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SSS MONITOR: SPOTTING TRENDS IN THE RESTAURANT INDUSTRY

We are publishing our SSS Monitor in order to provide a clear picture of same-store sales trends within the restaurant industry. Grouping chains by concept allows us to effectively measure a chain’s performance against its more immediate peers. Same-store sales are color coded green, if above, or red, if below, the sub-sectors mean.  2-year averages are color coded green, if accelerating, or red, if decelerating, on a sequential basis.

 

Overall, Fine Dining and Quick-Service same-store sales trends have been strong, while Casual Dining and Family Dining same-store sales trends remain anemic.  The tables below highlight these trends and provide consensus same-store sales estimates for the current fiscal quarter. 

 

 

Notable Trends

  • Casual Dining chains seeing accelerating trends: Applebee’s, Bonefish, Carraba’s, Cheesecake Factory, Chili’s, LongHorn, Maggiano’s, Outback, and Red Robin.
  • Casual Dining chains seeing decelerating trends: BJ’s, Buffalo Wild Wings, Olive Garden, Red Lobster, Ruby Tuesday, and Texas Roadhouse.
  • Fine Dining concepts continue to see strong mid-single digit SSS, but have begun to decelerate on a 2-year basis.
  • Family Dining concepts continue to see very low-single digit SSS, but are accelerating on a 2-year basis.
  • Fast Casual concepts are seeing SSS growth decelerate marginally, while remaining relatively flat on a 2-year basis.
  • In the Quick-Service segment – Chicken, Coffee/Snack, Mexican and Pizza concepts continue to see strong SSS growth while old line sandwich concepts continue to be the group laggard, with SSS remaining in the low-single digit range.  Burger King and McDonald's are lagging Wendy's and SONC, which are showing real menu innovation to drive incremental traffic.   

 

SSS MONITOR: SPOTTING TRENDS IN THE RESTAURANT INDUSTRY - chart1

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SSS MONITOR: SPOTTING TRENDS IN THE RESTAURANT INDUSTRY - chart44

 

 

 

Howard Penney

Managing Director

 

 


Morning Reads on Our Radar Screen

Takeaway: A quick look at some stories on our radar screen.

Keith McCullough – CEO

Merkel romps to victory (via Reuters)

China Manufacturing Gauge Increases to Six-Month High (via Bloomberg)

Fed's Lockhart says U.S. losing some economic mojo (via Marketwatch)

Brawl, Goalie Fight Mar Leafs-Sabres Game (via ESPN)  

 

Morning Reads on Our Radar Screen - earth1

 

Darius Dale – Macro

The Sad Reality of Z.I.R.P. (via Twitter)

 

Josh Steiner – Financials

Signs of an easing of credit requirements are surfacing (via LA Times)

Metro Phoenix housing market's turnaround creates new issues (via azcentral.com)

 

Matt Hedrick – Macro

At 77 He Prepares Burgers Earning in Week His Former Hourly Wage (via Bloomberg)

Merkel Seen Neglecting German Needs With Focus on Euro (via Bloomberg)

 

Howard Penney – Restaurants

Frothy Stocks Yield More IPOs (via Restaurant Finance Monitor)

 

Tom Tobin – Healthcare

Uncovered kids still a major problem (via ModernHealthcare.com)

 

Jonathan Casteleyn – Financials

BlackRock Sees Growth Surprise as Bond Risk Slides: China Credit (via Bloomberg)


Around the Globe

Client Talking Points

CHINA

Good news out of China this weekend. September's HSBC flash purchasing managers index came in at a better than expected and expansionary 51.2.  This was also a sequential improvement from August of 50.1 and the highest reading since March. Shanghai Composite up over 1.3% this morning leading most of the major Asian indices. The set up for China gets increasingly interesting if the HSBC survey is correct and Chinese GDP is set to accelerate sequentially and exceed current consensus estimates.  

EUROPE

Economic data out of Europe this morning is largely positive.   While the Eurozone flash manufacturing PMI edged down to 51.1 in September from 51.4 in August, both the Services and Composite PMI hit 27-month highs.  This is just one data series, but the potential for a sustained European recovery is a theme that you will likely see Hedgeye highlighting more often heading into year-end. Meanwhile, a great day for Angela Merkel. German voters gave her a third four-year term and a better-than-expected showing for her Christian Democrat party, possibly leading to an absolute majority in Parliament. Our immediate-term Macro Risk Range for the DAX is 8563-8741.

Asset Allocation

CASH 45% US EQUITIES 20%
INTL EQUITIES 20% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.

HCA

Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward.  Near-term market mayhem should not hamper this  trend, even if it means slightly higher borrowing costs for hospitals down the road.

TROW

Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road

TWEET OF THE DAY

The Euro is the beneficiary of Bernanke devaluing America's Purchasing Power - EUR/USD +1.7% last wk to +2.5% YTD

@KeithMcCullough

QUOTE OF THE DAY

"We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though." -Ben Bernanke, July 2005

STAT OF THE DAY

The S&P 500 has risen more than 150 percent since March 2009.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

European Banking Monitor: To QE, Or Not To QE, That Is The Question

Below are key European banking risk monitors, which are included as part of Josh Steiner and the Financial team's "Monday Morning Risk Monitor".  If you'd like to receive the work of the Financials team or request a trial please email .

 

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European Financial CDS - Europe's banking system also likes QE, apparently. Of the 32 institutions we track, all but two tightened week-over-week.  Spain, Italy, Portugal and Russia all saw their bank swaps tighten significantly. 

 

European Banking Monitor: To QE, Or Not To QE, That Is The Question - zz.banks

 

Sovereign CDS – Sovereign swaps mostly tightened last week in response to the Fed's decision. Portuguese sovereign swaps tightened by -6.1% (-34 bps to 523 bps) and French sovereign swaps widened by 1.6% (1 bps to 68 bps).

 

European Banking Monitor: To QE, Or Not To QE, That Is The Question - zz. sov1

 

European Banking Monitor: To QE, Or Not To QE, That Is The Question - zz.sov2

 

European Banking Monitor: To QE, Or Not To QE, That Is The Question - zz.sov3png

 

Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 12 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

European Banking Monitor: To QE, Or Not To QE, That Is The Question - zz. euribor


MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION

Takeaway: CDS around the world at the sovereign and bank level tightened in response to the Fed's decision not to taper. Addictions are hard to break.

Key Takeaways:

 

* High Yield – High Yield loves QE. Junk bond rates fell 26.7 bps last week, ending the week at 6.19% versus 6.46% the prior week.

 

* U.S. Financial CDS -  US Financial Swaps love QE. The announcement not to taper triggered an across-the-board tightening of US financial companies. Overall, 26 out of 27 domestic financial institutions saw their swaps tighten last week. Interestingly, this was a notably more positive outcome than we saw for the equities, where prices rose by a median 0.0% last week. The big banks and specialty finance companies were all winners, while much of the insurance complex saw stock price declines.

 

* European Financial CDS - Europe's banking system also loves QE, apparently. Of the 32 institutions we track, all but two tightened week-over-week.  Spain, Italy, Portugal and Russia all saw their bank swaps tighten significantly. 

 

* Asian Financial CDS - India is back in the saddle. Indian bank swaps tightened in a big way last week, declining by an average of 50 bps on the week alone. Japanese bank swaps also reacted to QE favorably with 5 of 6 issuers tightening. China was mixed. 

 

* Sovereign CDS – Sovereign swaps mostly tightened last week in response to the Fed's decision. Portuguese sovereign swaps tightened by -6.1% (-34 bps to 523 bps) and French sovereign swaps widened by 1.6% (1 bps to 68 bps).

 

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 7 of 13 improved / 2 out of 13 worsened / 4 of 13 unchanged

 • Intermediate-term(WoW): Positive / 5 of 13 improved / 4 out of 13 worsened / 4 of 13 unchanged

 • Long-term(WoW): Negative / 1 of 13 improved / 2 out of 13 worsened / 10 of 13 unchanged

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 15

 

1. U.S. Financial CDS -  US Financial Swaps certainly love QE. The announcement not to taper triggered an across-the-board tightening of US companies. Overall, 26 out of 27 domestic financial institutions saw their swaps tighten last week. Interestingly, this was a notably more positive outcome than we saw for the equities, where prices rose by a median 0.0% last week. The big banks and specialty finance companies were all winners, while much of the insurance complex saw stock price declines.

 

Tightened the most WoW: AGO, MET, AON

Widened the most/ tightened the least WoW: CB, XL, SLM

Tightened the most WoW: AXP, MET, COF

Widened the most/ tightened the least MoM: MBI, AGO, MMC

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 1

 

2. European Financial CDS - Europe's banking system also likes QE, apparently. Of the 32 institutions we track, all but two tightened week-over-week.  Spain, Italy, Portugal and Russia all saw their bank swaps tighten significantly. 

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 2

 

3. Asian Financial CDS - India is back in the saddle. Indian bank swaps tightened in a big way last week, declining by an average of 50 bps on the week alone. Japanese bank swaps also reacted to QE favorably with 5 of 6 issuers tightening. China was mixed. 

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 17

 

4. Sovereign CDS – Sovereign swaps mostly tightened last week in response to the Fed's decision. Portuguese sovereign swaps tightened by -6.1% (-34 bps to 523 bps) and French sovereign swaps widened by 1.6% (1 bps to 68 bps).

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 18

 

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MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 26.7 bps last week, ending the week at 6.19% versus 6.46% the prior week.

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 4.0 points last week, ending at 1812.

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 6

 

7. TED Spread Monitor – The TED spread fell 0.2 basis points last week, ending the week at 23.7 bps this week versus last week’s print of 23.89 bps.

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 7

 

8. CRB Commodity Price Index – The CRB index fell -1.1%, ending the week at 287 versus 291 the prior week. As compared with the prior month, commodity prices have decreased -0.3% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread tightened by 1 bps to 12 bps. The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. 

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index rose 58 basis points last week, ending the week at 3.557% versus last week’s print of 2.979%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 10

 

11. Markit MCDX Index Monitor – Last week spreads widened 11 bps, ending the week at 83 bps versus 94 bps the prior week. The Markit MCDX is a measure of municipal credit default swaps. We believe this index is a useful indicator of pressure in state and local governments. Markit publishes index values daily on six 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. We track the 16-V1.

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 11

 

12. Chinese Steel – Steel prices in China fell 0.9% last week, or 33 yuan/ton, to 3,528 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 12

 

13. 2-10 Spread – Last week the 2-10 spread tightened to 240 bps, -5 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 13

 

14. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 1.8% upside to TRADE resistance and 1.5% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: TO QE, OR NOT TO QE, THAT IS THE QUESTION - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Stock Update: FedEx Trim Time (FDX)

Takeaway: Industrials sector head Jay Van Sciver remains bullish on FDX, but says it may be time to take some profits.

Hedgeye Industrials sector head Jay Van Sciver says it may be time to take some profits in FDX. 

 

Stock Update: FedEx Trim Time (FDX) - fdx

 

While Van Sciver remains bullish on the stock, he says, “We would lighten up on our FDX long here – like sell half - for a few key reasons.

 

First, the shares have moved significantly higher within our fair value range.

 

Second, the details of the most recent quarter lead us to expect an opportunity to buy the shares back lower around FY2Q results.

 

Finally, we had expected capacity and inventory trends to turn more supportive than they have.

 

We are not dropping our long-term thesis and remain positive on the name, but acknowledge that no long-term thesis plays out without disruptions and trading opportunities.” Taking a magnifying glass to the company’s financials, Van Sciver notes “several unusual items that helped the Express margin, potentially introducing ‘choppiness’ to FY2Q.”


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