Inflation differential
The CPI news yesterday continues to favor eating out! Have you eaten out lately? It's not cheap either.
Food away from home prices rose 0.7% in July, a slowdown from the 0.9% inflation reported in June. Prices are up 7.6% over the past 12 months - near a 40-year high set last month. Inflation at full-service restaurants rose 0.6% in July and is up 8.9% YoY. Prices at limited-service restaurants rose 0.8%, a slight acceleration, and are up 7.2% over the past 12 months. The FAH-FAFH differential widened to 5.5% YOY from 4.6%. FAFH decelerated 10bps (the first deceleration since Feb. 2021) in July, while FAH continued to accelerate. Meat, Poultry, Fish, Eggs: 10.9%; Cereals, Bakery: 15.0%; Dairy: 14.9%; Fruits and Vegetables: 9.3%; Beverages: 13.8%. The coffee category saw a significant acceleration in July, with the YoY increasing 20.3% in July from 15.8% in June.
RRGB - dying a slow death
RRGB 2Q22 Non-GAAP EPS of -$0.75 misses by $0.60; Revenue of $288.7M (+6.1% Y/Y) misses by $10.05M.
Comps +6.7% with traffic (2.9%) and average check +9.6%. Restaurant margin missed by (210bps) and EBITDA margin was 4.0%, with the cost of sales (60bps) lower than expected. Lowers FY adjusted EBITDA to at least $65M vs. prior guidance of $80-$90M and below FactSet $83.4M, mid-double digit commodity cost inflation, versus the previous guidance of low-double-digit inflation; Mid-to-high single digit restaurant labor cost inflation, selling, general and administrative costs between $142 and $147M, vs. prior $145 and $155M, cuts capital expenditures of $40 to $45M, vs. prior $40 to $50M. The company blamed higher commodity and wage rate inflation for most of the bottom line losses, while repairs, maintenance, utilities, and marketing expenses also added to adverse impacts.
USFD - Flat Case Volumes
USFD 2Q22 Non-GAAP EPS of $0.67 misses by $0.01; Revenue of $8.83B (+15.3% Y/Y) beats by $130M; inflation up 15%
When deflation hits, the food service stocks will be sources of cash.
"Total case volume was flat to the prior year, driven by flat independent restaurant case volume, a 35.0% increase in hospitality volume, and a 2.4% increase in healthcare volume, offset by an 8.7% decrease in chain volume. Year-over-year total case growth for the second quarter was also negatively impacted by roughly 375 basis points by the mid-2021 exit of the lower margin grocery retail business we temporarily added during the pandemic and the strategic exit of a small number of lower margin chain restaurant and education customers."
The company is adjusting the outlook for interest expense in 2022 and now expects it to be $245-$255 million due to the Federal Reserve's interest rate increases. Adjusted EBITDA of $1.2-$1.3 billion, with continued confidence toward the higher end of the Adjusted EBITDA range. Adjusted Diluted EPS of $1.95-$2.25 vs. consensus of $2.26. Cash capital expenditures of $280-$300 million with fleet capital leases to be an additional ~ $110 million. Net Debt to Adjusted EBITDA leverage of approximately 3.5x by the end of the fiscal year 2022
