Same Store Sales Trends

Sales are Rebounding from April Lows

  • Preliminary 1Q results for the $1B+ Chains were down -1.6% (-0.2% QSR and -6.2% FSR).
  • April rebound driven by: stimulus checks; increased brand messaging around food safety; free delivery; and cabin fever.
  • 75% of states are expected to re-open by mid May with dine-in service restricted initially by capacity limits (ranging from 25% to 50%), spacing tables at least 6′ apart, 6 to a table max and following more health and safety guidelines for both employees and guests.
  • According to government data, total food service sales decreased -24% in March while grocery sales were up +29% (reflecting binge shopping).
  • 1Q results for total food service category were down -3.7% (vs. -1.6% for the chains) while grocery store sales were up +13.3%.

1Q20 $1B+ Restaurant Chain Summary

Promotional Composition

Declining Free Delivery Offers

  • While the total value promotional mix continued to increase, the percentage of $1B+ chains offering free delivery declined 18% to 34%.
  • Rising QSR average checks reflect large family meal offers.

 

Economic Outlook

Government Assistance Finally Kicks In

  • Real GDP 2Q outlook continues to deteriorate with the GDPNow model forecasting a -16.6% decline after a -4.8% decrease in 1Q.
  • Government stimulus checks (up to $1,200 for individuals and $2,400 for couples – plus $500 per child) and an extra $600 in weekly unemployment benefits (on top of their state benefits, for up to four months) have been sent out.
  • ~30 million have filed for unemployment between mid March and the end of April.
  • A second round to the SBA backed Paycheck Protection Program worth an additional $310B was rolled-out in late April. A total of $500B in loans have been made as of early May leaving $129B available.

Key Cost Trends & Forecasts

Lower Commodity Costs Helping Margins

  • Commodity costs continue to plummet and the BLS Foodstuffs index fell -17% y/y in April (lowest level since Feb. 2009 and largest drop since 2015).
  • The exceptions are spikes in ground beef and other processed meats due to plant closures.
  • Chicken egg prices driven by stock piling.

Franchisee EBITDA Valuations

Less Bearish, But QSR and FSR Outlooks Diverge

  • Franchisee valuation outlook was less bearish in April as states begin to ease dine-in restrictions.
  • QSR valuation outlooks are much better than FSR presently which is not surprising.
  • Going forward valuations will be impacted by the lending environment which will likely require greater equity and more conservative underwriting standards (especially for FSR concepts).
  • Comments from Rob Hunziker Advanced Restaurant Sales: “Some selling multiples are actually rising including Popeye’s, Sonic, Wingstop, Checkers, and the pizza delivery brands.”

Stock Performance

Stocks Rebound Sharply After March Free Fall

  • Stocks rebounded sharply after a March free fall, but still remain deeply in the red for the year (especially FSR and growth companies).

Marcus & Millichap Cap Rates

Transaction Volume Declined -47% Despite Stable Cap Rates

  • Transaction volume declined -47% y/y, reflecting the current business environment and IRS extension of the 1031 exchange period from 4/1/20 to 7/15/20.
  • Cap rates remain stable for single tenant 1031 exchange properties despite a dramatic drop in interest rates.