Restaurant Research

1H22 Restaurant Valuation & Finance Update

Aug 18, 2022 | Report Announcements

• Aggregate 1H:22 franchisee unit-level EBITDA valuation multiples contracted slightly (-2.3% y/y) and are -3.9% below their 2H:16 peak.
• 2H:22 EBITDA multiple outlook (-6% y/y decline) would be the biggest contraction since 1H:20 and reflects weaker unit level economics; higher borrowing costs; and a growing disconnect between seller & buyer perception of going forward profitability.
• Full-year 2022 restaurant originations (excluding sale leaseback financing) are now projected to be $10.5B which is -23% lower compared to initial expectations.

Popeyes 2022

Aug 14, 2022 | Report Announcements

While Popeyes enjoys a very strong brand positioning, even as sales moderate from its famous chicken sandwich spike, the current economic challenges for its core lower-income demo combined with huge chicken cost inflation represents a notable sales challenge for an unknown duration.

Unit-Level Dashboard

Aug 4, 2022 | Dashboard

• Comps must be interpreted through a prism of mid to high single digit menu price increases, suggesting QSR traffic losses while FSR benefits from an ongoing return to normal dine-in habits.
• The average price of food in the United States surged +10.4% in the 12 months ended June 2022 (+13.1% 2-yr. stack), the most since February 1981.
• Unit-level operating margins for the corporate owned stores of the publicly traded companies that have so far reported declined by -3.9% y/y during 2Q22.

Applebees 2022

Aug 3, 2022 | Report Announcements

While Applebee’s solid turnaround is exemplified by its recent sales outperformance, it remains to be seen how well the brand’s core Middle American demo will fare given the current economic stress that is sure to prompt at least some QSR trade-down.

Capital Markets Dashboard

Aug 2, 2022 | Dashboard

• 2Q GDP decline of -0.9% represents the second consecutive quarterly contraction and is consistent with a slight +1% increase in personal consumption expenditures which is falling behind a supply shock driven +9% inflation rate.
• July’s restaurant stock performance suggests that investors called a bottom at the end of June.
• Unit-level buyers are increasingly wary of rising borrowing rates and deteriorating unit economics.

Little Caesars

Jul 30, 2022 | Report Announcements

While Little Caesars maybe the best at carryout, it remains challenged with the need to translate its fun menu and marketing into sustained traffic around its higher price points sufficient to increase unit level profits.

Papa John’s

Jul 20, 2022 | Report Announcements

Papa John’s is executing around a solid strategy of restoring its upscale positioning which, while working for now, may need to be tweaked towards value depending on the economy.

Unit Economics

Jul 19, 2022 | Report Announcements

• While AUV’s continue to benefit from the closure of underperforming stores over the last 2 years, significant 2022 sales headwinds reflect the need to pass along higher prices to consumers with less disposable income.
• The average 2021 unit-level EBITDAR margin for the $1B+ chains rebounded to just under the 2019 level as higher COGS were more than off-set by lower labor and operating costs, both of which benefitted from significant sales leverage.

Capital Markets Dashboard

Jul 8, 2022 | Dashboard

• What does stagflation look like?
• Given the economic backdrop, how do investors find the bottom for restaurant stocks?
• How low can the cap rate spread vs. the 10-yr. treasury go?

Unit-Level Dashboard

Jul 5, 2022 | Dashboard

• RR’s consumer survey (which measures intentions to eat-out over the next month) reveals a deteriorating sales outlook after showing signs of improvement during the previous 2 months.
• Both QSR & FSR operators are losing their grip on value as inflation continues to spiral out-of-control.
• According to government data, total net unit growth for the restaurant industry improved each quarter throughout 2021 (versus 2019).

Domino’s

Jun 30, 2022 | Report Announcements

Domino’s extended record of sales outperformance is now threatened by a necessary move away from its core equities in the form of price certain value and fast delivery while it pivots towards carryout and higher prices.

Wendy’s

Jun 25, 2022 | Report Announcements

While Wendy’s has done well to magnify its significant menu prowess sufficient to generate a respectable +14% cumulative U.S. comp growth from 2019 – 2021, the chain must continue to work to translate its QSR+ positioning into increased frequency from a higher income demo sufficient to drive a higher check and in-line comp performance.

Subway

Jun 22, 2022 | Report Announcements

• Subway is the largest sub sandwich chain by far with an ad budget larger by multiples than the other sub chains.
• Notably, a +29% comp rebound in 2021 followed a -20% 2020 decline and 2021 digital sales are triple 2019 levels, supported by its FreshBuzz App and loyalty program.
• Subway’s well-conceived upscale Refresh must now pivot to value if the system is to endure an economic downturn that is disproportionately afflicting its lower income core demo.

Insights: 1Q Same Store Sales

Jun 14, 2022 | Report Announcements

• 1Q22 same store sales for the $1B+ Chains increased +6.1% (+14.7% 3-yr stack) on slowing momentum (relative to +11.5% during 4Q21) with 7 of 30 chains reporting negative sales (compared to just 1 in 4Q21).
• With food-away-from-home CPI up +6.7% during the quarter, it is easy to see that comp growth is primarily attributable to menu price increases as opposed to traffic.

1Q22 Investor Call Summary

Jun 8, 2022 | Investor Briefs

1Q:22 investor conference calls indicate staffing and commodity cost challenges somewhat off-set by higher menu prices and increased dine-in business.

RR Dashboard: Volatile Capital Markets Looking for Fair Value

Jun 7, 2022 | Dashboard

• Restaurant stocks on average are down -40% from their 52-week high, trading at ~15x EV/EBITDA, as investors continue to struggle to assess the impact of out-of-control inflation on consumers’ ability to maintain their dine-out habits.
• Given current inflation rates, interest rates should be much higher.
• The spread between cap rates and the 10-yr. approached the record low set in April as real estate has become the most attractive asset class to NNN investors.

McDonald’s

Jun 5, 2022 | Report Announcements

While McDonald’s is currently well positioned with solid execution around very sound fundamentals, its core value oriented customers are caught in an inflationary spiral which may require a sacrificial pivot towards price value from this iconic brand which has worked so hard to earn America’s trust over the many decades.

RR Dashboard: Sales Look Good, but Looks Can Be Deceiving

Jun 2, 2022 | Dashboard

• FSR 1Q:22 comp performance for $1B+ chains outperformed the annual average for the 3-year stack comp as the sit-down concepts continue their recovery.
• Conversely, QSR comps are slowing, mirroring recent industry commentary about how the higher income demo (FSR) has been more resilient to current economic conditions relative to the lower income demo (QSR).
• Record highs for many commodities and wages have prompted most of the public restaurant companies to raise their cost outlooks for 2022.

Unit & Systemwide Sales Growth

May 31, 2022 | Report Announcements

• 2021 gross unit development rate of +2.6% for the $1B+ Chains was in-line with 2019 and is expected to grow +3.1% in 2022 despite headwinds.
• 2021 closure rates for the $1B+ chains improved from 2020’s elevated levels, but net unit growth was below the overall industry.
• Systemwide sales for the $1B+ Chains increased +15.7% during 2021 (+9.9% 2-year stacked basis) compared to +32.8% (+14.9% 2-year stacked basis) for the total restaurant industry and total restaurant industry market share for the $1B+ Chains has steadily declined to the lowest level in 19 years.

Marketing Spend

May 20, 2022 | Report Announcements

Total 2021 net marketing spend for the $1B+ Chain restaurants increased +8.9% y/y (+2.8% 2-yr. stack) to $6.9B, reflecting the benefit of +15.7% systemwide sales growth (+9.9% 2-yr. stack) somewhat off-set by lower net marketing spend as a percent of sales (continuing a longer-term trend in which marketing spend has declined from 3.1% in 2017 to 2.6% in 2021). Notably, total net restaurant marketing spend as a % of total domestic spend across all industries has declined from 3.2% in 2017 to 2.5% in 2021 as the chains appear less impressed with marketing ROI compared to other industries.

IHOP

May 12, 2022 | Insights

While IHOP’s strategy and execution provide a solid long-term positioning, the brand may need to pivot further towards value to weather the mid-term and possibly long-term economic environment.

Jimmy Johns

May 10, 2022 | Report Announcements

While Jimmy John’s has taken important steps to improve its relevancy, a sustained sales rebound for the chain would certainly benefit from a return of office workers and an increase in the availability of affordable delivery drivers sufficient to support the chain’s “freaky fast” core equity that distinguishes in a crowded field.

RR Dashboard: Capital Markets & Economy Apr 2022

May 5, 2022 | Dashboard

• April was a difficult month for equities with both the RR $1B+ Index and S&P losing more than -8%. QSR stocks were hit hardest, evening-out some over-size gains during 2021 (relative to FSR).
• A -14.9% y/y decline in disposable income reflects: a tough compare with last year’s government stimulus benefits; exploding inflation (CPI for all items up +8.5%); and higher borrowing costs.
• Concerns about sales, labor, inflation and interest rates are beginning to weigh more heavily on valuations with both the QSR & FSR indexes falling into bear territory.

RR Dashboard: Sales Not Keeping Up with Cost Inflation

May 3, 2022 | Dashboard

• Initial 3-year stack comp performance for the $1B+ chains reveal that QSR is still outperforming FSR despite less impressive headline sales numbers for 1Q:22 alone. Going forward prospects are less optimistic as indicated by RR’s recent consumer survey which measures intentions to eat-out over the next month.
• The BLS Foodstuffs Index notched another all-time high in April and is up +109.3% y/y on a 2-year stacked basis.
• While operators are working hard to lower controllable costs, they cannot drive sales sufficiently to maintain their store-level margins in the current inflationary environment.

Chili’s

Apr 14, 2022 | Report Announcements

Chili’s recent sales strength reflects its ability to distinguish itself in a crowded FSR space with an attractive Tex-Mex menu, fun experience, leading value and digital strength which looks like a winning formula in the casual segment which is otherwise challenged by a stressed consumer in pursuit of a discretionary purchase.

Insights: 4Q & Full Year 2021 Same Store Sales

Apr 11, 2022 | Insights

• 4Q:21 same store sales for the $1B+ Chains increased +11.5% (+10.4% 2-yr. stack) and increased +16.7% for full year 2021 (+11.0% 2-yr. stack).
• $1B+ Chain market share of the total foodservice industry (food away from home & grocery) increased +0.06% to 17.61% (-0.85% below its 2016 peak).

RR Dashboard: Sales Catching-Up with the Consumer

Apr 4, 2022 | Dashboard

• April RR Intent to Eat Out Index plunged -13.7% y/y due to difficult comparisons with April 2021 when consumers benefitted from $1,400/person government stimulus payments.
• The Food at Home (grocery stores) CPI expanded at its fastest rate in 40 years (+8.6% y/y during 2/22) – surpassing both the QSR and FSR CPI for the first time since 7/20.
• The price for regular gas increased +$0.70/gallon (+20%) to $4.22 compared to last month (+50% y/y) and represents the highest price ever.

Jack in the Box

Apr 1, 2022 | Report Announcements

While Jack has done a good job of reviving an iconic West Coast brand in a crowded field, it remains to be seen what impact its premium positioning will have on traffic and sales given the current inflationary environment squeezing consumer income.

Dunkin

Mar 24, 2022 | Report Announcements

Dunkin’s work is to finish executing its move upscale in pursuit of adding the purchasing power from a new, younger clientele to layer onto a stream of loyal sales from the brand’s core base of middle America.

RR Insights Journal March 2022

Mar 14, 2022 | Insights

In this issue of our Insights Journal we explore impact of gas hikes on traffic by looking at comp sales correlations and franchisee comments. While the economic data suggests that consumers have some cushion to deal with the gas price shock, franchisees have a different opinion.

4Q21 Investor Call Summary

Mar 11, 2022 | Investor Briefs

All you need to know about 4Q21 Investor Conference Calls

RR Dashboard: Growing Disconnect Between Inflation & Sales

Mar 2, 2022 | Dashboard

• 4Q21 comps for the $1B+ Chains increased +11.5% and +10.5% on a 2-year stacked basis (’21 vs. ’19), but is it sustainable?
• Investors piled into FSR stocks as mandates are lifted across the country while weak QSR performance reflects concerns about the impact of record inflation on lower income consumers.
• 1Q:22 GDP outlook was already flat before the Ukraine and oil price shock (crude up +43% YTD to $110 on 3/2) added further headwinds to an already fragile consumer.

Panera

Feb 28, 2022 | Report Announcements

While Panera is well positioned for the long-term with a healthy halo and digital strength, near-term results may be tempered by the need for: more value in a difficult economy; a return to normal dine-in habits; and a solution to relatively high labor costs.

RR Insights Journal Feb 2022

Feb 15, 2022 | Insights

● Considering the Risks of New Franchise Finance Lending Index
● What About All That Consolidation?
● $1B+ Chains Received $6.8B of Covid Relief

Restaurant Finance & 2H:21 Valuations

Feb 15, 2022 | Report Announcements

• Record breaking 2021 restaurant financing volume driven by pent-up borrower demand and increased consolidation.
• Lenders indicate a much stronger financial condition for QSR borrowers with FSR showing some improvement since July.
• 2H:21 valuation survey results indicate a further increase in franchisee EBITDA multiples with FSR outperforming QSR.

Church’s

Feb 4, 2022 | Report Announcements

Church’s is executing around a well-conceived strategic plan that works well in today’s operating environment so long as its target market can survive the ongoing inflation scare.

RR Dashboard: 2021 Restaurant Sales Set a Record

Feb 3, 2022 | Dashboard

• 2021 restaurant system sales were record highs for both the $1B+ chains and, shockingly, for the independents and smaller chains according to government data.
• Stocks were particularly hard hit in January as concerns over inflation and rising interest rates were most worrisome for consumers & restaurants.
• While franchisee EBITDA multiples for the $1B+ Chains declined -1.7% according to RR’s preliminary 2H:21 valuation survey, they are expected to rise to 2019 levels during 1H22.

Sonic

Jan 24, 2022 | Report Announcements

Sonic’s positioning works well in the current operating environment and, hopefully, will translate into new development, a national footprint and sufficient marketing scale to properly communicate the brand’s strong core equities.

Pizza Hut

Jan 14, 2022 | Report Announcements

While Pizza Hut’s positioning is improving, the brand must still address value in a tough economic environment while it simultaneously completes its asset conversion in order to finish its evolution into a relevant competitor in the very challenging pizza segment.

RR Think Piece – Jan

Jan 14, 2022 | Insights

It’s going on 2 years since our world was turned upside down with government lockdowns, mask mandates, social distancing, remote work & schools and eventually a steady diet of new tech vaxxes. In our opinion, there is an opportunity for our country to grow strong in unity so long as everyone is allowed to work towards their own version of the American Dream (life, liberty and the pursuit of happiness).

Annual Databook

Jan 10, 2022 | Report Announcements

Annual RR Databook provides benchmarking data for the $1B+ Chains including unit level sales & margins, new build costs, valuations, systemwide sales and unit counts by state.

RR Dashboard: Optimism Not Tempered by Inflation

Jan 4, 2022 | Dashboard

• While sales are off to an optimistic start, it remains to be seen what impact higher menu prices will have.
• Consumer spending faces significant headwinds.
• Ramping inflation prospects aggravated by elevated transportation costs.

New Unit Investment & ROI

Jan 2, 2022 | Report Announcements

Sky rocketing COGs & labor costs are driving sharply lower new build ROI which, in turn, is driving a move towards smaller footprint stores optimized for digital & off-premise as well as increasing use of ghost kitchens.

RR Insights Journal – Dec

Dec 20, 2021 | Insights

According to RR’s just released New Unit Investment Report, the sales-to-investment ratio for $1B+ chains declined dramatically in 2021 as higher construction costs (partially reflecting longer project completion times) more than off-set growth in new build AUVs.

KFC

Dec 11, 2021 | Report Announcements

While KFC is making Southern fried chicken cool again, inflationary pressures pose a challenge to keep things affordable for its traditional low-income demo.

Jersey Mike’s

Dec 9, 2021 | Report Announcements

Jersey Mike’s is well positioned to maintain sales outperformance by leveraging its core equities around off-premise, a compelling quality/service positioning, a brand commitment to give back to its customers as well as its communities and effective digital/loyalty marketing efforts.

3Q:21 Investor Call Analysis

Dec 9, 2021 | Investor Briefs

All You Need to Know About 3Q21 Investor Conference Calls

RR Dashboard: Nov 2021

Dec 2, 2021 | Dashboard

• 3Q21 total restaurant industry revenues increased +30% y/y and +15.2% on a 2 yr. stacked basis. This suggests a huge rebound in the mom & pops during last quarter!
• Sharp FSR Decline Triggered by Lockdown Threats
• Higher Commodity & Construction Prices May Continue into 2022

3Q21 Same Store Sales

Nov 24, 2021 | Report Announcements

3Q:21 comps increased +11.7% y/y for the $1B+ Chains and +11.3% on a 2 yr. stacked basis as all segments of the industry have fully recovered.

RR Insights Journal – Nov

Nov 15, 2021 | Insights

Restaurant employees are likely burned-out and perhaps a little distrustful of their employers after working so long to compensate for sharply lower store headcounts.

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