Same Store Sales Trends

4Q:19 Sales Results Best Since 1Q:12

  • 4Q:19 $1B+ Chain same store sales results of +4.3% outperformed our +3.6% estimate and represented the best quarterly performance since 1Q:12.
  • Government data also indicates a strong +8.2% up-tick in total foodservice sales in January (which was the 5th warmest on record).

Promotional Composition

FSR Pushing Value, QSR Pushing Incremental Add-Ons

  • The average QSR promotion price point increased +3.7% to the highest level since 10/19 as segment players focused on “other” value offers (delivery incentives, add-ons & BOGOs).
  • The average FSR promotion price point decreased -4.1% to its lowest level since 10/18. Further, “other” value promotions (delivery incentives and Valentine’s Day bonuses) ramped-up +6.4% to 12.0% of the total value mix.
  • Product innovation was limited to a few chains (Hardee’s, KFC, Papa John’s & Bob Evans each added multiple items).

Economic Outlook

1Q:20 GDP Growth Outlook Looks Good for Now

  • 1Q:20 GDP growth outlook remains solid for now, although uncertainty remains surrounding the potential economic impact from the corona virus.

Key Cost Trends & Forecasts

Lower Beef & Chicken Help Commodity Costs

  • While the costs for the vast majority of RR’s tracked commodities remain elevated (fresh vegetables reached an LTM high), beef, chicken & egg prices are currently favorable.

  • Ramping turn-over and declining openings weighs in favor of employers.

Franchisee EBITDA Valuations

Valuation Index Turns Down

  • RR’s Valuation Index turned down, reflecting rising operating costs and capital market volatility.

Stock Performance

More Hard Data to Quantify Virus Risk Would Be Nice

  • Stocks recently experienced their worst decline since the 2008 financial crisis over corona virus concerns.
  • Of all the stocks in RR’s $1B+ Chain Index, only Domino’s shares increased (+20.5% in February). Some investors believe that virus concerns will propel delivery (of which Domino’s is a leader) even though there remains a fair amount of human contact throughout the production & delivery channel.
  • It seems to us that there would need to be more hard data to quantify this risk before assigning the entire RR Index a -10% haircut…

Marcus & Millichap Cap Rates

Investor Caution Sparks Sharp Rise in Cap Rates

  • Cap rates rose sharply to their highest level since 7/19 despite a decline in the 10-year treasury, reflecting investor caution towards retail businesses.