- Earnings Highlights:
- MCD – MCD’s commodity costs are going up at the same time its customers are trading down. These two trends will put further pressure on MCD’s U.S. margins. MCD now expects its FY08 U.S. beef costs to be up 8%-9% (from its prior expectation of flat YOY) and its Europe beef costs up 8%-9% (from prior guidance of up 3%-4%) – posted July 23.
During 2Q, MCD’s U.S. same-store sales increased 3.4%, with 75% of the increase driven by traffic gains. MCD raised prices by 4% in the quarter, which implies that average check declined. The company is raising prices to help stabilize margins while advertising its dollar menu. So the trend is for customers to buy lower priced items and at the same time the company is raising prices – posted July 24.
MCD’s Europe results remained strong in 2Q, but with Starbucks stating that it is seeing a slowdown in consumer spending in the U.K. and Bloomberg reporting that according to the Experian Group Ltd., British consumers made fewer visits to retail outlets in July, the third consecutive fall, as fears of an economic decline and rising energy and household bills deterred shoppers, I question how long MCD can buck the trend – posted August 1.
- PNRA – PNRA is one of the most inflation sensitive business models in restaurants and the company is facing huge commodity headwinds in 2H08 and looking out to 2009, due primarily to higher wheat costs and gas prices. Management has set an internal goal to increase margins by 150-200 bps in 2009 off of 2007 levels despite these rising costs, which makes pricing a necessary component of this growth. PNRA has already raised prices three times since late 2007, is planning for another increase in September, and is testing a new pricing initiative for 2Q09. These price increases are concerning as it relates to their eventual impact on traffic trends (in the first 27 days of 3Q, transactions were running down 2.4% with retail pricing up 6%) – posted July 23.
- PFCB – PFCB’s worse than expected 2Q same-store sales growth can be partly attributed to its focus on the dinner day part, which makes up 67% of revenues at the Bistro (NPD reported that traffic at the supper day part declined the most in the March-May 2008 time period), and its geographic exposure to Arizona, California, Florida and Nevada, which accounted for 84% of the Bistro’s total comparable sales decline. Despite weakening top-line results, the company is taking the right steps to manage the parts of the business it can control. Management has said it will not raise prices in the near-term as the risk to traffic is too great and it announced that it is significantly slowing new unit growth in FY09 – posted July 23.
- DPZ – DPZ management said on its 2Q conference call that the same pressures that are impacting its business are hurting its smaller competitors in a bigger way. The NPD Group reported that the categories most dominated by independents experienced the most severe traffic declines in the March-May 2008 timeframe (small chains and independents accounted for 54% of pizza delivery dollar share in 2007, according to DPZ). If more independents are forced to close their doors as a result of their not having the scale necessary to deal with both lower consumer spending and higher commodity costs, the bigger chains, including DPZ, should emerge as winners – posted July 25.
- SBUX – The bad news is that SBUX’s U.S. results remained weak (though not surprising) and the company is now experiencing challenges in its U.K. markets. The good news is that management further reduced both its U.S. and international new unit growth goals (now targeting negative 60 net new stores in FY09 in the U.S.) It was also encouraging to learn that the company is seeing incremental sales at the stores that are in proximity of the 50 stores that have already been closed. Additionally, management indicated that it is seeing an uptick in afternoon traffic as a result of its Vivanno and Sorbetto beverage launches – posted July 31.
- GMCR - GMCR beat on the bottom line, but not the top. SG&A was down 610 bps in the quarter, which offset the 540 bp increase in COGS. The company can only cut SG&A so much to make up for lower gross margins which leads me to believe that by Q4 the signs of stress will be much more evident that they are today – posted July 31.
Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?
This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”read more
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