Casual Dining trends do not seem to be supportive of consensus expectations; we are bearish on the casual dining space and see Texas Roadhouse (TXRH) and Bloomin’ Brands (BLMN) as the best opportunities on the short side.
Knapp Track
According to Malcolm Knapp, estimated Casual Dining comparable restaurant sales growth for September 2012 was -0.8%. The sequential change, in terms of the two-year average trend, was -5 bps. This implies 3Q comps of 0.4% for casual dining.
Guest counts declined -2.5% versus September 2011. The sequential change, in terms of the two-year average trend, was flat. This implies 3Q traffic of -1.8% for casual dining.
Takeaway
We continue to believe that consensus is far too bullish on casual dining top-line trends. Anemic real wage growth is just one of many macroeconomic headwinds that we believe merit caution going forward. The Restaurant Value Spread, as we wrote about here, is suggesting that inflation at restaurants outstripping inflation at grocery stores may be having an adverse impact on same-restaurant sales growth this year.
The casual dining sales index shown below is a simple average of a broad selection of restaurant companies’ same-restaurant sales data. The Knapp Track Index, which we are not permitted to illustrate directly in chart form, leads the index depicted below (correlation=0.96).
Howard Penney
Managing Director
Rory Green
Analyst