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EAT – 4Q Less Than Toxic

As I have said before, the company’s improved capital allocation decisions should generate more favorable returns going forward as should its move to a higher franchise ownership mix (expected to reach 35% franchise ownership by the end of 2008). Additionally, Brinker’s recent restructuring of its restaurant support center in 3Q08, which represented a 10% reduction of costs, should give the company some leverage on the G&A line.
  • 3 recent data points to think about:
  • Our proprietary grass roots survey gives us confidence that the favorable trends at Chili’s from last quarter have continued. Chili’s same-store sales were up 1.6% in 3Q08 after being down 2.4% in 2Q and negative for all of fiscal 2007. These improved trends seem to reflect management’s sentiment from its 3Q earnings call in April when they said, “so the short-term trend appears positive and we’re off to a good start and expect the stimulus checks to help in May and June. In addition it appears California and Florida are doing better. With still negative performance both those markets appear to have bottomed down in December and have shown improvement each month since.”
  • NPD data points to an uptick in traffic trends within the bar and grill segment in the March-May 2008 timeframe. According to NPD, casual dining posted a 1% increase in traffic with the bar and grill category posting the largest incremental year-over-year traffic gains, up 4%. The casual dining “varied menu” lost traffic, which suggested a trade off to bar and grill.
  • Bennigan’s recent filing for Chapter 7 bankruptcy protection and the subsequent restaurant closures should benefit Chili’s as Bennigan’s was a direct competitor within the bar and grill segment. Additionally, Chili’s more penetrated U.S. states overlapped with those of Bennigan’s so the closures should also help Chili’s from a capacity standpoint (please refer to my Bankruptcy Cycle Continues – July 30 posting for more details).
EAT Same-Store Sales

Father Knows Best

I find it both amusing and telling to see the timeline below of the 3 years leading up to the demise of Boscov’s – which filed Chapter 11 today. The punchline is that the founders of the business saw this coming. They cashed out in early ’06 – the same time private equity money was free, and the writing was on the wall for the apparel retail business heading into ’07 and beyond. Boscov’s is not alone in founders cashing out at the top. Goody’s, Chick’s Sporting Goods (before sale to Dick’s), as well as others. Whenever a founding family looks to sell 100 years of blood sweat and tears. Run. Fast.

Thanks to First Rain for directing me to several articles on the topic.

Scary Growth Chart: Chinese PMI

Just the chart. Pretty self explanatory.
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Asian Inflation Mapping

Andrew Barber put together this picture today as it summarizes a lot of what global equity markets continue to struggle with - the reality that it is "global this time" has far reaching (not always positive) implications.

Below is our Asian Inflation Chart (Korea, Thailand, and Indonesia) using the July reports that have been issued in the last week.
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China's FXI Chart: Keep A Trade, A Trade

I called it my Chinese rental, you can call it what you will. We need to keep this long side trade a trade. The FXI etf had a solid +8.5% move from July 2nd to this past Friday's close, outperforming most asset classes over the same time period.

Alpha is cool. Do not get greedy when you can realize it's gains. Friday's Chinese PMI report was alarming, as was this morning's killing of 16 policemen in Xinjiang.
KM
Research Edge Chart by Andrew Barber, Director

Chinese Yuan Has Biggest Weekly Loss Ever...

This was the Yuan's sharpest weekly loss since its 2005 revaluation, that is. This is what we need. This is deflationary for US imported inflation.

I'll refer you to the Asian tab on the portal for the "why's"? I think the most important “why” was the 1st contraction we've seen in the Chinese PMI survey since 2005. This happening before the Olympics definitely caught me by surprise, considering in most cases that China has the ability to make some of these number up.

The worst week however, in context, for this currency is a -0.34% move. So let's not get all hyped up about this. Re-flating the US Dollar, and deflating the Chinese Yuan is going to be a long term process.

The Yuan is currently trading at 6.84 per US Dollar, and is still up +6.7% year over year relative to it.
KM
Picture: (http://www.zhaotongok.com/wp-content/uploads/2007/05/chinese-yuan.jpg)

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