Dashboard: April 2020

May 4, 2020 | Dashboard

Same Store Sales Trends

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%.

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.

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.

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 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.”

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

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.

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