Takeaway: We are removing Bob Evans from our high-conviction stock idea list.
Sandell only won four board seats after gunning for eight. We’re not quite sure what shareholders were thinking when they voted, but the fact of the matter is they’d be better off with Sandell in control of the board.
CEO Steven Davis and Lead Director Michael remain in place, which is a big concern for us. Remember, they led Bob Evans into this mess in the first place.
Same-store sales trends continue to be uninspiring despite management’s attempt to stem the decline.
Sandell was the company’s savior, not the Broasted Chicken, and shareholders must now hope that four board members have enough pull to drive material change.
We’re not sold on this happening.
Although the headline U.S. jobs number disappointed (nonfarm employment advanced 142,000 vs expectations of 225,000) in August, the unemployment rate ticked down to 6.1%. All told, the read-through to the restaurant industry is rather encouraging, as employment growth increased year-over-year across our five primary age cohorts.
While we saw strength across the board, the most notable callout is the strength we saw in the 25-34 and 45-54 cohorts, which both posted their strongest month of employment growth in over three years. August marked the second straight quarter of employment growth in the 45-54 cohort which, prior to that, had seen 20 straight months of employment deterioration. This bodes particularly well for casual dining restaurants, which could begin to see a boost from this reversal.
In aggregate, widespread employment growth is bullish for both quick-service and casual dining restaurants. With that being said, however, we continue to favor select quick-service and fast-casual operators including JACK, CMG, WEN, KKD and PLKI.
August employment growth data:
Employment growth at full-service restaurants, limited-service restaurants and leisure & hospitality continues to grow, despite seeing steady deceleration since high of mid-2013 likely due to significant cost pressures these companies are facing on both the food and wage front.
In the chart below, we look at the correlation between TTM Leisure & Hospitality Employment Growth and TTM Knapp Comps. As we've pointed out before, Knapp same-store sales have historically tracked well with employment growth in the leisure & hospitality industry, however, this positive correlation broke down in mid-2012. Despite improving same-store sales numbers, this trend continues to support our case that the casual dining industry is in secular decline. In this type of environment, we believe that only the most nimble, innovative and operationally focused players will thrive.
Hedgeye CEO Keith McCullough sits down with JonesTrading Chief Market Strategist Mike O'Rourke, one of the last remaining bears on Wall Street, in the latest installment of Real Conversations. O'Rourke contextualizes the current bubble, warns of a coming "bear-mageddon" scenario, and addresses the waning effectiveness of QE.
1:04 One of the only bears left
2:10 Contextualizing the bubble
3:01 Undergoing a structural shift
4:08 Counter cyclical signals
4:35 The Fed will remain easy
5:58 The Bear-Mageddon scenario
6:58 Lower highs = negative growth signal
7: 53 Signs of an equity market top
8:47 Narrowing leadership in the stock market is a concern
10:24 When this bubble pops no one will be able to get out
11:20 Market turns can be dangerous
12:31 The most epic bubble of all time
14:59 Return on capital vs. return of capital
15:34 How do you cut from zero?
16:49 QE will stop working
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.