Both companies’ earnings benefited from cost cutting and commodity deflation.
Both companies are more cautious regarding top line expectations for the balance of the year, given current economic conditions, the increasingly competitive environment, as well as recent sales trends.
Reduced capital spending is helping to reduce debt and increase cash on the balance sheet
COMMENTS ON TEXAS - Although the Texas economy has held up better than most of the country for some time, TAST said it is seeing some softening and mounting consumer pressures. Recent unemployment reports indicated that conditions have worsened, and although the June unemployment rate at 7.5% is below the national average, Texas lost the most jobs, second only to California in June.
THE $1 MENU - In response to a question about whether advertising supporting the $1 Whopper Junior has begun to at least shift the trajectory of sales in July, or will the upcoming coupon help, management stated, “Yes, the Whopper Junior advertising is maybe two weeks old, so -- the early returns for the last couple of weeks, the sales have continued to struggle.” The dollar menu is no longer a unique message to consumers.
CURRENT SALES TRENDS - MAY/JUNE/JULY BKC comps were down 5%+. The Breakfast day part is getting hurt the most. Thank you MCD.
SALES TRENDS SLOWED DURING THE QUARTER - For the quarter, the entire sales decrease was driven by lower traffic, as average check was flat. By month, comparable restaurant sales were down 3.2% in April, down 3.7% in May and 4.4% in June. In addition, as reported in the company’s press release, comparable restaurant sales for the first four weeks of the third quarter were down 5.5% to 6%.
NEGATIVE FORWARD-LOOKING INDICATOR - Average unit volume decreased 5.1% for the quarter, compared to the same-store sales decrease of 3.7%.
RETURN TO GROWTH – In the short run, there is no change to current development plans. But, the company will accelerate to faster growth when it sees lower development costs and a better economic climate.
COMMENTS ON TEXAS – “We saw things in Texas specifically get a little bit softer during the June period, but then come back. Historically, Texas has been -- or recently, Texas has been a pretty strong state for us, as well as you mentioned for others, I believe. We did see things get a little bit softer in the latter part of the quarter in Texas.”
This could be a potential negative for EAT in the upcoming quarter.