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Last night Malcom Knapp released casual dining sales results for December, estimating that same-store sales increased +2.2% as guest counts decreased -0.5%.  As expected, restaurant stocks are rallying on the print.  While the headline numbers are strong, the underlying trend is quite the opposite, as same-restaurant sales and traffic declined -2.0% and -4.2%, respectively, on a two-year average basis. 

For the quarter, same-restaurant sales increased +1.5% as guest counts decreased -0.6%.  While 4Q, as a whole, was strong, December marked the second straight month of deceleration in the two-year trend of both measures, suggesting that the state of the casual dining industry isn’t quite as strong as people suspect. 

The reality is, we’re not going to fight the headlines and with another 2-3 months of weak comparisons on tap, we imagine sentiment surrounding restaurant stocks will remain high over the near-term.  However, we believe the recent run-up, which we properly positioned for, will soon provide us with a plethora of opportunities on the short side.

Stay tuned.