Same Store Sales Trends

Solid 4Q Outlook

  • 4Q:19 same store sales forecast of +3.2% suggests solid growth even as quarterly sales trend down.
  • Government data supports both restaurant & grocery 4Q sales momentum.

 

Promotional Composition

QSR & FSR Value Efforts Continue Zig Zagging

  • QSR value mix fell as fewer $4 and under promotions & more $7+ offers propelled the average promotion price to a 2-year high.
  • FSR value mix increased to the highest level in almost 3 years, driven by an increase in $6 & under promotions.
  • New product news fell sharply for both QSR & FSR as chains continue to promote the large number of new products introduced in November.
  • In any case, the total number of promotions (including value, gift cards & core products) continue to trend higher for both FSR & QSR.

Economic Outlook

4Q GDP Growth Outlook Rebounds

  • Lower rates seem to be helping economic growth.

Key Cost Trends & Forecasts

Food & Labor Costs Escalate Further

  • Costs for the vast majority of RR’s tracked commodities continue to escalate with coffee, wheat and chicken eggs at new highs.

  • Restaurant job openings held steady, but quits increased which may drive higher wages necessary to retain employees.

Franchisee EBITDA Valuations

Valuation Index Pressured by Cost Concerns

  • Valuation index reflects rising labor & commodity costs and increasing requirements for remodel & tech investments driving a greater supply of stores for sale by smaller operators.

Stock Performance

Flat RR Index Under-performs S&P 500 in December

  • RR’s $1B+ Chain Index was flat in December as a +1% increase in QSR was fully off-set by a -1% decrease in FSR.
  • Restaurant stocks continue to under-perform the S&P 500 as investors focus on unit-level cost inflation in an asset-light business.

Marcus & Millichap Cap Rates

Cap Rates Tick Higher with Interest Rates