Overall, a good quarter for Hibbett, no major surprises here but unfortunately they picked a bad day to report with Foot Locker blowing out numbers. Comparatively speaking, it won't look as good though it was better than what we saw out of DKS earlier in the week.
Here are the updated financial metrics heading into the 10:00 am call.
The Full Service Restaurant sector is down -25.2% over the past month, as compared to the QSR sector down -14.0%. Over the same time frame, only one stock in the FSR sector has outperformed the S&P 500 (EAT), as compared to 11 names in the QSR space (DNKN, CBOU, MCD, DPZ, THI, GMCR, YUM, PZZA, WEN, PEET, BAGL and SBUX).
The themes that are leading to the relative outperformance in the restaurant space are:
- Coffee stocks
- Pizza stocks
- Turnaround stories
- Exposure to China
Looking at recent history, the FSR space looks to be cheap, trading at 6.0X EV/EBITDA (NTM). The group is right in the midpoint of the trailing-three-year range with 30% upside to the last peak in March of 2010 and 33% downside to 4.2X set back in November of 2008.
We are certainly not making the call that we are headed back to the multiples we saw in 2008, but we also don’t know what the “demand destruction” is going to look like from the current market turmoil and the consumer confidence numbers hitting economic climate and the ugly consumer confidence numbers.
Last week, the University of Michigan index confidence fell 8.8 points to 54.9 versus 63.7 in July. The index has fallen 19.4 since May 2011 and the magnitude of the decline has been exceeded only twice in the history of the index - fall of 1990 and 2005.
As I wrote last week, the potential for Recession 2.0 now looms large, but we are not seeing any damage to the trend line sales numbers – yet. The official Malcolm Knapp data will be out this weekend, but the number (labeled as Knapp Track Casual Dining Index for July) in the BOBE press release this week implied a stable-to-slightly higher two-year average trend last month.
The prominent issue the industry is facing today is top-line demand destruction, right at the time we are seeing inflation in the P&L start to peak. As we saw in yesterdays CPI data, the industry is very cautious about raising prices especially relative to supermarkets. I would bet that it’s going to be even harder now to push through incremental pricing.
As we like to say, valuation is not a catalyst, but using the metric simply as a reference point would suggest that valuation is getting closer to suggesting that some opportunities may be brewing on the long side. For now, though, we are waiting and watching. That said, I still favor EAT, BWLD, and KONA right here and now.
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Anyone want to guess how long it’s been since FL printed top line growth over 15%?
As we’ve been saying, a story that has been perennially and justifiably hated for so long will take much longer than a few simple quarters to show upside. While not our favorite name, we stil think this story will work.
Notable macro data points, news items, and price action pertaining to the restaurant space.
THE HEDGEYE BREAKFAST MENU
The increase in gas prices seen in July has been arrested by global economic growth concerns. Despite weakness in the dollar of late, gasoline prices have still been trending down so far this month.
Casual dining continues to underperform peer groups in the food, beverage and restaurant spaces. EAT is the only name in casual dining to have outperformed the SPX over the past month.
- CMG was raised to Outperform from Market Perform at Morgan Keegan. The 12-month price target is $330.
- CMG was moved to reveal that bacon is an ingredient in its pinto beans by the tweeting of journalist Seth Porges, who was surprised to learn – as a non-pork eater – that the pinto beans he had been eating for 10 years contained bacon.
- BKC has ousted its King character as the first of many steps towards reinventing itself over the next year. A new ad campaign is set to air this weekend rolling out the California Whopper.
- SBUX has agreed to pay £45,000 to settle a disability discrimination case brought on behalf of a Texan barista who claimed she was fired because she has dwarfism.
- TXRH CEO G.J. Hart is leaving the company to assume the role of Chairman and CEO of CPKI.
The Macau Metro Monitor, August 19, 2011
PANSY HO 'CONFIDENT' IN MACAU'S FUTURE Macau Daily Times
Pansy Ho said MGM has applied to the government for a development project on the Cotai Strip and that the preliminary design of the project was completed.
Ho also said the plan to acquire New World First Ferry would benefit the management of Shun Tak's cost structure. Although the Maritime Administration of Macau said it had not yet received the application from New World First Holdings for the transfer of shares, Ho said it was only a "fault in the procedure", stressing that the application was submitted at the same time the deal was announced.
VISITOR EXPENDITURE SURVEY FOR THE 2ND QUARTER 2011 DSEC
Total spending (excluding gaming expenses) of visitors reached MOP 10.1 BN in 2Q, up 15% YoY. Per-capita spending of visitors amounted to MOP 1,482, an increase of 3% YoY. The average length of stay of visitors was similar to the second quarter of 2010, at 0.9 day.
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