OUTLOOK FOR THE RESTAURANT SPACE

Our outlook for the restaurant space at this point remains negative.  The combination of a bleak jobs picture and sticky commodity prices (gasoline and foodstuffs) spells a scenario where we see several names within the restaurant space seeing a decline in the fundamental state of their business.

 

From a top-line perspective, the jobs picture continues to depress expectations for comparable-store sales growth in the restaurant space.  As the chart below shows, the inverse correlation between initial jobless claims and the S&P 500 is quite tight.  Unless the high level of weekly jobless claims declines, we wouldn’t expect significant gains in stocks, particularly restaurant stocks, whose top line growth anchors so heavily on employment.

 

OUTLOOK FOR THE RESTAURANT SPACE - claims  inv  spx

 

 

The two charts below show the inverted initial claims again, this time versus a quick service restaurants index and a casual dining index.  The casual dining index seems to track closely which makes sense to us given that it is the more discretionary of the two categories.

 

OUTLOOK FOR THE RESTAURANT SPACE - claims  inv  vs qsr

 

OUTLOOK FOR THE RESTAURANT SPACE - claims  inv  vs cd

 

 

Consumer confidence is also a key metric for us to monitor as we attempt to decipher how restaurant revenues will look in the back half of the year.  Casual dining trends, on a two-year basis, closely track the Conference Board Consumer Confidence Index, as the chart below shows.  Gas prices, which are a key driver of negative consumer sentiment, remain at an elevated level despite having come down from peak May levels.  The inelastic demand for gasoline in the U.S. as well as the asymmetric pass-through of changes in the price of crude oil to wholesales gasoline prices is largely to blame for this; gas prices, as discussed in a recent report by the Federal Trade Commission, tend to go up like rockets and down like feathers.

 

OUTLOOK FOR THE RESTAURANT SPACE - knapp 2yr confidence

 

OUTLOOK FOR THE RESTAURANT SPACE - gas prices

 

 

Foodstuffs, also, have remained sticky to the upside and we believe that the combination of softening top-line trends and continuing commodity headwinds will hamper earnings growth for many companies in 2H11.  BWLD and TXRH are two of the names that are on the top of our list in this regard but we will be doing more granular work on both of those names in the coming days.

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more