Same Store Sales Trends
Gauging A Sales Rebound
- While near-term sales forecasts are mostly meaningless, we can begin to consider comp results for the full-year 2020.
- We know that the first 3 periods of the year were relatively strong with what seems like the possibility of 2 periods of stay-at-home (through 4/30) with QSR (ex-pizza) losing dine-in (~25% of sales) and FSR losing something like -80% of their mix (85% dine-in decline offset by a +5% pick-up in off-premise).
- The question is how fast will be the recovery for the final 7 periods of the year. If you assume flat sales by period 12, our model suggests that full-year 2020 results could be down by ~-10% for QSR and ~-30% for FSR. This could set-up a very big pop for 2021 which is where we should be focused.
- In any case, everyone is welcome to use their own assumptions and we will certainly know more in a month or so.
- According to Quantifind’s social media analysis below, consumer interest in the virus is steadily declining which we interpret as a positive for going forward sales.
Half the Chains Are Offering Free Delivery
- While the total value promotional mix jumped for both QSR and more so for FSR, the increase was not as sharp as we expected.
- Not surprisingly, the big jump in our “Other Value” category was driven by free delivery offered by 52% of the 56 $1B+ Chains (65% FSR/42% QSR).
Government Help is On the Way
- While the number of Americans filing for unemployment benefits spiked to a record-breaking 6.648 million for the week ending 3/28, some relief is expected for consumers as individuals can receive up to $1,200 and couples will receive up to $2,400 — plus $500 per child as part of the $2 trillion in government relief which will start in late April. In addition, unemployed workers will also receive an extra $600 a week on top of their state benefits, for up to four months.
- According to one economist we know, it is plausible that the unemployment rate could hit 10% depending on the size of the 2Q GDP contraction.
- In any case, the economy should also benefit from the SBA backed Paycheck Protection Program available to businesses (with loan amounts up to 250% of average monthly payroll) and companies that keep employees on the payroll for eight weeks will receive loan forgiveness for the portion of the loan used for payroll, rent, mortgage interest or utilities.
- Interest rates fell to the lowest levels in at least 30 years with the 10-year Treasury rate falling to 0.58% as of 4/2.
Key Cost Trends & Forecasts
Lower Demand = Easing Commodity Costs
- Commodity costs are beginning to see some signs of easing and the BLS Foodstuffs index fell 10% in March (lowest level since Sep. 2009).
Franchisee EBITDA Valuations
M&A Activity on Hold
- Sharp decline in RR’s Valuation Index reflects current market uncertainties including: when dine-in restrictions will be lifted; how long it will take the consumer to recover; increased complexities associated with how to account for the current period of restricted operations (and impact of grants, abatement, re-opening costs); and what the lending environment will look like.
- Government assistance programs should provide some relief to both consumers and businesses in the coming weeks.
- M&A activity is currently on hold as both buyers and sellers assess the situation.
Stocks Resume Free Fall Amid Shut-Down
Marcus & Millichap Cap Rates
Cap Rates Stable for Now