EAT BETTER, but self-inflicted wounds continue
EAT 1Q24 Non-GAAP EPS of 0.28 beats by 0.23 and Revenue of 1.01B (+5.7% Y/Y) in-line. The EPS beat with FY Guidance (Jun 2024) of EPS 3.35-3.65 vs the previous 3.15 - 3.55. Is the company being conservative? What is the nature of the EPS beat?
Brinker International's Q1 earnings report showed several key operating metrics that aligned with or exceeded expectations: Same-store sales across the company-owned locations increased by 5.8%, matching the FactSet (FS) estimate of 5.8%. Chili's reported a 6.1% rise in same-store sales, slightly above the FS forecast of 5.9%. Maggiano's experienced a 2.6% increase, below the FS expectation of 4.1%. Franchise same-store sales grew by 4.0%, with domestic franchises seeing a 5.0% increase and international franchises a 3.4% increase. Total Chili's Domestic same-store sales increased by 6.0%, and the total system saw a 5.5% rise.
Other Operating metrics: The company's revenue was 1.00 billion, slightly above the FS estimate of 998.2 million. Franchise revenue was 10.5 million, surpassing the FS prediction of 10.0 million. Cost of sales stood at 25.8%, which was better than the StreetAccount expectation of 26.7% and the previous year's figure of 30.6%. Restaurant margin was reported at 10.4%, exceeding the FS forecast of 9.3% and the previous year's 6%. Operating margin was 2.4%, which was higher than the FS estimate of 1.8% and a significant improvement from the previous year's (2.1%).
DINE, MISS, and zero visibility on anything
Applebee's reported a 2.4% decline in same-store sales, worse than the FactSet prediction of a 1.8% decline. IHOP's same-store sales matched the FactSet forecast, reporting a 2.0% increase.
Other Operating metrics: Total franchise revenue was 172.5 million, slightly below the FS estimate of 173.4 million. Rental revenue was 29.1 million, marginally lower than the FS forecast of 29.5 million. Financing revenue was 0.6 million, just under the FS prediction of 0.7 million. Gross margin stood at 48.0%, surpassing the FS expectation of 47.1%. Breaking down the gross margin: The total franchise gross margin was 51.8%, below the StreetAccount forecast of 53.0%. Rental gross margin was 25.4%, in line with the SA prediction. General and Administrative (G&A) expenses as a percentage of revenue were 24.0%, better than the SA forecast of 25.0%. Operating margin was reported at 24.0%, exceeding the FS estimate of 22.0%.
YUM
The company posted a Non-GAAP Earnings Per Share (EPS) of 1.44 vs. $ 1.27. Overall, it was a strong quarter with better than expectations from TB and KFC, while Pizza Hut turned disappointing.
Worldwide system sales saw a 10% increase, excluding the impact of foreign currency translation. Breaking it down by brand, KFC sales grew by 12%, Taco Bell by 11%, and Pizza Hut by 4%. Due to the opening of 1,130 new units during the quarter, the total number of restaurants increased by 6%, setting a new record for 3Q23. Digital sales reached a new high, surpassing 7 billion, and digital transactions accounted for over 45% of the total sales mix. GAAP OP profit grew by 12%, and core operating profit, which excludes certain items, increased by 16%. The company noted that foreign currency translation had a negative impact of 5 million on divisional operating profit.
Comparable Sales: Overall comps increased by 6%, surpassing the FactSet prediction of 4.6%; KFC's comps were up 6%, beating the FS forecast of 5.6%. Pizza Hut saw a 1% rise in comps, falling short of the FS expectation of 1.7%; Taco Bell outperformed with an 8% increase in comps, higher than the FS prediction of 6.3%.
Revenue: Company revenue was 510 million, slightly below the FS estimate of 516.9 million; Franchise revenue was 796 million, not meeting the FS forecast of 825.2 million.
Restaurant Margin: Overall restaurant margin matched the FS forecast at 17.3%; KFC's margin was 14.3%, showing improvement from the previous year; Pizza Hut's margin was negative at (9.0%), indicating a decline from the previous year; Taco Bell's margin was substantial at 23.8%, also showing an improvement from the previous year.
Operating Margin: Overall operating margin was 35.9%, exceeding the FS estimate of 33.2%; KFC's operating margin was 49.2%, a significant increase from the previous year's 43.4%; Pizza Hut's operating margin was 40.3%, slightly better than the previous year's 39%; Taco Bell's operating margin was 36.0%, marginally better than the previous year's 35.9%.
SHAK Earnings Outlook:
Without significant operational changes or more pricing in the coming quarters, this is the last quarter for easy comparisons. As we head into 2024, we'd expect to see what impact the activist is having on the company.
3Q23 Key Financial Highlights:
- Comparable Sales (Comps): A growth of 4.0%, which aligns with the previously provided guidance of low-single-digit to mid-single-digit percentages. The company reported same-store sales of 6.3% in 3Q22 and 3% in 2Q23.
- Revenue: The revenue for the quarter stands at 275.8 million, up 21% and fitting within the projected guidance of 273.5 million to 278.0 million.
- Shack Sales: A commendable 265.4 million vs. 220, up 20%, and licensing revenues of 10.7 million.
- Solid Margin Performance: These costs accounted for 29.4%, down 150bps YoY; 28.6% down 80bps YoY and Restaurant Margin of 20.0%, up 370bps YoY
- Adjusted EBITDA: A total of 32.4 million, up from 17.3%, with an Adjusted EBITDA Margin of 11.7% and Operating Margin of 1.2%.
- Earnings Per Share (EPS): 0.09.
Forecast for the Full Year (Ending December 2023):
- Revenue: The expected revenue range is between 1.07 billion to 1.08 billion.
- EBITDA: Projected to be between 120.0 million to 130.0 million.
- EBITDA Margin: Estimated to be in the range of 11.2% to 12.0%.
SYY Key Operating Metrics Breakdown:
SYY 1Q24 non-GAAP EPS of 1.07 beats by 0.03; Revenue of 19.6B (+2.5% Y/Y) misses by 110M, and Adjusted EBITDA increased 11.7% to 1.0 billion. The total US case volume saw a growth of 1.6%. On the other hand, the local case volume experienced a slight decrease of 0.1%. For the upcoming FY24, Sysco's EPS guidance aligns with market consensus. Additionally, they are optimistic about their FY24 revenue, expecting it to surpass market expectations.
Revenue Overview: US Foodservice Operations revenue is 13.72 billion, slightly increasing from last year's 13.60 billion. International Foodservice Operations revenue was 3.68 billion, up from 3.28 billion a year ago. SYGMA revenue is slightly down at 1.91 billion compared to 1.93 billion from the previous year. Other: This category remains reasonably stable with a revenue of 307.4 million, just a tad higher than the 307.2 million from last year. US Foodservice Case Volume: Local: A slight decrease of 0.1%; an overall increase of 1.6%. US Broadline Product Cost Inflation of 1.7%. Gross Margin: The gross margin is at 18.6%, slightly better than the FactSet prediction of 18.4%, and Adjusted Operating Margin stood at 4.4%, again surpassing the FactSet estimate of 4.3%.
Financial Performance:
- Slowing financial performance in 1Q24, with sales growth of 2.6% driven by positive case volume growth and effective management of product cost deflation in the US.
- The company achieved double-digit growth in both adjusted operating income and adjusted EPS, with adjusted earnings per share of 1.07. Despite a slowing top-line macro and deflationary COGS pressure in the US, Sysco delivered robust bottom-line growth, indicating resilience and effective cost management.
- Financial targets for fiscal year 2024 were reiterated, with expectations of mid-single-digit net sales growth to approximately 80 million and adjusted EPS growth of 5% to 10% to 4.20 to 4.40.
- On the volatility in the restaurant industry and whether the recent uptick in October was specific to Sysco or the industry in general. The CEO expressed confidence in the long-term prospects of the industry and Sysco, reiterating guidance for fiscal year 2024. He noted that October started strong across all restaurant types and sectors, but it was too early to tell if this was a Sysco-specific or industry-wide trend.
Operational Highlights:
- Sysco experienced volume growth in its US foodservice segment, with Q1 total case volume growth of 1.6% and local case volume flat year-over-year. The company pointed out that it has grown its volume more than the market and has taken a share in both national and local segments. That said, the local side is slowing. Some success with national customers is due to improvements in service and technology integration, and they are taking several actions to improve local performance, including adding headcount to reduce territory sizes and enhance customer relationships. However, these benefits will be more pronounced in 2025 as it takes time for new hires to get trained and integrated.
- The company's national sales team performed exceptionally well, securing significant new business in various sectors. Sysco is actively hiring more sales resources to optimize territory sizes and enhance sales consultant effectiveness, expecting most of the positive impact from this action in fiscal year 2025. The goal is to reduce territory sizes to appropriate levels, which will take time as new hires are trained and integrated. It also discusses supply chain productivity, noting improvements in gross profit dollars and expenses, and highlights their focus on key operational metrics.
- The company also focuses on improving visit frequency and quality through robust CRM tracking and coaching.
Strategic Initiatives:
- Sysco is implementing a global operating model to accelerate progress internationally, expecting to adopt best practices and leverage new tools across its global footprint.
- The company announced the planned acquisition of Edward, Don, and Company, a leading distributor of Foodservice equipment and supplies, which aligns with Sysco's Recipe for Growth strategy.
- Sysco invests in new fulfillment centers to increase capacity and support growth in high-growth geographies.
Market and Competitive Landscape:
- Sysco holds a strong position as the market leader in the restaurant industry, with diversity across geographies and a broad customer mix.
- The company is hedged against deflation in the US with favorable international inflation rates and is positioned to win market share in a growing, highly fragmented industry.
