It looks like rate cuts are coming, plus a look at consumer spending at restaurants.
Rate Cuts?
June 23 (King World News) – Peter Boockvar: While Jay Powell sounded last week more inclined to wait on how this plays out, Governor Michelle Bowman is joining Chris Waller in believing that July should be a rate cut possibility. She said today “Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market.”
Yields are at the lows of the day in response. The fed funds futures are now pricing in fully 50 bps of cuts this year and now a 20% chance of a 3rd. After Powell spoke but before Waller, the odds of a 2nd were about 70%.
Consumer Spending At Restaurants
To some Friday earnings calls of note.
From Darden who has a wide collection of brands touching all income cohorts with Olive Garden, Bahama Breeze, LongHorn Steakhouse, Yard House, The Capital Grille, Ruth’s Chris Steak House, Cheddar’s Scratch Kitchen, Seasons 52 and Eddie V’s:
With their lower price point chain, “The return of Olive Garden’s Buy One, Take One offer for the first time in five years combined with the continued strength of off-premise drove their impressive sales during the quarter. Olive Garden’s marketing strategy to meaningfully communicate strong value, create urgency and introduce food news continue to resonate as guests are motivated by news and compelling price points.”
That ‘Buy One, Take One’ deal by the way has a starting price point of just $14.99.
They also saw market share gains with their casual dining concepts, particularly LongHorn whose comps jumped 6.7%. And why is casual dining have a moment right now?, “we’ve been very prudent in keeping our pricing below inflation because we knew that over time pricing matters if you take it too much. And what we believe is happening right now in the casual dining space is consumers are figuring out that casual dining is a great value…Consumers want to go out and spend their hard earned money. I mean, we think we’re taking some wallet share from fast food and fast casual.”
Interestingly, ‘fine dining’ was the most challenged area where comps fell. “While the fine dining category as a whole continues to be challenged, we are seeing sequential improvement in guest traffic from households earning $150,000 and above.”
“I think when you look at casual dining in general, we’re seeing growth across most income cohorts. The only group that is still soft is the below $50,000 household. And in fact, if you actually look at the $150,000 plus that’s actually where we’re seeing a little bit more growth on casual dining. And then when you look at fine dining, you’re actually seeing pullback with households below $150,000 across. And then the only place where we’re seeing some growth or stabilization is about $150,000 households.”
Also of note with fine dining, “That suburban traffic is actually still running at 95% of pre Covid levels, so holding up pretty well. But urban is still in the low 80s. It’s like 82% or something in Q4.”
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