Restaurant Research

RR Dashboard Capital Markets: Restaurant Stocks Had a Mediocre February

RR Dashboard Capital Markets: Restaurant Stocks Had a Mediocre February

Investors were less than wowed with 4Q results for the restaurant chains that continue to trickle-in. However, it is our opinion that 4Q restaurant financial performance (which has mostly been reported at this point) has been pretty good, with all things considered. While industry sales certainly softened in January (mostly attributed to bad weather), a healthy 2024 sales outlook reflects that the consumer demo above $50k continues to show resiliency. While traffic remains negative (the primary concern), margins are recovering. Admittedly, the chains have work remaining to balance the provision of value needed to restore traffic & unit-level profits needed for operators to recover from the post-covid beating inflicted on the restaurant industry.

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Wingstop 4Q23: U.S. Comps +21.2%, Restaurant Operating Margin Improved 1.3%

Wingstop 4Q23: U.S. Comps +21.2%, Restaurant Operating Margin Improved 1.3%

Wingstop’s impressive 4Q comp growth was especially notable because it was primarily driven by traffic during a time when the industry was suffering traffic losses. Management further noted that its sales benefit from competitive wing promotions which act to draw consumers into its own stores. Top-line growth is supported by an expanding marketing budget (the company’s 2023 ad expense increased +35% y/y) fueled by an AUV closing in on the $2MM mark, together with an abundance of unit development (1,400 restaurant commitments under development agreement at the end of 2023).

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Panera 2024

Panera 2024

Panera is the 2nd largest fast casual player that is well known for its healthful “food that tastes good & is good for you” positioning, augmented by a “3rd place” oasis atmosphere (beyond home & workplace). While Panera is well positioned for the long-term with a healthy halo and digital strength, intermediate-term results may be tempered by the need for more value in a difficult economy and the need for a higher level of labor efficiency to support store-level profitability.

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Church’s Texas Chicken 2024

Church’s Texas Chicken 2024

Church’s Texas Chicken is a 70-year-old brand that enjoys strong brand equity built around its hallmark hand-breaded, fried chicken made in small batches throughout the day and scratch-made Honey-Butter Biscuits. Church’s new management team is executing around a well-conceived strategic plan that shows signs of driving a rebound – that is, so long as the economy cooperates.

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Wendy’s 4Q23: U.S. Comps +0.9%, U.S. Company Store Margin -1.6%

Wendy’s 4Q23: U.S. Comps +0.9%, U.S. Company Store Margin -1.6%

Wendy’s reported that while the consumer is under pressure (resulting in a soft 4Q23 for the industry), prospects are looking up. The brand’s barbell menu strategy is working well to address the traffic decline for low-income consumers (under $75k) with its Biggie Bag value platform while ensuring higher-income consumers are well served with premium Made to Crave offerings.

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Dashboard Capital Markets February 2024

Dashboard Capital Markets February 2024

The market & restaurant stocks struggled in January, reflecting: fears that an unpopular Middle Eastern war is expanding beyond Gaza, dragging U.S. soldiers into harm’s way; Powell’s unwillingness to cut rates in March even as the U.S. economy languishes; and concerns that continued evidence of consumer weakness could harm restaurant traffic & sales.

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Ongoing Challenges for Full-Service Restaurants

Ongoing Challenges for Full-Service Restaurants

FSR restaurants continue to struggle according to a recent discussion we had with a large multi-unit operator. In-store traffic has not rebounded since covid & the rise of off-premise ordering. Third-party delivery orders are not just thin margin, but they present a significant quality problem for operators who cannot control whether their customers’ orders will arrive hot & on time.

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KFC 2024

KFC 2024

KFC is a leader in traditional hand-breaded, bone-in Southern fried chicken with considerable brand equity around its Original Recipe and Extra Crispy breaded taste profiles. While KFC is currently performing well, its ongoing sales prospects are dependent upon the brand’s continued ability to: increase its relevancy among younger consumers; offer value to its core customer base; and launch its new RED (Relevant, Easy, Distinctive) prototype store which is more cost effective and convenient than previous designs.

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