RECENT NOTES
03/31/14 Monday Mashup: PNRA, BLMN and More
04/01/14 DRI: Management Exposed
EVENTS THIS WEEK
Wednesday, April 9
- RT earnings call at 5:00pm
CHART OF THE DAY
Gasoline prices recently reached an eight-month high.
RECENT NEWS FLOW
Monday, March 31
- FRGI pushes its expansion west of the Mississippi, opening its first Texas location in the Dallas-area.
- PNRA upgraded to outperform at Wedbush Securities with a PT of $215
- CMG announced the lineup for its 2014 Cultivate Festival with events planned in San Francisco, CA, Minneapolis, MN and Dallas-Ft Worth, TX.
Tuesday, April 1
- DRI Starboard Value released an investor presentation, detailing its analysis of Darden management and the proposed Red Lobster spin-off. Starboard believes Darden’s real estate portfolio is worth approximately $4 billion and that separating Red Lobster and its real estate from Darden’s portfolio would destroy approximately $850 million in value. The presentation was deservedly critical of Darden’s current management team and is a must-read for interested parties. We highlighted what we believe are the key takeaways from the 100+ page deck in a note to subscribers and an exclusive HedgeyeTV video.
- DRI Darden responded to the public scrutiny by releasing a statement reiterating their confidence in the initiatives they have in place and once again urging shareholders to vote against a Special Meeting.
- SBUX announced it plans to bring back a number of its old breakfast favorites as La Boulange products have been generating some pushback from customers for their smaller portions.
Wednesday, April 2
- BWLD held its annual analyst day, reiterating FY14 guidance of 20% EPS growth and outlining its longer-term plans to sustain high earnings growth. The company continues to invest in smaller, emerging concepts with the hope that one or two will become a vehicle for significant future growth. BWLD’s goal is to be a growth enterprise, with more than 3,000 total restaurants.
Thursday, April 3
- No material news
Friday, April 4
- SONC cut to neutral at Buckingham
- DIN rated new neutral at Longbow
- BBRG Barron’s came out with a positive note on Bravo Brio Restaurant Group, citing an attractive valuation and an anticipated increase in same-store sales driven by better weather and menu-enhancing initiatives.
- DNKN Barron’s came out with a cautious note on Dunkin’ Brands, citing a hefty valuation and decelerating same-store sales trends.
U.S. MACRO CONSUMPTION
Last week was a bit of a bounce back one for consumer stocks, with the XLY +0.6% outpacing the SPX +0.4%. However, both casual dining and quick-service stocks, in aggregate, underperformed the broader XLY benchmark. The Hedgeye U.S. Consumption Model reverted back to bearish formation, from neutral, and is now flashing red on 7 out of 12 metrics. We continue to believe the current environment is more conducive to select fast casual and quick service restaurants than casual dining restaurants.
XLY QUANTITATIVE SETUP
From a quantitative setup, the sector remains bearish on an intermediate-term TREND duration.
CASUAL DINING RESTAURANTS
Top 5 Week-Over-Week Divergent Performances
Positive Divergence: BBRG +4.7%, RT +4.5%, RRGB +1.5%, BJRI +1.1%, DRI +0.8%
Negative Divergence: BWLD -3.5%, BAGL -3.1%, DFRG -2.8%, KONA -1.9%, CBRL -1.7%
Positive Revision: RUTH +2.8%, DIN +0.2%
Negative Revision: DRI -1.3%, BLMN -0.9%, EAT -0.2%, CBRL -0.1%
QUICK SERVICE RESTAURANTS
Top 5 Week-Over-Week Divergent Performances
Positive Divergence: PLKI +4.9%, YUM +1.3%, THI +0.9%, MCD +0.2%
Negative Divergence: KKD -6.2%, GMCR -5.2%, PNRA -3.3%, SBUX -3.3%, PZZA -2.9%
Notable 1-Month Earnings Revisions
Positive Revision: SONC +0.9%, PZZA +0.8%, JACK +0.7%, GMCR +0.3%, CMG +0.1%
Negative Revision: KKD -3.3%, PNRA -0.4%, DPZ-0.2%, SBUX -0.2%, MCD -0.2%
Howard Penney
Managing Director
Fred Masotta
Analyst