IDEA HUNT & Changes to the Position Monitor
A Deep Dive into Key Players in the Fast Food Sector
On today's call, we'll be discussing insights on several major fast-food chains: MCD (McDonald's), WEN (Wendy's), QSR (Restaurant Brands International), YUM (Yum! Brands), and JACK (Jack in the Box). Notably, we've recently shifted our stance on McDonald's. Having previously endorsed it as a long-term investment, we've transitioned to a 'SHORT' bias. Our presentation will delve into the reasons behind this decision, shedding light on the challenges both McDonald's and the broader industry might encounter as we approach the 3Q23 earnings season.
Changes to the restaurant MACRO environment. Initially, I was skeptical about the buzz surrounding GLP-1 drugs, wondering if it was another fleeting trend. However, the increasing concerns voiced by our clients have made me reconsider.
The pressing question now is: Will GLP-1 drugs revolutionize the healthcare industry? Obtaining a prescription for a GLP-1 drug was straightforward, and I managed to source it from a compounding pharmacy for just $200/month, a mere fraction of its typical cost. Recent data has further piqued interest in this drug class. A survey released yesterday, conducted jointly by Accolade, a healthcare program provider and research firm Savanta, revealed some intriguing insights. After polling 502 U.S. employers, the findings indicated that the percentage of employers considering covering obesity medications, including Novo Nordisk's GLP-1 drug Wegovy, might jump to 43% in 2024, up from the current 25%. Accolade's Associate Chief Medical Officer James Wantuck recommends a physician-led strategy for companies intending to provide coverage. This method would ensure that GLP-1 medications are prescribed judiciously and incorporated into a holistic health management plan.
Furthermore, sales of Novo Nordisk's drugs, Wegovy and Ozempic (both with the active ingredient semaglutide), have surged. Notably, Ozempic is gaining traction for "off-label" weight loss uses. Similarly, prescriptions for Eli Lilly's Mounjaro, another GLP-1 diabetes medication expected to gain U.S. approval for weight loss this year, are on the rise.
Changes to the names we will talk about today:
- Restaurant Brands (QSR) - Downgrading To A Long Bias
- Yum! Brands (YUM) - Downgrading To A Long Bias
- Wendys (WEN) - Adding As A Best Idea Short
- McDonald's (MCD) - Adding As A Short Bias
EVENT DETAILS:
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Domino's Pizza 3Q23 Mixed Financial Highlights (DPZ)
- Earnings Per Share: The Q3 GAAP EPS stands at $4.18, surpassing expectations by $0.89 on several one-time items.
- Revenue: The company reported a revenue of $1 billion, marking a 6.5% decrease year-over-year and falling short by $50 million.
- U.S. Store Performance: There was a slight decline in U.S. same-store sales by 0.6%. The franchise SSS missed an international beat.
- International Store Performance: International same-store sales witnessed a growth of 3.3% after adjusting for foreign currency effects.
- Global Store Count: Globally, there was a net decrease of 8 stores. However, excluding the impact of the Russian market closure, there was a net growth of 135 stores.
- Global Retail Sales Growth: After adjusting for foreign currency effects, the growth rate stood at 4.9%. This rate further increases to 5.1% when excluding the effects of the Russian market closure.
- Outlook for 2023: Based on the performance across the first three fiscal quarters of 2023 and the company's projections for the rest of the year, The expected global net store growth for 2023 is anticipated to be at or slightly below the lower end of its 5% to 7% forecast for the next two to three years. After adjusting for foreign currency effects, the global retail sales growth is projected to be slightly below the midpoint of its 4% to 8% two to three-year outlook.
More after the call
