August 2017

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Click here to read in your web browser Modest Initial 3Q Comp Outlook Pressured by Hurricanes Modest 3Q:17 comp growth outlook could be pressured by hurricane Harvey (with ~10% of $1B+ chain units are located in Texas and Louisiana) and perhaps more so by hurricane Irma. Food services and drinking places retail sales growth slowed in July, but still managed to outpace grocery stores for the 3rd consecutive month. Retail sales for drinking establishments (bars) were up sharply in 1H:17 (+15.9%) compared to 1H:16 (+5.0%). Source: RR Quarterly Same Store Sales, Hedgeye & US Census Bureau Click Logo for More Info iSpot TV's Ad Analysis Declining TV airings trend is leveling-off. Click Logo for More Info New Product News: Innovation on Hold for Now Limited innovation as chains continue to promote last month's extensive new product roll-outs while ramping-up value offers. 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? Click to Download Slides Economic Outlook 2Q:17 real GDP growth was revised higher to +3.0% and the GDPNow model is currently forecasting +3.2% growth for 3Q. Pros: increasing disposable income, declining savings rate and strong consumer confidence (August had the 2nd highest reading in 16 years). Cons: slightly higher gas prices, rising commodity costs, and rent CPI increases outpacing income growth. Economic impact from hurricane Harvey still being assessed. ​ Source: Government Data Key Cost Trends & Forecasts The pace of commodity cost increases moderated slightly with coffee coming down sharply, beef prices falling to the lowest level since March (although still up slightly in August on a Y/Y basis) and corn approaching a 12 month low. However, this was off-set by pork, wheat and chicken which continue to track higher. 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 edged-up in August reflecting limited supply, strong demand and favorable financing, partially off-set by flat sales trends and increasing store-level margin pressure. ​ Source: RR 1H17 Valuation Report Click Here to Order Report Stock Valuations from Hedgeye Risk Management The RR Index declined for the 4th straight month due mostly to continued casual segment weakness. Expanding performance gap, with the RR index now down -6.5% YTD August vs. +10.4% for the S&P. Click Logo for More Info Marcus & Millichap Cap Rates Cap rates jumped to their highest level in 11 months (although still low on a historic basis) and transaction volume remains robust. Click Logo for More Info   Recently Completed Reports (Click Links for Outline) Burger King           Subway    Industry Data Report - 1H17 Valuations & Finance Update Report Highlights (1) EBITDA multiple estimates (post G&A) for 44 chains based on survey data from 8 leading appraisal firms; (2) a comparison of public restaurant company and private franchisee valuation multiples; (3) a summary of real estate cap rate trends based on data provided by Marcus & Millichap; and (4) an update on restaurant loan origination volume, borrower financial condition, changes to underwriting standards and interest rate outlook derived from a survey of leading lenders. Email RR for Pricing & Order Info Please pass on to your colleagues 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.