Forecasted Cash Flow Crunch for 30 Day Dine-In restricted Period
- RR’s cash flow stress model assumes a 30 day dine-in restriction for each $1B+ brand under coverage consistent with the President’s current target to re-open businesses by April 12th. This time period is generally in-line with Starbucks and YUM China’s experience in China.
- Other model assumptions include: -15% decline in drive-thru; +10% increase in to-go; +25% increase in delivery; +4% increase in labor margin; +3% increase in other operating expenses; and no changes to rent, P&I, royalty or advertising expense.
- This likely represents overly pessimistic assumptions as many chains and operators will benefit from royalty, advertising & rent abatements (a fluid dynamic that we are tracking).
- Our data shows better results for QSR chains with a higher % of dine-in with more cash flow stress for sit-down chains.
- In aggregate, the 42 chains under coverage generated ~$11B in FCF during 2019 (baseline year).
- During the 30 day dine-in restriction, we estimate that this group will lose close to -$1B. This represents roughly 10% of the ~$9.6B in 2019 loan originations from franchise financiers.
- Notably, we estimate pro-forma full-year 2020 results @ ~$3B in aggregate FCF which would be a win in our estimation.
Social Media Sentiment Shift from Fear
- QUANTIFIND has been monitoring social media chatter around Coronavirus which peaked on March 12th.
- We think it is instructive that chatter has moved from fear towards a more pragmatic approach of dealing with the situation to go with growing complaints about government restrictions.