Dashboard: Dec 2020

Jan 5, 2021 | Dashboard

Same Store Sales Trends

Monthly government retail sales data indicates slowing sales momentum in November and a growing premium of QSR CPI prices vs. Food at Home.
Olive Garden was the first $1B+ chain to report during the 4Q20 earnings season. OG’s fiscal 2Q21 (ended 11/29) comps declined -19.9%, reflecting tightening capacity restrictions. OG began November with 56 dining rooms closed, growing to 208 by the end of the month (dining room closures during the last 2 weeks of the quarter cost -2% in quarterly comp).
In any case, the brand was able to generate average weekly sales at 80% of last year’s results.
While declining tourism impacted Georgia, Texas & FL, non-tourist markets in Florida are performing well.
Corporate strongly believes that demand for in-restaurant dining is going to come back really strong with some off-premise fall-off. The full-service category was ~$100B and will return to the same level or higher when things normalize (ultimately maintaining its 8% – 9% share of total restaurant sales).
Also, the check average remained unchanged (reflecting well on consumer strength) and week-to-week sales in dining rooms that remain open were still growing.

The average FSR promotional price point jumped +7.4% in December to the highest level since Oct. 2019????
Fortunately, the QSR value promotional mix is beginning to ramp-up although it remains elevated compared to this summer’s levels.

4Q:20 GDP growth outlook pulled back slightly to +8.6% from +11.1% last month according to the GDP Now forecast, including the expectation for a slight improvement in real personal consumption expenditures growth.
New $900B economic relief stimulus package (including direct payments up to $600 per person) will start in January with an extension of federal unemployment benefits (up to $300/week through 3/14/21).
New business aid includes an additional $284B to fund another round of the Paycheck Protection Program for small businesses (<300 employees & maximum loan amount is $2M vs. $10M in the first round) that can show at least a 25% revenue loss in any calendar quarter in 2020 compared to 2019. PPP loans are forgivable when at least 60% is spent on payroll expenses and restaurants are now able to borrow 3.5X their average monthly payroll (versus 2.5x in first round – unchanged for all other businesses). Business meal deduction has also been expanded to 100% for the next two years.

Commodity costs continue to rise with the BLS Foodstuffs index posting a new high for the 2nd consecutive month (+7.0% y/y) and the highest level since July 2017.
Wage pressure is likely to accelerate in 2021 with 20 states and 32 cities and counties increasing minimum wages on 1/1/21 with an additional 4 states and 18 cities increasing the minimum wage later in the year.
Starbucks increased wages for its hourly employees by at least 10% in mid-December and suggested a goal to increase hourly wages to at least $15/hour over the next 2-3 years.

Preliminary 2H:20 RR valuation survey indicates franchisee EBITDA multiples increased +3.1% for QSR and +2.3% for FSR (recovering almost half of the 1H:20 decline), but the 6 month outlook turned more bearish in December.
Lending environment is improving especially for strong QSR brands, but underwriting remains more conservative.
Also, new PPP program as previously discussed should add considerable liquidity to the sector.
M&A activity is expected to pick-up in 2021 including more distressed asset sales.