Positive Headlines
Given 1Q23 restaurant industry sales, this was not going to be the quarter that DASH blew up! The financials presented by the company showed no evidence of a slowdown in total orders. That said, the company continues not disclosing orders in its biggest segment, Restaurants. We also could not find 1Q23 WOLT orders in the financials to get an accurate read on DoorDash orders.
"The growth in the U.S. restaurant category in Q1 2023 was driven by strong underlying consumer behavior, as retention increased compared to Q4 2022 and order frequency reached an all-time high," company statements explained. "Based on third-party data, we believe we gained share in the U.S. restaurant category in the quarter." To parse these words, the company comments do mention the words “order growth”; instead, they talk about “consumer behavior” and “order frequency” by cohort which is not the same as total orders.
We equate this to the equivalent of Netflix not disclosing subscriber growth in the USA.
- DASH Q1 GAAP EPS of -$0.41 beats by $0.15; Revenue of $2.04B (+36.0% YoY) beats by $110M.
- Total Orders increased 26.7% (YoY) and 9.6% QoQ to 512 million ($480M estimate)
- Marketplace GOV increased 28.8% YoY and 10.2% QoQ to $15.9 billion.
- Wolt orders were not disclosed, so we estimate that DoorDash Orders 15.2% YoY and 9.8% QoQ to 466M.
- Revenue increased 40% Y/Y to $2.0 billion, and
- EBIT improved slightly to ($171M) from ($173) in 1Q22.
- SBC grew 79% YoY
The adjusted guidance looks positive:
- In 2Q23, management expects between $15.9B and $16.2B in line to slightly better than estimates and adjusted EBITDA from $180M to $230M; analysts had expected adjusted EBITDA to reach $171.1M in Q2.
- For 2023, GOV and adjusted EBITDA are expected to range from $63B to $64.5B (implying a slowdown in 2H23 and $600M to $900M, respectively. The latter figure was $500M to $800M.
They offered some words of caution: "We caution investors that consumer spending in any of our geographies could deteriorate relative to our outlook, which could drive results below our expectations," the earnings print cautioned. "Additionally, our increasing international exposure heightens risks associated with operating in foreign markets, including geopolitical and currency risks. Changes in the international operating environment could negatively impact results versus our current outlook."
If you don’t add back SBC, the financials and how the company presents itself can look very different. The CEO claims the company generates significant FCF, which is just not the case because it does not pay its employees in cash.
"I mean, I think sometimes – especially now, as DoorDash is generating more and more positive free cash flow," DASH CEO.
On the earnings call, the analyst took that comment and ran with it, where free cash flow was mentioned six times. November 2022 was the only time the term was used on a conference call. This is how we think of FCF. Free cash flow is a measure that assesses a company's capacity to generate cash from operations after deducting capital expenditures required to maintain or grow its business. In other words, free cash flow is the amount of money a firm has left over after covering all of its operating costs and investing in its operations. It is the cash available for distribution to shareholders, debt repayment, or reinvestment in the company for future expansion. Only clever accounting can get the company to FCF positive:
1Q23 net Income ($162M) + Non-Cash Expenses $123M = ($39M) - Changes in Working Capital $246 = Operating Cash flow = $207M. The company projects $506M in OCF, the most significant difference being the $230M in SBC.
Operating cash flow $207M minus capital expenditures + capitalized software ($254M) = ($47M) free cash flow. Including SBC, the company estimates FCF to be $252M, and SBC was up 78% YoY. The FCF of the company would look very different if they paid their employees in cash!
SHAK
A good quarter; short covering wins the day
As expected, SHAK 1Q23 performed well, exceeding expectations. Revenue increased by 25% to $253 million. Additionally, the $73,000 weekly average sales were up more than 7% YoY, and system sales increased 28% year over year to $395 million. The margin improvement was due to leverage from comps, particularly through our own channels, improving labor productivity, increasing off-premises profitability, and controlling the supply chain and other operating costs. Same Shack increased by 10.3%, and traffic was up by 4.8%. Restaurant margins were 18.3%, an increase of 310bps YoY. The company plans to open 40 new company-operated Shacks this year and has 25 Shacks under development. AWS increased to $77,000 in fiscal April; same Shack sales are up around 4%. Like companies, the macro hiring environment has started to get better. The company indicated they can still see in the market ongoing inflation, high construction costs, lengthy regulatory processes, and a lack of equipment availability continue to have an effect on openings lowering ROI. While inflation impacts costs, the biggest increase in cost is a result of increased construction drive-thrus, which are more expensive to construct than traditional units. The company guiding to a 10% reduction in drive-thru costs in 2023. That said, sustained inflation and the macroeconomic environment both pose risks.
JOLTS
Compared to other parts of retail where employment is a concern, restaurant jobs are holding up.
