- In the most recent quarter, management reduced G&A expense slightly (down 10 bps YOY as a percent of sales), but there appears to be room for further cost cutting. And with Ramius LLC's recent letter raising concerns over CKR's high G&A expenses (relative to its competitors), management appears motivated to bring these costs down in the near-term, with CEO Andrew Puzder citing that keeping G&A under control is one of the two big strategic initiatives within the company (the other being managing commodity costs).
- Looking out over the next few quarters, things should to improve for CKR as the company is lapping some easier revenue and margin comparisons in 2Q and in the back half of the year. CKR's refranchising efforts at Hardee's really picked up in 2H08 with the company refranchising 60 restaurants in 3Q and 30 in 4Q, which negatively impacted company-operated revenue growth. Although the company plans to refranchise additional units in FY09, there are only 40 units remaining under CRK's current refranchising schedule so the negative impact on revenues will be minimal relative to last year. Management continues to maintain that each refranchised restaurant reduces G&A spending by about $22-$24 thousand and that the costs are eliminated immediately when the stores are sold, but these savings have not yet helped to bring the company's overall G&A spending down to a more reasonable level.
- From a margin standpoint, CKR should see some benefit in 2Q because it will be lapping the initial spike in food and packaging costs that it experience last year, particularly at Hardee's (up 130 bps YOY as a percent of sales on a consolidated basis and up 200 bps YOY at Hardee's in 2Q08). Increasing beef costs should offset some of this year-over-year favorability, however, as the company mentioned that it is already seeing beef prices rising in 2Q, which was not an issue in 1Q. The company's stance on discounting ( we will not deal with the issues by trying to drive business through discounting our products, serving inferior products or massively couponing ) should also help protect margins going forward as long as its ongoing price increases don't hurt traffic growth, like we saw at SONC and CBRL.
7 Tweets Summing Up What You Need to Know About Today's GDP Report
"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.read more
GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist
“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.read more
Inside the Atlanta Fed's Flawed GDP Tracker
"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.read more
People's Bank of China Spins China’s Bad-Loan Data
PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.read more
UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'
“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."read more
Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)
"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.read more
An Update on Defense Spending by Lt. Gen Emo Gardner
"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.read more