DASH Trimming The Sails
Watch what I do, not what I say
SUMMARY
Even though metrics for the restaurant industry and app usage were slowing down, the DASH US business saw a huge rise in sequential quarterly orders, paired with a drop in expenses. This led to an increase in profitability metrics, though the goal of GAAP profitability is still hard to reach. The sequential quarterly net revenue went up by a small amount, 1%. However, the significant decrease in adjusted G&A, which was down 19% year-over-year, led to a substantial rise in contribution profit margins. Conversely, the international division encountered a pronounced deceleration both sequentially and on an annual basis.
Curbing expenditures in advertising, marketing, and research and development could be a harbinger of future trends. Such fiscal prudence often reflects a strategic shift, potentially signaling a company's transition towards efficiency optimization, preparation for less favorable economic conditions, and shareholders telling them they need to be profitable. However, it's crucial to consider the broader context, as these reductions could also be part of a recalibration towards more targeted or innovative spending approaches in its current business lines.
DASH reported a GAAP EPS of -0.77, which missed expectations by 0.36. Revenue for the quarter was 2.2 billion, representing a 27.% increase year-over-year (Y/Y), and exceeded expectations by 110 million. QoQ net revenues grew 1% QoQ vs. 5% in 2Q23 and 12% in 1Q23. Total orders for the quarter grew by 23.7% (2.1% QoQ) compared to the same period last year, reaching 543 million. Marketplace Gross Order Value (GOV) also saw a 23.8% (1.7% QoQ) year-over-year increase, amounting to 16.8 billion. Notable was that the average order value (AOV) was 30.85, slightly below the StreetAccount expectation of 30.94. Marketplace gross order value (GOV) amounted to 16.75 billion, surpassing the FactSet forecast of 16.12 billion and marking a 23.8% increase year-over-year.
The company's international operations slowed materially QoQ at -11.5%. YoY Wolt orders were +12% vs. 30% last quarter. On the call, DoorDash said it sees further potential for expansion in its international markets.
The net revenue margin was 12.9%, just below the FactSet prediction of 13.0%. Adjusted gross margin came in at 48.7%, which was better than the FactSet consensus of 48.3%. Contribution profit was reported at 640 million, significantly higher than the FactSet estimate of 601.9 million. The contribution margin was 3.8%, slightly above the StreetAccount forecast of 3.7%. The adjusted EBITDA margin was an impressive 16.1%, well above the FactSet expectation of 12.2%.
DoorDash has experienced acceleration in its U.S. business, citing enhancements in product offerings and service quality. Despite the challenges posed by the broader economic environment, the company has sustained its growth trajectory, thanks in part to the dynamic nature of its product improvements, yet the world around it is slowing.
In the grocery sector, Door Dash’s Gross Order Value (GOV) has doubled compared to the previous year. This significant growth in the grocery business is attributed to the efficient use of its existing network of consumers and delivery personnel (dashers), which has also led to notable improvements in unit economics. Looking ahead to 2024, DoorDash plans to invest in enhancing its current business while also exploring new opportunities to address customer needs. Recent updates to the DoorDash app have resulted in increased cross-shopping behavior among consumers, who are now engaging with a wider variety of categories available on the platform.
Expenses slowed significantly YoY and QoQ. G&A in dollar terms declined 41 million for the first time as a public company; R&D growth significantly increased to 3.3% YoY from 23% last quarter; sales and marketing slowed to 7% YoY.
Restaurant have been CAKE, DIN (SHORT) and RRGB (SHORT)
The CAKE CEO needs to go!
The Cheesecake Factory (CAKE) reported its third-quarter earnings with some misses compared to FactSet expectations: Earnings Per Share (EPS), excluding certain items, was 0.39, which fell short of the FactSet consensus of 0.43. Revenue for the quarter was also below the consensus estimate. Comparable sales (comps) increased by 2.4%, which was below the FactSet expectation of a 3.6% increase. Breaking it down by brand: The Cheesecake Factory's comps were also up 2.4%, missing the FactSet forecast of 3.6%. North Italy performed better, with an 8% increase in comps, surpassing the FactSet prediction of 7.4%. Restaurant margin missed expectations by 90 basis points (bps), and adjusted operating margin was 60 bps below expectations. The cost of sales was 10 bps higher than anticipated.
DIN HAS NO STRATEGY, which is a positive for Chili’s
From the start, DIN CEO wants you to believe a bunch of BS: Guest Behavior and Consumer Mindset Observations: Guests are becoming more selective with discretionary spending, favoring full-service dining experiences over quick service. Competition now includes home-cooked meals, not just from other restaurants. Dine's strengths align with consumer preferences for quality dining experiences.
This is as good as it gets for Applebee’s: Implemented promotional tactics like All-You-Can-Eat Wings, driving incremental sales and attracting new guests. technological advancements in the website and app, and guest experience feedback programs. Menu testing and new beverage concepts for 2024 The leadership team strengthened with new hires focusing on culinary innovation and development.
RRGB: Another Restaurant Disaster
Red Robin Gourmet Burgers released its third-quarter earnings report with the following key figures, compared to FactSet estimates: Earnings Per Share (EPS) was reported at a loss of 0.79, which is slightly better than the FactSet consensus estimate of a loss of 0.85. Revenue for the quarter came in at 277.6 million, surpassing the FactSet estimate of 275.7 million. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was 6.8 million, slightly below the FactSet consensus of 7.5 million. Comparable sales (comps) decreased by (3.4%), which is a bit worse than the FactSet consensus of a (3%) decline.
For the full fiscal year ending in December 2023, Red Robin provided the following guidance: The company reaffirmed its revenue guidance, expecting at least 1.3 billion, which aligns with the FactSet consensus of 1.30 billion. Adjusted EBITDA is now forecast to be between 72.5 million and 77.5 million, narrowing down from the previous range of 72.5 million to 82.5 million. This updated guidance is slightly below the FactSet consensus of 74.7 million. Red Robin also reaffirmed its CPS growth guidance of +1.0% to +3.0%, which is in line with FactSet's consensus of 1.8% growth.
Old Soul, New Stride: Timeless Business Wisdom for the Modern Marketplace
Best Idea LONG
EAT's strategic focus on improving guest experiences, operational efficiency, and targeted marketing efforts are yielding tangible results, positioning Brinker International for sustained growth despite potential economic headwinds.
Brinker International, the parent company of Chili's and Maggiano's, reported a solid start to their fiscal year, showcasing a 6% comparable sales (comp sales) growth and marking Chili's fourth consecutive quarter of outperforming the casual dining industry. The company attributed this success to their focus on enhancing guest and team member experiences and launching profitable traffic-driving initiatives. Despite discontinuing Maggiano's Italian Classics virtual brand and cycling through discounts on another virtual brand, It's Just Wings, the company narrowed its traffic gap versus the industry. Investments in guest experience and marketing are yielding positive results, with share of wallet gains across all day parts and income groups, especially among higher-income households.
Key indicators supporting this positive perspective include:
- Sustained comp sales growth and outperformance in the casual dining industry.
- Effective marketing strategies and advertising campaigns driving sales and traffic.
- Successful menu innovations lead to increased sales and improved margins.
- Operational simplifications resulting in reduced manager and hourly turnover rates.
- Positive financial outlook with increased full-year EPS guidance and a targeted reduction in leverage ratio.
- The company shifted its advertising focus from Chicken Crispers to a 10.99 burger promotion due to softness in the industry, which resulted in a significant increase in advertising response.
- GALE has been hired to provide digital marketing support. Substantial changes that directly affect customers are expected by the third quarter of 2024, following the development of the necessary infrastructure.
- There has been a 44% improvement in hourly turnover, but it still lags behind the industry average. The company is concentrating on refining its labor model and simplifying jobs to further reduce turnover.
- A strategic de-emphasis of virtual brands has led to a 4% decline in traffic; however, this impact is anticipated to diminish in the second half of the year.
- A favorable pricing strategy and product mix have helped counterbalance investments made into the hourly labor model, resulting in favorable year-over-year labor costs.
- The company has managed to maintain a stable off-premise business, with Chili's at 28% and Maggiano's at 25%.
- Innovation within the Core 4 menu items is seen as a crucial factor for future improvements in product mix, with fajitas identified as the next significant opportunity area.
THe NEW Breed Of restaurants (WING and FWRG)
WING SUMMARY
The company's Q3 performance, characterized by earnings that exceeded expectations and robust system-wide domestic comparable growth, signals a bullish outlook. The significant beat in both EPS and revenue, coupled with a substantial outperformance in domestic comps, underscores strong operational execution. The upward revision of the domestic comp growth forecast for 2023 further reinforces confidence in the company's growth trajectory. Maintaining the outlook for global expansion indicates a steady pace of growth and market penetration. Overall, the company's robust Q3 performance and optimistic projections for 2023 suggest a positive and bullish stance.
Covering the SHORT
Earnings Summary
- Earnings Per Share (EPS): reported Q3 EPS of 0.69 excluding items, surpassing the FactSet consensus of 0.52.
- Revenue: Achieved revenue above consensus expectations.
- System-Wide Domestic Comps: Recorded a robust +15.3% growth, outperforming the FactSet expectation of +7.6%.
- Company-Owned Comps: Posted a +6.0% increase, exceeding the FactSet projection of +4.3%.
- Restaurant Margin: Surpassed expectations by +80 basis points (bps).
Outlook and Projections
- Domestic Comp Growth: Raised the 2023 domestic comparable growth forecast to approximately 16%, up from the previous guidance of +10–12%.
- Global Expansion: Reiterated the 2023 outlook for 240–250 global net new units.
FWRG Missing a few pieces
First Watch Restaurant (FWRG): Q3 GAAP EPS of 0.09 beats by 0.04. Revenue of 219.2M (+17.3% Y/Y) beats by 2.6M.
The overall tone and data from the earnings call suggest a bullish outlook for First Watch. The company's consistent top-line growth, strategic expansion, and strong unit economics indicate a robust business model. The management's confidence, despite macroeconomic concerns, and the focus on culture and customer experience further reinforce the positive outlook. However, it's important to monitor the softness in the off-premise channel and the broader consumer behavior trends that could impact future performance.
- The industry is currently facing some challenges, including a decrease in customer traffic, especially during non-peak hours. Despite this, the company's menu pricing strategy is focused on offsetting inflation while maintaining a long-term goal of encouraging more frequent customer visits.
- The company has narrowed its same-store sales growth forecast to between 7% and 8%, acknowledging that the pressure on transactions is likely to persist into the fourth quarter.
- There has been an adjustment in financial guidance, with an increase in revenue and new store opening projections. However, capital expenditure (CapEx) expectations have been reduced due to delays in development projects.
- As for commodities, there is no specific outlook for 2024 at this time, but avocados are noted as a significant variable affecting the market basket.
- The performance of new units from the class of 2023 is meeting expectations, with the average development cost being around 1.5 million before accounting for tenant improvements.
- The rollout of the Kitchen Display System (KDS) has led to faster service during busy hours and has allowed for a wider range of hiring options by reducing the time needed for training.
- Lastly, labor turnover has been on the decline throughout the year. Staffing levels have stabilized, and the average number of managers per restaurant has increased from 2.8 to 3.1.
Financial Highlights
- Revenues: 219.2 million, up 17.3% year-over-year.
- Same-Restaurant Sales: Increased by 4.8%, with positive dining room traffic. with a 1.9% decline in traffic. Growing traffic in the dining room shows that people want more meaningful experiences, as shift events that happen off-site continue to slow down overall traffic growth.
- New Openings: 13 new system-wide restaurants, reaching a total of 505.
- Industry Performance: Outperformed the industry by nearly 400 basis points.
- Traffic Share: Gained several hundred basis points against the full-service segment.
- Average Per Person Spend: 16.35, maintaining affordability.
Margin Trends and Performance
- Food and Beverage Inflation: Easing inflation has positively impacted the bottom line. Food and beverage costs decreased to 22.6% of sales, benefiting from lower pork and avocado costs.
- Labor Expenses: Increased to 33.9% of sales, attributed to an increase in the number of managers per restaurant.
- Operational Efficiency: Effective four-wall management by operators has contributed to growth, with an RLM profit of 40.4 million and a margin of 18.7%, an improvement from the previous year.
- General and Administrative Expenses: 25.2 million, primarily due to higher compensation expenses.
- Adjusted EBITDA: 21.6 million, with a margin of 9.9%, an improvement from the previous year.
Executive Statements and Emerging Themes
- Consumer Behavior: There's a shift post-pandemic, with a flight to quality observed.
- Operational Focus: Emphasis on culinary-forward food, highly trained teams, and a warm atmosphere. Employee and customer satisfaction scores indicate a strong position for future performance.
- Culture and Expansion: Recognition as a most loved workplace and aggressive expansion plans
- Franchise Strategy: Acquisition of franchise-owned restaurants to bolster growth.
Updated Full-Year Outlook
- Same-Restaurant Sales Growth: Increased expectations to a range of 7% to 8%. Traffic is expected to be generally flat.
- New Openings: 37 to 39 company-owned and 13 to 14 franchise-owned restaurants.
- Revenue Growth: Now expected in the range of 20% to 21%.
- Commodity Deflation: Expected to be negative 1% to flat.
- Labor Cost Inflation: Hourly labor cost inflation is expected to remain in the range of 9% to 11%.
- Adjusted EBITDA Guidance: Increased to a range of 91 million to 92 million.
- Tax Rate: Expected in the range of 26% to 28%.
- Capital Expenditures: Adjusted to 85 million to 90 million.
CHEF
The company reported a non-GAAP EPS of 0.33, which fell short of expectations by 0.02. Revenue for the quarter was 881.8 million, marking a significant year-over-year increase of 33.2%. This figure exceeded expectations by 45.61 million.
CHEF is adjusting its strategies to navigate weaker months and leveraging favorable product mixes and insurance renewals to maintain EBITDA guidance. The shift in capital allocation towards buybacks and modest leverage indicates financial prudence and shareholder value focus. The disinflationary trend aligns with expectations, providing a stable backdrop for growth. The company's growth is expected to come from both existing business expansion and acquisitions, with a successful integration of recent acquisitions supporting this trajectory. The lack of significant consumer trading suggests resilience in the company's market segment. The focus on organic growth, with a selective approach to M&A, indicates a strategic and disciplined growth plan. Overall, the company's adaptive strategies and focus on organic expansion suggest a cautiously optimistic stance amidst a challenging economic environment.
- EBITDA Guidance: A favorable product mix and insurance renewals offset weaker performance in July and August, which led to the change in EBITDA guidance.
- Capital Allocation: There's a shift in capital allocation strategy, allowing for stock buybacks, maintaining modest leverage targets, and considering potential convertible options.
- Inflation Trends: Inflation trends are in line with expectations, with disinflation observed throughout the year. The aggregate inflation has been disinflationary.
- Growth Expectations: Growth is anticipated from both expanding penetration of existing businesses and adding new business lines.
- Acquisition Integration: The integration of recent acquisitions, such as Greenleaf and Hardies, is progressing as planned. Chef's own cash flow is funding its expansion into the Middle East.
- Consumer Behavior: There is no significant evidence of consumers trading down in response to the current economic backdrop.
- Growth Strategy: The new growth plan emphasizes organic growth rather than mergers and acquisitions unless a transformative deal presents itself.
YUM SUMMARY
The company's sustained double-digit system sales growth and proactive strategies to navigate market pressures indicate a bullish outlook. The significant projected growth in digital sales, driven by a solid technology strategy, and the shared investment model with franchisees demonstrate a strong foundation for continued success. Taco Bell's focus on key growth drivers, such as the loyalty program and meal-specific strategies, along with the anticipated impact of the new Cantina menu, further reinforces this positive outlook. Although the NLRB ruling presents a challenge, the company's confidence in navigating these regulatory changes suggests resilience and adaptability. Overall, the company's strategic initiatives and robust franchising model underscore a positive trajectory amidst a challenging global consumer environment.
Summary of Key Points
- System Sales Growth: The company has recorded its fifth consecutive quarter of double-digit system sales growth, despite global consumer pressures.
- Q4 Momentum: Strategies are in place to continue the momentum from 3Q23 into 4Q23, navigating consumer pressures effectively.
- Digital Sales: Digital sales are projected to hit close to 30 billion this year, propelled by the technology strategy initiated in 2019.
- Franchisee Technology Investment: Franchisees are sharing in technology investments through fees, mitigating the impact of these investments on their profit and loss statements.
- Taco Bell's Growth Drivers: The loyalty program and a focus on lunch and breakfast are significant growth drivers. Data insights are being leveraged for future strategies.
- Cantina Menu Impact: The upcoming Cantina menu at Taco Bell is anticipated to significantly influence 2024 results, reflecting an evolution in consumer tastes.
- NLRB Ruling: The recent joint employer ruling by the NLRB will have an impact, but the company is confident in its ability to navigate this long-term The franchising model remains robust despite potential regulatory changes.