EAT 2H22 TAILWINDS
The company needs to turn the tide on traffic; advertising and easier comparisons will help.
Brinker was slightly higher on Wednesday after exceeding consensus estimates with its 2Q23 earnings report. Total sales rose 10.2% during the year, and comparable sales were up 9.7%, consisting of an 8.0% gain for Chili's and a 21.2% improvement for the Maggiano's chain (The traffic number was impressive). The 9.7% comp was ahead of the 6.1% consensus estimate. The P&L benefited from incremental menu pricing, and the menu repositioning away from discounting allowed for a positive mix shift. EAT reported Chili's EBIT of $48.47MM vs. $56.0M a year ago, down 13%. There is more work to be done on Chili's margins. Consolidated EBIT was $40.7MM vs. $39,8MM last year. Operating income as a percentage of total revenues was 4.0% as compared to 4.3% a year ago. The Restaurant's operating margin was 11.6% of sales vs. 12.1% a year ago. The company notes, as expected, commodity inflation for the quarter increased meaningfully year over year. It will continue to be a headwind, although at a diminishing rate for the rest of the fiscal year. The company's concerted effort to remove discounting is a concern for some, with traffic down 7.6% vs. 6.6% in 1Q23 and 5.7% in 4Q22.
The question asked on the call, and rightly so, was, how do you know you have not gone too far on reducing discounting? It's a valid concern, but some tailwinds should help improve those numbers in 2H23 and into 1H24. First. 3Q23 comparisons get significantly easier at 2.3%, and the 4Q23 comparison is -5.7%. Second, Chilis has seen dramatic declines is top-of-mind awareness throughout the pandemic as the company went dark from an advertising perspective. In 2Q23, the company will start reinvesting some money saved from less discounting to get back on TV with their "3 for Me value platform." It will be the first time in over three years that Chili's we'll be back on TV. The new "3 for Me platform" includes more variety than many other competitor bundles in the marketplace. For just $10.99, consumers get a full-sized entrée with unlimited chips, unlimited salsa, and the bottomless soft drink. The new platform encourages trade up to more premium and margin-accretive offerings at $13.99 and $15.99, which will be merchandised in the restaurant. The company said on the call "In fact, the majority of 3 for Me volume moves at the $13.99 and the $15.99 price point." The new "3 for Me" advertising should significantly improve traffic sequentially in 3Q22. "We believe providing this platform through national media and the opportunity to reboot our loyalty offers will help us drive incremental traffic and win market share regardless of the macroeconomic conditions." The new Chili's advertising of $10.99 is going against Applebee's $14.99 all-you-can-eat platform.
DASH - LOOKING FOR LOYALTY
DoorDash is looking to secure Gen Z's loyalty by adding more perks.
Yesterday DASH a partnership with education technology company Chegg to offer students of its Study Pack program, which includes a range of educational support tools, to get a free DashPass Student membership. The membership provides free delivery, lower service fees, credit back on pickup orders and other perks, to make it more affordabel
According to data from the December edition of PYMNTS’ Restaurant Digital Divide study, 88% of Generation Z consumers have adjusted their restaurant purchasing in response to inflation. The most common change these diners have made is purchasing less often from restaurants, which spells bad news for aggregators. These platforms rely on young consumers’ loyalty, per research from the latest edition of PYMNTS’ ConnectedEconomy™ series, The ConnectedEconomy™ Monthly Report: Meet the Zillennials. The study pulls from responses from nearly 4,000 U.S. consumers and finds that younger generations are disproportionately ordering from restaurants online. Specifically, 69% of Gen Z and 71% of millennials order online, compared to just 54% of Gen X and 30% of baby boomers and seniors. DoorDash has the opportunity to secure the loyalty of these young consumers for years to come, although there has been significant competition for this demographic across aggregators. Last year Grubhub announced that it was expanding its robotic delivery offerings on U.S. college campuses in partnership with autonomous solution provider Starship Technologies. “Robot delivery solves the unique challenges of accessing hard-to-reach areas that come from operating on a college campus,” Adam Herbert, senior director of campus partnerships at Grubhub, said in a statement at the time. “Offering this type of delivery further improves the Grubhub dining experience as we continue to provide innovative solutions for students and our campus partners.”
RESTAURTANT TRAFFIC TRENDS
Sequentially sales trends continue to slow across Casual Dining and QSR
Looking at Casual Dining, traffic has slowed from +14% in early January to just 2.9% in the week ending Jan 29th. QSR sales have been holding up better but slowed significantly in the latest week by -4% to +5.2%
DIN SHORT CALL
DIN is a melting Ice cube, and we are moving DIN up the SHORT LIST to a top five SHORT, and we will be hosting a Black Book on 02/03/23 @ 12:30 PM.
EVENT DETAILS:
- Date & Time: February 3rd at 12:30 PM ET.
- Webcast & Slides: CLICK HERE (Refresh shortly before the call).
- Add To Your Calendar: CLICK HERE
