Restaurant Sales, Employment, Etc (April > March)

Black Box Sales, Traffic

Black Box released same-store sales and traffic estimates for the month of April last night that showed a nice improvement over a difficult March.  Restaurant same-store sales increased +1.9%, while same-restaurant traffic decreased -1.5%. These numbers were up 110 and 90 bps, respectively, on a sequential basis, and up 50 bps a piece on a two-year basis.  All told, it appears as though the restaurant industry is beginning to regain some of its former momentum.


Restaurant Sales, Employment, Etc (April > March) - 1

Restaurant Sales, Employment, Etc (April > March) - 2


Encouraging Employment Data As Well

All age cohorts, save the 20-24 group, had positive employment growth during the month – continuing a very impressive run.  Although the 20-24 YOA cohort saw employment growth decline -0.22%, it was a marked uptick from last month’s decline of -0.84%.  Seeing this sequential improvement is encouraging and leads us to believe that this cohort will soon return to positive employment growth, which would bode well for quick service and fast casual restaurants.  Good news for the restaurant industry all around in April, bouncing back from a concerning March.


April Employment Growth Data:

  • 20-24 YOA -0.22% YoY; +62.3 bps sequentially
  • 25-34 YOA +3.17% YoY; +53 bps sequentially
  • 35-44 YOA +0.51% YoY; +5.6 bps sequentially
  • 45-54 YOA +0.36% YoY; -13.8 bps sequentially
  • 55-64 YOA +3.52% YoY; +89.2 bps sequentially

Restaurant Sales, Employment, Etc (April > March) - 3


May-nia | Employment Returns to Middling

The May employment report was “okay”.  The moderate rebound in net monthly payroll gains to +223K in April was largely offset by the negative revision to the March estimate with the revised +85K gain the lowest since June of 2012. 


The early market vote is mixed but with a dovish shading as the $USD is up small alongside gains in both equities and bonds.  More broadly, the return to middling – and the discrete lack of either collapse or escape velocity improvement – will mostly serve to perpetuate further uncertainty/volatility as another month is devoted to speculation and spurious investor activity in the attempt to front-run a Fed faced with somewhat equivocal data. 


We’re not big on adding to the noise of manic data reporting on employment Friday but below are some quick highlights.  If you have any specific questions or would like to dig/discuss a particular dimension of the labor market in more depth, let us know.


May-nia | Employment Returns to Middling - Century Cycles


May-nia | Employment Returns to Middling - E Table


Earnings & Income:  Average hourly earnings in the private sector accelerated +10 bps sequentially to +2.2% YoY.  However, earnings for nonsupervisory and production employees – which BLS estimates to be ~80% of the workforce – grew just 1.8% YoY, marking a 3rd consecutive month of sub-2% growth.  While labor slack continues its slow march towards tautness, a sustained acceleration in both wage and broader core inflation remains very much a phantasm.    


In terms of the read-through to spending and aggregate personal and salary/wage income for April.  The combination of little change in hours worked and earnings growth,  a moderate gain in total employment and modest positive mix in high-wage/low-wage employment on the month should support continued Trend improvement in aggregate income in April. 


As we’ve highlighted, with income growth accelerating alongside the rise in the savings rate in recent months, the capacity for consumption growth has increased more than actual reported household spending.  That trend showed a moderate reversal last month with income gains softening, savings declining and spending rising.  As it stands, consensus forecasts for accelerating PCE continue to buttress full year GDP growth estimates which remain at +2.8% despite what will be another 1st quarter of negative growth following revisions to the 1Q15 estimate.    


May-nia | Employment Returns to Middling - payroll growth vs. earnings growth.png May Empl


May-nia | Employment Returns to Middling - Workers per Job Opening


May-nia | Employment Returns to Middling - GDP seasonality


Unemployment & Participation  The U-3 Unemployment rate dropped to 5.4% while the U-6 rate (Underemployment Rate) ticked down 10.8% from 10.9%.  In contrast to last month, the improvement stemmed from largely positive fundamental developments as the flow of workers out of the labor force ebbed, the number of total employed (+192K) changed at a premium to total unemployed (-26K) and the Labor Force Participation Rate ticked back up to 62.8% from last months multi-decade low of 62.7%.  


Participation by prime working age adults has troughed but has yet to really inflect.  Whether the nascent return to positive employment growth in the 45-54 year old bucket can tip the scale in that direction will take time to discover.


May-nia | Employment Returns to Middling - LFPR Prime Working Age


May-nia | Employment Returns to Middling - Employment By Age



Energy Sector:  Job loss in the energy sector extended into March/April according to both BLS and Challenger Job Cut data.  Oil & Gas extraction employment - which includes data thru April  - saw a employment decline -3K on the month, marking a 3rd month of negative gains in the last four.   Broader energy sector employment  - data thru March - showed a 5th consecutive month of net decline, dropping by -9K sequentially with the rate of YoY growth dropping to -0.6,  the first month of negative year-over-year growth in 58 months.


The weakness accords with the Challenger Job Cut data for April released yesterday which showed energy sector job cut announcements re-ramping to +20K in April after a brief March respite.  Note also that we’ll get the state level employment numbers on May 27th where trends in the shale states will again be the focus.   Collective net employment gains across the primary basket of energy states was -56K in March, the first delta negative month since September 2010.  The notable -26K decline in Texas led state level job losses as angst over a prospective state-level recession continues to percolate.  


May-nia | Employment Returns to Middling - Energy   of Total


May-nia | Employment Returns to Middling - Challenger


May-nia | Employment Returns to Middling - Oil   Gas Industry Emp April


May-nia | Employment Returns to Middling - Oil Industry Emp March


Industry Employment:  Manufacturing employment followed-up last months brick with a paltry +1K estimated gain in April.  The confluence of strong dollar, declining export demand, cratering energy sector investment, and residual port shutdown impacts all continue to weigh on the industry.  The softness was not unexpected given the lackluster gains the last two months, the declines in energy sector employment and the slowdown observed in the ISM employment sub-indices.  


May-nia | Employment Returns to Middling - Diffusion Indices


Housing:  Key housing employment demographics remained solid in April and should continue to flow thru to housing demand at a modest rate. 

  • 25-34 year old employment growth made a higher cycle high, accelerating +80bps sequentially to +3.2% year-over-year.  
  • Residential Construction employment rose +3K in April alongside the strong rebound in broader construction employment which was up a big +45K on the month as activity rebounded alongside the thaw in the weather.   On a year-over-year basis, employment growth continues to hold in the mid-single digits as conditions in the resi construction labor market continue to tighten.  

May-nia | Employment Returns to Middling - 20 34YOA


May-nia | Employment Returns to Middling - Resi Construction May Empl


Christian B. Drake




$YELP: Mayday, Mayday! [Unlocked Research]

Takeaway: Just because YELP may be for sale doesn't mean there would be buyer. All it means is that mgmt is terrified...maybe they finally get it.

This note was originally published May 08, 2015 at 07:58 in Internet & Media

$YELP: Mayday, Mayday!  [Unlocked Research] - 90


  1. WHAT'S FOR SALE: A business that is facing declining revenue if it doesn't grow its salesforce in perpetuity.  YELP's model is predicated on hiring enough new sales reps to drive new account growth in excess of its rampant attrition, which is the overwhelming majority of its customers annually.  The issue is that its TAM isn't large enough to support its model.  That has manifested into a persistent decline in salesforce productivity, which is now devolving into a mounting exodus of its sales reps (see note below).  The latter means the story is going to turn much sooner, and get much uglier, than we initially expected.  See note & deck below for detail.
  2. WHO'S THE BUYER? There are very few who can afford, and much fewer (if any) who would be desperate enough to consider.  Remember that in any M&A transaction, the would-be seller has to open its books.  If we all can see YELP's attrition issues in its public data, any would-be acquirer would see it in its private data.  Combine that with the negative goodwill surrounding YELP's alleged business practices, and the likely sell-off of the acquirer's stock on the news, and it's basically Russian Roulette for any acquiring CEO (except there isn't an empty chamber).
  3. WHAT THIS MEANS: This could just be a manufactured story to squeeze the shorts.  If not, then management is just terrified.  The company went public in 1Q12 and now may be looking to sell in 2015 at what was a 52-wk low before yesterday's headlines.  Management may finally be coming to the realization that its model is unsustainable.  We suspect the wake-up call was what we believe was a sequential decline in its salesforce in 1Q15 after targeting 40% sales-rep growth for 2015 (see note below).  Mgmt may be hoping to eject before the model starts crashing, but we doubt it can find a buyer.  If we're wrong, let's hope none of us are long the acquirer.


For supporting detail, see below for our most recent deck and note .  Let us know if you have any questions, or would like to discuss further.


Hesham Shaaban, CFA





YELP: Short Thesis Update Deck & Replay 


Deck: [click here] 

Replay: [click here] 


YELP: The New Major Red Flag (1Q15)

04/30/15 08:53 AM EDT

[click here]

RH: Removing Restoration Hardware from Investing Ideas

Takeaway: We are removing Restoration Hardware from Investing Ideas.

Please be advised that we are removing Restoration Hardware (RH) from Investing Ideas today. Below is a brief note from CEO Keith McCullough explaining our decision.

*  *  *  *  *  *  *

RH: Removing Restoration Hardware from Investing Ideas - 12


This is not a fundamental research call from Brian McGough. This is more of the same in terms of me wanting you to take down your gross exposure to the US stock market as we head into what I believe will be a volatile summer.


RH has had a great run for us and I want to make sure you harvest some of those gains so that you can re-invest at lower-prices if/when small cap consumer stocks get hit again. Gas prices aren’t falling anymore and the rate of change in the US labor data continues to slow.




Keith's Macro Notebook 5/8: UK Election | China | Jobs Report


Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning, with special analysis of the just-released jobs report from Macro Analyst Christian Drake.

Can $LULU Shares Head North of $70 or $80 With Chip Wilson In The Rear View Mirror?

Editor's Note: This is an excerpt from recent research from our retail team. If you're an individual investor looking for high-quality research at a price you can afford we invite you to learn more.


When we added Lululemon (LULU) to our Best Ideas list back in June 2014 (we removed it from our Best Idea's List on 3/24/15) we outlined probable outcomes stemming from controversial founder Chip's Wilson’s activist push. Where we shook out after weighing the various puts and takes was:

  1. Chip would not get his way.
  2. Chip would eventually sell his stock.

Can $LULU Shares Head North of $70 or $80 With Chip Wilson In The Rear View Mirror? - 14l 

We have long maintained that Chip is a brand builder, not a brand leader. He was very vocal in an interview with PwC last year about his displeasure his non-compete imposed restraint. The writing officially appears to be on the wall for his complete exit from the company now that “Kit and Ace” (the luxury apparel brand founded by his wife and son) is nearing critical mass.


In our LULU Black Book in March 2015, we said that there’s $4.00 in earnings power hidden in this company, but we needed the conviction that management could find it. We are still far from convinced, though the leadership on the board has proven over the past year that it is willing to separate itself from Chip.


In order to justify a 30x p/e and give anyone hope of a share price in the $70s or $80s, we think that the company needs to completely reset its business model.

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