RR Dashboard Capital Markets: Restaurant Stocks Had a Mediocre February

Mar 1, 2024 | Dashboard, Restaurant Research

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.      


  • Bitcoin apparently sucked all the profits out of the market during February as speculators obsessed about the upcoming “halving” (when commission paid to miners are cut in half every 4 years) can’t seem to borrow enough to buy the leading crypto, while the big funds (like Blackrock) started to pile-in into recently approved Bitcoin ETFs to make sure that the bubble is fully inflated. 
  • Notably, the 10-year’s yield is starting to rebound as bond investors sell longer dated securities (which are most interest rate sensitive) before the Fed starts cutting rates this summer. BTW, the anticipation of rate cuts also partially explains Bitcoin’s pile-on as the market reacts to the possibility that this will results in a weaker US$.
  • For the time being, restaurant investors are greatly rewarding any chain showing any sign of growth (comps & new builds) while ignoring mediocre performance & punishing those with a higher orientation towards the struggling lower-income demo as evident by the table below.      
  • However, we suggest that investors should take a longer-term perspective towards QSR & even FSR stocks given decent 4Q results (please refer to our posts below) and in light of data suggesting that the consumer economic backdrop is not so bad, especially when considering the prospect of an election year rate cut which is factoring into the prices of both Bitcoin & the 10-year as previously discussed.

Assets, QSR, FSR Stock Performances

4Q23 QSR & FSR Results

Public Posts

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).

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.

Premium Posts

Jack in the Box inc. 1Q24: Jack’s Comps +0.8%, Del Taco’s Comps +2.2%

As Jack in the Box’s customers earning under $75k (especially those under $45k) are attaching fewer low-priced items to their orders, the chain is focused on ensuring sufficient deals to encourage as much attachment as possible. Despite anticipated 1H24 sales challenges (including January’s adverse weather), full-year FY24 comp guidance is still expected to be up low to mid-single digits.

Krispy Kreme 4Q23: +13.7% Organic Revenue & +14.7% Adjusted EBITDA Growth

Krispy Kreme expanded its point of access by +17.8% during 4Q23 as the brand succeeded in expanding into new grocery & convenience store channels. Sales strength also reflected demand for its holiday-themed premium doughnuts and healthy e-commerce growth. Full-year 2024 guidance: organic revenue growth of +6% to +8%; and adjusted EBITDA growth of +8% to +11%.  

Shake Shack 4Q23: Revenue +20%, Same-Shake Sales +2.8%, Shack-Level Operating Profit Margin +4.2% Y/Y

Shake Shack continues to improve the customer experience by adding more drive-thrus & in-store kiosks (which drive higher checks). Further plans for improvement include: faster service time objectives; goal to reduce new build costs by -10%; & an increase in marketing partnerships (like its 2024 partnership with the Trolls movie).

BJ’s Restaurants, Inc. 4Q23: Comps +0.6%, Restaurant-Level Margin Up +1.5% To 14.4%

BJ’s Restaurants continues to drive towards its 2019 16% restaurant-level margin level, with plans to implement $35MM in 4-wall cost savings opportunities that include menu simplification efforts & a push to optimize core menu items for both operational efficiency & overall menu appeal. The system’s AUV will benefit from continued remodeling efforts which drive a +10% sales lift.

RBI 4Q23: Sales +9.6%, Comps +5.8% & +3.9% Restaurant Growth

Restaurant Brand International reported further progress in getting Burger King back on track after investing $40MM in BK advertising & $16MM for facility upgrades during 4Q23. Popeyes (+5.8% comp growth), Firehouse (+3.8%) & Tim Hortons (+8.7%) added their strong performance to BK’s +4.6% comp increase during the quarter.

Denny’s Corp. 4Q23: Domestic Comps +1.3%, Sequential Monthly Improvement

Denny’s reported that it does not have a lot of confidence in the general economy when looking into 2024 & this explains expectations for continued traffic pressure, especially from half of its customer base that earns less than $50k. However, on the plus side, recent Yelp data showed that there were 6,000 new restaurant openings in the breakfast category during 2023, revealing an enormous demand for a daypart that Denny’s is well positioned in as America’s Diner.

Texas Roadhouse 4Q23: Comps +9.9% Including +5.1% Traffic & +4.8% Check

Texas Roadhouse reported that its restaurants are the busiest they’ve ever been and that consumer behavior did not change during 4Q nor during the first 50 days of 2024. Management expects to continue facing inflationary pressures in 2024 (reflecting ongoing cattle supply challenges), albeit at a lower rate relative to the last several years.

Yum! Brands 4Q23: System Sales +5%, System Comps +1%, Restaurant Level Margin +1.8%

Taco Bell’s continued strength has been a bright spot for Yum! as its 2023 U.S. system comps increased +8% (+3% 4Q23 growth) & it is notable that the brand has been able to hold onto its lower-income customers. However, KFC’s U.S. comps were flat & Pizza Hut posted a U.S. comp decline of -4%. 2024 results are expected to benefit from: an increase in menu innovation across its 3 largest brands; the launch of KFC’s loyalty program; & tech advances.

Chipotle’s 4Q23 Revenues +15.5%, Comps +8.4%, Restaurant Level Op Margin +1.4%

Chipotle reported that its AUV now exceeds $3MM, driven by increased operational efficiency, resonating marketing campaigns, a growing loyalty program & product innovation (such as its successful carne asada LTO). 1Q24 comps are expected to be in the +2.5% to +3% range (reflecting adverse January weather conditions) with full-year FY24 comps up mid-single digits.

McDonald’s 4Q23 Revenues +8%, U.S. Comps +4%, Operating Income +8%

McDonald’s posted very strong 2023 results with U.S. comps up +8.7% for the full-year. 4Q results moderated because of weakness from lower-income customers & management expects to maintain this level of growth in 2024, with system comps guided to +3% to +4% & an operating margin in-line with 2023. In any case, elevated absolute menu prices & muted consumer confidence indicate that consumers will continue to be discriminating with their dollars during 2024.

Starbucks 1Q24: Comps +5%, In Middle of +4% To +6% FY24 Guidance

Starbucks continues to work on its operational efficiency & digital capabilities and reported the following 1Q24 accomplishments: Doordash partnership drove a +80% y/y increase in delivery sales (2% transaction mix); the new Siren System drove faster customization service speeds; and a continued rollout of its efficient Clover Vertica brewer (installed in 10% of U.S. stores during the quarter). Going forward promotions which are expected to help drive traffic include: the Milano Roast; its Oleato coffee platform; Valentine’s Day promotions; & 3 new, yet-to-be-announced, beverage platforms in the next 6 months.

Brinker 2Q24: Comps +5.2% & Adjusted EBITDA +18%

Brinker is guiding to mid-single-digit comp growth for its full FY24, even after its weather-driven sales difficulties during January. Increased TV advertising is boosting brand awareness & promises to drive traffic. All the same, management expressed caution over consumers who are more likely to shop value offers such as Chili’s 3 for Me (with a 2Q24 +2% mix increase for its lowest $10.99 price point option). While loan & credit card past due balances are increasing because of resumed student loan payments, its customers are responding well to Brinker’s increased TV advertising & menu improvements, which should help the chain’s going forward mix performance. Notably, management reported that it has not observed any pullback in any of its consumer income demos.

Darden 2Q24: Sales +9.7% (with Ruth’s Chris Acquisition), Comps +2.8%, Op Income +19%

Darden reported that industry same-restaurant sales decreased -1.3% and industry same-restaurant traffic decreased -4.8% during the quarter. This contrasts with Olive Garden’s Never Ending Pasta Bowl promotion (offered at the same price point as last year) which drove a y/y demand increase & its highest refill rate ever.

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