Activist Stockholders, Jobs Reports, Minimum Wage Opinions, and Much More

This week we report on the board room wars, provide a host of reports on the U.S. labor situation, share one view the affect of a $15 an hour minimum wage will have on restaurants, look at the effects the nasty winter had on foodservice and a whole lot more.

Fitch Ratings believes that skirmishes between activist stockholders and restaurant chains will continue. Fitch notes that the slow economic recovery and weak top line growth — particularly among the casual dining chains — has motivated activists to search for ways to increase stock value.

One recent go round was between Darden and Starboard Value LP. The two organizations sniped at one another for months but Darden’s sale of its Red Lobster concept caused open warfare to break out with charges and counter charges flying. Starboard launched a fight to take over the Darden board of directors, a somewhat unusual move in that activists usually try to get one or two seats on the board.

As the Wall Street Journal and other observers point out, both U.S. corporate law and the internal structure of most corporations tend to insulate management from stockholders. Replacing board members is difficult and rarely succeeds. Most corporations will circle the wagons and put up with the bad publicity from an irate stockholder. In some instances the activist stockholders’ redemption plans will harm bond holders. Another solution, of course, is to pay the dissatisfied investor to go away, also known as “greenmail.”

Darden is not the only restaurant company dealing with unhappy stockholders. Biglari Holdings, which owns Steak ‘n Shake, had a long-running battle to take over Cracker Barrel, and Bob Evans has locked horns with Sandell Asset Management over the composition of the Bob Evans board.

Economic News This Week

  • Initial Jobless Claims hit 312,000, an increase of 8,000 for the week ending May 31. At 310,250 the more reliable 4-week moving average declined 2,250 to reach its lowest point since 2007.
  • Payroll firm ADP says new job growth slowed somewhat in May with the economy adding 179,000 private sector jobs. Small businesses, those with less than 50 employees, accounted for almost half of the new jobs.
  • The Gallup Organization’s Job Creation Index hit a new high. The Index hit 27 in May, beating the 26 scored in January 2008. The index compares the number of employees who say their employer is expanding its work force vs. the number of employees who say their employer is reducing its work force. In May, 40 percent of those surveyed say their employers are hiring and 13 percent say their employers are letting people go.
  • The economy added 217,000 new jobs in May, according to the U.S. Department of Labor Department projections. Only 1,000 of these jobs came from the public sector. The number of long-term unemployed persons and the number of part-time workers who would prefer full-time work essentially remain unchanged. The unemployment rate remains at 6.3 percent.
  • The U.S. payroll to population employment rate was 44.5 percent in May, according to the Gallup Organization. The rate was 43.4 percent in April and 43.9 percent in May 2013. The historical low for the P2P was 41.7 percent in 2011.
  • April construction spending increased 0.2 percent over March but was up 8.6 percent over April 2013. Residential construction spending was up just 0.1 percent.
  • Consumer spending hit a six-year high in May, according to The Gallup Organization’s Daily Self-Reported U.S. Consumer Spending study. Daily consumer spending rose to $98, up $10 per day over April and $8 per day over May 2013. Gallup said there was “extraordinarily high spending around Memorial Day.”
  • Car and light truck sales were surprisingly good in May, despite major recalls by some manufacturers, flagging consumer confidence and limited use of promotions. Auto sales increased 11.4 percent to an annual rate of 16.77 million vehicles matching the volume from February 2007.
  • Productivity fell 3.2 percent in the first quarter according to the Bureau of Labor Statistics. Unit Labor Costs shot up 5.7 percent in the first quarter in part due to the fall off in productivity.
  • The Institute for Supply Management’s Manufacturing Index increased 0.5 percent in May to 55.4, marking the 12th straight month manufacturing activity moved ahead. New orders, production and employment all grew in May vs. April.
  • The Institute for Supply Management’s Non-Manufacturing (Service) Index rose 1.1 percent in May over April’s total of 56.3. This marks the 52nd straight month that service businesses expanded and the May reading is the highest the index has been since August 2013.
  • Factory orders edged up 0.7 percent in April following a 1.5 percent increase in March. Orders totaled $499.8 billion, the highest level since the information was first published by the U.S. Census Bureau in 1992.
  • The Gallup Organization’s U.S. Economic Index inched up in May to minus 14, the highest monthly reading the index has had this year.

Foodservice News This Week

  • Foodservice employment grew in May as the Bureau of Labor Statistics reported the industry added 31,700 jobs. This represents slightly less than 15 percent of the total new jobs the private sector added last month.
  • How would a $15 an hour minimum wage affect the restaurant industry? Trinity Capital’s Kevin Burke says it would add $300,000 a year to the expenses of a typical fast food restaurant, which in turn would lead to the closure of thousands of restaurants and a corresponding loss of jobs. Burke went on to say that this would be “counterproductive to an economic recovery that continues to face many challenges.”
  • First-quarter restaurant visits declined but delivery orders increased, according to The NPD Group. Traffic totals dropped by 1 percent in the first quarter with miserable weather getting at least part of the blame. But, the cold weather may have also been responsible for a 4 percent increase in delivery orders.
  • Knapp-Track reports casual chains’ comparable-store sales declined again in May. Mr. Knapp’s survey of more than 50 casual chains shows a 0.6 percent same-store sales decrease, due in part to a 1.8 percent decline in guest counts. Check averages increased 1.2 percent. Knapp-Track comp-store sales have been negative every month so far in 2014 and been negative in 12 of the last 17 months. Knapp-Track data is courtesy of Bank of America Merrill-Lynch.
  • Eating out? Buy a ticket. New websites and mobile apps sell tickets to trendy restaurants that guarantee customers a dining time. Customers are happy with this process and restaurants can better plan staffing and food purchases. Best of all, this approach greatly reduces or totally eliminates no-shows. In some cases the restaurant deducts the amount of the ticket from the check but other programs simply pocket the ticket cost. Critics of the latter approach call it scalping.
  • Corporate Stirrings: HomeMade Pizza Co., which once had nearly 40 stores, has closed its remaining restaurants and ceased operation. Sbarro, which just emerged from bankruptcy, will relocate the company’s headquarters from New York to Columbus, Ohio.
  • YUM! Brands will launch a new concept in Dallas. Called the Bahn Shop, the restaurant will serve Vietnamese-style sandwiches.
  • Growth Chains: Noodles & Company will focus future unit growth in warm weather locations such as California and Florida after the bitter winter damaged first quarter comparable-store sales. IHOP will open three restaurants in Guam. Buffalo Wild Wings is exploring the possibility of expanding to China. Capriotti’s Sandwich Shop plans on opening as many as 45 restaurants in the Houston area and as many as 20 in the Austin area. The Earl of Sandwich has developed a new prototype and plans on opening 50 to 60 restaurants by the end of 2015.
  • Comparable store sales reports: Good Times Burgers (up 12.6 percent), Krispy Kreme (up 2.3 percent), McDonald’s (down 1.0 percent) and Zoe’s Kitchen (up 5.7 percent).

For details and same-store sales of other chains, please click here for the Green Sheet

 

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