Quarter Three Chain Restaurant Earnings: the Highs and the Lows
We’ve had a clump of chain restaurant earnings in September and October, and a few interesting observations seem apparent from our hours of listening:
Restaurant Spending Outpacing the Polls: the dramatic all sub-sector and cross-regional sales and traffic declines of 2008 and 2009 are in the rear view mirror for now. Now, we see only the very weak operators and California centric QSR chains still posting large decreases. Sentiment via industry insider surveys is positive, despite the conflicting national economic surveys (Gallup and Discover Confidence/spending monitors pretty flat since spring 2010.
Valuation nosebleed section: BJ’s Restaurants (BJRI, $33/share, 51.2X earnings) and Chipotle (CMG) $212/share, 41.1X earnings multiple) by far and away stand out. As good as CMG is, you have to believe there’s a lot of future growth already built in. CMG still has among the highest restaurant level margins (26%).
Surprisingly strong sales Trends: CKE’s Hardees unit experienced significant same store sales territory (+6.6%). Perhaps that no dollar item focus is working.
Award for Most Improved Earnings Call Disclosure: goes to Brinker (EAT), which broke out both same store sales into check, traffic and mix components AND disclosed franchisee same store sales trends .
Worst Earnings Call Award goes to: Sonic (SONC) which wasted its valuable talk time in discussing how its company store sales trends were trending 30 basis points better than its franchisees (pointless).
Most badly treated this Quarter: Darden (DRI), for its 1.7% Red Lobster sales decline. No analysts asked about the vitally important good trends at LongHorn, and DRI had 4 of its six brands in positive same store sales territory.
Remodel Economics: MCD is quoting a 6-7% sales lift, Buffalo Wild Wings (BWLD) is quoting a 5% sales lift on a $375K investment, and Chili’s is looking at a 15% hurdle rate.
Other Interesting factoids:
· While YUM won’t breakout its US Pizza Hut margins, looks like store level EBITDA is around 10% for franchisees. (Don’t forget that royalties are included here )
· Dine Equity (DINE) reported G&A savings of about $30K per unit for regional cost savings as it sold company markets.
· Jack in the Box (JACK) closed about 42% of its already small footprint in TN, NC, SC. Goes to show you the ancient motto about your sales base geography is important.
· Domino’s (DPZ) US same store sales trends (for the moment, anyway) continue to outpace the international gains by 400 basis points.
· Only 10-11% of MCD sales mix is “value” according to COO Don Thompson.
· CKE (Carl’s/Hardee) is finally out of the distribution business, and the company store cost structure went down slightly.
Disclosure: No stock positions