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June 2018


Same Store Sales Trends

2Q Forecast In-Line with Previous 2 Quarters, Helped by FSR

  • 2Q comp forecast is generally in-line with the previous 2 quarters with expectations of modest, stable QSR performance bolstered by a strengthening FSR segment.
  • While government retail sales data slowed in April, a rebound is expected in May with Total Food Service & Drinking Places sales +5.8% y/y and grocery store sales +4.5%. This is consistent with expectations for +4.1% 2Q GDP growth.


Source: RR Quarterly Same Store Sales & Hedgeye


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Menu Innovation

Ramping Menu Innovation Driven by a Few Players

  • Majority of June's menu innovation driven by the following:
  • Starbucks 9 new products include several soft drinks & pastries.
  • Ruby Tuesday's Southern inspired menu LTO features new entrees & apps.
  • IHOP Ultimate Steakburgers featuring 7 new/improved burgers, prompting a temporary name change to IHOB (International House of Burgers).
  • Perkin's new summer menu includes 7 new items.
  • Friday's new $5 Happy Hour Menu features drinks & apps.


Click this link for June New Product News



Economic Outlook

2Q GDP Outlook is Bullish at +4.1%

  • +4.1% 2Q GDP outlook reflects healthy economic fundamentals. 
  • Pros: increasing disposable income; low unemployment rate (May's 3.8% rate is the lowest level since 2000); strong consumer confidence (although slightly lower in June); and lower tax rates for 2018.
  • Cons: Higher gas, interest rates & commodity costs (starting to moderate).


Source: Government Data


Key Cost Trends & Forecasts

Moderating 1H18 Food Costs Reflects Sharp Decline in June

  • Commodity costs are moderating with the BLS Foodstuffs Index up just +0.8% during 1H18 after declining -6.3% in June.
  • However, chicken & labor costs are at new LTM highs.


Source: RR Commodity & Labor Database


Source: NOAA


UBS Call: Franchisee Health

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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

Limited Supply Helps 1H:18 Multiples, but Outlook Under Pressure

  • While the 1H:18 unit level franchisee valuation multiple increased because of a scarcity of deals and an abundance of capital, the absolute level remains beneath 2016 levels.
  • 6-month outlook is pressured by prospects of higher labor, food and borrowing costs.



Source: RR 2H17 Valuation Report


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Stock Valuations from Hedgeye Risk Management

Investors Love FSR and All Things Domestic in June

  • RR's $1B+ Index recovered all of May's sharp losses as investors fell in love with FSR.
  • Our equal weighted index is sharply outperforming the overall market YTD as most of our names have relatively little exposure to global trade concerns (with the exception of a few QSR players with more sizeable global operations that were down for the month).    


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Marcus & Millichap Cap Rates

Transaction Volume Up +30% as Sellers are Motivated by Higher Rates 

  • Cap rates continue to ramp-up, settling at the highest level since Feb. 2016 as rising interest rates dictate a more conservative underwriting and exit strategy. 
  • Transaction volume accelerated +30% y/y during June as sellers are motivated by prospects of even higher rates.


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Recently Completed Reports


Applebees     Popeyes


Unit Economics



Unit & Sales Growth



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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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