Returning to Normal

Aug 10, 2023 | Bubble Monitor, No Bull Economics

Weekly Dashboard

Commentary

While everyone is focused on CPI, we have been looking at 2Q23 restaurant results & we like what we see. Most of the restaurant chains have reported 2Q results (please see the posts below) & things are looking up in our opinion. To this end, please note the following 5 significant trends:

There is good evidence that a return to a true post-covid normal is well underway as consumers adopt their 2019 dining preferences. This includes a rebound in both breakfast & late-night sales as people adjust back to their old routines. Also, customers are no longer ordering for large groups that are hunkered down at home as more people get back on the road, helping traffic to finally show signs of stabilizing. Finally, we note that the pizza chains continue to struggle as the sales bubble for this covid food of choice deflates to normal levels (with the big chains at least holding on to their gains), consistent with Papa John’s report of increased pricing sensitivity among its third party delivery customers (in other words, even DoorDash customers are beginning to normalize).
Food costs are deflating & labor costs are moderating while the chains hold on to their menu price increases. This is very good news for store margins.
Lean times over the last 3 years have lit a fire under management teams who generally have excelled at improving what was under their control. This has led to refined marketing strategies & operational improvements which are poised to drive sales growth and cost efficiency.
Operators are finally able to staff back up to appropriate levels, thus further improving operations, service, and throughput potential. This is a huge plus for this hospitality sector.
Digital initiatives accelerated by the covid scare are gaining real traction, thus providing substantial benefits. Improving access, convenience & customization are driving higher checks. 1-to-1 marketing allows the brands to move away from mass discounting margin squeezes and lessens the need for expensive mass-market TV advertising. Finally, digital order platforms improve order accuracy and allow operators to further improve service by re-assigning labor from order taking to customer interface.

For more information on the franchisee side of the equation, please check our recently published Unit Economics report (announcement here & info on full report here).

In conclusion, it has taken the better part of 3 years for the economy to recover from the covid lockdowns/scare – let’s not do that again!

Weekly Publications

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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.

Part 2: Incremental Interest Payments Squeeze Disposable Income

In this post, we quantify the pressure on disposable income driven by credit card & auto loan payment increases since the onset of the Fed rate hikes in early 2022 in addition to the impact of the coming resumption of student loan payments in October 2023.

Part 1: Keeping an Eye on the Consumer’s Top-Line

The consumer’s top-line benefits from a high employment rate, generous raises, and a healthy savings rate which indicates an income surplus.

Teenage Wasteland No More

The American youth (15 – 24-year-old) unemployment rate makes our country look downright productive compared to the rest of the world!

The Fight for Global Manufacturing Gets Personal

Post-covid U.S. exports of goods & services have skyrocketed as American companies have worked hard to onshore their supply chains, providing them with products to sell overseas. Correspondingly, U.S. imports from China have fallen considerably since late 2022 after China’s extended covid lockdowns left their American customers without product to sell.