THE HEDGEYE BREAKFAST MONITOR
HEDGEYE VIRTUAL PORTFOLIO POSITIONS
LONGS: EAT, JACK, SBUX
Comments: Keith closed out the PFCB position yesterday, based on quantitative factors. We remain bullish on the intermediate term TREND from a fundamental perspective.
SHORTS: BWLD, DNKN, MCD
Comments: Keith shorted BWLD yesterday in the virtual portfolio. We continue to like it on the short side. 20% COGS inflation after seeing zero margin flow-through in a much more benign cost environment last quarter is going to pose a problem. At the recent Telsey Advisory Group presentation, nobody brought up commodity pressures.
MACRO NOTES
Commentary from CEO Keith McCullough
Pick your leading indicator in Global Macro – most stopped going up in late Feb/early March:
- HANG SENG – Hong Kong did not like the Chinese demand message for March w/ Chinese Imports only running +5.3% y/y; HK traded down another -1.1% overnight, taking the Hang Seng’s correction to -6.1% since peaking Feb 29th
- DAX – from an employment and stability perspective, Germany is definitely a healthier economy than the USA’s right now and the correction in German stocks is 2x that of the SP500’s; down -0.9% to start the wk (down -6.2% from the YTD high established March 16th)
- COMMODITIES – Dollar up days crush commodities; evidently dollar down days don’t help them now either as “weakening demand” rolls off the tongues of most who’s business is global. The CRB index is in what we call a Bearish Formation. Not good. Brent Oil broke $124.23 TRADE line support.
Growth Slowing will matter until growth slows at a slower rate.
KM
SUBSECTOR PERFORMANCE
QUICK SERVICE
MCD: OpenSecrets.org has an interesting page on the McDonald’s Political Action Committee which details its spending by election cycle and also the party split per cycle of spending. It shows that from 1998 through 2006, 84% of the Federal McDonald’s PAC was spent supporting Republicans. In 2008, 70% of the PAC’s spend went to Republicans. In 2010, the GOP and Democratic party received 52% and 47% of the PAC’s spend, respectively.
MCD: MCD Japan’s March same-store sales gained 6% year-over-year. March 2011 performance, of course, was greatly impacted by the earthquake and tsunami of March 11th, 2011.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
CMG: Chipotle gained in a down tape yesterday. Unit level returns remain strong as this growth story sustains itself longer than many have expected along the way.
MCD: McDonald’s gained in a down tape yesterday.
DOM.LN: Domino's UK & Ireland cannot catch a bid. The stock is down 10% since reporting disappointing comps on 3/28.
CASUAL DINING
CBRL: Cracker Barrel adopted a new shareholder rights plan with a 20% triggering threshold and a qualifying offer exception. The Board also declared a dividend distribution of one preferred share purchase right on each outstanding share of CBRL common stock. The Board’s action, according to CEO Sandra Cochran, is “in response to Biglari Holdings’ continuing open-market acquisition program of CBRL shares”.
DRI: Darden is planning to create the world’s largest lobster farm in Malaysia, allowing it to sell the crustaceans in Asia and supply them to its chains such as Red Lobster.
NOTABLE PERFORMANCE ON ACCELERATING VOLUME:
RT: The market didn’t buy on the leg down. Ruby Tuesday declined 4.1% on accelerating volume yesterday.
Howard Penney
Managing Director
Rory Green
Analyst