RESTAURANT STOCKS CAN’T CATCH A BREAK
Macro-economic results continue to represent a major head-wind for restaurant stocks (see table below) given ongoing inflation related hardships on the lower-income demo aggravated by Fed Fund Rates headed from 2.5% to 4% (or even higher depending on who you ask) which further compounds the trouble for this same heavily indebted demo.
While 2Q financial results for the public QSRs were OK, we suggest a review of current unit-level performance may provide important insight into the challenges that are weakening the franchise systems that are core to many of these public companies and which will ultimately make their way into the financials of the public companies unless unit-level operators quickly find some new pricing power. Notably, the industry’s cost problems are further aggravated by California’s pending decision (AB 257) to hike the minimum wage by +40% to $22/hr. – an act sufficiently egregious to prompt a critique from McDonald’s US President.