TALES OF THE TAPE

Following a spate of upgrades, restaurant stocks shot up yesterday on high volume in a down market.  We’ll see if today brings more of the same.

Volume on upmoves has been harder to come by in this space recently.  However, it is clear that some names continue to work well.  CBRL, PNRA, and (to a lesser extent) CMG and RUTH maintained their consistent performance on high volume.  KONA released preliminary  results this morning, exceeding topline expectations.  March comparable store sales were positive for the first time since early 2008.

While retail sales data have been strong for retailers such as Nordstrom, and the restaurant sector was upgraded yesterday, I am not convinced of the sustainability of this upward move.  While RT’s results showed stronger-than-preannounced trends and management described the commodity environment as “benign”, it is clear that restaurant companies have far less margin-boosting levers to pull relative to the retailers.  RT beat the numbers but momentum is clearly slowing.  We believe that momentum will slow further as we look towards the summer months.  RT opened down 3.3% following yesterday’s results.  See our note published this morning for further thoughts. 

Looking at the table below, it is notable that the full-service companies had a strong day yesterday.  The Street seems to believe that the restaurant recovery will continue for some time, but I’m not in that camp…

TALES OF THE TAPE - stock 4.7

TALES OF THE TAPE - commodity 4.7

Howard Penney

Managing Director