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Industry data points are continuing to confirm our bearish stance on casual dining.

December’s employment data was suggestive of a sluggish month for casual dining, as we wrote a week ago.  Yesterday, Malcolm Knapp released his Knapp Track sales results for December, estimating that casual dining same-restaurant sales declined -1.3% versus the same month last year.  Traffic is estimated to have declined by 310 basis points versus December 2012.

In terms of two year average trends, the results imply sequential change of +10 and -40 basis points for same-restaurant sales and traffic, respectively.

Knapp noted that a calendar shift of Christmas day from Sunday to Tuesday led to a significant spread of 17.9% between week 4 and week 5.  The estimated Knapp Track same-restaurant sales number for the first four weeks was +0.9% versus -1.3% for the full five weeks.  The final accounting period number for December should be between those two numbers.



We believe that consensus expectations for several casual dining companies’ sales growth in FY13 are overly optimistic.  The year-ago comparisons in January and February are 3.3% versus 2.8% in December.  The price war that Darden has declared, likely commodity pressure, increasing health care costs, and changing competitive dynamics continue to weigh on the outlook for the group.                          

On a relative basis, we favor EAT over all other casual dining stocks.  Our top ideas on the short side are BWLD and DRI.

Howard Penney

Managing Director

Rory Green

Senior Analyst