Casual Dining Shorts?

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Today, we find it prudent to reiterate our shorts and remind people why we have zero casual dining names on our current Investment Ideas list.

While seeing BWLD and PNRA whiff on earnings has really dampened the sentiment around restaurants in the early innings of 1Q15 earnings season, we believe signs of trouble have been brewing for quite some time.  This is particularly true in the casual dining industry, which despite being in the midst of a secular decline, currently trades close to a five-year peak multiple. 

Casual Dining Index: EV/EBITDA (NTM)

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Source: FactSet

Given the recent increase in gasoline prices, decrease in consumer confidence, labor cost pressures, and softening industry sales, we believe there is more downside on tap for restaurants stocks.

Regular Gas Price

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Source: gasbuddy.com

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Barring an exception, which we will call out if/when it is appropriate, we would not be comfortable owning any casual dining names.  CHUY and DFRG continue to be two of our favorite shorts, but the majority of names could be due for a continued correction.  See our short bench for more ideas.

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Latest Relevant Note: 1Q15 Investment Ideas Earnings Preview