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The table below lists our current Investment Ideas as well as our Watch List -- a list of potential ideas that we are in the process of evaluating.  We intend to update this table regularly and will provide detail around any material changes.

Monday Mashup: DRI Comes Under Fire - 1

Recent Notes

04/07/14  Monday Mashup: BWLD, PNRA and More

04/07/14  New Best Idea: Short BNNY

04/11/14  BNNY: Intermediate-Term Downside

Events This Week

04/17/14  CMG earnings call 11am EST

Chart Of The Day

Despite underperforming the SPX, quick service and fast casual stocks were a pocket of relative strength last week within the XLY, as 13 out of the 17 companies we track outperformed the broader index.

Monday Mashup: DRI Comes Under Fire - 22

Recent News Flow

Monday, April 7

  • YUM News hit the tape that the company is testing a new chicken concept, Super Chix, in Arlington Texas as an exploratory concept for potential international purposes.  Super Chix, similar to Chick-fil-A has a very basic menu which includes a chicken sandwich, chicken tenders, fries, drinks and frozen custard.
  • BOBE was downgraded to underperform at CL King

Tuesday, April 8

  • SONC was rated the #1 Burger Chain and #5 Brand Overall by the Temkin Group in its Experience Ratings report. 

Wednesday, April 9

  • El Pollo Loco chose Jefferies and Morgan Stanley as underwriters for its IPO which is expected later this year.
  • RT announced 3QF14 earnings, beating analyst estimates on both the top and bottom line as company-owned same-store sales only declined -190 bps vs expectations of -550 bps.  Its store closures in the quarter largely stemmed the recent massive declines in sales. In addition to these closures, management has identified $13mm in annual cost saving initiatives and is continually looking for more cost cutting opportunities. 

Thursday, April 10

  • RT raised to neutral at Tigress Financial

Friday, April 11

  • ISS and Glass Lewis released reports recommending shareholders should submit consents to Starboard in its ongoing effort to call a Special Meeting.  DRI released a public statement disagreeing with the firms conclusions, stating that Glass Lewis’ “assertions regarding Darden’s record of engagement are demonstrably false.”  Later that day, Darden announced that a smaller independent proxy advisory firm, Egan Jones, recommended that shareholders reject Starboard’s effort to call a Special Meeting.
  • DRI A group of Darden shareholders filed a lawsuit against the company over its recent bylaw changes.  The shareholders are alleging that these recent bylaw changes were enacted specifically to prevent them from voting on the Red Lobster spinoff.

U.S. Macro Consumption

The XLY (-3.7%) underperformed the SPX (-2.6%) last week, although both casual dining and quick service stocks, in aggregate, outperformed the broader XLY benchmark.  The Hedgeye U.S. Consumption Model continues to be a bearish signal and is now flashing red on 8 out of 12 metrics.  Confirmed by last week’s performance, we continue to believe the current environment is more conducive to select fast casual and quick service restaurants than casual dining restaurants.

Monday Mashup: DRI Comes Under Fire - 3

XLY Quantitative Setup

From a quantitative setup, the sector remains bearish on an intermediate-term TREND duration.

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Casual Dining Restaurants

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Quick Service Restaurants

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Howard Penney

Managing Director

Fred Masotta