THE HEDGEYE BREAKFAST MONITOR
MACRO
Commodities
Cattle futures rose to a record as demand for U.S. beef is increasing as shrinking domestic herds signal tighter supplies and higher costs for restaurant companies like TXRH with exposure to beef.
The decline in gasoline prices is good for casual dining traffic but, if like in 2008 it is due to a fall in demand as economic conditions deteriorate, the benefit of cheaper gas may be offset. The price action in casual dining stocks certainly suggests that lower gas prices are not bolstering sales significantly.
The ICSC chain store sales index rose 0.1% last week; the second week of little change. Year-over-year growth jumped to 3.7%, the fastest growth in nine weeks as sales fell in the comparable week last year.
SUBSECTOR PERFORMANCE
Yesterday was a tough day for all of the food, beverage and restaurants stocks. Casual dining got beaten up again, declining -4.9% on average.
QUICK SERVICE
SONC: Sonic Corp. reported sales trends of 0.4% for the fourth quarter of its fiscal year ended September. This represents a significant slowdown in trends for the drive-in chain. The company expects positive same-store sales in FY12 and flat restaurant level margins.
YUM: Yum! Brands reports after the close today and we will be listening carefully for commentary around trends in China in light of softening economic data. We like YUM on the long side, believing that the company will deliver double-digit EPS growth for 2011. Furthermore, in the past, concerns on China have provided favorable entry points for buyers of YUM’s stock.
CMG: Chipotle Mexican Grill was initiated Outperform at Credit Suisse.
SBUX: Starbucks is offering any breakfast sandwich for $2 when customers buy any beverage from October 4-10that participating stores.
CASUAL DINING
CAKE: The Cheesecake Factory was rated consumers’ favorite casual-dining restaurant for the second year in succession, according to Market Force Information’s rankings of casual dining restaurants. Texas Roadhouse and Olive Garden took silver and bronze, respectively.
Howard Penney
Managing Director
Rory Green
Analyst
