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Black Box - THE CALM BEFORE THE STORM
From here on out, comparisons get very difficult for the industry - data through the week ending March 3, 2022
Restaurants posted positive sales growth for the third consecutive week, the most robust growth since the week before Thanksgiving (excluding the week of February 20 due to Valentine's Day shifting a week and affecting those results). Although restaurants remained far from surpassing their guest count before the pandemic hit two years ago, traffic growth improved more than sales compared to the previous week. For the last three weeks, the best performing segments in the industry based on sales growth were fine dining and upscale casual. Average checks continue growing at an unusually high rate year over year. The segments with the highest check growth in the last two weeks have been quick service and fast-casual. The segment with the lowest check growth was upscale casual. Breakfast was the daypart with the highest sales growth during the week, followed by mid-afternoon and dinner. Lunch and late-night continue to lag in sales. Hawaii was the only state that had negative sales growth during the week. Since the pandemic's beginnings, the only other time this happened was during the week ending November 21, 2021. Based on sales growth, the best performing regions were Western, California, Texas, and Florida. The regions with weakest sales growth were New York-New Jersey, the Midwest, Mid-Atlantic, and New England.
Is SBUX Broken?
Can Howard slow the unionization of SBUX?
The market was cheering the announcement of the return of founder Howard Schultz for his third stint at running the company. This time as Interim CEO. The announcement came very sudden as there were no visible signs that Kevin Johnson was having problems. So what is wrong with SBUX, for the founder has to install himself as interim CEO suddenly? We removed the stock from the long list because of problems, but those were macro issues like COVID-19, new pressures re-emerging in China, and other labor cost headwinds. The company is likely to lower guidance when it reports earnings in early May, but that is not too surprising; what is surprising is that there was not an alternative succession plan in place.
The biggest issue the company faces, which goes against the core principles of the company's founding culture, is the unionization of Starbucks stores. A wave of unionization across the country began in Buffalo in December 2021, and now more than 100 locations in more than 19 states are organizing unions. With Kevin Johnson running Starbucks, the company hasn't been welcoming of these new unions. It has been rumored that Starbucks has engaged in a wide range of union-busting practices, from actively encouraging employees to vote against unionizing to allegedly firing workers who were involved with union organizing. Though the union has not yet presented official demands to the company, one can assume that the union will look for a $24-$25 (think TGT) minimum wage for baristas and other improvements to company benefits plans.
The sudden more to install the founder as CEO suggests the battle against the NLRB will get bigger and be costly for the company.
Yum China Holdings
YUMC has increased share repurchase authorization by $1B to $2.4B. When the dust settles in China, this will be a tremendous LONG
The total remaining authorization is approximately $1.4B after the company has repurchased approximately 24M shares of common stock for $971M from 2017 to March 16, 2022, including 4M shares repurchased for $188M quarter-to-date 2022.
"The Board's approval to expand our share repurchase program reflects the strength of our balance sheet and our ability to generate strong cash flow. From 2017 to 2021, we generated an operating cash flow of $5.6 billion and free cash flow of $3.2 billion. To date, we have returned approximately $1.7 billion of capital to shareholders in cash dividends and share repurchases. Despite the significant impact from COVID-19 in 2021 and stepped-up capital investments to drive organic growth, we generated operating cash flow of $1.1 billion and free cash flow of $442 million," said Joey Wat, CEO of Yum China."
