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Del Frisco’s Restaurant Group (DFRG) is on the Hedgeye Restaurants Best Ideas list as a LONG.

 

As we stated on 10/14/15 (NOTE HERE), we believe the worst is behind DFRG, as management is adjusting its operating strategy to improve profitability in 2016. This is partly evidenced by the official closing of their Del Frisco’s Grille in Palm Beach, FL, effective Sunday, November 29. This was a previously announced closure, as the company recorded a $3.3 million impairment charge related to the location. Looking forward, the company will incur one-time lease termination and closing costs during the fourth quarter.

Closing poorly performing stores is a necessary practice for all restaurant companies in order to redeploy capital to higher return locations. Mark Mednansky, CEO of DFRG stated, “we have therefore chosen to take decisive action to close the location so that we can focus on more profitable opportunities. We continue to have complete confidence in the Grille concept and are looking forward to opening new restaurants in carefully selected locations.”

The stock appears to have built in a bottom as it is no longer consistently going down, and it is reacting favorably to slightly good news. We still see an estimated 25% upside in the name as we look into 2016.

DFRG | HEADED NORTH - SOTP 12.1.15

Along with the company strategically operating more efficiently, we believe the company will have the benefit of lower beef prices, aiding their commodity basket costs. (LOOMING CRASH IN BEEF)

Please call or e-mail with any questions.

Howard Penney

Managing Director

Shayne Laidlaw

Analyst