Seeking Alpha
View as an RSS Feed

John Gordon  

View John Gordon's Comments BY TICKER:
Latest  |  Highest rated
  • Wendy’s/Arby’s Group Inc. Q3 2009 Earnings Call Transcript [View article]
    A few comments on the Wendy's/Arby's Q3 Earnings call:

    (1) its very unfortunate that macro business is to the state that the QSR majors all see the $1 menu as the traffic salvation. After rolling out a boatload of new products at both Wendy's and Arby's, nothing really has bumped sales, and Arby's in fact continues to worsen (-6.5% company, -10,.0% franchisees). Too much unemployment, too many competitors, too many new burgers, too much noise in TV land.

    This weekend McDonald's (MCD) was hyping its $1 menu on national cable television.

    (2) This call should put to bed once and for all the assertion that menu mix equals incremental sales. Consider the metrics given in this call for Q3:

    Wendy's; new bacon deluxe cheeseburger, mix had risen to 5%, but comps (excluding breakfast) were.1% company, .4% franchisees (note October sales were -4%)

    Arby's; the $5.01 combos were reported at 20% sales mix, but comps were -6.5% company, -10.2% franchisees.

    (3) WAG reported the greatest amount of cost deflation in the chain restaurant universe thus far expected for Q4 at -6 to -8%. Now, that's some good contracting or more likely, spot purchases.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Nov 8, 2009. 10:37 PM | Likes Like |Link to Comment
  • Wendy's Arby's Cryptic New Supply Chain Arrangement [View article]
    Having just monitored the Wendy's/Arby's (WAG) earnings call, I'd make the following observations:

    (1) The Wendy's co-op was a part of the $60M in WAG G&A savings that has been planned and promised for some considerable time, and is already in their guidance.

    The co-op will be (and should be) a separate entity apart from WAG and will receive corporate G&A expense from WAG, that will be paid for via either cost savings and/or a markup applied to all company and franchisee purchases.

    Also, future synergies with the Arby's Co-op (another 3800 stores) is likely on non-brand specific product and in the works.

    (2) The Co-Op apparently was introduced to the franchisee community last week at their convention, and 50% have already signed up.

    (3) The WAG $15M start up no doubt is for an inital budget, working capital, inventory, etc, and might be repayable.

    (4) They are still working this, and its early.

    Cooperative ventures with franchisees that save money for all parties are good. Economic theory is that 10K units can buy more cheaply than can 6K units. But it is an open question whether additional savings will be generated to offset any potential additional costs, either at the WAG or franchisee level.

    John A. Gordon
    Chain Restaurant Earnings and Economics Expert
    Nov 5, 2009. 02:28 PM | Likes Like |Link to Comment
  • McDonald's Continues to Dominate During the Recession [View article]
    McDonald's has the most sophisticated operations, real estate and marketing machine of all the chain restaurant operators. Afterall, they were the first major chain restaurant to go public (1965) and set the framework for all other chain restaurant operators.

    CEO Jim Skinner did caution as to expect flat to slightly negative US same store sales in October. Chipotle, another of the handful of companies running positive comps, expects flatish sales next year, as they have planned for no pricing.

    We are not seeing material sales gains yet versus last year's depressed levels, and QSR is weak. There are a few brightening spots (BJRI, CAKE),and the Pei Wei component of PFCB, and we will publish our idea why next week.

    John A. Gordon
    Pacific Management Consulting Group
    Oct 23, 2009. 08:48 AM | Likes Like |Link to Comment
  • Best and Worst Performing Stocks This Earnings Season [View article]
    We monitor the chain restaurant universe. In viewing research and press reports, we hope someday corporate earnings analytics can be improved by the following:

    1. Less reliance on the prior year percentage change and more focus on the trend and the dollar change. The old saying, you take dollars to the bank and not percentages still rings true. For example, same store sales could be compared to the 2 year, 5 year, etc. compound annual growth rate (CAGR). All those numbers are available.

    2. For retailers/restaurants with multiple units, dollar profit per company owned or franchised store would be an improvement. Companies may get credit in the business press for a revenue increase, while per store profit contribution could be falling.

    All these are non-GAAP numbers that are available and could be reported.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Oct 22, 2009. 09:08 AM | Likes Like |Link to Comment
  • Brinker International, Inc. F1Q10 (Qtr End 09/23/09) Earnings Call Transcript [View article]
    Just a few observations on Brinker's Q1 2010 earnings:

    We wonder if the reason why the Chili's 3 Course Promotion (3 for $20) was paused in September (and where some momentum seemingly was lost) was due to the marketing calendar and related ad agency/ad time buying issues. Last quarter, EAT did a nice job of ditching the 10 for $7 promo quickly, but there must have been a resulting hole they couldn't fill.

    It's very ominous that EAT didn't talk to October sales or any kind of guidance, other than cost of goods sold percentage. This is another example of likely weak October sales.

    The downside to too long product contracting was noted--EAT locked in chicken but with recent commodity declines, they are now above market, and hoping for its expiration.

    And finally, we were in a Chili's test unit Monday and saw (and liked) the new test salads, sandwiches and taco test items, all priced at or under $10. If successful, these will give Chili's additional sales platforms, but new menu awareness builds slowly.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Oct 21, 2009. 06:20 PM | Likes Like |Link to Comment
  • Earnings Preview: McDonald's [View article]
    My own guess as to McDonald's US same store sales is 0 to plus one.

    The marketing has been intense and focused, and the instore POP very well done, but its a difficult time.

    This is based on unit visits and periodic discussion with Store Managers and Region staff that I encounter, principally in California. My home market of San Diego is a mature, well penetrated MCD market and home to the West Coast MCD USA Region Office.

    I just haven't seen anykind of traffic surge due to McCafe and Angus Burgers. The burger segment is SO crowded right now, although MCD did have the airwaves to themselves before CKR (Carl's/Hardee's) Big Burgers and Wendy;s et al. In addition, QSR comps across the board have been slipping since early 2009.

    We'll see tomorrow.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Oct 21, 2009. 12:41 PM | Likes Like |Link to Comment
  • Yum! Q3 2009 Earnings Call Transcript [View article]
    Pizza Hut US negative comps (-13%) were surprisingly bad as were Taco Bell and KFC at -2%. KFC just rolled out the Kentucky Grill product in May, and it has seemingly tapered off already, despite the large product mix it is generating (30%). But product mix isn't incremental sales.

    Last quarter, Yum had noted they got most of their Wing Street brand bump during point of implementation. That really speaks to the hyper-competitive marketplace and alot of competition, so that the bump doesn't last.

    Yum noted the US business wasn't any better in September, with results about the same negative value as August. So, while consumer surveys were looking promising, that's now both Darden and Yum reporting weak fall season sales.

    From an earnings standpoint, Yum was smart to get into the then less crowded and growing China market, and reduce it's dependency on its US earnings base. It's older China stores averaged $1.4M AUV US but recent opens at only $1.1M. Otherwise, lower commodity costs and G&A reductions saved the day.
    Oct 11, 2009. 11:53 PM | 1 Like Like |Link to Comment
  • What I Like About McDonald's [View article]
    While analyst mentioned the MCD same store sales metric, additional metrics are needed for McDonald's to more accurately track it.

    Over 70% of its profit comes from franchise operations (royalties, franchisees opening new sales and surviving) and from its real estate operations (rents, leases and buying/selling property).

    So...while same store sales is important, additional drivers are present. Someday, perhaps, we can develop a new analytical framework for companies beyond just bumper sticker phrases.

    John A. Gordon
    Chain Restaurant Earning and Economics Experts
    Sep 24, 2009. 09:15 AM | 1 Like Like |Link to Comment
  • Darden Finds Secure Footing [View article]
    Zach's falls into a couple of traps here, comparing one column of numbers to another. Darden took on $1.2B in debt and acquired around 400 restaurants (LongHorn) in 2008, and the 2009/2008/2007 comparisons are thus affected.

    Beyond this, a few common points seem apparent, with Darden earnings due out next week:

    Darden has some very modest 2010 EPS goals, from 0 to 10% EPS gain, on a $2.59 EPS base.

    It's amazing that Darden can find, fund and properly execute (without sales dilution) 71 new units in 2009, and about 55 planned new units in 2010. This is based on an all US expansion base, which is still overcrowded with restaurants.

    Darden is one of the few casual dining (or any operator) that has price increases slated for 2010, about 2%. No one else is willing to risk it, in the face of such weak traffic, other than McDonalds.

    Darden has developed both Red Lobster (and maintained it, its 40 years old this year) and Olive Garden (1984) into what could be a 800-1000 unit chain. They are working at developing Bahama Breeze, Cap Grille and Seasons 52, along with the 300 unit LongHorn chain.

    Darden is projecting 2010 same store sales of zero to minus 2, 2% price, and mix/check/traffic influences negative. It is planning for 55 new units, another $10M in RARE consolidation cost savings.

    Its still struggling with the RARE acquisition, with continuing earnings being $6 million less in 2009 versus 2007, with about 500 more restaurants. LongHorn has another 60 units coming into the media efficiency zone, which should make for an lift.

    We'll see what the sales and traffic data is upon release next week. Virtually all of the economic and restaurant operator surveys were pointing positive in early September.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Pacific Management Consulting Group
    Sep 22, 2009. 02:21 PM | Likes Like |Link to Comment
  • Darden Finds Secure Footing [View article]

    John A. Gordon
    Pacific Management Consulting Group
    Chain Restaurant Earnings and Economics Experts
    Sep 21, 2009. 11:23 PM | Likes Like |Link to Comment
  • Casual Dining Stocks Remain Stalled [View article]
    One technical note: YUM is not a casual dining operator, it is a QSR franchisor/operator.

    While the stock price movement is the movement, same store sales, margins, growth and operating cash flow should still matter. For September, casual dining operators are a bit more optimistic for the second month in a row per the RBC/Larry Miller Chain Restaurant Operator/Investor Survey. This may be because of hope of more easy comparables versus the very difficult environment last year.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Sep 4, 2009. 10:28 AM | Likes Like |Link to Comment
  • Who Makes the Best Cup of Java? [View article]
    While all of these surveys and awards are interesting, I like to bounce the results up against what the marketplace is saying; the law of the consumer: either we go in or we don't, at the same rates as last year.

    SBUX and Dunkin are posting negative same store sales this year. MCD is positive. Many factors, of course, contribute to sales momentum.

    As further note, RRGB also noted their Best Burger awards from Restaurants and Institutions magine just today, but reported same store sales down 11.5% and traffic down 12.2%, on Friday.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Aug 18, 2009. 04:37 PM | 1 Like Like |Link to Comment
  • Thinking of Investing in Restaurant Stocks? Prepare for Indigestion [View article]
    Alan's article is very thoughtful. I'd make just a few supplementary comments:

    Restaurants can get only so much out of lower commodity costs, and other controllable cost reductions. While cost reductions essentially flow to the bottom line 100%, there is only so far that can go. The controllable operating cost reductions, and that some analysts underestimated the significant commodity cost reductions from the summer 2008 peaks, drove virtually all of the earnings upsides this spring and summer.

    Casual sales and traffic dining has been weak for some time, and continues. QSR is now weak, as well. In all the earnings calls last two weeks, I was impressed that CAKE had sales down 3.2% and traffic down only 3.8%. CAKE has rolled out a small plates program that did not destroy the average check (in fact, check up .6%, subcomponent pricing +2.2%). They also aren't discounting. We will visit and take notes.

    Keep in mind CAKE is really a niche player, with about 150 units. Broad national/international operators with thousands of units like Darden (DRI), Brinker (EAT), Outback and others have different situations. The geography, price/value perception and franchisee/frachisor base are all different.

    The agility of the R&D new product discipline is also critical. I bet Brinker wished it tested its 10 for $7 program further, before rolling it out systemwide (and then yanking it, after poor response).

    Near term: store level commodity costs should be lower for most in the near term and some easier sales comparables versus the steep falloff experienced in October-December 2008 should be some positive factors. Traffic looks weak in absolute terms.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts

    Disclosure: no stock positions
    Aug 10, 2009. 10:38 AM | 2 Likes Like |Link to Comment
  • Wendy’s/Arby’s Group Inc. Q2 2009 Earnings Call Transcript [View article]
    If you stop into a Wendy's, you'll see much better looking menuboards: the new shakes and the wings talking center attention. Wendy's relative lunch/dinner success shows how important rolling new products out are, that are on target. Wendy's R&D looked barren a few quarters ago and it showed in poor sales.

    CEO Rollie Smith did not breakout sales/check/traffic/mi... components, so it's a bit hard to tell where the sequentially better uplift is coming. I'd note that the Wings could be either the base of an customer's entree, or as an add-on. I bet they are getting more add ons, and thus check growth right now.

    Arby's didn't seem to turn dramatically yet from the Roastburger launch, however. That's been in place almost two quarters, now. Rollie noted sequential improvement in the negative comp trend, so we'll watch for that.

    The note about franchisee difficulties warrants very close watching. Give Rollie credit for noting it. Franchisees are rarely discussed in earnings calls.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Aug 7, 2009. 03:19 PM | Likes Like |Link to Comment
  • Carrols Restaurant Group, Inc. Q2 2009 Earnings Call Transcript [View article]
    RE: TAST and BKC: reading and listening to the transcript, it is highly significant to note the problem of marketing philosophy and strategy disconnect between Carrols and Burger King Corporation. TAST essentially said to ask Burger King about daypart demographic trends, and that specualtion would be a guess. Interesting that all three dayparts were down, especially breakfast.

    TAST is BKC's largest franchisee, publicly traded. In 2007/2008, its Burger King store results generally outpaced that of BKC as a whole. This may signal ugly BKC earnings results coming up.

    Also, the $1 Whopper Junior television thrust did not appear to be working and not improving an essentially -5.5% same store sales down trajectory. So, TAST has this $1 Whopper TV thrust and a coupon drop in late August, leading into the critical post-labor day slowdown.

    What is going on in the guts of Burger King's marketing machinery?

    John A. Gordon
    Chain Restaurant Earings and Economics Expert
    Voice: (619) 379-5561
    Aug 4, 2009. 09:13 AM | Likes Like |Link to Comment