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Monday Mashup: DRI, BLMN and More - 1

Recent Notes

12/08/14 Monday Mashup: MCD, KKD and More

12/08/14 MCD: Weakest U.S. Comps in Over a Decade

12/08/14 SBUX: Will the Big Bet Pay Off?

12/08/14 Restaurant Sales, Traffic Dip in November

12/09/14 YUM: Hiccup Aids the Bull Case

12/12/14 Knapp Sales Weak, Reiterate Short DRI

Events This Week

Tuesday, December 16th

  • BLMN Analyst & Investor Day
  • PLAY Earnings Call 4:30pm EST
  • DRI Earnings Call 5pm EST

Chart of the Day

Live Cattle prices are up +20.5% YTD and +22.5% YoY.

Monday Mashup: DRI, BLMN and More - 2

Recent News Flow

This Morning

  • BOBE announced CEO Steve Davis has stepped down by mutual agreement with the board, effective immediately.  The board has established an interim office of the chief executive (CFO Mark Hood, BEF President Mike Townsley) to provide ongoing leadership and oversight while they search for a new CEO.
  • DRI was upgraded to market perform from underperform at Telsey Advisory Group with a $54 PT.
  • COSI announced completion of its previously announced right offering.  Cosi anticipates issuing 13.3 million common share for gross proceeds of $20 million.

Monday, December 8th

  • JMBA announced it has engaged Peak Franchise Capital to lead its refranchising efforts.  The company plans to refranchise up to 114 stores during 1H15, while simultaneously focusing on future growth initiatives as well as cost cuts.  Management believes it will achieve its target of at least 80%+ franchise-to-company owned stores in the next twelve months.
  • PLKI announced that Central Michigan will square off against Western Kentucky in the inaugural Popeyes Bahama Bowl.  The game, which will be played on December 24th at Thomas A. Robinson National Stadium in Nassau, will be nationally televised in the US on ESPN and will be broadcast on ESPN radio.  During the game, Popeyes will unveil its newest LTO.
  • BWLD launched the Million Dollar Bowl Pick'Em Challenge which will run through December 19th.  Guests are encouraged to visit the GameBreak gaming platform in restaurants, or on their mobile device/desktop, to pick winners of all 39 college football bowl games.  If a guest accurately predicts all 39 winners, they could win $1,000,000.
  • EAT announced Scarlett May has been named Senior VP, General Counsel, and Secretary of the company.  May most recently served as Senior VP, Chief Legal Officer, and Secretary for Ruby Tuesday.

Tuesday, December 9th

  • CAKE announced the opening of its two newest restaurants in Bay Shore, NY and Fort Worth, TX.  The restaurant in Bay Shore has an approximately 8,100 square-foot dining room that accommodates 210 guests, while the restaurant in Fort Worth has an approximately 8,700 square-foot dining room that accommodates 230 guests.
  • THI shareholders approved the transaction with BKW.  Upon close of the transaction, shares of Restaurant Brands International will trade on the NYSE and TSE under the symbol QSR.
  • YUM guided FY14 EPS growth in mid-single-digits versus prior guidance of 6-10%. It also guided to FY15 EPS growth of at least 10%, well below the 17% the street had been projecting.

Wednesday, December 10th

  • EAT was downgraded to hold from buy at Miller Tabak with a $59 PT.
  • COSI extended its rights offering deadline to December 12th.
  • MCD announced it will trim its menu by eight items in January and will cut the options for EVMs from the current 16 to 11.

Thursday, December 11th

  • GMCR announced it has renewed its partnership with Caribou Coffee through a new 10-yr agreement for the "manufacturing, marketing, distribution, and sale of Caribou Coffee in Keurig pack formats."  The companies will also begin offering Caribou Coffee in carafe formats for the Keurig 2.0 brewing system and Keurig Bolt carafe brewing system.
  • YUM dealReporter commented that 3G Capital could be considering a Yum! Brands takeover.
  • LOCO announced a new credit facility, closing on a new five-year $200 million senior secured credit facility that will replace its existing $205 million credit facility.  Upon completion of the refranchising, the company will have approximately $165 million of total debt outstanding.

Friday, December 12th

  • QSR Restaurant Brands International announced the successful completion of the Tim Hortons and Burger King transaction.

Sector Performance

The XLY (-2.1%) outperformed the SPX (-3.5%) last week.  In aggregate, casual dining stocks outperformed while quick service stocks underperformed the XLY.

Monday Mashup: DRI, BLMN and More - 3

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XLY Quantitative Setup

From a quantitative perspective, the sector remains bullish 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