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  • Where Has All the Revenue Gone? [View article]
    And, speaking of the two chain restaurant companies:

    Both MCD and CMG are strong companies. McDonald's has 36000 world-wide units, while Chipotle has about 850 and just starting international growth. In the last year, the MCD and CMG comparable sales growth rates were both positive, and close to one another. CMG does have a more positive same store percentage sales growth pattern over the five year or ten year basis.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Feb 4, 2010. 11:13 AM | 1 Like Like |Link to Comment
  • John Hussman: Reported Earnings vs. 'Owner Earnings' [View article]
    Watching the CAPEX intense nature of chain restaurant companies and the over-simplicity and sometimes distortion of the news cycle, we hope for the following stock market analytics changes, over time. "Owner Earnings" would be an improvement.

    (1) Migration to focus upon EVA or even free cash flow "earnings" per share measurements. It takes a lot of capital to maintain businesses, and EVA would net out cost of capital, essentially fulfilling the Matching Principle.

    (2) Display "Earnings" before and after stock buybacks.

    (3) Better focus on differentiating percentages versus dollars, in viewing the analytics. You can't take percentages to the bank.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Feb 1, 2010. 02:10 PM | 1 Like Like |Link to Comment
  • Brinker International, Inc. F2Q10 (Qtr End 12/23/09) Earnings Call Transcript [View article]
    We did find the comment interesting that EAT doesn't do in market testing of promotions. There is of course, a fixed cost in research and media production to be managed, but hopefully they are doing focus groups and in-store intercepts of the promotion message via guest sampling.

    It is smart of course to have a test market, or two, including one non-broadcast market, and control markets, for market testing, before system wide rollouts occur..

    That said, EAT had to come off the 3 for $20 eventually. Promotions and media should be rotated. Perhaps some form of the 3 for 20 will make its way onto future standard menu iterations.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Jan 21, 2010. 02:54 PM | Likes Like |Link to Comment
  • Bullish Option Strategy Bets on Yum [View article]
    Perhaps the issue is that nothing notable is happening from a YUM earnings fundamental standpoint looking forward.

    In its October 2009 earnings call, YUM reported its three major concepts each with negative same store sales (Pizza Hut -14%, Taco Bell and KFC -2%). Its $.12 EPS excess came from commodity costs, G&A savings, etc. You can do cost savings for only so long, and indications are the bulk of the commodity decreases are behind us, with some inflation on the horizon.

    YUM has built an amazing company operated business model in China, but the Street still looks for US sales momentum.

    John A. Gordon
    Chain Restaurant Earnings and Economics Experts
    Jan 5, 2010. 01:53 PM | 2 Likes Like |Link to Comment
  • Jack in the Box F4Q09 (Qtr End 9/27/09) Earnings Call Transcript [View article]
    Some pretty interesting discussion from JACK:

    They have concluded that the marketing has to emphasize two messages at the same time--a value message (JACK now prefers bundled offers versus $1 items) and a more premium, new product focus.

    The problem was that either average check would fall off (in a $1 product main focus) or traffic would fall off (if a more premium, higher product focus was underway).

    At some point, that may require incremental broadcast weights and spending, but JACK said while they would do it if necessary, they weren't there yet.

    Now, both California centric burger chains, JACK and CKR have concluded to stay away from the $1 items, CKR for some considerable time. While Carl's/Hardees has some inexpensive sandwiches, they aren't featured at all in the company units I've visited lately. Accordingly, CKR may be the best monitor of a high vs. low price approach, and its effect on both sales and profit.

    We will followup with a profit analysis after some additional quarters elapse.

    And, Linda Lang, the JACK CEO, did note she saw a negative blip in JACK sales associated with the timing of the Burger King (BKC) $1 double cheeseburger offer that began on October 19th.
    Nov 23, 2009. 07:32 PM | Likes Like |Link to Comment
  • 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