MAY KNAPP TRACK (CORRECTED)

The Knapp Track release for casual dining trends in May suggests that casual dining trends sequentially slowed from April to May.  Comparing the Blackbox data to Knapp Track, it seems that a slowdown in Darden’s comps could be on the cards.

* Earlier today, we published a note titled "MAY KNAPP TRACK"  that, in part discussed a slowdown that could be inferred from the spread between the Knapp Track and Blackbox casual dining comparable sales data sets. Our wording of that conclusion could have been better; discrepancies between the two data sets mean that such a conclusion cannot be definitively drawn. Given the size of Darden's system, however, we believe that the opinion is likely (but not certainly) correct. The text below has been revised from an earlier version to reflect this.

Malcolm Knapp released his Knapp Track casual dining sales numbers for May this weekend.  The May 2012 comparable restaurant sales change was -1.3% and the comparable restaurant guest count change was -3.9%.  The sequential change from April to May, in terms of the two-year average trend in Knapp Track casual dining comparable restaurant sales, was -80 bps.  For Knapp Track casual dining guest counts in May, the sequential change from April was -85 bps. 

The comparable store sales growth decline in May was the second in three months and implies that casual dining is still a group that investors should handle with care.  We have been advocating a cautious stance toward the casual dining group since mid-April.

Takeaways

Darden is emerging as a stock that could be emerging as a short or, at least, a stock that should not be bought. The Knapp-Blackbox spread has declined over the course of the last three months, indicating that Darden could be seeing increased softness over the past few weeks (not included in Blackbox data but included in Knapp Track).  There are several differences between the Knapp Track and Blackbox data sets so the spread is not a sure-fire indicator of a slowdown in Darden comps but, given the size of the Darden system, we believe that the spread between Knapp Track and Blackbox is likely relevant for Darden’s top line trends.  The spread has gone from +0.8% in February to -0.5%, -0.6%, and -0.9% in March, April, and May, respectively. 

Besides the broader casual dining group, for Darden and Brinker this result is especially meaningful since those companies’ systems represent a large portion of the unit base from which the numbers are calculated.

Howard Penney

Managing Director

Rory Green

Analyst