In watching the Q2 2012 restaurant space earnings, six brands interested us by exhibiting what we define as standout operating tempo-what we term OPTEMPO.
These six posted not only significant EPS beats of $.02 or more (meets or a penny over doesn't excite us much), but also positive traffic and positive early peek Q3 trends-that early Q3 trend prerelease info that some companies give. This quarter's entire group has performed well recently: Brinker (EAT),Texas Roadhouse (TXRH), Ruth Chris (RUTH), Popeye's (AFCE), Panera (PNRA), Papa John's (PZZA)
Common Denominators: Two casual dining operators, one fine dine operator, one bakery/café, one QSR pizza, one Chicken QSR operator were the group. Two of the six are steak centric (RUTH, TXRH), with one other making inroads into higher steak menu mix . Brand focus matters: four of the six were single concept restaurant operators, and two with two brands under the holding company structure (EAT, RUTH). There, one brand greatly predominates over the other (EAT: Chill's versus Maggiano's) and RUTH (Ruth Chris versus Mitchell's).
Steak centric: we noted in 2011 that steak centric operators did well, no doubt by the improving travel/expense account traffic. RUTH's peer, Del Frisco (DFRG) via its first call since its IPO noted positive same store sales (SSS)of plus 5.1% and traffic of +2.2% at the flagship Double Eagle units.
Positive traffic and early peek looks: All had positive traffic-RUTH greatest at +3.9%; AFCE and PZZA don't reveal traffic/check but one can deduce from the magnitude of the numbers it was positive).
All had consensus earnings move up $.02 or more over the last 90 days-PNRA highest at +$.11, PZZA +$.09, EAT +$.07. Three of the six had 5 analysts or less providing estimates, with PNRA, TXRH and EAT well in double digit analyst coverage territory.
None of these chains had eyeball high debt. Interestingly, none of the chains was actively refranchising, all were growing company units, with even franchisee heavy AFCE planning a significant slug of new company units.
Four of the six chains (RUTH, AFCE, PNRA, PZZA) had positive free cash flow increases from quarter to quarter. EAT and TXRH free cash flow was off from prior year but EAT is doing heavy duty remodels (and is still a huge cash generator) and TXRH is building new units.
Price/earnings ratios: only RUTH cheap but…
This group of restaurants, other than RUTH are not cheap. PNRA is the most expensive, but EAT and TXRH aren't nosebleed high valuation yet.
|TTM PE||18.6 X||18.6 X||10.8 X||22.5 X||30.4 X||21.8X|