Deutsche Bank Q2 Preview on Restaurants: Improving Top Line Trumps Inflation

Deutsche Bank Q2 Preview on Restaurants: Improving Top Line Trumps Inflation

Deutsche analyst says, "We’re raising PTs on several names to reflect higher multiples across the group and as we roll forward our models to 2012. We expect a generally positive earnings season for the restaurants from a sales perspective, though margin trends/outlooks could be a downer given elevated food inflation and lagged pricing. We continue to recommend companies with inflation-resistant business models and/or solid pricing power. Top picks: Buffalo Wild Wings (Nasdaq: BWLD), Starbucks (Nasdaq: SBUX), McDonald's (NYSE: MCD), Panera Bread (Nasdaq: PNRA)."

For Chipotle (NYSE: CMG)(Hold) - We're raising ests. and PT on slightly higher SSS and margin assumptions as we adjust our model for earlier than expected menu pricing. 2QE stays at $1.65 on +8.2% comps. FY11E/FY12E goes to $6.69/$8.23 from $6.61/$8.13. Raise PT to $300 from $270 (37x 2012E EPS).

For McDonald’s (Buy) - We’re modeling 2Q at $1.28, in line w/ consensus. We have June SSS at +3.8% globally, w/ US +3.0%, Europe +4.0% and APMEA +4.5%. Raising PT to $98 from $89.

For Panera (Buy) – We’re modeling 2Q EPS at $1.16, mid-point of guidance of $1.15-$1.17. PNRA SSS trends are being supported by balance of solid traffic and pricing. We look for this to continue as PNRA’s core customer appears less price sensitive to macro/pricing than other restaurant segments. Wheat prices have also moderated. Raising PT to $150 from $140.

For Starbucks (Buy) – We’re at $0.32 for F3Q11E vs. guidance of $0.32-0.33. Even with significant coffee inflation, we expect SBUX to post ~15% EPS growth in FY11E, w/ our forecast unchanged at $1.48 (vs. guidance $1.46-1.48). If history is a guide, SBUX will provide initial outlook for FY12. We’ve summarized our FY12 forecasts in this report. CPG outlook will be in focus, especially given F1Q12 K-Cup launch. Raising PT to $46 from $41.

Texas Roadhouse (Nasdaq: TXRH)(Hold) – For 2Q, we’re at $0.23 vs. consensus $0.24. We’ve raised 2011/12 ests. and PT on higher than expected menu pricing (~1% taken in July). 2011E/2012E move to $0.87/$0.98 from $0.85/$0.93. Raise PT to $17 from $15.

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