TODAY’S S&P 500 SET-UP – June 12, 2013
As we look at today's setup for the S&P 500, the range is 51 points or 1.18% downside to 1607 and 1.96% upside to 1658.
CREDIT/ECONOMIC MARKET LOOK:
MACRO DATA POINTS (Bloomberg Estimates):
WHAT TO WATCH
COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)
The Hedgeye Macro Team
***CORRECTION: In the original version of this post, the title of the penultimate section was "3Q12 is RRGB's Waterloo". Of course, that should have read "3Q13 is RRGB's Waterloo". This version includes the correction.***
“One of our strategies moving forward is to shift to a balance between our legacy of being family-friendly and adult-focused guest experiences, referencing our legacy. There is no assurance that this shift will be successful or that it will not negatively affect our family guest experience.”
- RRGB 2012 10-K, Risk Factors section
We are adding Red Robin Gourmet Burger to our Best Ideas on the short side. The stock has gotten ahead of the company’s fundamentals and future growth prospects.
PERFORMANCE VS THE S&P 500
The stock has outperformed by almost 60% over the past year and its strong performance versus peers has continued as earnings growth estimates have stagnated.
Traffic Problem is Biggest Fundamental Red Flag
The company is in desperate need of a “brand transformation” to stem the decline in traffic
Capital allocation is one of the most important metrics for casual dining companies. In terms of RRGB’s capital spending, the following bullets and charts offer insight into the effectiveness of the company’s capital allocation decisions.
Repeating Others’ Mistakes
The foot print expansion is leading to declining returns for the company. The question that we, and others, have about the strategy is why so many different initiatives need to be pursued at once. Specifically, the company is growing Red Robin in two different sizes, expanding its Burger Works QSR concept which seems to be producing mixed results, and trying to transform the consumer’s perception of Red Robin as a brand. In our view, this amounts to the company taking on more tasks than it can complete effectively while managing its capital prudently.
Brand transformation is difficult to achieve, for several reasons. Below are some of the concerns we have about RRGB’s particular strategy.
3Q13 is RRGB's Waterloo
Valuation and Sentiment
Short interest in RRGB has been coming down since 2008 but remains the fourth highest in casual dining at 10.5%. The valuation that consensus is awarding the stock has risen sharply in recent months. The sell-side is fairly cautious on the name with 37.5% of analysts rating the stock a “buy”, 50% “hold”, and 12.5% “sell”.
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Takeaway: A quick look at today's top tweets to Keith.
First the shorts hated you-now the longs will hate you. The only friends you'll have left will be your clients.
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@PetersenRChris 10:34 AM
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@SharonSharalike 9:52 AM
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@sctrader3 7:41 AM
Takeaway: As we’ve said all along, one of the big risks is that we are right too fast.
(Excerpted from this morning's Hedgeye conference call)
So, last week we had better numbers on jobless claims and the employment report. That’s what’s really causing consternation and constipation in global markets now. It’s that we’re too right on #Growth Accelerating here in the U.S.
If you disagree with that, go ahead and take a look at the chart below of 10-year Treasury yields. This thing is just ripping right now. It's up 55 basis points since the beginning of May.
As we’ve said all along, one of the big risks is that we are right too fast. It’s one thing to be right on growth, it’s another thing altogether to be right too fast. You have to stay aware of the fact that we have a Central Planner still lurking in the weeds. He doesn’t fundamentally believe that the bond market is going to do exactly what it’s doing right now.
Look, you cannot have a Central Planner promise that he will smooth economic gravity and the market expectations embedded therein. You can’t have that in Japan, you can’t have it here in the U.S., and you can’t have it in Uzbekistan. You can’t have it.
Have we forgotten? Free markets exist for a reason.
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