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June 2017


2Q:17 Comp Sales Outlook: Broad-Based Recovery?

  • 2Q:17 comp estimates could be best results since 1Q:16.  
  • May grocery store sales growth outpaced restaurant growth (for the 2nd consecutive month) - last time restaurants underperformed was April 2014.
  • Maybe consumers are beginning to eat again?





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


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iSpot TV's Ad Analysis

  • Sharp decline in June FSR TV airings reveals pull-back in casual & Panera which more than off-set an increase in family airings.



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New Product News

  • Slowing pace of new product news reflects difficult y/y comparisons and continued focus on value



Source: RR Menu Report


Economic Outlook

  • 2Q:17 real GDP growth is expected to improve to +2.7% (although down from the 4.0% forecast last month).
  • Pros: increasing disposable income, low unemployment, low gas prices and strong consumer confidence.
  • Cons: slightly higher interest rates, rising commodity costs, and rent CPI increases outpacing income growth. Also, higher savings rate indicates a more cautious outlook.


Source: Government Data


Key Cost Trends & Forecasts

  • Rising commodity costs resulted in several new LTM highs, with more than half of RR's tracked indexes now showing YTD inflation.
  • However, overall USDA outlook is still manageable and commodity costs remain low on a historic basis.


Source: RR Commodity & Labor Database


Source: NOAA


Franchisee EBITDA Valuations

  • 1H:17 franchisee EBITDA multiple valuations took a breather and declined for the first time since 2H:11 but are expected to hold steady over the next 6 months.
  • While the decline was broad-based, casual was the hardest hit and reflects ongoing segment weakness.


Source: RR 1H17 Valuation Report


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Stock Valuations from Hedgeye Risk Management

  • The RR Index plunged in June with every segment in the red and particular weakness in the fast casual, coffee and pizza segments.



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Marcus & Millichap Cap Rates

  • Cap rates ticked lower for the 2nd consecutive month while transaction volume was down for the 5th consecutive month, reflecting low inventory levels.


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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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