Seeking Alpha

John Gordon

 
View as an RSS Feed
View John Gordon's Comments BY TICKER:
Latest  |  Highest rated
  • 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
    pacificmanagementconsu...
    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
    pacificmanagementconsu...
    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
    pacificmanagementconsu...
    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
    pacificmanagementconsu...
    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
    pacificmanagementconsu...

    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
    pacificmanagementconsu...
    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
    pacificmanagementconsu...
    Voice: (619) 379-5561
    Aug 4, 2009. 09:13 AM | Likes Like |Link to Comment
  • Coffee Drinkers Not Necessarily Abandoning Starbucks [View article]
    Coffee wars between SBUX and the other QSR operators: here's the best way to settle this endless discussion:

    (1) breakout and fully disclose the concept's comparable sales into its price, traffic, mix and check components. Not all companies do that, for obvious reasons.

    (2) insure there is good consumer research, by major subcomponent, that has a good histroical baseline, so that customer groupings are identified.

    SUUX says they have the research, lets see if mentioned tomorrow.

    (3) when new products are implemented, research both a test and a control store/markets etc to isolate the new product changes.

    (4) instill a culture and information systems where store management talks and documents their customer's reactions.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    pacificmanagementconsu...
    Jul 21, 2009. 05:00 PM | Likes Like |Link to Comment
  • Yum Brands' Quarter Hinges on China [View article]
    Having just listened to the long YUM earnings call this morning, a few additional drivers, in addition to currency exchange rates, seem important. These restaurant brands take alot of work, and Yum is even more complicated than most, working with 60 year old brands.

    (1) The Kentucky Grilled Chicken introduction at KFC in May was powerful and will give it a new sales platform. Will the KFC traffic gains be sustained via creative marketing?

    (2) Drving traffic in general in a sluggish US (and world-wide)economy: Total US same store sales were minus 1%. Pizza Hut was apparently -8%. It is struggling, competing with its higher price point flagship pizza product. It is working pasta and chicken wing (Wing Street) platforms. We were surprised to hear that the Wing Street branding did not apparently give a longer terms sales pop, after implementation.

    (3) Average Check was flat across all three brands. Yum took price increases in 2008 but none in 2009. If average check was flat, that means that product mix was a point or two negative (due to discounting and promotion). How long will commodities stay favorable?

    (4) Yum unit growth. With credit market conditions difficult, will franchisees have the capital access to grow, at a sufficient cost of capital? Or will company-owned unit development be the necessary focus?


    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    pacificmanagementconsu...
    Jul 15, 2009. 11:24 AM | Likes Like |Link to Comment
  • Can Tim Hortons Take Manhattan? [View article]
    The time and expense of expanding within the United States, with its general restaurant over-penetration, sluggish (at best) sales and economy can't be over-emphasized. In 2008, Tim Horton's closed some US stores in Southern New England, for example.

    Still, grabbing the high profile NYC Riese sites, plus Horton's much higher AUVs versus Dunkin ($1.7M vs. $850K) is notable. If Horton's can expand on the West Coast, from Seattle and further south along the US west coast, it could block a Dunkin's prime expansion zone.

    John A. Gordon
    Chain Restaurant Earnings and Econmomics Experts
    pacificmanagementconsu...




    Jul 14, 2009. 11:26 AM | Likes Like |Link to Comment
  • Could McDonald's New Angus Burger Be Considered a Green Shoot? [View article]
    Most likely not evidence of a "greenshoot".

    McDonald's employs a so-called bar-bell menu strategy, which is a mix of higher end and lower end products, to be able to attract a wide range of customers. It's been in test here in company stores in CA for some time. It is part of their overall menu planning and design.

    McDonalds is testing "one hour of free wi-fi with purchase a a McCafe" coffee which could be interesting.


    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    pacificmanagementconsu...
    chainrestaurantanalyst...
    Jul 12, 2009. 09:49 PM | 2 Likes Like |Link to Comment
  • Negative Trends Could Hit Jack in the Box's Bottom Line [View article]
    Jack in the Box (JACK) HQ is here in my hometown of San Diego, and we watch their test stores closely.

    JACK's concentration of units in CA, particularly inland CA regions that have experienced the greatest housing fallout, is a factor to watch. In addition, JACK is refranchising many company units, to flip its 30/70% franchisee/company unit ownership mix, and credit market conditions mean that will play out for some time.

    John A. Gordon
    pacificmanagementconsu... group.com

    Chain Restaurant Earnings and Economics Experts
    Jul 9, 2009. 11:18 AM | Likes Like |Link to Comment
  • Burger King: $1 Double Cheeseburger May Change the Game [View article]
    Burger King will have to model it, test it, promote it, in a meaningful way, and get support from their franchisee marketing council, to do this right.

    McDonald's has plowed this ground last year.

    Franchisees don't have the same resources that the company does, and are much more margin oriented.

    We doubt this is a game changer...but it could be a popular menu item. PS, the picture attached with the FT post is not at all representative of what the menu item could be.

    John A. Gordon
    pacificmanagementconsu...

    Chain Restaurant Earnings and Economics Experts
    Jul 9, 2009. 10:46 AM | Likes Like |Link to Comment
  • Jamba's New CEO Providing a Boost [View article]
    JMBA has a long way to go, and franchising non-core markets
    may not be the best strategy for this economy. While the company has noted that the stores have positive contribution margins, that might not be enough to counter lower G&A leverage and higher credit costs that franchisees traditionally suffer.

    JMBA new product related, I have been watching a test store in San Diego near the office, that is selling the test sandwiches/wraps/salads. The sandwiches, salads and wraps are of reasonable value and flavor profile, good POP and are selling. However, due to the price (about $5.50) and the price of the regular smoothie (about $3.95), the existing $2 instant discount efforts will need to continue. $7 at JMBA for lunch is about the same as many of the casual dining operators, right now.

    John A. Gordon
    Pacific Management Consulting group
    pacificmanagementconsu...

    Chain Restaurant Earnings and Economics Experts
    Jun 30, 2009. 11:23 PM | Likes Like |Link to Comment
  • Sonic: Now Offering Juicy Returns [View article]
    While Ockham's valuation point is noted, SONC has not driven enough traffic, to offset the discounting and downward average check shifts associated with its drinks and $1 value meal menu promotions. If it had, its comparable sales would be up. SONC comparable sales were down 5.4%.

    These promotions were not too successful, as Ockham implies.

    SONC has a high concentration of its stores in Texas and Oklanoma, which until this quarter, had been relatively less affected by the spreading recession. Therefore, one must wonder if some of the sales problem is self-inflicted by too narrow marketing.

    John A. Gordon
    pacificmanagementconsu...

    Chain Restaurant Earnings and Economics Experts
    Jun 25, 2009. 10:20 AM | Likes Like |Link to Comment
COMMENTS STATS
176 Comments
72 Likes