OVERALL: Seems like stocks took a break from the #TrumpTrade last week, as Fast Casual was the only sub-sector to finish the week in the green.
- Fast Casual stocks were once again the best performing sub-sector, finishing the week up +0.46%. Leading the charge was CMG, up 5.75% on news that the fast-casual chain named four new members to its Board of Directors. This news comes fresh off the heels of added pressure from Bill Ackman’s Pershing Square, and moves in lock-step with demands outlined by Ackman’s group. Additionally, in connection with the appointments, CMG and Pershing Square have agreed to various provisions which will be in place at least until the 2019 Annual Meeting of Shareholders.
- For the second consecutive week, Family Dining stocks were the second-best performing sub-sector, down -0.08%. After a mammoth performance two weeks ago (up +19.51% on strong earnings) BOBE gave back some of those gains this past week, as it closed the week down -1.41%. Denny’s Corporation (DENN) finished the week up +0.55%.
- Pizza stocks we follow were the worst performing sub-sector of the week, down -2.17% for the week. FRSH and DPZ finished the week in the red, down -3.18% and -2.17% respectively. PZZA finished the week up +1.29%, seemingly continuing to ride the wave created last week by an upgrade.
- QSR finished down -0.79%, with all but three of the stocks that we follow finishing the week in the red. TAST, SONC, and ARCO led the decline, each finishing the week down -3.96%, -3.43% and -3.42%, respectively.
COFFEE
- Coffee was the third-best subsector, finishing the week down -0.56%
- DNKN was the big gainer in the coffee space, finishing the week up +2.70%. SBUX gave back some of its gains from the previous week, as it finished the week down -1.82%, nearly returning to its pre-analyst day levels of last week.
- From a MACRO perspective, coffee traded lower near the end of the week on concerns surrounding adverse weather conditions in Vietnam. Despite this, it finished the week in positive territory.
CASUAL DINING
STOCK HIGHLIGHT OF THE WEEK – LONG Red Robin Gourmet Burger (RRGB):
Red Robin Gourmet Burger, a name on our Best Ideas list, finished the week up +7.10% on news that the Company announced the hiring of Guy J. Constant as Executive Vice President and Chief Financial Officer. This hire brings significant credibility and much-needed stability to RRGB’s front office as Terry Harryman had been serving as interim CFO since July 2016. Going forward, this is a significant step in the right direction as Mr. Constant brings with him an enormous amount of industry cache, given his more than 20 years of corporate finance leadership, including a decade in the restaurants space.
Additionally, BBRG has entered into a partnership with DoorDash to bring delivery to 70 RRGB restaurants across the country. According to the company, a full rollout of carryout, delivery, and catering options is planned for 2017. This is also a step in the right direction for the Company, as RRGB works to build their off-premise business in an effort to increase convenience and improve the customer experience.
- Casual Dinning was down -2.14%%, giving back some of its gains from last week. All but two of the casual dining names we track finished the week in the red. RT and BWLD led the way down at -5.90% and -4.83%, respectively, and FOGO finished the week up +3.83%.
- Brinker International, Inc. (EAT) finished the week down -3.8% after a downgrade at BMO, where they see the relative performance of the stock likely to disappoint as margin opportunities have shifted to peers.
- Other notable decliners were DIN and DRI, down -4.58% and -4.15% respectively. DIN continues to underperform as sales and profits have both taken a hit this year due to weak traffic and menu miscues. DRI’s decline can be attributed to their recent downgrade at Deutsche Bank.
GENERAL RESTAURANT THOUGHTS (KNAPP-TRACK)
- Last week Knapp-Track released their thoughts on the current casual dining environment, characterizing the current environment as “operations warfare.” According to Knapp, the brands that are successfully gaining share are the ones that most frequently provide their guests with guaranteed experiences all of the time.
- Other key points include:
- Concepts offering escapist entertainment are doing very well.
- The belief that regulations will be reduced as a result of a Trump presidency has played a role in the market rally.
- The reallocation of spending on retail and services categories other than restaurants has held back sales and guest counts.
- Predicts that more money will be available for eating out, including takeout and delivery, by March/April 2017.
MACRO FOCUS
- In November we saw a sequential improvement of 20bps in the FAH and FAFH inflation differential to -4.5%. We have seen similar sequential improvements over the course of this deflationary cycle, so it is hard to specify a certain trend at the moment.
ARTICLES OF INTEREST
RRGB | RED ROBIN TO OFFER DELIVERY
Red Robin Gourmet Burger has announced their partnership with DoorDash, which would allow the casual dining chain to build their off-premise. The partnership will bring delivery to 70 restaurants across the country, with a full rollout planned for some time in 2017. It is not clear whether DoorDash will be the exclusive partner for the grand rollout, but according to DoorDash officials, this RRGB deal is their largest with a national casual dining burger chain, a list that also includes other casual dining brands such as The Cheesecake Factory, Buca di Beppo and P.F. Chang’s China Bistro.
CMG | ELLS NAMED SOLE CEO
In a move that many saw coming, CMG officially announced that co-CEO Monty Moran would immediately step down and relinquish his position on the company’s Board of Directors, leaving Steve Ells to serve as sole CEO. According to Ells, he was asked by the board to take on the position in order to acceleration the Company’s recovery process. Ells went on to lay out reasons why the recovery has taken so long, and atop the list was a deteriorating customer experience. Other reasons include: long lines, running out of food, and untidy dining rooms.
CMG | ACTIVIST GROUP STILL PUSHING FOR CHANGE
Union-affiliated CtW Investment Group has been pushing for Chipotle to change the makeup of its Board of Directors for some time now, even going as far as to filing paperwork in November 2016 asking for the resignation of CMG founder and CEO Steve Ells as chairman of the Board. Now, CtW has teamed up with Bill Ackman’s Pershing Square Capital Management. In a letter released on Tuesday, CtW Executive Director, Dieter Waizenegger, expressed that having Ells as both CEO and Chairman of the Board “weakens the company’s governance and can harm shareholder value.”
RECENT NOTES
12/15/16 THANK YOU | 4Q16 REVIEW AND PLANS FOR 1Q17
12/14/16 RRGB | SHEDDING MORE LIGHT…
12/13/16 CMG | AND THE BEAT GOES ON…
12/9/16 RESTAURANTS MACRO NOTE | FUNDAMENTALS STILL MATTER!
12/8/16 SBUX | STRATEGIC HURDLES REMAIN, BUT CLOSING OUT THE SHORT
12/7/16 PLAY | COVERING THE SHORT
12/6/16 CMG | CHASING GHOSTS
11/23/16 JACK | COVERING THE SHORT
Please call or e-mail with any questions.
Howard Penney
Managing Director
Shayne Laidlaw
Analyst
