EAT – Brinker Sees Bankruptcy Cycle Continuing

EAT management commented on its conference call today about the current environment as it relates to Bennigan’s recent filing for Chapter 7 bankruptcy protection and the subsequent impact on supply within the industry. They not only recognize bankruptcies to be good for the industry, particularly the bar and grill segment, but they also see more competitors going away.

Bankruptcy is good for the market share leader so Brinker should have the biggest opportunity to capture incremental share as supply comes out of the market. To that point, management stated that it is already seeing an uptick in sales and traffic in those restaurants that are located next to a Bennigan’s that has closed.

Management comments:

“I think bigger than that is the transformation that you’re seeing in the industry, and that it used to be situations like that, companies went from some kind of financial straights to chapter 11, and just never stopped opening their doors, but certainly changes in debtor and possession or debt financing has made it much better for brands like ours as these brands are going away and that’s a positive because that takes supply out of the industry, and I think everybody has been looking for a correction in supply, and I don’t think this is the first. We have seen a lot of restaurants here in Dallas, some at the higher end, some of the lower end go away, and I’m sure if you look around the city you’re in, you’re seeing similar situations. So supply is starting to rationalize itself which a good thing for us in the grill and bar segment and it’s a good thing for restaurants overall especially if you’re well capitalized and have a good balance sheet.”

“There will be a lot more private single mom and pop restaurants going away and will be some more chains going away as well because the cost side is just too onerous right now, and that’s why the things we’re doing in our restaurants this technology hospitality, part of it is trying to figure out how to make the P&L better as well. Part of it is trying to figure out how to make more money and provide faster food experiences and better guest experiences.”

“I think you’re starting to see some of those weaker competitors go away, and they’re going to go away for good. That’s the best news of all. So I think the supply cycle is getting better. I think we’re improving ourselves in the sales cycle of casual dining, but I wouldn’t say that it’s getting ready to take off.”

New York's Hedge Fund "Mafia"

I started talking about this investment theme in November, and I’d be remise to stop talking about it now. I’ve upset plenty of my former colleagues – but that’s ok - I was right. The rationalization of oversupply in the US Hedge Fund Industry is finally in motion.

The good news is that journalists are finally biting on this story and tracking down some pretty horrendous 2008 performance numbers. This makes me less of the “negative guy”, and more like the “right guy”. “Hedgies” really like guys who are right – that’s why we get paid the big bucks, remember?

There is an article by Julie Scuderi at Hedgeco.Net today that walks through the travails of “New York’s top 100 Hedge Funds”. It’s an inside joke amongst sober analysts in the hedge fund community that there is a proverbial “NY Hedge Fund Mafia”, and now you see the liabilities associated with some of their group think. I’ll let you read the article and see how bad some of these performance numbers are. Levering up long is not a hedge fund. Real hedge funds hedge!

This oversupplied industry picture is allowing the strong like Phil Falcone at Harbinger (hockey player from Minnesota’s Iron Range) get stronger. Great job to Mr. Falcone and his team.
  • "Cashmere Mafia"?

Free Falling "Fast Money" Chart

On the commodity front, inflation has DEFLATED to the tune of -15% in a month! This chart we put together shows you what happens to people when they “buyem’ high, hoping to sellem’ higher”. I think the pavement hurts…

The short term "Trade" in the CRB is lower. The "Trend" will remain higher, until I see a face plant closing price under 382 for the Index.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

Show Me The Love, Ben!

The US Dollar Index is building bullish “Trade” momentum in my models, and needs to follow through here with fundamentally based Bernanke backing.

On July 14th, both the S&P 500 and US Dollar were in dire straits, testing new lows for the year respectively. Since, the US Dollar has rallied +2.8% to 73.82 today, and now it’s making a new 6 week high versus the inflated Euro, which has come in sharply in the past few weeks to 1.55.

Hawkishness will beget further bullishness in this “Trade”. It may depress some Wall Street bankers, but it will impress my savings account. The US Dollar has had as high a positive correlation to the S&P 500 as any macro economic indicator on my screens as of late.

Raise rates, strengthen the US Dollar, and break inflation’s back, Ben.

  • US Dollar Index Chart, Building The Love
chart courtesy of


As predicted in my 7/30/08 posting “MGM: Q2 DOESN’T MATTER BUT EVERYTHING ELSE DOES”, MGM’s Q2 was not that bad. My issues continue to be prospective of Q2. Operationally, ADR’s and slot revenues are the metrics to watch to gauge the true health of the business. The trends there are not good. In Q2, MGM’s slot revenues declined 10% and ADR’s fell 5%. I believe these metrics will continue to deteriorate, especially room rates.

The company missed EBITDA and EPS estimates only slightly so the stock is up 6%. In its press release, management played up the occupancy stat as an indication of strong demand for the company’s Las Vegas properties. It’s funny how when times get tough occupancy becomes the selling point to investors. News flash: occupancies are always high in Las Vegas. Strip hotels will do anything to fill their rooms because they need to leverage that big fixed cost asset known as the casino. As I’ve written about extensively, room rates will always be sacrificed.

Real demand as measured by room rates and slot revenue is deteriorating. Unfortunately for MGM, these are also the two highest margin revenue drivers on the Strip.

"Real" demand in decline

European Retail Sales Get Ugly

It’s a trailing economic data point, but is it ever an ugly one. Retail Sales for the Euro Zone for the month of June were the worst since the data started to be compiled for the region in 1995.

Yes, in context, we economic historians have to remember that the 15 member Euro Zone region does not have aggregated data that spans across decades. This of course is a major problem, when we look to compare their consumer spending cycle, in the aggregate, with that of the 1970’s. Regardless, at -3.1% year over year (see chart), this June report needs to be respected, particularly if it a leading indicator of negative US consumer spending months and quarters to come.

Research Edge Chart by Andrew Barber, Director

get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.