RR Premium

Full-year FY23 comp guidance was raised to mid-to-high single digits up from low single digits. Increasing operating & dining room hours provide a sales tailwind for the system.

While Wendy’s has done well to magnify its significant menu prowess sufficient to generate a respectable +18% cumulative U.S. comp growth from 2019 – 2022, the chain must continue to work to translate its QSR+ positioning into increased frequency from a higher income demo sufficient to drive a higher check and store level profits.

IHOP is well positioned as the largest player in the $1B+ family chain segment with 30% market share and the largest marketing budget in the segment. The chain is well known for: an unexpected twist on “all things breakfast, any time of the day”; world famous pancakes; flavored syrups; and the never empty coffee pot.

Consumers with $150k+ income levels continue to dine out, and this demo expects to maintain or increase their spending at casual or fine-dining restaurants.

While strong traffic trends reveal customer acceptance of the chain’s pricing, new guests coming into Texas Roadhouse are starting on the value side of the menu and management reports a little bit of trade-down. In any case, its mix is still extremely positive relative to pre-covid levels.

1Q23 comps increased +11.7% y/y (+9.7% price, +3.3% mix & -1.1% traffic), helped by a 7% reduction in discount mix & late-night traffic strength. The best 1Q restaurant-level adjusted EBITDA margin in 5 years (12.2%) reflected strong sales, moderating inflation & improved operational efficiencies.

Wendy’s reported that net disposable income is a big driver of restaurant sales & noted that decreasing grocery price inflation should drive net disposable income higher. Also, while traffic is flat for the under $75k consumer, traffic is growing for the over $75k demo.

The brand goal is to drive sales by eliminating aggressive promotions while increasing pricing & premium trade-up opportunities sufficient to invest in marketing & operations.

While McDonald’s is well positioned for the long-term with solid execution around sound fundamentals, the current macro environment may prompt its core value-oriented customers to demand more deals and concessions than the system is prepared for.

While a +1% price increase typically drives a -0.4% traffic loss (60% flow-through), BK’s A&B operators are generating significantly higher flow-through rates, revealing that guests are willing to pay more when provided with a great experience.