CASUAL DINING – REGIONAL EXPOSURE EXPOSED, OCTOBER

We all know that October was a bad month for the casual dining group. Same-store sales were down 6% and traffic was down 8.1%. We learned yesterday that November’s numbers, although still negative, improved sequentially from October (please see yesterday’s post titled “Casual Dining – November Was Less Bad”). On a regional basis, October’s results showed more of the same with Texas continuing to post the best numbers and Florida continuing to trail the rest of the country, according to Knapp Track data (holds true on a year-to-date basis as well). In October, Texas was the only region of the 11 (listed below in the chart) that both improved sequentially from September and did not experience a same-store sales decline (was flat). In October, the spread between the best and worst performing regions (in this case, Texas and Florida) on a comparable sales basis reached 10.1%, its highest level since January 2007 and a nearly 400 bps increase since September.

So from a regional exposure standpoint, this widening of the range of performance among regions reaffirms that it is still a positive if a company has a significant proportion of its restaurants located in Texas (PFCB, EAT’s Chili’s, TXRH and DRI are among the highest). And, on the flipside, it is less than positive if a casual dining operator/concept has a lot of geographic exposure to Florida (LongHorn Steakhouse, SNS, Capital Grille and RUTH). We will have to monitor whether casual dining trends in Texas continue to outperform, however, as DRI commented last week on its earnings call that it is seeing weakness across the country and that some of the regions that had been strong, Texas in particular, did soften up in the second quarter.

The charts attached below show casual dining restaurants’ exposure to the better and worse performing regions of the U.S. relative to the national average from a comparable sales growth perspective in September and October 2008. As of October, CPKI has the most exposure to the underperforming regions of the country, primarily as a result of it having 40% of its restaurant base located in California while 74% of SNS’s restaurants are located in the better performing parts of the country, despite its large presence in Florida. The only region of the country that moved from performing below the national same-store sales average to better than or equal to the average in October was the East and part West South Central region. If these relatively better trends hold up, CHUX will be the biggest beneficiary as 26% of its restaurants are located in this region of the country.

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