Unless, Sardar Biglari makes an offer the take CBRL private, I don’t think the stock goes much above $50. Today, CBRL was sold short today in the Hedgeye Virtual Portfolio.
In the 2006/2007, when CBRL faced Nelson Peltz, the stock peaked at $50.74 and in 2007, CBRL generated $225 million in EBITDA versus $228 million in fiscal 2010.
Given the secular decline I see in the concept’s business, I don’t see much value past the $50 level, because the cost of fixing declining traffic trends is both time- and capital-intensive. One of the biggest issues is that the company is consistently raises prices in an attempt to protect margins and driving the core customer away in the process. The core Cracker Barrel customer skews older with little disposable income and has suffered from the economic malaise of the past few years.
As I said in my CBRL note on 6/16 “I let you be the judge of the company’s performance since the beginning of fiscal 2007 (the last time the company faced an activist investor). The store base has grown by 11%, sales by 2.3%, EBITDA by $3.4 million, EBIT has declined by $68,000 and the share price has gone nowhere.
The questions investors need to ponder are: can Mr. Woodhouse fend off Mr. Biglari and what will he do to create value? Will he pursue the same path he did against Nelson Peltz? A transaction we know created ZERO value for shareholders.
While we wait the pressure on the core business will persist.
Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.
POSITION: No position SPY
Back by popular demand is our old behavioral market reality - Squeezy The Shark. She dwells in the depths of the hedge fund community. She bites you when you don’t have it in you to Cover Low. She wants a look at the 1293 line.
There were 2 economic data points left this morning to get the shorts paid:
- Michigan Consumer Confidence = DOWN 2.5 points m/m to 71.8 (reversing all of May’s gains)
- US Leading Indicators = +0.8% sequentially (but it’s an April # and basically irrelevant)
Neither of these data points matter. If you didn’t know consumer confidence was falling as home and stock prices have, now you know. Markets discount.
What matters is the USD/Euro cross. And for now, the market morons (Greek politicians) in Europe have the career risk management trade on into the weekend. Euro UP = USD DOWN = Stocks UP.
This is very immediate-term analysis but, like driving a car, risk management occurs all of the time. Provided that 1277 in the SP500 holds, there’s a heightening probability that the SP500 rallies to a lower-high at 1293 – and nothing “fundamental” from an intermediate-term perspective will have changed.
The masses shorted the lows, and now Squeezy is hungry.
Keith R. McCullough
Chief Executive Officer
Notable macro and industry-specific news items and price action from the restaurant space as well as our fundamental view on select names.
- Corn for July delivery, the most actively traded contract dropped $0.24 cents, or 3.3%, to a one-month low of $7.01 1/2 a bushel; wheat and soybean futures also tumbled at the Chicago Board of Trade. Driving prices lower was heavy selling fueled by jitters about the global economy and improving weather forecasts.
- The Obama administration intensified a crackdown on employers of illegal immigrants, notifying another 1,000 companies in all 50 states Wednesday the government plans to inspect their hiring records, according The Wall Street Journal.
- SBUX is hoping that new menu initiatives help to turn around the company’s UK business, which made a loss in 2010.
- SBUX is scrambling to deal with a PR fallout after a manager of a Long Island store allegedly harassed a gay employee. Also, the controversy surrounding the company’s switching of milk suppliers for the NYC stores is being opposed by further demonstrations at City Hall today.
- COSI and CMG are the only two QSR names to underperform the S&P 500 over the past week.
- On average, the QSR sector outperformed the S&P 500 by 4% this week.
- KONA, RRGB, MRT and MSSR are the only two FSR name to underperform the S&P 500 over the past week.
- On average the FSR sector outperformed the S&P 500 by 2.4% this week.
The Macau Metro Monitor, June 17, 2011
MACAO STUDIO CITY TO HAVE UP TO 400 GAMING TABLES: LAWRENCE HO Macau Business
MPEL CEO Lawrence Ho says that Macao Studio City (MSC) will open with 300 to 400 gambling tables and 1,200 slot machines, pending government approval. Ho also said that the project would cost a further US$1.7 BN (MOP13.6 BN). It will include 2,000 hotel rooms, 200,000 square feet of retail space and entertainment offerings.
Regarding the opening date, Ho remarked that MSC will not open by 2013 as stated in the land concession contract but said that "we wouldn't have done this without the Macau government's blessing.” The tentative deadline to open the property is the first half of 2015.
CRA TO LAUNCH A FULL-SCALE INSPECTION ON IRs Strait Times
Singapore's Casino Regulatory Authority (CRA) will launch a full-scale inspection on MBS and RWS at the end of the year to make sure that the operators are complying with all the rules and regulations. Richard Magnus, chairman of the CRA, said that checks are necessary to determine whether the casino operators are complying with the Casino Control Act, its regulations and licensing requirement, internal controls and approved game rules.