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KNAPP NUMBERS BETTER IN SEPTEMBER

The Knapp Track report for September shows a sequential improvement in casual dining trends from August.

 

Estimated Knapp Track casual dining comparable restaurant sales grew +2.0% in September versus a final accounting period number of +0.4% (versus the prior estimate of +0.1% with negative weather impact of 60 bps) in August and +1.2% in September 2010.  The sequential increase from August to September, in terms of the two-year average trend, was 130 basis points. 

 

Estimated comparable guest counts were flat in September versus an August number of -1.0% and -1.4% in September 2010.  The sequential increase from August to September, in terms of the two-year average trend, was 110 basis points.

 

While the September Knapp Track numbers were stronger than we had anticipated, there are a number of factors worth noting.  Firstly, as Malcolm Knapp notes in the text of his report, the accounting number for the month of September will be “a bit lower” than the weekly estimate because, the report states, some concepts will include the last week in August in their September accounting results.  The first week of September benefitted from a rebound in comparable sales following Hurricane Irene as electricity grids were down and homes were flooded. 

 

One additional factor in September was the decline in gasoline prices.  Clarence Otis, CEO of Darden Restaurants, highlighted elevated gasoline prices as a major headwind for casual dining during DRI’s 4QFY11 earnings call on July 1st.  As the chart below shows, gas prices were extremely high during the second calendar quarter, peaking in May.  We believe that the significant fall-off in gas prices aided casual dining sales in September. 

 

KNAPP NUMBERS BETTER IN SEPTEMBER - gas prices 1016

 

KNAPP NUMBERS BETTER IN SEPTEMBER - gas price deltas

 

 

All in all the Knapp data points are positive for casual dining stocks, on the margin.  We are not positive on casual dining stocks generally as we head through 4Q given the poor jobs outlook and poor consumer confidence levels.  EAT remains our favorite stock in the space.  We are negative on BWLD and TXRH.

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst

 


Fragile America

This note was originally published October 14, 2011 at 07:48am ET

 

“Mickey Mantle forced us to grow up and see the world as it is, not as we wished it to be.”

-Bob Costas

 

In one of the more personally introspective books I have read in 2011, that’s how Jane Leavy ends it in “The Last BoyMickey Mantle and the End of America’s Childhood.”

 

After an 18-year hall of fame career with the New York Yankees (playing in 16 All-Star Games and 12 World Series), Mantle became a missing in action father and husband who effectively drank himself to death by the time he was 64 years old. Everyone in his life could see it coming – no one had the spine to stop him from doing it to himself. The can was kicked.

 

The aforementioned thought Bob Costas delivered during Mantle’s eulogy was as honest as it was sad. He called Mantle a “fragile hero” (page 382). If that isn’t a metaphor for America’s stock market on this morning in October of 2011, I don’t know what is…

 

Occupying Old Wall Street

 

So far, I’ve left Hedgeye’s coverage of this generational protest to my defense partner, Daryl Jones, who is downtown surveying the NYC occupiers this morning. In Mantle’s 1960’s playing days, they called them protesters.

 

Earlier this week, after strapping on his jeans and mingling with the occupiers in Boston, Hedgeye’s Todd Jordan said the protesters ran the gamut from “end the bailouts” to far left hot points:  environment, war, Che Guevara, etc…

 

That’s a lot.

 

I’m not a big fan of judging people and their protests unless I spend enough time to fully understand them. My Dad was a Fire Chief; my Mom a French school principal; and I’m supposed to be whatever people want to call me today. But I’m not an expert on humanity.

 

I don’t support losers. What I support is progressive change. And no matter how leaderless or hippie these protesters appear on the surface, I think there’s an American Zeitgeist here that’s playing out far away from anything you’ll see today on TV – in silence.

 

Abraham Lincoln wasn’t a member of PETA, but this is what he said about leadership:

 

“To sin by silence when they should protest makes cowards of men.”

 

And, forgetting all of what you think about who is a nut-bar, always remember that someone probably thinks you have a few screws loose too. I think starting my firm is an explicit protest against the opacity and self handed dealings of Old Wall Street. I don’t need to analyze someone who is sleeping on a cardboard box with dreads to tell me what I think about that.

 

I have no confidence that Occupy Wall Street will find a leader today, but I have even less confidence that Old Wall Street will. That’s pathetic and sad.

 

At 910AM, our profession will be waiting with baited breath on Timmy Geithner telling us what he’s been groomed to do for 47% of his born life in US Government - bailout banks.

 

That’s not leadership. The Bailout Bazooka only quenches America’s stock market thirst for another stiff drink. We have a problem – a very big one. And, sadly, it might take another crash to correct it once and for all.

 

Back to the Global Macro Grind

 

Yesterday, an up and coming Fed President in Minnesota by the name of Kocherlakota said that “the public will begin to doubt the Fed’s claims about its goals.”

 

Ya think?

 

That’s what we should be protesting in this country. The US Federal Reserve and its Keynesian ideologies have failed America on its 2 Congressional mandates – full employment and price stability.

 

I’ll be going through what I think the solution to this mess is on our Q4 Macro Themes conference call at 11AM EST today (email sales@hedgeye.com if you’d like to participate).

 

Fundamentally, I believe in what both Reagan and Clinton had fits and starts of realizing – a strong US Dollar strengthens American confidence, buying power, and employment.

 

I don’t believe that because some global warming quack is occupying this morning. I believe that because the data proves that – in the Hedgeye Chart of The Day today a picture tells a thousand words (US Dollar overlay with US Employment back to 1971 when Nixon abandoned the Gold Standard).

 

Americans aren’t as stupid as our monetary and fiscal policies have been during both Bush and Obama administrations. Like Nixon and Carter, the one thing that Bush Republicans and Obama Democrats have in common is a Keynesian running the US Federal Reserve.

 

There’s a reason why the name Arthur Burns isn’t remembered by history well. He was the modern day Ben Bernanke throughout the 1970s (minus the Princeton Depression Fear-Mongering thing). Burns and Bernanke are the only Fed heads to A) monetize the US Debt and B) devalue the currency, at the same time.

 

If Romney or Obama want to win the election, here’s the Hedgeye Political Strategy one-liner – “It’s The Policy, Stupid.”

 

As the Eurocrats are encouraged by Geithner and his cronies at Investment Banking Inc. to print the biggest bailout in world history this weekend in Paris, it’s no longer time to get hammered on Keynesian Kool-Aid and keep binging on our debt addictions.

 

It’s time to see the world as it is, not the way the conflicted and compromised are begging for it to be.

 

My immediate-term support and resistance ranges for Gold, Oil, the German DAX, and the SP500 are now $1657-1689, $84.29-89.10, 5733-6218, and 1170-1225, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Fragile America - 11

 

Fragile America - Virtual Portfolio



Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

The Week Ahead

The Economic Data calendar for the week of the 17th of October through the 21st is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

The Week Ahead - 1. call

The Week Ahead - 2. call


Get your Jackets

Outerwear apparel sales are ramping several weeks earlier than in years past. Weather? Yes, in part. But we think we’re also seeing the inevitable snap-back in the replacement rate for winter coats – which is perhaps the most discretionary apparel item the average person buys. 

 

Athletic apparel sales appear to have remained at a healthy HSD-LDD run rate in Q3. Breaking the late October trend of old, outerwear sales started to ramp as a percent of sales into the fall beginning in late September; 2-3 weeks earlier than in 2009 & 2010. In 2010, outerwear sales did not accelerate as a percent of athletic apparel sales until the 2nd week of October. In 2011, outerwear ramped to 6% in the third week of September,  closed out September at 7% and accounted for 11% of apparel sales in the first week of October compared to 4%, 5% & 9% respectively in 2010.

 

What’s driving the early outdoor apparel sales? Looking at the heat maps below, the past two weeks have had at least one major US region where temperatures were 3 to 9 degrees cooler than typical seasonal temperatures. When comparing this year’s US climate over the past 2 weeks vs. the same period last year, it was 10-20 degrees cooler out in certain western states during the week ending October 8th (last week). The climate during the week ending October 1st (2 weeks ago) when the ramp in outerwear really began to accelerate compared to the same week in 2010 was virtually unchanged.

 

Another thing to consider is this... There are roughly 300 million jackets/coats sold in the US each year. Yep, that’s about 1 per person. In reality, it’s not one per person, but rather a smaller portion of the general population getting multiples while the other tail of the distribution gets none. Most notably, the purchase of a coat is one of the most discretionary apparel items you can get. It’s not difficult to stretch out  the replacement cycle by 1, 2 or even 3 years.

 

So, are we seeing stronger outerwear sales due to a tightening of the replacement cycle? Yes, we do. But it’s near impossible to quantify that vs. the impact of cooler and wetter weather.

 

In the end, this probably won’t budge the number of units sold – as that was determined when they were ordered six months ago. But shifting earlier in the season – even by a few weeks – takes up ASP and margin for the retailers and wholesalers alike.

 

This could make the outerwear category one of the rare standouts in 4Q in both top line and margins. Who does this help? On the margin it benefits VFC/North Face, Columbia and Dick’s.

 

Get your Jackets - outdoor apparel 10 14 11

 

Get your Jackets - weather chart 1 10 14 11

 

Get your Jackets - weather chart 2 10 14 11

 

Get your Jackets - weather chart 3 10 14 11



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