POSITION MONITOR UPDATE
The COVID induced accelerated consumer adoption of digital ordering powered by DASH, UBER Eats, OLO, and others are not slowing down. This can be seen in CMG numbers and also the first digital restaurant ordering platform, DPZ. The other obvious "digital-first" beneficiaries of this trend are WING (removing the SHORT) and PZZA, which will be seen in the 2Q21 numbers. On the QSR side, we still like MCD, SBUX, WEN, and YUM as LONGS. TAST (also removing from the LONG list) can't get out of its way and remain bearish on QSR. Yes, Canada is reopening, but Restaurant Brands needs significant investment in Tim Hortons and Burger King to compete effectively. MCD now has a loyalty program; how far behind is BK? The core of our SHORTS are in Casual Dining and also remain SHORT BYND and SHAK. I do have some concerns about being short Casual Dining with the momentum in off-premise dining. Still, I believe that any permanent shift away from in-store dining is a net negative and margin dilutive for Casual Dining.
DPZ IS A JUGGERNAUT
2Q21 delivered 17.1% FX net (21.6% reported) global retail sales growth, driven by a powerful combination of U.S. same-store sales, international same-store sales, and global store counts. 2Q21 marked an unprecedented 41 consecutive quarters of positive U.S. SSS and 110th consecutive quarters of international SSS. U.S. retail sales grew 7.4%, and international retail sales grew 39.7%. International retail sales grew 29.5% (net of FX), rolling over a prior year decrease of 3.4% (disruptions in specific international markets due to the COVID-19 pandemic.)
In 2Q21, U.S. SSS was +3.5%, lapping a prior year increase of 16.1%, and SSS internationally were +13.9%, rolling over a prior year increase of 1.3%. Breaking down the U.S. comp, franchise business was up 3.9%, while company-owned stores were down -2.6%. The larger-than-normal spread between the company and franchised stores is primarily a function of the heavily urban and higher-income footprint for company stores relative to a more diverse mix across franchise stores. U.S. SSS was driven by tickets (increases in items per order and mix). Same-store traffic was flat with 2Q20 and above 2Q19! Highlighting the consumer digital adoption theme, the company "saw higher levels of sales growth in the second quarter in the markets with fewer COVID-related restrictions." In addition, "Similar to Q1, we saw that comp growth in rural areas outperformed urban areas, and less affluent areas outperformed more affluent areas. These differences, combined with the impact of more aggressive fortressing, accounted for much of the same-store sales gap between our corporate store and franchise store businesses." As an aside, the "rural areas" and also where DASH holds a better market share, suggesting solid trends.
The entire industry and DPZ saw sales benefits during the quarter from the federal government stimulus, particularly the checks delivered back in March (but difficult to quantify the magnitude of the impact.) To this point, DPZ saw a sequential material improvement of the 2-year stack sequentially. The company saw growth in both the carryout and the delivery businesses. Sales were also impacted negatively by a challenging staffing environment, and the company is looking to implement additional wage increases across specific corporate store markets and positions. During the quarter, COVID continued to have a significant impact on many international markets and is expected to remain a challenge in many parts of the world for some time to come. At the end of the quarter, the company had fewer than 175 temporary store closures, many of those located in India.
Have a great weekend!
