Takeaway: Despite meaningful downward revisions to same-restaurant sales estimates, casual dining stocks have held up particularly well.

We were recently given a look at February sales trends, which are, on the margin, negative for the casual dining industry.  Same-restaurant sales and same-restaurant traffic trends declined during the month and were down sequentially from January.  Before we delve further into the details, we thought it would be useful to highlight which casual dining chains had CQ (current quarter) same-restaurant sales estimates adjusted since February 3rd.


None of the casual dining companies we track had CQ same-restaurant sales estimates revised up over the course of February.


The following companies had CQ same-restaurant sales estimates unchanged over the course of February: EAT, KONA

The following companies had CQ same-restaurant sales estimates revised down over the course of February: BBRG, BJRI, BLMN, BWLD, CAKE, CBRL, CHUY, DRI, DFRG, DIN, IRG, RRGB, RT, RUTH, TXRH


Despite these negative revisions, casual dining stocks have outperformed the SPX meaningfully over the past month, which implies, to us, that the street has accepted the fact that 1Q will be a difficult quarter.  More importantly, it also implies that expectations are high for the remainder of 2014.



February marks the third consecutive month of decreasing same-restaurant sales and traffic for the industry.  As we wrote last week, Knapp estimates same-restaurant sales and traffic declined -1.5% and -4%, respectively, during the month.  In addition, Black Box Intelligence, which excludes DRI, estimates same-restaurant sales and traffic declined -0.7% and -3.2%, respectively, during the month.  February numbers contracted on a year-over-year basis despite facing some of the easiest comparisons in over three years.  According to historical Black Box data, same-restaurant sales and traffic declined -5% and -6.2%, respectively, in February 2013.


After a tumultuous January, New England was surprisingly the best performing region during the February month with Black Box estimating same-restaurant sales and traffic increased +2.2% and 0%, respectively.  The West Region, on the other hand, was the weakest performing market with Black Box estimating same-restaurant sales and traffic declined -3.7% and -5.8%, respectively, in February.


Overall, trends in the casual dining industry are unsettling and continue to indicate what we believe is a secular decline in the industry as the rise of fast casual and evolution of traditional quick-service continue to steal share from the industry.  Despite this, the market has shrugged off any weakness as weather-related.







To be clear, we believe 1Q14 has been negatively impacted by weather, but to what extent is largely unknown.  With that being said, we believe the street has appropriately taken down 1Q14 estimates to a reasonable level.  Although January and February were difficult months for the industry, we believe March will provide some back end support to aggregate first quarter numbers. 


2Q14 estimates currently appear aggressive to the naked eye, but we will reserve judgment until March numbers are released as we expect it to be a telling month for the industry overall.  Will the industry get a boost from all the “pent-up demand” we are hearing about or will the secular decline persist?  Unfortunately, we don’t yet have an answer to this, but we will continue to monitor the situation closely and comment upon any indicators that may suggest one or the other.





Howard Penney

Managing Director


Fred Masotta


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I'm very happy to announce that David Benz has joined Hedgeye and will work with me on the Gaming, Lodging, and Leisure (GLL) team.  David will assist with the core Gaming, Lodging, & Leisure research coverage as well as work to establish new coverage in the near future.  For several years, David was a client of Hedge Risk Management and the GLL team, so he is well versed in our style and deep fundamental research process.  Hopefully, you will be meeting David soon if you don't already know him.


Here is his Bio:


David has more than 15 years buy-side experience as both a senior equity research analyst and portfolio manager covering a broad cross section of gaming, lodging, REITs, infrastructure and financials. Most recently, David was a research consultant performing gaming market and feasibility studies for government agencies and corporate clients covering such jurisdictions as South Korea, Japan, Russia, New York, Iowa, and Massachusetts. Previously, David was a senior analyst at Waterfront Capital Partners, a Millennium Partners platform company, where he covered global gaming, global lodging, infrastructure, REITs and financials. Prior to Waterfront Capital, he was a Portfolio Manager with Grubb & Ellis AGA - a real estate focused money manager. David began his career with American Express Financial Corporation. During his American Express tenure he was concurrently the Portfolio Manager leading the AXP Real Estate Fund and a Senior Equity Analyst covering REITs, lodging, towers, mortgage related, all insurance, finance companies, trust banks and asset managers. He was a guest speaker at the NYU REIT Symposium. David received a B.A. in Political Science from Marquette University and an M.B.A. from Pepperdine University. 

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 80.45%
  • SHORT SIGNALS 78.38%

Game-Changing $100 Wedding Dress

Takeaway: H&M hit the mark. It knows exactly what its client base wants.

Editor's Note: Below is a brief, complimentary excerpt from Hedgeye Retail analysis. For more information on our services, click here.


H&M Debuts First Wedding Dress And It Costs Less Than $100


Game-Changing $100 Wedding Dress - bride

  • "The mass retailer will be selling its first wedding gown for just $99...both in stores and online later this month, according to a rep for the brand."
  • "This will be the first H&M wedding dress sold in a regular collection, although a wedding gown did appear in the Viktor & Rolf one-time collection back in 2006."

Takeaway from Hedgeye’s Brian McGough:


This company is good. So good. That much is obvious.


While H&M will hardly threaten Vera Wang's iron-clad wedding dress business, the reality is there are a lot of women who will buy a white gown from H&M for that big day. And they’d do it in a heartbeat.


There are two factors working in H&M's favor.

  • The company continues to grow its credibility as a fashion leader,
  • Not everyone has the resources (or the willingness) to spend thousands on a wedding dress. 

Get this: The average price spent on a wedding dress last year? $1,211. You simply can’t beat H&M’s $99.


Game-Changing $100 Wedding Dress - wed1

Click here to learn more about Hedgeye.


Higher hold contributed to the record setting February but not as much as originally thought. 



We estimate above normal hold contributed only 4% of the 40% YoY growth and less than 1% if you normalize both Februarys.  No way around it, February was a blowout which is very strange considering the relative weakness of January, weakness that the 10 day Chinese New Year shift cannot explain alone.  In the last few years, we’ve heard that the CNY celebration is becoming less of a seasonal factor.  Remember that January grew only 7% on only slightly lower hold.  CNY occurred on 1/31 this year vs 2/10 last year. 


As we already knew, LVS was the big winner in February and not surprisingly, some of the upside was hold related.  However, LVS gained Mass share and Rolling Chip volume share as well. As we suspected, Wynn Macau got clocked in terms of luck but Mass and RC share was better than trend. Surprisingly, MGM actually held high but market share was well below trend. MPEL held the lowest in February, which drove GGR share to the lowest level since Dec 2009. 



Market Observations:

  • Mass drove most of the growth with revenue up 51% YoY in February and up 38% combined for January and February. 
  • While VIP revenue climbed 37% in February, January’s VIP actually declined 1% holding back combined Jan/Feb revenues to +18%. 
  • Even slots performed well, although not nearly as strong as Mass growth, up 24%.  Slot growth was the highest in almost 2 years.
  • The March comparison is very difficult (1 and 2yr) and we are only projecting 13-17% growth


LVS:  Terrific month and it wasn’t just high hold

  • 64% GGR growth YoY in February led the market
  • 68% Mass growth led the market
  • If hold had been normal, YoY growth would’ve been 49%. Normalizing hold for both Februarys yields YoY growth of 44%, which would’ve still led the market on a hold adjusted basis
  • LVS’s GGR, Mass, RC, and slot revenue share all increased relative to recent trend
  • QTD, LVS’s GGR is up 40%


WYNN:  Solid month excluding the hold impact

  • While January GGR was down 13%, Wynn Macau rebounded to up 29% in February
  • Mass revenue grew 48% YoY – the 2nd highest growth rate in 2 ½ years
  • While VIP revenue grew 24%, RC climbed 48% as hold was 20-30bps below normal
  • QTD, WYNN’s GGR has grown 9%


MGM:  Not one of MGM’s finest months

  • GGR share fell to its lowest level in almost a year and Mass fell to a record low as well
  • Despite lucky play from its patrons, MGM’s RC share was at its lowest in a year and a half
  • MGM held high for the 2nd consecutive month
  • YoY GGR growth of 25% was the 2nd lowest in the market next to SJM
  • QTD MGM’s GGR is up 29% but with constant hold the growth rate drops to 22%


MPEL:  CoD mass strength offset relative VIP bad luck

  • GGR share hit its lowest level since December 2009 at 12%
  • Low VIP hold was mostly to blame at 2.63% (inclusive of direct play) but the hold comp was low as well (2.45%)
  • Mass share fell 0.3% bps MoM to 13.2%
  • VIP volume share grew 0.6% bps MoM to 12%, highest level since Sept 2013


Galaxy:  Another strong month with share at a recent high

  • Galaxy held well above normal but exactly in line with last year
  • Mass share was in line with trend while RC share was slightly above trend
  • YoY GGR growth of 60% was 2nd to only LVS
  • QTD GGR grew 38%








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