The SG Setup
SG has rallied 73.6% over the past three months, and fundamentally not much has changed. Restaurant Industry sales are slowing, and SG's Revenue, EBITDA, and EPS estimates are all unchanged or lower. Management has been pushing the story that the chain will be fully automated in 5 years. This is likely not going to happen, but more importantly consumer are not looking for this.
The integration of technology in modern restaurant design is revolutionizing the way we dine out. Technology placed in the front-of-house, like affordable investments that facilitate the ordering behaviors of customers like interactive menus/digital signage, ordering kiosks (tabletop technology), contactless ordering and payment systems and the integration for the off-premises orders, have been examples where there is some success, but issues still persist. It's not uncommon for a confused customer at a kiosk to hold up the line during a lunch rush.
Can you imagine the complications that can present themselves as expensive high-capital investments required to fully automate a kitchen? Fully automated restaurants, such as Sweetgreen’s new test store, may prove successful, but the high capital investment required will keep this type of restaurant running is a niche part of the market. Are consumers asking for this change or is SG desperate to tell a story about the future of automation in the restaurant industry? According to Techonomic, most consumers are hesitant to visit a restaurant like this. So, if Sweetgreen’s investment pays off, their first-mover advantage will be huge for those consumers who are not hesitant to adopt this type of model which is a small segment of the population. For the rest of the industry, it will take a lot of capital investment, testing, learning and refinement to catch up with them. Our belief is that most restaurants will prefer the less capital-intensive hybrid approach, not just because it’s cheaper but also because it will be more aligned with their customers’ expectations.
PLAY Credit Agreement
Dave & Buster's Entertainment (PLAY) said on Wednesday that it had amended its credit agreement. The amended credit agreement includes an upsized term loan facility of $900 million and provides additional upsize proceeds. The amended credit agreement also reduces the interest rate margin applicable to term loans and revolving loans outstanding under the credit agreement by 1.25%.
