Panera’s ability to drive same-restaurant sales via mix has ebbed and flowed over the past few years.


We are going to be posting on PNRA more regularly going forward.  The company has no real competition but we believe that 2013 same-restaurant sales targets could be difficult to achieve in light of a challenging operating environment in which to maintain sufficient average check growth.


Panera’s company same-restaurant sales growth has become increasingly dependent on price and mix over the past few quarters.  Our fear for shareholders, at this point, is that management’s ability to sustain mix is waning and that meeting FY13 comparable sales growth guidance may prove difficult. 


During the 4Q11 earnings call, management broke out components of FY12 SSS guidance; during the 4Q12 earnings call, the same detail was not provided for FY13.  That management provided less detail is not a good sign, in our view.  We think that the outlook for mix growth is negative for Panera:

  • The company is lapping the positive mix impact of higher sales of salads in 1Q12, which were boosted by warm weather.  Guidance for 1Q12 mix growth was expected to be primarily catering-driven.
  • Management is planning on raising prices 2-3% in 2013 with a total comparable sales growth target of 4.5-5.5%.   We believe that there is high risk of mix growth turning negative in the first couple of quarters of 2013.  With traffic growth decelerating as average check growth has accelerated, we believe 1H13 could be difficult for PNRA.
  • Catering sales growth, while still impressive, has been decelerating and we expect that deceleration to continue as the initiative becomes a larger portion of PNRA’s total sales.  

PNRA MIX TAPPED OUT? - pnra sss components




Howard Penney

Managing Director


Rory Green

Senior Analyst

Let The Good Times Roll

Client Talking Points

Fix the VIX

The CBOE Volatility Index, better known as the VIX, is currently at the 12.66 mark. Back in the fall of 2009, the VIX at one point was flirting with 80. These days, the VIX going above 15 is a big enough deal. The point is that our bullish thesis for US equities is solidified by the VIX remaining at these ultra-low levels. Should it break through our YTD low, you can rest assured that the market would shift gears into “risk on” mode. In turn, gold and Treasuries would get hammered even more than they have been as of late. 

Growth Spurt

Oil is down this morning, which is a positive catalyst for the global growth game. High oil prices are one of the few things out there that can derail economic growth and recover; consumers do not like high gas prices. Our #GrowthStabilizing theme continues to march on along with the stock market, which has the S&P 500 dancing with 5-year highs. Another factor in the US growth game is that inflation is decelerating and the housing market is recovering. Even the labor market is improving as we saw with yesterday’s jobless claims numbers. America is on the right track and as long as we stay the course, the outlook is good.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.


With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.


HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road


“Moscow is not New York. Moscow G20 is no Plaza Accord G7. Let's move on #forex” -@alaidi


“Fools rush in where fools have been before.” -Unknown


Canadian Manufacturing Sales (Dec) M/M -3.1% vs. Exp. -0.8% (Prev. 1.7%, Rev. to 1.9%)

Expert Call with Steve Keen (Contrarian Economic View)

Expert Call with Steve Keen (Contrarian Economic View) - Macro SteveKeenDial


"Economics is too important to leave to the economists."

-Steve Keen



The Hedgeye Macro Team will host an Expert Call with Steve Keen entitled "A Contrarian View On Monetary Policy, Debt & Growth" on Thursday, February 21, 2013 at 2:00pm EST.  Key topics will include:

  • Fallacies of conventional (neoclassical) economics, including why banks and money are crucial to economic analysis
  • The relationships between private sector debt, public sector debt and economic growth
  • Credit bubbles, financial crises and debt-deflation
  • Leverage and asset prices
  • The current crisis, monetary policy actions and a solution that could save the U.S. from a Japanese-style "lost decade"



Please dial in 5-10 minutes prior to the 2:00pm EST start time using the number provided below, if you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 419534#




Steve Keen is Professor of Economics & Finance at the University of Western Sydney, and author of the popular book Debunking Economics.


Steve predicted the financial crisis as long ago as December 2005, and warned that back in 1995 that a period of apparent stability could merely be "the calm before the storm."  His leading role as one of the tiny minority of economists to both foresee the crisis and warn of it was recognized by his peers when he received the Revere Award from the Real World Economics Review for being the economist who most cogently warned of the crisis, and whose work is most likely to prevent future crises.


He has over 60 academic publications on topics as diverse as financial instability, the money creation process, mathematical flaws in the conventional model of supply and demand, flaws in Marxian economics, the application of physics to economics, Islamic finance, and the role of chaos and complexity theory in economics.


Since 1995, Steve's main research focus has been the development of an alternative, empirically grounded theory, known as the "Financial Instability Hypothesis," which argues that finance markets are inherently unstable. Steve has a forthcoming book on this topic, Finance and Economic Breakdown.


Learn More About Steve Keen (from his website


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

Box of Frogs

“If it’s your job to eat a frog, it’s best to do it first thing in the morning.  And if it’s your job to eat two frogs, it’s best to eat the biggest one first.”

-Mark Twain


My Hedgeye mates and I have been over in London for almost half a fortnight.  Meeting with European investors and getting entrenched into the British culture has been an interesting experience for us.  To be fair, we probably have spent a few more quid at the pub then we would in a normal week, but even that seems to be part of the culture over here. 


Since being in the U.K., we have learned a few bits and bobs, and also some new phrases.  The most interesting one to me is, “box of frogs.”  It is actually used to describe a crazy state of mind, such as: that Keynesian economist is as mad as box of frogs.  The point being that if frogs were placed into a box, it would drive someone crazy if they had to hold onto the box.  The parallels to our frustration with global monetary policy are quite evident.


I’ve also taken up reading the Irish Times when I have had a break for coffee and biscuits during the day.  While I can’t say I totally understand rugby, the hockey player in me obviously has some affinity for the sport.  This morning in the Irish Times the Rugby Analyst Liam Toland wrote the following:


“Yes, I was enthralled by England’s application, their maturity, their discipline, and their ever growing belief in negotiating a tough fixture.  That’s why I stayed. Remember not so long ago, these guys were throwing dwarfs around.”


I’ve heard, and frankly overused, many sports analogies in my days, but “throwing dwarfs around” is a new one even for me. I’ll have to ask one of the blokes on our restaurant team, Rory Green, about that one.


On a serious note, the trip to London was very fruitful in terms of gauging expectations.  Over the course of the week, we probably met with well over 500 billion sterling in cumulative investor capital.  From a philosophical perspective, many of the money managers in London describe themselves as thinkers, especially as compared to the traders in New York and Connecticut. And from our view, they are a very thoughtful and strategic group.


Interestingly enough, we may actually be entering an environment in which thinking is rewarded more than trading.  This is certainly not to say thinking is a better risk management strategy per se, but rather that we are in a new environment of low volatility.  In the Chart of the Day we actually look at the VIX over the past five years.  The interesting point to note based on our models is that upside resistance is what was for the past three or more years the point where we recommended shorting and/or selling stocks (right around 14).


The implication is simply that based on the VIX, it looks to us we may actually be entering a new and lower phase in volatility. This supports our bullish case on U.S. equities, especially if the VIX breaks through its year-to-date lows.  In that scenario, our models have the VIX going to 9.  This would obviously be a very favorable tailwind for equities, and really risk assets generally.  Not so favorable, though, for the end-of-the-world, such as long Treasuries and gold.


A key question many of the asset allocators in Europe are asking us is in regards to what regions of the world we are most favorably disposed to, or vice versa.  For us this is less an exercise of whetting our fingers and sticking them up to see which way the wind is blowing, but rather just a function of what our models are telling us.  As it relates to countries specifically, we focus on growth, inflation and policy.  Our views on some of the key economies are as follows:

  • The U.S. economy – The U.S. is currently in Quad 1, which means growth is accelerating, or poised to accelerate, and inflation is decelerating;
  • The Chinese economy – China is currently in Quad 2, which means that growth is accelerating with inflation also accelerating.

In terms of being long equities, an investor wants to live in Quads 1 and 2.


Interestingly enough, Europe is actually also currently in Quad 1, albeit growth itself is stabilizing at very low rate in Europe and it is a continent, as usual, with very distinct potential by country. One of the most negative countries being flagged in our models currently is France, the regions second largest economy. (And no, Box of Frogs was not a reference to France!)


One of the lads on our Macro Team, Matt Hedrick, knows his onions as it relates to European economies and emphasized the key risks to France in a note yesterday.  Some of the key negative trends include:

  • Public debt – pushing 91% (as a % of GDP) - France is above the level of 90% that economists Reinhart and Rogoff have indicated as destructive to growth;
  • Credit Rating – Fitch is the only main agency to maintain its AAA status. S&P is at AA and Moody’s at Aa1. We expect all three to be lined up at AA in 2013 and for this reduction in credit standing to weigh on its public finances, and put upward pressure on yields;
  • Competitiveness Drag – Hollande’s policy to tax the rich (75% on those making €1MM or more) is not only driving out his countrymen but sending negative investment signals to the business community. Hollande has moved the top rate of capital gains tax from 34.5% to 62.2%. For reference these levels compare with 21% in Spain, 26.4% in Germany and 28% in Britain;
  • Hamstrung Spending – we believe that Hollande will not be able to issue additional spending cuts due to push back on the street against austerity; and
  • Bank Leverage – French banks remain an outside concern due to their leverage to the periphery.

The research in this instance also supports the price as the CAC is broken in our quant models.  It is not totally surprising either, as some of the government policies in France seem a little dodgy.


Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, USD/YEN, UST 10yr Yield, and the SP500 are now $1, $117.21-118.92, $80.04-80.77, 92.71-94.48, 1.96-2.05%, and 1, respectively.


Enjoy your weekends and if you want to talk Europe, feel free to give us a bell.


As always, keep your head up and eyes on the blindside of the pitch,


Daryl G. Jones

Director of Research


Box of Frogs - Chart of the Day


Box of Frogs - Virtual Portfolio


TODAY’S S&P 500 SET-UP – February 15, 2013

As we look at today's setup for the S&P 500, the range is 16 points or 0.55% downside to 1513 and 0.50% upside to 1529.         














  • YIELD CURVE: 1.73 from 1.76
  • VIX  closed at 12.66 1 day percent change of -2.47%

MACRO DATA POINTS (Bloomberg Estimates):

  • G20 finance ministers and central bankers meet in Moscow
  • 8:30am: Empire Manufacturing, Feb., est. -2 (prior -7.78)
  • 9am: Total Net TIC Flows, Dec. (prior $27.8b)
  • 9:15am: Industrial Production, Jan., est. 0.2% (prior 0.3%)
  • 9:15am: Capacity Utilization, Jan., est. 78.9% (prior 78.8%)
  • 9:50am: Fed’s Pianalto speaks on economy in Florida
  • 9:55am: U. of Mich. Confidence, Feb., est. 74.8 (prior 73.8)
  • 1pm: Baker Hughes rig count


    • Senate holds cloture vote on Chuck Hagel as defense sec
    • 2pm: Council on Food, Agriculture and Resource Economics, Federation of Animal Science Societies discuss finely textured beef, or “pink slime”
    • 2:40pm: President Barack Obama to speak on economy in Chicago


  • G-20 seeks common ground on currencies
  • Paulson mulls vote against T-Mobile’s MetroPCS merger
  • Airbus to use standard battery for A350 to avoid lithium woe
  • JPMorgan said to cut traders, realign pay amid equities slump
  • Nasdaq proposes earlier start to U.S. pre-mkt stock trading
  • Lehman seeks to question JPMorgan London Whale over losses
  • McGraw-Hill credit rating cut by Moody’s after U.S. sues S&P
  • US Airways wins AMR after Horton said to wage bid to stay CEO
  • Okada to ask judge to halt Wynn Resorts mtg to remove him
  • Universal Music to sell Black Sabbath label to BMG Rights
  • Vevo seeking new investors beyond major record-label owners
  • Citigroup, others report credit card delinquencies/charge-offs
  • Rogers Communications CEO to retire; 4Q adj. EPS above ests.
  • Occidental board forms search committee for CEO successor
  • U.S. Home Sales, Draghi, Wal-Mart, Ifo: Wk Ahead Feb. 16-23


    • Telus (T CN) 6am, C$0.87
    • Wabco Holdings (WBC) 6:30am, $0.94
    • Kraft Foods Group (KRFT) 6:30am, $0.38
    • American Electric Power Co (AEP) 6:57am, $0.46
    • Enbridge (ENB CN) 7am, C$0.44
    • LifePoint Hospitals (LPNT) 7am, $0.65
    • Digital Realty Trust (DLR) 7am, $1.17
    • Burger King Worldwide (BKW) 7am, $0.15
    • JM Smucker (SJM) 7am, $1.40
    • VF (VFC) 7am, $3.04
    • TRW Automotive Holdings (TRW) 7am, $1.34
    • Senior Housing Properties Trust (SNH) 7:01am, $0.44
    • Ventas (VTR) 7:03am, $0.97
    • Campbell Soup (CPB) 7:30am, $0.66 - Preview
    • Alere (ALR) 7:30am, $0.56
    • Lincoln Electric Holdings (LECO) 7:52am, $0.73
    • Ultra Petroleum (UPL) 8am, $0.54
    • Brookfield Asset Management (BAM/A CN) 8am, $0.29
    • IPG Photonics (IPGP) 8am, $0.72
    • Cott (BCB CN) 8am, $0.06
    • Allete (ALE) 8:30am, $0.75
    • MFA Financial (MFA) 8:30am, $0.20
    • Industrial Alliance Insurance (IAG CN) 9am, C$0.74
    • Hawaiian Electric Industries (HE) 8pm, $0.31
    • NGL Energy Partners (NGL) Pre-Mkt, $0.82
    • Dundee Precious Metals (DPM CN) Post-Mkt, C$0.16


  • Billionaires Soros, Bacon Cut Gold Holdings as Price Slumps
  • Gold Bears Braced for U.S. to China Growth Recovery: Commodities
  • Zinc Rises as Meteorite Explosion Causes Damage at Russian Plant
  • WTI Crude Trims Weekly Gain; Open Interest Advances to Record
  • Gold Declines to Five-Month Low as Soros, Bacon Reduce Holdings
  • Wheat Advances as Price Drop Stokes Demand for U.S. Supplies
  • Sugar Rebounds as Prices May Have Fallen Too Far; Coffee Falls
  • Malaysia Raises Crude Palm Oil Export Tax to 4.5% for March
  • Oil May Fall Next Week Amid Ample U.S. Stockpiles, Survey Shows
  • Gold May Extend Decline to Below $1,600: Technical Analysis
  • Walking-Pace Trains Spur $17 Billion India Rail Revamp: Freight
  • Impala Bond Sale Bets on Platinum Revival: South Africa Credit
  • Climate Change as Source of Future Conflict Draws UN Attention
  • MF Global CFTC Proposal Said to Jeopardize Futures Brokerages


















The Hedgeye Macro Team






Enter your email address to receive our newsletter of 5 trending market topics. VIEW SAMPLE

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.