• Stock prices in the restaurant/grocery space have come-off their 52-week highs as investors pause to better assess long-term fundamentals in the new world. • All-the-same, stock recoveries from their 52-week lows are substantial.
● The industry continued an uneven recovery as healthy consumer demand for dine-in occasions was interrupted by vacillating government dine-in restrictions which tightened at year-end. ● Fortunately, restrictions began to ease again at the start of 2021 and, despite some uncooperative weather, 1Q dine-in comps seem to be back on track for recovery. ● QSR had a great year as any chain with a drive-thru made-out ok.
QSR names continue to benefit from an asset-light model which insulate these companies from store-level margin compression. This segment also benefits from healthy post-lockdown performance as strong drive-thru and digital access solutions translate into solid valuation multiples with many stocks trading close to their 52-week highs.
The innovation and resiliency of the chain restaurant industry was on full display during reported 3Q20 results as these leading players bounced back from the depths of government mandated lockdowns that essentially shut-off the US economy. Unfortunately, some part of the chains’ resurgence came at the expense of the independent restaurants that lacked scale to weather the perfect storm. However, people still must eat, and further, social humanity can only live in isolation for a short time so it was inevitable that consumers would come back to the table.
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.