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MONDAY MASHUP: DRI, EAT, BLMN AND MORE - investment ideas

Recent Notes

03/04/14 DRI: Things Are Heating Up

03/06/14 Frosty February Stifles Sales

03/07/14 The Battle For Darden



Events This Week

Monday, March 10

  • MCD February 2014 Sales & Revenue Release

Tuesday, March 11

  • ARCO earnings call at 10:00am
  • Bank of America Merrill Lynch Consumer & Retail Conference: MCD, CAKE, DPZ, THI, EAT, BKW, SBUX, BOBE, NDLS, PBPB, WEN
  • ROTH Capital Partners Conference: PZZI, JMBA

Wednesday, March 12

  • Bank of America Merrill Lynch Consumer & Retail Conference: JACK, SONC, CBRL
  • ROTH Capital Partners Conference: BJRI
  • RBC Capital Markets Consumer & Retail Conference: EAT, PBPB, WEN, NDLS
  • J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum: DNKN

Thursday, March 13

  • RBC Capital Markets Consumer & Retail Conference: THI, YUM
  • UBS Global Consumer Conference: JACK, BWLD
  • J.P. Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum: EAT, BJRI

Friday, March 14

  • COSI earnings release

Recent News Flow

Monday, March 3

  • DRI preannounced 3Q14 results yesterday and, as we expected, they fell far short of consensus estimates. Management guided 3Q EPS to $0.82 vs prior estimates of $0.93. Darden expects same-restaurant sales in the quarter to decline 5.4% at Olive Garden, decline 8.8% at Red Lobster, increase 0.3% at LongHorn and decline 0.7% at SRG. Despite this, they maintained their prior fiscal year 2014 guidance. The company also held a business call update Monday morning to discuss their strategic initiatives to unlock shareholder value. We certainly weren’t impressed and published a couple of notes during the week explaining why. The activist case is growing stronger by the day.
  • EAT was downgraded to hold at Miller Tabak on valuation concerns.
  • IRG announced new brand leadership for two of its brand. John Gilbert, the former CEO of DAVE (Famous Dave’s), was appointed President of Romano’s Macaroni Grill. David Catalano, the former President of Macaroni Grill, was appointed President of Brick House Tavern.

Tuesday, March 4

  • BLMN announced a secondary public offering of approximately 18 million shares of stock.
  • DRI Starboard Value announced in a 13D filing this that it has retained former Brinker International CFO and EVP Charles Sonsteby to serve as an advisor in its battle against Darden Restaurants. Starboard will pay $50,000 in cash to Mr. Sonsteby who will, in turn, use the proceeds to purchase Darden stock.
  • CMG signed a three-year sponsorship deal with Major League Soccer to be the official sponsor for twelve teams. The financial terms of the deal were not disclosed.

Wednesday, March 5

  • DRI announced that it has cancelled its annual analyst day. Representatives for the firm said the company plans to meet with analysts individually.
  • BLMN announced the secondary offering price of $24.50 per share. The offering is expected to close on Monday, March 10th.
  • DNKN extended the employment contract of Chairman and CEO Nigel Travis to run through 2018. His prior deal was expected to expire at the end of 2016.
  • BJRI Piper Jaffray downgraded BJRI to a neutral rating, reducing the PT to $27 from $30.
  • BLMN Carrabba’s Italian Grill unveiled its new menu “Carrabba’s Italian Ventures.” The menu includes 15 new items priced at $15 or less.
  • BAGL introduced the new Honey Smoked Salmon sandwich to its menu.

Thursday, March 6

  • EAT CFO Guy Constant announced his resignation from the company. Marie Perry, current Controller, will serve as the interim CFO while the company looks for a successor.
  • BWLD announced its intention to rollout tabletop tablets to all North America locations by the end of 2015. The tablets will allow guests to order food, play music, watch television and pay the bill.
  • BJRI reported in a Form 8-K that PW Partners Atlas Fund II LP, in conjunction with Luxor Capital Partners, LP nominated five members to the company’s Board of Directors. Combined, the group owns 12.4% of the company’s outstanding shares. The group is being led by Patrick Walsh who has previously gotten himself a seat on the board of DAVE and successfully placed one of his group members on the board of RRGB. The company plans to review the candidates.
  • BJRI was upgraded to buy at Buckingham.
  • BOBE was upgraded to buy at Miller Tabak.
  • YUM was upgraded to outperform at RW Baird.
  • TAST filed a $100M mixed shelf.

Friday, March 7

  • BOBE Activist Sandell Asset Management increased its stake in BOBE from 5.1% to 8.1%.

Recent Knapp Data

  • This past week, Malcolm Knapp released sales results for February, estimating that same-restaurant sales and guest counts declined -1.5% and -4%, respectively, versus February 2013.  On a two-year basis, same-restaurant sales and guest counts declined -3.5% and -5.2%, respectively.  

XLY Quantitative Setup

From a quantitative set-up, the sector remains bullish on an intermediate-term TREND duration.

MONDAY MASHUP: DRI, EAT, BLMN AND MORE - 3 9 2014 7 39 29 PM

Casual Dining Restaurants 

Top 5 Week-Over-Week Divergent Performances:

Positive Divergence: BJRI +18.4%, BAGL +10.8%, BWLD +3.9%, RUTH +1.7%, CAKE +1.4%

Negative Divergence: RRGB -6.3%, BOBE -5.7%, KONA -4.5%, EAT -4.0%, DFRG -3.6%

Notable 1-Month Earnings Revisions:

Positive Revision: RRGB +1.3%

Negative Revision: BOBE -26.0%, BJRI -25.4%, KONA -11.8%, BBRG -6.9%, DIN -4.9%

MONDAY MASHUP: DRI, EAT, BLMN AND MORE - chart2

MONDAY MASHUP: DRI, EAT, BLMN AND MORE - chart3

Quick Service Restaurants

Top 5 Week-Over-Week Divergent Performances:

Positive Divergence: TAST +5.9%, PZZA +4.3%, CMG +4.2%, PLKI +4.0%, YUM +3.3%

Negative Divergence: GMCR -4.3%, KKD -2.8%, WEN -1.9%, DPZ -0.5%, MCD -0.5%

Notable 1-Month Earnings Revisions:

Positive Revision: JACK +3.6%, DPZ +1.2%, BKW +0.4%

Negative Revision: TAST -8.1%, BAGL -5.9%, PNRA -4.7%, PLKI -4.6%, PZZA -3.5%

MONDAY MASHUP: DRI, EAT, BLMN AND MORE - chart4

MONDAY MASHUP: DRI, EAT, BLMN AND MORE - chart5

Howard Penney

Managing Director