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Restaurant & Retail Roundup

Our monthly WTR restaurant and retail report focuses on stock performance, short interest, an outlook for restaurant commodity costs, interesting themes, and companies in focus. In this note, we highlight Texas Roadhouse (TXRH) given the 16% pullback in the stock since July and industry-leading traffic trends that are likely to continue over the foreseeable future (see pages 10 and 11 for additional comments). Restaurants perform in line and retailers underperform indexes MTD. On a month-to-date (MTD) basis, our equally-weighted index of restaurant stocks declined 4.2%, essentially in line with the S&P 500, which declined 4.0%. Retail names underperformed the S&P 500, declining 6.8% on a MTD basis, with the small-cap names showing the greatest underperformance. Short interest trends. For the restaurants, most notably there was a significant rise in short interest for Papa John’s (PZZA: 14.5%) in October versus September. Other restaurant companies with high levels of short interest include Dutch Bros (BROS: 12.5%), Cheesecake Factory (CAKE: 12.4%), Bloomin’ Brands (BLMN: 12.1%), and Kura Sushi (KRUS: 11.9%). Short interest for the retailers remains much higher than for the restaurants. Retail names with the greatest short interest include Lovesac (LOVE: 27.2%), Kohl’s (KSS: 23.2%), Children’s Place (PLCE: 21.0%), Foot Locker (FL: 16.1%), and Floor & Décor (FND: 14.5%). Commodity costs in focus. We had the opportunity to connect with David Maloni, who is a well-respected commodity expert with Datum FS Intelligence. We summarize the top three commodity themes: (1) the commodity index tracked by Datum FS Intelligence is tracking at a 30-month low in October; (2) commodity trends reversed in October and most major commodities dropped M/M, including beef trim, pork, chicken breast/tenderloins, eggs, cheese, and soybeans; and (3) beef costs will likely be a headwind for the industry over the intermediate term given a historically small US cattle herd. (see pages 5 and 6). Casual dining same-store sales (SSS) see an uptick in October driven by traffic. Based on our checks in recent weeks, SSS improved in October (through the first two weeks), increasing +2.0% in SSS and -2.0% in guest traffic, compared with September, which experienced SSS of +0.5% and guest traffic of -4.3%. Highlighting Texas Roadhouse (TXRH) given the recent pullback in the stock. We highlight TXRH given the 16% pullback in the stock since its high in July. Our restaurant checks reinforce the company’s strong top-line performance. TXRH reported SSS of +9.2% in October with industry-leading guest traffic. The driver of the outperformance is a loyal customer base, coupled with a superior price-value equation, that should drive outperformance versus its peers over the foreseeable future. Our casual dining SSS data is available weekly on a subscription basis. For more information, please reach out to Tim Regan at .