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February 2018


FSR Rebound Keeps 4Q Comps on Track

  • 4Q:17 $1B+ FSR chain comp sales did better than expected due to rebounds at Applebee's and Outback.
  • QSR comps benefit from strong results from MCD and BK which took share from the rest of the category.
  • Pizza is losing steam, maybe reflecting competitive delivery growth. 
  • FSR strongly outperformed QSR during 4Q according to government data.
  • Overall industry sales were slowing in January according to the Advanced Monthly Retail Trade Report (+1.8% in Jan. vs. +4.2% in Dec.).
  • Consumer tax breaks could provide a +1% 2018 comp tailwind according to RR estimates.



Source: RR Quarterly Same Store Sales & Hedgeye


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Menu Innovation

  • QSR new product innovation rebounded in February, but value and operational simplicity continues as the industry's main theme for the time being.


Click this link for February New Product News


Bullish Economic Outlook

  • +3.5% GDPNow model forecast for 1Q:18 represents a downgrade  from last month's +5.4% forecast, but is still strong relative to +2.5% 4Q:17 growth and +2.3% for full-year 2017. 
  • Pros: increasing disposable income; low unemployment rate (holding steady at 4.1% - lowest level since 2001); strong consumer confidence (February's reading was the highest since 11/00); and lower tax rates for 2018.
  • Cons: Higher gas, home heating prices, commodity costs and interest rates.


Source: Government Data


Key Cost Trends & Forecasts

  • While commodity costs continue to ramp-up, the USDA projects that costs will pull-back/level-out in 2018.
  • The 2018 USDA outlook for eggs was reduced to flat to +1.0% in February  from +17% to +18% last month.


Source: RR Commodity & Labor Database


Source: NOAA



RR Resources


        Research Call Notes                           RR Presentations

        Franchisee Surveys                            Concept Conclusions 

        RR Thermometer Insights             New Product News


Franchisee EBITDA Valuations

  • Flat unit level valuation outlook continues to reflect higher labor costs, commodities and interest rates.
  • According to RR's February survey, Taco Bell multiples continue to trade higher while Hardee's is under pressure due to sales pressure from lower local/co-op ad spend.



Source: RR 2H17 Valuation Report


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Stock Valuations from Hedgeye Risk Management

  • DineEquity's stock performance rebounded +37% back to 11/16 levels as investors warmed-up to the brand's turnaround plan.
  • This performance helped our RR $1B+ Index out-perform the broader market. Without DIN's help, our Index would have performed more closely to the broader market.
  • Notably, industry EBITDA growth prospects are not as strong as the broader market as refranchising benefits (transformation to asset light model) have largely played out. 


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Marcus & Millichap Cap Rates

  • Cap rates ticked-up in February, but far less relative to the 10-year rate and remain in the middle of the 12 month trading range.
  • Transaction volume was flat on a y/y basis.
  • Cap rates should remain around 6% through 2018 due to all cash 1031 buyers controlling the market (reducing impact of higher borrowing costs). 


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Recently Completed Reports


Churchs       Panera       Jack in the Box    


Finance & 2H17 Valuations



RR Resources


        Research Call Notes                           RR Presentations

        Franchisee Surveys                            Concept Conclusions 

        RR Thermometer Insights             New Product News


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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 2018.


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