…and nothing has changed.
CBRL up 12% on vapors!
CAKE up 11% on more vapors (and we have a new SHORT deck for our new Equity Data Booklet (EDB) available)
SHAK up 19% (likely short covering on a better than bad quarter)
PLAY up 16% (as a best idea SHORT…this hurts)
Short covering candidates: FOGO up 22%; FRGI up 11%; PBPB up 12%.
As a sector the Casual Dining group up 11% (yet industry sales for the first month (October) of 4Q were soft).
TXRH and BLMN UP 16% AND 15%, respectively! (At least TXRH has positive traffic)
What gives?…
One theory is that lower tax rates might put more discretionary dollars into consumers' pockets. But when!? Most likely late 2017, maybe impacting 2018, if it happens at all. The wealthy might benefit from lower taxes, but I suspect they don’t go to the average casual dining restaurant.
What if we are in a recession? As Hedgeye CEO, Keith McCullough, pointed out last week, if you bought "stocks" on Reagan’s Election Day, you were down -22% by the August 1982 recession low.
Healthcare inflation is not going away. Obamacare repeal will not happen anytime soon, and as a result, healthcare inflation will continue to be a drag on spending in 2018.
Stronger dollar is a problem for the multinationals YUM, MCD, SBUX, YUMC, QSR, DPZ, ARCO, which all declined last week.
Higher interest rates can be a problem for some companies, as it will ultimately raise borrowing costs for levered asset-light restaurant companies and put limits on the level of money being returned to shareholders.
Inflation/Reflation might help same-stores sales, but will the reversal of food deflation be a positive with labor inflation? The CRB was only up +1.8% last week and +10.1% YTD, so deflation to inflation rotation is still six months away.
Repatriation could be seen benefiting YUMC, but not a big deal for the restaurants.
RECENT NOTES
11/11/16 RESTAURANTS MACRO NOTE | FADE THE RALLY PART 2
11/10/16 BWLD BLACK BOOK REPLAY | COMING AROUND THE ACTIVIST CORNER
11/10/16 POSITION MONITOR | FADE THE RALLY
11/8/16 CMG | Q&A
11/7/16 BJRI | YOU CAN’T TOUCH THIS
11/4/16 SBUX | REMINISCING
11/3/16 THOUGHT LEADER CALL | THE IMPACT OF MEDIA FRAGMENTATION
11/3/16 RRGB | SEEING THE LIGHT
11/2/16 RESTAURANT: WALL STREET MEETS MAIN STREET | DIGGING INTO THE IMPACT OF MEDIA FRAGMENTATION
11/2/16 TXRH | QUICK TAKE | 3Q16 EARNINGS NOTE
11/1/16 CAKE | NEW BEST IDEA SHORT
SECTOR PERFORMANCE
Casual Dining and Quick Service stocks that we follow were mixed versus the XLY last week. The XLY was up +3.9%; top performers on a relative basis from casual dining were PLAY and TXRH, with performances of +13.1% and +12.3%, respectively, while SHAK and LOCO led the quick service group this week up +14.9% and +8.5%, respectively.
CASUAL DINING RESTAURANTS
QUICK SERVICE RESTAURANTS
COMMODITIES
ARTICLES OF INTEREST
SODA TAX TO IMPACT FIVE CITIES
And the people have spoken! A new sugar tax will be applied to sugar-sweetened beverages sold at restaurants and supermarkets in Chicago, IL., Boulder, CO., and San Francisco, Oakland and Albany, CA. In the California cities, a penny-per-ounce fee will be applied to the beverages sold and a 2 cent-per-ounce tax will be charged in Boulder. In Boulder, this tax could more than double the price of a 2-liter bottle of soda. The decision is sure to send ripples through the supermarket and restaurant community, as it will “dramatically increase the cost of many beverages purchased by restaurants and bars.”
Please call or e-mail with any questions.
Howard Penney
Managing Director
Shayne Laidlaw
Analyst
