For QSR operators, we are hitting the peak season for average unit volumes, making it a very difficult time to see sales trends slow. The nimble operators need to be quick to react to weakening sales trends by cutting labor costs or margins will suffer. When sales drop off suddenly, it gives operators less time to adjust their business models, thereby putting margins at risk.
We have seen an unprecedented decline in June same-store sales for nearly every restaurant operator. This can best be seen in the steep decline in McDonald’s sales trends. In May, MCD reported a 2.8% same-store sales number and it quickly fell off to 1.8% in June, and the company is likely to report 2% in July.
CKR also saw a slowdown in sales in June. The company reported same-store sales growth of -7.1% and -6.1% at Carl’s Jr. for the four week periods ending June 15 and July 13, respectively.
JACK is another concept that is seeing weakness. As of May 14, when the company reported fiscal 2Q09, management was pretty bullish about sales trends. Yesterday, we learned that the company experienced a significant deterioration in sales beginning in mid June, with June coming in down about 4.4%. Sales have recovered slightly in July to down around 3%.
JACK’s CEO Linda Lang offered the following explanation of why sales slowed so dramatically:
“We saw positive mix on our product promotions, so we really contribute the sales weakness to -- we initially thought it was potentially all of the discounting that was done at the causal dining and bar and grill concepts. However, as we now hear from those concepts that they experienced weakness as well, my theory is that -- and this is just theory, because I am not an economist -- is that we typically see a nice lift in the summer as kids are off of school, as college kids come home and get part-time sales jobs. And we just did not see that typical seasonal lift and I don’t think most of the competitors saw the lift that we would see in June.
If you look at unemployment rates among teenagers, very high at about 24% so they are just not getting those summer jobs and don’t have the discretionary income or spending that they would typically have.”