- CKR also provided restaurant operating cost guidance for 2Q and expects restaurant operating margins to be up 20-50 bps year-over-year. The company is facing an easy comparison from last year when restaurant margins fell 300 bps (primarily as a result of higher food costs), but margins growing YOY is favorable, nonetheless, as CKR’s margins have declined for the last 6 quarters. For reference, the company is also facing as easy comparison in 3Q as margins were down 190 bps in 3Q08 on a consolidated basis (down 260 bps at Hardee’s).
- These favorable year-over-year restaurant margins should translate into expanding operating margins as the company has communicated that it is focused on reducing its G&A expenses, which have been criticized as being too high (Ramius LLC, me). CKR’s operating margins grew YOY in 1Q for the first time in 5 quarters (up 40 bps), and management stated on its last earnings call that the lower levels of G&A in 1Q would be an appropriate run-rate going forward. The company highlighted that it will see about a $1 million increase in its share-based compensation (included in G&A) in 2Q, but that the level of increase will be only slightly more than what the company experienced in 1Q.
Looking at the short term chart, risk premiums clearly changed in 2008. Looking at the 30 year chart should give you a keen appreciation for where this relationship has been and, more importantly, where it could go from here.
The lowest level that the spread has achieved in 30 years at the close was -241bp on march 30, 1980. The highest was 275bp on July 29, 2003.
Keith McCullough & Andrew Barber
Research Edge LLC
Risk Managed Long Term Investing for Pros
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.
My guys in Macau are indicating that the teflon surrounding the casino may be getting a bit sticky. I think pressure is finally on Wynn Macau to raise commissions. The property appears to be losing VIP market due to very high junket commission rates offered by Galaxy, Grand Lisboa, and MGM. The mass market side of the business is not offering any relief. Foot traffic is noticeably and consistently lower the last few weeks, probably resulting from the fully ramped ferry service offered by Venetian Macau. Remember that Venetian Macau resides on the Cotai Strip which is surely pulling visitation away from the peninsula and Wynn Macau. In fact, Wynn Macau recently converted at least 20 high margin mass market tables to lower margin VIP tables. This could certainly be indicative of slower mass market visitation.
Wynn Macau is clearly best run and most successful casino in Macau. That won’t change. However, expectations for the property and for the stock remain very high. The fall from the top is much farther as John Gotti found out.
The weekly reading has been dead in the water at -49 to -50 for the last 3 weeks. This has occurred in the face of falling prices at the pump and rising stock prices. Hmmm...
It is global this time, indeed. But don't forget that Wall Street is in the midst of creating irreparable damage to Main Street's confidence.
RT - shark jumping line is $7.19
YUM - is the scariest big cap chart in the federal league, breaking $36.07 brings in the quant sellers
EAT - broke a critical momentum factor level today at $19.98 FYI, bearish, on the trading margin
DPZ - still looks like Balboa of your group, big time support for the champ at $12.64 needs to hold
My view of the “trend vs. trade” - The third quarter is going to be sequentially worse than the second quarter for most casual dining companies. The most used excuses for the dismal results will be: the July 4th shift, the Olympics, no stimulus checks, the economy, commodity inflation….. QSR will hold up better, but nothing is immune. DPZ - “Mom, order a pizza I want to watch the Olympics.”
Glossary of terms:
Shark is jumping: The phrase has been used more recently outside the realm of popular culture, representing anything that has reached its peak and has turned mediocre. If one thinks a stock or a sports team or a sub cultural phenomenon has reached its peak, for example, one can say that it has "jumped the shark." - Wiki
Federal league: The Federal League was the last major attempt to establish an independent major professional baseball league in the United States in direct competition with the established National and American Leagues in 1914 and 1915. Although there were a few attempts after this (notably the Mexican League in 1946–1947 and the proposed Continental League), nothing was as direct and serious as the Federal League. Major League status was retroactively applied to the Federal League in 1968. – Again Wiki
Balboa: Do I really need to!