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May 2018


Same Store Sales Trends

Modest Sales Momentum Expected to Continue

  • 1Q:18 same store sales breadth improved and final 1Q:18 comps for the $1B+ chains came in at +2.0% (same for QSR & FSR), representing the best performance since 2Q:17.
  • Modest 2Q sales momentum expected to continue improving with QSR strength expected by the Street.
  • Total Food Service and Drinking Places sales increased +3.4% y/y in April (up from +2.8% in 1Q:18) while April grocery store sales increased +0.3%.



Source: RR Quarterly Same Store Sales & Hedgeye


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Menu Innovation

Innovation on hold again as value focus reigns

  • Menu innovation on hold as chains remain focused on value (with Burger King's $3.79 King's Meal Deal added to an already long list of discount promotions).
  • Little Caesars unveiled on-line ordering with a create your own pizza option starting at $6. Its Pizza Portal (Reserve-N-Ready platform) adds unique and notable convenience to an already compelling value offer. 


Click this link for May New Product News


UBS Restaurants Expert Call:

What's the Health of the Franchisee?




Look for more info on Call Replay later this month



Economic Outlook

2Q rebound gains momentum

  • 2Q GDP estimate upgraded to +4.7% as underlying economic data continues to improve. 
  • Pros: increasing disposable income; low unemployment rate (May's 3.8% rate is the lowest level since 2000); strong consumer confidence; and lower tax rates for 2018.
  • Cons: Higher gas, commodity costs (expected to moderate) & interest rates.


Source: Government Data


Key Cost Trends & Forecasts

Costs still trending higher, but expected to level-off in 2H:18

  • While commodity costs continue to trend higher, the USDA outlook suggests that costs should pull-back/level-out in 2H:18.
  • Wheat and chicken are at an LTM high, while BLS Foodstuffs Index is close.
  • Egg prices remain volatile and are hovering near recent high.
  • April was unseasonable cold.


Source: RR Commodity & Labor Database


Source: NOAA


RR Talking Points: 1Q18 Results

Click Below to Listen




RR Resources


        Research Call Notes                           RR Presentations

       Unit Level Trends                              Concept Conclusions 

       RR Thermometer Insights                New Product News

        Menus Pics                                                    Industry Events


Franchisee EBITDA Valuations

Unit level valuation outlook under pressure

  • Unit level valuation outlook under increasing pressure from higher labor, food and borrowing costs.
  • According to David Stiles (Trinity Capital), Applebee's transactions are in the low 3's and Taco Bell multiples are still commanding 7x to 9x. 



Source: RR 2H17 Valuation Report


Click Here to Order Report


Stock Valuations from Hedgeye Risk Management

RR Index falls as investors question franchisee health

  • RR's $1B+ Index receives an unwelcome adjustment as many investors are losing their appetite for the asset light model and start to focus instead on franchise health.
  •  83% of $1B+ chain units are franchised (89% QSR/46% FSR). 


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Marcus & Millichap Cap Rates

Higher interest rates translate into more conservative cap rates 

  • Cap rates continue to ramp-up, settling near the high-end of the recent trading range as rising interest rates dictate a more conservative underwriting and exit strategy. 
  • Transaction volume declined -4.0% on a y/y basis.


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Recently Completed Reports


Dominos     Papa Johns     Wendys



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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