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February 2019


Same Store Sales Trends

FSR Comps Outperforming QSR with Narrower Gap Expected in 1Q

  • Final 4Q:18 comps came-in generally as expected with FSR continuing to outperform QSR as the casual segment improves their value equation.  
  • All-the-same, absolute results remain muted as lower income consumers continue to struggle with cost of living inflation that exceeds income growth.
  • 1Q:19 street outlook suggests similar overall comp performance, but a narrowing gap between QSR and FSR.


Source: RR Quarterly SSS (outline), Hedgeye & Census Bureau



Promotional Composition

FSR Continues to Increase its Value Focus Unlike QSR

  • QSR price point value mix continues to decline and February's 50.2% mix represents the lowest level since July despite a sharp increase in other value including free or discounted delivery offers (especially on Superbowl Sunday by sandwich players). QSR seeks to compensate for a lower value mix with a sharp increase in overall promotional activity.
  • ​Conversely, FSR value mix continues to ramp-up with a +640 bps m/m increase to 47.7% in February (the highest mix since 53.7% in 1/17). Innovation also picked-up in casual (led by Olive Garden & Red Lobster) and fast casual (Corner Bakery).




Source: RR Menu & Promotions Report (Outline)


Economic Outlook

Government Shutdown Skews Economic Data 

  • GDP growth uncertainties contrast with a strong +8% m/m increase in February consumer confidence and a rebounding stock market.
  • Pros: lower tax rates (after a slow start, tax refunds are ticking-up); falling gas prices; and m/m decline in interest rates (FED becoming more accommodating). 
  • Cons: Slowing disposable income (+3.8% in January vs. +5.3% in December) and up-tick in unemployment rate reflects impact of government shut-down.


Source: Government Data



Key Cost Trends & Forecasts

Food Cost Outlook Remains Favorable Despite Spike in Veggies

  • The BLS Foodstuffs Index declined for the 5th consecutive month on a y/y basis and the 2019 USDA outlook remains favorable with eggs (new LTM low), chicken, beef and milk revised lower for the month. Fresh vegetable prices remain elevated due to a colder than average winter.


Source: RR Commodity & Labor Database (Outline)



Franchisee EBITDA Valuations

Unit-Level Valuation Multiples Under Pressure

  • Slight acceleration in downward pressure on franchisee valuation multiples may reflect increasing equity requirements as a result of a rise in technical defaults in lender portfolios as tepid sales growth and rising labor costs pressure unit level margins.
  • Downward pressure on multiples are most notable with: smaller brands; brands with stringent transfer requirements; and under-performing brands.
  • Arby's & Popeyes multiples continue to trend higher, while Taco Bell (although still among the highest in the space) and Buffalo Wild Wings (due to weak sales results) are trending lower.


Source: RR 2H18 Valuation & Finance Report (Outline)


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Stock Valuations from Hedgeye Risk Management

Valuation True-Up Bolsters FSR Stocks


  • RR $1B+ Index outperformed in February, propelled by FSR.
  • While QSR's forecasted EBITDA growth significantly exceeds FSR, FSR valuations have a long way to go to catch QSR.
  • This suggests that current restaurant stock action is mostly about a valuation true-up (FSR vs. QSR) as FSR sales data provides investors with more confidence to put money to work in this beaten-up sector.     



Marcus & Millichap Cap Rates

Single Tenant Net Lease Cap Rate Follows Treasuries Down


  • Cap rates declined by 4 bps in February, consistent with the 10-year treasury decline of 3 bps.






Recently Completed Reports


Jack in the Box     Panera


Finance & 2H18 Valuations



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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 2019.


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