price action in the restaurant space, as well as our fundamental view on select names.
MACRO
Consumer
Yesterday, the KC FED Manufacturing survey showed the pace of hiring slowed sharply, as the employment index fell by 13 points to 4, the lowest level since October 2010.
After improving modestly for two weeks, the Bloomberg consumer comfort index slipped to a two-month; all three components were lower in the latest week. Sentiment dropped 3.5 points, to -46.8 for the week ended July 24.
The Coffee Bubble Watch
It is ludicrous to pay a higher multiple for the Dunkin’ Donuts “growth” story than the growth that Starbucks promises. Starbucks has delivered for years as a public company and is a global brand with quantifiable and undeniable appeal for consumers, globally. Dunkin’ Donuts is a great but regional domestic brand with no track record as a public company. Sure, the company plans to grow into new domestic markets but growth is expensive as BWLD discussed on its earnings call. Furthermore, if the brand doesn’t resonate as much as expected in new markets, and the ROI doesn’t meet what the current multiple implies it should be, it could pop the Dunkin’ bubble.
Subsectors
Initial jobless claims dropping below 400k was a positive sign for employment yesterday. Stocks reacted to the number positively at the open and QSR stocks caught a bid after trading softly recently.
QUICK SERVICE
- Coffee is where the action is: 7 of the 10 best performing names in the QSR space are coffee related.
- SBUX reported strong EPS and comps for the third fiscal quarter after the close yesterday. We see SBUX, even after the run that the stock has been on, as a far better deal for investors than DNKN.
- MCD is to open one restaurant in China per day for four years.
- MCD is adding a baguette bread stick to its menu in France.
FULL SERVICE
- KONA continues to outperform. Consensus EPS have risen 170% since the company blew the doors off last quarter.
- RT and PFCB have seen consensus estimates decline by 17% and 15%, respective.
- RUTH company same-restaurant sales increased 5.8% at Ruth’s Chris Steak House and company same-restaurant sales declined -1.4% at Mitchell’s Fish Market. EPS came in at $0.10 ex-items versus consensus $0.11.
- RUTH also announced that Executive Vice President & Chief Financial Officer Bob Vincent will transition to a newly created position of Senior Vice President of Corporate Strategy, starting August 8th. Effective the same date, Arne Haak will assume the role of CFO. Mr. Haak comes from AirTran Airways, a subsidiary of LUV.
Howard Penney
Managing Director
Rory Green
Analyst
