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Restaurant & Retail Roundup

Monthly report on restaurant and retail companies. At Water Tower Research, we are introducing a new monthly report to focus exclusively on the Restaurant and Retail Industries. Our report will focus on stock performance, short interest, an outlook for restaurant commodity costs, interesting themes, and company interviews. In this note, we interviewed Gary Schnierow, Vice-President of Investor Relations, and Corporate Finance for Build-A-Bear Workshop, Inc. (NASDAQ: BBW). The stock may be under the radar, as BBW continues to grow, expand its geographic base, and produce all-time-high performance metrics. Yet shares are trading at a valuation discount to peers (see pages 11-13 for key takeaways). Restaurants and retailers underperform indexes MTD and QTD. On a MTD basis and QTD basis, our equal-weighted index of restaurant stocks declined 9.8% and 13.6%, respectively, significantly underperforming the S&P 500, which declined 5.2% and 4.0%, respectively. Retail names also underperformed the S&P 500, declining 10.1% and 8.8%, on a MTD and QTD basis, respectively. Short interest trends. For the restaurants, the highest levels of short interest are for Cheesecake Factory (CAKE: 14.0%), Bloomin’ Brands (BLMN: 12.9%), Dave & Buster’s (PLAY: 12.3%), Kura Sushi (KRUS: 11.7%), and Dutch Brothers (BROS: 11.5%). Retail names with the greatest short interest include Lovesac (LOVE: 29.7%), Children’s Place (PLCE: 21.2%), Kohl’s (KSS: 19.1%), Hibbett Sports (HIBB: 15.4%), and RH (RH: 15.2%). 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 cost tailwind for the restaurant industry may be coming to an end in the coming weeks/months; (2) lower production for beef is likely to be a headwind over the intermediate term; and (3) Maloni expects counter-cyclical pricing for chicken in the fall of 2023 given strong demand (see pages 6-7 for more details). Restaurant same-store sales (SSS) starting to decelerate. Based on our checks in recent weeks, SSS are starting to decelerate for the casual dining industry. That is not surprising, given the onset of difficult Y/Y comparisons beginning in August. See pages 4-5 for commentary on our SSS and traffic data for the casual dining industry that we have been getting weekly since 2008. Interview with Build-A-Bear Workshop, Inc. We had the opportunity to chat with Build-A-Bear Workshop (BBW), which is performing at the highest level in its history while trading at a multiple in the bottom quartile of small-cap retailers/consumer discretionary names at just 4.3x 2023 consensus EBITDA. We summarize our key takeaways: (1) significant white space and growth ahead as the company targets 20-30 new locations in 2023 (~6.5% unit growth); (2) BBW is seeing a continued expansion of the business into tweens, teens, and adults, increasing its demographic reach; and (3) new marketing is afoot, allowing for product extensions beyond plush toys. Our casual dining SSS data is available weekly on a subscription basis. For more information, please reach out to Tim Regan at .