After Market: The Better the News, the Harder Stocks Fall


For the second day in a row, stocks faltered despite — or rather, because of — some really upbeat economic news. The Commerce Department said that U.S. GDP grew at a 3.6 percent annual rate in the third quarter, revising that number upward from an earlier estimate of 2.8 percent. That’s a big jump in terms of how these things usually go. And a second report showed a big drop in first time jobless claims.

So, concern is popping up once again that the Fed will begin tapering its stimulus program sooner than previously thought. As a result, the Dow Jones industrial average (^DJI) fell 68 points — its fifth straight loss. The Standard Poor’s 500 index (^GPSC) dropped 8 points, and the Nasdaq composite index (^IXIC) lost 5.

Shares of Microsoft (MSFT) fell 2.5 percent while Ford (F) gained nearly 1 percent after Bloomberg reported that Alan Mulally said he will stay on as CEO at Ford through 2014. He had been considered the top candidate to succeed Steve Ballmer as head of Microsoft. Ballmer plans to retire next summer. Mulally is regarded as one of the nation’s most respected business executives.

Retail stocks had another rough day. Walmart (WMT) fell 1 percent and J.C. Penney (JCP) fell 8 percent after a big investor sold his stake in the company. Costco (COST) lost 1.5 percent after posting disappointing sales for last month, hurt by falling gas prices and a drop in sales of consumer electronics. And teen apparel retailer Wet Seal (WTSL) got soaked with 14 percent drop as its losses widened and it issued a weak holiday sales forecast.

But there were some gainers on retail row. Dollar General (DG) rose 6 percent on better than expected earnings. It says the average shopper is spending more per visit. And Conn’s (CONN) surged 19 percent. It posted a big sales gain and upped its earnings estimate for the year.

Elsewhere, Apple (AAPL) added nearly 1 percent after reportedly finalizing its deal for China Mobile, the world’s biggest mobile telecom company, to sell iPhones in China.

Puma Biotech (PBYI) soared 68 percent on positive test results for its breast cancer drug.

But Electronic Arts (EA) fell 6 percent because of ongoing problems with its “Battlefield 4” video game, one of the company’s most valuable franchises. As a result, EA is halting some other projects.

What to Watch Friday:

  • Retailers American Eagle Outfitters (AEO) and Big Lots (BIG) report quarterly corporate earnings before markets open in New York.
  • At 8:30 a.m., the Labor Department reports November jobs data, and the Commerce Department releases personal income and outlays for October.
  • The University of Michigan releases its initial survey of consumer sentiment for December at 10 a.m.
  • The Federal Reserve reports on Americans’ use of consumer credit for October at 3 p.m.

Produced by Drew Trachtenberg.

  • If investors are hungry for something a little more exciting, thankfully there’s no shortage of faster growing publicly traded restaurant chains that are doing just fine.

    So sorry, Olive Garden. You may still offer tasty breadsticks, but that’s not the kind of rising dough that investors — and diners — crave these days.

    Food for Thought

  • One of this summer’s hottest IPOs was for Noodles Company (NDLS), a fast casual restaurant chain that specializes in all types of noodles. Olive Garden bashers will find plenty of Italian pastas on the menu, but diners can also be globetrotters by checking out Asian noodle bowls or come closer to home with the classic Americana comfort food of mac and cheese.

    Unlike the many table service restaurants facing an alarming number of empty tables, Noodles Company has delivered positive comps in 29 of the past 30 quarters. Revenue climbed 17 percent to $300.4 million last year, and it’s on pace for similar growth through the first half of this year.  

    Noodles Company

  • Ignite Restaurant Group (IRG) owns and operates 134 Joe’s Crab Shacks and 16 Brick House Tavern + Taps. The operator essentially doubled in size in April when it acquired smaller Olive Garden rival Romano’s Macaroni Grill. The 186-unit Italian casual dining chain was once owned by Brinker, and it’s a work in progress. Comps were positive at Ignite’s two original concepts in its latest quarter, but the same can’t be said for Macaroni Grill.

    Then again, the sluggish performance at Macaroni Grill also led to an attractive acquisition price. With Macaroni Grill butting pasta bowls with Olive Garden and Joe’s Crab Shack fishing against Red Lobster, we can possibly call Ignite a mini Darden. That’s a good thing, especially since Ignite has a lot of room for any of its three concepts to grow before it saturates the market.

    Ignite Restaurant Group

  • Casual dining and Mexican don’t mix well over time. There’s probably a shuttered El Torito, Chi Chi’s or Chevy’s somewhere near you.

    However, Chuy’s (CHUY) has raised the bar by creating a lively environment filled with Elvis shrines and customer-submitted dog photos, and it’s winning over patrons with its extensive happy hour specials and a bargain-minded menu where nearly every entree costs less than $10.

    Chuy’s sales surged 23 percent in its latest quarter, and with just 45 locations across twelve states, there are still plenty more places for pooch snapshots and Elvis busts to go up.

    Chuy’s Fine Tex-Mex

  • As one of the largest franchisees of Buffalo Wild Wings (BWLD), Diversified’s (BAGR) largest concept is no stranger to most sports bar enthusiasts. However, the reason that Diversified makes the cut is because it’s in the process of rapidly expanding its proprietary Bagger Dave’s Legendary Burger Tavern.

    There were just 13 of the full-service, ultra-casual restaurant and bar units open by the end of June, but Diversified is hoping to open another six locations later this year. It may soon rival the nearly three dozen Buffalo Wild Wings eateries that it currently watches over. The genius here is that it’s probably putting a lot of what it learned at Buffalo Wild Wings into practice at Bagger Dave’s.

    Revenue soared 61 percent in its latest quarter, propelled almost entirely by new restaurants, but there was still a healthy 7 percent spike in same-store sales during the period. 

    Diversified Restaurant Holdings (BAGR)

  • Customers looking to trade up from fast food without shelling out more in time and money at a casual dining concept are flocking to fast casual chains that deliver quality ethnic dishes quickly.

    Fiesta (FRGI) owns and operates 96 Pollo Tropical restaurants (primarily in South Florida) and 164 Taco Cabana eateries (mostly in Texas). The company also has dozens of franchised locations, especially overseas, as its Latin American-inspired Pollo Tropical rotisserie chicken has proven to be a potent export.

    Revenue climbed 9 percent in its latest quarter, fueled by a healthy 6 percent spike in same-restaurant sales at Pollo Tropical.

    Fiesta Restaurant Group

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