The NPD Group's data points to a sequential decline in 1Q08 in the percent of visits on deal within the casual dining group. Looking at recent casual dining trends through 1Q08, this decline in discounting typically bodes well for company EBIT margins. In 1Q08, an average 18.3% of visits were on deal, which despite the sequential decline from 4Q07 still represents an 80 bp year-over-year increase over 1Q07. April, however, posted both a year-over-year and sequential decline with the percent of visits on deal falling to 16.9% (down 60 bps and 20 bps, respectively).
Casual dining margins will continue to feel the pain of rising commodity costs and a weakened top-line, but driving transaction growth at the cost of margins is not sustainable. CAKE's CFO Michael Dixon recently highlighted this very point, saying We believe these types of promotions can have some short-term sale benefits, but usually at the expense of margins. More importantly, they can potentially have a long-term negative impact on a brand.
Casual dining margins will continue to feel the pain of rising commodity costs and a weakened top-line, but driving transaction growth at the cost of margins is not sustainable. CAKE's CFO Michael Dixon recently highlighted this very point, saying We believe these types of promotions can have some short-term sale benefits, but usually at the expense of margins. More importantly, they can potentially have a long-term negative impact on a brand.
