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September 2017


3Q Comp Outlook Hurt by Hurricanes & FSR

  • 3Q:17 comp outlook pressured by hurricanes and ongoing FSR weakness.
  • Darden expects that both hurricanes will impact its comps by -90 bps. 
  • Government restaurant sales data rebounded in August and continues to outpace grocery store sales.



Source: RR Quarterly Same Store Sales, Hedgeye & US Census Bureau


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iSpot TV's Ad Analysis

  • Declining TV airings trend is leveling-off, but FSR TV ad spend remains well below last year's level.
  • Perhaps allocation shift to digital marketing is at least partially to blame?
  • Is FSR y/y spend decline a function of sales pressure or the cause? 



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New Product News: Value Still Main Focus

  • Value still trumps innovation for now.
  • McDonald's expands McCafe with new line of espresso drinks.



Source: RR Menu Report


RR Speaker Series


Gen Z ain't no Millennial...

  • Everyone is so focused on the Millennials that nobody is paying attention to their sharp differences with Gen Z. 
  • What  are brand positioning and marketing implications?


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Economic Outlook

  • 3Q17 GDPNow model revision down to +2.7% GDP growth (from +3.2% last month) reflects initial forecasted impact from hurricanes. 
  • Pros: increasing disposable income, low unemployment, declining savings rate and strong consumer confidence.
  • Cons: Higher gas prices, commodity costs and interest rates. Rent CPI increases also continue to outpace income growth. 


Source: Government Data


Key Cost Trends & Forecasts

  • While commodity costs remain elevated Y/Y with eggs, potatoes, chicken and ground beef up double-digits, the overall 2017 USDA outlook is still manageable and commodities remain low on a historic basis. 


Source: RR Commodity & Labor Database


Source: NOAA


Franchisee EBITDA Valuations

  • Estimated Franchisee EBITDA multiple valuations held steady in September reflecting limited supply and strong demand, off-set by rising interest rates, flat sales trends and increasing store-level margin pressure (driven by rising commodity & labor costs).


Source: RR 1H17 Valuation Report


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Stock Valuations from Hedgeye Risk Management

  • The RR Index rebounded sharply in September with all segments posting a gain. Anticipation of lower taxes is good news for the market and consumer discretionary stocks in particular.
  • While restaurant stocks finally out-performed the broader market during September, the RR index is still down -3.2% YTD vs. +12.5% for the S&P.



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Marcus & Millichap Cap Rates

  • Cap rates pulled-back from recent high and transaction volume remains robust (+42% Y/Y growth in September).


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Recently Completed Reports

(Click Links for Outline)


Denny's     Burger King     Subway


Industry Data Report - New Unit Investment


Report Highlights
  • RR’s New Unit Investment Industry Data Report provides average building cost estimate details (excluding land) for 46 national restaurant chains.
  • Report highlights: (1) the sales-to-investment ratio for $1B+ chains continues to trend down after peaking in 2013, driven by construction cost increases outpacing growth in new build AUVs; (2) franchisors continue to offer incentives including franchise fee reductions to improve new build economics; (3) increasing use of non-traditional building formats should help to improve future new build returns; and (4) 9 chains introduced or are testing new building designs.


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Disclaimer of Liability: Although the information in this report has been obtained from sources Restaurant Research® LLC believes to be reliable, RR does not guarantee its accuracy. The views expressed herein are subject to change without notice and in no case can be considered as an offer or solicitation with regard to the purchase or sales of any securities. Restaurant Research’s analysis and opinions are not a guarantee of the future performance of any company or individual franchisee.  RR disclaims all liability for any misstatements or omissions that occur in the publication of this report. In making this report available, no client, advisory, fiduciary or professional relationship is implied or established. This report is intended to provide an overview of the restaurant industry, but cannot be used as a substitute for independent investigations and sound business judgment. Copyright 2017.


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