• RR’s Intent to Eat Out Index (our survey of 1,500 consumers’ plans to eat-out over the next month) increased +5.5% y/y. • On a sequential month/month basis, we see a stabilization in the form of a strong increase in respondents indicating plans to eat-out with about the same frequency as the previous month (especially among those 55+).
Getting Back to Normal: Preliminary 3Q Sales Trends Reveals Rebound Momentum; Value Offers are Finding Equilibrium; Government Back-Stops Strengthening Secular Trends; Increasing Commodity Prices Reflect Normalizing Demand; 2H:20 Valuations Outlook Grows More Optimistic; FSR Restaurant Stocks Stage Strong Rebound & Record Gap Remains Between Cap Rates & 10 Yr.
Burger King’s well-conceived brand equity emphasizes flame grilling (over an open flame), highlighting a clear difference from griddling. The brand’s prominent burger platform (100% beef without fillers or preservatives) includes signature Whopper configurations and various “King” varieties. Its menu is bolstered by an upgraded chicken line and BK is testing a variety of products that can now be made on its new broiler. Further, popular meatless protein versions of signature menu items and healthful ingredient improvements are designed to expand the brand’s reach.
Hopefully the trough of a shocking Black Swan event, 2Q20 gave us an average comp decline of -15.4% for 23 $1B+ chains under coverage. Notably, there was a very wide dispersion of results with a comp high of +32% (Wingstop) all the way to a low of -59% (IHOP) as consumers decidedly shifted away from dine-in to low-contact off-premise solutions.
RR’s 2Q:20 Same Store Sales Report provides annual, quarterly & interim sales results for the $1B+ restaurant chains as well as key economic data including retail sales, CPI, gas prices, GDP growth and unemployment rate.
Opinion: In the end, the industry’s mission must be to find a way back to normal, not accepting a “new normal”; While 1H:20 franchisee EBITDA valuation multiples declined, it is +7.4% higher than the 12-year low set in 2009; The average 2019 EBITDAR margin for the $1B+ chains improved slightly to 18.8% (but remains near the 17 year low); Popeyes’ eye-popping success with its chicken sandwich…; Taco Bell must wait for an eventual return of the Millennials and late-night.
• RR’s Intent to Eat Out Index (our survey of 1,500 consumers’ plans to eat-out over the next month) increased +5.6% y/y as trends continue strong since April’s rebound. • On a sequential month/month basis, we see a notable change in the intentions of 18 – 24 year-olds, with a sharp increase in plans to eat out more than offsetting plans to reduce trips out.
1H:20 Valuations & Finance Report provides EBITDA multiple estimates (post G&A) for 45 chains based on survey data from 8 leading appraisal firms; (2) a comparison of public restaurant company and private franchisee valuation multiples; (3) a summary of real estate cap rate trends based on data provided by Marcus & Millichap; (4) an update on lending availability, changes to underwriting standards, lending rates and borrower financial condition derived from a survey of leading lenders; and (5) an overview of RR’s DCF valuation model useful for smoothing out temporary disruptions.