Red Flags Everywhere
In all my years coving the restaurant industry I have never listened to a conference call and the management team did not mention "same-store sales" in the prepared remarks.
- BROS 1Q23 Non-GAAP EPS of $0.00 beats by $0.01; Revenue of $197.3M (+29.6% Y/Y) misses by $11.66M;
- System same shop sales declined 2.0%; Same shop sales (2.0%) vs FactSet +0.7%; Company-operated shops (3.5%) vs FS 0.0%
Red Flags:
- Management Not ready for prime time - Did not mention SSS in prepared remarks
- Traffic problems 1Q23 8% pricing implies 11% decline in traffic; implied the concept tied to the low end consumer
- Labor Costs - declined 400bps on soft comps last two quarters. How is that possible and likely going to lead to other performance issues like store productivity!
- Declining Co-Op store productivity sales per operating week down 7% YoY
- Liquidity concern - The company ended 1Q23 with $235.9 million of net debt, an increase of $45.2 million from 4Q22. They have $247 million of undrawn liquidity or 5 quarters before the need to find new capital.
- Severe Discounting March discounting helped drive traffic at the end of the month; April momentum but now slowing again
- Guidance looks suspect - reaffirms FY 2023 revenue guidance of $950M to $1B. The consensus estimate is $986.39M.
WEN is Underperforming
According to Wendy's, the company's marketing initiatives and more digital purchases helped its U.S. same-store sales increase 7.4% on Wednesday. However, consumer counts in the US kept declining because the 7.4% increase in SSS was solely the result of higher prices and easy comparisons. Pricing is great for margins. Company-owned margins reached 14.7% of sales, up 270bps YoY. On a two years basis Wendy's is underperforming both Burger King and McDonald's. However, consumer counts in the US kept declining. The company's 7.4% increase in domestic same-store sales was solely the result of higher prices and simpler year-over-year comparisons. On a two-year stacking basis, same-store sales climbed by 8.3%. On a two-year basis, Burger King's same-store sales jumped 8.2% while McDonald's rose 16.1%.
BYND Earnings
No change in our view that this company will struggle to survive!
The consensus EPS Estimate is -$1.02 (+35.4% Y/Y) from the -$1.58 last year. The consensus Revenue Estimate is $91.72M (-16.2% Y/Y). After reporting "better than expected" 4Q22 results, CEO Ethan Brown acknowledged the company's solid progress in the transition to a sustainable growth model which emphasized the achievement of cash flow positive operations within the second half of 2023. I wonder if the sold progress includes reducing inventory by selling product for $1.25 at Dollar Tree?
