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 on any material changes.
BLMN: We removed Bloomin’ Brands from the Investment Ideas list as a short on Wednesday, after our bearish thesis largely played out. We’ve relegated it to the Watch List and will look for another entry on the short side at a better price. FY15 estimates are still too aggressive.
05/14/14 BLMN: Closing Best Idea Short
05/15/14 BOBE: Asset-Light Is Right
05/16/14 DRI: Twice-Cooked, Half-Baked
Events This Week
05/20/14 RRGB Earnings Call 10am EST
05/20/14 COSI Annual General Meeting
05/22/14 FRSH Earnings Call 5pm EST
05/22/14 MCD Annual General Meeting 9am EST
05/22/14 DENN Annual General Meeting 9am EST
05/22/14 IRG Annual General Meeting 10am EST
05/22/14 TXRH Annual General Meeting
05/22/14 PLKI Annual General Meeting
05/22/14 RRGB Annual General Meeting
Chart of the Day
Following last week’s news that the management and board of Darden decided to push forward with the sale of Red Lobster despite shareholder requests to hold a Special Meeting to discuss the matter, we thought it’d be interesting to pull up the company’s ROIIC (return on incremental invested capital) chart. In our view, ROIIC is one of the most important metrics for restaurant companies and tends to tell the true, underlying capital allocation story. Returns have been deteriorating rampantly since early 2011, signaling to us a material case of mismanagement.
Recent News Flow
Monday, May 12th
- RRGB announced plans to open its newest restaurant in the Phoenix Metropolitan area on Monday, May 26.
- WEN is celebrating National Salad Month by partnering with actress Molly Sims to host its third #NewSaladCollection contest.
Tuesday, May 13th
- MCD UBS upgraded its PT to $120, citing comp improvement in the U.S.
- KKD announced current President and CEO James Morgan will become Executive Chairman on June 1st. At this time, former PZZA President and COO, Tony Thompson, will become the new President and CEO of Krispy Kreme Doughnuts.
- PLKI appointed VP of Finance Tony Woodward as Interim CFO, effective May 23rd, as they continue their search for a permanent replacement for the departing Melville Hope III.
Wednesday, May 14th
- DRI Starboard Value sent a letter to Darden’s board demanding they call a Special Meeting in a timely fashion. In the letter, Starboard highlighted how the company has been misleading shareholders.
- BWLD held the grand opening of its first PizzaRev franchise in Hopkins, MN, making it the first PizzaRev restaurant outside of the California market.
- JACK initiated a $0.20 quarterly cash dividend.
Thursday, May 15th
- CMG launched its “Cultivating Thought” author series, a new program featuring original essays by renowned authors, comedians and thought leaders designed to help tell the company’s unique story. The stories are told on both Chipotle cups and bags and features the work of Michael Lewis, Sarah Silverman and others.
- PZZA After losing President and COO Tony Thompson to KKD, Papa John’s promoted Senior VP of Global Operations, Steve Ritchie, to COO. Ritchie has been with Papa John’s in various roles for the past 18 years.
Friday, May 16th
- DRI In a move that shunned shareholders, Darden announced the sale of Red Lobster to Golden Gate Capital for $2.1 billion. Darden will receive after tax proceeds of $1.6 billion from the sale, of which approximately $1 billion will be used to retire outstanding debt with the remainder being used to fuel a new share repurchase program. If you recall, the overwhelming majority of voting shareholders requested a Special Meeting to discuss a potential Red Lobster sale. Instead, at a $1.6 billion after tax profit, the board decided to push forward with a sale and give away the Red Lobster business for free. Darden expects the sale to close in early 1QF15.
- WEN announced a $0.05 quarterly cash dividend.
- CMG Word came out from Credit Suisse that Chipotle is already taking mid-single digit price increases in order to offset rising food costs. The firm notes these actions have been met with little resistance and reiterated its $640 PT.
U.S. Macro Consumption
The XLY (0.1%) slightly underperformed the SPX (0.0%) last week. Both casual dining and quick service stocks, in aggregate, underperformed the broader XLY index.
The Hedgeye U.S. Consumption Model reverted back to bearish formation, flashing red on 7 out of 12 metrics.
XLY Quantitative Setup
From a quantitative perspective, the sector remains bearish on an intermediate-term TREND duration.
Casual Dining Restaurants
Quick Service Restaurants