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Monday Mashup: PBPB, MCD and More - 1

Notable Callouts

  • We removed PBPB from our Investment Ideas list as a short in a note last week. CLICK HERE to access the note.
  • We are removing MCD and BKW from our Investment Ideas list as shorts, due to the improvement we are seeing in same-store sales trends across the sector.

Recent Notes

09/29/14 Monday Mashup: BLMN, SBUX and More

09/30/14 Is the Sales Environment Improving for Restaurants?

10/01/14 PBPB: Closing Best Idea Short

10/02/14 Restaurant Sector Valuation

10/02/14 Bullish on Bloomin'

10/03/14 Employment Numbers a Positive for Restaurants

Events This Week

Wednesday, October 8th

  • YUM earnings call 9:15am EST
  • RT earnings call 5:00pm EST

Thursday, October 9th

  • PLKI Investor Day 9:00am EST

Friday, October 10th

  • DRI Annual General Meeting 9:00am EST

Chart of the Day

A favorable data point for restaurants: the restaurant value spread, which measures the difference between food at home and food away from home, has widened over the past three months.

Monday Mashup: PBPB, MCD and More - 2

Recent News Flow

Monday, September 29th

  • SONC announced the hiring of industry veteran Harold Ceron as senior VP to lead company drive-in operations.  Ceron comes to SONC from 7-Eleven where he served as Managing Director, Europe and Latin America.  Prior to 7-Eleven, Ceron spent nearly 20 years at Yum! Brands.
  • BAGL was acquired by JAB Holding Company for $20.25 per share in cash.  Greenlight Capital agreed to tender its shares in support of the transaction.
  • DFRG announced the opening of its newest Del Frisco's Grille in North Bethesda, Maryland, making it the 14th Del Frisco's Grille in the system.
  • RRGB announced it is two weeks away from opening its two newest restaurants in Bronx, NY and South Florida.
  • DIN Applebee's launched the #FanFavoriteSweeps campaign to give one fan a trip to Phoenix.  The challenge requires contestants to snap a selfie with their favorite 2 for $20 dish from a menu that includes: Grilled Chicken Wonton Tacos, Quesadilla Burger, Bourbon St. Chicken & Shrimp, Shrimp 'N Parmesan Sirloin and Crosscut Ribs.
  • COSI announced a planned rights offering from which it expects to receive ~20.0M.
  • WEN launched the #BBQ4Merica campaign to help spread awareness of their new BBQ offerings, including its new BBQ Pulled Pork Sandwich, BBQ Pulled Pork Cheeseburger and BBQ Pulled Pork Cheese Fries.
  • BAGL was downgraded to hold from buy at Jefferies.

Tuesday, September 30th

  • PNRA was added to the US 1 list at Bank of America Merrill Lynch with a $185 PT.
  • DRI proxy advisory firm Egan Jones reaffirmed its recommendation that shareholders vote "FOR ALL" of Darden's director nominees.
  • PZZA introduced its latest menu addition, the Ultimate Meats Pizza, featuring pepperoni, salami, sausage, Canadian bacon and hickory smoked bacon.  The Ultimate Meats Pizza can be had for just $12 through October 26th.
  • BJRI opened its newest restaurant in Cedar Park, TX. The restaurant Is approximately 7,400 square feet, seats 225 guests and features BJ's extensive menu.

Wednesday, October 1st

  • PNRA upgraded to buy at Wunderlich Securities with a $185 PT.
  • Restaurant Sector upgraded to bullish from cautious at Stifel Nicolaus.
  • NDLS announced new fall limited time only items, including the new Buffalo Chicken Mac & Cheese and the new Fig & Pig Flatbread.  The company also added the Alfredo MontAmore to its permanent menu and announced it will celebrate National Noodle Day on October 6th with its "Lucky Bowl" giveaway.

Thursday, October 2nd

  • DRI reported September comps (Olive Garden +0.6%, LongHorn +3.2%) and guided 2Q EPS to the upper end of its original $0.26-$0.28 range.
  • LOCO celebrated the grand opening of its first Houston, TX restaurant.
  • KKD announced CFO Douglas Muir will retire in CY15 and plans to remain in his current role until a successor is in place and to provide support during the transition.

Friday, October 3rd

  • CBRL declared a quarterly dividend of $1.00 per share payable on November 5, 2014 to shareholders as of October 17, 2014.  The board also authorized a new $25 million share repurchase plan.
  • JACK Qdoba unveiled a new simplified menu and pricing structure at its restaurants in which "extras" (including guacamole, 3-Cheese Queso and Queso Diablo) will no longer be charged as extra.  Guests will now pay a single set price for their favorite entrée and will be able to load on flavor without paying the additional cost.
  • SBUX announced that Jeff Hansberry, President of CAP, assumed the role of President of Evolution Fresh effective September 29th, 2014.  Hansberry will return to the company's headquarters in Seattle.

Sector Performance

The XLY (-0.7%) outperformed the SPX (-0.8%) last week.  Both casual dining and quick service stocks, in aggregate, outperformed the XLY.

Monday Mashup: PBPB, MCD and More - 3

Monday Mashup: PBPB, MCD and More - 4

XLY Quantitative Setup

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

Monday Mashup: PBPB, MCD and More - 5

Casual Dining Restaurants

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Monday Mashup: PBPB, MCD and More - 7

Quick Service Restaurants

Monday Mashup: PBPB, MCD and More - 8

Monday Mashup: PBPB, MCD and More - 9

Howard Penney

Managing Director

Fred Masotta