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May 2017


1Q:17 Comp Sales Wrap-up

  • While 1Q:17 comp performance remains subdued (+1.3%), it was the best performance since 1Q:16. 
  • Backing out Chipotle's rebound (+17.8%), comps would have been more in-line with recent trends at +0.9%.
  • 1Q:17 results reflected: (1) a weak February - possibly impacted by delayed tax refunds and leap year drag; (2) an Easter/spring break holiday mismatch in March; (3) bad weather in the Northeast; (4) lower tickets driven by intense value promotions; (5) the continued gap between grocery and restaurant pricing; (6) the influence of a retail slowdown on dining out occasions; and (7) rising gas prices. 
  • Notably, April grocery store sales growth outpaced food services and drinking places growth for the first time since 4/14 despite negative CPI (reflecting higher traffic).




Source: RR Quarterly Same Store Sales & US Census Bureau


iSpot TV's Ad Analysis

  • May TV airings trended down as the chains gear-up new summer seasonal menu roll-outs.



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New Product News

  • Robust new product news reflects slightly less value emphasis. 



Source: RR Menu Report


Economic Outlook

  • 1Q:17 real GDP growth was tepid, but better than initial projections (+1.2% vs. +0.7% advance estimate last month) and is expected to rally to +4.0% during 2Q:17.
  • Pros: increasing disposable income, low unemployment, favorable commodity costs and strong consumer confidence (all the above indicators are off their peaks with the exception of unemployment).
  • Cons: slightly higher interest rates, higher gas costs and rent CPI increases outpacing income growth. Consumers saved increasingly more of their disposable income during 1Q:17, indicating a more cautious outlook.


Source: Government Data


Key Cost Trends & Forecasts

  • 2017 USDA commodity cost outlook remains favorable but costs are rising with fresh vegetables, beef and corn at 12 month highs.
  • 7 of the 20 public restaurant chains tracked by RR raised their 1Q:17 commodity cost outlook.
  • April was  significantly wetter (2nd wettest in 122 years) and warmer (11th warmest in 122 years) than average.


Source: RR Commodity & Labor Database


Source: NOAA


Franchisee EBITDA Valuation Multiple Outlook

  • Slightly bullish franchisee EBITDA multiple outlook reflects strong demand for solid QSR brands which is mostly off-set by declining valuations for weaker brands in the casual space.


Source: RR 2H16 Valuation Report


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Stock Valuations from Hedgeye Risk Management

  • The RR Index pulled back in May due to FSR weakness (particularly newer fast casual and casual chains).



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Marcus & Millichap Cap Rates

  • Cap rates continue to hover around 6%, but are still relatively low on a historic basis.
  • Transaction volume was down for the 4th consecutive month but is expected to pick-up as 20 Cheddar's properties hit the market.


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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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