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May022018

April 2018

 

Same Store Sales Trends

Stronger Consumer Trading-up?

  • Solid low-single-digit 1Q:18 comps for $1B+ chains reflects a lack of any big misses to go with improving FSR results during a weather challenged quarter.
  • While it seems that a larger than normal amount of ad spend supporting QSR value would have generated stronger sales, perhaps there is a certain amount of QSR discount fatigue as consumer strength increases.
  • This could also explain why FSR has been gaining ground in an apparent trade-up.  

 

 

Source: RR Quarterly Same Store Sales & Hedgeye

 

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Menu Innovation

QSR is beginning to raise price points 

  • While QSR is still highly focused on promoting value, some chains are raising price points for bundled deals above the key $5 threshold (with Arby's, Burger King and now Wendy's offering 2 for $6 Mix & Match sandwiches).
  • Rebound in April FSR innovation primarily reflects new LTOs from Olive Garden, Red Lobster and Denny's. The majority of casual chains continue to promote specific individual value deals priced from $10 - $15.

 

Click this link for April New Product News

 

Economic Outlook

1Q:18 GDP healthy, but less than expected, with a 2Q rebound forecasted

  • 1Q:18 GDP grew +2.3% which was less than expected. A pull-back in consumer spending followed a strong holiday shopping season.
  • However, +4.1% 2Q:18 GDP estimate reflects that underlying economic data remains mostly positive. 
  • Pros: increasing disposable income; low unemployment rate (lowest level since 2001); strong consumer confidence; and lower tax rates for 2018.
  • Cons: Higher gas, commodity costs and interest rates.

 

Source: Government Data

 

Key Cost Trends & Forecasts

Costs trending higher, but expected to level out this year

  • While commodity costs are currently a mixed bag, the USDA projects that costs will pull-back/level-out in 2018.
  • BLS Foodstuffs Index jumped to its highest level since July 2017.
  • Egg prices remain volatile and represent a recent high.
  • 1Q:18 was much colder compared to the same period last year. 
  • How much benefit did the unseasonable weather have on delivery this quarter?

 

Source: RR Commodity & Labor Database

 

Source: NOAA

 

 

RR Resources

 

        Research Call Notes                           RR Presentations

        Franchisee Surveys                            Concept Conclusions 

        RR Thermometer Insights             New Product News

Menus Pics

 

Franchisee EBITDA Valuations

Higher labor, food & borrowing costs keep multiples in check

  • Unit level valuation outlook pressured by higher labor, food & borrowing costs.
  • Still plenty of capital available for large operators in strong brands.

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Source: RR 2H17 Valuation Report

 

Click Here to Order Report

 

Stock Valuations from Hedgeye Risk Management

RR Index out-performance driven by a surge in FSR stocks

  • RR's $1B+ Index strongly out-performed the broader market due to a surge in FSR stocks. 
  • In any case, the RR Index continues to get more expensive with a +28% multiple premium to the S&P 500 despite flat EBITDA growth prospects.

 

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Marcus & Millichap Cap Rates

Cap rates settle down for now

  • Cap rates settled down in April, but remain near the high-end of the recent trading range and are expected to gravitate toward 6% as rising interest rates dictate a more conservative underwriting and exit strategy.
  • Transaction volume was +13% higher on a y/y basis.

 

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Recently Completed Reports

 

McDonalds     IHOP     Wingstop

 

Menu & Promotions Industry Data Report

 

 
Special Reports 
 
  • Founded 1981
  • 1,200 units (615 company/585 franchised)
  • 36 new units projected FYE 2018 (21 company/15 franchised)
  • $3.27 MM franchisee AUV
 
 
  • Founded 1956
  • 1,338 units (79 company/1,259 franchised)
  • 163 new units projected FYE 2018 (8 company/155 franchised)
  • $720k franchisee AUV
 

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 2018.

 
 

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