franchisee valuations

RR Dashboard: Volatile Capital Markets Looking for Fair Value

• Restaurant stocks on average are down -40% from their 52-week high, trading at ~15x EV/EBITDA, as investors continue to struggle to assess the impact of out-of-control inflation on consumers’ ability to maintain their dine-out habits.
• Given current inflation rates, interest rates should be much higher.
• The spread between cap rates and the 10-yr. approached the record low set in April as real estate has become the most attractive asset class to NNN investors.

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Restaurant Finance & 2H:21 Valuations

• Record breaking 2021 restaurant financing volume driven by pent-up borrower demand and increased consolidation.
• Lenders indicate a much stronger financial condition for QSR borrowers with FSR showing some improvement since July.
• 2H:21 valuation survey results indicate a further increase in franchisee EBITDA multiples with FSR outperforming QSR.

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RR Dashboard: Optimism Not Tempered by Inflation

• While sales are off to an optimistic start, it remains to be seen what impact higher menu prices will have.
• Consumer spending faces significant headwinds.
• Ramping inflation prospects aggravated by elevated transportation costs.

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KFC

While KFC is making Southern fried chicken cool again, inflationary pressures pose a challenge to keep things affordable for its traditional low-income demo.

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RR Dashboard: Oct 2021

• 3Q:21 Sales Strength Tempered by Labor Shortage.
• Restaurant stocks sharply underperformed in October as deteriorating labor issues and near record commodity costs are squeezing margins.
• 95% of restaurants have experienced significant supply delays or shortages of key food items in recent months, according to a survey by the National Restaurant Association.

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RR Dashboard: Sep 2021

• QSR Finally Ramps-up Value Amid Record Core Price Hikes
• Consumer Weakness + Inflation = Higher Value Mix
• Labor Issues and Difficult Comparisons Weigh on QSR
• Cap Rates Reach All-Time Low

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RR Dashboard: Aug 2021

• 2Q Results Surpassed 2019 & Are Now Moderating
• Consumer Outlook Weakens
• More Franchisee Consolidation Expected in 2022

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Dashboard: Apr 2021

Preliminary 1Q:21 average comp growth of +9.7% for the $1B+ Chains (+7.5% 2-year stacked) is a testament to the industry’s tremendous resilience in the face of impossible circumstances. While easing restrictions and strong economy should help keep the sales momentum going, ramping commodity inflation and labor challenges represent significant headwinds.

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Dashboard: Mar 2021

• Strong April comp prospects reflect that RR’s Intent to Eat Out Index increased +17.4% y/y in March and an overlap over last year’s lockdown period will provide a favorable y/y comparison, especially for FSR.
• A +40% jump in the March BLS Foodstuffs index and sharply higher lumber prices could impact both COGS & development costs.

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Dashboard: Feb 2021

• Preliminary 4Q:20 $1B+ Chains same store sales results were down -1.0% which is roughly in line with 3Q:20 results and reflects that October’s strength was mostly off-set by FSR weakness in November & December.
• 2021 sales have been improving due to: +14.4% January increase in disposable income ($600 stimulus checks); and easing dining restrictions. Going forward results should further benefit from another $1,400/person stimulus payment.
• Commodity costs escalated in February with several reaching LTM or multi-year highs.

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