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This Week's Jobless # Shines Light In A Darkening Hole...

The weekly jobless claims # of 346,000 was a big surprise to the positive side versus last week's abysmal 404,000. This actually improves the 4 week moving average for the 1st time since the US market began its latest decline.

Additionally, this morning's June same store sales #'s at US retail were certainly better than toxic.

As the facts change I will, and these 2 facts are better than I was expecting.

Into market weakness, I continue to get longer this morning.
KM

Covering My Target (TGT): Ackman Has A Headache...

One year ago, almost to the day, on July 13th, 2007, TGT went to $70.14 on the hopes and dreams of the me-too levered long community riding Bill Ackman's "activist" position into the sunset. Today, TGT is down -35% from those ridiculous expectations.

Most of you who have followed my views since I left Wall Street in November, know that I have been long WMT and short TGT ever since this circus began.

I am happy to walk out of the circus tent, with my popcorn, smiling...

Clearly, Bill didn't "do macro".

*Full Disclosure: I covered my TGT in the last 30 minutes of trading.
KM

PNRA - PNRA is Discounting too!

From NewsNet5.com.....

WARREN, Ohio -- Panera Bread will soon begin to give away $90,000 worth of BP gas cards. The restaurant will begin July 12 to register customers at its locations in Cleveland, Akron and Canton. Officials said the gas cards will be given away each Saturday throughout July and August. Winners will be randomly selected to receive a $75 gift card. Officials said registration boxes can be found immediately upon entering any of these Panera Bread locations. There is no purchase necessary and participants can enter one time per day, officials said.

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SBUX - Mapping The Closed Stores

Starbucks recently announced that it will be closing 600 stores in the U.S. The list of stores has not been released for a host of internal reasons. Meanwhile, many Starbucks employees are talking about closures unofficially. This Google map marks locations where baristas, customers and others are hearing the closures will happen.

Q2 Earnings Season - Less than TOXIC!

I don't want to speak for my colleagues at Research Edge, but yesterday we branded this earnings season as Less than toxic. Ok... In yesterday's morning meeting, our fearless leader used the term less than toxic when referring to AA earnings. The popular press was playing up the fact that they beat the street on lowered expectations, but everything was ok because they beat consensus! What a game this is. Well, see Keith's posted thoughts on how that ended...

So, guess what? We have less than Toxic in the restaurant industry, too. We are only two day's into the earnings season and a pattern is developing. Given the boost to spending that the Bushies gave the consumer in 2Q08, we are not surprised that we are seeing slightly better 2Q EPS.

Unfortunately it's only temporary...

After the close, CPKI guided 2Q08 EPS to $0.25-$0.26 vs. prior guidance of $0.16-$0.17 and consensus estimates of $0.17. The company reported 2Q08 same-store sales of +1.4% vs. year ago 5.4% and consensus of flat same-store sales. But here is the TOXIC part; despite its better-than-expected performance, senior management is not adjusting full year 2008 guidance at this time due to limited sales visibility and an ongoing concern for the economy.

Also after the close, RT reported 4Q08 EPS of $0.27 vs. consensus $0.20. The Company-owned same-store sales: March (10.2%), April (11.6%) and May (9.2%) and franchise comps were: March (8.0%), April (7.8%) and May (5.5%). For fiscal 2009, same-store sales are expected to be down MSD, including a 8-9% decline in 1Q09. It looks like RT will be reducing capacity by opening four new company-owned restaurants and closing 15 company-owned restaurants.

Remember, yesterday RRGB announced that they are going to miss EPS this quarter. Clearly, RRGB had expectations for the impact of advertising set way too high. Beware of those companies that have not completely cleared the decks.

CHEAP BUFFETS AND FOOD COURTS

As anyone who has visited Las Vegas over the past few years can attest, Vegas is damn expensive, especially the restaurants. I've written extensively on the vulnerable margin situation in Las Vegas (see 2 separate margin posts on 6/22/08). Food and beverage (F&B) operations are an important contributor to profits and profit margin. The problem is that Las Vegas needs to continue to attract visitors to capture the casino business. As consumer spending slows (contracts?) hotel rates and F&B menu pricing will retrench toward loss leader status. Contrast Las Vegas to the rest of the country where hotels and restaurants maintain pricing as long as possible to protect margins, even as occupancy and covers decline. Las Vegas doesn't have that option.
  • The chart to the right shows the estimated average check per meal in Las Vegas using data from the Las Vegas Convention Authority. Note that the significant increase in check has corresponded to rapidly expanding casino hotel EBITDA margins. I don't know about you but $20 per meal (including breakfast!) sounds like a lot of money to me and hardly sustainable. Look for a resurgence of the cheap buffet and the food court.

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