THE HEDGEYE BREAKFAST MONITOR
Hedgeye Restaurants Alpha – our best fundamental ideas
LONGS: SBUX, PFCB, EAT, YUM
SHORTS: DNKN, BWLD, WEN, DPZ
RESTAURANT STOCKS IN THE HEDGEYE VIRTUAL PORTFOLIO
LONGS: PFCB, EAT, JACK, SBUX
SHORTS: MCD
MACRO NOTES
Consumer
Initial jobless claims came in at 357k versus 355k consensus and 363k the week prior (revised from 359k).
Commentary from CEO Keith McCullough
Reality bites – Top 3 Most Read (Bloomberg) = 1. US Stocks Drop 2. Spain Extreme Difficulty 3. Commodities Drop On Fed:
- SENTIMENT – whether it was our go to move (selling gross Equity/Commodity/Beta exposure at VIX 14-15) or the II Bull/Bear Spread survey which hit a fresh 3yr high before yesterday’s fall (+3,150bps Bull Spread = 53% Bulls; 21.5% Bears), it was all out there. Plenty Hedge Funds got squeezed out of their short positions right at another intermediate-term top.
- GERMANY – one of the most critical leading indicators for Global Growth Slowing is the DAX and the correction there is instructive (-5.7% from the March high) given that Germany’s fiscal and employment situation is much better than the USA’s right now. The immediate-term TRADE line for the DAX is now broken (6978); for the USA, the equiv SP500 line = 1390.
- COMMODITIES – kaboom! USD + UST Yields up = Gold down. That we know. What we don’t know is how quickly Deflating The Inflation will help Global Consumption. We’ve seen this big beta Commodity crash 3x coming out of Q1 in the last 4yrs. We call it the Correlation Risk, and it matters. Energy stocks (XLE) = down -7.8% for April to date!
Buying the Financials and selective Consumer Discretionary on red. Rising 10yr yield and getting Bernanke out of the way = good for both.
KM
SUBSECTOR PERFORMANCE
QUICK SERVICE
PNRA: Panera Bread was initiated Outperform at Credit Suisse.
DPZ: Domino’s new advertising campaign is centered on telling customers “no” – referring to its artisan pizza line that has, according to the company, no need for substitutions or additions.
DPZ: Domino’s UK & Ireland’s stock, ticker DOM.LN, has been sinking like a stone since the company reported SSS last week.
MCD: McDonald’s won dismissal of a 2010 lawsuit over deceptive marketing of its Happy Meals.
BKC: Burger King was forced to pull its Mary J. Blige advertisement after it was not received well.
YUM: Taco Bell is looking to get into e-commerce, according to adage.com
CASUAL DINING
TXRH: Texas Roadhouse is partnering with Snagajob to recruit, hire, and manage its hourly workforce. Are labor margins not up to standard? Why this move?
RT: Ruby Tuesday reported 3QFY12 EPS of $0.18 versus consensus $0.16. Same-store sales were down -5%. The company sees same-store sales at company-owned restaurants declining by 4-4.5% in FY12.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
Casual Dining down on accelerating volume. Are the stocks catching up with reality that sales are slowing? RT says a -5% SSS “primarily due to the double-digit year-over-year competitive ad spending with combined aggressive value promotions by our competition.” Between conversions and store closures the Ruby Tuesday’s brand is in a slow and steady decline. A net positive for Chili’s (EAT)
RRGB: Following its analyst meeting, RRGB was the worst performing stock. We believe that the team’s strategic vision of broadening its appeal to more adult consumers is failing to gain traction.
Howard Penney
Managing Director
Rory Green
Analyst
