High End Dining Outlets Find Profits with the Rich While QSR Chains Push Value to Attract Customers: Expert Analyst Releases Top Picks for 2014

Wall Street Transcript

67 WALL STREET, New York - March 25, 2014 - The Wall Street Transcript has just published its Restaurants Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Emerging Market Expansion - Store Sales Growth Trends - Cautious Consumer Spending - Restaurant Trends in China - Value for Consumers - Quick Casual Restaurant Growth

Companies include: Chipotle Mexican Grill, Inc. (CMG), Red Robin Gourmet Burgers Inc. (RRGB), Texas Roadhouse Inc. (TXRH), The Cheesecake Factory Incorpo (CAKE), American Community Properties (APO), Krispy Kreme Doughnuts Inc. (KKD), Amazon.com Inc. (AMZN) and many others.

In the following excerpt from the Restaurants Report, an expert analyst from Stephens Inc. discusses the outlook for the sector for investors:

TWST: What trends were you seeing in dining overall, and what subsectors are doing well and which ones are not doing as well?

Mr. Slabaugh: For the most part, restaurants are continuing to struggle post the recession. If you look at casual dining growth, data from KNAPP-TRACK shows that guest count traffic is actually down roughly 10% or so since the end of the recession. Essentially, we are still waiting for that recovery in full-service dining.

QSR is faring a little bit better, and fast casual is actual growing traffic, which includes restaurants like the Chipotles (CMG) of the world. If we look at the high-end restaurants, they are actually doing well, too. These are companies like Del Frisco's Restaurant Group (DFRG), which is our best idea for the year. We see the higher-end businesses as exposed to a more stable and healthy demographic that should continue to benefit them. Overall, I would say the situation is mixed. It is good for some sectors, but overall not great.

TWST: Looking at it simplistically, is the overall economy the number-one determinant of how the restaurants are doing?

Mr. Slabaugh: Disposable income is absolutely the biggest driver for the restaurant space. One of the things that I like to look at is wage growth. We did a piece in January on what wages have done since the recession began and post the recession. Surprisingly, the result was that wages are still modestly down even since the end of the recession.

One major issues is that disposable income is not rising much, especially for those in part-time labor or lower pay grades. That is a big issue. Another issues is that general unemployment has improved but not dramatically, and primarily only at the higher salary points. Gas price declines have helped a little bit to offset that but not nearly as much as actually creating jobs or growing wages.

TWST: Are the companies trying to lower prices, make menu changes or do other things to make them more competitive in this difficult environment?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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