Dashboard: Capital Markets

Oct 4, 2022 | Dashboard, Restaurant Research

Capital Markets Dashboard - Sep 2022

Stock Performance

CONSUMERS DRAGGING DOWN RESTAURANT STOCKS  

The consumer is certainly under pressure, with tepid disposable income growth insufficient to keep-up with inflationary pressures generated by significant increases in product prices, gas prices, rent, interest payments, utilities and forthcoming home heating costs. We can see from the table below that this is translating into a lower savings rate and higher consumer debt levels. In any case, the CEO of Dollar General believes the consumer could weather this economic storm if they remain employed even though it will be difficult for the next quarter or so. Unfortunately, the Fed has made it abundantly clear its intention to increase unemployment levels to fight inflation! 

We see macro-economic prospects weighing-in heavily on restaurant stocks with a -33% median YTD decline for QSR stocks and a -25% median drop for FSR stocks. Simply put, struggling consumers cannot absorb menu price increases sufficient for restaurant operators to pass along their tremendous cost pressures (which are fortunately expected to moderate). This point is well illustrated by Darden’s recent FY1Q23 reporting when management took solace in the fact that the company is sufficiently diversified beyond the struggling lower-income demo. Let’s hope the afflictions of the lower-income demo does not catch-up with the rest of the country!

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Latest Release for Personal Consumption Expenditures (PCE)

The consumer still looks good according to the government’s recent release of personal consumption expenditures (for August 2023) as there have not been any material changes in growth for either disposable income or consumption expenditures.

Small Biz Insights on Trucking Industry

In this post, we discuss the massive post-covid changes to the trucking business with Tony Lovallo who has been running his own freight company since 2010. Tony’s insights provide a 360 look into the shipping business & consumer patterns with important economic implications.

Darden 1Q24: Sales +11.6% Y/Y, Comps +5.5% Y/Y

Darden reported that industry same-restaurant sales increased +0.9% and industry same-restaurant guest counts decreased -4.2% during its fiscal 1Q24. The chain’s comps outperformed the industry by +4.1% and its traffic outperformed by +4.3% (= flattish traffic for Darden during the quarter).

Job Market Looks Solid

In this chart, we subtract total quits from total hires. The excess of hires over quits looks very good relative to the historical level even though the positive gap recently dipped slightly. Workers are staying at their jobs longer even as they continue to have new employment opportunities.

The Economics of Politics

As the U.S. gears up for the 2024 elections, it is important to consider changes to our elections and governance that can unite the citizens of this great country.

2Q23 Retail Same Store Sales

NoBull’s Retail Same Store Sales Report benchmarks 80+ large consumer retail companies by domestic same store sales including annual (2019 – 2022) and quarterly results (2Q22 to 2Q23).

Walmart Investor Presentation: Inflation Here to Stay

While general merchandise prices are lower y/y, they remain elevated compared to 2 years ago. As Walmart does not believe general merchandise and food (dry grocery) & consumable prices are ever going to completely disinflate, management suggests the need for a country-wide wage increase rebalancing.

Interesting Conversation with Fed Chair Powell

Okay, Powell didn’t actually take our call, but we offer a transcript of a potential discussion between the Fed Chair and John Q. Public. It’s very insightful, so please read on.

The Problem with Investment Diversification

Every investment advisor and business student knows that portfolio diversification is key to wealth building. Show me an investor who can beat the S&P 500 Index by buying a few handpicked stocks and I will show you a hedge fund manager in the making. However, there is a huge problem with this strategy that no one is talking about.

Part 3: Analyzing Performance of Low-Income Oriented Retail Companies

We created an index for the financial performance of 5 low-income oriented retail companies to assess the health of this demo. While we recognize that these companies have benefited from the trade-down of higher-income consumers, things look reasonable at least through calendar 2Q23. 

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