RESTAURANT INSIGHTS | Alternative Reality (DASH), TXRH, BLMN & BYND

alternative reality   

From the minimalist shareholder letter to non-answers to questions on the conference call, management is living in an alternative reality: 

1. Outlook - 1Q23 outlook anticipates a consumer spending environment that is broadly consistent with recent months, but don't hold that against us if the business slows.
2. How is Restaurant order growth trending? - Good news that ex-Wolt 4Q22 order growth accelerated 5.5% MoM but slowed to 14.9% YoY; Grocery growth slowed from 80% to 60%; Wolt grew 50% - The spread between order growth and GMV growth was +14.6% (restaurant pricing of 8% & attach from groceries), suggesting restaurant orders are declining. Restaurant contribution margin is improving on slower orders in unprofitable markets and not increased scale?
3. Losses accelerate, but trust us - The company anticipates significant levels of ongoing investment in new categories and international markets. Yet, it marks down private investments 70% to $124 million, taking a $305 million charge in the quarter and significantly overpaid in its $3.5B acquisition of Wolt.
4. The BIG A - The entire P&L needs to be (A)adjusted to make it look better than reality - EBIT losses accelerated without adjustments to $370MM in 4Q11. In 2022 EBIT losses were $1.1B versus $452 MM in 2021. Stock-based comp accelerated to $268MM from $251MM in 3Q22. In 2022 SBC was $880MM, up from $497MM in 2021. 
5. Share Repo rationale is illogical - Explicit commentary in shareholder letter not thinking of stock comp as accounting expense, only later to argue for stock repurchases to reduce the accounting for EPS dilution from SBC. In 2022 DASH spent $400MM on share buybacks (more than 2022 OCF of $367MM), and the share count was up 12% YoY in 4Q22! 
6. Comparison to AMZN & NFLX -  "If you think about the size of the DashPass program at 15mm subs, it’s still a far cry from other programs, whether it’s the number of Netflix members or Prime subscribers, there’s a lot of room for us to continue growing." At the current pace of DASH sub-growth, it will take them over 40 years to catch up to PRIME. 
7. Better than AMZN? - DASH's CEO Tony Xu has big dreams - "And we have the most sophisticated logistics systems for last mile. And when I think about the opportunity, it’s quite immense just because most last-mile systems were built during a time when, frankly, there wasn’t e-commerce, right, which means that a lot of the setup isn’t really well suited for doing true last-mile deliveries. Is DASH more sophisticated than AMZN? How expensive will it be to build a system that can deliver ice cream in 10 minutes, and do consumers want that? 

Operating Stats for 4Q22

• Q4 2022 Total Orders increased 27% Y/Y to 467 million from 369 million in Q4 2021. The Y/Y growth in Total Orders was driven by consumer growth and consumer engagement at DoorDash and our acquisition of Wolt.
• Q4 2022 Marketplace GOV increased 29% Y/Y to $14.4 billion from $11.2 billion in Q4 2021. The Y/Y growth in Marketplace GOV was driven primarily by organic growth in Total Orders and our acquisition of Wolt.
• Q4 2022 Revenue increased 40% Y/Y to $1.8 billion from $1.3 billion in Q4 2021. Net Revenue Margin, defined as revenue as a percentage of Marketplace GOV, increased to 12.6% in Q4 2022 from 11.6% in Q4 2021. The Y/Y increase in Net Revenue Margin was driven primarily by a reduction in credits, refunds, discounts, and promotions as a percentage of Marketplace GOV, which was partially offset by an increased mix of orders from international markets, non-restaurant categories, and DashPass members.
• Expect Q1 Marketplace GOV to be in a range of $15.1 billion to $15.5 billion, with Q1 Adjusted EBITDA expected to be between $120 million to $170 million.
• Expect 2023 Marketplace GOV to be in a range of $60.0 billion to $63.0 billion, with Adjusted EBITDA expected to be in a range of $500 million to $800 million.

TXRH

One small observation is that the new management team does not sound as polished; they are looking for a new CFO. 

TXRH 4Q22 GAAP EPS of $0.89 misses by $0.13, and revenue of $1.01B (+12.8% Y/Y) misses by $10M. SSS - Company +7.3% vs. FactSet +8.8%; Texas Roadhouse only +7.3%; Franchise +6.1% vs. FS +4.7%.

• Cost of sales 35.1% vs. StreetAccount 34.5% and year-ago 35%
• Restaurant margin 14.5% vs. FS 16.1% and year-ago 15.8%
• Operating margin 6.9% vs. FS 8.1% and year-ago 7.3%

"Comparable restaurant sales at company restaurants for the first seven weeks of our first quarter of fiscal 2023 increased by 15.8% compared to 2022." In addition, the Company plans to implement a menu price increase of approximately 2.2% in late March. Despite the strong numbers, the companies not seeing much flow-thru to margins, as TXRH is exposed to higher beef prices. "Wwe expects the commodity to be above the top-end of the range not just for the first quarter but the first half of the year. And a lot of that is certainly driven by beef. Pretty much throughout the whole year, that's going to be the major pressure point, we believe, in our commodity basket in 2023 is beef. So we're going to feel pressures in other areas. Some of that you're going to see maybe diminish as we move through the year. The first quarter of last year hadn't really felt the impact of what was going on in Ukraine as of yet. So we're still lapping some of that. That's some of the reason why you're going to feel higher inflation in the first quarter and second quarter, and then we start to lap some of those higher numbers. So, beef pressure throughout the year and maybe moderation in other areas as we move through the quarters."

Management updated the following expectations for 2023:

• Store week growth of at least 6%, including the impact of the franchise locations, acquired;
• 25 to 30 Texas Roadhouse and Bubba’s 33 company restaurant openings; and,
• An effective income tax rate of approximately 14%, excluding the impact of any legislative changes enacted.
• Management reiterated the following expectations for 2023:
• Positive comparable restaurant sales growth, including the benefit of 2022 menu pricing actions;
• Commodity cost inflation of 5% to 6%;
• Wage and other labor inflation of 5% to 6%; and,
• Total capital expenditures of approximately $265 million.

BYND

Following BYND's move to lay off about 19% of its workforce in late 2022, Impossible Foods (IMPF) confirmed layoffs affecting the same percentage of its staff on Thursday. The headcount reduction was confirmed in regulatory filings, with a total of 132 of the firm’s 700 employees due to receive pink slips. The layoffs were first rumored in late January. The staff reductions are the latest signal of cost cuts in the alternative protein industry. BYND meat is in the midst of a strategy revamp, which includes streamlining its retail exposure to a specific list of grocers. On the positive side, BYND announced the rollout of plant-based McNuggets at 1400 Mcdonald's (MCD) locations in Germany next week. The McPlant burger will also become available in the market starting next week.

BLMN's Financial engineering 

Bloomin' Brands reported 4Q22 EPS $0.68, beating FactSet's $0.63, with revenue below in all segments. Comps missed in all concepts US +1.4% vs FactSet +4.4%; Outback +0.9% vs FS +4.9%; Carrabba's +2.8% vs FS +5.1%; Bonefish +0.5% vs FS +2.2%; Fleming's +3.1% vs FS +4.3% and Brazil 15.3%. Cost of sales missed by (16bps), Restaurant margin beat by +170bps, Operating margin beat by +10bps. Guides Q1 EPS $0.85-0.90 in line with FactSet $0.87, U.S. comparable restaurant sales +3% to +5% Guides FY23 EPS $2.91-3.00 above FactSet $2.70, U.S. comparable restaurant sales +2% to +4%.

The move in the stock yesterday was due to the increases in quarterly dividends by 71.4% to $0.24 from $0.14.