THE Pitch - DPZ Long (CLICK HERE)
We added Domino's (DPZ) as a Hedgeye Restaurants Best Idea Long on 10/18. CLICK HERE for last week's Deep Dive.
CAKE
Disaster
CAKE 3Q22 Non-GAAP EPS of -$0.03 misses by $0.33. Revenue of $784M (+3.9% Y/Y) misses by $15.22M. Comparable restaurant sales at The Cheesecake Factory restaurants increased 1.1% year-over-year in the third quarter of fiscal 2022. Comps +1.1% vs. FS +3.1%; COGS 25.2% vs. FS 24.5%; Restaurant margin 9.7% vs. FS 12.3%; Operating margin (0.3%) vs. FS 2.1%. "While our operational performance has been solid and core cost inputs have become more stable and predictable, we continue to face a dynamic and challenging inflationary environment in some areas. As a result, our quarterly profit margins reflected higher than anticipated operating expenses, particularly in utilities and building maintenance."
SYY
Sales for the industry have held up better than expected in 3Q22. Except for a few names in the QSR space, casual dining sales are rolling over in October.
Post-earnings SYY underperformed after reporting an earnings miss with margins a bit weaker than expected, and FY23 EPS guidance was reaffirmed. "Restaurants continued to be resilient, and our travel, hospitality, plus our business and industry segments of our business posted year-on-year improvements. We see continued strength coming as tailwinds in the non-commercial sector should continue. We are closely monitoring macroeconomic conditions for signs of a business slowdown. At this time, we are not seeing recession concerns negatively impacting our business outcomes. With that said, we are prepared to take additional cost-reduction actions if or when a recession does begin to impact our P&L.
None of the distributors want to acknowledge what the MCD CEO talked about what he sees coming in 2023!
YUM/YUMC
Better than expected
YUM reported that worldwide system sales rose 5% in 3Q22 to top the consensus expectation of 2.1%; after backing out FX swings, global comparable sales were up 7%. Taco Bell had the most robust growth during the quarter, with a 9% increase in comparable sales. KFC saw an 8% increase in comparable sales and Pizza Hut with a 4% comp. The company reported digital sales of approximately $6B, with digital mix exceeding 40% during the quarter. Core operating profit was up 8% during the quarter. Taco Bell's operating profit growth of 11% more offset a 3% drop for Pizza Hut. YUM disclosed that foreign currency translation unfavorably impacted divisional operating profit by $39M. Unit growth for Yum Brands was 4% during the quarter, with all the restaurant chains adding units. The restaurant operator added 979 gross units during Q3 resulting in 644 net-new units. YUMC reports Q3 EPS of $0.49 ex-items, beating FactSet's $0.31 on revenue below consensus. Comps +0% beat FactSet (4.7%), with KFC +0% vs. FactSet (4.8%) and Pizza Hut +2% vs. FactSet (3.8%). Restaurant margin beat by +50bps, and operating margin beat by +520bps. Continues to expect 1,000-1,200 store openings in 2022 with capital expenditures in the range of ~ $800M-$1B.
